-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rZ35Lo7vz8czk+vH781wIceXHXRL346IAWo5XzTghWpgtmbbNvWJ7a6pxgwYb2Wy 1rgqwPTGtCbBhx/JqjBjKw== 0000893220-95-000420.txt : 19950622 0000893220-95-000420.hdr.sgml : 19950622 ACCESSION NUMBER: 0000893220-95-000420 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19950621 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA GAS SYSTEM INC CENTRAL INDEX KEY: 0000022099 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 131594808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-08627 FILM NUMBER: 95548148 BUSINESS ADDRESS: STREET 1: 20 MONTCHANIN RD CITY: WILMINGTON STATE: DE ZIP: 19807 BUSINESS PHONE: 3024295000 U-1/A 1 AMENDMENT NO. 1 TO FORM U-1 1 File No. 70-8627 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form U-1 AMENDMENT NO. 1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 THE COLUMBIA GAS SYSTEM, INC. 20 Montchanin Road Wilmington, DE 19807 - ----------------------------------------------------------------------------- (Name of Company or Companies Filing This Statement and Addresses of the Principal Executive Offices) THE COLUMBIA GAS SYSTEM, INC. - ----------------------------------------------------------------------------- (Name of Top Registered Holding Company Parent of Each Applicant or Declarant) L. J. BAINTER, TREASURER The Columbia Gas System, Inc. 20 Montchanin Road Wilmington, DE 19807 - ----------------------------------------------------------------------------- (Name and Address of Principal Agent for Service) 2 PAGE 2 Item 1. Description of Proposed Transaction. (a) Furnish a reasonably detailed and precise description of the proposed transaction, including a statement of the reasons why it is desired to consummate the transaction and the anticipated effect thereof. If the transaction is part of a general program, describe the program and its relation to the proposed transaction. The Columbia Gas System, Inc. ("Columbia"), a Delaware corporation and a public utility holding company registered under the Public Utility Holding Company Act of 1935 (the "Act"), hereby files this Application-Declaration seeking Commission approval of the First Amended Plan of Reorganization (the "Columbia Plan") filed by Columbia with the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on June 14, 1995 and Columbia's participation in the plan of reorganization (the "TCO Plan") filed with the Bankruptcy Court on the same date by Columbia Gas Transmission Corporation ("Columbia Transmission"), a Delaware corporation and a wholly owned subsidiary of Columbia. Both Columbia and Columbia Transmission (together, "the Debtors") are debtors-in-possession under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). I. BACKGROUND Columbia has operating subsidiaries engaged in various aspects of the oil and natural gas industry (together with Columbia, the "System"). The operating companies are engaged in the exploration, production, purchase, marketing, storage, transmission and distribution of natural gas and other energy operations such as electric power generation and propane distribution. Columbia Transmission is one of two interstate pipeline companies owned by Columbia. Columbia Transmission owns and operates an approximately 19,000 mile natural gas transmission pipeline network and related extensive underground gas storage fields that serve parts of thirteen states in the Northeastern, Mid-Atlantic, Midwestern and Southeastern regions of the United States 3 PAGE 3 and the District of Columbia. Columbia Transmission's customers are various affiliated and unaffiliated gas distribution companies, gas marketers, producers and end users of gas ("Customers"). Its rates, charges, services and facilities are subject to regulation by the Federal Energy Regulatory Commission ("FERC"), primarily pursuant to the Natural Gas Act, 15 U.S.C. Sections 17, et seq. Prior to November 1, 1993, Columbia Transmission operated principally as a "merchant" of gas, purchasing gas from producers and other pipeline companies and reselling it to distribution companies and large industrial users. Since November 1, 1993, following a fundamental change in the gas industry brought about by FERC under its Order No. 636, Columbia Transmission no longer conducts any significant gas merchant activities and is presently almost entirely engaged in the business of transporting and storing gas for Customers. Columbia, as a holding company, has provided debt and equity financing for all its operating subsidiaries, including Columbia Transmission, and has been the principal vehicle for raising funds in the capital markets for the System. Columbia has generally reinvested in its operating subsidiaries the proceeds of its equity and debt issues, as well as cash flows from its subsidiaries. Prior to June 1985, Columbia made loans to Columbia Transmission on an unsecured basis and, at the time of the filing of the Chapter 11 petitions, Columbia held unsecured obligations of Columbia Transmission aggregating $351 million, including prepetition accrued interest. Loans made by Columbia to Columbia Transmission after June 1985 were secured by first mortgage liens on substantially all of Columbia Transmission's assets. At the time of the filing of the Chapter 11 petitions, Columbia held secured obligations of Columbia Transmission aggregating approximately $1.34 billion in principal. Prepetition interest and postpetition interest accrued through December 31, 1995 (the assumed "Effective Date" of the Columbia and TCO Plans and the date to which all 4 PAGE 4 estimated calculations have been made in this Application-Declaration) on such secured obligations are projected to be approximately $644 million. Columbia has not made additional loans to Columbia Transmission since July 31, 1991, the filing date of Columbia's and Columbia Transmission's Chapter 11 petitions, and Columbia Transmission has made no payments to Columbia on its secured or unsecured loans since such date. Columbia's and Columbia Transmission's Chapter 11 filings were precipitated by a combination of events that adversely affected Columbia Transmission's physical operations and financial viability and which, in turn, caused a liquidity shortfall for Columbia and the System. Most notable of these events were (i) federal legislative and regulatory actions, instituted years after Columbia Transmission's gas purchase contracts were entered into, that significantly impacted Columbia Transmission's ability to sell the gas it had contracted to buy and to recover its costs from its Customers and (ii) Columbia Transmission's continuing contractual obligations to purchase gas at prices above those at which it was able to market gas. These problems were exacerbated by record-setting warm weather which caused spot market prices for gas to plunge, created excess transportation capacity and precluded taking additional gas into storage, thus making an unexpected and persistent oversupply of bargain-priced gas available to Columbia Transmission's Customers. As a result, Columbia Transmission's ability to market its gas was severely undercut, substantially reducing both sales volumes and revenues. After completing studies in early June 1991 that revealed the magnitude of Columbia Transmission's gas supply management problems, Columbia announced on June 19, 1991 that the present value of losses associated with Columbia Transmission's above-market priced gas purchase contracts could exceed $1 billion, that a substantial portion of that amount would be charged to 5 PAGE 5 income in the second quarter and that the dividend on Columbia's common stock ("Columbia Common Stock") was being suspended. Columbia immediately initiated negotiations with its banks in an effort to reestablish lines of credit that were interrupted by the June 19 announcement, and Columbia Transmission promptly proposed a comprehensive settlement plan with gas producers ("Producers") that offered to buy out Producers' contracts and settle other producer-related contractual disputes for a pro rata share of $600 million of Columbia Transmission debt obligations. Progress was made in both areas of negotiation. However, agreements could not be concluded before Columbia Transmission's and Columbia's available cash resources were substantially exhausted, forcing both to seek Chapter 11 protection at the end of July 1991. On July 31, 1991 (the "Petition Date"), both Columbia and Columbia Transmission filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code (Bankruptcy Nos. 91-803 and 91-804) in the Bankruptcy Court. Since that time, the Debtors have continued in the management of their respective businesses and possession of their respective properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The Commission filed a Notice of Appearance under Section 1109 of the Bankruptcy Code in each proceeding and, except for the appointment of a fee examiner to review the reasonableness of fees and expenses incurred by certain professionals involved in the case, no trustee or examiner has been appointed by the Bankruptcy Court. As a result of Columbia Transmission's bankruptcy petition filing and its rejection of more than 4,800 above-market gas purchase contracts with Producers, Columbia Transmission recorded liabilities of approximately $1 billion for estimated contract rejection costs. In addition, 6 PAGE 6 approximately $200 million of take-or-pay and other miscellaneous Producer claims were recorded. The Producer counterparties to those contracts filed claims for rejection damages and other pre-petition contractual amounts in excess of $13 billion. In 1992, the Bankruptcy Court approved the appointment of a claims mediator to implement a claims estimation procedure related to the rejected above-market Producer contracts and other Producer claims. On October 13, 1994, the claims mediator issued his Initial Report and Recommendation of the Claims Mediator on Generic Issues for Natural Gas Contract Claims (the "Report"). The Report, which is subject to Bankruptcy Court review and approval, establishes the parameters within which Producers must initially recalculate their contract rejection and take-or-pay claims. The recalculated claims would then be subject to audit and challenge and adjustment based upon claim specific issues. On February 17, 1995, the claims mediator issued a supplement to the Report ("Supplement Report"). Among other things, the Supplement Report incorporated agreed upon comments on the recalculations forms, corrected typographical errors and discussed and rejected several objections. On March 18, 1992, the Official Committee of Unsecured Creditors of Columbia Transmission (" TCO Creditors' Committee") filed a complaint (the "Intercompany Complaint") against Columbia and Columbia Natural Resources, Inc. ("CNR") with the Bankruptcy Court alleging that the $1.7 billion of Columbia Transmission's secured and unsecured debt securities held by Columbia should be recharacterized as capital contributions (rather than loans) and equitably subordinated to the claims of Columbia Transmission's other creditors. The Intercompany Complaint also challenged interest and dividend payments made by Columbia Transmission to Columbia of approximately $500 million for the period from 1988 to the Petition Date and a 1990 transfer of gas 7 PAGE 7 properties from Columbia Transmission to CNR as an alleged fraudulent transfer. Based on the SEC standardized measurement procedures, CNR's properties had a reserve value of approximately $250 million as of December 31, 1994, a significant portion of which is attributable to the transfer from Columbia Transmission. At the Bankruptcy Court's request, the trial proceedings for the Intercompany Complaint were transferred to and tried by the U.S. District Court for the District of Delaware (the "District Court") and were concluded on October 24, 1994. Post-trial written submissions were completed in December 1994. The District Court was expected to render a decision in June 1995, but has agreed to defer issuing its ruling pending pursuit by the parties of consensual reorganization proceedings. Columbia Transmission filed a plan of reorganization (the "1994 TCO Plan") in January, 1994 which proposed comprehensive settlements affecting a broader constituency of Columbia Transmission creditors. The confirmation process for the 1994 TCO Plan never commenced due to Columbia Transmission's intention to conduct further negotiations with the creditors regarding their treatment under the 1994 TCO Plan. After more than a year of intensive negotiations with its major creditor groups and individual creditors, on April 17, 1995, Columbia and Columbia Transmission filed proposed plans of reorganization which were amended by the Columbia and TCO Plans. The Debtors now seek Commission approval, with respect to Columbia's participation in the TCO Plan, as well as for the Columbia Plan. II. COLUMBIA'S SUPPORT OF THE TCO PLAN The TCO Plan incorporates terms of an agreement reached with its major Producer creditors (the "Producer Agreement") and a settlement with its Customers (the "Customer Settlement"). The Producer Agreement, which was filed with the Bankruptcy Court on April 27, 1995 and approved on 8 PAGE 8 June 16, 1995, reflects settlements of the allowable amount of the claims filed against Columbia Transmission by 17 major southwest gas producers and a large group of Appalachian producers. The settlement also provides for Columbia Transmission s agreement, backed by Columbia, as to the minimum distribution to be paid to Producers and other creditors under the TCO Plan. These producers (the "Initial Accepting Producers") represent in excess of 80 percent of the approximately $1.2 billion that the TCO Plan proposes to distribute to Producer creditors to resolve all Producer claims. The TCO Plan offers to all the remaining Producers proposals for settlement of the allowable amounts of their claims. Remaining Producers who ultimately reject the settlement offers ("Dissenting Producers") will be free to litigate their claims before the Bankruptcy Court and will receive the same percentage payout ultimately allowed by the Bankruptcy Court on their claims as received by the initial and subsequent settling producers ("Accepting Producers"). The TCO Plan also incorporates the Customer Settlement between Columbia Transmission and virtually all its Customers on numerous FERC Order No. 636 transition cost, rate and other bankruptcy matters. Remaining Customers can accept a settlement on similar terms as the Customer Settlement or dissent and litigate the amount and priority of their claims. To facilitate the TCO Plan and in exchange for settlement of the claims asserted in the Intercompany Complaint and Columbia s retention of its ownership of Columbia Transmission, the Columbia Board of Directors authorized the "Columbia Omnibus Settlement" whereby Columbia will: (i) Make a capital infusion into Columbia Transmission of approximately one billion dollars, said capital contribution to have two components: (A) Columbia will agree to a restructuring of Columbia Transmission's secured debt and the acceptance of $1.5 billion in new TCO 9 PAGE 9 Mortgage Bonds (as described below) in settlement of the $2 billion claim held by Columbia under existing Columbia Transmission first mortgage bonds, resulting in an approximate $500 million capital contribution of the balance of the claim. (B) Columbia will agree to provide cash to Columbia Transmission necessary so that the total amount distributable under the TCO Plan equals approximately $3.9 billion including the approximate $2 billion of Columbia's secured claim referred to above. Columbia Transmission is projecting cash on hand totaling approximately $1.4 billion as of December 31, 1995. It is anticipated that the shortfall that Columbia would fund through an additional capital contribution would be approximately $500 million, of which about $300 million could be met by Columbia's proportionate recovery on the Columbia Transmission unsecured debt held by it and recovery by CNR on its claims followed by a dividend out of retained earnings by CNR to Columbia. (ii) Guarantee (the "TCO Guarantee") a) the settlement reached by Columbia Transmission with its Customers and payments to dissenting Customers with respect to the Customer Settlement(1) and b) the payment of the distribution percentage of ultimately allowed claims of other unsecured creditors, including Dissenting Producers. In the event that payments required by the TCO Plan to Dissenting Producers (and dissenting Customers) increase the total required distributions over the projected $3.9 billion by an amount which requires external funding, Columbia will have the option to utilize Columbia Common Stock in lieu of cash payments (and, of course, the option to sell Columbia Common Stock in the marketplace - -------------------- (1) Columbia Transmission's Customer Settlement has the support of all of its major customers, affected state commissions and consumer groups. While the Settlement permits non-supporting parties to litigate their claims against Columbia Transmission, Columbia Transmission's financial exposure from such litigation is considered de minimis. 10 PAGE 10 and utilize the proceeds for such excess distributions). Under these possible circumstances, whichever technique is employed, Columbia's investment in Columbia Transmission will be correspondingly increased. The aggregate projected distribution to Producers under the TCO Plan totals approximately $1.2 billion. The Producer Agreement reflects agreements with Initial Accepting Producers representing approximately 80% of that value or approximately $960 million, while distributions on settlement values attributable to all other Producers aggregate approximately $240 million.(2) Initial Accepting Producers have agreed to a 5 percent holdback from the distributions due to them (currently approximately $48 million at the 80 percent acceptance level but subject to increase as additional Producers accept) and have agreed that, to the extent that claim values in excess of the settlement values contained in the TCO Plan are agreed to or allowed, the holdback will be applied with dollar for dollar matching by Columbia Transmission (and Columbia under the TCO Guarantee) to pay the ultimate distributions. Thus, there is a sharing by Accepting Producers of a portion of the risk of the aggregate distribution to Producers pursuant to the TCO Plan exceeding $1.2 billion. If the holdback were ever to be used up, Columbia Transmission would be required to pay the entire amount of the excess. Based on the history of the estimation proceedings, the Report and the Supplement Report and an evaluation of the Producer Claims, Columbia Management does not believe that the Dissenting Producers will be able to prove to the Bankruptcy Court claim values which would so significantly exceed settlement values contained in the TCO Plan that the obligation under the TCO Guarantee would be material to the financial condition of Columbia. By way of - -------------------- (2) It is a waivable condition to the Columbia Plan that the settlement values of Accepting Producers as of the Effective Date equal 90 percent of the total settlement values. 11 PAGE 11 illustration, if Dissenting Producers establish in post-emergence litigation in the Bankruptcy Court allowable claims which are as much as 50% higher than the levels thereof assumed in the settlement offers made to them in the TCO Plan, given the requirement that Dissenting Producers do not represent more than 10% of the aggregate of $1.2 billion of distributions provided for Producers, the excess cost would be approximately $60 million of which $30 million would be borne by Initial Accepting Producers and the additional burden on Columbia Transmission and Columbia would be $30 million. To the extent that additional funds are necessary to fund allowed claims of Dissenting Producers, Columbia or Columbia Transmission may distribute cash or Columbia may issue Columbia Common Stock to the Dissenting Producers on behalf of Columbia Transmission in exchange for consideration from Columbia Transmission equal to the Columbia Common Stock's then current market value. Columbia may also issue Columbia Common Stock or other securities on the open market and distribute the proceeds to Columbia Transmission as a capital contribution. To the extent that the TCO Plan reserves the right to Columbia Transmission to issue securities other than Columbia Common Stock, the Commission is asked to reserve jurisdiction over the terms of such securities issues. The recapitalization will involve Columbia acquiring from Columbia Transmission up to $1.5 billion aggregate amount of short-term and long-term first mortgage bonds (the "TCO Mortgage Bonds") under the Indenture and Deed of Trust between Columbia Transmission and Wilmington Trust Company, dated August 30, 1985, as amended ("Wilmington Trust Indenture"), which was previously authorized by Order of the Commission dated August 30, 1985 (HCAR 35-23813; 70-7106). The previously approved Wilmington Trust Indenture will be amended to provide for a default 12 PAGE 12 rate of interest and a prepayment penalty if Columbia Transmission is not a subsidiary of Columbia at the time of prepayment as described below. A revised Wilmington Trust Indenture will be filed with the Bankruptcy Court by amendment to the TCO Plan. The TCO Mortgage Bonds will be secured by a perfected first security interest in all of Columbia Transmission's property with certain exceptions pursuant to the Wilmington Trust Indenture. As shown on the pro forma financial statements contained in this Application-Declaration, the aggregate capital contribution to Columbia Transmission by Columbia will be approximately $1.0 billion, resulting in an approximate 70%-30% debt-equity structure for Columbia Transmission. Columbia Transmission's debt to equity ratio is projected to become approximately 60%/40% by 1997 upon the repayment of borrowings used to finance certain contingent assets created as a result of emergence from bankruptcy. The short- term TCO Mortgage Bonds must be repaid no later than April 30 of the year following their issuance and will bear interest payable on a monthly basis which is equivalent to the composite weighted average effective cost incurred by Columbia on its short-term borrowings. The short-term TCO Mortgage Bonds may be prepaid or redeemed at any time without prepayment penalty. The long-term TCO Mortgage Bonds will be dated the date of their issue and be repaid in equal installments not to exceed 30 years or at maturity. The long-term TCO Mortgage Bonds may be issued in multiple series with terms similar to the New Indenture Securities (as described below) issued by Columbia under the Columbia Plan. Interest on the long-term TCO Mortgage Bonds will accrue from the date of issuance and will be paid semi-annually on the unpaid principal thereof. The interest rate on the long-term TCO Mortgage Bonds will be the actual cost of money to Columbia with respect to the issuance by Columbia of its long-term debt securities. A default rate equal to 13 PAGE 13 2 percent per annum in excess of the stated rate on the unpaid principal or interest amounts of the TCO Mortgage Bonds would be assessed if any interest or principal becomes past due. The long-term TCO Mortgage Bonds may be prepaid with, if Columbia Transmission is not a subsidiary of Columbia at the time of prepayment, a prepayment penalty equal to the interest rate on the long-term TCO Mortgage Bonds to be prepaid, declining ratably on each anniversary date over the life of the issue. In the aggregate, the consideration paid by Columbia for the settlement of the claims asserted in the Intercompany Complaint and retention of ownership of Columbia Transmission cannot be collectively expressed as a precise dollar amount, but reflects substantial additional consideration from Columbia to the Columbia Transmission estate to facilitate the reorganization of Columbia and Columbia Transmission. The