-----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, A1y7mxKd9W+Zz7G6AGk/Bx82LRWN982NB9egVe0ma5Ll05kFYY58+CzwLTbPjvVU KguEchjliLPvTpvUw+AT+A== 0000898080-00-000055.txt : 20000210 0000898080-00-000055.hdr.sgml : 20000210 ACCESSION NUMBER: 0000898080-00-000055 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: SEC FILE NUMBER: 070-09521 FILM NUMBER: 527870 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 U-1/A 1 FORM U-1 AMENDMENT As filed with the Securities and Exchange Commission on February 9, 2000 File No. 70-09521 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 SCANA Corporation 1426 Main Street Columbia, South Carolina 29201 (Name of company filing this statement and address of principal executive office) SCANA Corporation 1426 Main Street Columbia, South Carolina 29201 (Name of top registered holding company parent) Kevin B. Marsh H. Thomas Arthur SCANA Corporation 1426 Main Street Columbia, South Carolina 29201 Telephone: (803) 217-9000 Facsimile: (803) 217-9336 (Names and addresses of agents for service) The Commission is also requested to send copies of any communication in connection with this matter to: William S. Lamb Sheri E. Bloomberg LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 W. 55th Street New York, New York 10019 Telephone: (212) 424-8000 Facsimile: (212) 424-8500 TABLE OF CONTENTS Page Item 1. DESCRIPTION OF THE PROPOSED MERGER....................................1 A. Introduction......................................................1 1. General Request...............................................1 2. Overview of the Mergers.......................................2 B. Description of the Parties to the Mergers.........................4 1. SCANA.........................................................4 a. SCANA Public Utility Companies.............................5 i. SCE&G.................................................5 I. SCE&G's Electric Utility Operations..............6 II. SCE&G's Gas Utility Operations...................7 ii. GENCO................................................7 b. SCANA Non-Utilities........................................7 i. South Carolina Fuel Company, Inc.....................7 ii. South Carolina Pipeline Corporation..................8 iii. SCANA Energy Marketing, Inc..........................9 iv. SCANA Propane Gas, Inc...............................9 v. SCANA Propane Storage, Inc. .........................9 vi. SCANA Communications, Inc...........................10 vii. ServiceCare, Inc....................................10 viii. Primesouth, Inc.....................................10 ix. SCANA Resources, Inc................................11 x. Cogen South, LLC....................................11 xi. Palmetto Lime, LLC..................................12 xii. SCANA Development Corporation.......................12 xiii. SCANA Petroleum Resources, Inc......................12 2. PSNC.........................................................12 a. PSNC's Non-Utilities......................................14 i. PSNC Production Corporation.........................14 I. Sonat Public Service............................14 ii. Clean Energy Enterprises, Inc.......................15 iii. PSNC Cardinal Pipeline Company......................15 I. Cardinal Pipeline Company, LLC..................15 iv. PSNC Blue Ridge Corporation.........................16 I. Pine Needle.....................................16 C. Description Of The Mergers.......................................17 1. Background...................................................17 2. Merger Agreement.............................................20 3. Financing the Mergers........................................21 D. Management and Operations of SCANA and PSNC Following the Mergers..........................................................22 Item 2. Fees, Commissions and Expenses.......................................22 Item 3. Applicable Statutory Provisions......................................23 A. Legal Analysis...................................................23 1. Section 10(b)................................................25 a. Section 10(b)(1)..........................................25 i. Interlocking Relations..............................25 ii. Concentration of Control............................26 b. Section 10(b)(2)..........................................31 i. Fairness of Consideration...........................31 ii. Reasonableness of Fees..............................33 c. Section 10(b)(3)..........................................34 i. Capital Structure...................................34 ii. Protected Interests.................................37 2. Section 10(c)................................................40 a. Section 10(c)(1)..........................................40 i. Section 8 Analysis..................................40 ii. Section 11 Analysis - Integration...................41 I. Integrated Electric Utility System..............41 II. Integrated Gas Utility System...................42 iii. Section 11 Analysis - Retention of Gas Utility System..............................................47 iv. Section 11 Analysis - Retention of Non-Utility Businesses..........................................52 b. Section 10(c)(2)..........................................62 3. Section 10(f)................................................64 Item 4. Regulatory Approvals.................................................65 1. The NCUC.....................................................65 2. HSR..........................................................69 Item 5. Procedure............................................................69 Item 6. Exhibits and Financial Statements....................................70 A. Exhibits.........................................................70 B. Financial Statements.............................................73 Item 7. Information as to Environmental Effects..............................74 SCANA hereby amends and restates its Application-Declaration as follows: Item 1. DESCRIPTION OF THE PROPOSED MERGER A. Introduction This Application-Declaration seeks approvals relating to the proposed acquisition of Public Service Company of North Carolina, Incorporated, a North Carolina corporation ("PSNC"), by SCANA Corporation, a South Carolina corporation ("SCANA"), pursuant to which PSNC will become a wholly owned subsidiary company of SCANA. Following consummation of the proposed acquisition, SCANA will register with the Securities and Exchange Commission (the "SEC" or the "Commission") as a holding company under Section 5 of the Public Utility Holding Company Act of 1935 (the "Act"). SCANA is currently a holding company exempt from all provisions of the Act except Section 9(a)(2) and Section 10 under Section (3)(a)(1) pursuant to Rule 2 of the Act. SCANA has filed a separate Application-Declaration relating to certain financing activities and intrasystem services issues arising under the Act in connection with proposed acquisition (the "Financing Application-Declaration"). 1. General Request Pursuant to Sections 9(a)(2) and 10 of the Act, SCANA hereby requests authorization and approval of the Commission to acquire the issued and outstanding common stock of PSNC, and thereby acquire PSNC. SCANA also hereby requests that the Commission approve the retention by SCANA of the businesses, investments and non-utility activities of SCANA and PSNC. 2. Overview of the Mergers Pursuant to an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of February 16, 1999 and amended and restated as of May 10, 1999 by and among PSNC, SCANA, New Sub I, Inc., a South Carolina corporation and a wholly owned subsidiary company of SCANA ("New Sub I"), and New Sub II, Inc., a South Carolina corporation and a wholly owned subsidiary company of SCANA ("New Sub II"), New Sub I will be merged with and into SCANA with SCANA as the surviving corporation (the "First Merger"), and PSNC will be merged with and into New Sub II with New Sub II as the surviving corporation (the "Preferred Second Merger", and together with the First Merger, the "Mergers"). As a result of the Preferred Second Merger, PSNC, a public utility company for purposes of the Act, will become a wholly owned subsidiary company of SCANA. In the Preferred Second Merger, each share of PSNC common stock outstanding immediately prior to the effective time of the Preferred Second Merger will be converted into the right to elect either (i) $33.00 in cash or (ii) a number of shares of SCANA common stock equal to the PSNC exchange ratio. This election is subject to the limitation that no more than 50% of the aggregate consideration paid to all PSNC shareholders may be in cash. The PSNC exchange ratio will vary depending upon the average market price of SCANA common stock over a 20 trading-day period, but is subject to the limitation that PSNC shareholders who elect to receive SCANA common stock will receive no more than 1.45 and no less than 1.02 shares of SCANA common stock for each share of PSNC common stock. -2- In the First Merger, each share of SCANA common stock outstanding immediately prior to the effective time of the First Merger will be converted into the right to receive either (i) $30 in cash or (ii) one share of SCANA common stock, subject to the requirement that SCANA pay $700 million in cash in the aggregate as consideration in the Mergers. The First Merger will not involve the acquisition of any securities of a public utility company; therefore it does not require any approval from the Commission under the Act. As discussed in more detail in Item 1.C. below, the boards of directors and managements of SCANA and PSNC believe that the Mergers will help position their combined companies to become one of the premier distribution companies for energy and other services in the southeastern region by increasing financial flexibility and providing strategic growth opportunities that will benefit both companies and their shareholders, customers and employees in a manner that neither company could achieve on its own. The SCANA and PSNC boards of directors have approved the Merger Agreement and related transactions. In addition to the approvals by the SCANA and PSNC boards of directors, consummation of the First Merger requires approval by the holders of two-thirds of the shares of SCANA common stock and consummation of the Preferred Second Merger requires approval by holders of a majority of the shares of PSNC common stock. Also, the affirmative vote of a majority of the shares of SCANA common stock present and voting at a special meeting of SCANA shareholders is required to approve the issuance of SCANA common stock in connection with the Preferred Second Merger, provided that a majority of all outstanding shares of SCANA common stock is voted at the meeting. At duly called special meetings held on July 1, 1999, the -3- requisite approvals by SCANA shareholders for the First Merger and the issuance of SCANA common stock in connection with the Preferred Second Merger were obtained, and the requisite approval of PSNC shareholders for the Preferred Second Merger was obtained. In addition to said shareholder approvals, certain state regulatory approvals must be obtained from the North Carolina Utilities Commission (the "NCUC"). An order approving the Preferred Second Merger was obtained from the NCUC on December 7, 1999 and is attached hereto as Exhibit D-1.2. On the Federal regulatory level, the Preferred Second Merger must also receive clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), and such clearance was received on September 26, 1999 when the applicable waiting period under the HSR Act expired. In addition, the Federal Communications Commission (the "FCC") has approved the transfer of certain licenses held by PSNC on a temporary basis. B. Description of the Parties to the Mergers 1. SCANA SCANA was incorporated on October 10, 1984 and is a holding company within the meaning of the Act. SCANA common stock has no par value and is listed and traded on the New York Stock Exchange (the "NYSE") under the symbol "SCG". As of September 30, 1999, 103,572,623 shares of SCANA common stock were outstanding. As of and for the twelve months ended September 30, 1999, SCANA had total assets of $5.809 billion, net utility assets of $3.824 billion, total operating revenues of $1.616 billion, and net income of $159 million. SCANA neither owns nor operates any physical -4- properties. As of September 30, 1999, SCANA employed, in conjunction with its subsidiaries, a total of 4,890 full-time employees. SCANA has fourteen direct, wholly owned subsidiary companies which are engaged in functionally distinct operations as described below. It also has investments in four limited liability company joint ventures. SCANA holds all of the outstanding voting securities of two public utility companies within the meaning of the Act, South Carolina Electric & Gas Company ("SCE&G") and South Carolina Generating Company, Inc. ("GENCO"). a. SCANA Public Utility Companies i. SCE&G SCE&G is a regulated public utility company engaged in the generation, transmission, distribution and sale of electricity and in the purchase and sale of natural gas in South Carolina. SCE&G's electric service area extends into 24 counties covering more than 15,000 square miles of the central, southern and southwestern portions of South Carolina. SCE&G's service area for natural gas operations encompasses all or part of 31 of the 46 counties in South Carolina and covers more than 21,000 square miles. SCE&G's service area for electric and gas operations has a population of approximately 2.3 million people, and predominant industries in the areas served by SCE&G include: synthetic fibers; chemicals; fiberglass; paper and wood; metal fabrication; stone, clay and sand mining and processing; and textiles. In addition to its electric and gas utility businesses, SCE&G also operates a bus service providing transportation throughout Columbia, South Carolina. SCE&G has formed a subsidiary finance trust, SCE&G Trust I, which issued $50 million in trust securities in a public offering. -5- SCE&G owns eighteen electric generation facilities with a combined net generating capacity of 3,772 kilowatts. SCE&G also owns several commercial office buildings, service center buildings and storage facilities. SCE&G owns 61 motor coaches used in the operation of the Columbia, South Carolina transit system. SCE&G is subject to the jurisdiction of the South Carolina Public Service Commission ("SCPSC"), the Nuclear Regulatory Commission (the "NRC") and the Federal Energy Regulatory Commission ("FERC") pursuant to the Federal Power Act. I. SCE&G's Electric Utility Operations SCE&G's electric transmission system is part of an interconnected grid extending over a large part of the southern and eastern portions of the United States. SCE&G, Virginia Power Company, Duke Power Company, Carolina Power & Light Company, Yadkin, Incorporated and Santee Cooper (formerly The South Carolina Public Service Authority) are members of the Virginia-Carolinas Reliability Group, one of several geographic divisions within the Southeastern Electric Reliability Council. SCE&G is also interconnected with Georgia Power Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and Southeastern Power Administration's Clark Hill Project. SCE&G purchases all of the electric generation of Williams Station, owned by GENCO, under a Unit Power Sales Agreement that has been approved by the FERC. Williams Station has a generating capacity of 580 megawatts. For the twelve months ended September 30, 1999, SCE&G's electric sales revenues totaled $1.210 billion. Residential sales of electricity accounted for 42% of SCE&G's -6- electric sales revenues; commercial sales for 30%; industrial sales for 18%; sales for resale for 3%; and all other sales for 7%. SCE&G had a total of 522,243 electric customers as of September 30, 1999. II. SCE&G's Gas Utility Operations SCE&G's gas system consists of approximately 11,963 miles of distribution mains and related service facilities. SCE&G has propane air peak shaving facilities that can supplement its supply of natural gas by gasifying propane to yield the equivalent of 102 million cubic feet per day. These facilities can store the equivalent of 430 million cubic feet of natural gas. For the twelve months ended September 30, 1999, SCE&G's gas sales revenues totaled $228 million. Residential sales accounted for 42% of gas sales revenues; commercial sales for 32%; and industrial sales for 26%. SCE&G had a total of 258,496 gas customers as of September 30, 1999. ii. GENCO GENCO owns and operates the Williams Station generating facility in Goose Creek, South Carolina, and sells electricity solely to SCE&G. GENCO is subject to regulation under the Federal Power Act. b. SCANA Non-Utilities i. South Carolina Fuel Company, Inc. South Carolina Fuel Company, Inc. ("South Carolina Fuel") acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowance requirements. -7- ii. South Carolina Pipeline Corporation South Carolina Pipeline Corporation ("Pipeline Corporation") is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to both distribution companies and industrial customers in 40 counties throughout South Carolina. Pipeline Corporation operates completely within South Carolina, and its gas system consists of approximately 1,919 miles of transmission pipeline that connect its resale customers' distribution systems with transmission systems of Southern Natural Gas Company ("Southern Natural") and Transcontinental Gas Pipe Line Corporation ("Transco"). Pipeline Corporation, through a wholly owned subsidiary, owns and operates a 62-mile, six-inch propane pipeline that connects what was formerly SCANA Propane Storage, Inc.'s propane storage facility with Dixie Pipeline Company's system, which traverses central South Carolina. Pipeline Corporation also owns two liquified natural gas ("LNG") liquification and storage facilities, one located near Charleston, South Carolina and the other in Salley, South Carolina. To meet the requirements of its high priority natural gas customers during periods of maximum demand, Pipeline Corporation supplements its supplies of natural gas using these two LNG facilities. Pipeline Corporation supplies the natural gas for SCE&G's gas distribution system. Other resale customers include municipality and county gas authorities and gas utility companies. The industrial customers of Pipeline Corporation are primarily engaged in the manufacturing or processing of ceramics, paper, metal, food and textiles. SCANA also has a subsidiary, South Atlantic Farms, that holds real estate interests, consisting of environmental easements, in South Carolina which are intended to support -8- pipeline operations. SCANA currently intends to transfer these assets to Pipeline Corporation and dissolve South Atlantic Farms. iii. SCANA Energy Marketing, Inc. SCANA Energy Marketing, Inc. ("Energy Marketing") markets electricity, natural gas and other light hydrocarbons, primarily in the southeastern United States. Energy Marketing also markets natural gas in Georgia's deregulated natural gas market and provides energy-related risk management services to producers and consumers. In 1996, the FERC approved Energy Marketing's application to become a power marketer, allowing Energy Marketing to buy and sell large blocks of electric capacity in wholesale markets. Energy Marketing holds a 49% membership interest in SCANA Energy Trading, LLC ("Energy Trading") which is also engaged in trading energy commodities. iv. SCANA Propane Gas, Inc. SCANA Propane Gas, Inc. ("SCANA Propane Gas") previously purchased, delivered and sold propane within the southeastern United States. The assets of SCANA Propane Gas were sold to Suburban Propane L.P. ("Suburban Propane") in the fourth quarter of 1999. v. SCANA Propane Storage, Inc. SCANA Propane Storage, Inc. ("SCANA Propane Storage") previously owned and operated a 60 million gallon underground propane storage facility near York, South Carolina and leased cavern storage space to industries, utilities and others. The assets of SCANA Propane Storage were sold to Suburban Propane in the fourth quarter of 1999. -9- vi. SCANA Communications, Inc. SCANA Communications, Inc. ("SCI") owns and operates a 500-mile fiber optic telecommunications network and an 800 MHZ radio service network within South Carolina. In addition, SCI provides tower site construction, management and rental services in South Carolina and Georgia. FRC, LLC, a subsidiary of SCI, constructs, owns and operates fiber optic lines from Charleston, South Carolina to Raleigh, North Carolina. SCI also has investments in Powertel, Inc., ITC Holding Company, Inc., ITC DeltaCom, Inc., and Knology Holdings, Inc., which are companies providing telecommunications services in the southeastern United States. SCI holds these investments through an intermediate holding company, SCANA Communications Holdings, Inc. vii. ServiceCare, Inc. ServiceCare, Inc. ("ServiceCare") is engaged in providing energy-related products and services beyond the energy meter. Its primary businesses involve providing homeowners with service contracts on their home appliances and home security monitoring. viii. Primesouth, Inc. Primesouth, Inc. ("Primesouth"), either directly or through its subsidiary, Palmark, Inc., is engaged in power plant management and maintenance services and is currently considering acquiring a 40% membership interest in a limited liability company that is engaged in synthetic fuel-related operations. -10- ix. SCANA Resources, Inc. SCANA Resources, Inc. ("SCANA Resources") is a wholly owned subsidiary of SCANA. Its function is to provide a structural vehicle for the development of innovative business ideas related to the energy industry. The types of businesses in which SCANA Resources currently holds an interest include: the development of remote electric and gas meter reading technology; the development of efficient gas heating and cooling equipment; the offerings via e- commerce of gas and electricity to commercial customers in selected markets; the offering of commercial, energy efficient lighting installation; and the installation and maintenance of standby, electric generators for fiber optic systems. If any of SCANA Resources' lines of business grows into significance, then such line of business will be separated from SCANA Resources, Inc. into a separate affiliate. If a line of business does not develop sufficiently to support itself as a separate affiliate enterprise, it will be divested or closed. x. Cogen South, LLC SCANA and Westvaco Corporation ("Westvaco") each own a 50% interest in Cogen South, LLC ("Cogen"). Cogen builds and operates boilers and turbines at a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. The facility provides industrial process steam for the Westvaco paper mill and shaft horsepower to enable SCE&G to generate electricity. -11- xi. Palmetto Lime, LLC SCANA owns a 49% membership interest in Palmetto Lime, LLC ("Palmetto"), a subsidiary engaged in the production and sale of lime. xii. SCANA Development Corporation SCANA Development Corporation is presently in liquidation. This entity was previously engaged in the sale of real estate. xiii. SCANA Petroleum Resources, Inc. SCANA Petroleum Resources, Inc. is in liquidation following the sale of its oil and gas properties. 2. PSNC PSNC, a North Carolina corporation incorporated in 1938, is a public utility company certificated to serve a 31-county area in North Carolina. PSNC transports, distributes and sells natural gas to approximately 340,000 residential, commercial and industrial customers in 95 cities and communities in North Carolina. In connection with its natural gas distribution business, PSNC promotes, sells and installs both new and replacement cooking, water heating, laundry, space heating, cooling and humidity control natural gas appliances and equipment. PSNC, through a subsidiary that is not a public utility company, also provides conversion and maintenance services for natural gas-fueled vehicles in selected cities in and beyond its franchised territory. It also participates in non-public utility company businesses and joint ventures in areas such as natural gas brokering and supply services. -12- PSNC common stock has a par value of $1 per share and is listed and traded on the NYSE under the symbol "PGS." As of and for the fiscal year ended September 30, 1999, 20,577,967 shares of PSNC common stock were outstanding, and PSNC had total assets of $648,571,000, operating revenues of $347,377,000 and net income of $24,451,000. As of September 10, 1999, PSNC had approximately 900 employees. PSNC owns 761 miles of transmission pipelines, which range from 2 to 24 inches in diameter, and 6,857 miles of distribution mains that connect its distribution systems with the Texas to New York pipeline transmission system of Transco. Most of these transmission pipelines and distribution mains are located on right-of-ways held under easement, license or permit. PSNC also owns 18 commercial office buildings, a measurement operations building, a building that houses training and engineering, 11 service center buildings, 15 service buildings, and an energy control building. One of the service buildings houses training facilities, and another service building is jointly occupied by a natural gas-fueled vehicle conversion facility. PSNC also leases six commercial office buildings for company use. PSNC is subject to regulation by the NCUC. PSNC's regulated transportation, distribution and sale of natural gas take place in its 31-county certificated service territory, which includes Raleigh, Durham and the Research Triangle area of north central North Carolina, Gastonia, Concord and Statesville in the central area of the state, and Asheville, Hendersonville and Brevard in the western area. Over 2.5 million people reside in PSNC's certificated territory, and during the past three fiscal years, PSNC has added approximately 46,300 residential, 3,450 commercial, and 50 industrial customers to its natural gas transmission and distribution systems. -13- These 49,800 new customers have resulted in a compound annual growth rate of 5.4% for PSNC over the three-year period. PSNC's diversified industrial customer base includes manufacturers of textiles, chemicals, ceramics and clay products, glass, automotive products, minerals, pharmaceuticals, plastics, metals, electronic equipment, furniture and a variety of food and tobacco products. a. PSNC's Non-Utilities PSNC has four direct and three indirect non-utility subsidiaries, each of which is described below. i. PSNC Production Corporation PSNC Production Corporation ("PSNC Production") is a wholly owned subsidiary of PSNC that was formed in 1981 to engage in the exploration for, and production of, natural gas. In response to new business opportunities being created by the restructuring of the natural gas industry, PSNC Production began, in 1990, to limit its business to non-regulated gas brokering and sales to large commercial and industrial customers that could obtain transportation from PSNC and other local distribution companies ("LDCs"). In 1994, PSNC Production sold the last of its interests in production properties. In December 1996, PSNC Production sold a 50 percent interest in its marketing business to Sonat Marketing Company L.P. ("Sonat Marketing") in order to create Sonat Public Service Company L.L.C. ("Sonat Public Service"). I. Sonat Public Service Sonat Public Service is a joint venture started in December 1996 by PSNC Production and Sonat Marketing. As its capital contribution to the venture, PSNC Production -14- transferred its gas brokering activities to Sonat Public Service, and Sonat Public Service now provides nonregulated energy products and services to approximately 500 industrial and commercial accounts in the mid-Atlantic region. As of December 31, 1999, PSNC Production owns 100% of Sonat Public Service. ii. Clean Energy Enterprises, Inc. Clean Energy Enterprises, Inc. ("Clean Energy"), a wholly owned subsidiary of PSNC, converts vehicles to operate on natural gas or other alternative fuels. Clean Energy also operates fueling stations in Raleigh and Gastonia, and advises customers on the installation and operation of natural gas fueling stations. iii. PSNC Cardinal Pipeline Company PSNC Cardinal Pipeline Company is a subsidiary created solely to hold PSNC's equity interest in Cardinal Extension and now in Cardinal Pipeline Company LLC, as described below. I. Cardinal Pipeline Company, LLC In March 1994, PSNC and a subsidiary of Piedmont Natural Gas Company, Inc. ("Piedmont") formed Cardinal Pipeline Company, LLC ("Cardinal") in order to construct and operate a 24-inch, 37.5-mile natural gas pipeline (the "Cardinal Pipeline").1 The Cardinal Pipeline extends from Wentworth to near Haw River, North Carolina, where it interconnects with PSNC and Piedmont. It was placed into service on December 31, 1994, and provides 130 million cubic feet per day of additional firm capacity (70 million cubic feet per day for PSNC and 60 million - -------- 1 Although not a public utility company for purposes of the Act, Cardinal is a utility for purposes of state regulation and is currently under the jurisdiction of the NCUC. -15- cubic feet per day for Piedmont). When Cardinal Pipeline was placed into service, PSNC owned 64.5% of Cardinal. In 1995, PSNC, Piedmont, Transco and North Carolina Natural Gas Corporation ("NCNG") formed Cardinal Extension Company, LLC ("Cardinal Extension") to purchase and extend the Cardinal Pipeline by 67.5 miles. As of November 1, 1999, Cardinal was merged into Cardinal Extension with the surviving entity being named Cardinal Pipeline Company, LLC. PSNC, which contributed its 64.5% interest in Cardinal to the new project, now owns approximately 33% of the surviving company through a subsidiary. iv. PSNC Blue Ridge Corporation Blue Ridge Corporation ("Blue Ridge") is a subsidiary used solely to hold PSNC's equity interest in, Pine Needle LNG Company, LLC ("Pine Needle"). I. Pine Needle Pine Needle was formed by Blue Ridge along with subsidiaries of Transco, Piedmont, NCNG, Amerada Hess, and the Municipal Gas Authority of Georgia to own and operate an LNG storage facility in North Carolina. The facility will have a storage capacity of four billion cubic feet with vaporization capability of 400 million cubic feet per day. Blue Ridge made its required capital contribution of $9,058,000 on May 3, 1999 and owns 17% of Pine Needle. PSNC has contracted to use 25% of the facility's gas storage capacity and withdrawal capabilities. -16- C. Description Of The Mergers 1. Background Over the past several years SCANA has carefully monitored developments in the electric and natural gas utility industries, with particular emphasis on the growth of competition in the southeastern region of the United States. As a result of these efforts, SCANA decided to pursue a regionally-based, customer service oriented growth strategy that involves both expanding its service options for its customers to include such services as appliance repair, home security and telecommunications, and increasing its customer base through increased marketing efforts in areas with open access and through possible acquisitions. PSNC has also carefully followed recent developments in the electric and natural gas utility industries that have substantially increased competition in such industries, particularly the pressures on small and medium-sized utility companies to compete as effectively as larger utility companies. As a result, PSNC began to develop strategic plans to respond to such an evolving and competitive environment as it affected PSNC, and engaged and authorized Morgan Stanley & Co. Incorporated, its financial advisor, to explore strategic alternatives and possible business combinations. PSNC's management concluded that PSNC's competitive position and growth prospects in this new environment would be significantly enhanced by, among other things, increasing the scale of its operations and the size of its customer base. After considering possible business combinations with several companies, the PSNC board of directors, on February 16, 1999, by a unanimous vote, approved the Merger Agreement with SCANA and the transactions contemplated thereby and authorized the execution -17- of the Merger Agreement. On February 16, 1999, the SCANA board of directors, by the affirmative vote of twelve directors with one dissent, approved the Merger Agreement with PSNC and the transactions contemplated thereby and authorized the execution of the Merger Agreement. Following the meetings of their boards of directors, PSNC and SCANA executed the Merger Agreement on February 16, 1999 and publicly announced the proposed Mergers on February 17, 1999. The board of directors and management of SCANA believe that the Mergers will help position SCANA to become one of the premier distribution companies for energy and other services in the southeastern region by increasing its financial flexibility and providing strategic growth opportunities that will benefit SCANA, its shareholders, customers and employees, including: o Expansion Potential and Broader Customer Base. PSNC brings to the combined companies approximately 340,000 additional natural gas retail distribution customers. The acquisition of PSNC will increase SCANA's domestic retail customer base to approximately 1.3 million customers in the southeastern region, including fast growing areas of North Carolina. SCANA and its shareholders and employees will be able to participate in these growing markets through PSNC, a company with which customers in North Carolina are familiar. In addition, following the Preferred Second Merger, SCANA's natural gas customer base will be more diverse, expanding from its traditional majority industrial gas customer base by adding PSNC's residential and small commercial customer base, which accounted for approximately 50% of PSNC's throughput in fiscal 1998. o Increased Customer Products and Services. The combination with PSNC will enable the combined companies to offer their customers access to more comprehensive products and services than either company alone could offer. The retail natural gas experience and expertise of PSNC will complement the electricity, natural gas and telecommunications assets, experience and expertise of SCANA, giving the combined companies -18- improved capabilities in the delivery of a more complete range of products and services for all of their customers. o Financial Strength and Benefits. The Mergers should enhance SCANA's ability to compete in the utility market as a growth-oriented company. Following the Mergers, SCANA will have increased its revenues to approximately $2 billion annually and its customer base to approximately 1.3 million. As a result, SCANA should enjoy an increased cash flow for reinvestment or growth in the competitive energy and services delivery businesses. SCANA should also benefit from the long-term financial stability of a larger company. o Operating Efficiencies. As a result of the Preferred Second Merger, SCANA should benefit from operating efficiencies obtained from economies of scale and should be able to make more efficient use of advanced information systems. The board of directors and management of PSNC believe that the Mergers will join two companies with complementary operations as well as a common vision of the future of the retail and wholesale energy markets in the southeastern region of the United States. As a result of utility deregulation and the increasing competitive pressures faced by electric and natural gas utility companies, the PSNC board believes that in order to succeed in such a market, PSNC must be an efficient, low cost supplier of energy and allied services with a diverse customer base. The Mergers are expected to allow PSNC to achieve these goals and to provide substantial strategic and financial benefits to the shareholders of PSNC, as well as to its employees and the customers that it serves. The PSNC board believes that such benefits include: o Strategic Position. The combination of the companies' complementary expertise and infrastructure, including PSNC's natural gas distribution business in North Carolina and SCANA's diversified electric, natural gas and telecommunications businesses throughout the southeastern United States will provide the combined company with the size and scope to be an effective participant in the emerging and increasingly competitive electric and natural gas utility markets. -19- o Cost Competitive. Both PSNC and SCANA are amongst the most efficient providers of their respective services within the states in which they operate. The Mergers will enable the combined company to create efficiencies through which the new company will be able to provide even more cost-effective services to customers. o New Products and Services. The combined company will use its distribution channels to market a portfolio of energy-related services throughout the southeastern region. The Mergers will create a company with the ability to develop and market competitive new products and services and to provide integrated energy solutions for its customers. o Increased Financial Strength and Customer Base. The combined company will be financially stronger and will have a broader customer base than PSNC or SCANA as independent entities. Based on the 1998 results for PSNC and SCANA, the total annual revenues for the combined company will be approximately $2 billion. In addition, the combined company will serve approximately 517,000 electric customers in South Carolina and more than 750,000 natural gas customers in South Carolina, North Carolina and Georgia. 2. Merger Agreement The Merger Agreement provides for a two-step merger transaction. In the First Merger, New Sub I will be merged with and into SCANA and SCANA will survive. In the Preferred Second Merger, PSNC will be merged with and into New Sub II and New Sub II will survive. As a result of the Preferred Second Merger, PSNC will become a wholly owned subsidiary company of SCANA. The Mergers will be accounted for using the purchase method of accounting. In exchange for each share of PSNC common stock outstanding immediately prior to the effective time of the Preferred Second Merger, PSNC shareholders will be given the option to receive either (i) $33.00 in cash, subject to the limitation that a maximum of 50% of the aggregate consideration to be paid to PSNC shareholders may be paid in cash, or (ii) a number of -20- shares of SCANA common stock as determined in accordance with the PSNC exchange ratio (which may be as low as 1.02 or as high as 1.45, depending on the average market price of SCANA common stock over a 20 trading-day period). In exchange for each share of SCANA common stock outstanding immediately prior to the effective time of the First Merger, SCANA shareholders will be given the option to receive either (i) $30.00 in cash or (ii) one share of SCANA common stock, subject to the requirement that SCANA pay $700 million in cash in the aggregate as consideration in the Mergers. The amount of cash available for payment to SCANA shareholders will be the portion of the $700 million remaining after PSNC shareholders make their choice with respect to the form of consideration they receive. 3. Financing the Mergers Before completing the Mergers, the management of SCANA will evaluate various sources and methods of financing to fund the consideration required to finance the Mergers (the total amount of approximately $700 million). SCANA currently anticipates that the full amount will be financed at the holding company level through external sources. On December 1, 1999, SCANA entered into a $300 million credit agreement with First Union National Bank, The Bank of New York, Bank of America N.A., Suntrust Bank, Atlanta and Wachovia Bank, N.A. It is expected that this $300 million commitment will be used by SCANA to finance the Mergers. SCANA currently expects to finance the remaining $400 million in cash to be paid as consideration in the Mergers through a private placement of two-year notes. As a result of this financing, the consolidated capitalization of SCANA after the Mergers will consist of approximately 37.9% common equity and 62.1% debt (long and short-term) and preferred stock. -21- D. Management and Operations of SCANA and PSNC Following the Mergers Following consummation of the Preferred Second Merger, the SCANA board of directors will be expanded to include Charles E. Zeigler, Jr., the current Chairman, President and Chief Executive Officer of PSNC, and two additional persons presently serving as members of the PSNC board of directors. After PSNC is merged into New Sub II, Mr. Zeigler will be President and Chief Operating Officer of the surviving corporation and each other subsidiary of SCANA whose primary operations are located in North Carolina. Mr. Zeigler will also be one of the three members of SCANA's Office of the Chairman (the other two members will be (i) the Chairman, President and Chief Executive Officer of SCANA and (ii) the President and Chief Operating Officer of SCE&G). Also following consummation of the Preferred Second Merger, the corporate headquarters of the surviving corporation will be relocated to Columbia, South Carolina. Item 2. Fees, Commissions and Expenses Commission Registration Fees $ 805,200 Accountant's Fees 500,600 Legal Fees and Expenses 2,125,500 Shareholder Communication and proxy solicitation expenses 2,144,700 Investment bankers' fees and expenses 6,100,000 Miscellaneous 276,800 ----------- Total $11,952,800 The total fees, commissions and expenses expected to be incurred by SCANA in connection with the Mergers are estimated to be approximately $11,952,800. -22- Item 3. Applicable Statutory Provisions The following sections of the Act and the Commission's rules thereunder are or may be directly or indirectly applicable to the proposed transaction: Sections of Transactions to which section or rule is or may be applicable: the Act 4, 5 Registration of SCANA as a holding company following the consummation of the Preferred Second Merger. 9(a)(2), 10 Acquisition by SCANA of PSNC common stock. 9(a)(1), 11(b) Retention by SCANA of the businesses, investments and non-utility activities of SCANA and PSNC. To the extent that other sections of the Act or the Commission's rules thereunder are deemed applicable to SCANA's acquisition of PSNC, such sections and rules should be considered to be set forth in this Item 3. A. Legal Analysis Section 9(a)(2) of the Act makes it unlawful, without approval of the Commission under Section 10, "for any person . . . to acquire, directly or indirectly, any security of any public utility company, if such person is an affiliate . . . of such company and of any other public utility or holding company, or will by virtue of such acquisition become such an affiliate." Under the definition set forth in Section 2(a)(11)(A) of the Act, an "affiliate" of a specified company means "any person that directly or indirectly owns, controls, or holds with power to vote, 5 per centum or more of the outstanding voting securities of such specified company." SCANA is currently the beneficial owner of 100% of the voting stock of two public utility companies, SCE&G and GENCO. PSNC is also a public utility company as defined -23- in Section 2(a)(5) of the Act. Because SCANA will, as a result of the Preferred Second Merger, acquire more than five percent of the outstanding voting securities of a third public utility company, PSNC, SCANA must obtain the approval of the Commission for the Preferred Second Merger under Sections 9(a)(2) and 10 of the Act. The statutory standards to be considered by the Commission in determining whether to approve the proposed transaction are set forth in Sections 10(b), 10(c) and 10(f) of the Act. As set forth more fully below, the Preferred Second Merger complies with all of the applicable provisions of Section 10 of the Act and should be approved by the Commission because: o the Preferred Second Merger will not create detrimental interlocking relations or a concentration of control; o the consideration to be paid in the Preferred Second Merger is fair and reasonable; o the Preferred Second Merger will not result in an unduly complicated capital structure for the SCANA system; o the Preferred Second Merger is in the public interest and the interests of investors and consumers; o the Preferred Second Merger is consistent with Sections 8 and 11 of the Act; o the Preferred Second Merger tends towards the economical and efficient development of an integrated public utility system; and o the Preferred Second Merger will comply with all applicable state laws. -24- 1. Section 10(b) Section 10(b) provides that if the requirements of Section 10(f) are satisfied, the Commission shall approve an acquisition under Section 9(a)(2) unless the Commission finds that: (1) such acquisition will tend towards interlocking relations or the concentration of control of public utility companies, of a kind or to an extent detrimental to the public interest or the interests of investors or consumers; (2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired; or (3) such acquisition will unduly complicate the capital structure of the holding company system of the applicant or will be detrimental to the public interest or the interests of investors or consumers or the proper functioning of such holding company system. a. Section 10(b)(1) i. Interlocking Relations Under Section 10(b)(1), the Commission shall approve an acquisition unless the Commission finds that "such acquisition will tend towards interlocking relations. . . ." By its nature, any merger of previously unrelated companies results in new links and relations between the companies. Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990), as modified, Holding Co. Act Release No. 25273 (March 15, 1991), aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 1992) ("interlocking relationships are necessary to integrate [the two merging entities]"). These links, however, are not the types of interlocking relations targeted by Section 10(b)(1), which was primarily aimed at preventing business combinations unrelated to -25- operating efficiencies.3 SCANA's acquisition of PSNC in the Preferred Second Merger is related to operating efficiencies and does not create the type of interlocking relations targeted by Section 10(b)(1). The Merger Agreement provides for the board of directors of SCANA, after completion of the Preferred Second Merger, to be composed of members drawn from the boards of directors of both SCANA and PSNC. Upon completion of the Preferred Second Merger, Charles Zeigler, the current Chairman, President and Chief Executive Officer of PSNC, and two other persons presently serving on the PSNC board of directors will become members of the board of directors of SCANA. This is necessary to integrate PSNC fully into the SCANA system and will therefore be in the public interest and in the interests of investors and consumers by facilitating the management of SCANA as an integrated and economically efficient energy services company. Forging such relations is beneficial to the protected interests under the Act and is not prohibited by Section 10(b)(1). ii. Concentration of Control Section 10(b)(1) is intended to prevent utility acquisitions that would result in "huge, complex and irrational systems", and to avoid "an excess of concentration and bigness" while preserving opportunities for the "economies of scale, the elimination of duplicate facilities and activities, the sharing of production capacity and reserves and the generally more efficient operations" afforded by the coordination of local utilities into an integrated system. American Electric Power Co., 46 S.E.C. 1299, 1307 (1978). In applying Section 10(b)(1) to utility - -------- 3 See Section 1(b)(4) of the Act (finding that the public interests of consumers are adversely affected "when the growth and extension of holding companies bears no relation to economy of management and operation or the integration and coordination of related operating properties. . . ."). -26- acquisitions, the Commission must determine whether the acquisition will create "the type of structures and combinations which the Act was specifically directed [to prohibit]." Vermont Yankee Nuclear Corp., 43 S.E.C. 693, 700 (1968). SCANA's acquisition of PSNC pursuant to the Preferred Second Merger will not result in a "huge system" and will avoid the "excess of concentration and bigness" at which Section 10(b)(1) is aimed at preventing. The Commission has recognized that there is, per se, no limit to the size of a transaction which may be approved. See Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986) ("determination of whether to prohibit enlargement of a system by acquisition is to be made on the basis of all the circumstances, not on the basis of size alone"). SCANA's acquisition of PSNC will create a system that is comparable to or smaller than other systems which have been approved by the Commission. On a pro forma basis, giving effect to the proposed acquisition as of December 31, 1998, SCANA and PSNC would have combined assets of $6.409 billion, total operating revenue of $1.932 billion for the twelve months ended December 31, 1998, approximately 517,000 electric utility customers and more than 750,000 gas utility customers. The Commission has approved acquisitions involving registered holding companies with much larger operating public utility systems (See Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993) (approving the acquisition of Gulf State Utilities, with combined assets at the time of acquisition in excess of $21 billion); The Southern Company, Holding Co. Act Release No. 24579 (Feb. 12, 1988) (approving the acquisition of Savannah Electric and Power Company to create a system with assets of $20 billion and 3.25 million customers); Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997) -27- (approving the merger of Union Electric Company and CIPSCO to create a registered system with assets of $8.9 billion and operating revenues of approximately $3.1 billion)) and has not had a problem with mergers creating holding companies that are similar to the size that SCANA will be upon completion of the Preferred Second Merger (See Conectiv, Inc., Holding Co. Act Release No 26832 (Feb. 25, 1998) (approving the merger of Delmarva Power & Light Company and Atlantic Energy, Inc. to create holding company system with assets of $5.75 billion and operating revenues of $2.24 billion); New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (approving the merger of Public Service Company of Colorado and Southwestern Public Service Company to create holding company system with assets of $7 billion and operating revenues of $3 billion)). SCANA's acquisition of PSNC pursuant to the Preferred Second Merger will also not have a negative effect on competition. In analyzing the impact of the Preferred Second Merger on competition, it is important to recognize that there is no overlapping service territory for the public utility system operations of SCANA and PSNC. In addition, there are numerous, large competitors who are sophisticated players in the market and regulatory environment where SCANA and PSNC operate. The following chart provides a comparison of certain major regional utility companies in the southeastern region and demonstrates that, after the Preferred Second Merger is completed, although SCANA will be more competitive than it is today, it will not be comparatively large and would not have excessive market power in the region. -28- Utility Companies Comparison Chart (for the fiscal year ended 12/31/1998)