Columbia Omnibus Settlement will provide substantial benefits to Columbia, in addition to the retention of ownership of Columbia Transmission, by resolving numerous contentious disputes with Customers and Producers affecting the economic value of the Columbia Transmission estate on terms Columbia believes to be fair and reasonable, and permitting both Columbia and Columbia Transmission to emerge from bankruptcy, as promptly as possible, to pay their creditors, and to pursue ongoing business objectives free of the burdens and constraints of Chapter 11. III. THE COLUMBIA PLAN Under the Columbia Plan, in addition to Columbia Common Stock which might be issued under contingencies discussed below, Columbia may issue up to $3.65 billion in new securities. The Columbia Plan contemplates the issuance of up to $2.1 billion in debentures (the "New Indenture Securities") to be issued under a new indenture (the "New Indenture"), the entering into of bank 14 PAGE 14 facilities (the "Bank Facilities") totaling up to $1.15 billion (for a maximum of $3.25 billion in debt) and the issuance of up to $400 million of equity through the issuance of up to $200 million each of preferred stock ("Preferred Stock") and of Dividend Enhanced Convertible Stock(TM) ("DECS"). If cash available through the Bank Facilities or from operations is reduced, the principal amount of New Indenture Securities to be issued would be increased proportionately. Under no circumstances would the aggregate of New Indenture Securities and Bank Facilities under the Columbia Plan exceed $3.25 billion. Projections of Columbia's post-effective operations and capitalization are included as Exhibit I-1. The projections assume the issuance of approximately $2.1 billion of New Indenture Securities, $650 million of initial borrowings under the Bank Facilities and the issuance of $200 million each of Preferred Stock and DECS at the Effective Date. As shown in Exhibit I-1, Columbia's long-term debt to long-term capitalization ratio decreases from approximately 62 percent at the end of 1995 to approximately 54 percent by the end of 1999. Total debt to total capitalization declines from approximately 65 percent at the end of 1995 to approximately 57 percent by the end of 1999. System capital expenditures are assumed to approximate $500 million per year during the projection period. The distribution of New Indenture Securities, Preferred Stock and DECS pursuant to the Columbia Plan will be exempt from the provisions of Section 5 of the Securities Act of 1933 and any state or local laws requiring the registration for the offer of sale of securities pursuant to Section 1145 of the Bankruptcy Code. The amount of cash consideration to be distributed to holders of borrowed money claims pursuant to the Columbia Plan will be determined by Columbia shortly before the Effective Date, and will be dependent upon the cash available at that time. The financial projections contained in the Columbia Disclosure Statement (see Exhibit D-2) project the distribution of $900 15 PAGE 15 million of available cash as of the Effective Date (the majority of which is assumed to be borrowed under the Term Facility described below) in respect of such claims. The balance of the distribution in respect of such claims will be in the form of New Indenture Securities, DECs and Preferred Stock. If the Term Facility is available for borrowing at a cost less than the cost of issuing New Debentures, Columbia has agreed to borrow $350 million for distribution to Creditors in lieu of New Indenture Securities, DECs and Preferred Stock. As described below, in an effort to accomodate holders of borrowed money claims against Columbia who would prefer to ultimately receive cash rather than DECS and Preferred Stock, Columbia may, at its option, on or prior to the 120th day following the Effective Date, redeem in whole or in part the DECS and Preferred Stock issued pursuant to the Plan. Upon such redemption, each holder of redeemed DECS and redeemed Preferred Stock will receive cash in an amount equal to the sum of: (i) the liquidation value of the DECS so redeemed and (ii) if such redemption occurs after the 90th day following the Effective Date, all accrued and unpaid dividends. If the Preferred Stock is not redeemed during the 120 day period following the Effective Date, the interest rate on the Preferred Stock issued pursuant to the Columbia Plan shall be reset according to the Preferred Stock Pricing Formula described herein plus 100 basis points per annum. If the DECS are not redeemed during the 120 day period following the Effective Date, the dividend rate on the DECS issued pursuant to the Columbia Plan shall be increased by 100 basis points per annum. For purposes of funding the repurchase, if necessary, Columbia requests authorization to issue and sell up to 16 million shares of preferred stock or Columbia Common Stock ("Additional Columbia Equity") subject to a reservation of jurisdiction over the terms of said issuance and sale. 16 PAGE 16 For the purpose of financing shorter term requirements under the TCO Plan and Columbia Plan, Columbia expects to arrange two types of Bank Facilities on or before the Effective Date. The first type would be a senior, unsecured term credit facility in an aggregate principal amount of up to $450 million (the "Term Facility"). Amounts available to be borrowed under the Term Facility would be applied to payments in respect of claims of Columbia creditors, to fund obligations of Columbia Transmission and for general corporate purposes. Amounts borrowed under the Term Facility would rank pari passu with all other senior, unsecured obligations of Columbia, including the New Indenture Securities. Columbia also expects to arrange one or more senior, unsecured revolving Bank Facilities in an aggregate principal amount of up to $700 million (the "Revolving Facility") to provide (i) working capital for Columbia and its subsidiaries and (ii) up to $100 million face amount of letters of credit to be issued for the account of Columbia and its subsidiaries in the ordinary course of business. Amounts borrowed under the Revolving Facility and reimbursement for drawings under letters of credit issued thereunder would rank pari passu with all other senior, unsecured obligations of Columbia, including the New Indenture Securities. The Term Facility and Revolving Facility may be combined in a single facility, or issued in multiple facilities at the option of Columbia. Further, Columbia expects to repurchase from the leveraged employee stock ownership ("LESOP") portion of the Employees' Thrift Plan of Columbia Gas System (the "Thrift Plan") all shares (the "LESOP Shares") held in the common stock fund which have not been allocated to employees, to hold the LESOP Shares as treasury shares and to use the LESOP Shares for one of the following purposes as deemed appropriate by Columbia: (i) to sell the LESOP Shares on the open market for cash, (ii) to reissue all or part of the LESOP Shares to fund additional requirements under 17 PAGE 17 the TCO Guarantee, (iii) to reissue all or part of the LESOP Shares to fund the Securities Litigation Settlement Offer as described below, and (iv) to fund an employee benefit plan. Columbia proposes the possible issuance of Columbia Common Stock (in addition to any LESOP Shares) on behalf of Columbia Transmission in connection with the TCO Guarantee and, as described below, to fund the Securities Litigation Settlement Offer. The Columbia Plan also proposes certain amendments to Columbia's Certificate of Incorporation and the assumption by the Debtors of the Tax Allocation Agreement which provides for the allocation of tax benefits and liabilities among System affiliates. A. SECURITIES TO BE ISSUED ON THE EFFECTIVE DATE Columbia requests Commission authorization to issue, subject to adjustment as previously described, on the Effective Date, (i) New Indenture Securities in an aggregate principal amount of up to $3 billion under the New Indenture to be dated as of the Effective Date and (ii) up to $200 million aggregate liquidation value each of DECS and Preferred Stock. Columbia also expects to enter into the Term Facility and the Revolving Facility on or before the Effective Date. Set forth below are brief descriptions of the key features of the New Indenture Securities, the DECS, the Preferred Stock, the Term Facility and the Revolving Facility. A form of New Indenture is attached as Exhibit B-2. Draft Certificates of Designation for DECS and Preferred Stock are attached as Exhibits B-4 and B-5, respectively. 1. NEW INDENTURE SECURITIES Pursuant to the Columbia Plan, the New Indenture Securities are to be issued in seven series (each, a "Series") with the approximate respective maturities as follows: 18 PAGE 18
Approximate Series Maturity ------ -------- Series A ("Series A Debentures") 5 years Series B ("Series B Debentures") 7 years Series C ("Series C Debentures") 10 years Series D ("Series D Debentures") 12 years Series E ("Series E Debentures") 15 years Series F ("Series F Debentures") 20 years Series G ("Series G Debentures") 30 years
The principal amount of each such Series will be substantially the same as that of each other Series; provided, however, that no Series other than Series A will have an initial principal amount that is more than 150% of that of any other Series. Additional Series A Debentures may be issued since creditors with smaller claims will receive only Series A Debentures. Each New Indenture Security will bear interest from the Effective Date, or from the most recent interest payment date to which interest has been paid, payable semi-annually, on dates to be determined, to the registered holder at the close of business on the applicable record date. The rate of interest to be borne by the New Indenture Securities of each Series will be determined prior to the Effective Date based on market rates for securities of similar maturities and debt ratings. It is expected that the interest rate on any series of New Indenture Securities will not exceed 10 percent per annum. Principal of each Series of New Indenture Securities will be payable on the applicable maturity date set forth above. The New Indenture Securities will be issued only in denominations of $1,000 or any integral multiple thereof. New Indenture Securities will be issued in book-entry form 19 PAGE 19 only, will not be exchangeable for New Indenture Securities in certificated form at the option of the holder and, except in certain limited circumstances, will not otherwise be issuable in definitive form. It is currently contemplated that Series A Debentures, Series B Debentures and Series C Debentures may not be redeemed prior to maturity. Series D Debentures and Series E Debentures may be redeemed at the option of Columbia after year 10 at par. Series F Debentures may be redeemed at the option of Columbia after year 10 at a premium of the principal amount equal to the coupon of such Series F Debentures in year 1 declining ratably to zero in year 15. Series G Debentures may be redeemed at the option of Columbia after year 10 at a premium of the principal amount equal to the coupon of such Series G Debentures in year 1 declining ratably to zero in year 20. 2. DECS The DECS will constitute shares of convertible preferred stock and rank on a parity with the Preferred Stock and prior to Columbia Common Stock as to payment of dividends and distribution of assets upon liquidation. Each DECS will be issued at a price (the "Issue Price") equal to a weighted average market price of a share of Columbia Common Stock over a specified period shortly before the time of issuance. The holders of DECS will be entitled to receive, when, as and if dividends on the DECS are declared by the Board of Directors out of funds legally available therefor, cumulative preferential dividends from the Effective Date, accruing at the rate per share per annum that is determined in accordance with the DECS pricing formula (See Exhibit I-5 to this Application- Declaration), payable in arrears on dates that are on or about the dates that are 90 days, 180 days, 270 days and 360 days following the Effective Date (and each anniversary of the foregoing dates); provided further, 20 PAGE 20 however, that (x) such rate per share per annum (expressed in basis points) shall be increased by 100 basis points per annum effective as of the 120th day following the Effective Date and (y) no dividends shall be due and payable on DECS redeemed on or prior to the 90th day following the Effective Date and (z) dividends on DECS outstanding after the 90th day after the Effective Date with respect to the 90-day period immediately following the Effective Date will not be paid until the 120th day following the Effective Date. With respect to any dividend period during which a redemption occurs, Columbia may, at its option, declare accrued dividends to, and pay such dividends to the redemption date, on the date for redemption, in which case such dividends would be payable in cash to the holders of DECS as of the record date for such dividend payment and would not be included in the calculation of the related call price as set forth below. Dividends on the DECS will begin to accrue on the Effective Date, and it is currently expected that the dividend rate will not exceed 11 percent per annum. Dividends are payable in cash except in connection with certain redemptions by Columbia. Dividends on the DECS will accrue whether or not Columbia has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Dividends will accumulate to the extent they are not paid on the dividend payment date for the quarter for which they accrue. On the fifth anniversary of the Effective Date (the "Mandatory Conversion Date"), each outstanding DECS will convert automatically into shares of Columbia Common Stock at the 21 PAGE 21 Common Equivalent Rate(3) in effect on such date and holders shall have the right to receive an amount in cash equal to all accrued and unpaid dividends on such DECS to the Mandatory Conversion Date, subject to the right of Columbia to redeem the DECS as described below. Because the price of Columbia Common Stock is subject to market fluctuations, the value of Columbia Common Stock received by a holder of DECS upon mandatory conversion may be more or less than the Issue Price for the DECS. The DECS will be redeemable by Columbia, in whole or in part, at any time and from time to time (i) on or prior to the 120th day following the Effective Date and (ii) on or after the Regular DECS Redemption Date (either the fourth anniversary of the Effective Date or one month prior to the fifth anniversary of the Effective Date as determined by Columbia prior to the Effective Date) and prior to the Mandatory Conversion Date; provided, however, that Columbia may not so redeem the DECS on or prior to the 120th day following the Effective Date if, after giving effect to such redemption, the aggregate liquidation value of the DECS outstanding would be less than $50 million, unless after giving effect thereto no DECS would be outstanding. Upon any such redemption that occurs on or prior to the 120th day following the Effective Date, each holder of DECS will receive, in exchange for each DECS so called, cash in an amount equal to the sum of (x) the liquidation value thereof and (y) if such redemption occurs after the 90th day following the Effective Date, all accrued and unpaid dividends thereon to the date fixed for redemption (other than dividends payable to a holder of record as of a prior date). - -------------------- (3) The Common Equivalent Rate will be the product of (i) one and (ii) the quotient obtained by dividing (x) the Liquidation Value of a share of DECS by (y) the weighted average of the trading prices of all trades on the NYSE of shares of Columbia Common Stock for a specified period prior to the Effective Date, subject to adjustment. 22 PAGE 22 Upon any such redemption that occurs on or after the Regular DECS Redemption Date, each holder of DECS will receive, in exchange for each DECS so called, a number of shares of Columbia Common Stock (the "Optional Call Number") equal to the lesser of (i) the call price of the DECS in effect on the date of redemption divided by the current market price of Columbia Common Stock determined as of the date which is one trading day prior to the public announcement of the call for redemption and (ii) to assure that holders of DECS redeemed after the Regular DECS Redemption Date do not receive a greater number of shares of Columbia Common Stock than they would under mandatory conversion the sum of (x) the Common Equivalent Rate plus (y) an amount determined by dividing the Premium-Accrued Dividend Amount (as defined below) by the current market price of Columbia Common Stock determined as of the date which is one trading day prior to the public announcement of the call for redemption. The call price of each DECS will be the sum of (i) the liquidation value as adjusted, (ii) if the Regular DECS Redemption Date is the fourth anniversary of the Effective Date, a premium equal to the annual dividend on the DECS applicable after the 120th day following the Effective Date, for the first month following the Effective Date, declining ratably to 1/30th of such annual dividend, for the month that is two months prior to the Mandatory Conversion Date, and zero for the month immediately preceding the Mandatory Conversion Date, and (iii) all accrued and unpaid dividends thereon to the date fixed for redemption (other than dividends payable to a holder of record as of a prior date) (the sum of the amounts referred to in clauses (ii) and (iii) being referred to as the "Premium-Accrued Dividend Amount"). Dividends will cease to accrue on DECS on the date fixed for their redemption. In addition, no dividends will be paid with respect to any DECS that are redeemed on or prior to the 90th day following the Effective Date. 23 PAGE 23 The DECS will be convertible, in whole or in part, at the option of the holders thereof, at any time after the 120th day following the Effective Date and prior to the Mandatory Conversion Date, unless previously redeemed, into shares of Columbia Common Stock at a rate that will be determined in accordance with the pricing methodology referred to above, subject to adjustment. The liquidation preference of each of the DECS is an amount equal to the sum of (i) the Issue Price and (ii) all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up. The holders of DECS shall not have voting rights except as required by law and except as follows: (i) if dividends on the DECS are in arrears and unpaid for six quarterly dividend periods, the holders of the DECS (voting separately as a class with holders of all other series of preferred stock ranking on a parity with the DECS upon which like voting rights have been conferred and are exercisable) will be entitled to vote, on the basis of one vote for each of the DECS, for the election of two Directors of Columbia, such Directors to be in addition to the number of Directors constituting the Board of Directors immediately prior to the accrual of such right, and (ii) the holders of DECS will have voting rights with respect to certain alterations of Columbia's Certificate of Incorporation. DECS redeemed for or converted into Columbia Common Stock or otherwise acquired by Columbia will assume the status of authorized but unissued preferred stock and may thereafter be reissued in the same manner as other authorized but unissued preferred stock. Columbia will undertake to list on The New York Stock Exchange any DECs remaining outstanding after the 120th day following the Effective Date. 3. PREFERRED STOCK 24 PAGE 24 The Preferred Stock will have a liquidation value of $25 per share and rank on a parity with the DECS and prior to Columbia Common Stock as to payment of dividends and distribution of assets upon liquidation. The holders of Preferred Stock will be entitled to receive, when, as and if dividends on the Preferred Stock are declared by the Board of Directors of Columbia out of funds legally available therefor, cumulative cash dividends from the Effective Date, payable quarterly in arrears on the dates that are on or about 90 days, 180 days, 270 days and 360 days following the Effective Date (and each anniversary of the foregoing dates), accruing at the rate per share per annum that is determined prior to the Effective Date in accordance with the Preferred Stock Pricing Formula (See Exhibit I-6 to this Application- Declaration); provided, however, that (x) effective as of the 120th day following the Effective Date, such rate per annum (expressed in basis points) shall be the rate per annum that is determined in accordance with the Preferred Stock Pricing Formula (and, for this purpose only, a recalculation of the interest rate on the Series G New Indenture Securities (on which the original dividend rate for the Preferred Stock will be based) shortly before the 120th day following the Effective Date plus 100 basis points and (y) no dividends shall be due and payable on shares of Preferred Stock redeemed on or prior to the 90th day following the Effective Date and (z) dividends with respect to the 90-day period immediately following the Effective Date will not be paid until the 120th day following the Effective Date. Accumulated unpaid dividends will not bear interest. It is currently expected that the dividend rate for Preferred Stock will not exceed 11 percent per annum. The Preferred Stock will be redeemable by Columbia, in whole or in part, at any time and from time to time on or (i) on or prior to the 120th day following the Effective Date and (ii) on or after the Initial Preferred Redemption Date (the fifth anniversary of the Effective Date), provided, 25 PAGE 25 however, that Columbia may not so redeem any Preferred Stock, on or prior to the 120th day following the Effective Day, if after giving effect to such redemption, either (x) the aggregate liquidation value of the Preferred Stock outstanding would be less than $50 million, unless after giving effect thereto, no Preferred Stock would be outstanding or (y) any DECS would be outstanding. Upon any such redemption, each holder of Preferred Stock will receive, in exchange for each share of Preferred Stock so called, cash in an amount equal to the sum of (i) the liquidation value therefor and (ii) if such redemption occurs after the 90th day following the Effective Date, all accrued and unpaid dividends thereon to the date fixed for redemption. The Preferred Stock is not subject to mandatory redemption by Columbia and is not convertible into or exchangeable for any other securities. The liquidation preference of each share of Preferred Stock is an amount equal to the sum of (i) the liquidation value and (ii) all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up. The holders of Preferred Stock shall not have voting rights except as required by law and except as follows: (i) if dividends on the Preferred Stock are in arrears and unpaid for six quarterly dividends periods, the holders of the Preferred Stock (voting separately as a class with holders of all other series of preferred stock ranking on a parity with the Preferred Stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote, on the basis of one vote for each share of Preferred Stock, for the election of two Directors of Columbia, such Directors to be in addition to the number of Directors constituting the Board of Directors immediately prior to the accrual of such right and (ii) the holders of Preferred Stock will have voting rights with respect to certain alterations of Columbia's Certificate of Incorporation. Columbia will undertake to list on The 26 PAGE 26 New York Stock Exchange any Preferred Stock still outstanding after the 120th day after the Effective Date. 4. TERM FACILITY To finance requirements under the TCO Plan and Columbia Plan, Columbia anticipates entering into the Term Facility on or before the Effective Date. It is expected that the Term Facility will be repaid from the proceeds of receivables that result from the Columbia Plan and TCO Plan, such as tax carryforwards; however, such receivables will not be pledged to the lenders. It is anticipated that the expiration of the Term Facility will be up to five years from the Effective Date. The interest rates on the Term Facility are expected to be based on a triple option pricing formula as follows: Option 1: Prime Rate Option 2: LIBOR + Margin Option 3: CD + Margin It is expected that the margin for the LIBOR rate option will not exceed .75 percent per annum and the margin on the CD rate option will not exceed .875 percent per annum. Maturities on loans issued under the LIBOR rate option are expected to be for 1, 2, 3 or 6 months. Maturities on loans issued under the CD rate option are expected to be for 30, 60, 90 or 180 days. All such loans will be evidenced by promissory notes. It is expected that the Term Facility will contain negative covenants consistent with those covenants required by bank lenders for comparable bank facilities. The Term Facility will be senior, unsecured debt of Columbia and will rank pari passu with debt issued under the New Indenture. 5. REVOLVING FACILITY 27 PAGE 27 To finance working capital requirements, including seasonal gas inventory and receivables arising from the sale of such inventory, and to bridge between issuances of long-term debt by Columbia, Columbia anticipates entering into the Revolving Facility on or before the Effective Date. Up to $100 million of the Revolving Facility may be used solely to support letters of credit issued by Columbia or its subsidiaries in the ordinary course of business (a substantial portion of such letters of credit may be denominated in Canadian dollars). It is anticipated that the initial expiration of the Revolving Facility will not exceed five years from the Effective Date. The interest rates on the Revolving Facility are expected to be based on a triple option pricing formula as follows: Option 1: Prime Rate Option 2: LIBOR + Margin Option 3: CD + Margin It is expected that the margin for the LIBOR rate option will not exceed .75 percent per annum and the margin for the CD rate option will not exceed .875 percent per annum. Maturities on loans issued under the LIBOR rate option are expected to be for 1, 2, 3 or 6 months. Maturities on loans issued under the CD rate option are expected to be for 30, 60, 90 or 180 days. All such loans will be evidenced by promissory notes. It is expected that the Revolving Facility will contain negative covenants consistent with those covenants required by bank lenders for comparable bank facilities. The Revolving Facility will be senior, unsecured debt of Columbia and will rank pari passu with debt issued under the New Indenture. B. COLUMBIA'S NEW INDENTURE 28 PAGE 28 The New Indenture's provisions reflect the modernization of indenture provisions generally and will simplify Columbia's corporate housekeeping. For example, the New Indenture incorporates by reference provisions of the Trust Indenture Act of 1939, as amended, is expected to result in substantial savings in printing and trustee administration costs, simplifies the procedure for authorization and issuance of New Indenture Securities and provides for both covenant and legal defeasance of one or more series of New Indenture Securities. The New Indenture will permit Columbia to issue a wide variety of unsecured debt securities in one or more Series. Securities issuable can include, in addition to notes and debentures with terms similar to those Columbia has issued in the past, medium-term notes, securities having a low or zero coupon (which may be issued with original issue discount), securities as to which payments of interest or principal are based on a formula or index, and securities on which payment of interest or principal are denominated in a foreign currency or currencies. The terms of a specific issue of New Indenture Securities will be set under the New Indenture by a supplemental indenture. The New Indenture contains numerous variable terms, such as the principal amount, interest rate, redemption terms, denominations, events of default, etc., which may be included as part of the terms of a new issue, and permits other terms to be included or excluded in the supplemental indenture authorizing a particular series of securities. In theory, any combination of the variable terms could be included in a single series of securities which, under current practice, would be called "notes", "debentures" or "medium-term notes". The New Indenture also permits any series of securities to be issued either in certificated form or in "global" form (i.e., transferable only by book-entry on the records of a securities depository such as The Depository Trust Company). 29 PAGE 29 The New Indenture contains a prohibition on the incurrence of secured debt by Columbia such that Columbia will not issue any secured debt unless contemporaneously therewith the New Indenture Securities are equally and ratably secured for so long as the secured debt is secured by a lien. However, the New Indenture enumerates the various categories of permissible lien of a type normally arising in the ordinary course of business or by operation of law. In addition, the secured debt restriction does not apply to: (i) debt which is incurred to finance the acquisition, construction or improvement of assets of Columbia and its subsidiaries after the date of the New Indenture; provided, however, that such debt shall not be secured by any assets of Columbia other than assets so acquired, constructed or improved; (ii) certain debt of Columbia which is secured by assets of person where such debt was existing at the time such person was merged or consolidated with Columbia; (iii) debt issued to refinance such debt incurred under clauses (i) and (ii) provided that the debt so issued is not secured by a lien on assets other than those which secured the debt being refinanced; (iv) debt which is secured by inventory, accounts receivable or customers' installment paper, including by means of asset securitizations; (v) production payment obligations; and (vi) other secured debt with a principal amount not exceeding, in the aggregate, at any one time outstanding ten percent (10%) of the Consolidated Tangible Assets of Columbia and its consolidated subsidiaries. The term "Consolidated Tangible Assets" of Columbia and its consolidated subsidiaries means the sum of the Tangible Assets of Columbia and its consolidated subsidiaries after eliminating intercompany items. The term "Tangible Assets", as applied to any person on any date shall mean the gross book value as shown on the books of such person of all its property both real and personal (exclusive of licenses, patents, patent applications, copyrights, trademarks, trade names, goodwill, experimental or organizational 30 PAGE 30 expense and other like intangibles, treasury stock and unamortized debt discount and expenses, but including regulatory assets properly recorded on the balance sheet of such person). The secured debt limitation is based on analyses of market conditions and the secured debt covenant is drafted with a view to striking a balance between investors' desire to have some covenant of this type and Columbia's need for flexibility to impose liens on its property if doing so is reasonable from a business point of view, or if liens arise by operation of law in circumstances over which Columbia has no control. In addition, to provide additional security to Columbia debt holders, a supplement to the New Indenture relating to the New Indenture Securities will contain a covenant requiring Columbia, for the four-year period following the Effective Date, to either hold specified amounts of Columbia Transmission secured debt or retire certain Columbia funded debt (as described below). The New Indenture has a limitation on the incurrence of funded debt (debt by which its terms matures in more than one year) and preferred stock by Significant Subsidiaries (as defined in the Commission's Regulation S-X) such that no funded debt or preferred stock may be issued by any such Significant Subsidiary except (i) funded debt and preferred stock issued and outstanding on or prior to the date of the New Indenture; (ii) funded debt and preferred stock issued to and held by Columbia or a subsidiary; provided, however, that any subsequent issuance or transfer of any common stock which results in any such subsidiary ceasing to be a subsidiary and any subsequent transfer of such debt or preferred stock (other than to Columbia or a subsidiary) shall be deemed the issuance of such debt or preferred stock by the issuer thereof; (iii) funded debt and preferred stock issued and outstanding on or prior to the date on which such subsidiary was acquired by Columbia or on which it became a Significant Subsidiary; (iv) certain funded debt and preferred stock issued to finance the acquisition 31 PAGE 31 by such Significant Subsidiary of any assets or capital stock of any person or the construction or improvement of assets of such Significant Subsidiary; (v) funded debt and preferred stock issued in exchange for, or the proceeds of which are used to refund or refinance, debt referred to in the foregoing clauses (i) through (iv) or to reacquire equity of such Significant Subsidiary held by Columbia or a subsidiary; (vi) funded debt issued with respect to certain tax-exempt obligations or other obligations, whether taxable or tax- exempt, that are issued through any public or governmental authority in connection with pollution control or other facilities of such Significant Subsidiary; (vii) funded debt in an aggregate amount not exceeding the sum of (a) total inventory of the Significant Subsidiary, (b) total accounts receivable of the Significant Subsidiary and (c) the total amount of customers' installment paper of such Significant Subsidiary, in accordance with generally accepted accounting principles; (viii) obligations with respect to production payments; and (ix) funded debt in an aggregate principal amount and preferred stock having an aggregate preferential liquidation value in either case which, when added to the aggregate principal amount of funded debt of all other Significant Subsidiaries (other than funded debt referred to in clauses (i) through (viii) above and which when added to the aggregate preferential liquidation value of preferred stock (other than preferred stock referred to in clauses (i) through (vi) above does not exceed, at any one time outstanding, ten percent (10%) of the Tangible Assets of such Significant Subsidiary and all other Significant Subsidiaries, determined on a consolidated basis. The New Indenture has no restriction on the issuance and sale of voting stock of any subsidiary or on the payment of dividends by Columbia. 32 PAGE 32 The New Indenture also contains the following event of default provisions: (i) defaults in payment of the New Indenture Securities; (ii) failures to comply with covenants; and (iii) certain events of insolvency with respect to Columbia; subject, as applicable, to customary grace periods. Columbia may, at any time, terminate (i) all its obligations under the New Indenture Securities and the New Indenture ("Legal Defeasance Option") or (ii) its obligations to comply with certain restrictive covenants, provided that Columbia irrevocably deposits in trust money or U.S. Government Obligations for the payment of principal of and interest on the New Indenture Securities to maturity or redemption, as the case may be. Conditions to defeasance shall be that (i) no default exists or occurs, and (ii) Columbia obtains a certificate from a firm of nationally recognized independent accountants that the deposited U.S. Government Obligations will be sufficient to pay principal when due of and interest on the New Indenture Securities to be defeased and (iii) in the case of the Legal Defeasance Option, 91 days pass after the deposit is made and no event of bankruptcy with respect to Columbia is continuing at the end of the 91-day period. The New Indenture is similar in content to the indenture authorized by the Commission on March 6, 1995 (HCAR 26245; 70-8107) for Consolidated Natural Gas Company. An application on Form T-3 for qualification of the New Indenture under the Trust Indenture Act of 1939 as amended, will be filed and become effective by the Effective Date. C. DISPOSITION OF LESOP SHARES Columbia established the LESOP pursuant to the Order of the Commission dated February 28, 1990 (HCAR 35-25047; 70-7672). The LESOP was designed to pre-fund a portion of the matching obligation under the terms of the Thrift Plan and to utilize tax advantages afforded under the Internal Revenue Code. 33 PAGE 33 Columbia proposes, on the Effective Date, that the LESOP be terminated pursuant to the terms of the Trust Agreement dated as of October 17, 1991 between Columbia and First Fidelity Bank, N.A., as Successor Trustee (the "LESOP Trust Agreement") and Columbia shall repurchase the LESOP Shares for cash and at the average price for Columbia Common Stock over a specified period preceding the Effective Date. The proceeds of the repurchase will be paid to the LESOP Debenture Trustee and, in turn, to the LESOP debentureholders as required by the LESOP Trust Agreement. The balance would be subject to the existing guarantee by Columbia and would be paid under the Columbia Plan. It is Columbia's intention to hold the LESOP Shares in its treasury and to use the LESOP Shares for one of the following purposes as Columbia deems appropriate: (i) to sell the LESOP Shares for cash in the open market, (ii) to use all or part of the LESOP Shares to fund the TCO Guarantee, (iii) to use all or part of the LESOP Shares to fund the Securities Litigation Settlement Offer and (iv) to fund an employee benefit program. D. PUBLIC OFFERING OF ADDITIONAL COLUMBIA EQUITY If Columbia elects to redeem the Preferred Stock and DECS prior to the 120th day after the Effective Date and elects to fund such redemption through the issuance and sale of up to 16 million shares of common or preferred stock, authorization is requested for the issuance of such securities subject to a reservation of jurisdiction over the terms of such issuance and sale. E. POTENTIAL OFFERING OF COLUMBIA SECURITIES IN CONNECTION WITH SETTLEMENT OF SECURITIES LITIGATION The Columbia Plan has proposed a settlement of certain securities class action claims brought against Columbia and certain former and present Columbia officers and directors who are defendants 34 PAGE 34 in the litigation (the "Securities Litigation Settlement Offer"). Under the Columbia Plan, holders of securities litigation claims that timely file satisfactory supplemental proofs of claim or questionnaire forms, in each case as provided by the Bankruptcy Court, and accept the Securities Litigation Settlement Offer will be paid by Columbia and various non-debtors (together with Columbia , the "Contributors") a settlement amount of up to $18 million (the "Proposed Settlement Amount"), subject to certain adjustments. The Securities Litigation Settlement Offer provides a range of recoveries for certain claimants who purchased Columbia debt and equity securities between March 1, 1990 and June 18, 1991. If the Proposed Settlement Amount is not enough to satisfy the range of recoveries proposed in the Securities Litigation Settlement Offer, as determined by the filing of supplemental proofs of claim, then the Proposed Settlement Amount, at Columbia's option, may be increased through additional cash contributions by the Contributors or the issuance of Columbia Common Stock or other securities by Columbia with respect to its contribution. Alternatively, Columbia may choose to withdraw the Securities Litigation Settlement Offer. The Securities Litigation Settlement Offer is also conditioned upon acceptance by claimants representing 75 percent of the total amount of claims filed in accordance with the procedures set forth under the Columbia Plan. However, Columbia may waive this condition to the Columbia Plan. If the Securities Litigation Settlement offer is withdrawn, or the 75% condition is not met or waived, Columbia will seek to estimate or otherwise liquidate the securities claims and will pay them in full in cash or Columbia Common Stock. F. RESTATED CERTIFICATE OF INCORPORATION In order to issue the DECS and Preferred Stock and Additional Columbia Equity (if issued in the form of preferred stock) pursuant to the Columbia Plan, the Certificate of Incorporation of 35 PAGE 35 Columbia would be amended and restated (the "Restated Certificate of Incorporation"), pursuant to Section 303 of the Delaware General Corporation Law and Section 1123(a) of the Bankruptcy Code. The Restated Certificate of Incorporation will become effective upon filing with the Delaware Secretary of State after the Effective Date. Columbia will remain incorporated under the laws of the State of Delaware. The Restated Certificate of Incorporation represents a streamlining and modernization of Columbia's current Certificate of Incorporation with the additional changes outlined below. A form of the Restated Certificate of Incorporation is attached as Exhibit A-1. The Restated Certificate of Incorporation prohibits the issuance of non- voting equity securities as required by Section 1123(a)(6) of the Bankruptcy Code, subject to further amendment of the Restated Certificate of Incorporation as permitted by applicable law. The Restated Certificate of Incorporation increases the number of authorized shares of preferred stock to 40 million shares.(4) It is anticipated that approximately 8 million shares of Preferred Stock and approximately 8 million shares of DECS having the terms described herein will be issued on the Effective Date in order to effectuate the Columbia Plan. As described above up to 16 million shares of additional preferred stock might be issued to fund a redemption of Preferred Stock and DECS. The remaining shares of authorized but unissued preferred stock may be issued from time to time pursuant to resolution adopted by the Columbia Board of Directors, subject to approval of the Commission under the Act. The following additional amendments to the current Certificate of Incorporation were proposed for approval by stockholders at Columbia's annual meeting on April 28, 1995 for the - -------------------- (4) The Certificate of Incorporation filed with Bankruptcy Court will be revised to reflect authorization for 40 million shares of Preferred Stock. 36 PAGE 36 purpose of implementing a shareholder rights plan. Although 64 percent of the shares present and voting were voted for the amendments, this vote was less than a majority of outstanding common stock as required under the Delaware law and the amendments were not adopted. The amendments will nevertheless be included in the Restated Certificate of Incorporation because they are necessary to permit the issuance of Preferred Stock and DECS under the Columbia Plan. No shareholders rights plan may be implemented prior to an order of this Commission authorizing adoption of such a plan under Section 6 of the Act. The proposed amendments to ARTICLE FOURTH would delete the restrictions on dividends and amounts of secured debt applicable while any preferred stock is outstanding. They would also remove from the Certificate of Incorporation specific provisions regarding preferred stock voting rights, dividend rights and liquidation rights and permit the Board of Directors to determine the specific rights, powers and preferences of each series of preferred stock, and the limitations thereon, at the time of its issuance. The par value of the preferred stock would also be reduced from fifty dollars ($50) to ten dollars ($10) per share. Conforming amendments to ARTICLE EIGHTH (i) provide for continuation of a staggered Board for Directors elected by holders of Columbia Common Stock even if directors are elected by the holders of preferred stock and (ii) recognize that the terms of the preferred stock may be set by resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH as proposed to be amended. 37 PAGE 37 IV. SUMMARY OF APPROVALS SOUGHT IN THIS APPLICATION-DECLARATION Columbia, therefore, requests authorization to: 1) Acquire from Columbia Transmission up to $1.5 billion in aggregate amount of TCO Mortgage Bonds. 2) Make capital contributions to Columbia Transmission aggregating approximately $1 billion including cash in an amount equal to the total values initially distributable under the TCO Plan ($3.9 billion) less the sum of a) cash available at Columbia Transmission to pay creditors projected to be (approximately $1.4 billion) and b) the value of the claim held by Columbia with respect to TCO Mortgage Bonds (approximately $2.0 billion). To the extent that the Columbia Plan reserves to Columbia the right to issue and sell securities other than Columbia Common Stock, the Commission is requested to reserve jurisdiction over the terms of such issuance. 3) Fund additional amounts to Columbia Transmission, when and as necessary, to fund payments to claimants whose claims, when and as allowed by the Bankruptcy Court, cause the value to be distributed under the TCO Plan to exceed $3.9 billion and, if deemed appropriate, to issue Columbia Common Stock or other securities to Dissenting Producers on behalf of Columbia Transmission for cash or TCO Mortgage Bonds equal to the then current market value or to issue and sell Columbia Common Stock on the market and distribute the proceeds to Columbia Transmission as a capital contribution. 4) Enter into the New Indenture and supplements thereto as described herein. 5) Issue up to $3 billion of New Indenture Securities, subject to adjustment as described herein. 6) Issue up to $200 million aggregate liquidation value each of Preferred Stock and DECS under the terms and conditions described herein. 38 PAGE 38 7) Enter into the Bank Facilities in an amount up to $1.15 billion under the terms and conditions described herein. 8) Reissue all or a part of the LESOP Shares for one of the following purposes as Columbia deems appropriate: (i) to sell the LESOP Shares for cash in the open market, (ii) to fund the TCO Guarantee, (iii) to fund the Securities Litigation Settlement Offer and (iv) to fund an employee benefit program. 9) Issue and sell preferred stock or Columbia Common Stock to fund the repurchase by Columbia of DECS and Preferred Stock subject to a reservation of jurisdiction over the terms of such issue and sale of preferred stock. 10) Issue shares of Columbia Common Stock to effectuate payment of Columbia's portion of any payment to claimants under the Securities Litigation Settlement Offer in excess of the Proposed Settlement Amount or to fund payments to securities claimants if the Securities Litigation Settlement Offer is withdrawn. 11) Amend and restate its Certificate of Incorporation as described above. Columbia also requests the issuance of the Commission's report under Section 11(g) of the Act. Item 2. Fees, Commissions and Expenses. (a) State (1) the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the proposed transaction by the applicant or declarant or any associate company thereof, and (2) if the proposed transaction involves the sale of securities at competitive bidding, the fees and expenses to be paid to counsel selected by applicant or declarant to act for the successful bidder. There are set forth below the estimated fees and expenses expected to be incurred in connection with the preparation of the Plans of Reorganization and this Application-Declaration. All 39 PAGE 39 payments for professional services are subject to the approval of the Bankruptcy Court pursuant to the Code and therefore, pursuant to Rule 63 need not be approved by this Commission. Securities and Exchange Commission Filing Fee . . . . . . . . . . . . . $ 2,000.00 Services of Columbia Gas System Service Corporation . . . . . . . . . . to be filed by amendment Services of Cravath Swaine & Moore, special counsel for Columbia * Services of Stroock & Stroock & Lavan, bankruptcy * counsel for Columbia Miscellaneous, including filing and recording fees, to be filed by postage, travel, telephone and other incidental expenses amendment Total . . . . . . . . . . . . . . . . . . . . . . . to be filed by amendment