Operating Revenues Net Income Total Assets ($ in millions) ($ in millions) ($ in millions) Southern Company $ 11,403 $ 977 $36,192 Duke Energy $ 17,610 $ 1,252 $26,806 Dominion Resources 4 $ 6,086 $ 535 $17,517 Carolina Power & Light 5 $ 3,130 $ 399 $ 8,347 SCANA (pro forma) $ 1,932 $ 202 $ 6,409
In comparison to other regional gas utility companies, the combined SCANA and PSNC gas operations, on a pro forma basis, will have approximately $710 million in operating revenues and $735 million in assets. In comparison, Columbia Energy Group (formerly Columbia Gas), for the fiscal year ended December 31, 1998, had $1.929 billion in operating revenues and $6.968 billion in assets; AGL Resources (formerly Atlanta Gas Light), for the fiscal year ended September 30, 1998, had $1.339 billion in operating revenues and $1.982 billion in assets and Piedmont Natural Gas, for the fiscal year ended October 31, 1998, had $765 million in operating revenues and $1.163 billion in assets. Importantly, as noted above, a number of large, regional electric utility - -------- 4 Dominion Resources has entered into an agreement to merge with Consolidated Natural Gas Company, a gas utility holding company with, for the fiscal year ended 12/31/1998, operating revenue of $2.706 billion, net income of $238 million and assets of $6.362 billion. 5 Carolina Power & Light has subsequently acquired North Carolina Natural Gas, a gas utility company operating in North Carolina with, for the fiscal year ended 9/30/1998, operating revenue of $232 million, net income of $17 million and assets of $271 million. Carolina Power & Light has also entered into an agreement to acquire Florida Progress Corp., an electric and gas utility with, for the fiscal year ended December 31, 1998, $3.6 billion in operating revenues, $281 million in net income and $6.2 billion in total assets. -29- companies have also entered into agreements to acquire gas utility companies of similar or larger size than PSNC. Overall, SCANA's acquisition of PSNC will not create a "complex and irrational system", but will create a company focused on competitive prices and high quality reliable customer service. Finally, the Commission should note that although the Preferred Second Merger is not a jurisdictional transaction under the Federal Power Act or Natural Gas Act and therefore does not require the approval of the FERC,6 its impact on competition and/or the public interest will be subject to review on both the federal and state level. On or about August 27, 1999, each of SCANA and PSNC filed a Pre-merger Notification and Report Form with the Antitrust Division of the Department of Justice ("DOJ") and the Federal Trade Commission (the "FTC") pursuant to the HSR Act, and on September 26, 1999, the applicable waiting period for both SCANA and PSNC under the HSR Act expired. On the state regulatory level, SCANA's acquisition of PSNC has been approved by the NCUC. Following consummation of the Mergers, SCE&G will continue to be subject to regulation with respect to rates and other corporate matters by the SCPSC, and PSNC will continue to be subject to regulation with respect to rates and other corporate matters by the NCUC, in each case in order to protect the interests of consumers and the public. - -------- 6 In TUC Holding Company, Holding Co. Act Release No. 26749 (Aug. 1, 1997), the Commission approved a transaction that similarly did not require approval by the Federal Energy Regulatory Commission. In the case of TUC, however, the companies did have overlapping service territory. -30- b. Section 10(b)(2) i. Fairness of Consideration Section 10(b)(2) requires the Commission to determine whether the consideration to be given by SCANA to the holders of PSNC common stock in connection with the Preferred Second Merger is reasonable, and whether it bears a fair relation to the investment in, and earning capacity of, the utility assets underlying the PSNC common stock being acquired. Market prices at which securities are traded have always been strong indicators as to values. As shown in the table below, the quarterly price data, high and low, for PSNC common stock provides support that the consideration of approximately $33.00 (depending on the operation of the exchange ratio) for each share of PSNC common stock is fair. PSNC High Low Dividends 1997 First Quarter $19 $17 3/8 $0.22 Second Quarter 20 16 3/4 0.23 Third Quarter 21 7/8 18 3/4 0.23 Fourth Quarter 24 3/8 19 7/16 0.23 1998 First Quarter 22 7/8 19 1/8 0.23 Second Quarter 22 3/16 19 7/8 0.24 Third Quarter 24 1/2 19 1/8 0.24 Fourth Quarter 26 1/16 21 9/16 0.24 1999 First Quarter 29 15/16 22 5/16 0.24 Second Quarter 30 28 1/16 0.2475 Third Quarter 31 7/16 29 1/16 0.2475 Fourth Quarter 33 1/4 30 13/16 0.2475 -31- On February 12, 1999, the last business day before the date on which SCANA and PSNC entered into the Merger Agreement, the closing price per share of PSNC common stock as reported on the NYSE-Composite Transactions was $22 5/8. In addition to such quantitative evidence that the consideration being offered to holders of PSNC common stock is fair, the consideration being offered to holders of PSNC common stock is also the product of extensive and vigorous arms-length negotiations between SCANA and PSNC. These negotiations were preceded by months of due diligence, analysis and evaluation of the assets, liabilities and business prospects of the respective companies. See SCANA Registration Statement on Form S-4 (Exhibit C-1 hereto). Internationally-recognized investment bankers for SCANA and PSNC have reviewed extensive information concerning the companies and analyzed that information using a variety of valuation methodologies. Morgan Stanley & Co. Incorporated provided an opinion to PSNC which states that the consideration to be received by holders of PSNC common stock pursuant to the Merger Agreement was fair from a financial point of view to the holders of PSNC common stock. Morgan Stanley's analyses are attached hereto. See Opinion of Morgan Stanley & Co. Incorporated (Exhibit G-1). In addition, although not directly addressing the issue under consideration by the Commission, it is worth noting that PaineWebber Incorporated provided an opinion to SCANA that the financial terms of the Mergers, taken as a whole, were fair to the holders of SCANA common stock. PaineWebber's analyses are also attached hereto. See Opinion of PaineWebber Incorporated (Exhibit G-2). -32- In light of the analysis of all relevant factors, including the benefits that may be realized as a result of the Preferred Second Merger, SCANA believes that the consideration being offered to holders of PSNC common stock in connection with the Preferred Second Merger bears a fair relation to the sums invested in, and the earning capacity of, the utility assets of PSNC. ii. Reasonableness of Fees SCANA believes that the overall fees, commissions and expenses incurred and to be incurred in connection with the Mergers are reasonable and fair in light of the size and complexity of the Mergers relative to other transactions and the anticipated benefits of the Mergers to the public, investors and consumers; that they are consistent with recent precedent; and that they meet the standards of Section 10(b)(2). As set forth in Item 2 of this Application/Declaration, SCANA expects to incur a combined total of approximately $11,952,800 in fees, commissions and expenses in connection with the Mergers. By contrast, American Electric Power Company and Central and South West Corporation have represented that they expect to incur total transaction fees and regulatory processing fees of approximately $53 million, including financial advisory fees of approximately $31 million, in connection with their proposed merger. The Applicant believes that the estimated fees and expenses in this matter bear a fair relation to the value of PSNC and the strategic benefits to be achieved by the Mergers, and that the fees and expenses are fair and reasonable in light of the complexity of the Mergers. See Northeast Utilities, Holding Co. Act Release No. 25548 (June 3, 1992), modified on other grounds, Holding Co. Act Release No. 25550 (June 4, 1992) (noting that fees and expenses must -33- bear a fair relation to the value of the company to be acquired and the benefits to be achieved in connection with the acquisition). Based on the closing price of SCANA stock on May 12, 1999, the Preferred Second Merger would be valued on an equity basis at approximately $679 million and both of the Mergers would be valued on an equity basis at roughly $3.3 billion. The estimated fees and expenses that SCANA will incur in connection with both Mergers total $11,952,800, which represents approximately 1.76% of the value of the consideration to be paid by SCANA to the shareholders of PSNC and .3 % of the value of the entire transaction. These percentages are consistent with percentages previously approved by the Commission. See, e.g., Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993) (fees and expenses represented approximately 1.7% of the value of the consideration paid to the shareholders of Gulf States Utilities); Northeast Utilities, Holding Co. Act Release No. 25548 (June 3, 1992) (approximately 2% of the value of the assets to be acquired). c. Section 10(b)(3) Section 10(b)(3) requires the Commission to determine whether SCANA's proposed acquisition of PSNC pursuant to the Preferred Second Merger will unduly complicate SCANA's capital structure or be detrimental to the public interest, the interest of investors or consumers or the proper functioning of SCANA. i. Capital Structure The capital structure of SCANA after the Mergers will not be unduly complicated. In connection with the Mergers, SCANA will issue additional shares of SCANA common stock to be exchanged for existing shares of SCANA common stock and PSNC common stock. As for the -34- $700 million cash consideration being offered in the Mergers, SCANA intends to finance this cash consideration at the holding company level through a credit agreement with sophisticated commercial lenders and a private placement of two-year notes to qualified institutional buyers within the meaning of the Securities Act of 1933, as amended.7 It is expected that this financing and the issuance of new shares will not have a material effect on the capital structure of SCANA. In this regard, SCANA's capital structure will closely resemble that of most registered holding company systems. Set forth below is a summary of the historical capital structures of SCANA and PSNC as of September 30, 1999, and the pro forma consolidated capital structure of SCANA, as of September 30, 1999 (assuming that the consideration paid by SCANA for the shares of PSNC common stock consisted of $343 million in cash consideration and $343 million in stock consideration and, therefore, $357 million in cash was paid to SCANA shareholders in the First Merger). - -------- 7 See fn. 2, supra. -35-
SCANA and PSNC Historical Capital Structures (Dollar amounts in millions) % of Total % of Total SCANA Capitalization PSNC Capitalization Common stock equity $1,922 45.9% $233 58.7% Preferred stock equity 118 2.8% n/a n/a SCE&G Obligated Mandatorily 50 1.2% n/a n/a Redeemable Preferred Securities of SCE&G's Subsidiary Trust I, holding solely $50 million principal amount of 7.55% Junior Subordinated Debentures of SCE&G, due 2027 Debt (long and short-term) 2,102 50.1% 164 41.3% ------ ------ ---- ------ Total $4,192 100.0% $397 100.0%
SCANA PRO FORMA Consolidated Capital Structure (Dollar amounts in millions) (unaudited) Combined SCANA Merger % of Total & PSNC Adjustment Total Capitalization Common stock equity $2,155 $<247> $1,908 37.9% Preferred stock equity 118 118 2.3% SCE&G Obligated Mandatorily 50 50 1.0% Redeemable Preferred Securities of SCE&G's Subsidiary Trust I, holding solely $50 million principal amount of 7.55% Junior Subordinated Debentures of SCE&G, due 2027 Debt (long and short-term) 2,266 700 2,966 58.8% ----- ------ ------ Total $4,589 $5,042 100.0%
-36- Significantly, SCANA's pro forma consolidated common equity to total capitalization ratio of 37.9% as of September 30, 1999, is well above the "traditionally acceptable 30% level." See Northeast Utilities, 47 SEC Docket 1270 at 1279, n. 47 (Dec. 21, 1990). It should be noted that in most mergers involving cash consideration, the acquiring company will incur some debt or other obligation as part of the acquisition. Furthermore, acquisition indebtedness incurred at the registered holding company level has been approved by the Commission in connection with other transactions (See Dominion Resources, Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999) (approving acquisition involving issuance of $4.5 billion of securities by Dominion Resources, Inc., a holding company that will register after completing its acquisition of Consolidated Natural Gas Company); See also General Public Utilities Corporation, Holding Co. Act Release No. 26559 (Aug. 23, 1996) (authorizing issuance of debentures with terms of up to 40 years with proceeds to be used to, among other things, "fund the acquisition of interests, and to make investments in . . . foreign utility companies," and "for other [General Public Utilities'] corporate purposes")) and, as demonstrated above, the level of indebtedness of SCANA following the Preferred Second Merger is well within the level that the Commission has been comfortable with in the past. ii. Protected Interests Section 10(b)(3) also requires that a proposed acquisition not be detrimental to the public interest, the interest of the investors or consumers or the proper functioning of the resulting holding company system. As set forth more fully in the discussion of the standards of Section 10(c)(2), below, and elsewhere in this Application-Declaration, SCANA's proposed acquisition of PSNC will combine SCANA's existing natural gas operations with those of PSNC, and allow -37- SCANA to extend its service area into some of the fastest growing markets in North Carolina. As an economically integrated and efficient energy company, the combined company will be able to offer improved capabilities in the delivery of a more complete range of services and products for all customers. As noted by the Commission in Entergy Corporation, et al., 55 SEC Docket 2035 at 2045 (December 17, 1993), "concerns with respect to investors' interests have been largely addressed by developments in the federal securities laws and the securities markets themselves." In this regard, SCANA will continue to be a reporting company subject to the disclosure requirements of the Securities Exchange Act of 1934 (the "Exchange Act") following completion of the Preferred Second Merger, which will provide investors with readily available information concerning SCANA and its subsidiary companies. Furthermore, the Preferred Second Merger is subject to various other federal and state regulatory approvals (See Item 4 - Regulatory Approvals, below). Finally, SCANA notes that the incurrence of acquisition indebtedness is not detrimental to investor's interests. As the Commission has previously recognized, under Section 7(c)(2)(A) of the Act, a registered holding company can issue other than "plain vanilla" securities "solely . . . for the purpose of effecting a merger, consolidation, or other reorganization." Conectiv, Inc., Holding Company Act Release No. 26832 (Feb. 25, 1998). Indeed, the issue for purposes of Section 10(b)(3) is not the existence of parent-level debt per se. Rather, the question is whether it is permissible for a registered system to have debt at more than one level. The Commission has answered this question in the affirmative. In the 1992 amendments to Rule 52, the Commission eliminated the requirement that a public-utility subsidiary company could issue -38- debt to nonassociates only if its parent holding company had issued no securities other than common stock and short-term debt. The rule release explains: Condition (6) provides that a public-utility subsidiary company may issue and sell securities to nonassociates only if its parent holding company has issued no securities other than common stock and short-term debt. All eight commenters that considered this condition recommended that it be eliminated. They noted that it may be appropriate for a holding company to issue and sell long- term debt and that such a transaction is subject to prior Commission approval. They further observed that other controls, that did not exist when the statute was enacted, provide assurance that such financings will not lead to abuse. These include the likely adverse reaction of rating agencies to excessive amounts of debt at the parent holding company level and the disclosure required of companies seeking public capital. The Commission agrees with these observations and also noted the power of many state utility commissions to limit the ability of utility subsidiaries to service holding company debt by restricting the payment of dividends to the parent company. The Commission concludes that this provision should be eliminated. Exemption of Issuance and Sale of Certain Securities by Public-Utility Subsidiary Companies of Registered Public-Utility Holding Companies, Holding Co. Act Release No. 25573 (July 7, 1992). Moreover, the Commission has previously permitted combination gas and electric holding companies to issue debt at the holding company as well as the subsidiary level. See Cinergy Corp., Holding Co. Act Release No. 26909 (Aug. 21, 1998) (authorizing the issuance of up to $400 million of unsecured debt securities); Conectiv, Inc., Holding Co. Act Release No. 26921 (Sept. 28, 1998) (authorizing issuance of up to $250 million of debentures). Therefore, the post- merger SCANA capital structure having two levels of debt will be similar to the capital structure of similarly situated registered holding companies. -39- For these reasons, SCANA submits that investors' interests in SCANA will continue to be protected and that the Commission has no basis for making a negative finding under Section 10(b)(3). SCANA's acquisition of PSNC will be in the public interest and in the interest of investors and consumers, and will not be detrimental to the proper functioning of the resulting holding company system. 2. Section 10(c) a. Section 10(c)(1) Section 10(c)(1) prohibits the Commission from approving an acquisition for which Commission approval is required under Section 9(a) if such acquisition is unlawful under the provisions of Section 8 or is detrimental to the carrying out of the provisions of Section 11. i. Section 8 Analysis Section 8 prohibits a registered holding company from acquiring interests in an electric utility company and a gas utility company serving substantially the same territory in contravention of state law. Following the Preferred Second Merger, SCANA's electric utility company, SCE&G, will continue to serve customers exclusively in South Carolina, while the gas utility operations of PSNC which SCANA acquires will be located in North Carolina. When a registered holding company's holdings include an electric utility company and a gas utility company, each of which serve customers in a different state from the other, the utilities do not "[serve] substantially the same territory" for purposes of Section 8. Moreover, no state law prohibits SCANA from acquiring PSNC. Thus, SCANA's acquisition of PSNC under the Preferred Second Merger does not violate Section 8 of the Act and is therefore not prohibited, in this regard, by Section 10(c)(1). -40- ii. Section 11 Analysis - Integration Section 10(c)(1) also requires that an acquisition not be detrimental to carrying out the provisions of Section 11 of the Act. Section 11(b)(1), in pertinent part, directs the Commission: to require . . . that each registered holding company, and each subsidiary company, thereof, take such action as the Commission shall find necessary to limit the operations of the holding-company system of which such company is a part to a single integrated public utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public utility system. . . . The Commission may permit as reasonably incidental, or economically necessary or appropriate to the operations of one or more integrated public utility systems the retention of an interest in any business (other than the business of a public utility company as such) which the Commission shall find necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper functioning of such system or systems. I. Integrated Electric Utility System The existing SCANA electric utility system is, and following the Preferred Second Merger, will continue to be, an integrated electric utility system. Section 2(a)(29)(A) of the Act defines an integrated public utility system with respect to electric utility companies as: a system consisting of one or more units of generating plants and/or transmission lines and/or distribution facilities, whose utility assets, whether owned by one or more electric utility companies, are physically interconnected or capable of interconnection and which under normal circumstances may be economically operated as a single interconnected and coordinated system confined in its operations to a single area or region, in one or more states, not so large as to impair (considering the state of the art and area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation. -41- SCE&G and GENCO operate in a single contiguous service territory in the State of South Carolina, and the Preferred Second Merger will not have any impact on the operation of SCANA's electric utility system. II. Integrated Gas Utility System Section 2(a)(29)(B) defines an integrated public utility system with respect to gas utility companies as: a system comprised of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its operations to a single area or region, in one or more states, not so large as to impair (considering the state of the art and area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation; provided that gas utility companies deriving natural gas from a common source of supply may be deemed to be included in a single area or region. SCE&G's gas utility operations are located in a single contiguous area in South Carolina and are currently integrated. PSNC's gas utility operations are also currently integrated. PSNC's gas utility operations are located in three areas within the State of North Carolina: the Raleigh, Durham and Research Triangle area in the north central portion of the state; Gastonia, Concord and Statesville in the central portion of the state; and Asheville, Hendersonville and Brevard in the Western area. PSNC currently transports, distributes and sells natural gas to residential, commercial and industrial customers in these three non-contiguous areas. PSNC serves all three areas using, in the aggregate, all of its gas supplies under its gas purchase contracts with various marketers and suppliers. -42- While these gas supplies are transported from the basins by various interstate pipelines, only one pipeline, Transco, has physical connections with PSNC. The other interstate pipelines have direct or indirect connections with Transco that enable PSNC's gas to flow to Transco and through Transco to PSNC. PSNC contracts to take gas at specific pooling points on the Transco line (compressor stations 30, 45, 62, 65 or 85). Although PSNC's contracts do not specify or require that the gas originate from any particular basins, it believes that the vast majority of these supplies come from commonly used basins along the Gulf Coast, including basins in Texas, Louisiana, Mississippi, Alabama and the adjacent offshore areas. Because PSNC obtains its gas supplies from common basins and uses Transco to coordinate transportation of that gas to its three service areas, PSNC operates an integrated gas utility company that satisfies the requirements of Section 2(a)(29)(B). See NIPSCO Industries, Holding Co. Act Release No. 26975 (Feb. 10, 1999); Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1, 1999); Pennzoil Co., 43 S.E.C. 709 (1968); American Natural Gas Co., 43 S.E.C. 203 (1966). On a combined basis SCANA's and PSNC's gas utility systems will also meet the definition of Section (2)(a)(29)(B) of the Act. Although their service territories do not overlap, there can be little question that the Carolinas, specifically, and the southeastern United States, generally, constitute a single area or region. Indeed, by definition, The Southern Company, a large electric registered holding company operating in four southeastern states is an integrated system and operates in the same single region. The Commission has also looked to coordination of gas supply and common gas supply sources such as common pipeline suppliers and supply coming from common hubs, pooling points or gas basins as an indication of an integrated gas utility system. See NIPSCO Industries, -43- Holding Co. Act Release No. 26975 (Feb. 10, 1999) (finding integration between gas utility companies in Indiana and Massachusetts based on coordinated gas supply departments, obtaining gas from common basins and using trading hubs). The gas utility companies at issue here are also integrated using these criteria. SCANA and PSNC's combined gas system will satisfy Section 2(a)(29)(B) of the Act because it will take gas from a common source of supply. As noted above, PSNC believes that the vast majority of its gas comes from Gulf Coast production areas and SCANA also takes 98% of its gas supply from Gulf Coast areas. More importantly, both SCANA and PSNC are connected to Transco's transportation systems, contract to obtain gas at many of the same pooling points and the combined company will be able to use Transco, to the extent permitted by Transco's tariff and their respective service agreements with Transco, to transfer this gas among service areas and provide flexibility in its operations. SCANA also has connections with Southern Natural, which is connected to Transco's transportation system and will allow the combined company to coordinate gas transportation services between Southern Natural and Transco and access all gas supplies connected to either pipeline. Because SCANA and PSNC purchase substantial quantities of gas from the same pooling points and have sufficient transportation capacity to ensure delivery of said gas, the companies' combined gas utility systems will be integrated for purposes of the Act. See NIPSCO Industries, Inc. Holding Co. Act Release No. 265975 (Feb. 10, 1999) ("relevant inquiry today is whether the system utilities purchase substantial quantities of gas produced in the same supply basins and whether there is sufficient transportation capacity available in the marketplace to assure delivery on an economical and reliable basis"). -44- Following the Mergers, the gas supply function for the combined SCANA and PSNC gas systems will be managed by a single service company, SCANA Services Company ("SCANA Services"), which will be able to coordinate the taking of its gas supply. SCE&G's gas supply functions are currently performed by Pipeline Corporation under tariffs approved by the South Carolina Public Service Commission (the "SCPSC"). SCE&G, through Pipeline Corporation8, and PSNC will enter into agreements with SCANA Services for SCANA Services to manage and be agent for each as to upstream interstate pipeline capacity, gas storage, and gas supply. SCANA Services will contract on behalf of each as to those functions. The service agreements will state that the management services provided by SCANA Services will be conducted to achieve the reliability and prudence standards as set by the SCPSC and the NCUC. As described above, both SCE&G and PSNC are served by Transco, and SCE&G is also served by Southern Natural. SCANA Services will directly manage the combined capacity and entitlements of PSNC and SCE&G on Transco, including storage, to achieve optimal efficiency and reduced costs. Gas portfolios for gas delivered to Transco will be managed to achieve optimal reliability and cost minimization. The arrangement of gas deliveries for Transco will be coordinated with SNG delivery and storage entitlements of SCE&G to enhance the total benefit to PSNC and SCE&G via the passthrough mechanism approved by the SCPSC for Pipeline Corporation. The SCPSC has approved a specific price management program for SCE&G, which will be administered by SCANA Services. The benefits of this program will be - -------- 8 Throughout the remainder of the discussion of SCANA Services on pages 44-45 herein and its coordination of the combined company's gas supply function, references to SCE&G imply that SCE&G's is acting through Pipeline Corporation in terms of its gas supply activities. -45- extended to PSNC in cooperation with the NCUC. Contract administration, accounting functions, scheduling and nomination of gas, the dispatching on a daily and intraday basis, and regulatory functions will be administered by SCANA Services. Additional enhanced reliability will be achieved by coordinated management of critical LNG facilities on Pipeline Corporation's system at Salley and Bushy Park and PSNC's partial ownership of Pine Needle, a FERC regulated facility. The coordination of Leidy and WSS storage on Transco added to existing Muldon and Bear Creek storage on the Southern Natural system will improve reliability on the system through no-notice service. SCANA Services' coordination of gas supply functions will provide greater overall flexibility for the system while meeting prudence standards of the SCPSC and NCUC. The coordination and centralization of gas control communications with upstream interstate pipelines and the dispatching functions for SCE&G and PSNC will result in additional economical benefits to the gas distribution utilities by accelerating the implementation of the Gas Industrial Standards Board standards for gas control and capacity management. The economies of scale created by this coordinated gas procurement are expected to generate cost savings to the combined company. In addition to being integrated, the combined gas operations of SCANA and PSNC after the Preferred Second Merger will be "economically efficient." Because SCANA and PSNC purchase gas from the same Gulf Coast production areas, the companies can consolidate their supply contracts after the Preferred Second Merger and purchase greater quantities of gas at a potentially lower cost. Similarly, the interconnection of SCANA's and PSNC's gas transportation services through Transco and Southern Natural provides a flexible system in which SCANA and -46- PSNC can capture economics of scale and coordinate gas transportation at the lowest possible cost. iii. Section 11 Analysis - Retention of Gas Utility System As noted above, both the electric utility operations and gas utility operations of SCANA will be separately integrated. Another potential issue is whether the combination of SCANA's electric and gas utility businesses with PSNC's gas utility business is retainable under the standards of Section 11 of the Act. Historically, the Commission had considered the question of whether a registered electric system could retain a separate gas system under a strict standard that required showing a loss of substantial economies before retention would be permitted. New England Electric System, 41 S.E.C. 888 (1964). In its affirmation of that decision, the United States Supreme Court declared that a loss of substantial economies could be demonstrated by the inability of the separate gas system to survive on a stand-alone basis. SEC v. New England Electric System, 384 U.S. 176, 181 (1966). This rigid interpretation of the requirements of Section 11(b)(1) has been explicitly rejected by the Commission in its most recent decisions under Sections 9(a) and 10 of the Act both with respect to exempt holding companies, (TUC Holding Company, Holding Co. Act Release No. 26749 (Aug. 1, 1997) and Houston Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997)) and newly formed registered companies (New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997)). In these recent decisions, the Commission acknowledged that as a result of the transformation of utilities' status as franchised monopolies with captive ratepayers to competitors and also as a result of the convergence of the electric and gas industries that was then underway -47- (and which continues today and of which SCANA is already a prime example), the historical standards of review had become outdated and that separated electric and gas companies might be weaker competitors than they would be together in the same market. New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997); Houston Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997). Moreover, in its registered holding company decisions, the Commission has explicitly allowed transactions where, as is the case with SCANA and PSNC, the resulting system will be predominantly electric although the merger will combine more than one gas system owned by the constituent parties. See WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998), aff'd sub nom., Madison Gas and Electric Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999); Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997); See also Dominion Resources, Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999) (transaction allowed in which a pure electric utility and a pure gas utility were combined in a newly registered holding company system). Thus, newer transactions, such as SCANA's proposed acquisition of PSNC, should be evaluated on the basis of new Commission precedent and policy in light of changing industry standards and should not be evaluated against criteria that have been repudiated by recent Commission decisions. SCANA believes that the Commission should approve the Preferred Second Merger as a matter of policy and as a matter of fairness, and can approve the Preferred Second Merger as a matter of law. First, the Commission has already acknowledged that the electric and gas industries are converging and that combination companies may be more effective competitors in a given market. The Commission has recognized and accepted the changing nature of the energy industry and, in particular, the fact that the combination of multiple electric and gas -48- operations in a single company offers that company a means to compete more effectively in the emerging energy services business in which a few cents can make the difference between economic success and economic failure. WPL Holdings, Inc., et al., Holding Co. Act Release No. 26856 (April 14, 1998), aff'd sub nom., Madison Gas and Electric Company v. SEC, supra. Indeed, the Commission has noted that "the utility industry is evolving towards a broadly based energy-related business"9 marked by "the interchangeability of different forms of energy, particularly gas and electricity."10 In the instant situation, the lost economies that would follow from denial of approval for the Preferred Second Merger are substantial, both quantitatively and qualitatively. Section 10(c)(1) does not require that the Commission rigidly enforce Section 11(b)(1) without consideration of the lost economies that would result from divestiture of additional systems in considering acquisitions under Section 9(a). As the Court of Appeals stated in Madison Gas and Electric Company v. SEC: By its terms . . ., Section 10(c)(1) does not require that new acquisitions comply to the letter with Section 11. In contrast to its strict incorporation of Section 8 . . ., with respect to Section 11 Section 10(c)(1) prohibits approval of an acquisition only if it "is detrimental to the carrying out of [Section 11's] provisions." The Commission has consistently read this provision to import into Section 10's regime not only the integration requirement of 11(b)(1)'s main clause but also the exceptions to the requirement in the (A)(B)(C) clauses.11 - -------- 9 Consolidated Natural Gas Company, Holding Co. Act Release No. 26512 (April 30, 1996). 10 Id. 11 Section 11(b)(1) states that "the Commission shall permit a registered holding company to continue to control one or more additional integrated public utility systems, if, after notice and opportunity for hearing, it finds that -- (A) Each of such additional systems cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system; (B) All of such additional systems are located in one state, or in adjoining states, or in a contiguous foreign country; and (C) The continued combination of such systems under the control of such holding company is not so large (considering the state of the art and the area or region affected) as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." -49- The economies and benefits that would be lost upon divestiture if SCANA were eventually forced to divest the post-merger combined gas systems of SCANA and PSNC are difficult to quantify because such economies have not yet been realized; however, the combination of the gas operations of PSNC and SCANA into the SCANA system is presently expected to result in significant revenue enhancement opportunities. Although no assurances can be given, SCANA currently expects that in each of the next five years, the combined gas company will realize increases in operating revenue of approximately $15 million, $16 million, $18 million, $19 million and $21 million, respectively. If the combined gas system was to be divorced from SCANA's existing electric system, the stand alone gas company would have greater operating costs and a smaller base for sharing those costs and would therefore realize a lesser amount of any increased revenue on its bottom line.12 Divestiture of the combined gas operations would also cause a significant, although difficult to quantify, amount of damages to SCANA's ability to compete in the - -------- 12 The Commission has recently approved a similar lost economies analysis in a situation where a registered holding company acquired a pure gas utility company and the application examined the lost revenue enhancement opportunities that would occur if the acquiror was forced to divest any of its newly acquired gas utility operations. See Northeast Utilities, Holding Co. Act Release No. 27127 (Feb. 1, 2000). -50- marketplace as well as costs to SCANA's customers and regulators. As noted above, the gas and electric industries are converging nationwide and in the southeastern region in particular, and in these circumstances separation of electric and gas businesses would likely cause the separated entities to be weaker competitors than they would be together. As competition has developed in the utility industry, those companies in the retail energy delivery business have found that they must be able to offer customers a range of options to meet their energy needs. Potential non- quantifiable costs to customers which would result from divestiture of the combined gas operations involve the additional expenses of doing business with two public utility companies instead of one and the costs associated with making multiple companies supply information to shareholders and publish reports required by the Exchange Act. Similarly, regulatory costs would involve additional duties for the staff of the SCPSC as a result of dealing with an additional public utility company. These additional duties would largely be the result of duplicating existing functions such as separate requests for approvals of financing. Additional lost economies that would result if SCANA were forced to divest any of the combined company's gas systems are the economies and benefits (i.e., revenue enhancement opportunities) that are expected to result over time following the Preferred Second Merger but would not be realized if the Preferred Second Merger were not approved. For all of the foregoing reasons, the Commission should hold that the combination of electric and gas operations under SCANA's newly registered holding company is lawful under the provisions of Section 8 and is not detrimental to the carrying out of the provisions of Section 11. -51- iv. Section 11 Analysis - Retention of Non-Utility Businesses As a result of the Preferred Second Merger, the non-utility businesses and interests of PSNC described above will become businesses and interests of SCANA. SCANA seeks to retain both its current non-utility businesses and those which SCANA will acquire from PSNC. All of these businesses satisfy the standards for retention of non-utility businesses set forth under Section 11(b)(1) of the Act and the cases interpreting the foregoing. Section 11(b)(1) limits the non-utility interests of a registered holding company to those that are "reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system", on a finding by the Commission that such interests are "necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper functioning" of the integrated system. The Commission has interpreted these provisions to require (i) the existence of an operating or functional relationship between the utility operations of the registered holding company and the non-utility activities sought to be retained13 and (ii) that the retention is in the public interest.14 The non-utility business may also be retained if the business evolved out of the system's utility business, the investment is not significant in relation to the system's total financial resources and the investment has the potential to produce benefits for investors and/or consumers.15 In addition, the - -------- 13 See generally Michigan Consolidated Gas Co., 44 S.E.C. 361 (1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971). 14 See, e.g., id. (quoting General Public Utilities Corp., 32 S.E.C. 807, 839 (1951)); United Light and Railways Co., 35 S.E.C. 516, 519 (1954). 15 CSW Credit, Inc., Holding Co., Act Release No. 25995 (1994); Jersey Central Power and Light Co., Holding Co. Act Release No. 24348 (March 18, 1987). -52- Commission has stated that "retainable non-utility interests should occupy a clearly subordinate position to the integrated system constituting the primary business of the registered holding company."16 With respect to new acquisitions, the Commission has interpreted Section 10(c)(1) of the Act to mean that "any property whose disposition would be required under Section 11(b)(1) may not be acquired." 17 Rule 58 of the Act provides additional evidence of the types of permissible non-utility activities retainable by registered systems as it exempts from Section 9(a) of the Act acquisitions by registered holding companies of the securities of an energy related company provided that after such an acquisition, the holding company's aggregate investment in such energy related company does not exceed $50 million or 15% of the consolidated capitalization of the registered holding company.18 Rule 58 defines 'energy related company' as a company that, directly or indirectly, derives substantially all of its revenues from certain enumerated activities. Clearly, if Rule 58 permits acquisition without SEC approval, then the types of businesses being acquired are retainable under the Act. Several of the non-utility businesses which SCANA seeks to retain after the Mergers are specifically enumerated activities under Rule 58, and will be discussed individually. Similarly, the Act also allows registered holding companies to acquire and maintain interests in the following exempt entities: exempt telecommunications companies - -------- 16 United Light and Railways Co., 35 S.E.C. at 519. 17 Texas Utilities Co., 21 S.E.C. 827, 829 (1946) (denying approval to acquisition of transportation company by registered holding company). 18 Rule 58(a)(1)(i)-(ii). -53- (Section 34), foreign utility companies (Section 33) and exempt wholesale generators (Section 32). As set forth below, all of SCANA's and PSNC's non-utility businesses meet the retention standards set out by the Commission, fall within the exemption for energy-related activities in Rule 58, are otherwise exempt entities or constitute a de minimis activity in the utility's local service territory.19 The material non-utility businesses currently relate to, evolved out of or support the operation of SCANA's or PSNC's utility businesses by being activities which have operating or functional relationships with the utility businesses of each. The retention of these non-utility businesses will also produce benefits for SCANA's present and future customers and shareholders, and therefore the retention of all the non-utility businesses should be permitted. 1. Pipeline Corporation, PSNC Cardinal Pipeline Company and Cardinal Pipeline Company, LLC: Pipeline Corporation is engaged in the purchase, transmission and sale of natural gas on a wholesale basis, through the ownership of transmission pipelines and LNG plants. Pipeline Corporation also supplies the natural gas for SCE&G's gas distribution system. This supply of natural gas for the utility operations of SCANA is clearly functionally related to such utility operations. See SEI Holdings, Inc., Holding Co. Act Release No. 26581 (Sept. 26, 1996) ("The Commission has approved the acquisition or construction of physical assets that are reasonably necessary in the day-to-day conduct of marketing operations.") See also New Century Energies, Inc. Release No. 26748 (Aug. 1, 1997) (authorizing retention of interest in Texas Ohio - -------- 19 This discussion does not cover the two existing SCANA subsidiaries that are currently in liquidation and not of issue under the Act. -54- Pipeline, Inc.). PSNC Cardinal Pipeline Company and Cardinal Pipeline Company, LLC are also engaged in the construction and operation of natural gas pipelines that provide essential transportation services to PSNC and are therefore similarly retainable by SCANA following the Mergers. Moreover, registered gas holding companies have been authorized to retain pipelines as functionally related. See, e.g., CNG Transmission Corporation, Holding Co. Act Release No. 25239 (Jan. 9, 1991) (and since SCANA is both an electric and gas holding company system, these operations are also functionally related for SCANA). Consequently, the Commission's decisions support the retainability of these pipelines and transmission interests. SCANA and PSNC believe that the Commission's approval hereunder of their request to retain PSNC's 33.21% interest in Cardinal Pipeline Company, LLC is sufficient to meet the criteria of Rule 16(a)(4) and Cardinal Pipeline Company, LLC meets the remaining criteria to be exempt from any obligations as a subsidiary or affiliate of a registered holding company under the Act. Thus, following consummation of the Merger, Cardinal Pipeline Company, LLC will be treated as a Rule 16 company with respect to its status under the Act. 2. South Carolina Fuel: South Carolina Fuel acquires, owns and provides financing for SCE&G's fuel, fossil and sulfur dioxide emission allowances. Rule 58 provides that a company that engages in the "ownership, operation and servicing of fuel procurement . . ." is an energy related company, and may be retained by a registered holding company.20 In addition, the Commission has found that fuel management services are acceptable - -------- 20 Rule 58(b)(1)(ix). -55- interests to be held by a registered holding company. See WPL Holdings, Release No. 26856 (April 14, 1998). 3. Energy Marketing, Energy Trading and Sonat Public Service: Energy Marketing and Energy Trading market electricity, natural gas and other light hydrocarbons, and also provide energy-related risk management services to producers and consumers. Sonat Public Service is engaged in gas brokering activities and also provides non- regulated energy products and services to industrial and commercial accounts. Rule 58 explicitly authorizes the retention of companies engaged in the "brokering and marketing of energy commodities, including . . . electricity [and] natural gas."21 In addition, the Commission has previously authorized the acquisition or retention of entities engaged in marketing and brokering as well as related risk management operations. See New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (retention of e prime which engages in "purchasing and selling gas and electricity at negotiated rates reflecting market conditions" and "employ[s] risk management strategies such as swaps, futures and option contracts"). See also SEI Holdings, Holding Co. Act Release No. 26581 (Sept. 26, 1996); Until Corp., Holding Co. Act Release No. 26527 (May 31, 1996); New England Electric System, Holding Co. Act Release No. 26520 (May 23, 1996). 