* All payments for professional services are subject to the approval of the Bankruptcy Court pursuant to the Code and therefore, pursuant to Rule 63 need not be approved by this Commission. (b) If any person to whom fees or commissions have been or are to be paid in connection with the proposed transaction is an associate company or an affiliate of the applicant or declarant, or is an affiliate of an associate company, set forth the facts with respect thereto. Columbia Gas System Service Corporation, a wholly owned subsidiary of Columbia will perform certain services customary for a service corporation of a registered holding company at cost as set forth in Item 2(a) above. Item 3. Applicable Statutory Provisions. (a) State the section of the Act and the rules thereunder believed to be applicable to the proposed transaction. If any section or rule would be applicable in the absence of a specific exemption, state the basis of exemption. Sections 11(f) and 11(g) and Rules 60, 62, 63 and 64 are applicable to Columbia's Plan of Reorganization. Specifically, Columbia seeks Commission authorization under Section 11(g) and Rule 62 of the Act to disseminate the Columbia Disclosure Statement which will include the 40 PAGE 40 Commission's report approving the Columbia Plan and Disclosure Statement under Sections 11(f) and 11(g) and the rules promulgated thereunder. Columbia requests that the Commission waive the filing of a separate Form U-R-1 since all the requisite information will be included in the Disclosure Statements filed as exhibits hereto. Under Rule 63, fees and expenses approved by the Bankruptcy Court need not be approved by the Commission. Section 9 and 10 of the Act, and Rule 43 promulgated thereunder are applicable to the acquisition of restructured Columbia Transmission securities by Columbia and the capital contribution by Columbia to Columbia Transmission. The issuance of securities and amendment of the Wilmington Trust Indenture by Columbia Transmission is exempt from Sections 6 and 7 of the Act and Rule 43 thereunder pursuant to Rule 49(c). The issuance by Columbia of a guarantee of certain possible Columbia Transmission payments to creditors and the guaranty by Columbia of the settlement with Columbia Transmission's customers are subject to Section 12(b) of the Act and Rule 45 thereunder. The issuance by Columbia of DECS, Preferred Stock, New Indenture Securities Additional Columbia Equity and Columbia Common Stock are subject to Sections 6 and 7 of the Act. Columbia's entering into the Bank Facilities is also subject to Sections 6 and 7 of the Act. The amendment of Columbia's Charter is subject to Sections 6, 7 and 12(e) of the Act, and Rules 62 and 65 thereunder. The repurchase by Columbia of DECS, Preferred Stock and LESOP Shares is exempt from Section 12(c) of the Act pursuant to Rule 42 thereunder. Columbia and its subsidiaries do not currently own or operate any Exempt Wholesale Generators ("EWG") or Foreign Utility Companies ("FUCO") nor will Columbia and its subsidiary companies own or operate an EWG or FUCO as the result of the approvals requested herein. 41 PAGE 41 It is requested that the authority be granted to file certificates under Rule 24 on a quarterly basis after the Effective Date with respect to the proposed transactions hereafter consummated pursuant to this Application- Declaration, not later than 30 days following the end of each quarter. In addition, certain contemplated transactions may be accomplished over a period of time after the Order is issued, therefore authorization is requested to implement the proposed transactions as described in the Application- Declaration. To the extent that the transactions which are the subject matter of this Application-Declaration are considered by the Commission to require authorization, approval or exemption under any section of the Act or provision of the rules and regulations other than those specifically referred to herein, a request for such authorization, approval or exemption is hereby made pursuant to Rule 64. (b) If an applicant is not a registered holding company or a subsidiary thereof, state the name of each public utility company of which it is an affiliate, or of which it will become an affiliate as a result of the proposed transaction, and the reasons why it is or will become such an affiliate. Not applicable. Item 4. Regulatory Approval. (a) State the nature and extent of the jurisdiction of any State commission or any Federal commission (other than the Securities and Exchange Commission) over the proposed transaction. Not applicable. The United States Bankruptcy Court for the District of Delaware has jurisdiction over Columbia Transmission, Columbia and the reorganization plans of both companies, subject to the jurisdiction of this Commission under the Act. (b) Describe the action taken or proposed to be taken before any commission named in answer to paragraph (a) of this item in connection with the proposed transaction. Not applicable. Item 5. Procedure. (a) State the date when Commission action is requested. If the date is less than 40 days from the date of the original filing, set forth the reasons for acceleration. 42 PAGE 42 It is respectfully requested that the Commission issue its notice with respect to the transactions proposed herein no later than June 23, 1995 and its order as soon as practicable thereafter. The first Bankruptcy Court hearing on the disclosure statements is expected to be scheduled for July 18, 1995. (b) State (i) whether there should be a recommended decision by a hearing officer, (ii) whether there should be a recommended decision by any other responsible officer of the Commission, (iii) whether the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) whether there should be a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. Applicants hereby (i) waive a recommended decision by a hearing officer, (ii) waive a recommended decision by any other responsible officer or the Commission, (iii) specify that the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) specify that there should not be a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. Item 6. Exhibits and Financial Statements. (a) Exhibits A-1 The Columbia Gas System, Inc. Draft Restated Certificate of Incorporation B-1 Indenture and Deed of Trust between Columbia Gas Transmission Corporation and Wilmington Trust Company, as Trustee Dated August 30, 1985, as amended filed herewith by incorporation by reference to Exhibit E to Joint Application-Declaration (File No. 70-7106) B-2 Form of The Columbia Gas System, Inc. Indenture B-3 Form of Supplemental Indenture B-4 Draft Certificate of Designation for DECS B-5 Draft Certificate of Designation for Preferred Stock D-1 Columbia Gas Transmission Corporation Plan of Reorganization and Disclosure Statement (filed herewith by incorporation by reference to the Plan of 43 PAGE 43 Reorganization and Disclosure Statement filed in File No. 1-1098 on June 16, 1995) D-2 The Columbia Gas System, Inc. Plan of Reorganization and Disclosure Statement (filed herewith by incorporation by reference to the Plan of Reorganization and Disclosure Statement filed in File No. 1-1098 on June 16, 1995) F Opinion of Counsel (to be filed by amendment) G Financial Data Schedules H Proposed Notice I-1 The Columbia Gas System, Inc. and Subsidiaries projected Income Statement, Balance Sheet and Cash Flow Statement for the years 1995-1999 I-2 Columbia Gas Transmission Corporation projected Income Statement, Balance Sheet and Cash Flow Statement for the years 1995-1999 I-3 Analysis of Sources and Uses of Funds for Columbia Plan I-4 New Indenture Securities Pricing Formula I-5 DECS Pricing Formula I-6 Preferred Stock Pricing Formula (b) Financial Statements (1) The Columbia Gas System, Inc. and Subsidiaries (a) Balance Sheets as of February 28, 1995 (actual and pro forma) (b) Statements of Capitalization as of February 28, 1995 (actual and pro forma) (c) Statements of Income for the twelve months ended February 28, 1995 (actual and pro forma) (d) Statements of Common Stock Equity as of February 28, 1995 (actual and pro forma) (e) Pro Forma Entries (2) The Columbia Gas System, Inc. 44 PAGE 44 (a) Balance Sheets as of February 28, 1995 (actual and pro forma) (b) Statements of Capitalization as of February 28, 1995 (actual and pro forma) (c) Statements of Income for the twelve months ended February 28, 1995 (actual and pro forma) (d) Statements of Common Stock Equity as of February 28, 1995 (actual and pro forma) (e) Pro Forma Entries (3) Columbia Gas Transmission Corporation (a) Balance Sheets as of February 28, 1995 (actual and pro forma) (b) Statements of Capitalization as of February 28, 1995 (actual and pro forma) (c) Statements of Income for the twelve months ended February 28, 1995 (actual and pro forma) (d) Statements of Common Stock Equity as of February 28, 1995 (actual and pro forma) (e) Pro Forma Entries There have been no material changes, not in the ordinary course of business, since the date of the financial statements filed herewith. Item 7. Information as to Environmental Effects. (a) Describe briefly the environmental effects of the proposed transaction in terms of the standards set forth in Section 102 (2) (C) of the National Environmental Policy Act (42 U.S.C. 4232 (2) (C)). If the response to this term is a negative statement as to the applicability of Section 102 (2)(C) in connection with the proposed transaction, also briefly state the reasons for that response. As more fully described in Item 1, the proposed transaction relates only to the sale and purchase of certain securities and investments and has no environmental impact in itself. (b) State whether any other federal agency has prepared or is preparing an environmental impact statement ("EIS") with respect to the proposed transaction. If any other federal agency has 45 PAGE 45 prepared or is preparing an EIS, state which agency or agencies and indicate the status of that EIS preparation. No federal agency has prepared or is preparing an EIS with respect to the proposed transaction. 46 PAGE 46 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned company has duly caused this Application-Declaration to be signed on its behalf by the undersigned thereunto duly authorized. THE COLUMBIA GAS SYSTEM, INC. Date: June 20, 1995 By: /s/ L. J. BAINTER --------------------------- L. J. Bainter Treasurer 47 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(a) (1 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma --------------- --------------- --------------- ASSETS Property, Plant and Equipment Gas utility and other plant, at original cost ............ 6,669,512 0 6,669,512 Accumulated depreciation and depletion ................... (3,218,737) 0 (3,218,737) --------------- --------------- --------------- Net Gas Utility and Other Plant .......................... 3,450,775 0 3,450,775 --------------- --------------- --------------- Oil and gas producing properties, full cost method 1,264,954 0 1,264,954 Accumulated depletion .................................... (650,315) 0 (650,315) --------------- --------------- --------------- Net Oil and Gas Producing Properties ..................... 614,639 0 614,639 --------------- --------------- --------------- Net Property, Plant, and Equipment ......................... 4,065,414 0 4,065,414 --------------- --------------- --------------- Investments and Other Assets Accounts receivable - noncurrent ......................... 210,240 (25,699) 184,541 Unconsolidated affiliates ................................ 74,174 0 74,174 Other .................................................... 12,985 0 12,985 --------------- --------------- --------------- Total Investments and Other Assets ......................... 297,399 (25,699) 271,700 --------------- --------------- --------------- Current Assets Cash and temporary cash investments ...................... 1,718,111 (1,155,320) 562,791 * Accounts receivable, net ................................. 678,809 0 678,809 Gas inventories .......................................... 111,161 0 111,161 Other inventories at average cost ........................ 41,865 0 41,865 Prepayments .............................................. 104,339 0 104,339 Other .................................................... 44,438 0 44,438 --------------- --------------- --------------- Total Current Assets ....................................... 2,698,723 (1,155,320) 1,543,403 --------------- --------------- --------------- Deferred Charges ........................................... 288,845 0 288,845 --------------- --------------- --------------- Total Assets ............................................... 7,350,381 (1,181,019) 6,169,362 =============== =============== ===============
* Excess cash is a result of the full amount of the credit facilities being used for the pro-forma financial statements in accordance with Commission rules. 48 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES (2 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma --------------- --------------- --------------- CAPITALIZATION AND LIABILITIES Capitalization Stockholder's equity ..................................... 1,564,420 (318,398) 1,246,022 Long-term debt ........................................... 4,138 2,550,000 2,554,138 --------------- --------------- --------------- Total Capitalization ....................................... 1,568,558 2,231,602 3,800,160 --------------- --------------- --------------- Current Liabilities Debt obligations ......................................... 1,287 0 1,287 Working capital facility ................................. 0 600,000 600,000 Accounts and drafts payable .............................. 123,432 0 123,432 Accrued taxes ............................................ 214,414 (85,426) 128,988 Accrued interest ......................................... (2,998) 288,800 285,802 Estimated rate refunds ................................... 68,400 0 68,400 Estimated supplier obligations ........................... 68,059 0 68,059 Other .................................................... 446,446 44,000 490,446 --------------- --------------- --------------- Total Current Liabilities .................................. 919,040 847,374 1,766,414 --------------- --------------- --------------- Liabilities Subject to Chapter 11 Proceedings ............. 4,045,106 (4,045,106) 0 --------------- --------------- --------------- Other Liabilities and Deferred Credits Deferred income taxes, noncurrent ........................ 358,683 (351,389) 7,294 Deferred investment tax credits .......................... 38,327 0 38,327 Postretirement benefits other than pensions .............. 230,459 0 230,459 Other .................................................... 190,208 136,500 326,708 --------------- --------------- --------------- Total Other Liabilities and Deferred Credits ............... 817,677 (214,889) 602,788 --------------- --------------- --------------- Total Capitalization and Liabilities ....................... 7,350,381 (1,181,019) 6,169,362 =============== =============== ===============
49 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(b) CONSOLIDATED STATEMENT OF CAPITALIZATION ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma --------------- --------------- --------------- Stockholder's Equity Common Stock, The Columbia Gas System, Inc., $10 par value, authorized 100,000,000 shares, outstanding 50,563,335 shares ........................... 505,633 0 505,633 Additional paid in capital ............................... 601,827 (16,466) 585,361 Preferred Stock .......................................... 0 400,000 400,000 Retained earnings ........................................ 526,926 (771,898) (244,972) Unearned employee compensation ........................... (69,966) 69,966 0 --------------- --------------- --------------- Total Stockholder's Equity ................................. 1,564,420 (318,398) 1,246,022 --------------- --------------- --------------- Long-Term Debt Debentures ............................................... 0 2,550,000 2,550,000 Miscellaneous debt of subsidiaries ....................... 2,473 Capitalized lease obligations ............................ 1,665 0 1,665 --------------- --------------- --------------- Total Long-Term Debt ....................................... 4,138 2,550,000 2,554,138 --------------- --------------- --------------- Total Capitalization ....................................... 1,568,558 2,231,602 3,800,160 =============== =============== ===============
50 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(c) STATEMENT OF CONSOLIDATED INCOME ACTUAL and PRO FORMA Twelve Months Ended February 28, 1995 ($000)
CGS Pro Forma CGS Actual Adjustments * Entries Pro Forma --------------- --------------- --------------- --------------- Operating Revenues Gas sales................................................. 1,980,027 0 0 1,980,027 Transportation ........................................... 574,742 0 0 574,742 Other .................................................... 223,961 0 0 223,961 --------------- --------------- --------------- --------------- Total Operating Revenues ................................... 2,778,730 0 0 2,778,730 --------------- --------------- --------------- --------------- Operating Expenses Products purchased ...................................... 917,717 0 0 917,717 Operation ................................................ 888,608 0 0 888,608 Maintenance .............................................. 134,482 0 0 134,482 Depreciation and depletion ............................... 266,935 0 0 266,935 Other taxes .............................................. 212,300 0 0 212,300 --------------- --------------- --------------- --------------- Total Operating Expenses ................................... 2,420,042 0 0 2,420,042 --------------- --------------- --------------- --------------- Operating Income ........................................... 358,688 0 0 358,688 --------------- --------------- --------------- --------------- Other Income (Deductions) Interest income and other, net ........................... 48,262 0 0 48,262 Interest expense and related charges...................... (16,828) 0 (289,800) (306,628) Reorganization items, net ................................ (9,503) 9,503 0 0 --------------- --------------- --------------- --------------- Total Other Income (Deductions) ............................ 21,931 9,503 (289,800) (258,366) --------------- --------------- --------------- --------------- Income before Income Taxes and Cummulative Effect of Accounting Change ..................................... 380,619 9,503 (289,800) 100,322 Income taxes ............................................... 142,069 1,799 (101,050) 42,818 --------------- --------------- --------------- --------------- Income before Cummulative Effect of Accounting Change ................................................... 238,550 7,704 (188,750) 57,504 Cummulative Effect of Change in Accounting for Postemployment Benefits .................................. 72 0 0 72 --------------- --------------- --------------- --------------- Net Income ................................................. 238,622 7,704 (188,750) 57,576 --------------- --------------- --------------- --------------- Preferred Dividends ........................................ 0 0 44,000 44,000 --------------- --------------- --------------- --------------- Net Income on Common Equity ................................ 238,622 7,704 (232,750) 13,576 =============== =============== =============== ===============
* To eliminate bankruptcy-related items from the Pro Forma Income Statement. 51 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(d) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ACTUAL and PRO FORMA Twelve Months Ended February 28, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma --------------- --------------- --------------- COMMON STOCK Balance at March 31, 1994 .................................. 505,592 0 505,592 Common stock issued - Long-term incentive plan ................................. 41 0 41 --------------- --------------- --------------- Balance at February 28, 1995 ............................... 505,633 0 505,633 --------------- --------------- --------------- PREFERRED STOCK Balance at March 31, 1994 .................................. 0 0 0 Preferred stock issued ..................................... 0 400,000 400,000 --------------- --------------- --------------- Balance at February 28, 1995 ............................... 0 400,000 400,000 --------------- --------------- --------------- ADDITIONAL PAID IN CAPITAL Balance at March 31, 1994 .................................. 601,759 0 601,759 Common stock issued - Long-term incentive plan ................................. 68 0 68 Leveraged employee stock ownership plan (LESOP) ............ 0 (16,466) (16,466) --------------- --------------- --------------- Balance at February 28, 1995 ............................... 601,827 (16,466) 585,361 --------------- --------------- --------------- RETAINED EARNINGS Balance at March 31, 1994 .................................. 288,304 0 288,304 Net income ................................................. 238,622 (188,750) 49,872 Common stock dividends ..................................... 0 0 0 Preferred stock dividends .................................. 0 (44,000) (44,000) Other ...................................................... 0 (539,148) (539,148) --------------- --------------- --------------- Balance at February 28, 1995 ............................... 526,926 (771,898) (244,972) --------------- --------------- --------------- UNEARNED EMPLOYEE COMPENSATION Balance at March 31, 1994 .................................. (69,966) 69,966 0 --------------- --------------- --------------- Balance at February 28, 1995 ............................... (69,966) 69,966 0 --------------- --------------- --------------- TOTAL COMMON STOCK EQUITY .................................. 1,564,420 (318,398) 1,246,022 =============== =============== ===============
52 Unaudited 6(b)(1)(e) (1 of 2) THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES PRO FORMA ENTRIES ($000)
DR CR ----------- ----------- 1) Retained earnings 616,148 Deferred taxes 351,389 Accrued taxes 33,724 Liabilities subject to Chapter 11 933,813 To adjust the non-affiliated Chapter 11 liabilities to reflect the estimated balance at 12/31/95, the proposed date of emergence. 2) Cash 450,000 Note Payable - Term (long term) 450,000 To record the issuance of the Term Facility Notes at 7.5%. 3) Cash 600,000 Working capital loan 600,000 To record the issuance of the Revolving Facility Notes at 7.5% less the portion applicable to letters of credit. 4) Liabilities subject to Chapter 11 200,000 Preferred stock 200,000 To record the issuance of 11% preferred stock. 5) Liabilities subject to Chapter 11 200,000 DECS 200,000 To record the issuance of 11% DECS. 6) Liabilities subject to Chapter 11 2,100,000 Debentures 2,100,000 To record the issuance of 10% debentures issued. 7) Liabilities subject to Chapter 11 136,500 Other liabilities and deferred credits 136,500 To reflect amounts due to IRS to be paid over a six year period. 8) Liabilities subject to Chapter 11 2,307,019 Cash 2,307,019 Cash payment for remaining liabilities subject to Chapter 11. 9) Treasury stock 35,400 Cash 35,400 To record purchase of 1.416 million LESOP shares at $25 per share. 10) Liabilities subject to Chapter 11 35,400 Paid in capital 16,466 Accrued taxes 18,100 Unearned compensation 69,966 To record the loss on the LESOP loan guarantee. 11) Cash 24,699 Interest expense 1,000 Accounts receivable, noncurrent 25,699 To record the return of Kotaneelee escrow and establishment of a letter of credit.