4. SCANA Propane Gas and SCANA Propane Storage: In the fourth quarter of 1999, SCANA sold its interest in the assets held by these entities relating to purchasing, delivering and selling propane within the southeastern United States, and owning and operating an - -------- 21 Rule 58(2)(b)(v) -56- underground propane storage facility and leasing storage space to industries, utilities and others to Suburban Propane. Currently, SCANA Propane Gas and SCANA Propane Storage remain as inactive subsidiaries of SCANA. 5. SCI, SCANA Communications Holdings and FRC: SCI owns and operates a fiber optics telecommunications network and a radio service network within South Carolina, and also provides tower site construction, management and rental services in South Carolina and Georgia. SCANA Communications Holdings holds investments for SCI. FRC, a subsidiary of SCI, constructs, owns and operates a fiber optic line from Charleston, South Carolina to Raleigh, North Carolina. SCI has applied to the FCC for a determination that it is an "exempt telecommunications company" within the meaning of Section 33 of the Act. 6. ServiceCare: ServiceCare is engaged in providing energy-related products and services beyond the energy meter, providing customers with service contracts on their home appliances, and is also engaged in home security monitoring. A number of registered holding companies have been authorized to service home appliances and provide related warranties either directly or through subsidiary companies. (See Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997); New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997); and Cinergy Corporation, Holding Co. Act Release No. 26662 (Feb. 7, 1997)) as well as to engage in energy consulting and the provision of a range of energy related products to customers (See Central and South West Corp., Holding Co. Act Release No. 26367 (Sept. 1995); Entergy Corp., Holding Co. Act Release No. 26342 (July 27, 1995)). Finally, the retention of a home security service has been allowed by the Commission -57- pursuant to Section 11(b)(1) of the 1935 Act. See Conectiv, Inc., Release No. 26832 (Feb. 25, 1998). 7. Primesouth and Palmark: Primesouth and Palmark are engaged in power plant management and maintenance services. Primesouth is currently considering acquiring a 40% membership interest in a limited liability company that is engaged in synthetic fuel-related operations involving the processing of coal fines. Companies engaged in such activities are specifically enumerated as retainable under Rule 58(b)(1)(vii) and Rule 58(b)(1)(x), which exempt from Section (9)(a)(2) of the Act those companies which engage in "[the] sale of...management, and other similar kinds of expertise, developed in the course of utility operations in such areas as . . . maintenance and operation . . . "22 and "the development and commercialization of technologies or processes that utilize coal waste by-products as an integral component of such technology or process".23 The Commission's decisions have consistently held that a holding company may engage in such activities. See, e.g., New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (authorizing retention of subsidiary engaged in plant engineering, design, operation and maintenance); Central and South West Corporation, Holding Co. Act Release No. 26280 (Apr. 26, 1995) (authorizing the engineering and construction department to provide services to third parties); Entergy Corporation, Holding Co. Act Release No. 26322 (June 30, 1995) (approval for engaging in maintenance and management services); General Public Utilities Corporation, Holding Co. Act Release No. 25108 (June 26, 1990) - -------- 22 Rule 58(b)(1)(vii). 23 Rule58(b)(1)(x). -58- 2/8/00 10:50 AM (authorizing management services); Entergy Corporation, Holding Co. Act Release No. 25848 (July 8, 1993) (authorizing the development of alternative energy including synthetic fuels). Primesouth is therefore retainable by SCANA. 8. SCANA Resources: SCANA Resources' function is to provide a structural vehicle for the development of innovative business ideas related to the energy industry. The types of lines of business that are currently within SCANA Resources include: the development of remote electric and gas meter reading technology; the development of efficient gas heating and cooling equipment; the offerings via e-commerce of gas and electricity to commercial customers in selected markets; the offering of commercial, energy efficient lighting installation; and the installation and maintenance of standby, electric generators for fiber optic systems. Past Commission decisions have held that a holding company may be engaged in such energy-related investment activities. See Ameren Corporation, Holding Co. Act Release No. 26809 (December 30, 1997 ) (approval of retention of CIPSCO Energy Company, a vehicle seeking energy-related investment opportunities). 9. Clean Energy: Clean Energy is engaged in the conversion of vehicles to allow their operation on natural gas or other alternative fuels. Clean Energy also advises customers on the installation and operation of natural gas fueling stations, and also operates such stations. Rule 58 also specifically allows a registered holding company to own an interest in such a company. Under Section (b)(iii), a company engaged in the "ownership, operation, sale, installation and servicing of refueling, recharging and conversion equipment and -59- facilities relating to electric and compressed natural gas vehicles"24 is exempted from the provisions of Section 9(a)(2) of the Act. Consequently, Rule 58 explicitly allows for the retention of Clean Energy by SCANA, and, in addition, such activities have also been held to be retainable by the Commission. See New Century Energies, Inc., Release No. 26748 (August 1, 1997) (retention of company selling products and services related to electric and natural gas-powered vehicles, and in developing fueling sites for such vehicles). See also Consolidated Natural Gas Co., Holding Co. Act Release No. 25615 (Aug. 27, 1992); Central Power and Light Co., Holding Co. Act Release No. 26160 (Nov. 18, 1994). 10. Pine Needle and Blue Ridge: Pine Needle is a joint venture with other third parties formed to own and operate a liquefied natural gas storage facility. Blue Ridge is a PSNC subsidiary used to hold PSNC's equity interest in Pine Needle. The Commission has held that the storage of natural gas for use in a distribution business is functionally related to the operations of a gas utility under Section 11(b)(1) of the 1935 Act. See Conectiv, Inc. Release No. 26832 (February 25, 1998). Therefore, Blue Ridge, and consequently Pine Needle, are interests which are retainable by SCANA. SCANA and PSNC believe that the Commission's approval hereunder of their request to retain PSNC's 17% interest in Pine Needle is sufficient to meet the criteria of Rule 16(a)(4) and Pine Needle meets the remaining criteria to be exempt from any obligations as a subsidiary or affiliate of a registered holding company under the Act. Thus, following consummation of the Merger, Pine Needle will be treated as a Rule 16 company with respect to its status under the Act. - -------- 24 Rule 58(b)(iii). -60- 11. Cogen: Cogen builds and operates boilers and turbines at a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Steam produced by the Cogen facility is then sold, in turn, to Westvaco. The Commission has previously approved transactions in which a newly registered holding company acquired a steam producing subsidiary that sold steam produced by boilers. See New Century Energies, Inc., Holding Co. Act Release No. 26748 (August 1, 1997). 12. Palmetto: SCANA owns a 49% membership interest in Palmetto, a subsidiary engaged in the sale of lime. 20% of Palmetto's sales are to SCANA utility subsidiaries which use the lime for environmental remediation and energy-related activities. Palmetto is an energy-related company whose sales of lime to SCANA's utility subsidiaries support the environmental remediation aspect of SCANA's utility operations. SCANA hereby requests that the Commission reserve jurisdiction over the retention of Palmetto. 13. SCE&G's Bus Transit Services: SCE&G operates a bus service (the "Bus Service") which provides transportation throughout Columbia, South Carolina. The Bus Service does not fall within the bounds of the Rule 40 exemption from Section 9 because it is operated by a public utility subsidiary company and SCANA recognizes that retention of the Bus Service is not consistent with Section 11 of the Act under the majority of Commission precedent. See Cities Service Power & Light Co., 14 S.E.C. 28 (1943); Commonwealth & Southern Corp., 26 S.E.C. 464 (1947); Philadelphia Co., 28 S.E.C. 35 (1948); contra Middle South Utilities, Inc., 35 S.E.C. 1 (1953). SCANA hereby requests, however, that the Commission authorize SCANA to retain its interest in the Bus Service for a period of 2 years following completion of the Preferred Second Merger and the registration of SCANA under the Act to allow for an orderly disposition of these assets consistent with the objectives of the Act within that 2 year period. -61- 14. Utility Ownership of Buildings and Property: Both SCE&G and PSNC own buildings and property used in connection with their utility operations. The Commission has allowed retention of such buildings and property for use in utility operations. See New Century Energies, Inc., Holding Co. Act Release No. 26748 (August 1, 1997); UNTIL Corp., Holding Co. Act Release No. 25524 (April 24, 1992); American Electric Power Co., Holding Co. Act Release No. 21898 (January 27, 1981). With the exception of the Bus Service, all of the current material non-utility businesses of SCANA and PSNC will bear a strong functional relationship to the utility business of SCANA following the Mergers. The Commission has consistently stated in previous releases that interests similar to those enumerated above are retainable by registered holding companies, and furthermore, Rule 58 now specifically allows retention of some of the above interests. Due to these factors, the Commission should permit the retention of all of SCANA's and PSNC's current non-utility businesses. Moreover, it should be noted that in its recent orders approving mergers that create registered holding companies, the Commission has held that investments made by a merging holding company while that company was exempt from the Act do not count toward the safe-harbor limit under Rule 58 that no more than 15% of consolidated capitalization be invested in energy-related companies. See New Century Energies, Inc., Release No. 26748 (August 1, 1997). b. Section 10(c)(2) Section 10(c)(2) requires the Commission to examine whether a proposed acquisition will serve the public interest by tending towards the economical and efficient development of an integrated public utility system. For all of the foregoing reasons, the -62- acquisition of PSNC by SCANA in the Preferred Second Merger meets the criteria of Section 10(c)(2). SCANA's acquisition of PSNC will produce long-term benefits, both quantitative and qualitative economies and efficiencies, and will result in the creation of an economically integrated and efficient energy company consistent with modern notions of "integration". SCANA's acquisition of PSNC will produce long-term benefits. Although some of the anticipated economies and efficiencies will be fully realizable only in the longer term, they are properly considered in determining whether the standards of Section 10(c)(2) have been met. See American Electric Power Co., 46 S.E.C. 1299, 1320-1321 (1978). Further, the Commission has recognized that while some potential benefits cannot be precisely estimated, nevertheless they too are entitled to be considered: "[S]pecific dollar forecasts of future savings are not necessarily required; a demonstrated potential for economies will suffice even when these are not precisely quantifiable." Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986) (citation omitted). See Energy East Corporation, Holding Co. Act Release No. 26976 (Feb. 12, 1999) (authorizing acquisition based on strategic benefits and potential but presently unquantifiable savings.) SCANA's acquisition of PSNC will also produce a number of quantitative and qualitative benefits. SCANA expects to be able to achieve synergies from corporate and operations labor costs of $20 million over five years. SCANA also expects to be able to reach gas supply cost savings of $5 million per year with 4 years after completion of the Mergers, and under the existing order from the NCUC, benefits from gas supply savings will accrue to ratepayers. The acquisition of PSNC will also provide SCANA with the opportunity to extend its service area into some of the fastest growing markets in North Carolina while increasing SCANA's domestic -63- retail customer base to approximately 1.3 million customers in the southeastern region. SCANA and its shareholders and employees will be able to participate in these growing markets through PSNC, a company with which customers in North Carolina are familiar. In turn, as previously described herein, SCANA expects to increase its annual revenues substantially, which should result in increased cash flow for reinvestment and growth in the energy and services delivery businesses. The integration of PSNC into the SCANA system is also expected to provide opportunities for margin improvement and cost savings though consolidation of duplicate functions and greater efficiencies in operations, business processes and purchasing. SCANA's acquisition of PSNC will also allow SCANA to offer customers access to more comprehensive products and services than either company alone could offer. The retail natural gas experience and expertise of PSNC will complement the electricity, natural gas and telecommunications experience and expertise of SCANA, thus offering improved capabilities in the delivery of a more complete range of products and services for all customers. For these reasons, the acquisition of PSNC by SCANA will serve the public interest by tending towards the economical and efficient development of an integrated public utility system. 3. Section 10(f) Section 10(f) prohibits the Commission from approving an acquisition unless the Commission is satisfied that the acquisition will be undertaken in compliance with applicable state laws. As described in Item 4 of this Application-Declaration, SCANA's acquisition of PSNC pursuant to the Preferred Second Merger will be consummated in compliance with all applicable state laws. -64- Item 4. Regulatory Approvals 1. The NCUC The Preferred Second Merger is subject to the jurisdiction of the NCUC. Such regulation is governed by North Carolina General Statute, Section 62-111(a), which states that "any merger or combination affecting any public utility" shall require application to and written approval by the NCUC". The standard for evaluating a public utility merger under this North Carolina statute is whether the transaction is "justified by the public convenience and necessity." On May 3, 1999, SCANA and PSNC filed an application for approval with the NCUC and on December 7, 1999 the NCUC issued an order approving the Preferred Second Merger. A motion to appeal the order was dismissed by the NCUC on January 11, 2000. A copy of the order of the NCUC is attached hereto as Exhibit D-1.2. The order of the NCUC requires that SCANA and PSNC advise the Commission of certain conditions and make certain requests of the Commission as set forth in the NCUC order. These conditions and requests are as follows: 1. With respect to any transaction that is subject to Section 13 of the Act, the following procedures shall apply: a. PSNC shall not engage in any such transaction without first obtaining from the NCUC such authority as is required under North Carolina law accepting the contract that memorializes such a transaction and authorizing the payment of compensation or fees pursuant thereto. Proposed contracts must first be submitted to the Public Staff for informal review at least ten days before filing with the NCUC. b. Any such contract shall provide that PSNC: i. may not make or incur a charge under any such contract except in accordance with North Carolina law and the rules, regulations, and orders of the NCUC promulgated thereunder; and -65- ii. may not seek to reflect in rates any cost incurred or revenue level earned under an agreement subject to the Act to the extent disallowed by the NCUC. c. The Commission shall have found that such contract is not inconsistent with the Act except that no such finding by the Commission shall be required if no Commission approval of such contract is required under the Act. 2. Neither PSNC, SCANA, nor any affiliate thereof shall assert in any forum, with respect to any transaction to which PSNC is involved and which is subject to Section 13 of the Act, that the Act in any way preempts the NCUC from reviewing the reasonableness of any commitment entered into by PSNC and from disallowing costs of or imputing revenues to PSNC. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. 3. PSNC and SCANA shall request the SEC to include the following language in any order issued approving SCANA's acquisition of PSNC: Approval of this application in no way precludes the North Carolina Utilities Commission from scrutinizing and disallowing charges incurred or made or allowing or imputing a different level of such charges when setting rates for services rendered to customers of affiliated public utilities in North Carolina. 4. PSNC shall not take any service from an affiliate under circumstances where its costs incurred for that service (whether directly or through allocation) exceed fair market value. 5. With respect to the voluntary transfer by PSNC or any affiliate thereof to nonjurisdictional operations, an affiliate, and/or a nonaffiliate of the control or ownership of any asset or portion thereof used for the transmission, distribution, or other provision of natural gas service to customers in North Carolina. a. SCANA and PSNC shall not commit to or carry out such a transfer except in accordance with North Carolina law and the rules, regulations and orders of the NCUC promulgated thereunder; and b. PSNC may not reflect in rates the value of any such transfer subject to the Act except as allowed by the NCUC. -66- 6. SCANA and PSNC shall include in their application for approval of the acquisition filed with the SEC pursuant to the Act the commitment set forth in paragraph 5 above. 7. SCANA and PSNC shall include in their application for approval of the acquisition filed with the SEC pursuant to the Act a request that the SEC include the following statement in its approval order(s): SCANA and PSNC recognize that the NCUC wishes to preserve its state law authority, under present or future state law, to require approval of transfers of control or ownership of any asset or portion thereof from PSNC or one or more of its affiliates to nonjurisdictional operations, affiliates, or nonaffiliates. Without conceding their right to assert that the NCUC does not and should not have such authority, SCANA and PSNC request the SEC to state, in its order approving the instant acquisition, that the SEC does not intend its approval of the acquisition to preclude a future state commission order mandating or otherwise exercising state authority over such a transfer of assets. 8. Any filing with the SEC in connection with asset transfers involving PSNC shall request that the SEC include the following language in its approval order(s): Approval of this application in no way precludes the North Carolina Utilities Commission from scrutinizing and establishing the value of the asset transfer for purposes of determining the rates for services rendered to PSNC's customers. It is the SEC's intention that the North Carolina Utilities Commission retain the right to review and determine the value of such asset transfer for purposes of determining rates. 9. Neither PSNC, SCANA, nor any affiliate thereof shall assert in any forum, with respect to any asset transfer transaction to which PSNC is involved and which is subject to the Act, that the Act in any way preempts the NCUC from (a) exercising such authority as it may have under North Carolina law to mandate, approve, or otherwise regulate a transfer of assets by or to PSNC, or (b) scrutinizing and establishing the value of the asset transfers for purposes of determining the rates for services rendered to PSNC's customers. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. -67- 10. With respect to any financing transaction entered into between PSNC and SCANA or among PSNC and/or any one or more of its other affiliates, any contract memorializing such transaction shall provide that PSNC: a. may not enter into any such financing transaction except in accordance with North Carolina law and the rules, regulations, and orders of the NCUC promulgated thereunder; and b. may not reflect in rates the effect of any capital structure or debt and/or equity costs except as allowed by the NCUC. 11. PSNC and SCANA shall include in their application for approval of the acquisition filed with the Commission pursuant to the Act a request that the Commission include the following statement in its approval order(s): The SEC further finds that its approval of this acquisition or future financing arrangements does not preclude the NCUC or other regulatory authority from setting rates based on the assumption of a capital structure, a corporate structure, debt costs or equity costs that varies from the structure(s) or cost(s) approved in this Order. 12. Neither PSNC, SCANA, nor any other affiliate thereof shall assert in any forum, with respect to any financing transaction with which PSNC is involved and which is subject to the Act, that the Act in any way preempts the NCUC from exercising any lawful authority it may have over such financings or that the NCUC is precluded from setting rates based on the capital structure, corporate structure, debt costs, or equity costs that it finds to be appropriate for ratemaking purposes. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. 13. With respect to the above-described affiliate transactions, asset transfers, and financings, PSNC, SCANA, and their affiliates shall bear the full risk of any preemptive effects of the Act. The previous sentence includes, but is not limited to, agreement by PSNC, SCANA, and their affiliates to take all such actions as may be reasonably necessary and appropriate to hold North Carolina ratepayers harmless from rate increases, foregone opportunities for rate decreases, or other effects of such preemption. Such actions include, but are not limited to, filing with and obtaining approval from the Commission of such commitments as the NCUC deems reasonably necessary to prevent such preemptive effects. 14. If the Act is amended or replaced by future legislation, the parties shall meet promptly after the passage of such legislation and negotiate in good faith whether -68- and how these conditions have been affected by such legislation and whether they should be revised or removed. In the event the parties are unable to reach agreement within a reasonable time after passage of such legislation, the unresolved issues shall be submitted to the NCUC for resolution. 2. HSR The Preferred Second Merger is also subject to the notification and reporting requirements of the HSR Act, and on September 26, 1999, the applicable waiting period under the HSR Act expired. In addition, the transfer of certain licenses held by PSNC must be approved by the FCC. No other state or federal commission has jurisdiction over the Preferred Second Merger. Item 5. Procedure The Commission has issued and published the requisite notice under Rule 23 with respect to the filing of this Application on August 31, 1999, and specified September 27, 1999 as the date by which comments must be entered and the date on which an order of the Commission granting and permitting this Application to become effective may be entered. On September 24, 1999, an intervention was filed with the Commission by Paul S. Davis; however, this intervention was withdrawn by Mr. Davis on December 15, 1999. It is submitted that a recommended decision by a hearing or other responsible officer of the Commission is not needed for approval of the proposed acquisition. The Division of Investment Management may assist in the preparation of the Commission's decision. There should be no waiting period between the issuance of the Commission's order and the date on which it is to become effective. -69- Item 6. Exhibits and Financial Statements A. Exhibits A-1.1 Restated Articles of Incorporation of SCANA as adopted on April 26, 1989 (Filed as Exhibit 3-A to Registration Statement No. 33-49145 and incorporated by reference herein). A-1.2 Articles of Amendment of SCANA, dated April 27, 1995 (Filed as Exhibit 4-B to Registration Statement No. 33-62421 and incorporated by reference herein). A-2 Copy of By-Laws of SCANA as revised and amended on December 17, 1997 (Filed as Exhibit 3-C to Form 10-K for the year ended December 31, 1997 and incorporated by reference herein). A-3 Amended and Restated Charter of PSNC, dated February 1, 1991. (Filed as Exhibit 3-A-4 to PSNC's 1992 Form 10-K and incorporated by reference herein). A-4 By-laws of PSNC, as amended to date. (Filed as Exhibit 3-I to PSNC's Form 10-Q for the quarter ended March 31, 1994 and incorporated by reference herein). B-1 Amended and Restated Agreement and Plan of Merger, dated as of February 16, 1999 and amended and restated as of May 10, 1999, by and among PSNC, SCANA, New Sub I, Inc. and New Sub II, Inc. (included in Exhibit C-1 hereto). C-1 Registration Statement on Form S-4 of SCANA for the shareholders meeting to be held in connection with the Mergers (filed with the Commission on May 11, 1999 (File No. 333-78227) and incorporated by reference herein). -70- C-2 Joint Proxy Statement/Prospectus of SCANA and PSNC for the special meeting of shareholders to be held in connection with the Mergers (included in Exhibit C-1). D-1.1 Application of PSNC before the NCUC. (previously filed) D-1.2 Order of the NCUC. E-1 Map of service territory of SCANA (previously filed in paper format on Form SE). E-2 Map of service territory of PSNC (previously filed in paper format on Form SE). E-3 SCANA Corporate Chart (included in Exhibit C-1). E-4 PSNC Corporate Chart (included in Exhibit C-1). F-1 Opinion of Counsel (previously filed). F-2 Past tense opinion of counsel (to be filed by amendment). G-1 Opinion of Morgan Stanley and Co. Incorporated (included in Exhibit C-1). G-2 Opinion of PaineWebber Incorporated (included in Exhibit C-1). H-1 Annual Report of PSNC on Form 10-K for the year ended September 30, 1999 (filed with the Commission on December 23, 1999 and incorporated by reference herein). H-2 Annual Report of SCANA on Form 10-K for the year ended December 31, 1998 (filed with the Commission on March 18, 1999 and amended on April 27, 1999, and incorporated by reference herein). -71- H-3 Annual Report of PSNC on Form 10-K for the year ended September 30, 1998 (filed with the Commission on December 21, 1998 and incorporated by reference herein). H-4 Quarterly Report on Form 10-Q of SCANA for the quarter ended September 30, 1999 (filed with the Commission on November 15, 1999 and incorporated by reference herein). H-5 Quarterly Report on Form 10-Q of SCANA for the quarter ended June 30, 1999 (filed with the Commission on August 13, 1999 and incorporated by reference herein). H-6 Quarterly Report on Form 10-Q of PSNC for the quarter ended June 30, 1999 (filed with the Commission on August 13, 1999 and incorporated by reference herein). H-7 Quarterly Report on Form 10-Q of SCANA for the quarter ended March 31, 1999 (filed with the Commission on May 17, 1999 and incorporated by reference herein). H-8 Quarterly Report on Form 10-Q of PSNC for the quarter ended March 31, 1999 (filed with the Commission on May 14, 1999 and incorporated by reference herein). H-9 Quarterly Report on Form 10-Q of PSNC for the quarter ended December 31, 1998 (filed with the Commission on February 12, 1999 and incorporated by reference herein). -72- H-10 Form U-3A-2 of SCANA for the year ended December 31, 1998 (filed with the Commission on February 26, 1999 and incorporated by reference herein). I-1 Proposed Form of Notice (previously filed). J-1 Withdrawn. J-2 Withdrawn. J-3 Credit Agreement by and between SCANA, First Union National Bank, The Bank of New York, Bank of America N.A., Suntrust Bank, Atlanta and Wachovia Bank, N.A., dated December 1, 1999. B. Financial Statements FS-1 SCANA Unaudited Pro Forma Condensed Consolidated Balance Sheet (included in Exhibit C-1). FS-2 SCANA Unaudited Pro Forma Condensed Consolidated Statement of Income (included in Exhibit C-1). FS-3 Notes to SCANA Unaudited Pro Forma Condensed Consolidated Financial Statements (included in Exhibit C-1). FS-4 SCANA Consolidated Balance Sheet as of September 30, 1999 (as included in Exhibit H-4). FS-5 SCANA Consolidated Statement of Income for the three months ended September 30, 1999 (as included in Exhibit H-4). FS-6 PSNC Consolidated Balance Sheet as of September 30, 1999 (included in Exhibit H-1). -73- FS-7 PSNC Consolidated Statement of Income for the fiscal year ended September 30, 1999 (included in Exhibit H-1). Item 7. Information as to Environmental Effects The proposed transaction involves neither a "major federal action" nor "significantly affects the quality of the human environment" as those terms are used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq. No federal agency is preparing an environmental impact statement with respect to this matter. -74- SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the Applicant has duly caused this Pre-Effective Amendment No. 2 to the Application/Declaration to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 9, 2000 SCANA CORPORATION /s/ H. Thomas Arthur ------------------------------- Name: H. Thomas Arthur Title: Senior Vice President and General Counsel -75- EX-99.1 2 EXHIBIT D-1.2 STATE OF NORTH CAROLINA UTILITIES COMMISSION RALEIGH DOCKET NO. G-5, SUB 400 DOCKET NO. G-43 BEFORE THE NORTH CAROLINA UTILITIES COMMISSION In the Matter of Application of SCANA Corporation and Public ) ORDER Service Company of North Carolina, Inc., for ) APPROVING Authorization under General Statute Sections ) MERGER AND 62-111 and 62-161 to Exchange and Redeem ) ISSUANCE OF Securities in Connection with a Business ) SECURITIES Combination Transaction ) HEARD: Community Classroom of the Gaston County Health Department, 991 West Hudson Boulevard, Gastonia, North Carolina, on Tuesday, July 13, 1999, at 7:00 p.m.; Courtroom No. 2, Buncombe County Courthouse, Asheville, North Carolina, on Wednesday, July 14, 1999, at 7:00 p.m.; Commission Hearing Room 2115, Dobbs Building, 430 North Salisbury Street, Raleigh, North Carolina, on Monday, August 30, 1999, at 7:00 p.m. and Tuesday, August 31, 1999, at 9:30 a.m.; and Commission Hearing Room 2115, Dobbs Building, 430 North Salisbury Street, Raleigh, North Carolina, on Monday, September 27, 1999, through Wednesday, September 29, 1999. BEFORE: Chairman Jo Anne Sanford, Presiding, and Commissioners Ralph A. Hunt, Judy Hunt, William R. Pittman, J. Richard Conder, and Robert V. Owens, Jr. APPEARANCES: For SCANA Corporation and Public Service Company of North Carolina, Inc. Sarena D. Burch, Associate General Counsel, SCANA Corporation, 1426 Main Street, Columbia, South Carolina 29201 1 J. Paul Douglas, Corporate Counsel and Secretary, Public Service Company of North Carolina, Inc., Post Office Box 1398, Gastonia, North Carolina 28053 Allyson K. Duncan, Kilpatrick Stockton, LLP, 3737 Glenwood Avenue, Suite 400, Raleigh, North Carolina 27612 For Carolina Utility Customers Association, Inc.: James P. West, West Law Offices, PC, Suite 1735, 434 Fayetteville Street Mall, Raleigh, North Carolina 27601 For the Using and Consuming Public: Gisele L. Rankin and Amy Barnes Babb, Staff Attorneys, Public Staff-North Carolina Utilities Commission, Post Office Box 29520, Raleigh, North Carolina 27626-0520 Leonard Green, Assistant Attorney General, North Carolina Department of Justice, Post Office Box 629, Raleigh, North Carolina 27602-0629 BY THE COMMISSION: On May 3, 1999, SCANA Corporation (SCANA) and Public Service Company of North Carolina, Inc. (PSNC) (collectively Applicants), filed a joint application with the North Carolina Utilities Commission (Commission or NCUC) pursuant to G.S. 62-111, G.S. 62-161, and Commission Rule R1-16 for authorization to engage in and to issue securities in connection with a business combination transaction. In the initial application, the Applicants explained that they had agreed to a two-step merger transaction. In the first step, a wholly-owned subsidiary of SCANA formed for the purposes of the merger would be merged into SCANA and SCANA would survive. In the second step, PSNC would be merged with and into another wholly owned subsidiary of SCANA, and the SCANA subsidiary would survive. Depending on the outcome of certain regulatory proceedings, PSNC was to be merged either into a special purpose subsidiary of SCANA formed for the purposes of the merger, or into South Carolina Electric & Gas Company (SCE&G), SCANA's existing gas and electric utility. Following the receipt of the required state and federal regulatory and other approvals, PSNC was to become either a direct subsidiary of SCANA or a division of SCE&G. By a petition dated May 14, 1999, Carolina Utility Customers Association, Inc. (CUCA), filed a petition to intervene, which was allowed by the Commission. By notice dated July 20, 1999, the Attorney General filed his intervention. The intervention of the Public Staff is noted pursuant to Commission Rule R1-19(e). On May 19, 1999, the Commission issued an order scheduling the application for public hearings in Gastonia, Asheville, and Raleigh, North Carolina. The evidentiary 2 hearing on the application was scheduled to begin August 31, 1999, in Raleigh. The Order also established the due dates for prefiled testimony, the filing of petitions to intervene, and required PSNC to provide public notice of the application and the scheduled hearings. Notice was properly given by PSNC. The public hearings were held as scheduled. On August 11, 1999, the Public Staff filed a motion requesting that the Commission issue an order extending the due date for the filing of Public Staff and other intervenor testimony to and including Friday, August 20, 1999, based on SCANA's notice from the Securities and Exchange Commission (SEC) that SCANA could not acquire PSNC and remain an exempt holding company under the Public Utility Holding Company Act of 1935 (PUHCA). In addition, the Public Staff requested additional time to file its testimony in order to review SCANA's and PSNC's filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (Hart-Scott-Rodino) with the United States Department of Justice and the Federal Trade Commission (FTC). By Order dated August 11, 1999, the Commission granted the Public Staff's request for an extension of time to file testimony and extended the due date for the filing of intervenor testimony to and including August 20, 1999. On August 19, 1999, the Applicants filed a motion to amend their application and testimony to reflect SCANA's decision to hold PSNC as a wholly-owned subsidiary of SCANA and register with the SEC as a holding company under PUHCA. As a result of this change, it was necessary to revise paragraph 9 on page 4 of the Applicants' initial application and to reflect the change in the prefiled direct testimony of William B. Timmerman and Charles E. Zeigler, Jr. On August 19, 1999, CUCA filed a request with the Commission that the hearing be continued until at least October 5, 1999, and that the due date for intervenor testimony be extended commensurately. On August 20, 1999, the Public Staff filed a second motion for an extension of time to file testimony and requested that the Commission issue an order extending the due date for the filing of intervenor testimony to Monday, August 23, 1999, and the due date for the filing of the Applicants' rebuttal testimony to Friday, August 27, 1999. The Commission issued an Order granting the extensions requested by the Public Staff. On August 20, 1999, CUCA filed a motion asking that the Commission reconsider the extensions of time granted in its Order of August 20, 1999. In its motion, CUCA requested that the Commission postpone the hearing by at least one month and reset the procedural schedule to accommodate additional discovery. On August 23, 1999, the Public Staff filed its response to CUCA's motion for reconsideration. SCANA and PSNC also filed on August 23, 1999, in opposition to CUCA's motion for a continuance. On August 24, 1999, the Commission issued an order allowing the Applicants' motion to amend their application and testimony and allowing CUCA's motion for a continuance. The motion for continuance was allowed "[b]ased upon the Applicants' moving to amend 3 the application only one business day before intervenor testimony was due."1 The evidentiary hearing was rescheduled to begin on Monday, September 27, 1999, at 1:30 p.m., intervenor testimony was made due on or before September 13, 1999, and the Applicants' rebuttal testimony, if any, was made due on or before September 20, 1999. Numerous motions regarding discovery disputes were filed, and the Commission made rulings on these motions. The case was heard on September 27, 1999, through September 29, 1999. Following opening statements, the Applicants presented the testimony of William B. Timmerman, Chairman and Chief Executive Officer of SCANA, and Charles E. Zeigler, Jr., Chairman, President and Chief Executive Officer of PSNC. Eugene H. Curtis, Director, Natural Gas Division; Thomas W. Farmer, Jr., Director, Economic Research Division; and James G. Hoard, Supervisor, Natural Gas Section, Accounting Division, presented testimony as a panel on behalf of the Public Staff. CUCA presented the testimony of Dr. Mark Frankena, a Principal with Economists, Incorporated, and Kevin W. O'Donnell, President, Nova Energy Consultants, Inc. The Applicants then presented the rebuttal testimony of Kevin B. Marsh, Senior Vice President, Chief Financial Officer, and Controller of SCANA; Charles E. Zeigler, Jr., Chairman, President and Chief Executive Officer of PSNC; and Dr. Julius A. Wright, President, J. A. Wright and Associates. No other parties presented testimony, and no public witnesses testified at the hearings. Proposed orders and briefs were filed on November 3, 1999. Based on the Applicants' verified application, the testimony and exhibits received into evidence at the hearing, and the record as a whole, the Commission now makes the following FINDINGS OF FACT 1. PSNC is a public utility company incorporated in North Carolina, and it is subject to the jurisdiction of this Commission. PSNC is engaged primarily in the business of transporting, distributing and selling natural gas to approximately 350,000 customers in 95 cities and communities within its service territories in the central and western portions of the State. - -------- 1 The Commission notes that Carolina Power & Light Company (CP&L) and North Carolina Natural Gas Corporation (NCNG), in their merger proceeding (Docket Nos. E-2, Sub 740 and G-21, Sub 377), similarly moved to amend their application one day before intervenor testimony was due. However, unlike the instant case, no party to the CP&L/NCNG merger proceeding requested that the hearing be delayed. 4 2. SCANA is an energy-based holding company duly organized and existing under the laws of the State of South Carolina with total assets, net of accumulated depreciation, of $5.3 billion at December 31, 1998. Its primary subsidiary, SCE&G, is a public utility that provides electric service to more than 517,000 electric customers in the central, southern, and southwestern portions of South Carolina and provides natural gas service to more than 256,000 retail customers in central and southern South Carolina, subject to the jurisdiction of the Public Service Commission of South Carolina. SCANA also owns South Carolina Pipeline Corporation, an intrastate pipeline; South Carolina Generating Company, which sells electricity to SCE&G and is regulated by the Federal Energy Regulatory Commission (FERC); and several nonregulated energy-related, telecommunications, and other businesses. 3. Through their application to the Commission, SCANA and PSNC seek authorization under G.S. 62-111 and G.S. 62-161 to engage in a business combination transaction and for authorization to exchange or redeem securities in connection with that transaction. The proposed transaction would make PSNC a wholly-owned subsidiary of SCANA through a two-step process. In the first step, a wholly-owned subsidiary of SCANA would be formed for the purpose of the merger; it would be merged with and into SCANA, and SCANA would survive. In step two, PSNC would be merged with and into a special purpose subsidiary of SCANA formed for the purposes of the merger, and after all approvals have been obtained, PSNC would become a direct subsidiary of SCANA. The merger would maintain the existing legal and regulatory status of PSNC. 4. If the merger is approved, shareholders of both SCANA and PSNC will have the option of electing either cash or SCANA common stock or a combination of both in return for their shares, subject to specific limitations. In exchange for each share of common stock, PSNC shareholders will be given the option of receiving either (1) $33 in cash, subject to the limitation that a maximum of 50% of the aggregate consideration to be paid to PSNC shareholders may be paid in cash, or (2) shares of SCANA common stock based on an exchange ratio designed to distribute SCANA common stock with a market value of approximately $33 for each share of PSNC common stock, subject to specific restrictions. SCANA shareholders will have the option of electing either $30 in cash or 1.0 share of SCANA common stock for each share of SCANA common stock held, subject to the requirement that SCANA will pay a maximum of $700 million in cash in the aggregate as consideration if the merger is approved. PSNC shareholders will have the right of first refusal to receive cash from this pool, subject to the 50% limitation of total PSNC consideration. 5. Upon the closing of the merger transaction, SCANA will register with the SEC as a holding company under PUHCA. SCANA and PSNC committed in their amended application to taking all such actions as the Commission finds necessary to protect the Commission's jurisdiction from preemption. The Regulatory Conditions adopted herein, 5 along with the commitments made by the Applicants, are adequate to protect this Commission's jurisdiction from preemption by the SEC pursuant to PUHCA. 6. After the merger is consummated, PSNC will continue to maintain and issue its own debt and will remain an entity separate from SCANA with its own Commission- approved capital structure. 7. The quantitative measures of financial strength commonly considered by bond rating agencies are expected to improve for PSNC, because SCANA and SCE&G both have stronger corporate credit and debt ratings than PSNC. Specifically, Standard & Poor's, a bond rating agency, placed the ratings for PSNC on CreditWatch with positive implications, and Moody's Investment Service confirmed the ratings and changed its outlook to positive. 8. While it is too soon to quantify the benefits of PSNC's strengthened financial position to PSNC and its ratepayers, the merger is very likely to reduce PSNC's cost of borrowing over the long-term. 9. The cost-of-capital Regulatory Conditions (Regulatory Conditions 20 through 24), adequately protect PSNC's ratepayers from any merger-related increases in the cost of capital. 10. Other significant benefits to PSNC's ratepayers would result from the merger, including, among others, the creation of a larger, more viable and more financially diverse company with a broader range of assets; the creation of a company that is better able to compete and better able to provide stable and reliable service; the implementation of operating efficiencies from economies of scale and the more efficient use of such features as SCANA's state-of-the art information system; the avoidance of future rate increases; and the implementation of an immediate rate reduction and a five-year rate cap. 11. As a condition of the merger (Regulatory Condition 30), PSNC will reduce rates by $1,043,542 within six months of the merger's closing date and then reduce rates 12 months later by an additional $1,043,542. This equates to an annual rate reduction of approximately $2.1 million, when fully implemented, that will benefit PSNC's ratepayers until at least the end of the five-year rate cap period. 12. The five-year rate cap is equivalent to three years of avoiding rate increases comparable to PSNC's most recent rate increase, which amounts to approximately $37.5 million of avoided rate increases. 13. All costs of the merger and all direct and indirect corporate cost increases attributable to the merger will be excluded from PSNC's utility accounts or costs for all purposes that affect its retail rates and charges. 6 14. Upon closing, the difference between the purchase price offered by SCANA and the currently recorded value of PSNC's assets and liabilities will be recorded as an acquisition adjustment. SCANA and PSNC have agreed to exclude this acquisition adjustment from PSNC's utility accounts for all purposes that could affect PSNC rates and charges. 15. Total merger costs, including the acquisition adjustment, are estimated to be $495 million. PSNC's ratepayers will bear no responsibility for these costs. 16. The commitments of the Applicants, including their absorption of all direct and indirect merger costs and the acquisition adjustment that will be created upon closing, and the rate reduction and five-year rate cap, constitute an equitable allocation of benefits and costs between ratepayers and shareholders. 17. While an evaluation of potential savings resulting from a merger may provide relevant information to consider pursuant to G.S. 62-111, neither North Carolina law nor Commission rules or precedent currently require a formal quantification of such savings in every case. 18. The Public Staff quantified all of the potential areas of material cost savings that it believed could be creditably quantified. Most of the items of potential savings that were not quantified were viewed as too speculative to quantify at this time or were viewed as imposing costs that would offset part, if not all, of the potential savings for a particular item. 19. PSNC's quality of service is expected to be maintained after the merger. Regulatory Condition 31 is designed to ensure that the quality of service received by PSNC's customers does not decline due to changes in corporate structure or because of other potential effects of the merger. 20. There is a limited amount of gas-fired generation in operation at this time in North Carolina. The approximately 4,000 MW of gas-fired combustion turbine generation under construction or in the process of being certificated will be served by a significant number of suppliers. Only 320 MW of this combustion turbine capacity is in PSNC's territory. Current and future gas-fired generators competing with SCANA have significant alternatives to PSNC for delivered gas service. 21. The FTC and the Department of Justice, which have jurisdiction over market power issues at the federal level, found no basis in SCANA's and PSNC's Hart-Scott-Rodino filings on which to request additional information or otherwise pursue market power as an issue raised by the proposed merger. 7 22. The appropriateness of imposing a code of conduct as a means of mitigating market power concerns is well-recognized nationwide. 23. The Regulatory Conditions and Code of Conduct adopted herein are adequate to address any market power issues which may arise in the future. 24. The Regulatory Conditions and Code of Conduct and the commitments by SCANA and PSNC in their testimony, which have been adopted herein, are adequate to ensure that there will be no adverse impact on the rates and service of PSNC's retail ratepayers, that PSNC's ratepayers are protected as much as possible from potential harm, and that they will receive sufficient benefits from the merger to offset any potential costs and harms. 25. The business combination transaction proposed by SCANA and PSNC is justified by the public convenience and necessity, and the proposed exchange and redemption of PSNC stock in connection therewith are for a lawful object, are compatible with the public interest, are consistent with the proper performance by PSNC of its service to the public, and will not impair PSNC's ability to provide that service at just and reasonable rates. 26. The Regulatory Conditions and Code of Conduct adopted by the Commission herein, construed and applied consistently with the Commission's Rules and Regulations and the laws of North Carolina, are adequate to address the potential issues and complaints that might arise. To the extent new issues or concerns require that the Regulatory Conditions and/or Code of Conduct approved herein be modified, the Commission has full authority to modify them consistent with the public interest. 27. The unbundling and/or deregulation of natural gas service and any promotions associated therewith are not relevant to a determination of whether SCANA and PSNC's proposed business combination transaction is in the public interest. EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 1-4 Evidence supporting these findings of fact is contained in the verified application and direct testimony and in the Commission's records. These findings of fact are essentially informational, procedural, and jurisdictional in nature and are not controverted. EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 5 The evidence supporting this finding is found in the testimony of SCANA witness William B. Timmerman, PSNC witness Charles E. Zeigler, Jr., and Public Staff witnesses Eugene H. Curtis, Jr., Thomas W. Farmer, Jr., and James G. Hoard, who testified as a panel. 8 SCANA witness Timmerman testified that upon completion of the merger, PSNC will become a wholly-owned subsidiary of SCANA and SCANA will register with the SEC as a holding company under PUHCA. In their amended application, SCANA and PSNC committed to take all such actions as the Commission finds necessary to protect the Commission's jurisdiction from preemption. The Applicants also committed to not seek to reflect in rates any costs incurred or revenue level earned under an agreement subject to PUHCA except to the extent permitted by this Commission. SCANA witness Timmerman discussed in detail the consequences of becoming a registered holding company in his pre-filed testimony. He explained that PUHCA is directed at the financial operations and corporate structure of multi-state holding companies that own electric and gas public utility companies. According to witness Timmerman, PUHCA regulation focuses on protecting the interests of consumers and investors and in furthering the public interest through controlling, among other things, (1) expansions of utility systems that do not tend to form an integrated and efficient system; (2) diversification into unrelated, non-utility activities; (3) the issuance of securities that are inconsistent with sound capital structures; (4) intra-system transactions such as loans, dividends, and service, sales and construction contracts that may be detrimental to public utilities and other subsidiaries in the holding company system; and (5) the maintenance of accounts and records. Witness Timmerman testified that PUHCA was not intended to reach the production and sale of natural gas and electricity. The FERC polices these operations at the federal level and state regulatory commissions have jurisdiction over local operations. He contended that the SEC acknowledges that the FERC and state commissions will continue to have the primary responsibility to protect consumers through their ratemaking authority and that PUHCA is simply intended to facilitate the work of other regulators by placing certain restraints on the activities of public utility holding companies. Witness Timmerman also stated, "I would note that the SEC acknowledges that in many ways its regulation under the 1935 Act is no longer necessary in light of improvements in the regulation of securities issuances under the other federal securities laws and effective state regulatory oversight of utility operations. For these reasons the SEC has recommended repeal of the 1935 Act to Congress." The Public Staff panel testified that its major concern with the merger was SCANA becoming a registered holding company under PUHCA, which presents the risk that certain aspects of the Commission's authority to regulate PSNC could be found to be preempted by the SEC. Unless adequate protections are imposed, the Commission risks losing jurisdiction in a number of areas, including (1) affiliate charges made to and incurred by PSNC, (2) the transfer of assets between and among affiliates and PSNC, (3) the value placed on such transfers, and (4) securities issuances and financings affecting PSNC. 9 The Public Staff panel further testified that a registered holding company is generally prohibited from charging their utility affiliates for services. Instead, the SEC tends to favor the formation of separate affiliated service companies to be used in gaining efficiencies from centralization. SEC regulations are in place to govern the terms of transactions between service companies and affiliated utilities. After the merger is consummated, many of the goods and services PSNC currently buys or performs for itself or obtains from independent vendors could be provided by one or more affiliated companies. As a result, the Commission could lose jurisdiction over much of PSNC's cost of service. This raises the concern that PSNC's ratepayers could pay higher rates than the Commission would otherwise find appropriate. For example, if the gas supply and procurement function presently performed separately by a SCANA affiliate for SCE&G and by PSNC for itself were to be centralized in a SEC-approved service company, the Commission could be prevented from disallowing the costs of any gas purchases made by the service company unless the SEC also disallowed such purchases. To solve this problem, the Public Staff proposed Regulatory Conditions that would protect the Commission's jurisdiction. These Regulatory Conditions require, among other things, that PSNC not engage in any transaction that is subject to PUHCA without prior approval by this Commission of the contract memorializing the transaction. The contract itself must provide that PSNC may not incur any charges that are inconsistent with the terms and conditions approved by the Commission, nor seek to reflect in rates any cost incurred or revenue level earned except as permitted by the Commission. PSNC, SCANA, and their affiliates may not assert in any forum that PUHCA preempts this Commission from reviewing the reasonableness of any commitment entered into by PSNC, and must bear the full risk of any preemptive effects of PUHCA. In addition to the foregoing, the Regulatory Conditions provide that PSNC is not allowed to take service from an affiliate at costs which exceed fair market value, and the Applicants are required to request in their application filed with the SEC that the SEC include certain language designed to protect the Commission's jurisdiction over affiliate transactions, the transfer of assets and financings. The recommended Regulatory Conditions were revised after the Public Staff filed its testimony, and the revised Regulatory Conditions were admitted into evidence as Public Staff Panel Exhibit 4. SCANA and PSNC indicated at the hearing that they were reserving their right to comment and oppose some of the PUHCA Regulatory Conditions. They subsequently did not take issue with any of these Regulatory Conditions. CUCA argued that the Commission can neither control the SEC nor overcome federal preemption and will not be able to unscramble the merger if the SEC decides to assert jurisdiction. Those arguments are correct. However, they ignore both the Regulatory Conditions' focus on requiring the Applicants to come before the Commission first as well as testimony indicating that the SEC is unlikely to preempt state regulation of retail sales of natural gas. 10 Based on the foregoing, the Commission concludes that the Regulatory Conditions adopted herein are adequate to ensure that the Commission's jurisdiction is protected from preemption and that PSNC's ratepayers are as insulated as possible from potential adverse consequences of SCANA's PUHCA registration. However, the Regulatory Conditions require the Applicants to request that the SEC include certain language in its final order or orders approving SCANA's acquisition of PSNC. The Commission expects the Applicants to urge the SEC to include such language. In addition, the Commission strongly encourages the SEC to include the requested language. EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 6-9 The evidence supporting these findings of fact is contained in the testimony and exhibits of SCANA witness Timmerman, PSNC witness Zeigler, and the Public Staff panel. SCANA witness Timmerman testified that the merger will create a larger, more financially diverse company with a broader range of assets. He further testified that the merger should enable SCANA to enjoy an increased cash flow for reinvestment or growth in the competitive energy and services delivery business and provide additional resources for the expansion of natural gas service. With respect to PSNC, he testified that to a considerable extent, the benefits to PSNC mirror those to SCANA. PSNC witness Zeigler testified that SCANA's size and its aggressive and successful management team will facilitate future financial stability. He further testified that SCANA's net income for 1998 was more than ten times the amount earned by PSNC during that same period. The Public Staff testified that PSNC's financial position will be strengthened as a result of the merger because the merged company would be much larger than PSNC alone. This benefit, plus the opportunity to reduce costs, should place PSNC in a position to avoid rate increases of the same magnitude and frequency as in the past. Public Staff witness Farmer noted that Standard & Poor's debt and common stock ratings and Value Line's financial strength and safety measures are all stronger for SCANA than they are for PSNC. In addition, he noted that PSNC also would have additional cash flow available from SCANA, its access to capital should be increased because of SCANA's higher debt rating, and some of PSNC's future requirements for capital expenditures could be included in SCANA's overall debt financing. While Mr. Farmer stated that he believed that there was insufficient data at this point in time to quantify these savings to PSNC, particularly because the debt rating agencies would not act on PSNC's ratings until after the merger is consummated, the net result should be a reduction in PSNC's cost of borrowing. Based on the foregoing, the Commission concludes that PSNC's financial position should be strengthened as a result of the merger. In addition, PSNC's ratepayers are insulated by the Regulatory Conditions from any increases in cost of capital and other risks. Specifically, Regulatory Condition 19 requires PSNC to maintain its books and records in a manner that will allow all of the components of its cost of capital to be clearly 11 and separately identifiable. The purpose of this Regulatory Condition is to ensure that the components of the cost of capital are isolated so that ratepayers can be held harmless from the effect of any merger-related risks. Similarly, Regulatory Condition 21 protects ratepayers from the possibility of higher borrowing costs if the merger was to have a negative impact on PSNC's credit rating. It provides that to the extent that the cost rates of long-term debt, short-term debt, or preferred stock are adversely affected by a downgrade of the stock due to the merger, a replacement cost rate will be utilized to prevent PSNC's ratepayers from paying any increased costs. The replacement cost would be used for all financings, refundings, and refinancings through PSNC's next general rate case. Finally, under Regulatory Condition 23, the cost of capital Regulatory Conditions also apply to PSNC's determinations of its maximum allowable Allowance for Funds Used During Construction (AFUDC), the rates of return applied to any of PSNC's deferral accounts and regulatory assets and liabilities that accrues a return, and any other component of PSNC's cost of service that is affected by the cost of debt or preferred stock. Based on the foregoing, the Commission concludes that PSNC's financial position should be strengthened as a result of the merger and that PSNC's ratepayers are adequately protected from any merger-related cost-of-capital increases and risks. EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 10-18 The evidence supporting these findings of fact is contained in the testimony and exhibits of SCANA witness Timmerman, PSNC witness Zeigler, the Public Staff panel, and CUCA witness O'Donnell. SCANA witness Timmerman testified that PSNC's ratepayers would benefit in many ways from the merger. In addition to the previously discussed cost of capital benefits, these include the availability of additional resources that will better facilitate expansion; the broadening and diversification of PSNC's customer base; the broadening of the range of the products and services offered to customers; the creation of a larger, more viable, and more financially diverse company with a broader range of assets that is better able to compete and better able to provide stable and reliable service; and operating efficiencies from economies of scale and the more efficient use of such features as SCANA's state-of-the-art information systems. With respect to direct and indirect merger-related costs, SCANA witness Timmerman committed in his prefiled direct testimony that SCANA would exclude all costs of the merger and all direct and indirect corporate cost increases, including acquisition premiums, attributable to the merger, from PSNC's utility accounts or costs for all purposes that affect PSNC's retail rates and charges. 12 PSNC witness Zeigler testified that PSNC's combination with SCANA will enable PSNC to provide a greater array of products and services to more customers than it would have been able to provide as an independent company, which provides two benefits. First, it provides PSNC's customers more choices, and, second, it creates supplemental margins that will make it possible to expand PSNC's system more aggressively with fewer general rate increases. In addition, he testified that the critical mass and operating efficiencies that would result from the merger would facilitate the provision of service by PSNC at a lower cost than would have been possible otherwise. He further testified that there would be longer intervals between rate cases than in the past and that greater financial resources and sources of financing would encourage greater expansion of PSNC's system. On rebuttal, he testified that the primary financial benefit for PSNC's customers is future cost avoidance as opposed to savings. PSNC has agreed to a five-year moratorium on general rate cases. Witness Ziegler testified that PSNC's rate case cycle has been two years, and the most recent general rate case resulted in increased revenues of $12.5 million. If the next PSNC rate case was of the same magnitude as the 1998 one, the savings attributable to the five-year moratorium are equivalent to three years of avoiding a $12.5 million increase, or approximately $37.5 million. He conceded that there would be reduced costs in the specific areas identified by the Public Staff, although he believed the Public Staff overstated the number of employees that would be displaced. In addition, Mr. Zeigler elaborated on his assertion that cost avoidance was a major benefit of the proposed merger by asserting that in order to continue to provide adequate customer service, it would be necessary at some point in the future, absent the merger, for PSNC to install an updated customer information system at a cost of approximately $15 million. PSNC witness Zeigler also testified that PSNC's annual capital budgets for the next five years will range from $46 million to $50 million. Given that PSNC now has total net assets of $640 million, PSNC's assets would be increased by almost half that amount ($300 million) over the next six to seven year period. Because PSNC had decided not to contest the Public Staff's recommended five-year rate cap, Mr. Zeigler testified that he believes that this is a tremendous savings to PSNC's ratepayers. He also testified that the acquisition premium that SCANA is paying for PSNC will be excluded from PSNC's utility accounts for all purposes that could affect its rates and charges. The Public Staff panel testified extensively regarding the known, expected, and potential benefits of the merger, as compared to its possible costs and risks, and the need to balance any costs and risks with benefits. The Public Staff panel testified that the benefits of the business combination for PSNC's ratepayers are the potential for cost savings that may occur as the result of consolidating PSNC's and SCANA's public utility operations and the strengthened financial position that will result because the merged company would be so much larger than PSNC alone. These benefits should enable PSNC to avoid rate increases of the same magnitude 13 and frequency as in the past. In addition, any resulting gas costs savings would be passed through to ratepayers in purchased gas adjustment proceedings. The Public Staff panel recommended that Regulatory Condition 30 be imposed to reduce rates for PSNC's ratepayers and impose a rate cap to ensure that PSNC's ratepayers obtain tangible benefits from the merger. Exceptions to the rate cap are provided for normal gas cost adjustments, governmental actions, and significant unexpected events over which PSNC has no control. The Public Staff panel proposed that the recommended $2,087,084 rate reduction should occur in two separate steps. Assuming the merger closes on December 31, 1999, the Public Staff panel testified that the first rate reduction would be implemented effective July 1, 2000, and the second rate reduction would be implemented effective July 1, 2001. All rate schedules (including transportation) would be reduced by the same amount to reflect the rate reduction. This equates to a reduction of $0.0151 per dt six months after the merger closes and then another rate reduction of the same amount 18 months after the merger closes. A schedule showing the calculation of the rate reduction was admitted into evidence as Public Staff Panel Exhibit 2. The rate cap prevents PSNC, with certain exceptions, from increasing its rates until July 1, 2005, at the earliest (assuming a December 31, 1999 closing date). With respect to the costs of the merger, Public Staff witness Hoard pointed out that the treatment of acquisition premiums often has not been dealt with in merger proceedings in this State and in others. Rather, it has been determined in the context of subsequent rate cases and has been allowed in a number of states to the extent that merger savings or other benefits are achieved to offset it. Massachusetts, for example, allowed the company acquiring Bay State Gas Company to come back in and capture some of its acquisition costs at a later point in time. He further testified that while a fair number of jurisdictions have quantified savings, only some of them approved rate reductions, and most of these were small. In addition, the Public Staff panel testified that Regulatory Conditions 26 and 27 cover all direct and indirect merger-related costs, including (1) the acquisition adjustment; (2) investment bankers' and attorneys' fees; and (3) change-of-control and salary continuation agreements and/or other severance or personnel type arrangements that are reasonably attributable to the merger. These conditions provide that the estimated $495 million cost of the merger, which includes the estimated acquisition adjustment, will be excluded from PSNC's utility accounts. CUCA witness O'Donnell testified that he considered the benefits SCANA and PSNC claim to be largely illusory. He further testified that they had not done any analysis of merger savings and such an analysis is vital to a determination of whether the merger is in the public interest. Mr. O'Donnell criticized what he considered to be extremely high investment banker fees, material benefits to PSNC's directors, and generous severance agreements for PSNC employees. He further testified that PSNC could find savings by 14 eliminating duplicative functions in the areas of billing, customer service, and executive management. In addition to the controverted issues with respect to the merger's benefits and costs, there was considerable disagreement about the extent to which cost savings would occur and the necessity for the Applicants to have filed a study of merger savings. SCANA witness Timmerman and PSNC witness Zeigler testified that cost savings were not a major reason for the merger, but that they did expect some savings to materialize from operating efficiencies. The Public Staff panel testified that it basically did its own study of savings by using the Applicants' integration team report and holding discussions with the Applicants. On cross-examination about why the Applicants' expected quantification had not been done on schedule, Public Staff witness Hoard indicated that the SEC's position that SCANA's acquisition of PSNC would make SCANA a registered holding company under PUHCA had changed the proposed organizational structure. Specifically, the need to set up a service company was a major change to the organizational structure that would change many of the assumptions about savings. On cross-examination of the Public Staff, CUCA asked a series of questions about whether the Public Staff had quantified savings in certain specified areas. The Public Staff panel members testified that they believed all of the potential areas of material cost savings that could be credibly quantified had been quantified. Most of the items of potential savings that were not quantified were viewed as too speculative to quantify at this time or were viewed as imposing costs that would offset part, if not all, of the potential savings. For example, Public Staff witness Hoard testified that he evaluated the potential for cost savings in the information technology area and concluded that while savings could be expected, there would also be a significant amount of costs added in that area. He testified that he did not believe he could credibly argue to the Commission that there were net savings in the information technology area. CUCA witness O'Donnell testified that one purpose of his testimony was to demonstrate that SCANA and PSNC's application was grossly inadequate compared to utility merger applications in other states, in large part because it did not include an analysis of merger savings. Based upon all of the evidence in the record, the Commission concludes that there are benefits to PSNC's ratepayers which will result from the proposed merger. The Applicants testified at length regarding the benefits that are not easily quantified, particularly at this stage of the process. The evidence shows that the merger will provide the benefit to North Carolina of a larger, more viable and more financially diverse company with a broader range of assets and increased ability to provide stable and reliable service. The utility environment is currently characterized by a trend toward consolidation, and small- to mid-sized gas utilities such as PSNC are particularly susceptible to acquisition. 15 As SCANA witness Timmerman testified, the proposed combination contemplates a stronger and more diverse company that is better able to compete regionally, but at the same time is committed to the maintenance of a strong corporate presence in North Carolina. The consequences of that presence, including the services of a good corporate citizen, the receipt of all corporate and other taxes, and the provision of significant employment opportunities, are benefits of the merger. An issue of particular concern to this Commission is that of natural gas expansion. Both SCANA witness Timmerman and PSNC witness Zeigler testified that the merger would provide additional resources for continued expansion of service in PSNC's franchise territory. PSNC's strengthened financial position will enable it to provide natural gas to more customers without the necessity for regular rate increases. CUCA argued that this was not a benefit because expansion funds are available for infeasible projects. However, as Public Staff witness Hoard testified, even the financing of infeasible projects with expansion funds puts upward pressure on rates. Further, expansion and bond funds are generally not available to build facilities in partially served counties. PSNC witness Zeigler testified that the combined entity is committed to using its best efforts to extend natural gas service, and that commitment extends to rapidly growing areas such as the Triangle where there are neighborhoods without gas service, and to work with state government to help provide natural gas solutions statewide. With respect to costs, the costs that would be most likely to affect PSNC's customers are those directly associated with the consummation of the merger. The Applicants committed in their testimony not to pass those costs on to PSNC's ratepayers. Regulatory Condition 26 specifically tracks that commitment by providing that all direct and indirect corporate cost increases, such as severance pay, associated with the merger will be excluded from consideration for ratemaking purposes. In addition, Regulatory Condition 27 prohibits any acquisition premium from being flowed through into PSNC's rates. While a number of other states did not resolve the issue in the merger proceeding of whether an acquisition premium is recoverable or allowed it to be recovered to the extent merger savings or other benefits could be shown in later proceedings, Regulatory Condition 27 resolves this issue in PSNC's ratepayers' favor by excluding the acquisition adjustment from rates in any subsequent proceeding. Based on the foregoing, the Commission concludes that PSNC's ratepayers are protected from all direct and indirect merger costs. In addition to this protection, the Regulatory Conditions provide for a five-year rate cap and a rate reduction that will continue at least for the five-year rate cap period. These annual rate reductions, when fully implemented, total in excess of $2 million, an amount that exceeds five percent of PSNC's 1998 net income. This rate reduction, while small, must be considered a benefit of the merger to PSNC's ratepayers. 16 Accordingly, the Commission concludes that the commitments made by the Applicants, including their absorption of all direct and indirect merger costs and the acquisition adjustment that will be created upon closing, along with the rate reduction and five-year rate cap recommended by the Public Staff constitute an equitable allocation of benefits and costs between ratepayers and shareholders. With respect to the necessity of submitting a formal analysis of merger savings with a merger application, the Commission notes that to date it has never interpreted G.S. 62-111 to require that proposed business combination transactions be based upon demonstrations of specific cost savings. While an evaluation of potential savings resulting from a merger may provide relevant information, the Commission concludes that neither North Carolina law nor Commission rules or precedent currently require that a formal quantification of such savings be filed in every case. As the record makes clear, the Public Staff quantified all of the potential areas of material cost savings that it believed could be creditably quantified, and most of the items of potential savings that were not quantified were viewed as too speculative to quantify at this time or were viewed as imposing costs that would offset part, if not all, of the potential savings for a particular item. Given the Regulatory Conditions requiring the Applicants to absorb all merger costs, implementing a rate reduction, and imposing a five-year rate cap, the Commission concludes that merger-related savings have been sufficiently quantified in this case. EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 19 The evidence for this finding of fact is found in the direct testimony of SCANA witness Timmerman, PSNC witness Zeigler, and the Public Staff panel. The Applicants presented evidence to support their contention that existing customers will benefit from receiving service from a stronger, more diverse company that is better positioned to provide stable and reliable service in any market or economic environment and capable of offering improved customer support. PSNC witness Zeigler testified that PSNC had evaluated the price differential between natural gas and electricity in PSNC's core market and concluded that, while PSNC's prices were still less expensive than its competitors, PSNC needed to beat the "bigger, stronger" electric companies on both price and service quality. He also testified that the quality of service provided to PSNC's customers would not deteriorate in any way as a result of the proposed merger. He based that conclusion on his assessment of the strong customer service commitment and financial viability of the combined entity, as well as the proliferation of products and services that should occur as a result of the merger. 17 The Public Staff proposed a Regulatory Condition to address service quality concerns. As modified by the Commission, Regulatory Condition 31 requires PSNC to take steps to commit to providing superior natural gas services to North Carolina customers following the merger. This Regulatory Condition requires PSNC to file by December 31, 1999, service quality indices to measure service quality. The purpose of this Regulatory Condition is to ensure that the quality of service received by PSNC's customers does not decline due to changes in corporate structure or because of other potential effects of the merger. Public Staff witness Hoard testified that service quality would be monitored so that the quality of service at the very least would be maintained. Based on these facts and representations, the Commission concludes that service quality should not decline as a result of the merger. EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 20-23 The evidence for these findings of fact is found in the direct testimony of SCANA witness Timmerman, PSNC witness Zeigler, the Public Staff panel, and CUCA witness Frankena, and in the rebuttal testimony of Applicants witness Julius A. Wright. SCANA witness Timmerman testified that the purpose of a Hart-Scott-Rodino filing is to allow either the Department of Justice or the FTC to look at the potential for anticompetitive behavior that may result from a merger. The agency to which the filing is assigned has 30 days to review it and determine whether seeking additional information is warranted. If no action is taken or no additional information requested, the filing is then deemed approved. SCANA witness Timmerman and PSNC witness Zeigler both testified in additional direct testimony that the FTC had been assigned to review their Hart-Scott-Rodino filings and that the waiting period for both companies expired without action at midnight on September 26, 1999. The Public Staff testified that it assumed that a market power problem would be created in the merger proceeding involving CP&L and North Carolina Natural Gas Corporation (NCNG), and therefore it developed regulatory conditions and a code of conduct to deal with all possible identified issues. In this case, the Public Staff panel testified, it started with the assumption that the same conditions and code of conduct would apply, although market power issues were not viewed as being significant in this case compared to the CP&L/NCNG merger. CUCA submitted the prefiled testimony of Dr. Mark Frankena, who provided a lengthy theoretical discussion of market power. Witness Frankena defined market power as the ability of a seller or group of sellers profitably to maintain prices above competitive levels by restricting output below competitive levels. A substantial market share or a market in which there are barriers to entry can create market power. He testified that it was appropriate to analyze a vertical electric-gas merger, such as the proposed 18 SCANA/PSNC merger, by using traditional antitrust principles. This requires the identification of the relevant products and the geographic scope of the relevant market, the computation of market shares and concentration in that market, an evaluation of conditions for entry into the market, and finally, based on this information, the making of inferences about the likely extent of market power. While witness Frankena discussed three theories that have been applied to vertical mergers between electric utilities that own generating capacity and natural gas companies, he applied only one of these theories to the proposed SCANA/PSNC merger. The theory for which he undertook a preliminary factual investigation for the Carolinas was the raising rivals' cost theory. He specifically recommended that the Commission investigate and evaluate the potential for the proposed merger to adversely affect the ability of rival electric generators to compete with incumbent generating companies in the Carolinas. He described this theory as the principal competitive theory that the FERC applies in evaluating mergers between electric generating companies and natural gas companies that are within its jurisdiction. He further asserted that if this merger required the FERC's approval, the Applicants would have been required to submit an analysis of the effects of the merger on competition using the raising rivals' cost theory. Witness Frankena testified that, pending a thorough investigation and analysis, North and South Carolina (minus the Tennessee Valley Authority (TVA) and Virginia Electric & Power Company (Virginia Power) control areas) appeared to be a plausible relevant geographic market in which to analyze market power over electric power during periods in which the demand for electricity is relatively high. This proposed market would be highly concentrated because together, Duke, CP&L, and SCE&G own or control over 80% of the generating capacity in the Carolinas. Under the raising rivals' cost theory, according to witness Frankena, SCANA could have the incentive to delay installation of gas-fired generating capacity by rivals in PSNC's territory in order to increase the price at which SCE&G is able to sell its own electric power. Because SCANA, CP&L, and Duke own large shares of generating capacity in the Carolinas, they may also exercise market power by reducing their output of electric power below competitive levels. Witness Frankena acknowledged that SCE&G has only 11% of the generating capacity in the Carolinas and that, acting alone, it is too small and has too little market share to exercise market power. However, he asserted it might nevertheless be able to do so by acting in unison with Duke and CP&L. The Applicants' rebuttal witness, Dr. Julius A. Wright, took issue with witness Frankena's position that additional consideration of the issue of market power is warranted on the facts of this case, giving both market-based and regulatory reasons for his conclusions. 19 Witness Wright first took issue with witness Frankena's assertion that PSNC would have an incentive, or more importantly, the means to discriminate against alternative generators of electricity in either the sales or transportation of natural gas. First, a seller of any price-and-service regulated commodity, which PSNC is and will remain for the foreseeable future, has an obvious incentive to sell or transport as much of that commodity as possible. That is the primary way in which a regulated utility generates revenues and attempts to earn its allowed rate of return. To withhold sales or transportation would be ultimately self-defeating. Second, as a regulated utility, PSNC and its actions are governed by this Commission. PSNC would serve a new generator under either its filed tariff or a negotiated contract reviewed by the Commission. If the generator is served under the filed tariff, PSNC could only increase the rate through a general rate case in which it would bear the burden of proof. If the service to the new generator is rendered under a negotiated contract, then the contract will specify when and to what extent PSNC can increase the rate. If PSNC attempted to charge or increase a negotiated rate in any other manner, the generator could file a complaint with the Commission or pursue other legal alternatives. Furthermore, the interstate pipelines provide nondiscriminatory open access service, providing all customers with the same transportation rights as other similarly situated customers, and this Commission's regulations require PSNC to provide service on a non-discriminatory basis. Any attempt to delay service, abuse affiliate relationships, or charge discriminatory prices could be addressed by the Commission through its complaint procedures according to witness Wright. More specifically, however, witness Wright testified that he believed the Public Staff's proposed Code of Conduct, which covers affiliate abuses and other market power issues in detail, directly prohibits the very activities described by witness Frankena. Witness Wright further testified that retail electric rates (or prices) are regulated. The only way to increase these rates is through a general rate case or through the fuel adjustment mechanism for the cost of purchased power, both of which are lengthy detailed proceedings that do not allow the behavior that would be required for witness Frankena's concerns to have legitimacy. The Department of Justice, the FTC, and in a more limited context, the FERC, all of which have jurisdiction over mergers at the federal level, have examined the facts and found that they did not warrant additional investigation. The FTC, one of two federal agencies with antitrust jurisdiction, was assigned this case to review and considered the issue of whether the proposed merger warranted any additional investigation of market power issues. It concluded that it did not. CUCA witness Frankena argued that the FTC and the Department of Justice routinely defer to state commissions to address issues of market power and therefore the FTC's failure to act had no significance. The Commission notes, however, that market power in the wholesale 20 market, which is the issue raised by Dr. Frankena, is more a matter of federal than state jurisdiction. Furthermore, Dr. Frankena himself acknowledged examples in which the federal agencies had taken action. The Commission is unwilling to assume, without more, that the federal agencies take their antitrust responsibilities as lightly as he suggests. Although the FERC does not have jurisdiction to approve SCANA and PSNC's proposed merger, it was required to evaluate the extent to which SCE&G has market power in the wholesale market in the context of deciding to allow SCE&G to charge market-based wholesale rates. Obviously, the FERC at that time did not have a significant concern about the possibility of SCE&G exerting market power in the wholesale market. In addition, contrary to witness Frankena's assertion that the FERC would have required SCANA and PSNC to submit an analysis of the effects of the merger on competition, the FERC's order concerning the disposition of San Diego Gas & Electric (SDG&E) and Enova Energy's jurisdictional facilities in conjunction with the merger of Enova Corporation and Pacific Enterprises states that the applicants in that case performed no analysis of the vertical effects of the proposed transaction. (Docket No. EC97-12-000, order dated June 25, 1997, p.22) According to that order, 68% of the installed generating capacity of the utilities in southern California is gas-fired. In addition, one of Pacific Enterprises' subsidiaries, Southern California Gas Company (SoCalGas), delivered gas to 96% of that gas-fired generation (excluding qualifying facilities). The FERC performed its own analysis and concluded that if the applicants committed to the remedial mechanisms discussed in the order (and if the California Commission accepted those remedial mechanisms over which it had jurisdiction), the proposed transaction would be consistent with the public interest. These remedial mechanisms included (1) ensuring that SoCalGas and SDG&E did not inappropriately share market information, (2) imposing and/or expanding restrictions to ensure that affiliate abuses did not occur between SoCalGas's natural gas pipeline and affiliated marketers and other affiliated energy companies, (3) ensuring the transparency of transactions involving sales and purchase of gas transportation services, and (4) requiring the separation of SDG&E's purchases of transportation service from SoCalGas for gas that is used for SDG&E's generators. The Commission notes that these remedial mechanisms are similar to the mechanisms provided in the Public Staff's proposed Regulatory Conditions and Code of Conduct. The Commission notes that there is a limited amount of gas-fired generation in operation at this time in North Carolina. The gas-fired generation that is currently being built is combustion turbines, and they are expected to run approximately 11% of the time. Witness Frankena's own testimony about newly constructed and proposed gas-fired generation in North Carolina reveals that it will be served by a number of suppliers. In fact, of the approximately 4,000 MW of gas-fired generation he discussed, only 320 MW of this capacity is in PSNC's territory. It also appears that witness Frankena's assumption that the Carolinas form the relevant geographic market because of transmission constraints was based on erroneous 21 information. The Applicants' witness Wright conclusively showed that witness Frankena's use of 150 MW and 14 MW as the first-contingency total and incremental transfer capability from TVA to VACAR was an error. The 1999 VAST study shows this first- contingency total and incremental transfer capability to be 2,400 MW, some 16 times the amount reported by Dr. Frankena, while the 14 MW amount was shown to be irrelevant. The only market power issue raised in this proceeding is in the wholesale electric market, and it hinges on the assumptions that the relevant geographic market can be limited to the Carolinas and that SCANA and SCE&G can effectively raise rivals' costs, despite their small share of the wholesale electricity market. The Commission therefore concludes that witness Frankena's preliminary analysis of the potential for market power resulting from the SCANA/PSNC merger is flawed and not appropriately relied upon in this proceeding. The Commission concludes that CUCA's expressed concern about market power is too theoretical and unsupported to justify a delay in this proceeding for a more formal study to be undertaken, particularly given the very specific and detailed protections offered by the proposed Regulatory Conditions and Code of Conduct. The appropriateness of a code of conduct as a means of mitigating market power concerns is well-recognized nationwide. The FERC obviously considers codes of conduct and similar behavioral remedies to be effective means of limiting market power. In addition, CUCA witness Frankena's testimony that the FTC and the Department of Justice think behavioral remedies "won't do the job," is contradicted by Dr. Frankena's own Exhibit 3. Frankena Exhibit 3 is a paper written by Dr. Frankena entitled "Vertical Mergers: Analysis of Competitive Effects in Markets for Electric Power." Footnote 45 on page 37 of that paper clearly states that federal antitrust agencies are more inclined to accept behavioral remedies for competitive problems raised by vertical mergers than for horizontal. The reason given is that the conduct is easier to monitor in vertical cases because there is a party involved who has a strong incentive to alert the federal agencies to the inappropriate conduct. The Regulatory Conditions and Code of Conduct adopted by the Commission provide cost allocation and pricing standards, natural gas marketing standards, and an equal treatment standard; impose reporting requirements, requirements regarding the sharing of potentially competitively sensitive information, and requirements to file cost allocation manuals and annual reports on affiliate transactions; and provide other protective measures. The purpose of these requirements is to avoid even the possibility of affiliate abuse and, in essence, to prevent the possibility of SCANA exercising market power by raising rivals' costs. Finally, if any customer is denied access to natural gas or believes that the price for transportation service is excessive or unfair, a complaint process is available under both the Commission's rules and the Code of Conduct. Under the facts of this case, the Code of Conduct is adequate to address any market power issues which may arise. 22 In summary, the Commission believes that the weight of the entire evidence of record in this case with regard to the market power issue does not reach a threshold sufficient to require the Applicants to submit a market power study at this point and thereby delay the proposed merger. In this case, CUCA argued that a market power analysis should have been performed. CUCA had the option of developing its own market power analysis and presenting it to the Commission. Yet, when asked whether CUCA had even requested the data to perform such an analysis, witness Frankena acknowledged the CUCA had asked "no such question." The testimony of the Public Staff and the Applicants as discussed above present facts in this case which cause the Commission to conclude that no further examination of market power is necessary or warranted. EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 24-26 The evidence for these findings of fact is found in the direct testimony of SCANA witness Timmerman, PSNC witness Zeigler, CUCA witnesses O'Donnell and Frankena, and the Public Staff panel and in the rebuttal testimony of Applicants witness Wright. On cross-examination by the Applicants, the Public Staff panel agreed to a number of changes to its proposed Regulatory Conditions and Code of Conduct and reserved judgment on several requested changes. (On cross-examination, counsel for the Applicants made reference to the Regulatory Conditions filed in the Public Staff's direct testimony. The Commission notes that the Regulatory Conditions were subsequently modified and renumbered in Pubic Staff Panel Exhibit 4. The Regulatory Conditions discussed below are numbered as in Public Staff Panel Exhibit 4.) Changes agreed to by the Public Staff panel were as follows: (1) With respect to Regulatory Condition 5, the Public Staff agreed that it does not apply to interstate pipeline capacity or storage rights that PSNC releases through an interstate pipeline electronic bulletin board or Internet site, when the Internet site becomes the communications mode under the regulations of the FERC. (2) With respect to Regulatory Condition 32, which requires PSNC and SCANA and their affiliates to file a current five-year plan for new or expanded pipeline facilities in North Carolina, the Public Staff agreed that such plans would be limited to projects costing $100,000 or more. Also, the Public Staff agreed that the first report would be due ninety (90) days after the issuance of the Commission's Order in this proceeding rather than on October 31, 1999, and all subsequent reports will be due on October 31. (3) With respect to Regulatory Conditions 29 and 31, which provide for future changes to the Regulatory Conditions and the Code of Conduct, some of which might not be acceptable to PSNC and SCANA, the Public Staff agreed 23 that PSNC and SCANA would retain their rights to file exceptions and seek judicial review as provided by statute. (4) The Public Staff agreed to modify the definition of "Similarly Situated" in the Code of Conduct to strike "or relevant Standard Industrial Classification" and place a period after "swing." (5) In Part II of the Code of Conduct, the Public Staff agreed to strike the phrase "while not wholly inclusive or totally encompassing." (6) With respect to Paragraphs II(E)(3) and (4) of the Code of Conduct, the Public Staff agreed that PSNC would have to report the price of the gas commodity itself in addition to the rate for the transportation only if PSNC is selling the gas as well as providing the transportation. If PSNC only provides transportation, it will report only the transportation rate charged. (7) With respect to Paragraphs II(E)(5) of the Code of Conduct, the Public Staff agreed to change "two months" to "three months" as long as PSNC advised the Public Staff by facsimile or other immediate communication (e.g., Internet e-mail) of such transactions. (8) With respect to the Code of Conduct generally, the Public Staff agreed with PSNC that the activities of Sonat Public Service Company, LLC, would be governed by the Commission's Order in Docket No. G-5, Sub 366, rather than the Code of Conduct. This exception applies only to Sonat Public Service Company. It does not apply to any other marketing affiliate of PSNC, including any affiliate to which the activities of Sonat Public Service Company might be transferred as a result of the merger approved herein. The Public Staff and PSNC disagreed as to Paragraph II(C)(1) of the Code of Conduct, which prohibits joint calls by PSNC North Carolina jurisdictional operations and any affiliate, including any North Carolina non-jurisdictional operations. PSNC has requested that it be allowed to engage in such joint calls when the customer, primarily a large commercial and industrial customer, requests such calls as long as (1) the request is in writing and (2) PSNC agrees to engage in such joint calls with any non-affiliated marketer at either the request of the customer or the marketer. The Public Staff indicated in its Proposed Order that it did not disagree with this request. The Commission concludes that it will allow such joint calls on the following conditions: (a) the customer must request the joint call in writing, which can be sent by facsimile; (b) PSNC must participate in similar joint calls with non-affiliated marketers at the written request of either the customer or the non-affiliated marketer; (c) PSNC must post the procedures for such calls on its Internet site and otherwise reduce those procedures to writing and make them available to all customers (large commercial and industrial customers eligible for transportation) and non- 24 affiliated marketers; and (d) PSNC must keep a log, which identifies the customer, the marketer (affiliated or not), and the PSNC personnel participating, of all such joint calls, which will be available upon request by the Public Staff, any customer, or any nonaffiliated marketer. As the previous findings and discussions of the evidence in the record in this docket clearly establish, the Regulatory Conditions and Code of Conduct, as adopted herein, and the commitments by SCANA and PSNC in their testimony are adequate to ensure that there will be no adverse impact on the rates and service of PSNC's retail customers, that PSNC customers are as protected as much as possible from potential harm, and that they will receive sufficient benefits from the merger to offset any potential risks and harms. The Commission concludes that the business combination transaction proposed by SCANA and PSNC is justified by the public convenience and necessity and that the proposed exchange and redemption of PSNC stock in connection therewith are for a lawful object, are compatible with the public interest, are consistent with the proper performance by PSNC of its service to the public and will not impair PSNC's ability to provide that service at just and reasonable rates. Furthermore, the Regulatory Conditions and Code of Conduct adopted by the Commission herein, construed and applied consistently with the Commission's Rules and Regulations and the laws of North Carolina, are adequate to address any issues and complaints that might arise. To the extent new issues or concerns require that the Regulatory Conditions and/or Code of Conduct approved herein be modified, the Commission has full authority to modify them consistent with the public interest. Throughout cross-examination of the Public Staff witnesses and Applicants witness Wright, CUCA questioned the efficacy, adequacy and expeditiousness of the Commission's complaint proceeding in remedying potential discrimination or other market power abuses. For example, CUCA's counsel asked questions regarding the Commission's ability to order an award of money damages to a party that is alleging discrimination and the possible length of time required to resolve a dispute. The Commission notes that the proposed Code of Conduct contains a provision specifically requiring complaint procedures to be established to resolve potential complaints that arise in the context of affiliate relations. These procedures, however, do not affect a party's right to file a formal complaint with the Commission or otherwise communicate concerns directly to the Public Staff. The Commission endeavors to address all complaints as comprehensively and expeditiously as possible. While all possible risks and harms cannot be predicted, the Commission has full authority to deal with problems and issues as they arise. Chapter 62 of the North Carolina General Statutes grants the Commission such general power and authority to supervise and control the public utilities of the State as may be necessary to carry out the laws 25 providing for their regulation and any and all such other powers and duties as may be necessary or incident to the proper discharge of the Commission's duties. The Commission also has been granted the power to establish such rules as are reasonable and necessary in order to administer and enforce Chapter 62. Chapter 62 and the Commission's Rules and Regulations also establish the procedures to be followed in proceedings before the Commission to ensure that all interested or aggrieved parties are given notice and an opportunity to be heard. It is the Commission's intention to enforce all of the Regulatory Conditions approved herein consistently with their intended goals. In addition, the Commission has inherent authority, consistent with the appropriate procedural mechanisms, to amend the Regulatory Conditions and Code of Conduct should circumstances warrant. To the extent that a party has a concern or complaint with respect to the actions of SCANA or PSNC or with the Commission's interpretation of the Regulatory Conditions and Code of Conduct, that party may seek relief from the Commission. EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 27 This finding of fact is based on the testimony of CUCA witness O'Donnell and the rebuttal testimony of SCANA witness Kevin B. Marsh. In discussing what he termed the vital need to analyze merger savings in order to determine whether the merger is in the public interest, CUCA witness O'Donnell offered what he termed a "real world example." He then segued into an endorsement of the deregulation of natural gas retailing by discussing the gas market in Georgia. He testified that when a SCANA marketing subsidiary entered the deregulated gas market in Georgia, it offered a one-time $50 discount and an additional 5% discount off Atlanta Gas Light Company's rates. Witness O'Donnell argued that if SCANA offered North Carolina residential customers of PSNC the same level of savings it offered the Georgia residential customers, then the aggregate savings to PSNC's residential ratepayers would be at least $23.2 million in the first year and at least $9.2 million per year after that. Witness O'Donnell questioned if Georgia customers are benefiting more from deregulation than North Carolina customers are from a merger, then why is North Carolina not moving toward deregulation of the natural gas industry. SCANA rebuttal witness Marsh testified that it is inappropriate to compare the Georgia natural gas market to the natural gas market in North Carolina. In 1998, the State of Georgia enacted legislation giving natural gas utilities the option of unbundling natural gas sales from their regulated utility operations, thereby giving the customers the ability to choose a natural gas provider. The deregulated retail natural gas market in Georgia is still very immature, and many of the incentives and programs result in prices below cost for the purpose of enticing customers to switch to unregulated suppliers. He further testified that pricing has been very volatile since deregulation began in Georgia and that 26 it is too early for meaningful comparisons or conclusions to be drawn. Witness Marsh concluded that Mr. O'Donnell's computations for savings for customers in Georgia are not accurate due to his reliance on and convenient selection of one-time, introductory pricing levels that do not consider the impact of changing market conditions or current market pricing. The Commission concludes that a determination of the relative benefits and detriments of the unbundling of natural gas is not before the Commission at this time. Whether SCANA's natural gas customers in the newly competitive gas market in Georgia have realized savings is irrelevant to the merger-related issues pending in this proceeding. CONCLUSIONS OF LAW 1. The relevant statutes, G.S. 62-111 and G.S. 62-161, give the Commission broad authority to review all aspects of proposed merger and securities transactions and to balance all potential benefits and costs of the transactions to determine if they should be authorized. Factors to be considered include such things as the maintenance of or improvement in service quality, the extent to which costs can be lowered and rates can be maintained or reduced, the extent to which the merger could have anticompetitive effects, and the continuation of effective state regulation. 