53 (2 of 2) 12) Cash 35,400 Treasury stock 35,400 To record the sale of Treasury stock. 13) Interest expense 33,800 Accrued taxes 11,800 Accrued interest 33,800 Tax expense 11,800 To record interest expense on the Term Facility ($450.0 @ 7.5%). 14) Interest expense 45,000 Accrued taxes 15,750 Accrued interest 45,000 Tax expense 15,750 To record interest expense on the Revolving Facility ($600.0 @ 7.5%). 15) Retained earnings (dividends) 22,000 Dividends payable 22,000 To record dividends paid on preferred stock @ 11%. 16) Retained earnings (dividends) 22,000 Dividends payable 22,000 To record dividends paid on DECS @ 11%. 17) Interest expense 210,000 Accrued taxes 73,500 Accrued interest 210,000 Tax expense 73,500 To accrue interest on new debentures @ 10%. 18) Cash 77,000 Retained earnings 77,000 To record the increase in cash between 2/28/95 and 12/31/95.
54 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(a) (1 of 2) BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ----------- ------------ ------------ ASSETS Investments and Other Assets Accounts receivable - noncurrent .......................... 25,699 (25,699) 0 ----------- ------------ ------------ Total Investments and Other Assets .......................... 25,699 (25,699) 0 ----------- ------------ ------------ Investments in Subsidiaries Capital stock ............................................. 1,297,488 1,060,000 2,357,488 Equity in undistributed retained earnings ................. (428,363) (34,176) (462,539) Installment promissory notes receivable ................... 756,769 1,405,643 2,162,412 Other investments ......................................... 437,833 (437,833) 0 Other receivables - TCO ................................... 1,630,438 (1,630,438) 0 ----------- ------------ ------------ Total Investments in Subsidiaries ........................... 3,694,165 363,196 4,057,361 ----------- ------------ ------------ Current Assets Cash and temporary cash investments ....................... 17,543 408,856 426,399 * Accounts receivable, net Affiliated .............................................. 420,817 (177,500) 243,317 Other ................................................... 9,689 0 9,689 Prepayments ............................................... 1 0 1 Other ..................................................... 31,833 0 31,833 ----------- ------------ ------------ Total Current Assets ........................................ 479,883 231,356 711,239 ----------- ------------ ------------ Deferred Charges ............................................ 2,747 0 2,747 ----------- ------------ ------------ Total Assets ................................................ 4,202,494 568,853 4,771,347 =========== ============ ============
* Excess cash is a result of the full amount of the credit facilities being used for the pro-forma financial statements in accordance with Commission rules. 55 THE COLUMBIA GAS SYSTEM, INC. (2 of 2) BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ----------- ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Stockholder's equity ...................................... 1,564,420 (318,398) 1,246,022 Long-term debt ............................................ 0 2,550,000 2,550,000 ----------- ------------ ------------ Total Capitalization ........................................ 1,564,420 2,231,602 3,796,022 ----------- ------------ ------------ Current Liabilities Working capital facility .................................. 0 600,000 600,000 Accounts and drafts payable ............................... 1,107 0 1,107 Affiliated accounts payable ............................... 3,227 27,500 30,727 Accrued taxes ............................................. (507) (25,535) (26,042) Accrued interest .......................................... 1,291 288,800 290,091 Other ..................................................... 8,644 44,000 52,644 ----------- ------------ ------------ Total Current Liabilities ................................... 13,762 934,765 948,527 ----------- ------------ ------------ Liabilities Subject to Chapter 11 Proceedings ............... 2,382,625 (2,382,625) 0 ----------- ------------ ------------ Other Liabilities and Deferred Credits Deferred income taxes, noncurrent ......................... 235,658 (351,389) (115,731) Postretirement benefits other than pensions ............... 5,996 0 5,996 Other ..................................................... 33 136,500 136,533 ----------- ------------ ------------ Total Other Liabilities and Deferred Credits ................ 241,687 (214,889) 26,798 ----------- ------------ ------------ Total Capitalization and Liabilities ........................ 4,202,494 568,853 4,771,347 =========== ============ ============
56 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(b) STATEMENT OF CAPITALIZATION ACTUAL and PRO FORMA As of February 28, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ----------- ------------ ------------ Stockholder's Equity Common Stock, $10 par value, authorized 100,000,000 shares, outstanding 50,563,335 shares ................................................... 505,633 0 505,633 Additional paid in capital ................................ 601,827 (16,466) 585,361 Preferred Stock ........................................... 0 400,000 400,000 Retained earnings ......................................... 526,926 (771,898) (244,972) Unearned employee compensation ............................ (69,966) 69,966 0 ----------- ------------ ------------ Total Stockholder's Equity .................................. 1,564,420 (318,398) 1,246,022 ----------- ------------ ------------ Long-Term Debt .............................................. 0 2,550,000 2,550,000 ----------- ------------ ------------ Total Long-Term Debt ........................................ 0 2,550,000 2,550,000 ----------- ------------ ------------ Total Capitalization ........................................ 1,564,420 2,231,602 3,796,022 =========== ============ ============
57 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(c) STATEMENT OF INCOME ACTUAL and PRO FORMA Twelve Months Ended February 28, 1995 ($000)
CG Pro Forma CG Actual Adjustments * Entries Pro Forma ----------- ------------- ------------ ------------ Operating Revenues Gas Sales ........................................ 0 0 0 0 Transportation ................................... 0 0 0 0 Other ............................................ 0 0 0 0 ----------- ------------- ------------ ------------ Total Operating Revenues ........................... 0 0 0 0 ----------- ------------- ------------ ------------ Operating Expenses Products purchased ............................... 0 0 0 0 Operation ........................................ 96,161 (88,000) 0 8,161 Maintenance ...................................... 0 0 0 0 Depreciation and depletion ....................... 0 0 0 0 Other taxes ...................................... 161 0 0 161 ----------- ------------- ------------ ------------ Total Operating Expenses ........................... 96,322 (88,000) 0 8,322 ----------- ------------- ------------ ------------ Operating Income (Loss) ............................ (96,322) 88,000 0 (8,322) ----------- ------------- ------------ ------------ Other Income (Deductions) Interest income and other, net ................... 391,918 (57,200) 50,890 385,608 Interest expense and related charges ............. (513) 0 (289,800) (290,313) Reorganization items, net ........................ (2,037) 2,037 0 0 ----------- ------------- ------------ ------------ Total Other Income (Deductions) .................... 389,368 (55,163) (238,910) 95,295 ----------- ------------- ------------ ------------ Income before Income Taxes and Cummulative Effect of Accounting Change ............................. 293,046 32,837 (238,910) 86,973 Income taxes ....................................... 54,417 25,133 (50,160) (29,390) ----------- ------------- ------------ ------------ Income before Cummulative Effect of Accounting Change ........................................... 238,629 7,704 (188,750) 57,583 Cummulative Effect of Accounting for Postemployment Benefits ......................................... (7) 0 0 (7) ----------- ------------- ------------ ------------ Net Income ......................................... 238,622 7,704 (188,750) 57,576 ----------- ------------- ------------ ------------ Preferred Dividends ................................ 0 0 44,000 44,000 ----------- ------------- ------------ ------------ Net Income on Common Equity ........................ 238,622 7,704 (232,750) 13,576 =========== ============= ============ ============
* To eliminate bankruptcy-related items from the Pro Forma Income Statement. 58 THE COLUMBIA GAS SYSTEM, INC. STATEMENTS OF STOCKHOLDERS' EQUITY UNAUDITED ACTUAL and PRO FORMA 6(b)(2)(d) Twelve Months Ended February 28, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ----------- ------------ ------------ COMMON STOCK Balance at March 1, 1994 ........................................ 505,592 0 505,592 Common stock issued - Long-term incentive plan ...................................... 41 0 41 ----------- ------------ ------------ Balance at February 28, 1995 .................................... 505,633 0 505,633 ----------- ------------ ------------ PREFERRED STOCK Balance at March 1, 1994 ........................................ 0 0 0 Preferred stock issued .......................................... 0 400,000 400,000 ----------- ------------ ------------ Balance at February 28, 1995 .................................... 0 400,000 400,000 ----------- ------------ ------------ ADDITIONAL PAID IN CAPITAL Balance at March 1, 1994 ........................................ 601,759 0 601,759 Common stock issued - Long-term incentive plan ...................................... 68 0 68 Leveraged employee stock ownership plan (LESOP) ................. 0 (16,466) (16,466) ----------- ------------ ------------ Balance at February 28, 1995 .................................... 601,827 (16,466) 585,361 ----------- ------------ ------------ RETAINED EARNINGS Balance at March 1, 1994 ........................................ 288,304 0 288,304 Net income ...................................................... 238,622 (188,750) 49,872 Common stock dividends .......................................... 0 0 0 Preferred stock dividends ....................................... 0 (44,000) (44,000) Other ........................................................... 0 (539,148) (539,148) ----------- ------------ ------------ Balance at February 28, 1995 .................................... 526,926 (771,898) (244,972) ----------- ------------ ------------ UNEARNED EMPLOYEE COMPENSATION Balance at March 1, 1994 ........................................ (69,966) 69,966 0 ----------- ------------ ------------ Balance at February 28, 1995 .................................... (69,966) 69,966 0 ----------- ------------ ------------ TOTAL COMMON STOCK EQUITY ....................................... 1,564,420 (318,398) 1,246,022 =========== ============ ============
59 Unaudited 6(b)(2)(e) (1 of 3) THE COLUMBIA GAS SYSTEM, INC. PRO FORMA ENTRIES ($000)
DR CR ----------- ----------- 1) Retained earnings 678,778 Deferred taxes 351,389 Liabilities subject to Chapter 11 1,030,167 To adjust the Chapter 11 liabilities to the estimated balance at 12/31/95, the proposed date of emergence. 2) Cash 450,000 Note Payable - Term (long term) 450,000 To record the issuance of the Term Facility Notes at 7.5%. 3) Cash 600,000 Working capital loan 600,000 To record the issuance of the Revolving Facility Notes at 7.5% less the portion applicable to letters of credit. 4) Liabilities subject to Chapter 11 200,000 Preferred stock 200,000 To record the issuance of 11% preferred stock. 5) Liabilities subject to Chapter 11 200,000 DECS 200,000 To record the issuance of 11% DECS. 6) Liabilities subject to Chapter 11 2,100,000 Debentures 2,100,000 To record 10% debentures issued. 7) Liabilities subject to Chapter 11 877,392 Accounts receivable - intercompany (cash investment) 322,900 Cash 554,492 To record the cash payment for remaining liabilities subject to Chapter 11. 8) Treasury stock 35,400 Cash 35,400 To record purchase of 1.416 million LESOP shares at $25 per share. 9) Liabilities subject to Chapter 11 35,400 Paid in capital 16,466 Accrued taxes 18,100 Unearned compensation 69,566 To reflect the loss on the LESOP loan guarantee. 10) Other receivables - TCO 130,521 Accrued taxes 45,700 Retained earnings 84,821 To record additional interest receivable from TCO from 2/28/95 to 12/31/95.
60 (2 of 3) 11) Secured mortgage bonds 1,454,000 Investment in common stock - TCO 1,060,000 Installment prom. notes - C/M (TCO) 39,857 Other investments (gas inventory loan) 437,833 Other receivables - TCO (debt & interest) 1,760,959 Cash 275,351 To record the recapitalization of TCO and settlement of CG claims against TCO. 12) Retained earnings 5,525 Accrued taxes 2,975 Note receivable - TCO 8,500 To record the loss on unsecured debt from TCO. 13) Cash 24,699 Interest expense 1,000 Accounts receivable, noncurrent 25,699 To record return of Kotaneelee escrow and establishment of a letter of credit. 14) Cash 164,000 Affiliated Accounts Payable 27,500 Other liabilities - payable to IRS 136,500 To record receipt of a tax payment from TCO which is partially payable to the IRS and partially owed to subsidiaries as a result of the tax allocation agreement. 15) Cash 35,400 Treasury stock 35,400 To reflect the sale of the Treasury stock. 16) Interest expense 33,800 Accrued taxes 11,800 Accrued interest 33,800 Tax expense 11,800 To record interest expense on the Term Facility ($450.0 @ 7.5%). 17) Interest expense 45,000 Accrued taxes 15,750 Accrued interest 45,000 Tax expense 15,750 To record interest expense on the Revolving Facility ($600.0 @ 7.5%). 18) Retained earnings (dividends) 22,000 Dividends payable 22,000 To record dividends on preferred stock @ 11%. 19) Retained earnings (dividends) 22,000 Dividends payable 22,000 To record dividends on DECS @ 11%.
61 (3 of 3) 20) Interest expense 210,000 Accrued taxes 73,500 Accrued interest 210,000 Tax expense 73,500 To accrue interest on new debentures 10%. 21) Accrued interest 145,400 Tax expense 50,890 Interest income 145,400 To accrue interest income at 10% on new debt issued by TCO to the parent Company. 22) Interest income and other 94,510 Retained earnings 34,176 Equity in undistributed retained earnings 34,176 To record the impact of TCO's retained earnings adjustments and their equity earnings.
62 UNAUDITED 6(b)(3)(a) COLUMBIA GAS TRANSMISSION CORPORATION (1 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
TCO Pro Forma TCO Actual Entries Pro Forma ------------ ------------ ------------ ASSETS Property, Plant and Equipment Gas utility and other plant, at original cost .... 3,269,252 0 3,269,252 Accumulated depreciation and depletion ........... (1,387,969) 0 (1,387,969) ------------ ------------ ------------ Net Property, Plant, and Equipment ................. 1,881,283 0 1,881,283 ------------ ------------ ------------ Investments and Other Assets Accounts receivable - noncurrent ................. 204,817 0 204,817 Other ............................................ 438 0 438 ------------ ------------ ------------ Total Investments and Other Assets ................. 205,255 0 205,255 ------------ ------------ ------------ Current Assets Cash and temporary cash investments .............. 1,313,307 (1,291,707) 21,600 Accounts receivable, net Customers ...................................... 153,988 0 153,988 Affiliated ..................................... 41,323 0 41,323 Other .......................................... 92,011 0 92,011 Other inventories at average cost ................ 19,193 0 19,193 Prepayments ...................................... 24,402 0 24,402 Other ............................................ 4,257 0 4,257 ------------ ------------ ------------ Total Current Assets ............................... 1,648,481 (1,291,707) 356,774 ------------ ------------ ------------ Deferred Charges ................................... 237,743 0 237,743 ------------ ------------ ------------ Total Assets ....................................... 3,972,762 (1,291,707) 2,681,055 ============ ============ ============
63 COLUMBIA GAS TRANSMISSION CORPORATION (2 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of February 28, 1995 ($000)
TCO Pro Forma TCO Actual Entries Pro Forma ------------ ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Common stock equity .............................. (470,701) 1,087,235 616,534 Long-term debt ................................... 0 1,454,000 1,454,000 ------------ ------------ ------------ Total Capitalization ............................... (470,701) 2,541,235 2,070,534 ------------ ------------ ------------ Current Liabilities Debt obligations ................................. 663 0 663 Accounts and drafts payable ...................... 19,049 0 19,049 Affiliated accounts payable ...................... 1,322 0 1,322 Accrued taxes .................................... 70,416 (34,658) 35,758 Accrued interest ................................. 1,295 145,400 146,695 Estimated rate refunds ........................... 9,353 0 9,353 Estimated supplier obligations ................... 68,053 0 68,053 Deferred income taxes - current .................. 4,396 0 4,396 Other ............................................ 134,526 0 134,526 ------------ ------------ ------------ Total Current Liabilities .......................... 309,073 110,742 419,815 ------------ ------------ ------------ Liabilities Subject to Chapter 11 Proceedings ...... 3,943,684 (3,943,684) 0 ------------ ------------ ------------ Other Liabilities and Deferred Credits Postretirement benefits other than pensions ...... 56,044 0 56,044 Other ............................................ 134,662 0 134,662 ------------ ------------ ------------ Total Other Liabilities and Deferred Credits ....... 190,706 0 190,706 ------------ ------------ ------------ Total Capitalization and Liabilities ............... 3,972,762 (1,291,707) 2,681,055 ============ ============ ============
64 COLUMBIA GAS TRANSMISSION CORPORATION UNAUDITED 6(b)(3)(b) CONSOLIDATED STATEMENT OF CAPITALIZATION ACTUAL and PRO FORMA As of February 28, 1995 ($000)
Pro Forma TCO Actual Entries Pro Forma ------------ ------------ ------------ Common Stock Equity Common Stock, The Columbia Gas System, Inc., $25 par value, authorized 15,000,000 shares, outstanding 9,671,354 shares .................... 241,784 0 241,784 Additional paid in capital ....................... 70,289 1,060,000 1,130,289 Retained earnings ................................ (782,774) 27,235 (755,539) ------------ ------------ ------------ Total Common Stock Equity .......................... (470,701) 1,087,235 616,534 ------------ ------------ ------------ Long-Term Debt - installment promissory notes ...... 0 1,454,000 1,454,000 ------------ ------------ ------------ Total Capitalization ............................... (470,701) 2,541,235 2,070,534 ============ ============ ============
65 COLUMBIA GAS TRANSMISSION CORPORATION UNAUDITED 6(b)(3)(c) STATEMENT OF CONSOLIDATED INCOME ACTUAL and PRO FORMA Twelve Months Ended February 28, 1995 ($000)
TCO Pro Forma TCO Actual Adjustments * Entries Pro Forma ------------ ------------ ------------ ------------ Operating Revenues Gas sales......................................... (42,918) 0 0 (42,918) Transportation ................................... 551,731 0 0 551,731 Other ............................................ 169,015 0 0 169,015 ------------ ------------ ------------ ------------ Total Operating Revenues ........................... 677,828 0 0 677,828 ------------ ------------ ------------ ------------ Operating Expenses Products purchased .............................. (18,988) 0 0 (18,988) Operation ........................................ 364,597 0 0 364,597 Maintenance ...................................... 43,659 0 0 43,659 Depreciation and depletion ....................... 78,350 0 0 78,350 Other taxes ...................................... 45,726 0 0 45,726 ------------ ------------ ------------ ------------ Total Operating Expenses ........................... 513,344 0 0 513,344 ------------ ------------ ------------ ------------ Operating Income ................................... 164,484 0 0 164,484 ------------ ------------ ------------ ------------ Other Income (Deductions) Interest income and other, net ................... 30,188 0 0 30,188 Interest expense and related charges.............. (154,441) 144,900 (145,400) (154,941) Reorganization items, net ........................ (7,466) 7,466 0 0 ------------ ------------ ------------ ------------ Total Other Income (Deductions) .................... (131,719) 152,366 (145,400) (124,753) ------------ ------------ ------------ ------------ Income before Income Taxes and Cummulative Effect of Accounting Change ............................. 32,765 152,366 (145,400) 39,731 Income taxes ....................................... 5,473 54,100 (56,000) 3,573 ------------ ------------ ------------ ------------ Net Income ......................................... 27,292 98,266 (89,400) 36,158 ============ ============ ============ ============
* To eliminate bankruptcy-related items from the Pro Forma Income Statement. 66 COLUMBIA GAS TRANSMISSION CORPORATION UNAUDITED 6(b)(3)(d) CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY ACTUAL and PRO FORMA Twelve Months Ended February 28, 1995 ($000)
TCO Pro Forma TCO Actual Entries Pro Forma ------------ ------------ ------------ COMMON STOCK Balance at March 1, 1994 ........................... 241,784 0 241,784 ------------ ------------ ------------ Balance at February 28, 1995 ....................... 241,784 0 241,784 ------------ ------------ ------------ ADDITIONAL PAID IN CAPITAL Balance at March 1, 1994 ........................... 70,289 0 70,289 Common stock issued - Capital Stock .................................... 0 1,060,000 1,060,000 ------------ ------------ ------------ Balance at February 28, 1995 ....................... 70,289 1,060,000 1,130,289 ------------ ------------ ------------ RETAINED EARNINGS Balance at March 1, 1994 ........................... (810,066) 0 (810,066) Net income ......................................... 27,292 (89,400) (62,108) Common stock dividends ............................. 0 0 0 Other .............................................. 0 116,635 116,635 ------------ ------------ ------------ Balance at February 28, 1995 ....................... (782,774) 27,235 (755,539) ------------ ------------ ------------ TOTAL COMMON STOCK EQUITY .......................... (470,701) 1,087,235 616,534 ============ ============ ============
67 Unaudited 6(b)(3)(e) COLUMBIA GAS TRANSMISSION CORPORATION PRO FORMA ENTRIES ($000)
Debit Credit ------- -------- 1) Retained earnings 23,090 Accrued taxes 12,433 Liabilities subject to Chapter 11 35,523 To adjust the Chapter 11 liabilities to reflect their estimated balance at 12/31/95, the proposed date of emergence 2) Liabilities subject to Chapter 11 96,500 Accrued taxes 33,775 Retained earnings 62,725 To record the reduction in CG's unsecured debt claim in accordance with the Plan of Reorganization. 3) Cash 529,851 Liabilities subject to Chapter 11 1,984,149 Stockholder equity 1,060,000 Long-term debt 1,454,000 To record the recapitalization of TCO by CG and the settlement of CG's secured debt, including interest. 4) Liabilities subject to Chapter 11 1,898,558 Cash 1,898,558 To record the payment of the remaining Chapter 11 liabilities. 5) Cash 77,000 Retained earnings 77,000 To record increase in cash between 2/28/95 and 12/31/95. 6) Interest expense 145,400 Accrued taxes 56,000 Accrued interest 145,400 Tax expense 56,000 To accrue interest expense at 10% on new debt.
68 PAGE 1 EXHIBIT INDEX (a) Exhibits A-1 The Columbia Gas System, Inc. Draft Restated Certificate of Incorporation B-1 Indenture and Deed of Trust between Columbia Gas Transmission Corporation and Wilmington Trust Company, as Trustee Dated August 30, 1985, as amended filed herewith by incorporation by reference to Exhibit E to Joint Application-Declaration (File No. 70-7106) B-2 Form of The Columbia Gas System, Inc. Indenture B-3 Form of Supplemental Indenture B-4 Draft Certificate of Designation for DECS B-5 Draft Certificate of Designation for Preferred Stock D-1 Columbia Gas Transmission Corporation Plan of Reorganization and Disclosure Statement (filed herewith by incorporation by reference to the Plan of Reorganization and Disclosure Statement filed in File No. 1-1098 on June 16, 1995) D-2 The Columbia Gas System, Inc. Plan of Reorganization and Disclosure Statement (filed herewith by incorporation by reference to the Plan of Reorganization and Disclosure Statement filed in File No. 1-1098 on June 16, 1995) F Opinion of Counsel (to be filed by amendment) G Financial Data Schedules H Proposed Notice I-1 The Columbia Gas System, Inc. and Subsidiaries projected Income Statement, Balance Sheet and Cash Flow Statement for the years 1995-1999 I-2 Columbia Gas Transmission Corporation projected Income Statement, Balance Sheet and Cash Flow Statement for the years 1995-1999 I-3 Analysis of Sources and Uses of Funds for Columbia Plan I-4 New Indenture Securities Pricing Formula I-5 DECS Pricing Formula 69 PAGE 2 I-6 Preferred Stock Pricing Formula EX-99.A1 2 DRAFT RESTATED CERTIFICATE OF INCORPORATION 1 PAGE 1 EXHIBIT A-1 RESTATED CERTIFICATE OF INCORPORATION OF THE COLUMBIA GAS SYSTEM, INC. The Columbia Gas System, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: The name of the corporation is The Columbia Gas System, Inc. The Columbia Gas System, Inc. was originally incorporated under the name Columbia Gas & Electric Corporation and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 30, 1926. This Restated Certificate of Incorporation was duly adopted pursuant to Sections 103, 242 and 245 of the General Corporation Law of the State of Delaware. Upon filing with the Secretary of State, in accordance with Section 103, this Restated Certificate of Incorporation amends and restates and shall henceforth supersede the original Certificate of Incorporation and shall, as it may thereafter be amended in accordance with its terms and applicable law, be the Certificate of Incorporation of the Corporation. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby amended and restated to read in its entirety as follows: Article I Name The name of this Corporation is THE COLUMBIA GAS SYSTEM, INC. Article II Registered Office 2 PAGE 2 The registered office of the Corporation in the State of Delaware is located at The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent is The Corporation Trust Company, and the address of said registered agent is Corporation Trust Center, 1209 Orange Street, in said city. Article III Statement of Purpose The nature of the business to be conducted and the purposes of the Corporation are to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as amended. Article IV Classes of Capital Stock The total number of shares of all classes of stock which the Corporation shall have authority to issue is One hundred forty million (140,000,000), of which Forty million (40,000,000) shares of the par value of Ten dollars ($10.00) each are to be of a class designated Preferred Stock and One hundred million (100,000,000) shares of the par value of Ten dollars ($10.00) each are to be of a class designated Common Stock. To the extent required by Section 1123(a)(6) of the U.S. Bankruptcy Code (11 U.S.C Section 1123(a)(6)) no nonvoting equity securities of the Corporation shall be issued. This provision shall have no further force and effect beyond that required by Section 1123(a)(6) and is applicable only for so long as such Section is in effect and applicable to the Corporation. A. Common Stock 1. Subject to the powers, preferences and other special rights afforded Preferred Stock by the provisions of this Article IV or resolutions adopted pursuant hereto, the holders of the Common Stock shall be entitled to receive to the extent permitted by Delaware law, such dividends as may from time to time be declared by the Board of Directors. 2. Except as otherwise required by Delaware law and as otherwise provided in this Article IV and resolutions adopted pursuant hereto with respect to Preferred Stock, and subject to the provisions of the Bylaws of the Corporation, as from time to time amended, with respect to the closing of the transfer books and the fixing of a record date 3 PAGE 3 for the determination of stockholders entitled to vote, the holders of the Common Stock shall exclusively possess voting power for the election of directors and for all other purposes, and the holders of the Preferred Stock shall have no voting power and shall not be entitled to any notice of any meeting of stockholders. 3. At all elections of directors by stockholders of the Corporation, each holder of Common Stock, and each holder of Preferred Stock, if entitled to vote at such election, shall be entitled to as many votes as shall equal the number of his shares of Common Stock or Preferred Stock, as the case may be, multiplied by the number of directors for whom he as such holder shall then be entitled to vote, and he may cast all of such votes for one of such directors or may distribute them among any two or more of them as he may see fit. 4. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Except as otherwise required by law and subject to the rights of the holders of any class or any series of Preferred Stock, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). 5. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, as set forth in the resolutions adopted with respect to such series under this Article IV, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation of whatever kind available for distribution to the stockholders ratably and in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the Corporation or may sell, transfer, otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or other entity, or a combination thereof, and may set all or make any part of the consideration so received and distributed or any balance thereof in kind to holders of Common Stock. The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the Corporation of any class, shall not be deemed to be a dissolution, liquidation, or winding-up of the Corporation for the purposes of this Article IV. 4 PAGE 4 B. Preferred Stock The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the classes of stock of the Corporation which are fixed by the Certificate of Incorporation, and the express grant of authority to the Board of Directors of the Corporation to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the shares of Preferred Stock, which are not fixed by the Certificate of Incorporation, are as follows: 1. The Preferred Stock may be issued from time to time in any amount, not exceeding in the aggregate the total number of shares of Preferred Stock hereinabove authorized, as Preferred Stock of one or more series, as hereinafter provided. All shares of any one series of Preferred Stock shall be alike in every particular, each series thereof shall be distinctively designated by letter or descriptive words, and all series of Preferred Stock shall rank equally and be identical in all respects except as permitted by the provisions of Subsection B.2 of this Article IV. 2. Authority is hereby expressly granted to and vested in the Board of Directors from time to time to issue the Preferred Stock as Preferred Stock of any series and in connection with the creation of each such series to fix, by the resolution or resolutions providing for the issue of shares thereof, the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, if any, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware. Pursuant to the foregoing general authority vested in the Board of Directors, but not in limitation of the powers conferred on the Board of Directors thereby and by the laws of the State of Delaware, the Board of Directors is expressly authorized to determine with respect to each series of Preferred Stock: (a) the designation of such series and number of shares constituting such series; (b) the dividend rate or amount of such series, the payment dates for dividends on shares of such series, the status of such dividends as cumulative or non-cumulative, the date from which dividends on shares of such series, if cumulative, shall be cumulative, and the status of such as participating or non-participating after the payment of dividends as to which such shares are entitled to any preference; (c) the price or prices (which amount may vary under different conditions or at different dates) at which, and the times, terms and conditions on 5 PAGE 5 which, the shares of such series may be redeemed at the option of the Corporation; (d) whether or not the shares of such series shall be made optionally or mandatorily convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation or other securities and, if made so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made and any other terms and conditions of such conversion or exchange; (e) whether or not the shares of such series shall be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of shares of such series, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which shares of such series may be redeemed or purchased through the application of such fund; (f) whether or not the issue of any additional shares of such series or any future series in addition to such series or of any shares of any other class of stock of the Corporation shall be subject to restrictions and, if so, the nature thereof; (g) the rights and preferences, if any, of the holders of such series of Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the status of the shares of such series as participating or non-participating after the satisfaction of any such rights and preferences; (h) the full or limited voting rights, if any, to be provided for shares of such series, in addition to the voting rights provided by law; and (i) any other relative powers, preferences and participating, optional or other special rights and the qualifications, limitations or restrictions thereof, of shares of such series; in each case, so far as not inconsistent with the provisions of this Certificate of Incorporation or the Delaware General Corporation Law then in effect. 6 PAGE 6 Article V Board of Directors A. Election and Removal of Directors 1. The Board of Directors shall consist of not less than thirteen (13) or more than eighteen (18) persons, the exact number to be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), provided, however, this provision shall not act to limit Board size in the event a class or classes of Preferred Stock are entitled to elect directors to the exclusion of holders of Common Stock. The directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as may be provided in the manner specified in the Bylaws, Class I Directors to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1997, Class II Directors to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1998, and Class III Directors to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1999, with the members of each class to hold office until their successors are duly elected and qualified. At each annual meeting of the stockholders of the Corporation, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. 2. Notwithstanding the foregoing and except as otherwise provided by law, whenever the holders of any series of the Preferred Stock shall have the right (to the exclusion of holders of Common Stock) to elect directors of the Corporation pursuant to the provisions of Article IV and any resolution adopted pursuant thereto, the election of such directors of the Corporation shall be governed by the terms and provisions of said resolutions and such directors so elected shall not be divided into classes pursuant to this Subsection A.2 of Article V and shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the first year following their election or, if such right of the holders of the Preferred Stock is terminated, for a term expiring in accordance with the provisions of such resolutions. 3. Newly-created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, even though less than a quorum of the Board of Directors, acting at a regular or special meeting. If any applicable provision of the Delaware General Corporation Law or any resolution adopted pursuant to Article IV 7 PAGE 7 expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such a meeting only by the affirmative vote of at least 80 percent of the combined voting powers of the outstanding shares of stock of the Corporation entitled to vote generally; provided, however, that when (a) pursuant to the provisions of Article IV or any resolutions adopted pursuant thereto, the holders of any series of Preferred Stock have the right (to the exclusion of holder of the Common Stock), and have exercised such right, to elect directors and (b) Delaware General Corporation Law or any such resolution expressly confers on stockholders voting rights as aforesaid, if the directorship to be filled had been occupied by a director elected by the holders of Common Stock, then such directorship shall be filled by an 80 percent vote as aforesaid, but if such directorship to be filled had been elected by holders of Preferred Stock, then such directorship shall be filled in accordance with the applicable resolutions adopted under Article IV. Any director elected in accordance with the two preceding sentences shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified unless such director was elected by holders of Preferred Stock (acting to the exclusion of the holders of Common Stock), in which case such director's term shall expire in accordance with the applicable resolutions adopted pursuant to Article IV. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director, except, as otherwise provided in the applicable resolutions adopted pursuant to Article IV, with respect to directorships created pursuant to one or more series of Preferred Stock. 4. Subject to the rights of the holders of any class or series of Preferred Stock to elect directors under specified circumstances, any director or directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the combined voting power of all of the then-outstanding shares of stock of the Corporation entitled to vote generally, voting together as a single class (it being understood that for all purposes of this Article V, each share of Preferred Stock shall have the number of votes, if any, granted to it pursuant to this Certificate of Incorporation or any designation of terms of any class or series of Preferred Stock made pursuant to this Certificate of Incorporation). 5. Notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the stock of the Corporation required by law, this Certificate of Incorporation or any Preferred Stock certificate of designation, the affirmative vote of at least 80 percent of the total number of authorized directors (whether or not there exist any vacancies in previously authorized 8 PAGE 8 directorships at the time any such alteration, amendment or repeal is presented to the Board for adoption), shall be required to alter, amend or repeal this Article V, or any provision hereof. B. Liability, Indemnification and Insurance 1. Limitation on Liability. To the fullest extent that the Delaware General Corporation Law as it exists on the date hereof or as it may hereafter be amended permits the limitation or elimination of the personal liability of directors, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to or repeal of this Section B.1 shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 2. Right to Indemnification. The Corporation shall to the fullest extent permitted by applicable law as then in effect indemnify any person (the "Indemnitee") who was or is involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or of the Columbia Gas System Service Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. Such indemnification shall be a contract right and shall include the right to receive payment of any expenses incurred by the Indemnitee in connection with such Proceeding in advance of its final disposition, consistent with the provisions of applicable law as then in effect. 3. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any Indemnitee against any expenses, judgments, fines and amounts paid in settlement as specified in Subsection B.2 of this Section B or incurred by any Indemnitee in connection with any Proceeding referred to in Subsection B.1 of this Section B, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any director, officer, employee or agent of the Corporation in furtherance of the provisions of this Section B and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of 9 PAGE 9 credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section B. 4. Indemnification; No Exclusive Right. The right of indemnification provided in this Section B shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled, and the provisions of this Section B shall inure to the benefit of the heirs and legal representatives of any person entitled to indemnity under this Section B and shall be applicable to Proceedings commenced or continuing after the adoption of this Section B, whether arising from acts or omissions occurring before or after such adoption. 5. Advancement of Expenses; Procedures; Presumptions and Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Section B: (a) Advancement of Expenses. All reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Section B . (b) Procedure for Determination of Entitlement to Indemnification. (i) To obtain indemnification under this Section B, an Indemnitee shall submit to the Secretary of the Corporation a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the "Supporting Documentation"). The determination of the Indemnitee's entitlement to indemnification shall be made not later than sixty (60) days after receipt by the Corporation of the written request for indemnification together with the Supporting Documentation. The Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that the Indemnitee has requested indemnification. 