2. These statutes do not require the applicants for approval of a proposed business combination transaction to file a formal analysis of merger cost savings in every case. Cost savings are just one of the potential benefits to the public utility's jurisdictional ratepayers and one way of ensuring that those ratepayers are adequately protected from cost increases related to the merger. 3. Approval should be given to SCANA and PSNC's proposed merger and securities transactions only if sufficient conditions are imposed to ensure that (1) the merger transactions will have no known adverse impact on the rates and service of PSNC's ratepayers; (2) PSNC's ratepayers are protected as much as possible from potential harm; and (3) these ratepayers will receive sufficient benefit from the merger to offset any potential costs, risks, and harms. 4. Based on its application of the foregoing standards to the facts of this case, with particular attention paid to the Regulatory Conditions and Code of Conduct approved herein, the Commission concludes that the requirements of G.S. 62-111 and G.S. 62-161 have been met, and the proposed merger and securities transactions should be approved. Specifically, the Commission concludes that the business combination transaction proposed by SCANA and PSNC is justified by the public convenience and necessity, and that the proposed exchange and redemption of PSNC stock in connection therewith are for a lawful object, are compatible with the public interest, are consistent with the proper 27 performance by PSNC of its service to the public, and will not impair PSNC's ability to provide that service at just and reasonable rates. 5. It is the intent of the foregoing Regulatory Conditions and attached Code of Conduct that PSNC's ratepayers shall be held harmless from any adverse effects of the merger, including potential actions by other regulatory jurisdictions relating to the merger, and that ratepayers shall receive benefits from the merger that are at least commensurate with the potential adverse effects of the merger. IT IS, THEREFORE, ORDERED as follows: 1. That SCANA and PSNC's application to engage in a business combination transaction and to exchange and redeem securities in connection therewith, as described herein and in the application, is approved upon the commitments made by SCANA and PSNC and upon the following Regulatory Conditions with which SCANA and PSNC are hereby ordered to comply: (1) With respect to any transaction that is subject to Section 13 of the Public Utility Holding Company Act of 1935 (PUHCA), the following procedures shall apply: (a) PSNC shall not engage in any such transaction without first obtaining from the NCUC such authority as is required under North Carolina law accepting the contract that memorializes such a transaction and authorizing the payment of compensation or fees pursuant thereto. Proposed contracts must first be submitted to the Public Staff for informal review at least ten days before filing with the NCUC. (b) Any such contract shall provide that PSNC (i) may not make or incur a charge under any such contract except in accordance with North Carolina law and the rules, regulations, and orders of the NCUC promulgated thereunder; and (ii) may not seek to reflect in rates any cost incurred or revenue level earned under an agreement subject to the 1935 Act to the extent disallowed by the NCUC. (c) The SEC shall have found that such contract is not inconsistent with PUHCA except that no such finding by the SEC shall be required if no SEC approval of such contract is required under PUHCA. 28 (2) Neither PSNC, SCANA, nor any affiliate thereof shall assert in any forum, with respect to any transaction to which PSNC is involved and which is subject to Section 13 of PUHCA, that PUHCA in any way preempts the NCUC from reviewing the reasonableness of any commitment entered into by PSNC and from disallowing costs of or imputing revenues to PSNC. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. (3) PSNC and SCANA shall request the SEC to include the following language in any order issued approving SCANA's acquisition of PSNC (the acquisition): Approval of this application in no way precludes the North Carolina Utilities Commission from scrutinizing and disallowing charges incurred or made or allowing or imputing a different level of such charges when setting rates for services rendered to customers of affiliated public utilities in North Carolina. (4) PSNC shall not take any service from an affiliate under circumstances where its costs incurred for that service (whether directly or through allocation) exceed fair market value. (5) With respect to the voluntary transfer by PSNC or any affiliate thereof to nonjurisdictional operations, an affiliate, and/or a nonaffiliate of the control or ownership of any asset or portion thereof used for the transmission, distribution, or other provision of natural gas service to customers in North Carolina: (a) SCANA and PSNC shall not commit to or carry out such a transfer except in accordance with North Carolina law and the rules, regulations and orders of the NCUC promulgated thereunder; and (b) PSNC may not reflect in rates the value of any such transfer subject to PUHCA except as allowed by the NCUC. (6) SCANA and PSNC shall include in their application for approval of the acquisition filed with the SEC pursuant to PUHCA the commitment set forth in paragraph 5 above. 29 (7) SCANA and PSNC shall include in their application for approval of the acquisition filed with the SEC pursuant to PUHCA a request that the SEC include the following statement in its approval order(s): SCANA and PSNC recognize that the NCUC wishes to preserve its state law authority, under present or future state law, to require approval of transfers of control or ownership of any asset or portion thereof from PSNC or one or more of its affiliates to nonjurisdictional operations, affiliates, or nonaffiliates. Without conceding their right to assert that the NCUC does not and should not have such authority, SCANA and PSNC request the SEC to state, in its order approving the instant acquisition, that the SEC does not intend its approval of the acquisition to preclude a future state commission order mandating or otherwise exercising state authority over such a transfer of assets. (8) Any filing with the SEC in connection with asset transfers involving PSNC shall request that the SEC include the following language in its approval order(s): Approval of this application in no way precludes the North Carolina Utilities Commission from scrutinizing and establishing the value of the asset transfer for purposes of determining the rates for services rendered to PSNC's customers. It is the SEC's intention that the North Carolina Utilities Commission retain the right to review and determine the value of such asset transfer for purposes of determining rates. (9) Neither PSNC, SCANA, nor any affiliate thereof shall assert in any forum, with respect to any asset transfer transaction to which PSNC is involved and which is subject to PUHCA, that PUHCA in any way preempts the NCUC from (a) exercising such authority as it may have under North Carolina law to mandate, approve, or otherwise regulate a transfer of assets by or to PSNC, or (b) scrutinizing and establishing the value of the asset transfers for purposes of determining the rates for services rendered to PSNC's customers. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. 30 (10) With respect to any financing transaction entered into between PSNC and SCANA or among PSNC and/or any one or more of its other affiliates, any contract memorializing such transaction shall provide that PSNC: (a) may not enter into any such financing transaction except in accordance with North Carolina law and the rules, regulations, and orders of the NCUC promulgated thereunder; and (b) may not reflect in rates the effect of any capital structure or debt and/or equity costs except as allowed by the NCUC. (11) PSNC and SCANA shall include in their application for approval of the acquisition filed with the SEC pursuant to PUHCA a request that the SEC include the following statement in its approval order(s): The SEC further finds that its approval of this acquisition or future financing arrangements does not preclude the NCUC or other regulatory authority from setting rates based on the assumption of a capital structure, a corporate structure, debt costs or equity costs that varies from the structure(s) or cost(s) approved in this Order. (12) Neither PSNC, SCANA, nor any other affiliate thereof shall assert in any forum, with respect to any financing transaction with which PSNC is involved and which is subject to PUHCA, that PUHCA in any way preempts the NCUC from exercising any lawful authority it may have over such financings or that the NCUC is precluded from setting rates based on the capital structure, corporate structure, debt costs, or equity costs that it finds to be appropriate for ratemaking purposes. Should any other entity so assert, PSNC, SCANA, or other affiliates shall not support any such assertion and shall, upon learning of such assertion, so advise and consult with the NCUC and the Public Staff regarding such assertion. (13) With respect to the above-described affiliate transactions, asset transfers, and financings, PSNC, SCANA, and their affiliates shall bear the full risk of any preemptive effects of PUHCA. The previous sentence includes, but is not limited to, agreement by PSNC, SCANA, and their affiliates to take all such actions as may be reasonably necessary and appropriate to hold North Carolina ratepayers harmless from rate increases, foregone opportunities for rate decreases, or other effects of such preemption. Such actions include, but are not limited to, filing with and obtaining approval from the SEC of such commitments as the NCUC deems reasonably necessary to prevent such preemptive effects. 31 (14) If PUHCA is amended or replaced by future legislation, the parties shall meet promptly after the passage of such legislation and negotiate in good faith whether and how these conditions have been affected by such legislation and whether they should be revised or removed. In the event the parties are unable to reach agreement within a reasonable time after passage of such legislation, the unresolved issues shall be submitted to the NCUC for resolution. (15) PSNC is required to seek out and buy all goods and services from the lowest cost provider of comparable goods and services. To this end, PSNC must conduct an annual market price study for goods and services it receives from SCANA or other affiliates, which allows assessment of whether PSNC could have acquired the services at a lower market cost from nonaffiliated providers, or whether PSNC could have provided the service itself at lower cost. (16) PSNC shall file a cost allocation manual with the NCUC within six months after closing. The cost allocation manual shall describe how all direct, indirect, and other costs will be charged to capital projects, nonjurisdictional operations, and affiliates. In that connection, PSNC will perform a detailed review of the common costs to be allocated and allocation factors to be used. Within six months after closing, PSNC shall provide a list of items considered to be the shared services of PSNC and the basis for each determination. (17) SCANA and PSNC shall file with the NCUC, within six months after closing, a cost allocation manual for each service company or other affiliate providing goods and services to PSNC. Each cost allocation manual shall describe how all direct, indirect, and other costs of a service company or other affiliate will be charged among PSNC and its affiliates. In that connection, a detailed review must be performed of the common costs to be allocated and the allocation factors to be used. Within six months after closing, a list of the services and goods that are provided or are anticipated being provided shortly thereafter by a service company or other affiliate shall be filed with the NCUC. PSNC shall not commit to any cost allocation affected by any changes to such cost allocation manual or list of services and goods unless PSNC has submitted such changes to the NCUC and received its approval. (18) SCANA and PSNC shall file an annual report of affiliated transactions with the NCUC in a format prescribed by the NCUC. The first report on affiliated transactions shall be filed on March 31, 2001, for activity through December 31, 2000, and annually thereafter on March 31. Transactions affecting PSNC's regulated operations shall be reviewed regularly by its 32 internal auditors. All workpapers shall be available for review by the Public Staff and the NCUC Staff. (19) PSNC shall keep its accounting books and records in a manner that will allow all components of the cost of capital to be identified easily and clearly on a separate basis. (20) SCANA and PSNC will identify at the time of PSNC's next rate case the amount of SCANA's equity investment in PSNC that is reflected in accounting records. (21) To the extent the cost rates of SCANA's or PSNC's long-term debt (more than one year), short-term debt (one year or less) or preferred stock are or have been adversely affected by the merger, through a downgrade or otherwise, a replacement cost rate to remove the effect will be used for all purposes affecting PSNC's rates and charges. This replacement cost rate will be applicable to all financings, refundings, and refinancings. This procedure will be effective through PSNC's next general rate case. As part of PSNC's next general rate case, any future procedure relating to a replacement cost calculation will be determined. This Regulatory Condition does not indicate a preference by any party for any specific debt rating or preferred stock rating for SCANA or PSNC on current or prospective bases. (22) SCANA and PSNC will identify as clearly as possible long-term debt (of more than one year duration) issued by PSNC or SCANA, as appropriate, with either (1) the assets that are or will be utilized to provide service to PSNC's regulated utility customers or (2) SCANA's or PSNC's existing debt to be replaced with the new debt issuance. (23) The cost of capital Regulatory Conditions also will apply to PSNC's determinations of its maximum allowable AFUDC rates, the rates of return applied to any of PSNC's deferral accounts and regulatory assets and liabilities that accrue a return, and any other component of PSNC's cost of service impacted by the cost of debt and/or preferred stock. PSNC will continue to apply an annual interest rate of 10% to its Deferred Gas Cost Accounts. (24) These Regulatory Conditions do not supersede any orders or directives that have been or will be issued by the NCUC regarding the issuance of specific securities by SCANA and PSNC. As with securities issuances prior to the announcement of the merger, the issuance of securities after the announcement of the merger does not restrict the NCUC's right to review, 33 and if deemed appropriate, adjust SCANA's or PSNC's cost of capital for ratemaking purposes for the effect of these securities. (25) SCANA, PSNC, and their affiliates shall file with the NCUC a copy of all documents or reports filed with the SEC and provide a copy to the Public Staff. In addition, SCANA and PSNC shall provide a copy of all orders issued by the SEC. (26) All costs of the merger and all direct and indirect corporate cost increases (including those that may be assigned to SCANA, a service company or any affiliate), if any, attributable to the merger, will be excluded from PSNC's utility accounts, and shall be treated for accounting and ratemaking purposes so that they do not affect PSNC's natural gas rates and charges. For purposes of this condition, the term "corporate cost increases" is defined as costs in excess of the level that PSNC would have incurred using prudent business judgment had the merger not occurred. (27) Any acquisition adjustment that results from the business combination of SCANA and PSNC will be excluded from PSNC's utility accounts and treated for accounting and ratemaking purposes so that it does not affect PSNC's natural gas rates and charges. (28) In accordance with North Carolina law, SCANA and PSNC will provide the NCUC and the Public Staff full access to the books and records of SCANA and PSNC, their affiliates, and nonutility operations. (29) SCANA, PSNC, their affiliates, and PSNC's nonregulated operations shall be bound by the Code of Conduct approved by the NCUC in this proceeding. This Code shall be considered the minimum conditions to which the merged company is agreeing and shall not preclude the NCUC from amending the Code later to incorporate additional conditions. If necessary, the Code will be modified if there is a change in the merged company's organizational structure or if other changes occur that warrant such amendments. (30) PSNC shall reduce rates by $1,043,542 within six months of the closing date of its proposed business combination with SCANA and by an additional $1,043,542 within eighteen months of that closing date. In addition, none of the margin rates for gas sales and transportation services provided by PSNC will be increased for five years from the date the first rate reduction takes effect, except for the following reasons: (1) gas cost adjustments or changes in increments or decrements pursuant to G.S. 62-133.4 or NCUC Rule R1-17(k); (2) to reflect the financial impact of governmental action (legislative, executive, or regulatory) having a substantial specific impact on 34 the gas industry generally or on a segment thereof that includes PSNC, including but not limited to major expenditures for environmental compliance; (3) to implement natural gas expansion surcharges imposed pursuant to G.S. 62-158; or (4) to reflect the financial impact of major expenditures associated with force majeure. For purposes of this Regulatory Condition, the term force majeure means an occurrence that is beyond the control of PSNC and not attributable to its fault or negligence. Without limiting the foregoing, force majeure includes acts of nature, like earthquakes, cyclones, rain, tornadoes, hurricanes, flood, fire, acts of the public enemy, war, riots, strikes, mobilization, labor disputes, civil disorders, injunctions-intervention-acts, or failures or refusals to act by government authority; and other similar occurrences beyond the control of the party declaring force majeure which such party is unable to prevent by exercising reasonable diligence. To qualify as an exception, a force majeure event must be reported within 15 working days of its occurrence. Any request pursuant to these exceptions will include a specification of the reasons for the request and an accurate quantification of the financial impact of the request. For purposes of this condition, the "margin rate" is defined as the tariffed sales rate less the benchmark commodity cost of gas, fixed gas cost rate, and temporary increments and/or decrements imposed pursuant to G.S. 62-133.4 or NCUC Rule R1-17(k). (31) PSNC will take steps to implement its commitment to providing superior natural gas service to North Carolina customers following the merger. PSNC shall file with the Commission by December 31, 1999, the Service Quality Indices that it proposes to use to measure service quality. PSNC will work with the Public Staff to ensure that these indices are appropriate and to revise them if and when such revisions are necessary. (32) SCANA, PSNC, and their affiliates shall file a current five-year plan for new or expanded North Carolina gas pipeline facilities costing $100,000 or more with the NCUC 90 days after the date the Commission issues its final order in this proceeding, and updates shall be filed with the NCUC by October 31 every other year thereafter. Such plans shall incorporate details to the extent known or projected regarding the pipeline routing, specifications, and costs of the new or expanded gas pipeline facilities. The filing shall also describe each inquiry received from a party interested in locating gas-fired electric generation in North Carolina and report on the status of each inquiry (confidentially if necessary). To the extent substantial changes occur in any plans or proposals to expand or extend facilities, notice of such changes shall be promptly filed with the NCUC. To the extent customers want to have 35 input into the pipeline expansion planning process, SCANA, PSNC, and their affiliates shall develop a process to encourage such input on an on-going basis. (33) Neither SCANA, PSNC, nor any affiliate will begin the construction of natural gas facilities in North Carolina, including a pipeline, to serve an electric generating plant without filing a notice of intent with the NCUC. The notice of intent shall be filed well in advance of any construction-related activity, including the acquisition of any rights-of-way. Any application for a certificate of public convenience and necessity filed with the NCUC by SCANA or an affiliate shall incorporate details with respect to the routing of any new or expanded gas pipeline or other facilities required to serve the proposed electric generating plant and details about any proposed pipeline routing and specifications related to any new or expanded natural gas facilities needed to provide gas and/or transportation service to the proposed electric generating plant. (34) PSNC shall pursue the expansion of gas service to unserved areas of its franchise territory consistent with the gas expansion policy of the State as enunciated in G.S. 62-2(9) and the NCUC's policies pursuant thereto. (35) PSNC shall utilize competitive solicitation procedures to determine future long-term sources of interstate pipeline capacity and supply. The determination of the appropriate source(s) for the interstate pipeline capacity and supply shall be made by PSNC on the basis of the benefits and costs of such source(s) specifically to PSNC's gas customers. (36) PSNC shall not recover from ratepayers the margins lost as the result of bypass by an interstate gas pipeline in which SCANA or any affiliate has an ownership interest. 2. That the Code of Conduct attached hereto as Appendix A is hereby approved, and SCANA and PSNC are hereby ordered to comply therewith. ISSUED BY ORDER OF THE COMMISSION. This the 7th day of December, 1999. NORTH CAROLINA UTILITIES COMMISSION /s/ Geneva S. Thigpen, Chief Clerk Geneva S. Thigpen, Chief Clerk Chairman Jo Anne Sanford filed a concurring opinion. Commissioner Judy Hunt joins in Chairman Jo Anne Sanford's concurring opinion. Commissioner Sam J. Ervin, IV did not participate. 36 DOCKET NO. G-5, SUB 400 DOCKET NO. G-43 Chairman Jo Anne Sanford Concurring: I have voted for the majority order in these dockets and I fully support it. However, I write this concurring opinion to call attention to a particular concern of mine, that service quality not suffer as a result of this merger. I recognize that this was a concern of the Public Staff and that the Public Staff recommended a Regulatory Condition to the effect that PSNC would continue its commitment to providing superior service. However, only weeks after the Public Staff filed this recommendation, PSNC's customers experienced service problems so severe that they were the subject of television and newspaper reports. The problems related to PSNC customers' inability to contact company representatives by telephone. I recognize that this is not a part of the record in this case, and I have not let it influence my vote herein. I simply want to emphasize that I view PSNC's commitment to service quality as an important aspect of the public convenience and necessity that must be served by the merged companies. Regulatory Condition 31 as adopted by the Commission requires PSNC "to take steps to implement its commitment to provide superior natural gas service to North Carolina customers following the merger," and I urge PSNC to give this Condition its highest priority. \s\ Jo Anne Sanford Chairman Jo Anne Sanford 37 APPENDIX A Page 1 of 11 CODE OF CONDUCT GOVERNING THE RELATIONSHIP AMONG PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC., AND ITS AFFILIATES I. DEFINITIONS For purposes of this Code of Conduct, the terms listed below shall have the following definitions: Affiliate: Any company, including SCANA, that has ownership in common with PSNC, with ownership being ten percent (10%) or more of the outstanding voting securities owned, controlled, or held with the power to vote, directly or indirectly. Confidential Systems Operation Information: Interstate pipeline transportation, storage, distribution, gas supply, or other similar information that pertains to the NC Jurisdictional Operations. Customer: Any natural gas sales or natural gas transportation customer of the NC Jurisdictional Operations located within PSNC's franchised service area. Customer Information: Any and all customer specific information obtained by the NC Jurisdictional Operations. Foreign Regulated Operations: The public utility activities of the affiliates that are regulated by the South Carolina Public Service Commission, the Federal Energy Regulatory Commission, or other regulatory bodies. Fully Distributed Costs: All direct and indirect costs, including overheads and the cost of capital, incurred in providing the goods and services in question. Gas Marketing Affiliate: An affiliate, the business unit of an affiliate, or nonjurisdictional operation of PSNC that is engaged in the unregulated sale, arrangement, brokering or management of gas supply, pipeline capacity, or gas storage. Gas Marketing Affiliate Personnel: An employee or other representative of the gas marketing affiliate that is involved in fulfilling the business purpose of the gas marketing affiliate. An officer or director of both the NC Jurisdictional Operations and a gas marketing affiliate shall not be considered gas marketing affiliate APPENDIX A Page 2 of 11 personnel unless that individual is directly involved in fulfilling the business purpose of the gas marketing affiliate. NC Jurisdictional Operations: The public utility operations of Public Service Company of North Carolina, Inc., as defined in N.C.G.S. 62-3(23). NC Nonjurisdictional Operations: All activities engaged in by Public Service Company of North Carolina, Inc., that are not a public utility operation as defined in N.C.G.S. 62-3(23). Natural Gas Services: NCUC-regulated natural gas sales and natural gas transportation, and other related services, including, but not limited to, metering and billing. NCUC: The North Carolina Utilities Commission. PSNC: Public Service Company of North Carolina, Inc. PSNC Operating Personnel: An employee or other representative of the NC Jurisdictional Operations that is involved in the acquisition, marketing, pricing, or scheduling of gas supply, interstate pipeline capacity, or gas storage facilities on behalf of NC Jurisdictional Operations. PSNC operating personnel also includes personnel involved in managing the NC Jurisdictional Operations's facilities or responsible for determining which customers to curtail, or involved in selling products and services to the NC Jurisdictional Operations' customers eligible to purchase gas, products, and services from persons other than the NC Jurisdictional Operations. Nonaffiliated Gas Marketer: An entity, not affiliated with PSNC or SCANA, that is engaged in the unregulated sale, arrangement, brokering or management of gas supply, pipeline capacity, or gas storage. SCANA: The holding company that owns PSNC, which is an affiliate of PSNC. Service Company: An affiliate that provides shared goods and/or services to PSNC and other affiliates. Shipper: A gas marketing affiliate, nonaffiliated marketer, a municipal gas customer, or end-user of gas. APPENDIX A Page 3 of 11 Similarly Situated: Possessing comparable characteristics, such as, the type and delivered price of alternative fuel used, gas curtailment priority, daily usage and daily load swing. II. CODE OF CONDUCT This Code of Conduct establishes the minimum guidelines and rules that apply to transactions involving PSNC and/or one or more of the affiliates and/or one or more of the NC Nonjurisdictional Operations. This Code of Conduct will become applicable on the date that it is approved by the NCUC. A. GENERAL STANDARDS 1. Equal Treatment - PSNC shall not show any preference to: customers of the affiliates or NC Nonjurisdictional Operations; and/or requests for service from affiliates or NC Nonjurisdictional Operations, as compared to nonaffiliated entities and their customers. 2. Cross-subsidies involving PSNC and one or more of the affiliates and/or one or more of the NC Nonjurisdictional Operations are prohibited. 3. Separation - PSNC and the affiliates shall operate independently of each other (except for sharing of services under Section II.D.3). PSNC and each of the affiliates shall maintain separate books and records. The NC Nonjurisdictional Operations shall maintain separate records to ensure appropriate cost allocations and any requirements of arm's length transactions. PSNC and the affiliates shall conduct business from physically separate offices located on different floors or in different buildings. However, PSNC and the affiliates may share offices to the extent necessary to perform those shared corporate functions permitted under Section II.D.3 of this Code of Conduct. 4. Disclosure of Confidential System Operations Information - Confidential System Operations Information shall not be disclosed to an affiliate or NC Nonjurisdictional Operation without approval from the NCUC. Notwithstanding the prohibitions established by this subsection, the NC Jurisdictional Operations may disclose Confidential System Operations Information to a Service Company but only pursuant to a Service Agreement filed with the NCUC. Such Confidential System Operations Information shall only be disclosed APPENDIX Page 4 of 11 to those Service Company employees performing the functions that utilize the information and the information shall be stored in such a manner that only the Service Company employees that utilize the information shall have access to the information. Every effort must be made to prevent the use of such information in an anticompetitive or otherwise inappropriate ways. 5. Disclosure of Customer Information - Upon request, the NC Jurisdictional Operations shall provide natural gas Customer Information to the affiliates and the NC Nonjurisdictional Operations under the same terms and conditions that such information is provided to all nonaffiliates. Customer Information shall not be disclosed to any person or company without the Customer's consent except to the extent provided for in Section II.D.3. If disclosed, it must be done with advance public notification, in a manner determined by the NCUC to ensure that the opportunity to receive the disclosed information is made available to nonaffiliates at the same time that it is made available to affiliates and/or NC Nonjurisdictional Operations. Notwithstanding the prohibitions established by this subsection, the NC Jurisdictional Operations may disclose Customer Information to a Service Company without Customer consent and without making the information available to any other person or company in order to allow a Service Company to perform billing services for the NC Jurisdictional Operations. Such Customer Information shall only be disclosed to those Service Company employees performing billing operations and shall be stored in such a manner that only the Service Company employees that perform billing operations and employees in a Service Company who are responsible for responding to customer inquiries concerning customer service and billing matters may access the information. B. NONDISCRIMINATION AND INFORMATION STANDARDS 1. The NC Jurisdictional Operations shall process all similar requests for Natural Gas Services in the same manner and timely fashion, whether requested on behalf of an affiliate, a NC Nonjurisdictional Operation or a nonaffiliated entity. The NC Jurisdictional Operations shall apply the provisions of its tariffs equally to affiliates, NC Nonjurisdictional Operations and nonaffiliates. APPENDIX A Page 5 of 11 2. The NC Jurisdictional Operations will not represent to any Customer that any affiliate and/or NC Nonjurisdictional operation will receive any preference from the NC Jurisdictional Operations relative to providing Natural Gas Services over any unaffiliated service provider, nor will the NC Jurisdictional Operations provide any affiliates and/or any NC Nonjurisdictional operations with any preference over nonaffiliates in the provision of Natural Gas Services. 3. The NC Jurisdictional Operations shall not condition or otherwise tie the provision or terms of any Natural Gas Services to the purchasing of any goods or services from an affiliate and/or a NC Nonjurisdictional Operation. 4. When any NC Jurisdictional Operations employee receives a request for information from or provides information to a Customer about an affiliate and/or a NC Nonjurisdictional Operation service, the employee must advise the Customer that such services may also be available from nonaffiliated suppliers. C. MARKETING STANDARDS 1. The NC Jurisdictional Operations, the affiliates, and the NC Nonjurisdictional Operations may engage in joint sales, joint sales calls, joint proposals, and/or joint advertising, subject to any conditions or restrictions that the NCUC may hereafter establish, provided the NC Jurisdictional Operations agrees to engage in similar activities with nonaffiliates under the same terms and conditions. However, the NC Jurisdictional Operations and a gas marketing affiliate collectively may not engage in joint sales, joint sales calls, joint proposals and/or joint advertising except as provided for herein. NC Jurisdictional Operations and a gas marketing affiliate collectively may engage in joint sales calls only if the following conditions are met: (a) the customer must request the joint call in writing, which can be sent by facsimile; (b) PSNC must participate in similar joint calls with nonaffiliated marketers at the written request of either the customer or the nonafilliated marketer; (c) PSNC must post the procedures for such calls on its web site and otherwise reduce those procedures to writing and make them available to all customers (large commercial and industrial customers eligible for transportation) and nonaffiliated marketers; and (d) PSNC must keep a log of all such APPENDIX A Page 6 of 11 joint calls that identifies the customer, the marketer (affiliated or not) and the participating PSNC personnel, with such log being available upon request by the Commission, Public Staff, any customer, or any nonaffiliated marketer. PSNC operating personnel must not provide sales leads to its gas marketing affiliate. The NC Jurisdictional Operations shall post certain information regarding the joint marketing programs/calls on the corporate internet web site at least 14 days prior to commencing a joint marketing arrangement and the information shall remain posted on the web site for the duration of the arrangement. The information disclosed on the web site shall include a description and terms for the joint marketing arrangement. Posting of the terms for the joint marketing arrangement shall include an offer by the NC Jurisdictional Operations to engage in joint marketing on such terms with nonaffiliates. 2. Affiliates may not use PSNC's name and/or logo in any communications unless a disclaimer is included that states the following: (a) "[Affiliate] is not the same company as [Utility], and [Affiliate] has separate management and separate employees;" (b) "[Affiliate] is not regulated by the North Carolina Utilities Commission or in any way sanctioned by the Commission;" (c) "there is no advantage to customers of [Utility] if they buy products or services from [Affiliate];" and (d) "a customer does not have to buy products or services from [Affiliate] in order to continue to receive the same safe and reliable natural gas service from [Utility]." The NC Nonjurisdictional Operations may not use PSNC's name and/or logo in any communications unless a disclaimer is included that states the following: (a) "[ Nonjurisdictional operation] is not part of the regulated services offered by [Utility] and is not in any APPENDIX A Page 7 of 11 way sanctioned by the North Carolina Utilities Commission;" (b) "there is no advantage to customers of [Utility] if they buy products or services from [Nonjurisdictional operation]," and (c) "a customer does not have to buy products or services from [Nonjurisdictional operation] in order to continue to receive the same safe and reliable natural gas service from [Utility]." The required disclaimer must be sized and displayed in a way that is commensurate with the name and/or logo so that the disclaimer is no smaller than the larger of one-half the size of the type that first displays the name and logo or the predominant type used in the communication. 3. Personnel of an affiliate or a NC Nonjurisdictional Operation shall not give the appearance that the affiliate or the NC Nonjurisdictional Operation speaks on behalf of the NC Jurisdictional Operations. 4. Personnel of PSNC, an affiliate, or a NC Nonjurisdictional Operation shall not indicate to a third party that any advantage exists as the result of that third party dealing with an affiliate or a NC Nonjurisdictional Operation as compared with a nonaffiliate. D. COST ALLOCATION AND TRANSFER PRICING STANDARDS 1. As a general guideline, with regard to the transfer prices charged for goods and services, including the use and/or transfer of personnel, exchanged between and among the NC Jurisdictional Operations, the affiliates and the NC Nonjurisdictional Operations, the following conditions shall apply: a) For untariffed goods and/or services provided by the NC Jurisdictional Operations to an affiliate and/or a NC Nonjurisdictional Operation, the transfer price shall be the higher of market value or fully distributed cost. b) For untariffed goods and/or services provided by an affiliate and/or a NC Nonjurisdictional Operation to the NC APPENDIX A Page 8 of 11 Jurisdictional Operations, the transfer price charged by the affiliate and/or the NC Nonjurisdictional Operation to the NC Jurisdictional Operations shall be the lower of market value or the affiliate's or the NC Nonjurisdictional Operations' fully distributed cost. If the NC Jurisdictional Operation does not engage in competitive solicitation and instead obtains the goods and/or services from an affiliate and/or a NC Nonjurisdictional Operation, the NC Jurisdictional Operations shall implement adequate safeguards to ensure utility customers receive service at the lowest cost in each case. c) For jurisdictional gas sales and/or transportation services provided by the NC Jurisdictional Operations to the affiliates and/or the NC Nonjurisdictional Operations, the NC Jurisdictional Operations shall provide service to the affiliates and/or the NC Nonjurisdictional Operations at the same price and terms that are made available to other similarly situated customers. 2. All permitted transactions between the NC Jurisdictional Operations and the affiliates, and the NC Nonjurisdictional Operations shall be recorded and accounted for in accordance with PSNC's cost allocation manual. 3. A Service Company may provide the NC Jurisdictional Operations, the affiliates and the NC Nonjurisdictional Operations with certain corporate services and functions on a joint basis. Such shared services shall be charged among the NC Jurisdictional Operations, the affiliates and the NC Nonjurisdictional Operations. Shared services shall be those provided in response to Regulatory Condition 17, subject to approval by the NCUC. 4. The NC Jurisdictional Operations may participate with one or more Foreign Regulated Operations in joint purchases of goods and services. All joint purchases, including leases, shall be priced in a manner that permits clear identification of each participant's portion of such purchases or leases. The NC Jurisdictional Operations shall not engage in joint purchases with affiliates and/or NC Nonjurisdictional Operations, except Foreign Regulated Operations, unless specifically permitted in advance by NCUC order upon a finding that it is in the best interest of ratepayers. APPENDIX A Page 9 of 11 5. Any costs the NC Jurisdictional Operations incurs in assembling, compiling, preparing and/or furnishing requested customer information to an affiliate, a NC Nonjurisdictional Operation or a nonaffiliate shall be recovered from the requesting party pursuant to Section II.D.1 of this Code of Conduct. 6. Any technology or trade secrets developed by the NC Jurisdictional Operations will not be transferred to any of the affiliates and/or the NC Nonjurisdictional Operations without just compensation from the affiliate and/or the NC Nonjurisdictional Operation, and shall file notice with the Public Staff and NCUC at least 60 days prior to the transfer. 7. The NC Jurisdictional Operations shall receive compensation from the affiliates and the NC Nonjurisdictional Operations for intangible benefits, if appropriate. E. REGULATORY OVERSIGHT 1. The State's existing requirements under N.C.G.S. 62-153 for reporting of affiliate transactions shall apply. 2. The books and records of PSNC, the affiliates and the NC Nonjurisdictional Operations shall be open for examination by the NCUC, its staff, and the Public Staff consistent with the provisions of N.C.G.S. 62-34, 62-37, and 62-51. 3. The NC Jurisdictional Operations shall identify the volumes and prices for deliveries to any electric generating facilities owned or operated by the affiliates in its monthly negotiated loss report to the NCUC. 4. When requested, the NC Jurisdictional Operations shall disclose on a confidential basis to nonaffiliated electricity generators on its system the gas supply and transportation prices, characteristics, and other terms of service for gas deliveries to the affiliates for electric generation. 5. All gas supply and/or transportation arrangements between the NC Jurisdictional Operations and the affiliates, and/or the NC Nonjurisdictional Operations of more than three months shall be filed with the NCUC in advance, provided that the Public Staff is advised APPENDIX A Page 10 of 11 of transactions of shorter durations by facsimile or other means of immediate communications. F. COMPLAINT PROCEDURE - The NC Jurisdictional Operations shall establish complaint procedures to resolve potential complaints that arise due to the relationship of the NC Jurisdictional Operations with the affiliates and/or the NC Jurisdictional Operations. These complaint procedures do not affect a complainant's right to file a formal complaint with or otherwise address questions to the NCUC. The complaint procedures shall provide for the following: 1. Verbal and written complaints shall be referred to a designated representative of the NC Jurisdictional Operations . 2. The designated representative shall provide written notification to the complainant within 15 days that the complaint has been received. 3. The NC Jurisdictional Operations shall investigate the complaint and communicate the results of the investigation to the complainant within 60 days of receiving the complaint. 4. The NC Jurisdictional Operations shall maintain a log of complaints and related records for inspection by the NCUC, its staff or Public Staff. 