10 PAGE 10 (ii) The Indemnitee's entitlement to indemnification under this Section B shall be determined in one of the following ways: (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even if they constitute less than a quorum of the Board; (B) by a written opinion of Independent Counsel (as hereinafter defined) if (x) a Change of Control (as hereinafter defined) shall have occurred and the Indemnitee so requests or (y) if there are no Disinterested Directors or a majority of such Disinterested Directors so directs; (C) by the stockholders of the Corporation (but only if a majority of the Disinterested Directors, presents the issue of entitlement to indemnification to the stockholders for their determination); or (D) as provided in Section B.5(c) . (iii) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section B.5(b)(ii), a majority of the Disinterested Directors shall select the Independent Counsel (except that if there are no Disinterested Directors, the Corporation's Chief Legal Officer shall select the Independent Counsel), but only an Independent Counsel to which the Indemnitee does not reasonably object; provided, however, that if a Change of Control shall have occurred, the Indemnitee shall select such Independent Counsel, but only an Independent Counsel to which the Board of Directors does not reasonably object. (iv) The only basis upon which a finding of no entitlement to indemnification may be made is that indemnification is prohibited by law. (c) Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this Section B, if a Change of Control shall have occurred, the Indemnitee shall be presumed to be entitled to indemnification under this Section B upon submission of a request for indemnification together with the Supporting Documentation in accordance with Section B.5(b)(i), and thereafter the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section B.5(b) to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within sixty (60) days after receipt by the Corporation of the request therefor together with the Supporting Documentation, the Indemnitee shall be deemed to be entitled to indemnification and the Indemnitee shall be entitled to such indemnification unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. The termination of any Proceeding described in Section B.2, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of the 11 PAGE 11 Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that the Indemnitee's conduct was unlawful. (d) Remedies of Indemnitee. (i) In the event that a determination is made, pursuant to Section B.5(b) that the Indemnitee is not entitled to indemnification under this Section B, (A) the Indemnitee shall be entitled to seek an adjudication of his entitlement to such indemnification either, at the Indemnitee's sole option, in (x) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (y) an arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association; (B) any such judicial Proceeding or arbitration shall be de novo and the Indemnitee shall not be prejudiced by reason of such adverse determination; and (C) in any such judicial Proceeding or arbitration the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification under this Section B. (ii) If a determination shall have been made or deemed to have been made, pursuant to Section B.5(b) or (c), that the Indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five (5) days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. In the event that (x) advancement of expenses is not timely made pursuant to Section B.5(a) or (y) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section B.5(b) or (c), the Indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligation to pay to the Indemnitee such advancement of expenses or indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the Indemnitee to receive indemnification hereunder due to the occurrence of an event described in subclause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided, however, that in any such action the Corporation shall have the burden of proving the occurrence of such Disqualifying Event. 12 PAGE 12 (iii) The Corporation shall be precluded from asserting in any judicial Proceeding or arbitration commenced pursuant to this Section B.5(d) that the procedures and presumptions of this Section B are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Section B. (iv) In the event that the Indemnitee, pursuant to this Section B.5(d), seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Section B, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by the Indemnitee if the Indemnitee prevails in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by the Indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly. (e) Definitions. For purposes of this Section B.5: (i) "Change in Control" means (A) so long as the Public Utility Holding Company Act of 1935 is in effect, any "company" becoming a "holding company" in respect to the Corporation or any determination by the Securities and Exchange Commission that any "person" should be subject to the obligations, duties, and liabilities if imposed by said Act by virtue of his, hers or its influence over the management or policies of the Corporation, or (B) whether or not said Act is in effect a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing ten percent or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition; (ii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of 13 PAGE 13 Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (ii) "Disinterested Director" means a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee. (iii) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent: (A) the Corporation or the Indemnitee in any matter material to either such party or (B) any other party to the Proceeding giving rise to a claim for indemnification under this Section B. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the Delaware law, would have a conflict of interest in representing either the Corporation or the Indemnitee is an action to determine the Indemnitee's rights under this Section B. 6. Severability. If any provision or provisions of this Section B shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provision of this Section B (including, without limitation, all portions of any paragraph of this Section B containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (ii) to the fullest extent possible, the provisions of this Section B (including, without limitation, all portions of any paragraph of this Section B containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 7. Successor Laws, Regulations and Agencies. Reference herein to laws, regulations or agencies shall be deemed to include all amendments thereof, substitutions therefor and successors thereto. 14 PAGE 14 Article VI General Powers of the Board of Directors A. Bylaws The Board of Directors shall have the power to make, alter, amend and repeal the Bylaws of the Corporation in such form and with such terms as the Board may determine, subject to the power granted to stockholders to alter or repeal the Bylaws provided under Delaware law; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote the affirmative vote of at least 80 percent of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such alteration, amendment or repeal is presented to the Board for adoption), shall be required to alter, amend or repeal any provision of the Bylaws which is to the same effect as any one or more sections of this Article VI. B. Charter Amendments Subject to the provisions hereof, the Corporation, through its Board of Directors, reserves the right at any time, and from time to time, to amend, alter, repeal or rescind any provision contained in this Restated Certificate of Incorporation in the manner now or hereinafter prescribed by law, and any other provisions authorized by Delaware law at the time enforced may be added or inserted, in the manner now or hereinafter prescribed by law; and any and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereinafter amended are granted subject to the rights reserved in this Article. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed under the Seal of the Corporation this _____ day of ________________ , 1995. [SEAL] THE COLUMBIA GAS SYSTEM, INC. Attest: BY - ----------------------------- ----------------------------- Secretary Chairman of the Board, President and Chief Executive Officer EX-99.B2 3 FORM OF THE COLUMBIA GAS SYSTEM, INC. INDENTURE 1 PAGE 1 EXHIBIT B-2 DRAFT ================================================================================ THE COLUMBIA GAS SYSTEM, INC. Senior Debt Securities ------------------------ INDENTURE Dated as of _________, 19__ ------------------------ ------------------------------------------ Trustee ================================================================================ 2 PAGE 2 TABLE OF CONTENTS 1/
Page ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1] ARTICLE 1 Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [1] SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [8] SECTION 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [8] SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [8] ARTICLE 2 The Securities -------------- SECTION 2.01. Amount; Issuable in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . [9] SECTION 2.02. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [11] SECTION 2.03. Execution, Authentication and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [11] SECTION 2.04. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [13] SECTION 2.05. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . [14] SECTION 2.06. Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . [14] SECTION 2.07. Securityholder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [15] SECTION 2.08. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [15] SECTION 2.09. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [17] SECTION 2.10. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [18] SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [18] SECTION 2.12. Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [19]
____________________ 1/ The Table of Contents is included herein for convenience only and is not to be considered a part of the Indenture. 3 PAGE 3
Page ---- ARTICLE 3 Covenants --------- SECTION 3.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [19] SECTION 3.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [19] SECTION 3.03. Limitation on Secured Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . [19] SECTION 3.04. Limitation on Funded Debt or Preferred Stock of Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . [21] SECTION 3.05. Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [22] ARTICLE 4 Successor Company ----------------- SECTION 4.01. When Company May Merge or Transfer Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [23] SECTION 4.02. Successor Entity Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . [23] ARTICLE 5 Defaults and Remedies --------------------- SECTION 5.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [24] SECTION 5.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25] SECTION 5.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [25] SECTION 5.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26] SECTION 5.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26] SECTION 5.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [26] SECTION 5.07. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . [27] SECTION 5.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . [27] SECTION 5.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . [27] SECTION 5.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [27] SECTION 5.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [28] SECTION 5.12. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . [28]
4 PAGE 4
Page ---- ARTICLE 6 Trustee ------- SECTION 6.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [28] SECTION 6.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [30] SECTION 6.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . [30] SECTION 6.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [30] SECTION 6.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [30] SECTION 6.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . [31] SECTION 6.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . [31] SECTION 6.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [32] SECTION 6.09. Successor Trustee by Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . [33] SECTION 6.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . [33] SECTION 6.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [33] ARTICLE 7 Discharge of Indenture; Defeasance ---------------------------------- SECTION 7.01. Discharge of Liability on Securities; Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [33] SECTION 7.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [34] SECTION 7.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . [35] SECTION 7.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [35] ARTICLE 8 Amendments ---------- SECTION 8.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . [35] SECTION 8.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [36] SECTION 8.03. Compliance with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . [37] SECTION 8.04. Revocation and Effect of Consent and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [37] SECTION 8.05. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [38] SECTION 8.06. Trustee To Sign Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . [38]
5 PAGE 5
Page ---- ARTICLE 9 Redemption ---------- SECTION 9.01. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [38] SECTION 9.02. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [38] SECTION 9.03. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [39] SECTION 9.04. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [39] SECTION 9.05. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . [40] SECTION 9.06. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . [40] SECTION 9.07. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . [40] ARTICLE 10 Sinking Funds ------------- SECTION 10.01. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [40] SECTION 10.02. Satisfaction of Sinking Fund Payment with Securities . . . . . . . . . . . . . . . . . . . . . . . . . . [41] SECTION 10.03. Redemption of Securities for Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [41] ARTICLE 11 Miscellaneous ------------- SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . [42] SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [42] SECTION 11.03. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [43] SECTION 11.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [43] SECTION 11.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [43] SECTION 11.06. When Securities Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.07. Rules by Trustee, Paying Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [44] SECTION 11.12. Multiple Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [45] SECTION 11.13. Table of Contents; Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . [45]
6 PAGE 6
Page ---- TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [45] EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [45] ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [46]
7 PAGE 7 THIS INDENTURE dated ____________________________ between The Columbia Gas System, Inc., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), having its principal office at 20 Montchanin Road, Wilmington, Delaware 19807-0020, and ____________________________________, a ___________________ corporation (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its Securities (hereinafter called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all holders of the Securities as follows: ARTICLE 1 Definitions and Incorporation by Reference SECTION 1.01. Definitions. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors in respect hereof. "Board Resolution" means a resolution duly adopted by the Board of Directors of the Company, a copy of which shall be certified by the Secretary or an Assistant Secretary, as being in full force and effect on the date of such certification and delivered to the Trustee. 8 PAGE 8 "Business Day" means each day which is not a Legal Holiday. "Bylaws" means the "Bylaws of The Columbia Gas System, Inc." as amended from time to time. "Capital Lease Obligations" of a person means any obligation which is required to be classified and accounted for as a capital lease obligation on the balance sheet of such person prepared in accordance with generally accepted accounting principles; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with generally accepted accounting principles; and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock, including any Preferred Stock. "Company" means The Columbia Gas System, Inc., a Delaware corporation, unless and until a successor replaces it pursuant to Article 4 and, thereafter, means the successor (or any subsequent successor pursuant to said Article) and, for purposes of any provision contained herein and required by the TIA, each other Obligor on the Securities. "Company Request", "Request of the Company", "Company Order" or "Order of the Company" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller, an Assistant Controller, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Debt" of any person means, without duplication, (i) the principal of and premium, if applicable, in respect of (a) indebtedness of such person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable; (ii) all Capital Lease Obligations of such person; (iii) all obligations of such person issued or assumed as the deferred purchase price of property (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations 9 PAGE 9 with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other persons for the payment of which such person is responsible or liable as obligor or guarantor; and (vi) all obligations of the type referred to in clauses (i) through (v) of other persons secured by any Lien on any asset of such person (whether or not such obligation is assumed by such person), the amount of any such obligation which is not assumed being deemed to be the lesser of the amortized cost of such assets or the amount of the obligation so secured. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default as more fully described in Section 5.01 of this Indenture. "Depository" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the person designated as Depository by the Company pursuant to Section 2.01 until a successor Depository shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depository" shall mean or include each person who is then a Depository hereunder, and if at any time there is more than one such person, "Depository" as used with respect to the Securities of any such series shall mean the Depository with respect to the Securities of that series. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Funded Debt" means all Debt created, assumed or guaranteed by a Significant Subsidiary which matures by its terms, or is renewable at the option of such Subsidiary to a date, more than one year after the date of the original creation, assumption or guarantee of such Debt by such Subsidiary. "Global Security" means with respect to any series of Securities issued hereunder, a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this Indenture, an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Order, which shall be registered in the name of the Depository or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate Principal Amount of, all of the outstanding Securities of such series or any portion thereof, in either case having the same Terms, including, without limitation, the same issue date, date or dates on which principal is due, and interest rate or method of determining interest. 10 PAGE 10 "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Payment Date" means the date specified in the Securities as the fixed date on which interest is due and payable. "Issue" or "issue" means, with respect to Debt, issue, assume, guarantee, incur or otherwise become liable for. "Lien" means any mortgage, pledge, deposit for security, security interest or other similar lien, other than the following: (i) liens for taxes or assessments or other local, state or federal governmental charges or levies; (ii) any lien to secure obligations under workmen's compensation or unemployment insurance laws or similar legislation; (iii) any lien to secure performance in connection with bids, tenders, contracts (other than contracts for the payment of Debt) or leases (other than Capital Lease Obligations) made in the ordinary course of business by the Company or any Affiliate thereof; (iv) liens to secure public or statutory obligations; (v) materialmen's, mechanics', carriers', workmen's, repairmen's, construction, or other liens or charges arising in the ordinary course of business; or deposits to obtain the release of such liens; (vi) any lien to secure indemnity, performance, surety or similar bonds to which the Company or any Affiliate of the Company is a party; (vii) liens created by or resulting from court or administrative proceedings which are currently being contested in good faith by appropriate actions or proceedings or for the purpose of obtaining a stay or discharge in the course of any court or legal proceedings for which appropriate accounting reserves have been made to the extent required by generally accepted accounting principles; (viii) leases (other than Capital Lease Obligations) made, or existing on property acquired, constructed or improved, in the ordinary course of business, together with repairs and additions thereto and improvements thereof; (ix) landlords' liens; (x) zoning restrictions, easements, licenses, reservations or restrictions in respect of currently owned or hereafter acquired, constructed, or improved tangible property or defects or irregularities (including any terms, conditions, agreements, covenants, exceptions and reservations expressed or provided in deeds or other agreements) in title thereto, which do not materially impair the conduct of the business of the Company; (xi) any of such liens, whether or not delinquent, whose validity or applicability is at the time being contested in good faith by appropriate actions or proceedings of the Company or any Subsidiary and for which appropriate accounting reserves have been made to the extent required by generally accepted accounting principles; (xii) obligations neither assumed by the Company or any Subsidiary nor on account of which any of them customarily pays interest directly or indirectly, existing, either at the date hereof, or, as to property hereafter acquired, constructed, or improved at the time of acquisition construction or improvement by the Company or a Subsidiary; (xiii) any right which any municipal or governmental body or agency may have by virtue of any franchise, license, contract or statute to purchase, or designate a purchaser of or order the sale of, any property of the Company or any Subsidiary upon payment of reasonable compensation therefor, or to terminate any franchise, 11 PAGE 11 license or other rights or to regulate the property and business of the Company or any Subsidiary; (xiv) the lien of judgments covered by insurance, or upon appeal and covered, if necessary, by the filing of an appeal bond, or if not so covered, not exceeding at any one time [$10,000,000] in aggregate amount; (xv) any lien or encumbrance, moneys sufficient for the discharge of which have been deposited in trust with the Trustee hereunder or with the trustee or mortgagee under the instrument evidencing such lien or encumbrance, with irrevocable authority to the Trustee hereunder or to such other trustee or mortgagee to apply such moneys to the discharge of such lien or encumbrance to the extent required for such purpose; (xvi) rights reserved to or vested in others to take or receive any part of the gas, by-products of gas or steam or electricity generated or produced by or from any properties of the Company or any Subsidiary or with respect to any other rights concerning supply, transportation, or storage of a commodity which is used in the ordinary course of business; and (xvii) liens created or assumed by the Company or a Subsidiary in connection with the issuance of debt securities, the interest on which is excludable from the gross income of the holders of such securities pursuant to Section 103 of the Internal Revenue Code of 1986, or any successor section. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, the Secretary, the Controller, any Assistant Treasurer, any Assistant Secretary, any Assistant Controller, or any officers of the Company designated by Board Resolution or the Bylaws. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel to the Company (or any subsidiary or affiliate) or other counsel acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 5.02. "Preferred Stock" as applied to the capital stock of any corporation, means stock of any class or classes (however designated) (a) which is preferred as to the payment of dividends, or as to the distribution of assets on any voluntary or involuntary liquidation or dissolution of such corporation, over shares of any other stock of any class of such corporation or (b) which contains provisions requiring the mandatory redemption of such stock or the mandatory payment of dividends thereon which permit the holders of such stock to put such stock to the issuer thereof. 12 PAGE 12 "Principal Amount" of a Debt or other obligation means the principal amount of the same plus the premium, if applicable, payable on the same which is due or overdue or is to become due at the relevant time. "Production Payment" means any economic interest in oil, gas or mineral reserves which generally entitles the holder thereof to a specified share of future production from such reserves, free of the costs and expenses of such production, and terminates when a specified quantity of such share of future production from such reserves has been delivered or a specified sum has been realized from the sale of such share of future production from such reserves or any similar arrangement commonly referred to as a "production payment". "SEC" means the United States Securities and Exchange Commission. "Secured Debt" means Debt secured by a Lien. "Securities" means the Securities issued under this Indenture. "Significant Subsidiary" means a Subsidiary that meets the conditions for being classified as a "significant subsidiary" under Regulation S-X of the SEC. "Subsidiary" means a corporation or limited liability company of which a majority of the Capital Stock, having voting power under ordinary circumstances to elect directors, is owned by the Company and/or one or more Subsidiaries of the Company. "Terms" means the maturity date, interest rate or method of determining the interest rate, interest payment dates, redemption provisions (optional or mandatory) and any other terms of any Securities established pursuant to Sections 2.01 and 2.03. "TIA" means the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (15 U.S.C. Section Section 77aaa-77bbbb), as in effect on the date of this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. SECTION 1.02. Other Definitions. 13 PAGE 13
Defined in Term Section ---- ---------- "Bankruptcy Law" ............................................ 5.01 "Consolidated Tangible Assets" .............................. 3.03 "Covenant Defeasance Option" ................................ 7.01(b) "Custodian" ................................................. 5.01 "Event of Default" .......................................... 5.01 "Legal Defeasance Option" ................................... 7.01(b) "Legal Holiday" ............................................. 11.08 "Mandatory Sinking Fund Payment ............................. 10.01 "Notice of Default" ......................................... 5.01 "Optional Sinking Fund Payment .............................. 10.01
14 PAGE 14
Defined in Term Section ---- ---------- "Paying Agent" .............................................. 2.05 "Registrar" ................................................. 2.05 "Tangible Assets" ........................................... 3.03