5. If the complainant is not satisfied, the NC Jurisdictional Operations shall inform the NCUC, its staff and/or Public Staff of the complaint. G. UTILITY BILLING FORMAT - To the extent the Customer's bill includes charges for unregulated services, such charges shall be separated from all regulated Natural Gas Services and contain the following introductory notice in bold print: Your natural gas service may not be terminated for failure to pay for the following unregulated services. H. NATURAL GAS MARKETING STANDARDS 1. The NC Jurisdictional Operations shall treat similarly situated shippers in the same manner with respect to the delivery of gas on distribution facilities, contract terms, the scheduling of gas supplies, balancing provisions, and allocation of gas supplies and capacity at city gate stations. APPENDIX A Page 11 of 11 2. All NC Jurisdictional Operations information pertaining to interstate pipeline transportation, storage, distribution, or gas supply that is provided to a gas marketing affiliate shall be made available to all shippers on a contemporaneous, nondiscriminatory and nonpreferential basis by posting the information on the corporate internet web site and provided in a written form upon the request of a shipper. Aggregate customer information and market data made available to shippers shall be made available on a similar basis. 3. The NC Jurisdictional Operations shall not disclose information provided by nonaffiliated marketers and customers to its marketing affiliate, unless such parties specifically authorize disclosure of the information. 4. A gas marketing affiliate shall function independently of the NC Jurisdictional Operations and gas marketing affiliate personnel must be located in a facility that is physically separate from that used by the PSNC Operating Personnel performing similar functions. 5. PSNC Operating Personnel may not perform any of the following functions on behalf of a gas marketing affiliate: (a) Purchase gas, pipeline capacity or storage capacity. (b) Market or sell gas and related services. (c) Price or administer products and services. (d) Hire and/or train marketing affiliate personnel. (e) Offer consulting services regarding gas functions. 6. An individual may be an officer or director of both PSNC and a gas marketing affiliate provided that the individual does not obtain or use knowledge of market-sensitive information for more than one of the entities. PSNC shall post on the corporate internet web site the identity, job title and responsibilities for each officer or director that falls within the definition of PSNC Operating Personnel. 7. The NC Jurisdictional Operations shall post its criteria for evaluating proposals from shippers on the corporate internet web site. The NC Jurisdictional Operations shall not give one shipper any form of preference over other similarly situated shippers in matters relating to assignment, release, or other transfer of capacity rights on interstate pipeline systems. 8. The NC Jurisdictional Operations shall post on the corporate internet web site a current list of contact persons and telephone numbers of all gas marketers that are active on its system. EX-99.2 3 EXHIBIT J-3 $300,000,000 CREDIT AGREEMENT dated as of December 1, 1999 among SCANA CORPORATION, The Banks Listed Herein FIRST UNION NATIONAL BANK, as Syndication Agent THE BANK OF NEW YORK, as Documentation Agent BANK OF AMERICA, N.A., as Co-Agent SUNTRUST BANK, ATLANTA, as Co-Agent and WACHOVIA BANK, N.A., as Administrative Agent --------------------------------------------------- WACHOVIA SECURITIES, INC., As Lead and Sole Arranger TABLE OF CONTENTS Page ARTICLE I. DEFINITIONS SECTION 1.01 Definitions......................................................1 SECTION 1.02 Accounting Terms and Determinations.............................15 SECTION 1.03 Use of Defined Terms............................................15 SECTION 1.04 Terminology.....................................................15 SECTION 1.05 References......................................................15 ARTICLE II. THE CREDITS SECTION 2.01 Commitments to Make Loans.......................................16 SECTION 2.02 Method of Conversion and Continuation...........................16 SECTION 2.03 Notes...........................................................17 SECTION 2.04 Repayment and Maturity of Loans.................................18 SECTION 2.05 Interest Rates..................................................18 SECTION 2.06 Fees............................................................20 SECTION 2.07 Optional Prepayments............................................20 SECTION 2.08 Mandatory Prepayments...........................................20 SECTION 2.09 General Provisions as to Payments...............................21 SECTION 2.10 Computation of Interest and Fees................................23 ARTICLE III. CONDITIONS TO LOANS SECTION 3.01 Conditions to Closing...........................................23 SECTION 3.02 Conditions to Funding...........................................25 ARTICLE IV. REPRESENTATIONS AND WARRANTIES SECTION 4.01 Corporate Existence and Power...................................26 SECTION 4.02 Corporate and Governmental Authorization; No Contravention......26 SECTION 4.03 Binding Effect..................................................27 SECTION 4.04 Financial Information...........................................27 SECTION 4.05 Litigation......................................................27 SECTION 4.06 Compliance with ERISA...........................................27 -i- SECTION 4.07 Taxes...........................................................28 SECTION 4.08 Subsidiaries....................................................28 SECTION 4.09 Not an Investment Company.......................................28 SECTION 4.10 Public Utility Holding Company Act..............................28 SECTION 4.11 Ownership of Property; Liens....................................28 SECTION 4.12 No Default......................................................29 SECTION 4.13 Full Disclosure.................................................29 SECTION 4.14 Environmental Matters...........................................29 SECTION 4.15 Compliance with Laws............................................30 SECTION 4.16 Capital Stock...................................................30 SECTION 4.17 Margin Stock....................................................30 SECTION 4.18 Insolvency......................................................30 SECTION 4.19 Insurance.......................................................30 SECTION 4.20 Compliance with Year 2000 Plan..................................30 ARTICLE V. COVENANTS SECTION 5.01 Information.....................................................31 SECTION 5.02 Inspection of Property, Books and Records.......................32 SECTION 5.03 Maintenance of Existence........................................33 SECTION 5.04 Dissolution.....................................................33 SECTION 5.05 Use of Proceeds.................................................33 SECTION 5.06 Compliance with Laws; Payment of Taxes..........................33 SECTION 5.07 Insurance.......................................................33 SECTION 5.08 Maintenance of Property.........................................34 SECTION 5.09 Environmental Notices...........................................34 SECTION 5.10 Environmental Matters...........................................34 SECTION 5.11 Environmental Release...........................................34 SECTION 5.12 Restricted Payments.............................................34 SECTION 5.13 Loans or Advances...............................................34 SECTION 5.14 Acquisitions....................................................35 SECTION 5.15 Investments.....................................................35 SECTION 5.16 Negative Pledge.................................................35 SECTION 5.17 Consolidations, Mergers and Sales of Assets.....................37 SECTION 5.18 Change in Fiscal Year...........................................37 SECTION 5.19 Compliance with ERISA...........................................37 SECTION 5.20 Maintenance of Ratings..........................................37 SECTION 5.21 Transactions with Affiliates....................................37 SECTION 5.22 Ratio of Consolidated Total Debt to Consolidated Total Capitalization............................................38 SECTION 5.23 Minimum Interest Coverage Ratio.................................38 SECTION 5.24 Subsidiaries....................................................38 SECTION 5.25 Public Utility Holding Company Act..............................38 -ii- ARTICLE VI. DEFAULTS SECTION 6.01 Events of Default...............................................38 SECTION 6.02 Notice of Default...............................................41 ARTICLE VII. THE ADMINISTRATIVE AGENT SECTION 7.01 Appointment, Powers and Immunities..............................41 SECTION 7.02 Reliance by Administrative Agent................................42 SECTION 7.03 Defaults........................................................42 SECTION 7.04 Rights of Administrative Agent and its Affiliates as a Bank.....42 SECTION 7.05 Indemnification.................................................43 SECTION 7.06 Consequential Damages...........................................43 SECTION 7.07 Payee of Note Treated as Owner..................................43 SECTION 7.08 Non-Reliance on Administrative Agent and Other Banks............43 SECTION 7.09 Failure to Act..................................................44 SECTION 7.10 Resignation or Removal of Administrative Agent..................44 ARTICLE VIII. CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair........44 SECTION 8.02 Illegality......................................................45 SECTION 8.03 Increased Cost and Reduced Return...............................45 SECTION 8.04 Conversion of Affected Euro-Dollar Loans to Base Rate Loans.....46 SECTION 8.05 Compensation....................................................47 ARTICLE IX. MISCELLANEOUS SECTION 9.01 Notices.........................................................47 SECTION 9.02 No Waivers......................................................48 SECTION 9.03 Expenses; Documentary Taxes; Indemnification....................48 SECTION 9.04 Setoffs; Sharing of Set-Offs....................................49 SECTION 9.05 Amendments and Waivers..........................................49 SECTION 9.06 Margin Stock Collateral.........................................50 SECTION 9.07 Successors and Assigns..........................................50 SECTION 9.08 Confidentiality.................................................52 SECTION 9.09 Representation by Banks.........................................52 SECTION 9.10 Obligations Several.............................................52 -iii- SECTION 9.11 Survival of Certain Obligations.................................53 SECTION 9.12 Georgia Law.....................................................53 SECTION 9.13 Severability....................................................53 SECTION 9.14 Interest........................................................53 SECTION 9.15 Interpretation..................................................53 SECTION 9.16 Consent to Jurisdiction.........................................53 SECTION 9.17 Counterparts....................................................53 EXHIBIT A Form of Note EXHIBIT B Form of Opinion of Counsel for the Borrower EXHIBIT C Form of Opinion of Special Counsel for the Administrative Agent EXHIBIT D Form of Closing Certificate EXHIBIT E Form of Secretary's Certificate EXHIBIT F Form of Compliance Certificate EXHIBIT G Form of Assignment and Acceptance EXHIBIT H Form of Interest Rate Election Notice EXHIBIT I Form of Notice of Borrowing -iv- CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of December 1, 1999 among SCANA CORPORATION, a South Carolina corporation, the BANKS listed on the signature pages hereof, FIRST UNION NATIONAL BANK, as Syndication Agent, THE BANK OF NEW YORK, as Documentation Agent, BANK OF AMERICA, N.A., as Co-Agent, SUNTRUST BANK, ATLANTA, as Co-Agent, and WACHOVIA BANK, N.A., as Administrative Agent. The parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01 Definitions. The terms as defined in this Section 1.01 shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Acquisition" means any transaction pursuant to which the Borrower or any of its Subsidiaries directly or indirectly, in its own name or by or through a nominee or an agent (a) acquires from any Person other than a Wholly Owned Subsidiary equity Securities (or warrants, options or other rights to acquire such Securities) of any Person other than the Borrower or any Person which is not then a Subsidiary of the Borrower, pursuant to a solicitation of tenders therefor, or in one or more negotiated block, market or other transactions not involving a tender offer, or a combination of any of the foregoing, or (b) makes any Person (other than a Wholly Owned Subsidiary) a Subsidiary of the Borrower, or causes any Person (other than a Wholly Owned Subsidiary) to be merged into the Borrower or any of its Subsidiaries, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding Securities, in exchange for such Securities, of cash or Securities of the Borrower or any of its Subsidiaries, or a combination thereof, or (c) purchases from any Person other than a Wholly Owned Subsidiary all or substantially all of the business or assets of any Person; provided that, notwithstanding the foregoing, the formation and capitalization of a Wholly Owned Subsidiary shall not constitute an Acquisition. "Additional Trust Preferred Securities" means any trust preferred securities issued after the Closing Date by any Subsidiary having no voting rights exerciseable on or before the Maturity Date and issued in connection with a financing arrangement generally structured in a manner similar to the financing in connection with which the Trust Preferred Securities were issued. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Affiliate" of any Person means (i) any other Person which directly, or indirectly through one or more intermediaries, controls such Person, (ii) any other Person which directly, or indirectly through one or more intermediaries, is controlled by or is under common control with such Person, or (iii) any other Person of which such Person owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Administrative Agent" means Wachovia Bank, N.A., a national banking association organized under the laws of the United States of America, in its capacity as administrative agent for the Banks hereunder, and its successors and permitted assigns in such capacity. "Administrative Agent's Letter Agreement" means that certain letter agreement, dated October 1, 1999, among the Borrower, the Administrative Agent and the Arranger relating to the structure of the Loans, and certain fees from time to time payable by the Borrower to the Administrative Agent and the Arranger, together with all amendments and modifications thereto. "Agreement" means this Credit Agreement, together with all amendments and supplements hereto. "Applicable Margin" has the meaning set forth in Section 2.05(a). "Arranger" means Wachovia Securities, Inc., together with its successors and assigns. "Assignee" has the meaning set forth in Section 9.07(c). "Assignment and Acceptance" means an Assignment and Acceptance executed in accordance with Section 9.07(c) in the form attached hereto as Exhibit G. "Authority" has the meaning set forth in Section 8.02. "Bank" means each bank listed on the signature pages hereof as having a Commitment, and its successors and permitted assigns. "Base Rate" means for any Base Rate Loan for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, and (ii) one-half of one percent above the Federal Funds Rate for such day. For purposes of determining the Base Rate for any day, changes in the Prime Rate and the Federal Funds Rate shall be effective on the date of each such change. "Base Rate Loan" means a Loan that bears or is to bear interest at a rate based upon the Base Rate. "BONY Indenture" means the Indenture dated as of November 1, 1989 from the Borrower to The Bank of New York, as trustee, as it may hereafter be amended and supplemented. "Borrower" means SCANA Corporation, a South Carolina corporation, and its successors and permitted assigns. -2- "Capital Stock" means any nonredeemable capital stock of the Borrower or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrower), whether common or preferred. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.ss.9601 et seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Information System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 8.02. "Closing Certificate" has the meaning set forth in Section 3.01(e). "Closing Date" means December 15, 1999. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. Any reference to any provision of the Code shall also be deemed to be a reference to any successor provision or provisions thereof. "Commitment" means, with respect to each Bank, (i) the amount set forth opposite the name of such Bank on the signature pages hereof, or (ii) as to any Bank which enters into an Assignment and Acceptance (whether as transferor Bank or as Assignee thereunder), the amount of such Bank's Commitment after giving effect to such Assignment and Acceptance. "Compliance Certificate" has the meaning set forth in Section 5.01(c). "Consolidated EBITDA" for any period means the sum of (i) Consolidated Net Income for such period; (ii) Consolidated Interest Expense for such period, (iii) taxes on income of the Borrower and its Consolidated Subsidiaries for such period to the extent deducted in determining Consolidated Net Income for such period, (iv) Depreciation for such period and (v) amortization of intangible assets of the Borrower and its Consolidated Subsidiaries for such period. In determining Consolidated EBITDA for any period, (a) any Consolidated Subsidiary acquired during such period by the Borrower or any other Consolidated Subsidiary shall be included on a pro forma, historical basis as if it had been a Consolidated Subsidiary during such entire period and (b) any amounts which would be included in a determination of Consolidated EBITDA for such period with respect to assets acquired during such period by the Borrower or any Consolidated Subsidiary shall be included in the determination of Consolidated EBITDA for such period and the amount thereof shall be calculated on a pro forma, historical basis as if such assets had been acquired by the Borrower or such Consolidated Subsidiary prior to the first day of such period. "Consolidated Interest Expense" for any period means interest, whether expensed or capitalized, in respect of Debt of the Borrower or any of its Consolidated Subsidiaries outstanding during such period. -3- "Consolidated Net Income" means, for any period, the Net Income of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis, but excluding (i) extraordinary items and (ii) any equity interests of the Borrower or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary. "Consolidated Operating Profits" means, for any period, the Operating Profits of the Borrower and its Consolidated Subsidiaries. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Total Assets" means, at any time, the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP. "Consolidated Total Capitalization" means, at any time, the sum of (i) Stockholders' Equity, plus (ii) Consolidated Total Debt. "Consolidated Total Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person, (vii) all obligations (absolute or contingent) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person, and (x) all obligations of such Person with respect to interest rate protection agreements, foreign currency exchange agreements or other hedging agreements (valued as the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association and agreed to by such Person in the applicable hedging agreement, if any). "Debt Rating" means a public rating by the respective Rating Agencies of the Borrower's Senior Debt. If the Borrower does not have any Senior Debt (other than the Borrower's obligations -4- under this Agreement and the Notes), the Debt Rating shall be determined on the basis of a credit rating, made as aforesaid, of the Borrower's obligations under this Agreement and the Notes. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived in writing, become an Event of Default. "Default Rate" means, with respect to any Loan, on any day, the sum of 2% plus the then highest interest rate (including the Applicable Margin) which may be applicable to any Loans hereunder (irrespective of whether any such type of Loans are actually outstanding hereunder). "Depreciation" means for any period the sum of all depreciation expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Dollars" or "$" means dollars in lawful currency of the United States of America. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Georgia are authorized or required by law to close. "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of the Borrower or any Subsidiary required by any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, groundwater or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "Environmental Liabilities" means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. -5- "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to the Borrower, any Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Euro-Dollar Business Day" means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interbank market. "Euro-Dollar Loan" means a Loan that bears or is to bear interest at a rate based upon the London Interbank Offered Rate. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.05(c). "Event of Default" has the meaning set forth in Section 6.01. "Excluded Borrower Debt" means (a) the Public Notes, (b) if the Public Notes are scheduled to mature prior to the Maturity Date, any Debt issued or incurred by the Borrower after the Closing Date to the extent that the proceeds of such Debt are used to refinance the Public Notes, (c) any Debt issued or incurred by the Borrower after the Closing Date (other than Debt described in clause (a) or (b) of this definition) solely for the purpose of refinancing Debt of the Borrower then outstanding under the 1989 Indenture which is then maturing, (d) amounts outstanding under committed bank lines of credit provided by Wachovia or Bank of America, N.A. to the extent that the aggregate principal amount at any one time outstanding under such lines of credit shall not exceed $100,000,000, (e) amounts (i) outstanding under uncommitted bank lines of credit or (ii) evidenced by commercial paper having a maturity of 270 days or less, to the extent that the aggregate principal amount at any one time outstanding under such lines of credit or evidenced by such commercial paper shall not exceed $130,000,000, (f) guaranties by the Borrower of (i) obligations of SCANA Energy -6- Trading LLC outstanding from time to time in the maximum amount of $70,000,000, (ii) the $52,600,000 principal amount of South Carolina Generating Company, Inc. 7.78% Senior Secured Notes due December 31, 2011 and $35,850,000 principal amount 6.5% Pollution Control Facilities Revenue Bonds and (iii) any Debt incurred to the extent that the proceeds of such Debt are used to refinance or refund the Debt described in the immediately preceding clause (ii), (g) Debt of the Borrower not in excess of $5,000,000 in respect of letters of credit delivered in support of Primesouth, Inc. to support the ability of Primesouth, Inc. to bid on contracts, and (h) Debt issued or incurred by the Borrower after the Closing Date (in addition to Debt described in clauses (a) through (g), inclusive, of this definition) in an aggregate principal amount not to exceed $150,000,000. "Excluded Borrower Stock" means Stock of the Borrower, newly issued or purchased on the open market, as the case may be, which Stock has been issued or purchased (i) for the Borrower's employee benefit plans or for the SCANA Investor Plus Plan with an aggregate market value not to exceed $125,000,000 in any Fiscal Year or (ii) in connection with the Mergers (as defined in the Merger Agreement). "Excluded Sales" means the sale of any assets by the Borrower or any Subsidiary (i) in the ordinary course of its business, (ii) to any Wholly Owned Subsidiary, or (iii) to the extent any such sale does not exceed $500,000. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to Wachovia on such day on such transactions as determined by the Administrative Agent. "First Payment Date" means the date which is the second anniversary of the Term Loan Draw Date. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without -7- limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss.6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) any "hazardous substance", "pollutant" or "contaminant", as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date that such Euro-Dollar Loan is first made, converted or continued and ending on the numerically corresponding day in the first, second, third or sixth month thereafter, as the Borrower may elect; provided that: (a) any Interest Period (subject to clause (c) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (c) no Interest Period may be selected which begins before a Maturity Date and would otherwise end after such Maturity Date, if the principal amount of such Euro-Dollar Loan is due and payable on such Maturity Date. (2) with respect to each Base Rate Loan, the period commencing on the date that such Base Rate Loan is made, converted or continued and ending 30 days thereafter; provided that: -8- (a) any Interest Period (subject to clause (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (b) no Interest Period may be selected which begins before a Maturity Date and would otherwise end after such Maturity Date, if the principal amount of such Base Rate Loan is due and payable on such Maturity Date. "Interest Rate Election Notice" means a duly completed notice substantially in the form of Exhibit H, or such other form as the Administrative Agent may from time to time approve for use by the Borrower in choosing the interest rate applicable to the Loans as provided in this Agreement. "Investment" means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, Guarantee or assumption of any obligation of such Person or otherwise. "Lending Office" means, as to each Bank, its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Bank may hereafter designate as its Lending Office by notice to the Borrower and the Administrative Agent. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, servitude or encumbrance of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loans" means the loans made to the Borrower by the Banks pursuant to Section 2.01. "Loan Documents" means this Agreement, the Notes, any other document evidencing, relating to or securing the Loans, and any other document or instrument delivered from time to time in connection with this Agreement, the Notes or the Loans, as such documents and instruments may be amended or supplemented from time to time. "London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Margin Stock" means "margin stock" as defined in Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. -9- "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, properties or prospects of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or the Banks under the Loan Documents, or the ability of the Borrower to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document. "Material Subsidiary" means, at any time, any Subsidiary of the Borrower with total assets that equal or exceed five percent (5%) of Consolidated Total Assets. "Maturity Date" means the date which is the third anniversary of the Term Loan Draw Date. "Merger Agreement" means the Amended and Restated Agreement and Plan of Merger by and among PSNC, the Borrower, New Sub I and New Sub II dated as of February 16, 1999 and Amended and Restated as of May 10, 1999, as further amended pursuant to any instrument which has been approved in writing by the Administrative Agent and the Required Banks. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Net Disposition Proceeds" means the aggregate proceeds received by the Borrower or a Subsidiary upon the disposition of any property (whether real, personal, mixed, tangible or intangible, including, without limitation, Stock), after deducting from the amount of such proceeds the sum of: (a) all reasonable and customary costs and expenses incurred by the Borrower or such Subsidiary directly in connection with such disposition; (b) all amounts actually set aside as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations associated with such disposition; (c) all taxes actually paid or payable by the Borrower or such Subsidiary as a result of gain recognized in connection with the sale of such property; and (d) any amount actually paid by the Borrower or such Subsidiary to discharge, or cause the discharge of, any Lien on such property (to the extent such Lien was permitted by this Agreement). "Net Income" means, as applied to any Person for any period, the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. -10- "Net Proceeds of Debt" means any proceeds received by the Borrower in respect of the incurrence or the private or public issuance of Debt of the Borrower (other than Excluded Borrower Debt) after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower directly in connection with the incurrence or issuance of such Debt. "Net Proceeds of Stock" means any proceeds received by the Borrower in respect of the private or public issuance of stock, membership interest or other equity interest of the Borrower (other than Excluded Borrower Stock), after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower directly in connection with the issuance of such stock, membership interest or other equity interest. "New Sub I" means New Sub I, Inc., a South Carolina corporation. "New Sub II" means New Sub II, Inc., a South Carolina corporation. "1989 Indenture" means that certain Indenture dated as of November 1, 1989 from the Borrower to The Bank of New York, Trustee. "Note" has the meaning set forth in Section 2.03(a). "Notice of Borrowing" means a notice, in the form attached as Exhibit I, delivered by the Borrower to the Administrative Agent in connection with the borrowing of the Loans as provided in Section 3.02(a). "Officer's Certificate" has the meaning set forth in Section 3.01(f). "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Participant" has the meaning set forth in Section 9.07(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Acquisition" means (a) any Acquisition (i) which is of a Person engaged in the same or similar line or lines of business as the Borrower or any Consolidated Subsidiaries, (ii) which has been approved by the Board of Directors of the Person to be acquired in connection with such Acquisition, and (iii) where the aggregate consideration paid by or on behalf of the Borrower or any Subsidiary in respect of such Acquisition does not exceed $100,000,000; and (b) the Mergers (as defined in the Merger Agreement). "Permitted Redemptions" means the redemption of (a) Preferred Stock (to the extent such Preferred Stock is redeemable) and (b) Trust Preferred Securities; provided that the amount of such redemptions shall not exceed $65,000,000 in the aggregate. -11- "Person" means an individual, a corporation, a limited liability company, a partnership (including without limitation, a joint venture), an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions. "Preferred Stock" means publicly-held preferred stock of SCE&G issued and outstanding prior to the Closing Date. "Pricing Level" means the Pricing Level corresponding to the applicable Debt Rating as set forth below: Pricing Level Debt Rating Level I higher than BBB+/Baa1 Level II equal to BBB+/Baa1 Level III equal to BBB/Baa2 Level IV equal to BBB-/Baa3 Level V lower than BBB-/Baa3 or not rated In the event that the Debt Ratings issued by S&P and Moody's do not correspond to the same Pricing Level and (i) the Debt Ratings are no more than one Pricing Level apart, then the higher Debt Rating shall be the Debt Rating for the purposes of this definition or (ii) the Debt Ratings are more than one Pricing Level apart, then the Debt Rating corresponding to the Pricing Level that is one Pricing Level higher (Pricing Level I being the highest) than the Pricing Level that corresponds with the lower of the two Debt Ratings shall be the Debt Rating for the purposes of this definition. Adjustments, if any, in the Pricing Level shall be made by the Administrative Agent and shall be effective on the fifth (5th) Domestic Business Day after the earlier of (i) receipt by the Administrative Agent of notice of such change in Debt Rating pursuant to Section 5.01(m) or (ii) knowledge of the Administrative Agent of such change in Debt Rating. "Prime Rate" refers to that interest rate so denominated and set by Wachovia from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia lends at interest rates above and below the Prime Rate. -12- "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Subsidiary, wherever located. "PSNC" means Public Service Company of North Carolina, Incorporated, a North Carolina corporation. "Public Notes" means medium term notes issued by the Borrower under the 1989 Indenture or other Debt in an aggregate principal amount not to exceed $400,000,000 for the sole purpose of consummating the Mergers (as defined in the Merger Agreement). "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time, or any successor law, and the rules and regulations thereunder. "Rating Agencies" means Moody's and S&P. "Redeemable Preferred Stock" of any Person means (a) any preferred stock issued by such Person which is at any time prior to the Maturity Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof, and (b) to the extent not included in clause (a) of this definition, the Trust Preferred Securities and any Additional Trust Preferred Securities. "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments are no longer in effect, Banks holding at least 51% of the aggregate outstanding principal amount of the Notes. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock (except (1) shares acquired upon the conversion thereof into other shares of its capital stock and (2) Excluded Borrower Stock) or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock. "S&P" means Standard & Poor's Rating Group. "SCE&G" means South Carolina Electric & Gas Company, a South Carolina corporation. "SEC" means the United States Securities and Exchange Commission, or any successor thereto. "Security" has the meaning assigned to such term in Section 2(l) of the Securities Act of 1933, as amended. "Senior Debt" means the long-term, senior, unsecured indebtedness of the Borrower the creditworthiness of which is not supported through defeasance, guarantees, credit enhancement or otherwise. -13- "Stock" of any Person means any capital stock or other equity Security, of any classification, of such Person or any Subsidiary of such Person (to the extent issued to a Person other than such Person or a Wholly Owned Subsidiary of such Person). "Stockholders' Equity" means, at any time, the shareholders' equity of the Borrower and its Consolidated Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable Preferred Stock of the Borrower or any of its Consolidated Subsidiaries. Shareholders' equity generally would include, but not be limited to (i) the par or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii) retained earnings, and (iv) various deductions such as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables due from an employee stock ownership plan, (D) employee stock ownership plan debt guarantees, and (E) translation adjustments for foreign currency transactions. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Taxes" has the meaning set forth in Section 2.09(c). "Term Loan Draw Date" means the date specified in the Notice of Borrowing (submitted to the Administrative Agent pursuant to Section 3.02(a)) as the date the borrowing of the Loans is to be made. "Termination Date" means the earlier of (i) March 31, 2000 or (ii) one hundred twenty calendar days after the Closing Date. "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. "Transferee" has the meaning set forth in Section 9.07(d). "Trust Preferred Securities" means the 2,000,000 shares of 7.55% Trust Preferred Securities, Series A issued by SCE&G Trust I on October 28, 1997 in the aggregate amount of $50,000,000. "Unused Commitment" means at any date, with respect to any Bank, an amount equal to its Commitment less the aggregate outstanding principal amount of its Loans. "Wachovia" means Wachovia Bank, N.A., a national banking association and its successors. "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except (i) directors' qualifying shares, (ii) the Trust Preferred Securities, (iii) any Additional Trust Preferred Securities, and (iv) the Preferred Stock) are at the time directly or indirectly owned by the Borrower. -14- "Y2K Plan" has the meaning set forth in Section 4.20. "Year 2000 Compliant and Ready" as used herein means (a) the Borrower's and its Subsidiaries' hardware and software systems with respect to the operation of its business and its general business plan will: (i) handle date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operate, accurately without interruption on and in respect of any and all dates before, during and/or after January 1, 2000 and without any change in performance; (iii) store and provide date input information without creating any ambiguity as to the century, and (b) the Borrower has developed alternative plans to ensure business continuity in the event of the failure of any or all of items (a)(i) through (a)(iii) above. SECTION 1.02 Accounting Terms and Determinations. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks, unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Banks shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01 hereof, shall mean the financial statements referred to in Section 4.04). SECTION 1.03 Use of Defined Terms. All terms defined in this Agreement shall have the same meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall otherwise require. SECTION 1.04 Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 1.05 References. Unless otherwise indicated, references in this Agreement to "Articles", "Exhibits", "Schedules", and "Sections" are references to articles, exhibits, schedules and sections hereof. -15- ARTICLE II. THE CREDITS SECTION 2.01 Commitments to Make Loans. The Banks hereby severally establish, on the terms and conditions set forth herein, a term loan facility in an aggregate principal amount not to exceed $300,000,000, from which each Bank severally agrees on the terms and conditions set forth herein to make Loans to the Borrower on the Term Loan Draw Date (which date shall be on or before the Termination Date) in an amount up to but not in excess of the amount of such Bank's Commitment. The Loans shall be advanced to the Borrower upon satisfaction of the conditions hereunder. The amount of each Bank's pro rata share of Loans shall be equal to such Bank's ratable share (based on the Bank's respective Commitment) of the aggregate amount of the Loans to be borrowed by the Borrower. The Commitments shall terminate on the earlier of (i) the Term Loan Draw Date and (ii) the Termination Date. Thereafter, the Banks shall have no obligation to advance any moneys to the Borrower. SECTION 2.02 Method of Conversion and Continuation. (a) The Loans shall initially be (i) Base Rate Loans in an aggregate principal amount of $1,000,000 or any larger multiple of $500,000 or (ii) Euro-Dollar Loans in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000, as elected by the Borrower in the Notice of Borrowing. Thereafter, on the terms and subject to the conditions of this Agreement, the Borrower may elect (A) at any time to convert Base Rate Loans to Euro-Dollar Loans or to continue such Base Rate Loans for an additional Interest Period, or (B) at the end of any Interest Period with respect to Euro-Dollar Loans to convert such Euro-Dollar Loans into Base Rate Loans or to continue such Euro-Dollar Loans for an additional Interest Period. The Loans may be continued as, or converted to, (i) Base Rate Loans in an aggregate principal amount of $1,000,000 or any larger multiple of $500,000 or (ii) Euro-Dollar Loans in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000. The Borrower shall make each such election by delivering to the Administrative Agent an Interest Rate Election Notice prior to 11:00 a.m. (Atlanta, Georgia time) at least 3 Euro-Dollar Business Days prior to the effective date of any conversion to or continuation of Euro-Dollar Loans, and prior to 10:00 a.m. (Atlanta, Georgia time) on the same Domestic Business Day as the effective date of any conversion to or continuation of Base Rate Loans, specifying (x) in the case of a conversion to or continuation of Euro-Dollar Loans, the Interest Period; (y) the date of conversion or continuation (which shall be a Euro-Dollar Business Day, in the case of a conversion to or continuation of Euro-Dollar Loans and a Domestic Business Day in the case of a conversion to or continuation of Base Rate Loans); and (z) the amount and type of conversion or continuation. Upon timely receipt of an Interest Rate Election Notice, the Administrative Agent shall promptly notify the Borrower and the Banks of the applicable interest rate for the Interest Period selected in such Interest Rate Election Notice; provided that the failure by the Administrative Agent to provide any such notice shall not, in any way, affect or diminish the Borrower's obligations to the Banks or the Banks' rights under this Agreement, the Notes or any of the other Loan Documents. If, within the time period required under this Section, the Administrative Agent shall not have received an Interest Rate Election Notice from the Borrower of an election to -16- continue loans for an additional Interest Period, then, upon the expiration of the Interest Period therefor, such Loans shall be converted or continued automatically as Base Rate Loans. (b) Not later than 1:00 p.m. (Atlanta, Georgia time) on the Term Loan Draw Date, each Bank shall make available its Loans, in Federal or other funds immediately available in Atlanta, Georgia, to the Administrative Agent at its address referred to in or specified pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article III has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. Unless the Administrative Agent receives notice from a Bank, at the Administrative Agent's address referred to in Section 9.01, no later than 4:00 p.m. (local time at such address) on the Domestic Business Day before the Term Loan Draw Date stating that such Bank will not make its Loan in connection with such borrowing, the Administrative Agent shall be entitled to assume that such Bank will make its Loan in connection with such borrowing and, in reliance on such assumption, the Administrative Agent may (but shall not be obligated to) make available such Bank's Loan to the Borrower for the account of such Bank. If the Administrative Agent makes such Bank's Loan available to the Borrower and such Bank does not in fact make its Loan available on such date, the Administrative Agent shall be entitled to recover the amount of such Loan from such Bank or the Borrower (and for such purpose shall be entitled to charge such amount to any account of the Borrower maintained with the Administrative Agent), together with interest thereon for each day during the period from the Term Loan Draw Date until such sum shall be paid in full at a rate per annum equal to the rate at which the Administrative Agent determines that it obtained (or could have obtained) overnight Federal funds to cover such amount for each such day during such period, provided that any such payment by the Borrower and interest thereon shall be without prejudice to any rights that the Borrower may have against such Bank. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such borrowing for purposes of this Agreement. (c) Notwithstanding anything to the contrary contained in this Agreement, the Loans may not be continued as, or converted to, Euro-Dollar Loans if at the time of continuation or conversion there shall have occurred an Event of Default, which Event of Default shall not have been cured or waived in writing. SECTION 2.03 Notes. (a) The Loans shall be evidenced by notes of the Borrower for each Bank, payable to the order of such Bank, for the account of its Lending Office in principal amounts equal to the amount of such Bank's Commitment. Each such note shall be dated the date hereof and shall be substantially in the form attached hereto as Exhibit A (the "Note") and otherwise duly completed. (b) Upon receipt of each Bank's Note pursuant to Section 3.01, the Administrative Agent shall deliver such Note to such Bank. Each Bank shall record, and prior to any transfer of its Note shall endorse on the schedule forming a part thereof appropriate notations to evidence, the date and amount of, and effective interest rate for, the Loan made by it, the date and amount of each payment of principal made by the Borrower with respect thereto and whether such Loan is a Base Rate Loan or Euro-Dollar Loan, and such schedule shall constitute rebuttable presumptive evidence of the -17- principal amount owing and unpaid on such Bank's Note; provided that the failure of any Bank to make, or any error in making, any such recordation or endorsement shall not affect the obligation of the Borrower hereunder or under the Notes or the ability of any Bank to assign its Note. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of any Note a continuation of any such schedule as and when required. SECTION 2.04 Repayment and Maturity of Loans. Unless due sooner pursuant to the provisions of Article VI, the Loans shall be repaid in 2 principal installments as follows: (i) the first principal installment of $150,000,000 shall be due and payable in full on the First Payment Date and (ii) the second and last principal installment of the remaining outstanding principal amount of the Loans shall be due and payable in full on the Maturity Date. SECTION 2.05 Interest Rates. (a) "Applicable Margin" shall be the rate per annum set forth below opposite the applicable Pricing Level: Pricing Level Base Rate Loans Euro-Dollar Loans Level I 0% 0.750% Level II 0% 0.900% Level III 0% 1.125% Level IV 0% 1.375% Level V 0% 2.000% Adjustments, if any, in the Applicable Margin shall be made by the Administrative Agent based upon changes in the Pricing Level and shall be effective on the date of any change in the Pricing Level as provided in the definition thereof. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day plus the Applicable Margin. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted London Interbank Offered Rate for such Interest Period; provided that if any Euro-Dollar Loan shall, as a result of clause (1)(c) of the definition of Interest Period, have an Interest Period of less than one month, such Euro-Dollar Loan shall bear interest -18- during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 3 months, at intervals of 3 months after the first day thereof. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rate appears on the display designated as Page "3750" of the Telerate Service (or such other page as may replace page 3750 of that service or such other service or services as may be nominated by the British Banker's Association for the purpose of displaying London Interbank Offered Rates for U.S. dollar deposits) determined as of 1:00 p.m. New York City time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period. "Euro-Dollar Reserve Percentage" means for any day 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 maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Banks by telecopy of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) After the occurrence and during the continuance of a Default, the principal amount of the Loans (and, to the extent permitted by applicable law, all accrued interest thereon) may, at the election of the Required Banks, bear interest at the Default Rate; provided, however, that automatically, whether or not the Required Banks elect to do so, any overdue principal of and, to the extent permitted by law, overdue interest on, any Loan shall bear interest payable on demand, for each day until paid at a rate per annum equal to the Default Rate. -19- SECTION 2.06 Fees. (a) The Borrower shall pay to the Administrative Agent for the ratable account of each Bank a commitment fee calculated at the rate of 0.15% per annum on the daily average amount of such Bank's Unused Commitment. Such commitment fees shall accrue from and including the Closing Date to and including the earlier to occur of (i) the Term Loan Draw Date and (ii) the Termination Date. Such commitment fees shall be payable in arrears (i) every three months during the period described in the preceding sentence and (ii) on the earlier to occur of (A) the Term Loan Draw Date and (B) the Termination Date. (b) The Borrower shall pay to the Administrative Agent for the ratable account of each Bank an upfront fee as set forth in the Administrative Agent's Letter Agreement. (c) The Borrower shall pay to the Administrative Agent, for the account and sole benefit of the Administrative Agent, such fees and other amounts at such times as set forth in the Administrative Agent's Letter Agreement. SECTION 2.07 Optional Prepayments. (a) The Borrower may, upon at least 1 Domestic Business Day's notice to the Administrative Agent, prepay any Base Rate Loans in whole at any time, or from time to time in part in amounts aggregating at least $1,000,000, or any larger multiple of $500,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Base Rate Loans of the several Banks in the inverse order of maturity. (b) The Borrower may, upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Loans in whole at any time, or from time to time in part in amounts aggregating at least $1,000,000, or any larger multiple of $500,000, by paying the principal amount to be prepaid together with (i) accrued interest thereon to the date of prepayment; and (ii) any amounts due under Section 8.05. Each such optional prepayment shall be applied to prepay ratably the Euro-Dollar Loans of the several Banks in the inverse order of maturity. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.08 Mandatory Prepayments. (a) In the event and on each occasion that the Borrower shall issue any Stock (other than Excluded Borrower Stock) or issue or incur any Debt (other than Excluded Borrower Debt), the Borrower shall, concurrently with such issuance or incurrence, immediately give notice to the Administrative Agent of such issuance or incurrence, and on the 3rd Euro-Dollar Business Day thereafter the Borrower shall repay or prepay the principal amount of the Loans in an amount equal -20- to 100% of the Net Proceeds of Stock (in the case of issuance of Stock) or 100% of the Net Proceeds of Debt (in the case of issuance or incurrence of Debt). (b) In the event and on each occasion that the Borrower or any of its Subsidiaries shall sell or otherwise dispose of any assets (other than Excluded Sales), the Borrower shall, concurrently with such sale or disposition, immediately give notice to the Administrative Agent of such sale or disposition, and on the 3rd Euro-Dollar Business Day thereafter the Borrower shall, to the extent that the amount of Net Disposition Proceeds arising from such sale or disposition, when aggregated with the total amount of Net Disposition Proceeds arising from all other sales and dispositions (other than Excluded Sales) made after the Closing Date, exceeds $50,000,000, repay or prepay the principal amount of the Loans in an amount equal to 100% of such Net Disposition Proceeds to the extent that such Net Disposition Proceeds exceed $50,000,000. (c) Each such payment or prepayment shall be accompanied by an amount equal to all accrued and unpaid interest on the amount so prepaid (together with, in the case of prepayment of Euro-Dollar Loans, any amounts due under Section 8.05) and shall be applied to repay or prepay ratably the Loans of the several Banks in the inverse order of maturity; provided that any prepayment required pursuant to clause (a) or (b) above that occurs within the ninety (90) day period immediately preceding the First Payment Date shall be applied to repay the first principal installment referenced in Section 2.04(i). SECTION 2.09 General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of commitment fees hereunder, not later than 11:00 a.m. (Atlanta, Georgia time) without setoff, counterclaim or other deduction on the date when due, in Federal or other funds immediately available in Atlanta, Georgia, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. (b) Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day that is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (c) All payments of principal, interest and fees and all other amounts to be made by the Borrower pursuant to this Agreement with respect to any Loan or fee relating thereto shall be paid without deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at anytime hereafter imposed by any governmental authority or by any taxing authority thereof or therein excluding in the case of each Bank, taxes imposed on or measured by its -21- net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Bank's applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being "Taxes"). In the event that the Borrower is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan or fee or other amount, the Borrower shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Bank in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Bank additional amounts as may be necessary in order that the amount received by such Bank after the required withholding or other payment shall equal the amount such Bank would have received had no such withholding or other payment been made. If no withholding or deduction of Taxes are payable in respect of any Loan or fee relating thereto, the Borrower shall furnish any Bank, at such Bank's request (as to each taxing authority specified by such Bank), a certificate from the applicable taxing authority or an opinion of counsel acceptable to such Bank, in either case stating that such payments are exempt from or not subject to withholding or deduction of Taxes. If the Borrower fails to provide such original or certified copy of a receipt evidencing payment of Taxes or certificate(s) or opinion of counsel of exemption, the Borrower hereby agrees to compensate such Bank for, and indemnify it with respect to, the tax consequences of the Borrower's failure to provide evidence of tax payments or tax exemption. In the event any Bank receives a refund of any Taxes paid by the Borrower pursuant to this Section 2.09(c), it will pay to the Borrower the amount of such refund promptly upon receipt thereof; provided, however, if at any time thereafter it is required to return such refund, the Borrower shall promptly repay to it the amount of such refund. (d) Each Bank (or Assignee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Bank") shall deliver to the Borrower and the Administrative Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Bank claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Bank delivers a Form W-8, a certificate representing that such Non-U.S. Bank is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Bank claiming complete exemption from U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Bank on or before the date it becomes a party to this Agreement and on or before the date, if any, such Non-U.S. Bank changes its applicable Lending Office by designating a different Lending Office (a "New Lending Office"). In addition, each Non-U.S. Bank shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Bank. Notwithstanding any other provision of this Section 2.09(d), a Non-U.S. Bank shall not be required to deliver any form pursuant to this Section 2.09(d) that such Non-U.S. Bank is not legally able to deliver. -22- (e) The Borrower shall not be required to indemnify any Non-U.S. Bank, or to pay any additional amounts to any Non-U.S. Bank, in respect of United States Federal withholding tax pursuant to paragraph (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Bank became a party to this Agreement or, with respect to payments to a New Lending Office, the date such Non-U.S. Bank designated such New Lending Office with respect to a Loan; provided, however, that this paragraph (e) shall not apply (x) to any Assignee or New Lending Office that becomes an Assignee or New Lending Office as a result of an assignment, transfer or designation made at the written request of the Borrower and (y) to the extent the indemnity payment or additional amounts any Assignee, or any Bank (or Assignee) acting through a New Lending Office, would be entitled to receive (without regard to this paragraph (e)) do not exceed the indemnity payment or additional amounts that the Person making the assignment or transfer to such Assignee, or Bank (or Assignee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Bank to comply with the provisions of paragraph (d) above. (f) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.09 shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions (i) shall be made based upon the circumstances of such Participant, Assignee or other Transferee, and (ii) constitute a continuing agreement and shall survive the termination of this Agreement and the payment in full or cancellation of the Notes. SECTION 2.10 Computation of Interest and Fees. Interest on Base Rate Loans shall be computed on the basis of a year of 365 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Interest on Euro-Dollar Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period from and including the first day thereof to but excluding the last day thereof. Commitment fees and any other fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. ARTICLE III. CONDITIONS TO LOANS SECTION 3.01 Conditions to Closing. This Agreement shall become effective upon the satisfaction of the following conditions: (a) receipt by the Administrative Agent from each of the parties hereto of either (i) a duly executed counterpart of this Agreement signed by such party or (ii) a facsimile transmission stating that such party has duly executed a counterpart of this Agreement and sent such counterpart to the Administrative Agent; -23- (b) receipt by the Administrative Agent of a duly executed Note for the account of each Bank complying with the provisions of Section 2.03; (c) receipt by the Administrative Agent of an opinion (together with any opinions of local counsel relied on therein) of McNair Law Firm, P.A., counsel for the Borrower, and H. Thomas Arthur, General Counsel for the Borrower, each dated as of the Closing Date, substantially in the forms of Exhibit B-1 and Exhibit B-2, respectively, hereto and covering such additional matters relating to the transactions contemplated hereby as the Administrative Agent or any Bank may reasonably request; (d) receipt by the Administrative Agent of an opinion of Womble Carlyle Sandridge & Rice PLLC, special counsel for the Administrative Agent, dated as of the Closing Date, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Administrative Agent may reasonably request; (e) receipt by the Administrative Agent of a certificate (the "Closing Certificate"), dated the Closing Date, substantially in the form of Exhibit D hereto, signed by a principal financial officer of the Borrower, to the effect that (i) no Default has occurred and is continuing on such date and (ii) the representations and warranties of the Borrower contained in Article IV of this Agreement (other than the representations and warranties contained in Section 4.10(b)) are true in all material respects on and as of such date; (f) receipt by the Administrative Agent of all documents which the Administrative Agent or any Bank may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent, including without limitation a certificate of incumbency of the Borrower (the "Officer's Certificate"), signed by the Secretary or an Assistant Secretary of the Borrower, substantially in the form of Exhibit E hereto, certifying as to the names, true signatures and incumbency of the officer or officers of the Borrower authorized to execute and deliver the Loan Documents, and certified copies of the following items: (i) the Borrower's Articles of Incorporation, (ii) the Borrower's By-laws, (iii) a certificate of the Secretary of State of the State of South Carolina as to the existence of the Borrower as a South Carolina corporation, and (iv) the action taken by the Board of Directors of the Borrower authorizing the Borrower's execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which the Borrower is a party; (g) receipt by the Administrative Agent of all fees and expenses payable on the Closing Date pursuant to the Administrative Agent's Letter Agreement; (h) a statement of the chief executive officer, chief financial officer, or chief technology officer of the Borrower to the effect that nothing has come to his/her attention to cause him/her to believe that the Y2K Plan milestones have not been met in a manner such that the Borrower's and its Subsidiaries' hardware and software systems will not be Year 2000 Compliant and Ready in accordance with the Y2K Plan except where the failure to meet such Y2K Plan milestones could not reasonably be expected to have a Material Adverse Effect; and -24- (i) receipt by the Administrative Agent of such other documents or items the Administrative Agent, the Banks or their counsel may reasonably request. SECTION 3.02 Conditions to Funding. The obligation of each Bank to make its Loan is subject to the satisfaction of the conditions set forth in Section 3.01 and the following additional conditions: (a) receipt by the Administrative Agent of a duly completed and executed Notice of Borrowing, delivered to the Administrative Agent prior to 9:30 a.m. (Atlanta, Georgia time) on or before the Term Loan Draw Date (if all of the Loans are to be Base Rate Loans) or prior to 11:00 a.m. (Atlanta, Georgia time) at least 3 Euro-Dollar Business Days before the Term Loan Draw Date (if any of the Loans are to be Euro-Dollar Loans); (b) the fact that, immediately before and after such borrowing, no Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Borrower contained in Article IV of this Agreement (other than the representations and warranties contained in Section 4.10(a)) shall be true in all material respects on and as of the Term Loan Draw Date; (d) the fact that, immediately after such borrowing (i) the aggregate outstanding principal amount of the Loans of each Bank will not exceed the amount of its Commitment and (ii) the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments of all of the Banks as of such date; (e) the fact that since December 31, 1998 there has been no event, act, condition or occurrence having a Material Adverse Effect except such events, acts, conditions and occurrences as are (i) disclosed in reports that shall have been filed with the SEC prior to the Closing Date or (ii) described on Schedule 4.05; (f) receipt by the Administrative Agent of evidence satisfactory to it that all of the conditions to the Mergers (as defined in the Merger Agreement) contained in the Merger Agreement have been satisfied or waived with the consent of the Administrative Agent and that immediately upon funding of the Loans, the Mergers (as defined in the Merger Agreement) shall be consummated. (g) receipt by the Administrative Agent of evidence satisfactory to it that shares constituting 75% of the capital stock of PSNC have been tendered to the Borrower; (h) receipt by the Administrative Agent of evidence satisfactory to it that the Borrower has not paid more than $33.00 per share for the capital stock of PSNC in accordance with the terms of the Merger Agreement; (i) receipt by the Administrative Agent of evidence satisfactory to it that the Debt evidenced by the Public Notes shall rank pari passu with the obligations of the Borrower under this Agreement, the Notes and the other Loan Documents; -25- (j) receipt by the Administrative Agent of evidence satisfactory to it that (i) the Borrower has received all governmental, shareholder, and other third party consents and approvals (including, without limitation, consents from the United States Department of Justice, the Federal Trade Commission, the North Carolina Utilities Commission, the SEC and the Federal Communications Commission) required for consummation of the Mergers (as defined in the Merger Agreement), and for the undertaking by the Borrower of the Loans and the other obligations under this Agreement, (ii) all applicable waiting periods associated with any consents or approvals referenced in clause (i) above have expired and (iii) the consents and approvals described in clause (i) of this paragraph are not subject to any conditions which are unsatisfactory to the Administrative Agent; (k) receipt by the Administrative Agent of evidence satisfactory to it that (i) the Borrower has made all filings required to register the Borrower as a holding company pursuant to Section 5 of PUHCA, and (ii) such filings comply fully with the applicable requirements of PUHCA; (l) receipt by the Administrative Agent of an opinion of counsel for the Borrower, in form and substance satisfactory to the Administrative Agent, to the effect that the Borrower will be able to meet all of its obligations under this Agreement under, and the Borrower is in compliance with, all requirements of PUHCA; (m) receipt by the Administrative Agent of a certificate, dated the Term Loan Draw Date, signed by a principal financial officer of the Borrower, to the effect that with respect to PSNC and its subsidiaries (if any), as a result of such borrowing and consummation of the Mergers (as defined in the Merger Agreement), to the best of the Borrower's knowledge (i) there will be no Default, and (ii) no event or condition (other than as described in this Agreement) causing a Material Adverse Effect shall have occurred; and (n) receipt by the Administrative Agent of such other documents or items the Administrative Agent, the Banks or their counsel may reasonably request. ARTICLE IV. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01 Corporate Existence and Power. The Borrower is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to be so qualified or to have such licenses, authorizations, consents and approvals would not have a Material Adverse Effect. SECTION 4.02 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other -26- Loan Documents (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no further action by or in respect of, or filing with, any governmental body, agency or official (except, as of the Closing Date only, those actions and filings enumerated in clauses (k) and (l) of Section 3.02), (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Articles of Incorporation or By-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03 Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower enforceable in accordance with its terms, and the Notes and the other Loan Documents, when executed and delivered in accordance with this Agreement, will, assuming due execution and delivery by the other parties hereto and thereto, constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 4.04 Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1998 and the related consolidated statements of income, retained earnings and cash flows for the Fiscal Year then ended, reported on by Deloitte & Touche LLP, copies of which have been delivered to each of the Banks, and the unaudited consolidated financial statements of the Borrower for the interim period ended September 30, 1999, copies of which have been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated. (b) Since December 31, 1998, there has been no event, act, condition or occurrence having a Material Adverse Effect except (i) such events, acts, conditions and occurrences as are disclosed in reports that shall have been filed with the SEC prior to the Closing Date and (ii) for the matter described on Schedule 4.05. SECTION 4.05 Litigation. Except as set forth on Schedule 4.05, there is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which creates a reasonable possibility of having or causing a Material Adverse Effect or which in any manner draws into question the validity or enforceability of, or creates a reasonable possibility of impairing the ability of the Borrower to perform its obligations under, this Agreement, the Notes or any of the other Loan Documents. SECTION 4.06 Compliance with ERISA. (a) The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan -27- and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan. SECTION 4.07 Taxes. There have been filed on behalf of the Borrower and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes shown to be due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower or any Subsidiary have been paid. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. United States income tax returns of the Borrower and its Subsidiaries have been examined and closed through the Fiscal Year ended December 31, 1995. SECTION 4.08 Subsidiaries. Each of the Borrower's Subsidiaries is duly organized and validly existing under the laws of its jurisdiction of organization, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate, trust or limited liability company powers, as the case may be, and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted except where the failure to have any such licenses, authorizations, consents or approvals could not reasonably be expected to have a Material Adverse Effect. The Borrower has no Subsidiaries except those Subsidiaries listed on Schedule 4.08 (or any subsequent Schedule 4.08 delivered to the Administrative Agent and the Banks prior to the Term Loan Draw Date), which accurately sets forth each such Subsidiary's complete name and jurisdiction of organization. SECTION 4.09 Not an Investment Company. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10 Public Utility Holding Company Act. (a) As of the Closing Date, the Borrower is a holding company within the meaning of PUHCA, and is exempt from registration under Section 3(a)(1) of PUHCA. (b) As of the Term Loan Draw Date, the Borrower shall have received an order from the SEC authorizing the Borrower to consummate the Mergers (as defined in the Merger Agreement) and upon such consummation the Borrower will be a registered holding company pursuant to Section 5 of PUHCA and in compliance with all applicable requirements of PUHCA. SECTION 4.11 Ownership of Property; Liens. Each of the Borrower and its Consolidated Subsidiaries has title to its Properties sufficient for the conduct of its business, and none of such Property is subject to any Lien except as permitted in Section 5.16 or (with respect to Consolidated Subsidiaries only) in Section 1009 of the BONY Indenture. -28- SECTION 4.12 No Default. Neither the Borrower nor any of its Consolidated Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its Property is bound which could have or cause a Material Adverse Effect. No Default has occurred and is continuing. SECTION 4.13 Full Disclosure. All information heretofore furnished by the Borrower to the Administrative Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Administrative Agent or any Bank will be, as of the date furnished, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which create a reasonable possibility of having or causing, to the extent the Borrower can reasonably foresee, a Material Adverse Effect. SECTION 4.14 Environmental Matters. (a) Other than as described in the Form 10-K filed by the Borrower with the SEC with respect to the Fiscal Year ended December 31, 1998 and in any Form 10-Q or Form 8-K filed by the Borrower with the SEC for any subsequent period or as reflected in or reserved against in the financial statements of the Borrower referenced in Section 4.04(a) or as disclosed in writing prior to the Closing Date, neither the Borrower nor any Subsidiary is subject to any Environmental Liability which is reasonably likely to have a Material Adverse Effect and neither the Borrower nor any Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA with respect to any matter or matters which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Other than as described in the Form 10-K filed by the Borrower with the SEC with respect to the Fiscal Year ended December 31, 1998 and in any Form 10-Q or Form 8-K filed by the Borrower with the SEC for any subsequent period or as reflected in or reserved against in the financial statements of the Borrower referenced in Section 4.04(a) or as disclosed in writing prior to the Closing Date, none of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA relating to any matter or matters which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. (b) Except as disclosed to the Administrative Agent and the Banks in writing prior to the Closing Date, no Hazardous Materials have been or are being used, produced, manufactured, processed, generated, stored, disposed of, managed at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties except for (i) Hazardous Materials used, produced, manufactured, processed, generated, stored, disposed of, and managed in the ordinary course of business in material compliance with all applicable Environmental Requirements or (ii) other Hazardous Materials the unlawful handling, discharge or disposal of which is not reasonably expected to have a Material Adverse Effect. (c) The Borrower, and each of its Subsidiaries, has procured all Environmental Authorizations necessary for the conduct of its business, and is in material compliance with all -29- Environmental Requirements in connection with the operation of the Properties and the Borrower's, and each of its Subsidiary's, respective businesses. SECTION 4.15 Compliance with Laws. The Borrower and each Subsidiary is in compliance with all applicable laws, including, without limitation, all Environmental Laws, except where any failure to comply with any such laws would not, alone or in the aggregate, have a Material Adverse Effect. SECTION 4.16 Capital Stock. Except as disclosed in writing to the Banks and the Administrative Agent prior to the Closing Date, all Capital Stock, debentures, bonds, notes and all other securities of the Borrower and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including, but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. The issued shares of Capital Stock (other than the Preferred Stock) of the Borrower's Wholly Owned Subsidiaries are owned, directly or indirectly, by the Borrower free and clear of any Lien or adverse claim. At least a majority of the issued shares of capital stock of each of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower, directly or indirectly, free and clear of any Lien or adverse claim. SECTION 4.17 Margin Stock. Neither the Borrower nor any of its Subsidiaries (other than SCANA Communications, Inc.) is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X. SECTION 4.18 Insolvency. After giving effect to the execution and delivery of the Loan Documents and the making of the Loans under this Agreement, the Borrower will not be "insolvent," within the meaning of such term as used in O.C.G.A. ss. 18-2-22 or as defined in ss. 101 of Title 11 of the United States Code or Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state law pertaining to fraudulent transfers, as each may be amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated. SECTION 4.19 Insurance. The Borrower maintains and each Subsidiary maintains (either in the name of the Borrower or in such Subsidiary's own name), with financially sound and reputable insurance companies, insurance on all of its Properties in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. SECTION 4.20 Compliance with Year 2000 Plan. The Borrower has developed and has delivered to the Agent and each of the Banks a comprehensive plan (the "Y2K Plan") for insuring that the Borrower's and its Subsidiaries' software and hardware systems which materially impact or affect in any material way the business operations of the Borrower and its Subsidiaries will be Year 2000 Compliant and Ready. The Borrower and its Subsidiaries have met the Y2K Plan milestones and -30- expect that all hardware and software systems will be Year 2000 Compliant and Ready in accordance with the Y2K Plan. ARTICLE V. COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01 Information. The Borrower will deliver to each of the Banks: (a) within 120 days after the end of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, retained earnings and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, together with the report of Deloitte & Touche LLP, or other independent public accountants of nationally recognized standing, with such report to be free of exceptions and qualifications not acceptable to the Required Banks; (b) within 60 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, (i) a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, (ii) the statement of income for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, and (iii) the statement of cash flows for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth (in the case of the items referred to in clauses (i) and (ii) of this paragraph) in comparative form the figures for the corresponding Fiscal Quarter and (in the case of the items referred to in clauses (i), (ii) and (iii) of this paragraph) the corresponding portion of the previous Fiscal Year, all certified (subject to normal recurring year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate, substantially in the form of Exhibit F (a "Compliance Certificate"), of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.12, 5.13, 5.16, 5.17, 5.22 and 5.23 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) within 5 Domestic Business Days after the Borrower becomes aware of the occurrence of any Default, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; -31- (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the SEC or any other filings the Borrower is required to make with the SEC under PUHCA; (g) if and when the Borrower or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; (h) promptly after the Borrower knows of the commencement thereof, notice of any litigation or proceeding, or dispute that has a reasonable possibility of resulting in any litigation or a proceeding, involving a claim against the Borrower and/or any Subsidiary for $5,000,000 or more in excess of amounts covered in full by applicable insurance; (i) within five (5) Domestic Business Days after the Borrower becomes aware of any material deviations from the Y2K Plan which would cause compliance with the Y2K Plan to be delayed or not achieved, a statement of the chief executive officer, chief financial officer, or chief technology officer of the Borrower setting forth the details thereof and the action with the Borrower is taking or proposes to take with respect thereto; (j) promptly upon the receipt thereof, a copy of any third party assessments of the Borrower's Y2K Plan together with any recommendations made by such third party with respect to Year 2000 compliance; (k) promptly, but in no event later than three (3) Domestic Business Days after an officer of the Borrower obtains knowledge thereof, telephonic and written notice of any change in the Borrower's Debt Rating; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. SECTION 5.02 Inspection of Property, Books and Records. The Borrower will (i) keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense prior to the occurrence of an Event of Default and at the -32- Borrower's expense after the occurrence of an Event of Default) to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower agrees to cooperate and assist in such visits and inspections, in each case upon reasonable notice and at such reasonable times and as often as may reasonably be desired. SECTION 5.03 Maintenance of Existence. The Borrower shall, and shall cause each Subsidiary to, maintain its corporate existence and carry on its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained except where the failure to maintain the corporate existence of any Subsidiary or the failure of any Subsidiary to carry on its business as now conducted could not reasonably be expected to have a Material Adverse Effect. SECTION 5.04 Dissolution. Neither the Borrower nor any of its Material Subsidiaries shall suffer or permit dissolution or liquidation either in whole or in part or redeem or retire any shares of its own stock or that of any Subsidiary, except (i) through corporate reorganization to the extent permitted by Section 5.17 and (ii) Permitted Redemptions. SECTION 5.05 Use of Proceeds. The proceeds of the Loans will be used by the Borrower solely for the purpose of consummating the Mergers (as defined in the Merger Agreement) as described in the Merger Agreement, and to pay related transaction fees and expenses. No portion of the proceeds of the Loans will be used by the Borrower or any Subsidiary (i) in connection with, either directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation (other than as described in the immediately preceding sentence), (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock (other than as described in the immediately preceding sentence), or (iii) for any purpose in violation of any applicable law or regulation. SECTION 5.06 Compliance with Laws; Payment of Taxes. The Borrower will, and will cause each of its Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except (a) where the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued or (b) where the failure to so comply would not have or cause a Material Adverse Effect. The Borrower will, and will cause each of its Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of the Borrower or any Subsidiary, except (x) liabilities being contested in good faith by appropriate proceedings diligently pursued and against which, if requested by the Administrative Agent, the Borrower shall have set up reserves in accordance with GAAP, or (y) where nonpayment would not have or cause a Material Adverse Effect. SECTION 5.07 Insurance. The Borrower will maintain, and will cause each of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name), with -33- financially sound and reputable insurance companies, insurance on all its Properties in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. SECTION 5.08 Maintenance of Property. The Borrower shall, and shall cause each Subsidiary to, maintain all of its Properties and assets in good condition, repair and working order, ordinary wear and tear excepted, in accordance with standards observed by companies of established repute engaged in the same or similar business as the Borrower and its Subsidiaries, as applicable, except where the failure to so maintain its Properties and assets will not have or cause a Material Adverse Effect. SECTION 5.09 Environmental Notices. The Borrower shall furnish to the Banks and the Administrative Agent prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases at, on, in, under or in any way affecting the Properties or, to the extent that the Borrower has actual notice thereof, any adjacent property, and all facts, events, or conditions that could lead to any of the foregoing; provided, however, that the Borrower shall not be required to give such notice unless it reasonably believes that any of the foregoing, individually or in the aggregate, will have or cause a Material Adverse Effect. SECTION 5.10 Environmental Matters. The Borrower and its Subsidiaries will not, and will not permit any Third Party to, use, produce, manufacture, process, generate, store, dispose of, manage at, or ship or transport to or from the Properties any Hazardous Materials other than as disclosed to the Banks in writing at or prior to the Closing Date except for (i) Hazardous Materials used, produced, manufactured, processed, generated, stored, disposed of or managed in the ordinary course of business in material compliance with all applicable Environmental Requirements or (ii) other Hazardous Materials the unlawful handling, discharge or disposal of which is not reasonably expected to have or cause a Material Adverse Effect. SECTION 5.11 Environmental Release. The Borrower agrees that upon the occurrence of an Environmental Release at or on any of the Properties it will act immediately to investigate the extent of, and to take appropriate remedial action, whether or not ordered or otherwise directed to do so by any Environmental Authority. SECTION 5.12 Restricted Payments. The Borrower will not make Restricted Payments in any Fiscal Year in an aggregate amount in excess of an amount equal to 70% of Consolidated Net Income for such Fiscal Year; provided that after giving effect to the payment of any such Restricted Payments, no Default shall have occurred and be continuing. SECTION 5.13 Loans or Advances. Neither the Borrower nor any of its Subsidiaries shall make loans or advances to any Person except: (i) loans or advances to employees not exceeding $2,000,000 in the aggregate outstanding made in the ordinary course of business and consistently with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities; (iii) loans or advances to Wholly Owned Subsidiaries; and (iv) loans or advances in addition to those permitted by the foregoing clauses (i) through (iii) in an aggregate amount not exceeding -34- $60,000,000 at any one time outstanding; provided that after giving effect to the making of any loans, advances or deposits permitted by clause (i), (ii), (iii) or (iv) of this Section, no Default shall have occurred and be continuing. SECTION 5.14 Acquisitions. Neither the Borrower nor any of its Subsidiaries shall make any Acquisitions, provided that Permitted Acquisitions may be made if, after giving effect thereto, no Default would be caused thereby (giving effect thereto on a pro forma basis as to financial covenants). SECTION 5.15 Investments. Neither the Borrower nor any of its Subsidiaries shall make Investments in any Person except as permitted by Section 5.13 and except Investments (i) in direct obligations of the United States Government maturing within one year, (ii) in certificates of deposit issued by a commercial bank whose credit is satisfactory to the Administrative Agent, (iii) in commercial paper rated A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's and in either case maturing within 6 months after the date of acquisition, (iv) in tender bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by S&P and Aa or the equivalent thereof by Moody's, (v) in a municipal revenue bond or bonds in an aggregate principal amount not to exceed $16,900,000 issued to finance the construction of a parking garage in the Calhoun Park area of Charleston, South Carolina, (vi) in Permitted Acquisitions, (vii) in Powertel, Inc., ITC Holding Company, Inc., ITC^DeltaCom, Inc., and Knology Holdings, Inc. existing on the Closing Date (and any Investments made or deemed made solely as a result of the conversion of such Investments into other Investments made pursuant to a warrant, option or conversion right exercised by the Borrower or any Subsidiary on terms in existence on the Closing Date), (viii) in Wholly Owned Subsidiaries, and (ix) in addition to those permitted by the foregoing clauses (i) through (viii) in an aggregate amount not exceeding $25,000,000. SECTION 5.16 Negative Pledge. Nothing in this Agreement shall in any way restrict or prevent Borrower from incurring any Debt; provided that the Borrower shall not incur any Debt secured by any Lien, or suffer to exist any Lien, upon or with respect to its Properties, whether now owned or hereafter acquired, without effectively providing that the Loans then outstanding and thereafter created (together with any other Debt or obligations then existing and any other indebtedness or obligation thereafter created ranking equally with the Loans then existing or thereafter created which is not subordinated to the Loans) shall be secured equally and ratably with (or prior to) such Debt or obligations so long as such Debt or obligation is so secured, except that the foregoing provision shall not apply to: (a) Liens encumbering premises, land and interests in land or other property, real, personal, intangible or mixed, used or to be used in or in connection with Borrower's natural gas utility business; (b) Liens consisting of (i) pledges or deposits in the ordinary course of business to secure obligations under workmen's compensation laws or similar legislation, including liens of judgments thereunder which are not currently dischargeable, (ii) deposits in the ordinary course of business to secure or in lieu of surety, appeal or customs bonds to which the Borrower is a party, (iii) liens -35- created by or resulting from any litigation or legal proceeding which is currently being contested in good faith by appropriate proceedings diligently conducted, (iv) pledges or deposits in the ordinary course of business to secure performance in connection with bids, tenders or contracts (other than contracts for the payment of money) or (v) materialmen's, mechanics', carriers', workmen's, repairmen's or other like Liens incurred in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings diligently conducted, or deposits to obtain the release of such liens; (c) Liens created to secure indebtedness representing, or incurred to finance, the cost of property acquired, constructed or improved by the Borrower or any subsidiary in the ordinary course of business after the date hereof or Liens existing on such property at the time of acquisition thereof or attaching to such property within 18 months of the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower and not created in contemplation of such acquisition; (f) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (g) any Lien on Margin Stock; (h) Liens on property (including any natural gas, oil or other mineral property) to secure all or a part of the cost of exploration, drilling or development thereof or to secure Debt incurred to provide funds for any such purpose; (i) Liens and security interests created, incurred or assumed in connection with the purchase, lease, financing or refinancing of pollution control facilities; (j) Liens created to secure sales of accounts receivable and other receivables; and (k) Liens created for the sole purpose of extending, renewing or replacing in whole or in part Debt secured by any Lien, mortgage or security interest referred to in the foregoing subsections (a) through (j); provided, however, that the principal amount of Debt or obligations secured thereby shall not exceed the principal amount of Debt or obligations so secured at the time of such extension, renewal or replacement and that such extension, renewal or replacement, as the case may be, shall be limited to all or a part of the property that secured the lien or mortgage so extended, renewed or replaced (and any improvements on such property). -36- SECTION 5.17 Consolidations, Mergers and Sales of Assets. (a) Subject to the provisions of Section 2.08(b), the Borrower will not consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person (other than mergers and consolidations with any Wholly Owned Subsidiary in which the Borrower is the surviving or resulting entity), or discontinue or eliminate any business line or segment if such discontinuation or elimination could reasonably be expected to cause a Material Adverse Effect, provided that the Borrower may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing. (b) Subject to the provisions of Section 2.08(b), the Borrower will not permit any Subsidiary to consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person (other than sales, leases or transfers to, or mergers, or consolidations with, any Wholly Owned Subsidiary), or discontinue or eliminate any business line or segment if such discontinuation or elimination could reasonably be expected to cause a Material Adverse Effect. SECTION 5.18 Change in Fiscal Year. The Borrower will not change its Fiscal Year without the consent of the Required Banks. SECTION 5.19 Compliance with ERISA. In addition to and without limiting the generality of Section 5.06, the Borrower will, and will cause each Subsidiary to, (i) comply in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Plans, (ii) not take any action or fail to take action the result of which could be a liability to the PBGC or to a Multiemployer Plan except where any such action or failure to act could not reasonably be expected to have a Material Adverse Effect, and not participate in any prohibited transaction that could result in any civil penalty under ERISA or tax under the Code and (iii) furnish to the Administrative Agent or any Bank upon request such additional information about any Plan or Multiemployer Plan as may be reasonably requested by the Administrative Agent or such Bank. SECTION 5.20 Maintenance of Ratings. The Borrower shall at all times maintain Debt Ratings with S&P and Moody's and such Debt Ratings shall be, with respect to S&P, at least BBB- or higher and, with respect to Moody's, at least Baa3 or higher. SECTION 5.21 Transactions with Affiliates. Neither the Borrower nor any of its Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of the Borrower or such Subsidiary (which Affiliate is not the Borrower or a Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which are fully disclosed to the Administrative Agent and the Banks, and are no less favorable to Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. -37- SECTION 5.22 Ratio of Consolidated Total Debt to Consolidated Total Capitalization. The ratio of Consolidated Total Debt to Consolidated Total Capitalization shall at all times be less than 0.70 to 1.00. SECTION 5.23 Minimum Interest Coverage Ratio. At the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 1999, the ratio of Consolidated EBITDA for the immediately preceding four (4) Fiscal Quarters then ended to Consolidated Interest Expense for the immediately preceding four (4) Fiscal Quarters then ended shall be greater than 3.50 to 1.00. SECTION 5.24 Subsidiaries. (a) The Borrower shall maintain each Subsidiary (other than SCANA Energy Trading LLC) at all times as a Wholly Owned Subsidiary. (b) The Borrower shall not permit any Subsidiary to issue any Stock at any time after the Closing Date other than (i) Stock sold to, and thereafter held by, the Borrower or any Wholly Owned Subsidiary, (ii) directors' qualifying shares, (iii) Additional Trust Preferred Securities, and (iv) preferred stock having no voting rights that are exerciseable on or before the Maturity Date. (c) Without in any way limiting Section 5.16, the Borrower shall not directly or indirectly create, assume or suffer to exist any Lien on any Stock of any Subsidiary. (d) The Borrower shall not, nor shall it permit any of its Subsidiaries to, enter into, after the Closing Date, any indenture, agreement, instrument or other arrangement that directly or indirectly prohibits or restrains, or has the effect of prohibiting or restraining, the right or ability of any Subsidiary to (i) pay or declare any dividend to or in favor of the Borrower, or (ii) make any payment of any kind to the Borrower. SECTION 5.25 Public Utility Holding Company Act. The Borrower shall file with the SEC, on a timely basis, all annual reports, registration statements, forms and other documents required to be filed by the Borrower as a "registered holding company" under PUHCA. The Borrower shall provide prompt written notice to the Banks and the Administrative Agent of all orders, rulings, and notices issued, and all actions taken, by the SEC pursuant to PUHCA with respect to the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect. ARTICLE VI. DEFAULTS SECTION 6.01 Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay any principal of or any interest on any Loan or shall fail to pay any fee or other amount payable hereunder when due; or -38- (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.01(e), 5.01(k), 5.02(ii), 5.03, 5.04, 5.05, 5.12 to 5.18, inclusive, or 5.20 to 5.23, inclusive; or (c) the Borrower shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by clause (a) or (b) above) for thirty days after the earlier of (i) the first day on which the Borrower has knowledge of such failure or (ii) written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; or (d) any representation, warranty, certification or statement made or deemed made by the Borrower in Article IV of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); or (e) the Borrower or any Subsidiary shall fail to make any payment in respect of Debt outstanding in an aggregate principal amount in excess of $10,000,000 (other than the Notes) when due or within any applicable grace period; or (f) any event or condition shall occur which results in the acceleration of the maturity of Debt outstanding of the Borrower or any Subsidiary in an aggregate principal amount in excess of $10,000,000 or the mandatory prepayment or purchase of such Debt by the Borrower (or its designee) or such Subsidiary (or its designee) prior to the scheduled maturity of a sinking fund retirement thereof, or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Debt or any Person acting on such holders' behalf to accelerate the maturity of a sinking fund retirement thereof or require the mandatory prepayment or purchase thereof prior to the scheduled maturity thereof, without regard to whether such holders or other Person shall have exercised or waived their right to do so; or (g) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or -39- (i) the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (j) one or more judgments or orders for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 45 days; or (k) a federal tax lien shall be filed against the Borrower or any Subsidiary under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower or any Subsidiary under Section 4068 of ERISA and such liens shall, individually or in the aggregate, exceed $5,000,000 and remain undischarged for a period of 25 days after the date of filing; or (l) failure by the Borrower or any Subsidiary to maintain, or loss by the Borrower or any Subsidiary of, any necessary public utility or other license, permit or authorization (including without limitation any such license, permit or authorization required under PUHCA) where any such failure or loss could reasonably be expected to have a Material Adverse Effect; or (m) all or any substantial part of the Properties of the Borrower or any Material Subsidiary shall be condemned, seized or appropriated; or (n) the SEC shall issue any order, ruling, or notice, or take any other action, pursuant to PUHCA with respect to the Borrower or any Subsidiary which the Administrative Agent determines could reasonably be expected to have a Material Adverse Effect; or (o) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of the voting stock of the Borrower; or (ii) as of any date a majority of the Board of Directors of the Borrower consists of individuals (other than individuals selected or appointed in connection with the consummation of the Mergers (as defined in the Merger Agreement)) who were not either (A) directors of the Borrower as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); then, and in every such event, the Administrative Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if -40- requested by the Required Banks, by notice to the Borrower declare the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents to be, and the Notes (together will all accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that if any Event of Default specified in clause (g) or (h) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon automatically terminate and the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents shall automatically become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Banks. SECTION 6.02 Notice of Default. The Administrative Agent shall give notice to the Borrower of any Default under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII. THE ADMINISTRATIVE AGENT SECTION 7.01 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act as its administrative agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Administrative Agent: (a) shall have no duties or responsibilities except as expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any Bank under, this Agreement or any other Loan Document, or for the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Banks, and then only on terms and conditions satisfactory to the Administrative Agent, and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The provisions of this Article VII are solely for the benefit of the Administrative Agent and the Banks, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this -41- Agreement and under the other Loan Documents, the Administrative Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. The duties of the Administrative Agent shall be ministerial and administrative in nature, and the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Bank. SECTION 7.02 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telefax, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants or other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks in any action taken or failure to act pursuant thereto shall be binding on all of the Banks. SECTION 7.03 Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on the Loans) unless the Administrative Agent has received notice from a Bank or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Banks. The Administrative Agent shall give each Bank prompt notice of each non-payment of principal of or interest on the Loans, whether or not it has received any notice of the occurrence of such non-payment. The Administrative Agent shall (subject to Section 9.05) take such action with respect to such Default as shall be directed by the Required Banks, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Banks. SECTION 7.04 Rights of Administrative Agent and its Affiliates as a Bank. With respect to any Loan made by Wachovia or an Affiliate of Wachovia, such Affiliate and Wachovia in their capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not an Affiliate of Wachovia (or in Wachovia's case, acting as the Administrative Agent), and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include such Affiliate of Wachovia or Wachovia in its individual capacity. Such Affiliate and Wachovia may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if they were not an Affiliate of the Administrative Agent or acting as the Administrative Agent, respectively; and such Affiliate and Wachovia may accept fees and other consideration from the Borrower (in addition to any agency fees and arrangement fees heretofore agreed to between the Borrower and Wachovia) for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Banks. -42- SECTION 7.05 Indemnification. Each Bank severally agrees to indemnify the Administrative Agent, to the extent the Administrative Agent shall not have been reimbursed by the Borrower, ratably in accordance with its Commitment, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (excluding, unless a Default has occurred and is continuing, the normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or any such other documents; provided, however, that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. SECTION 7.06 CONSEQUENTIAL DAMAGES. THE ADMINISTRATIVE AGENT SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 7.07 Payee of Note Treated as Owner. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent and the provisions of Section 9.07(c) have been satisfied. Any requests, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor or replacement thereof. SECTION 7.08 Non-Reliance on Administrative Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Administrative Agent shall not be required to keep itself (or any Bank) informed as to the performance or observance by the Borrower of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any other Person. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall not have any duty or -43- responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Person (or any of their Affiliates) which may come into the possession of the Administrative Agent. SECTION 7.09 Failure to Act. Except for action expressly required of the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Banks of their indemnification obligations under Section 7.05 against any and all liability and expense which may be incurred by the Administrative Agent by reason of taking, continuing to take, or failing to take any such action. SECTION 7.10 Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower and the Administrative Agent may be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's notice of resignation or the Required Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent. Any successor Administrative Agent shall be a bank which has a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder. ARTICLE VIII. CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) the Administrative Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or (b) the Required Banks advise the Administrative Agent that the London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding the Euro-Dollar Loans for such Interest Period, -44- the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make or maintain the Euro-Dollar Loans specified in such notice shall be suspended and the Loans shall be Base Rate Loans. SECTION 8.02 Illegality. If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any existing or future law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such authority, bank or agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for any Bank (or its Lending Office) to make, maintain or fund its Loan as a Euro-Dollar Loan and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make, maintain or fund its Loan as a Euro-Dollar Loan shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund its Loan as a Euro-Dollar Loan until maturity and shall so specify in such notice, such Loan shall immediately be converted to a Base Rate Loan and in connection with such conversion the Borrower shall pay any amount due such Bank pursuant to Section 8.05(a). SECTION 8.03 Increased Cost and Reduced Return. (a) If after the date hereof, a Change of Law or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (i) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to its Loan while it is a Euro-Dollar Loan, its Note or its obligation to make or maintain its Loan as a Euro-Dollar Loan, or shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on its Euro-Dollar Loans or any other amounts due under this Agreement in respect of its Loan while it is a Euro-Dollar Loan or its obligation to make or maintain its Loan as a Euro-Dollar Loan (except for changes in the rate of tax on the overall net income of such Bank or its Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against -45- assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office); or (iii) shall impose on any Bank (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Loan while it is a Euro-Dollar Loan, its Note or its obligation to make or maintain its Loan as a Euro-Dollar Loan; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining its Loan as a Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided, however, that the Borrower shall have no liability hereunder for any amount allocable to a period earlier than ninety (90) days before the date of such demand. (b) If any Bank shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any existing or future law, rule or regulation, or any change in the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction; provided, however, that the Borrower shall have no liability hereunder for any amount allocable to a period earlier than ninety (90) days before the date of such demand. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) The provisions of this Section 8.03 shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions shall be made based upon the circumstances of such Participant, Assignee or other Transferee. SECTION 8.04 Conversion of Affected Euro-Dollar Loans to Base Rate Loans. If (i) the obligation of any Bank to make or maintain its Loan as a Euro-Dollar Loan has been suspended -46- pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply, such Bank's Loan shall be converted to a Base Rate Loan. In the event that the Borrower shall elect that the provisions of this Section shall apply to any Bank, the Borrower shall remain liable for, and shall pay to such Bank as provided herein, all amounts due such Bank under Section 8.03 in respect of the period preceding the date of conversion of such Bank's Loans resulting from the Borrower's election. SECTION 8.05 Compensation. Upon the request of any Bank, delivered to the Borrower and the Administrative Agent, the Borrower shall pay to such Bank such amount or amounts as shall compensate such Bank for any loss, cost or expense incurred by such Bank as a result of: (a) any payment or prepayment (pursuant to Section 2.07, Section 2.08, Section 8.02 or otherwise) of a Euro-Dollar Loan on a date other than the last day of an Interest Period for such Euro-Dollar Loan; (b) any failure by the Borrower to prepay a Euro-Dollar Loan on the date for such prepayment specified in the relevant notice of prepayment hereunder; or (c) any failure by the Borrower to borrow a Loan which is to be a Euro-Dollar Loan on the Term Loan Draw Date as specified in the Notice of Borrowing delivered pursuant to Section 3.02; such compensation to include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the then current Interest Period for such Euro-Dollar Loan (or, in the case of a failure to prepay or borrow, the Interest Period for such Euro-Dollar Loan which would have commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Euro-Dollar Loan provided for herein over (y) the amount of interest (as reasonably determined by such Bank) such Bank would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market (if such Loan is a Euro-Dollar Loan). ARTICLE IX. MISCELLANEOUS SECTION 9.01 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party at its address or telecopy number set forth on the signature pages hereof or such other address or telecopy number as such party may hereafter specify for the purpose by notice to each other party. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopy number specified in this Section and the telecopy machine used by the sender provides a written confirmation that such telecopy has been so -47- transmitted or receipt of such telecopy transmission is otherwise confirmed, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, and (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article II or Article VIII shall not be effective until received. SECTION 9.02 No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03 Expenses; Documentary Taxes; Indemnification. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Administrative Agent, including fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default hereunder or thereunder and (ii) if a Default occurs, all out-of-pocket expenses incurred by the Administrative Agent or any Bank, including fees and disbursements of counsel, in connection with such Default and collection and other enforcement proceedings resulting therefrom, including out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. (b) The Borrower shall indemnify the Administrative Agent and each Bank against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents (other than any Assignment and Acceptance); provided that no Assignee or Transferee shall be entitled to receive any greater payment under this paragraph (b) than the related transferor Bank would have been entitled to receive. (c) The Borrower shall indemnify the Administrative Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any use by the Borrower of the proceeds of any extension of credit by any Bank hereunder or breach by the Borrower of this Agreement or any other Loan Document or from investigation, litigation (including, without limitation, any actions taken by the Administrative Agent or any of the Banks to enforce this Agreement or any of the other Loan Documents (except enforcement action on which the Borrower prevails)) or other proceeding (including, without limitation, any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse the Administrative Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable expenses (including, without limitation, legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, -48- claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. SECTION 9.04 Setoffs; Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of all principal and interest due with respect to the Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks owing to such other Banks, and/or such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks owing to such other Banks shall be shared by the Banks pro rata; provided that (i) nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, and (ii) if all or any portion of such payment received by the purchasing Bank is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price of such participation to the extent of such recovery together with an amount equal to such other Bank's ratable share (according to the proportion of (x) the amount of such other Bank's required repayment to (y) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05 Amendments and Waivers. (a) Any provision of this Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) change the Commitment of any Bank or subject any Bank to any additional obligation, (ii) change the principal of or reduce the rate of interest on any Loan or reduce any fees hereunder, (iii) extend the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) reduce the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the percentage of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any guaranty given to support payment of the Loans. -49- (b) The Borrower will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement unless each Bank shall be informed thereof by the Borrower and shall be afforded an opportunity of considering the same and shall be supplied by the Borrower with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Agreement shall be delivered by the Borrower to each Bank forthwith following the date on which the same shall have been executed and delivered by the requisite percentage of Banks. The Borrower will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Bank (in its capacity as such) as consideration for or as an inducement to the entering into by such Bank of any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all Banks approving such waiver or amendment. SECTION 9.06 Margin Stock Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not, directly or indirectly (by negative pledge or otherwise), relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.07 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the Borrower may not assign or otherwise transfer any of its rights under this Agreement. (b) Any Bank may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment hereunder or any other interest of such Bank hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank's obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. In no event shall a Bank that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Bank may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the change of any date fixed for the payment of principal of or interest on the related Loan or Loans, (ii) the change of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related Loan or Loans, (iii) the change of the principal of the related Loan or Loans, (iv) any change in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) commitment fee is payable hereunder from the rate at which the Participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation, (v) the release or substitution of all or any substantial part of the collateral (if any) held as security for the Loans, or (vi) the release of any guaranty given to support payment of the Loans. Each Bank selling a participating interest in any Loan, Note, Commitment or other interest under this Agreement shall, within 10 Domestic Business Days of such sale, provide the Borrower and the Administrative Agent with written notification -50- stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article VIII with respect to its participation in any Loan outstanding from time to time. (c) Any Bank may at any time assign to one or more banks or financial institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement, the Note and the other Loan Documents, and such Assignee shall assume all such rights and obligations, pursuant to an Assignment and Acceptance in the form attached hereto as Exhibit G, executed by such Assignee, such transferor Bank and the Administrative Agent (and, in the case of: (i) an Assignee that is not then a Bank or an Affiliate of a Bank; and (ii) an assignment not made during the existence of a Default, by the Borrower); provided that (i) the amount of the Commitment or Loans, as the case may be, of the assigning Bank being assigned pursuant to such assignment (determined as of the effective date of the assignment) shall be equal to $10,000,000 (or any larger multiple of $1,000,000) unless such assignment is to an Affiliate of the assigning Bank; (ii) no interest may be sold by a Bank pursuant to this paragraph (c) to any Assignee that is not then a Bank or an Affiliate of a Bank without the consent of the Borrower, which consent shall not be unreasonably withheld, provided that the Borrower's consent shall not be necessary with respect to any assignment made during the existence of a Default; and (iii) no interest may be sold by a Bank pursuant to this paragraph (c) to any Assignee that is not then a Bank or an Affiliate of a Bank, without the consent of the Administrative Agent, which consent shall not be unreasonably withheld, provided, that although the Administrative Agent's consent may not be necessary with respect to an Assignee that is then a Bank or an Affiliate of a Bank, no such assignment shall be effective until the conditions set forth in the following sentence are satisfied. Upon (A) execution of the Assignment and Acceptance by such transferor Bank, such Assignee, the Administrative Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance to the Borrower and the Administrative Agent, (C) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, and (D) payment by the assigning Bank of a processing and recordation fee of $3,500 to the Administrative Agent, such Assignee shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto with a Commitment or outstanding Loans, as the case may be, as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower, the Banks or the Administrative Agent shall be required. Upon the consummation of any transfer to an Assignee pursuant to this paragraph (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to each of such Assignee and such transferor Bank. (d) Subject to the provisions of Section 9.08, the Borrower authorizes each Bank to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial and other information in such Bank's possession concerning the Borrower which has been delivered to such Bank by the Borrower pursuant to this Agreement or which has been delivered to such Bank by the Borrower in connection with such Bank's credit evaluation prior to entering into this Agreement. -51- (e) No Transferee shall be entitled to receive any greater payment under Section 8.03 than the transferor Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Anything in this Section 9.07 to the contrary notwithstanding, any Bank may assign and pledge all or any portion of the Loan and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Loan and/or obligations made by the Borrower to the assigning and/or pledging Bank in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loan and/or obligations to the extent of such payment. No such assignment shall release the assigning and/or pledging Bank from its obligations hereunder. SECTION 9.08 Confidentiality. Each Bank agrees to exercise its best efforts to keep any information delivered or made available by the Borrower to it, confidential from anyone other than persons employed or retained by such Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided, however, that nothing herein shall prevent any Bank from disclosing such information (i) to any other Bank, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank, (iv) which has been publicly disclosed, (v) to the extent reasonably required in connection with any litigation to which the Administrative Agent, any Bank or their respective Affiliates may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel and independent auditors and (viii) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.08. SECTION 9.09 Representation by Banks. Each Bank hereby represents that it is a commercial lender or financial institution which makes loans in the ordinary course of its business and that it will make its Loan hereunder for its own account in the ordinary course of such business; provided, however, that, subject to Section 9.07, the disposition of the Note held by that Bank shall at all times be within its exclusive control. SECTION 9.10 Obligations Several. The obligations of each Bank hereunder are several, and no Bank shall be responsible for the obligations or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. -52- SECTION 9.11 Survival of Certain Obligations. Sections 8.03(a), 8.03(b), 8.05 and 9.03, and the obligations of the Borrower thereunder, shall survive, and shall continue to be enforceable notwithstanding, the termination of this Agreement and the Commitments and the payment in full of the principal of and interest on all Loans. SECTION 9.12 Georgia Law. This Agreement and each Note shall be construed in accordance with and governed by the law of the State of Georgia. SECTION 9.13 Severability. In case any one or more of the provisions contained in this Agreement, the Notes or any of the other Loan Documents should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and shall be enforced to the greatest extent permitted by law. SECTION 9.14 Interest. In no event shall the amount of interest due or payable hereunder or under the Notes exceed the maximum rate of interest allowed by applicable law, and in the event any such payment is inadvertently made to any Bank by the Borrower or inadvertently received by any Bank, then such excess sum shall be credited as a payment of principal, unless the Borrower shall notify such Bank in writing that it elects to have such excess sum returned forthwith. It is the express intent hereof that the Borrower not pay and the Banks not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by the Borrower under applicable law. SECTION 9.15 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 9.16 Consent to Jurisdiction. The Borrower (a) submits to personal jurisdiction in the State of Georgia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement, the Notes and the other Loan Documents, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of Georgia for the purpose of litigation to enforce this Agreement, the Notes or the other Loan Documents, and (c) agrees that service of process may be made upon it in the manner prescribed in Section 9.01 for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Administrative Agent from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction. SECTION 9.17 Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [SIGNATURES APPEAR ON FOLLOWING PAGE] -53- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under seal, by their respective authorized officers as of the day and year first above written. SCANA CORPORATION By:_______________________________ Title:_________________________ SCANA Corporation 1426 Main Street Columbia, South Carolina 29201 Attention: Mr. Kevin B. Marsh, Chief Financial Officer Telecopy number: (803) 217-9336 Telephone number: (803) 217-8097 -54- COMMITMENT WACHOVIA BANK, N.A., as Administrative Agent and as a Bank $42,000,000 By:_______________________________ Title:_________________________ Lending Office -------------- Wachovia Bank, N.A. Syndication Services 191 Peachtree Street, N.E., 27th Floor, Mail Code: GA-382 Atlanta, Georgia 30303-1757 Attention: Lynn Smith Supervisor, Syndicated Loan Services Telecopy number: (404) 332-5144 Telephone number: (404) 332-6971 With a copy to: Wachovia Bank, N.A. 1426 Main Street, 17th Floor SC-9126 Columbia, South Carolina 29201 Attention: Donald E. Sellers, Jr. Vice President Telecopy number: (803) 765-3363 Telephone number: (803) 765-3130 -55- COMMITMENT FIRST UNION NATIONAL BANK, as Syndication Agent and as a Bank $42,000,000 By:_______________________________ Title:_________________________ Lending Office -------------- First Union National Bank 301 South College Street Charlotte, North Carolina 28288-0735 Attention: Mitch Wilson Telecopy number: (704) 383-7611 Telephone number: (704) 383-5642 With a copy to: First Union National Bank 201 South College Street Charlotte, North Carolina 28288-1183 Attention: Holly Benson Telecopy number: (704) 383-7999 Telephone number: (704) 383-0296 -56- COMMITMENT THE BANK OF NEW YORK, as Documentation Agent and as a Bank $42,000,000 By:_______________________________ Title:_________________________ Lending Office -------------- The Bank of New York One Wall Street, 19th Floor New York, New York 10286 Attention: Steven Kalachman Telecopy number: (212) 635-7552 Telephone number: (212) 635-7531 With a copy to: The Bank of New York One Wall Street, 19th Floor New York, New York 10286 Attention: Lisa Williams Telecopy number: (212) 635-7552 Telephone number: (212) 635-7881 -57- COMMITMENT BANK OF AMERICA, N.A., as Co-Agent and as a Bank $32,500,000 By:_______________________________ Title:_________________________ Lending Office -------------- Bank of America, N.A. 901 Main Street Dallas, Texas 75202 Attention: Darren Boyer Telecopy number: (214) 290-9440 Telephone number: (214) 209-1270 With a copy to: Bank of America, N.A. 100 North Tryon Street NC1-007-16-13 Charlotte, North Carolina 28255 Attention: Gretchen Burud Telecopy number: (704) 386-1319 Telephone number: (704) 386-8394 -58- COMMITMENT SUNTRUST BANK, ATLANTA, as Co-Agent and as a Bank $32,500,000 By:_______________________________ Title:_________________________ By: Title: Lending Office -------------- SunTrust Bank, Atlanta SunTrust Bank Inc. 303 Peachtree Street, N.E., 2nd Floor Atlanta, Georgia 30308 Attention: Nathan Bickford Telecopy number: (404) 588-8833 Telephone number: (404) 658-4219 -59- COMMITMENT BANK ONE, NA $22,500,000 By:_______________________________ Title:_________________________ Lending Office Bank One, NA 1 Bank One Plaza, Suite # IL 1-0363, 10th Floor Chicago, Illinois 60670 Attention: Bill Banks Telecopy number: (312) 732-3055 Telephone number: (312) 732-9781 -60- COMMITMENT PARIBAS $22,500,000 By:______________________________ Title:________________________ By: Title: Lending Office -------------- Paribas 787 Seventh Avenue, 31st Floor New York, New York 10019 Attention: Mark Renaud Telecopy number: (212) 841-2217 Telephone number: (212) 841 2624 -61- COMMITMENT DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK AG, CAYMAN ISLANDS BRANCH $16,000,000 By:______________________________ Title:________________________ By:______________________________ Title:________________________ Lending Office DG Bank AG, Atlanta Agency 303 Peachtree Street, Suite 2900 Atlanta, Georgia 30308 Attention: Eric K. Zimmerman Assistant Vice President Telecopy number: (404) 524-4006 Telephone number: (404) 524-3966 With a copy to: DG Bank AG, New York Branch 609 Fifth Avenue New York, New York 10017 Attention: Ed Thome Assistant Vice President Telecopy number: (212) 745-1422 Telephone number: (212) 745-1464 -62- COMMITMENT THE INDUSTRIAL BANK OF JAPAN, LIMITED $16,000,000 By:______________________________ Title:________________________ Lending Office The Industrial Bank of Japan, Limited 191 Peachtree Street, N.E., Suite 3825 Atlanta, Georgia 30303-1757 Attention: Bill LaDuca Telecopy number: (404) 524-8509 Telephone number: (404) 524-8770 (ext. 105) With a copy to: The Industrial Bank of Japan, Limited New York Branch 1251 Avenue of the Americas New York, New York 10020-1104 Attention: Credit Administration Department Telecopy number: (212) 282-4480 Telephone number: (212) 282-4063 -63- COMMITMENT BANQUE NATIONALE DE PARIS, HOUSTON AGENCY $16,000,000 By:______________________________ Title:________________________ Lending Office Banque Nationale de Paris, Houston Agency 333 Clay Street, Suite 3400 Houston, Texas 77002 Attention: Donna Rose Telecopy number: (713) 951-1240 Telephone number: (713) 659-1414 With a copy to: Banque Nationale de Paris 12201 Merit Drive, Suite 860 Dallas, Texas 75251 Attention: Henry Setina Telecopy number: (972) 788- 9140 Telephone number: (972) 788-9191 -64- COMMITMENT THE SANWA BANK, LIMITED (acting through its New York Branch) $16,000,000 By:______________________________ Title:________________________ Lending Office The Sanwa Bank, Limited Park Avenue Plaza 55 E. 52nd Street New York, New York 10055 Attention: P. Bartlett Wu Telecopy number: (212) 754-1304 Telephone number: (212) 339-6251 TOTAL COMMITMENTS: $300,000,000 -65- SCHEDULE 4.05 Description of Litigation There is pending in the Court of Common Pleas of Hampton County, South Carolina, a matter styled Heritage Propane V. SCANA Corporation. This matter arises out of the sale to another party by the Borrower of assets primarily related to Borrower's and its subsidiary propane operations. Page 1 of 1 SCHEDULE 4.08 Existing Subsidiaries Name of Subsidiary Jurisdiction of Incorporation South Carolina Electric &Gas Company South Carolina SCE&G Trust I (indirect subsidiary) Delaware South Carolina Generating Company, Inc. South Carolina South Carolina Fuel Company, Inc. South Carolina SCANA Propane Gas, Inc. * South Carolina USA Cylinder Exchange, Inc. * (indirect subsidiary) South Carolina SCANA Propane Supply, Inc. * (indirect subsidiary) South Carolina SCANA Resources, Inc. South Carolina Instel, Inc. * (indirect subsidiary) South Carolina SCANA Communications, Inc. South Carolina SCANA Communications Holdings, Inc. Delaware SCANA Energy Marketing, Inc. South Carolina ServiceCare, Inc. South Carolina Primesouth, Inc. South Carolina Palmark, Inc. (indirect subsidiary) South Carolina South Carolina Pipeline Corporation South Carolina C&T Pipeline, LLC * (indirect subsidiary) South Carolina SCANA Propane Storage, Inc. * South Carolina SCANA Petroleum Resources, Inc. * South Carolina SPR Gas Services, Inc. * South Carolina SCANA Development Corporation * South Carolina SCANA Energy Trading, LLC South Carolina New Sub I, Inc. South Carolina New Sub II, Inc. South Carolina * in process of liquidation Page 1 of 1 EXHIBIT A NOTE $____________ Atlanta, Georgia December 1, 1999 For value received, SCANA CORPORATION, a South Carolina corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Lending Office, the principal sum of ________________ ______________________________ and No/100 Dollars ($____________), or such lesser amount as shall equal the unpaid principal amount of the Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or such other address as may be specified from time to time pursuant to the Credit Agreement. The Loan made by the Bank, the interest rates from time to time applicable thereto and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make, or any error of the Bank in making, any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Note is one of the Notes referred to in the Credit Agreement dated as of December 1, 1999 among the Borrower, the banks listed on the signature pages thereof and their successors and assigns and Wachovia Bank, N.A., as Administrative Agent (as the same may be amended or modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment and the repayment hereof and the acceleration of the maturity hereof. The Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. The Borrower agrees, in the event that this Note or any portion hereof is collected by law or through an attorney at law, to pay all reasonable costs of collection, including, without limitation, reasonable attorneys' fees. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed under seal, by its duly authorized officer as of the day and year first above written. SCANA CORPORATION By:_____________________________ Title:_______________________ A - 2
Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL Date Type of Interest Amount of Amount of Notation ---- Loan* Rate Loan Principal Made By ---- ---- ---- ------- Repaid - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- - ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
* I.e., a Base Rate or Euro-Dollar Loan. A - 3 EXHIBIT B OPINION OF COUNSEL FOR THE BORROWER [Dated as provided in Section 3.01 of the Credit Agreement] To the Banks and the Administrative Agent Referred to Below c/o Wachovia Bank, N.A., as Administrative Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Dear Sirs: We have acted as counsel for SCANA Corporation (the "Borrower") in connection with the Credit Agreement (the "Credit Agreement") dated as of December 1, 1999 among the Borrower, the banks listed on the signature pages thereof and Wachovia Bank, N.A., as Administrative Agent. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. We have assumed for purposes of our opinions set forth below that the execution and delivery of the Credit Agreement by each Bank and by the Administrative Agent have been duly authorized by each Bank and by the Administrative Agent. As to questions of fact relating to the Borrower material to such opinions, we have relied upon representations of appropriate officers of the Borrower. Upon the basis of the foregoing, we are of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of South Carolina and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument which to our knowledge is binding upon the Borrower and (v) to our knowledge, except as provided in the Credit Agreement, do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and the Notes constitute valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as such enforceability may be limited by: (i) bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4. To our knowledge, there is no action, suit or proceeding pending, or threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of the Credit Agreement or any Note. 5. Each of the Borrower's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 6. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 7. The Borrower is a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended, and the rules and regulations thereunder (collectively, "PUHCA"), and is exempt from registration under Section 3(a)(1) of PUHCA. We are qualified to practice in the State of South Carolina and do not purport to be experts on any laws other than the laws of the United States and the State of South Carolina, and this opinion is rendered only with respect to such laws. We have made no independent investigation of the laws of any other jurisdiction. We express no opinion as to the laws of any jurisdiction wherein any Bank may be located which limits rates of interest which may be charged or collected by such Bank other than in paragraph 3 with respect to the State of South Carolina. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you or any Assignee, Participant or other Transferee under the Credit Agreement, without our prior written consent. Very truly yours, EXHIBIT C OPINION OF WOMBLE CARLYLE SANDRIDGE & RICE, PLLC, SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT [Date as provided in Section 3.01 of the Credit Agreement] To the Banks and the Administrative Agent Referred to Below c/o Wachovia Bank, N.A., as Administrative Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Loan Syndications Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of December 1, 1999 among SCANA Corporation, a South Carolina corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Wachovia Bank, N.A., as Administrative Agent (the "Administrative Agent"), and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is limited by, and is in accordance with, the January 1, 1992 edition of the Interpretive Standards applicable to Legal Opinions to Third Parties in Corporate Transactions adopted by the Legal Opinion Committee of the Corporate and Banking Law Section of the State Bar of Georgia which Interpretive Standards are incorporated herein by this reference. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, and assuming the due authorization, execution and delivery of the Credit Agreement and each of the Notes by or on behalf of the Borrower, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms except as: (i) the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable preference, moratorium or similar laws applicable to creditors' rights or the collection of debtors' obligations generally; (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; and (iii) the enforceability of certain of the remedial, waiver and other provisions of the Credit Agreement and the Notes may be further limited by the laws of the State of Georgia; provided, however, such additional laws do not, in our opinion, substantially interfere with the practical realization of the benefits expressed in the Credit Agreement and the Notes, except for the economic consequences of any procedural delay which may result from such laws. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction except the State of Georgia. We express no opinion as to the effect of the compliance or noncompliance of the Administrative Agent or any of the Banks with any state or federal laws or regulations applicable to the Administrative Agent or any of the Banks by reason of the legal or regulatory status or the nature of the business of the Administrative Agent or any of the Banks. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you and any Assignee, Participant or other Transferee under the Credit Agreement without our prior written consent. Very truly yours, ________________________________ By:_____________________________ EXHIBIT D CLOSING CERTIFICATE OF SCANA CORPORATION Reference is made to the Credit Agreement (the "Credit Agreement") dated as of December 1, 1999, among SCANA Corporation (the "Borrower"), Wachovia Bank, N.A., as Administrative Agent and as a Bank, and certain other Banks listed on the signature pages thereof. Capitalized terms used herein have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 3.01(e) of the Credit Agreement, ___________________, the duly authorized ____________________ of the Borrower, hereby certifies to the Administrative Agent and the Banks that: (i) no Default has occurred and is continuing on the date hereof; and (ii) the representations and warranties of the Borrower contained in Article IV of the Credit Agreement are true in all material respects on and as of the date hereof. Certified on this ______ day of December, 1999. SCANA CORPORATION Name:___________________________ Title:__________________________ EXHIBIT E SCANA CORPORATION SECRETARY'S CERTIFICATE The undersigned, _____________, _______ Secretary of SCANA Corporation, a South Carolina corporation (the "Borrower"), hereby certifies that he has been duly elected, qualified and is acting in such capacity and that, as such, he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Credit Agreement dated as of December 1, 1999 among the Borrower, Wachovia Bank, N.A., as Administrative Agent and as a Bank, and certain other Banks listed on the signature pages thereof that: 1. Attached hereto as Exhibit A is a complete and correct copy of the Certificate of Incorporation of the Borrower as in full force and effect on the date hereof as certified by the Secretary of State of the State of South Carolina, the Borrower's state of incorporation. 2. Attached hereto as Exhibit B is a complete and correct copy of the Bylaws of the Borrower as in full force and effect on the date hereof. 3. Attached hereto as Exhibit C is a complete and correct copy of (a) the resolutions duly adopted by the Board of Directors of the Borrower on August 18, 1999, and (b) a Written Consent of the SCANA Ad Hoc Management Debt Committee dated December 14, 1999, authorizing the execution and delivery of, the Credit Agreement, the Notes (as such term is defined in the Credit Agreement) and the other Loan Documents (as such term is defined in the Credit Agreement) to which the Borrower is a party. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Borrower in connection therewith. 4. ____________, who as ________________________ of the Borrower signed the Credit Agreement, the Notes and the other Loan Documents to which the Borrower is a party, was duly elected, qualified and acting as such at the time he signed the Credit Agreement, the Notes and other Loan Documents to which the Borrower is a party, and his signature appearing on the Credit Agreement, the Notes and the other Loan Documents to which the Borrower is a party is his genuine signature. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ______ day of December, 1999. _________________________________ Name: Title: EXHIBIT F SCANA CORPORATION COMPLIANCE CERTIFICATE Reference is made to that certain Credit Agreement dated as of December 1, 1999 (the "Credit Agreement"), among SCANA Corporation, a South Carolina Corporation (the "Borrower"), Wachovia Bank, N.A., as Administrative Agent and as a Bank, and certain other Banks listed on the signature pages thereof. Capitalized terms used in this certificate and the Schedule attached hereto, unless otherwise defined herein, have the meanings assigned to them in the Credit Agreement. The undersigned does hereby certify to the Administrative Agent as follows: 1. He is the duly elected and serving chief financial officer of the Borrower. 2. He has reviewed the terms of the Credit Agreement and the other Loan Documents and has made, or has caused to be made under his supervision, a review of the transactions and conditions of the Borrower and its Consolidated Subsidiaries through the date on which this certificate is delivered to the Administrative Agent. 3. The computations relating to the Borrower's financial conditions set forth on Schedule I attached hereto were true and correct as of ________________ __, ____ (such date being the last day of the Fiscal Quarter most recently ended. IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the ___ day of _________, ____. _________________________________ Name: Title: EXHIBIT G ASSIGNMENT AND ACCEPTANCE Dated ________________ __, ____ Reference is made to the Credit Agreement dated as of December 1, 1999 (together with all amendments and modifications thereto, the "Credit Agreement") among SCANA Corporation, a South Carolina corporation (the "Borrower"), the Banks (as defined in the Credit Agreement) and Wachovia Bank, N.A., as Administrative Agent (the "Administrative Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. _____________________________________________________ (the "Assignor") and _____________________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse to the Assignor, and the Assignee hereby purchases and assumes from the Assignor, a ______% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) (including, without limitation, a ______% interest (which on the Effective Date hereof is $_______________) in the Assignor's Commitment and a ______% interest (which on the Effective Date hereof is $_______________) in the Loan owing to the Assignor and a ______% interest in the Note held by the Assignor (which on the Effective Date hereof is $__________________). 2. The Assignor (i) 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, any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim and that as of the date hereof its Commitment (without giving effect to assignments thereof which have not yet become effective) is $_________________ and the aggregate outstanding principal amount of Loan owing to it (without giving effect to assignments thereof which have not yet become effective) is $_________________; (ii) 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 its obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto; and (iii) attaches the Note referred to in paragraph 1 above and requests that the Administrative Agent exchange such Note as follows: [a new Note dated _______________, ____ in the principal amount of _________________ payable to the order of the Assignee] [new Notes as follows: a Note dated _________________, ____ in the principal amount of $_______________ payable to the order of the Assignor and a Note dated ______________, ____ in the principal amount of $______________ payable to the order of the Assignee]. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.04(a) thereof (or any more recent financial statements of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a bank or financial institution; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) 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 Bank; (vi) specifies as its Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof, (vii) represents and warrants that the execution, delivery and performance of this Assignment and Acceptance are within its corporate powers and have been duly authorized by all necessary corporate action[, and (viii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Note or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty].* 4. The Effective Date for this Assignment and Acceptance shall be _______________ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for execution and acceptance by the Administrative Agent [and to the Borrower for execution by the Borrower]**. 5. Upon such execution and acceptance by the Administrative Agent [and execution by the Borrower]**, from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this Assignment and Acceptance, relinquish its rights (other than under Section 8.03 and Section 9.03 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. Upon such execution and acceptance by the Administrative Agent [and execution by the Borrower]**, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the interest assigned hereby to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to such acceptance by the Administrative Agent directly between themselves. G:\DATA\EDGAR\EE18\#444372.wpd 2/8/00 11:03 AM 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Georgia. [NAME OF ASSIGNOR] By:_________________________________________ Title: [NAME OF ASSIGNEE] By:__________________________________________ Title: Lending Office: [Address] WACHOVIA BANK, N.A., as Administrative Agent By:__________________________________________ Title: SCANA CORPORATION* By:__________________________________________ Title: EXHIBIT H INTEREST RATE ELECTION NOTICE __________, ____ Wachovia Bank, N. A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: Manager - Loan Syndications Re: Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of December 1, 1999 by and among SCANA Corporation, the Banks from time to time parties thereto, and Wachovia Bank, N.A., as Administrative Agent and a Bank. Gentlemen: Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. This notice constitutes an Interest Rate Election Notice delivered pursuant to Section 2.02(a) of the Credit Agreement. Effective on ______________ [specify date], we hereby elect to enter into a ______________________ [specify whether a continuation or conversion] of the [Loan] [identify Loan by type (i.e., whether a Base Rate Loan or a Euro-Dollar Loan) and, in the case of a continuation or conversion of an existing Euro-Dollar Loan, the last day of the then current Interest Period therefor] currently outstanding. Interest on the _______________ [specify continued or converted] [Loan] shall be determined by reference to the ______________ [specify either "Euro-Dollar Rate" or "Adjusted Base Rate"] and shall be for an Interest Period of _________________ months [specify the Interest Period for Euro-Dollar Loans, which may be either 1, 2, 3 or 6 months]. SCANA CORPORATION By:______________________________ Name:____________________________ Title:___________________________ EXHIBIT I NOTICE OF BORROWING __________, ____ Wachovia Bank, N.A., as Administrative Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Loan Syndications Re: Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of December 1, 1999 by and among SCANA Corporation, the Banks from time to time parties thereto, and Wachovia Bank, N.A., as Administrative Agent and a Bank. Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to Section 3.02(a) of the Credit Agreement. The Borrower hereby requests a borrowing in the aggregate principal amount of $___________ to be made on ______ __, ____, (the "Term Loan Draw Date") and for interest to accrue thereon at the rate established by the Credit Agreement for [Euro-Dollar Loans] [Base Rate Loans]. The duration of the Interest Period with respect thereto (if such Loans are to be Euro-Dollar Loans) shall be [1 month] [2 months] [3 months] [6 months]. Pursuant to subsections (b) and (c) of Section 3.02 of the Credit Agreement, ___________________, the duly authorized ____________________ of the Borrower, hereby certifies to the Administrative Agent and the Banks that: (i) no Default has occurred and is continuing on the date hereof; and (ii) the representations and warranties of the Borrower contained in Article IV of the Credit Agreement are true on and as of the date hereof. The Borrower has caused this Notice of Borrowing to be executed and delivered by its duly authorized officer this ___ day of _________, ____. SCANA CORPORATION By:______________________________ Title: -----END PRIVACY-ENHANCED MESSAGE-----