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA or a provision of the TIA provides that an indenture to be qualified thereunder shall be deemed to include such provision, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "Obligor" on the Securities means the Company and any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (3) "including" means including, without limitation; (4) "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. (5) "or" is not exclusive; (6) words in the singular include the plural and words in the plural include the singular; and (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of 15 PAGE 15 the issuer dated such date prepared in accordance with generally accepted accounting principles and accretion of principal on such security shall not be deemed to be the issuance of Debt. ARTICLE 2 The Securities SECTION 2.01. Amount; Issuable in Series. The aggregate Principal Amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series and Securities of the same series may have different Terms. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, except as contemplated by the fourth paragraph of Section 2.03: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from all Securities of other series); (2) any limit upon the aggregate Principal Amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 2.04, 2.08, 2.09, 8.05 and 9.07; (3) the date or dates on which the principal and premium, if applicable, of any of the Securities of the series are payable or the method of determination thereof; (4) the rate or rates, or the method of determination thereof, at which any of the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the regular record date for the interest payable on any Interest Payment Date; (5) the place or places where the principal of and interest, if any, on any of the Securities of the series shall be payable and the office or agency for the Securities of the series maintained by the Company pursuant to Section 2.05; (6) the period or periods within which, the price or prices at which and the Terms and conditions upon which any of the Securities of the series may be redeemed, in whole or in part, at the option of the Company; 16 PAGE 16 (7) the Terms of any sinking fund and the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the Terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part; (8) if other than denominations authorized by Section 2.02, the denominations in which the Securities of the series shall be issuable; (9) if other than the Principal Amount thereof, the portion of the Principal Amount of any of the Securities of the series which shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 5.02; (10) any deletions or modifications of or additions to the Events of Default set forth in Section 5.01 or covenants of the Company set forth in Article 3 pertaining to the Securities of the series; (11) Whether the Securities are secured or unsecured obligations of the Company; (12) the forms of the Securities of the series; (13) whether the Securities of the series shall be issued in whole or in part in the form of one or more Global Securities and, in such case, the Depository for such Global Security or Securities; (14) if Securities of the series are to be convertible into other securities, the Terms of such conversion; and (15) any other Terms of any of the Securities of the series. All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above, or the Company Order contemplated by the fourth paragraph of Section 2.03, and set forth in the Officers' Certificate referred to above or in any such indenture supplemental hereto. At the option of the Company, interest on any series that bears interest may be paid by mailing a check to the address of, or making a wire transfer to the account of, any Holder as such address shall appear in the register maintained pursuant to Section 2.05. 17 PAGE 17 The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). If any of the Terms of the series are established by action taken pursuant to a Board Resolution, except as to those contemplated by the fourth paragraph of Section 2.03, a copy of an appropriate record of such action together with such Board Resolution shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the Terms of the series. SECTION 2.02. Denominations. The Securities of each series shall be issuable in such denominations as shall be specified as contemplated by Section 2.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and in any integral multiple thereof. Securities of each series shall be numbered, lettered or otherwise distinguished in such manner in accordance with such plan as the Officers of the Company executing the same may determine with the approval of the Trustee. SECTION 2.03. Execution, Authentication and Delivery. One Officer shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. At any time after the execution and delivery of this Indenture, the Company may execute and deliver to the Trustee Securities of any series, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities; provided that, if all Securities of a series are not to be originally issued at one time, the Trustee shall authenticate and deliver Securities of such series for original issue from time to time in the aggregate Principal Amount established for such series pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by Company Order. The maturity date, original issuance date, interest rate and any other Terms of the Securities of such series shall be determined by or pursuant to such Company Order and procedures. If provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agents, which instructions, if given orally, shall be promptly confirmed in writing. 18 PAGE 18 If the forms or Terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Section 2.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating: (a) that such forms and/or Terms have been established in conformity with the provisions of this Indenture; and (b) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to such exceptions as counsel may specify. If such forms or Terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 2.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 2.01 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that paragraph (a) of said Opinion of Counsel shall, in such case, read as follows: "(a) that such forms have been established in conformity with the provisions of this Indenture and the procedures for determining the Terms of such Securities as set forth in the procedures hereinabove referred to have been established in conformity with the provisions of this Indenture." If the Company shall establish pursuant to Section 2.01 that the Securities of a series are to be issued in whole or in part in the form of a Global Security, then the Company shall execute and the Trustee shall in accordance with this Section and the Company Order with respect to such series authenticate and deliver the Global Security that (i) shall represent and shall be denominated in an aggregate amount equal to the aggregate principal amount of Outstanding Securities of such series to be represented by the Global Security, (ii) shall be registered in the name of the Depository or its nominee, and (iii) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instruction. 19 PAGE 19 Each Depository designated pursuant to Section 2.01 for a Global Security in registered form must, at the time of its designation and at all times while it serves as Depository, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. SECTION 2.04. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form and with such appropriate insertions, omissions, substitutions and other variations as the Officers executing such Securities may determine, as evidenced conclusively by their execution of such Securities. Such temporary Securities may be in global form. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company maintained pursuant to Section 2.05 for the purpose of exchanges of Securities of such series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like aggregate Principal Amount of definitive Securities of the same series and of like tenor or authorized denominations and having the same Terms and conditions. Until exchanged in full as hereinabove provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and of like tenor authenticated and delivered hereunder. SECTION 2.05. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.07. The Company or any 20 PAGE 20 Subsidiary or Affiliate of the Company may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.06. Paying Agent To Hold Money in Trust. On or prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or any Subsidiary or Affiliate of the Company acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.07. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each May 15 and November 15 and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.08. Transfer and Exchange. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security with similar Terms of the same series for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested, subject to compliance with this paragraph. When Securities of a series are presented to the Registrar or a co-registrar with a request to exchange them for an equal Principal Amount of Securities of such series with similar Terms of other denominations, the Registrar shall make the exchange as requested, subject to such compliance. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities of the applicable series with similar Terms at the Registrar's or co-registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. The Company shall not be required (i) to Issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of 21 PAGE 21 Securities of that series selected for redemption under Section 9.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. If at any time the Depository for the whole or part of the Securities of a series notifies the Company that it is unwilling or unable to continue as Depository for such Securities or if at any time the Depository for such Securities shall no longer be eligible under Section 2.03, the Company shall appoint a successor Depository with respect to such Securities. If a successor Depository for such Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company's election pursuant to Section 2.01 shall no longer be effective with respect to such Securities and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, corresponding Securities in definitive form in an aggregate principal amount equal to the Principal Amount of the Global Security representing such Securities in exchange for such Global Security. If specified by the Company pursuant to Section 2.01 with respect to a series of Securities, the Company may at any time and in its sole discretion determine that Securities of any series issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of corresponding definitive Securities, will authenticate and deliver such Securities in definitive form and in an aggregate Principal Amount equal to the Principal Amount of such Global Security or Securities in exchange for such Global Security or Securities. If specified by the Company pursuant to Section 2.01 with respect to the whole or part of a series of Securities, the Depository for such Securities may surrender a Global Security for such Securities with similar Terms in exchange in whole or in part for Securities of such series with similar Terms in definitive form on such terms as are acceptable to the Company and such Depository. Thereupon, the Company shall execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series with similar Terms, shall authenticate and deliver, without charge to the Holders, 22 PAGE 22 (i) to each person specified by such Depository a new Security or Securities of the series with similar Terms of any authorized denomination as requested by such person in aggregate Principal Amount equal to and in exchange for such person's beneficial interest in the Global Security; and (ii) to such Depository a new Global Security in a denomination equal to the difference, if any, between the Principal Amount of the surrendered Global Security and the aggregate Principal Amount of Securities with similar Terms delivered to Holders thereof. In any exchange provided for in any of the preceding three paragraphs, the Company will execute and the Trustee will authenticate and deliver Securities in definitive form in authorized denominations. Upon the exchange of a Global Security for Securities in definitive form, such Global Security shall be cancelled by the Trustee. Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the persons in whose names such Securities are so registered. Notwithstanding any other provision of this Section to the contrary, unless and until a Global Security is exchanged in whole for Securities in definitive form, a Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depository for such series to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any such nominee to a successor Depository for such series or a nominee of such successor Depository. SECTION 2.09. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall Issue and the Trustee shall authenticate a replacement Security of the applicable series with similar Terms if the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish evidence to their satisfaction of the destruction, loss or wrongful taking of any Security so claimed to be lost, destroyed or wrongfully taken, and an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. 23 PAGE 23 SECTION 2.10. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.09, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal, premium (if applicable) and interest payable on that date with respect to the Securities to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. In determining whether the Holders of the requisite Principal Amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder the Principal Amount of an Original Issue Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 5.02. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver cancelled Securities to the Company. The Company may not Issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.12. Default Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful at the rate or rates prescribed therefor in the Securities) in any lawful manner. The Company may also pay the defaulted interest to the persons who are Securityholders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date in which case the Company shall fix or cause to be fixed any such special record date and payment date, and, at least 15 days before any such special record date, the Company shall mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. 24 PAGE 24 ARTICLE 3 Covenants SECTION 3.01. Payment of Securities. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. SECTION 3.02. SEC Reports. The Company shall file with the Trustee, within 30 days after it files them with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the other provisions of TIA Section 314(a)(1),(2) and (3). SECTION 3.03. Limitation on Secured Debt. The Company shall not issue any Secured Debt unless contemporaneously therewith effective provision is made to secure the Securities equally and ratably with such Secured Debt for so long as such Secured Debt is secured by a Lien. The preceding sentence shall not require the Company to equally and ratably secure the Securities upon the incurrence of the following Secured Debt: (1) Debt of the Company which is incurred to finance the acquisition, construction or improvement of assets of the Company and its Subsidiaries, which acquisition is consummated, or which construction or improvement is commenced, after the date of this Indenture; provided, however, that such Debt shall not be secured by any assets of the Company other than assets so acquired, constructed or improved (together with (i) to the extent the terms of Secured Debt so provides, repairs and additions thereto and improvements thereof, and (ii) with respect to construction and improvement, any theretofore unimproved real property on which the property so constructed or improved is located); (2) Debt of the Company which is secured by assets of a person where such Debt was existing at the time such person was merged or consolidated with the Company or at the time of sale, other disposition, or lease, of the properties of such person as an entirety (or substantially as an entirety) to the Company; provided, however, that such Debt shall not be secured by any assets of the Company other than the assets subject thereto at the time of the acquisition (together with, to the extent the terms of Secured Debt so provides, repairs and additions thereto and improvements thereof); 25 PAGE 25 (3) Debt of the Company issued to refinance such Debt incurred under paragraphs (1) and (2) provided that the Debt so issued is not secured by a Lien on assets other than those which secure the Debt being refinanced (together with, to the extent the terms of new Secured Debt so provides, repairs and additions thereto and improvements thereof); (4) Debt of the Company which is secured by inventory, accounts receivable, or customers' installment paper or the proceeds thereof, including by means of asset securitization; (5) Obligations arising with respect to Production Payments; and (6) Other Debt which does not exceed, in an aggregate principal amount at any one time outstanding, ten percent (10%) of the Consolidated Tangible Assets of the Company and its consolidated subsidiaries, determined as of the end of the most recent fiscal quarter of the Company ending not less than 45 days from the date of determination. The term "Consolidated Tangible Assets" means the sum of the Tangible Assets of the Company and its consolidated Subsidiaries after eliminating intercompany items. The term "Tangible Assets", as applied to any person on any date shall mean the gross book value as shown on the books of such person of all its property both real and personal (exclusive of licenses, patents, patent applications, copyrights, trademarks, trade names, good will, experimental or organizational expense and other like intangibles, treasury stock and unamortized debt discount and expense but including regulatory assets properly recorded on the balance sheet of such person.) SECTION 3.04. Limitations on Funded Debt or Preferred Stock of Significant Subsidiaries. The Company shall not permit any Significant Subsidiary to issue, directly or indirectly, any Funded Debt or Preferred Stock except: (1) Funded Debt and Preferred Stock issued and outstanding on or prior to the date of this Indenture; (2) Funded Debt and Preferred Stock issued to and held by the Company or a Subsidiary; provided, however, that any subsequent issuance or transfer of any common stock which results in any such Subsidiary ceasing to be a Subsidiary and any subsequent transfer of such Debt or Preferred Stock (other than to the Company or a Subsidiary) shall be deemed the issuance of such Debt by the issuer thereof; (3) Funded Debt and Preferred Stock of a Significant Subsidiary issued and outstanding on or prior to the date on which such Subsidiary was acquired by the Company or on which it became a Significant Subsidiary; 26 PAGE 26 (4) Funded Debt and Preferred Stock issued to finance the acquisition by such Significant Subsidiary of any assets or Capital Stock of any person or the construction or improvement of assets of such Significant Subsidiary, which acquisition is consummated, or which construction or improvement is commenced, after the date of this Indenture; (5) Funded Debt and Preferred Stock issued in exchange for, or the proceeds of which are used to refund or refinance, Debt or Preferred Stock, Debt referred to in the foregoing clauses (1) through (4) or to reacquire equity or debt or to repay debt of such Significant Subsidiary held by the Company or a Subsidiary; (6) Funded Debt issued with respect to (a) obligations that are tax-exempt pursuant to Section 103 of the Internal Revenue Code of 1986 as from time to time amended and that are issued in connection with pollution control or other facilities of such Significant Subsidiary or (b) other obligations, whether taxable to tax-exempt, that are issued through any public or governmental authority in connection with pollution control or other facilities of such Significant Subsidiary; (7) Funded Debt in an aggregate amount not exceeding the sum of (a) total inventory of the Significant Subsidiary; (b) total accounts receivable of the Significant Subsidiary; and (c) the total amount of customers' installment paper of such Significant Subsidiary, determined in accordance with generally accepted accounting principles, in each case, as of the end of the most recent fiscal quarter of such Significant Subsidiary ending not less than 45 days from the date of determination; (8) Obligations with respect to Production Payments; and (9) Funded Debt in an aggregate Principal Amount and Preferred Stock having an aggregate preferential involuntary liqudiation value, in either case which, when added to the aggregate Principal Amount of Funded Debt of all other Significant Subsidiaries (other than Funded Debt referred to in clauses (1) through (8) above) and when added to the aggregate preferential involuntary liquidation value of Preferred Stock (other than Preferred Stock referred to in clauses (1) through (5) above), does not exceed, at any one time outstanding, ten percent (10%) of the sum of the Tangible Assets of such Significant Subsidiary and all other Significant Subsidiaries determined on a consolidated basis, as of the end of the most recent fiscal quarter of each such Significant Subsidiary ending not less than 45 days from the date of determination. SECTION 3.05. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company a certificate from its principal executive officer, a financial officer or an accounting officer stating that in the course of the performance by such signer of his duties as an officer of the Company he would normally have knowledge of any Default by the Company or any noncompliance with the conditions and covenants under the Indenture and whether or not he knows of any Default or any such noncompliance that occurred during such period. If such officer does, the certificate shall describe the Default or non-compliance, its status and what action the Company is taking or proposes to take with respect thereto. For purposes of this Section 3.05, such noncompliance 27 PAGE 27 shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. ARTICLE 4 Successor Company SECTION 4.01. When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into, or convey or otherwise transfer, or lease, its assets as an entirety (or substantially as an entirety) to, any person, unless: (i) the resulting, surviving or transferee person (if not the Company) shall be a person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) no Default shall have happened and be continuing; and (iii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, or lease and such supplemental indenture (if any) comply with this Indenture. SECTION 4.02. Successor Entity Substituted. Upon any consolidation by the Company with or merger by the Company into any other entity or any conveyance or other transfer, or lease, of the assets of the Company as an entirety (or substantially as an entirety) in accordance with Section 4.01, the successor entity formed by such consolidation or into which the Company is merged or to which such conveyance or other transfer, or lease, is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor entity had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor entity shall be relieved of all obligations and covenants under this Indenture and the Securities. 28 PAGE 28 ARTICLE 5 Defaults and Remedies SECTION 5.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable and such default continues for a period of 30 days; (2) the Company defaults in the payment of the principal of any Security when the same becomes due and payable at its stated maturity, upon declaration or otherwise; (3) the Company fails to comply with Section 4.01; (4) the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in (1), (2), or (3) above) and such failure continues for 60 days after the notice specified below; (5) the Company has entered against it final, non-appealable court judgements for the payment of money exceeding in the aggregate $50,000,000 in uninsured liability and such judgements are not discharged, paid or adequately provided for within 60 days after the last of such judgements to become final and non-appealable; (6) the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company; and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. 29 PAGE 29 A Default under clause (4) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the Securities notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such Notice. Such Notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clause (4), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 5.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 5.01(5) or (6)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of (or, in connection with Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) and accrued interest on all the Securities to be due and payable. Upon such a declaration, such principal (or portion thereof) and interest shall be due and payable immediately. If an Event of Default specified in Section 5.01(5) or (6) occurs and is continuing, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgement or decree and if all existing Events of Default on the Securities have been cured or waived (except with respect to nonpayment of principal or interest that has become due solely because of the acceleration). No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 5.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 5.04. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (1) a Default in the payment of the principal of or interest on a Security or (2) a Default in respect of a provision that under Section 8.02 cannot be amended without the 30 PAGE 30 consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 5.05. Control by Majority. The Holders of a majority in Principal Amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 6.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 5.06. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in Principal Amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority of Principal Amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 5.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 5.08. Collection Suit by Trustee. If an Event of Default in payment of interest or principal specified in Section 5.01(1) or (2) occurs and is continuing, the Trustee 31 PAGE 31 may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid (together with interest on such unpaid interest as provided in Section 3.01, to the extent lawful) and the amounts provided for in Section 6.07. SECTION 5.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 6.07. SECTION 5.10. Priorities. If the Trustee collects any money pursuant to this Article 5, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 6.07; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 5.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07 or a suit by Holders of more than 10% in Principal Amount of the Securities. SECTION 5.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever 32 PAGE 32 claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 6 Trustee SECTION 6.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. 33 PAGE 33 (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 6.02. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel, subject to Section 6.02(e). (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 6.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 6.10 and 6.11. 34 PAGE 34 SECTION 6.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 6.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 6.06. Reports by Trustee to Holders. Prior to November 1 in each year, the Trustee shall mail to each Securityholder a brief report dated as of the preceding September 1 that complies with TIA Section 313(a), if so required by such Section of the TIA. The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 6.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including attorneys' fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it believes it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense to the extent incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. 35 PAGE 35 To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture. For purposes of this Section, the term "Trustee" shall include any predecessor Trustee, provided that any Trustee hereunder shall not be liable for the willful misconduct, negligence or bad faith of any other Trustee hereunder. SECTION 6.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in Principal Amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 6.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 6.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in Principal Amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. 36 PAGE 36 If the Trustee fails to comply with Section 6.10, any Securityholder (subject to compliance with TIA Section 310(b)(iii)) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 6.07 shall continue for the benefit of the retiring Trustee. SECTION 6.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 6.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report. The Trustee shall comply with TIA Section 310(b). SECTION 6.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE 7 Discharge of Indenture; Defeasance SECTION 7.01. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.09) for cancellation or (ii) all outstanding Securities have become due and payable and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity all outstanding Securities, including interest thereon (other than Securities replaced pursuant to Section 2.09), and if in either case the Company pays all other sums payable hereunder by the 37 PAGE 37 Company, then this Indenture shall, subject to Section 7.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel. (b) Subject to Sections 7.01(c) and 7.02, the Company at any time may terminate (i) all its obligations under this Indenture with respect to the Securities of a series ("Legal Defeasance Option") or (ii) its obligations under Sections 3.03 and 3.04 and the operation of Section 5.01(4) ("Covenant Defeasance Option") with respect to a series of Securities. The Company may exercise its Legal Defeasance Option notwithstanding its prior exercise of its Covenant Defeasance Option. If the Company exercises its Legal Defeasance Option, payment of the Securities of such series may not be accelerated because of an Event of Default. If the Company exercises its Covenant Defeasance Option, payment of the Securities of such series may not be accelerated because of an Event of Default specified in Section 5.01(4). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations with respect to such series in Sections 2.05, 2.06, 2.07, 2.08, 2.09, 6.07, 6.08, 7.03 and 7.04 shall survive until the Securities of such series have been paid in full. Thereafter, the Company's obligations in Sections 6.07 and 7.04 with respect to such series shall survive. SECTION 7.02. Conditions to Defeasance. The Company may exercise its Legal Defeasance Option or its Covenant Defeasance Option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities of the series to be defeased to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts (but, in the case of the Legal Defeasance Option only, not more than such amounts) as will be sufficient to pay principal and interest when due on all the Securities of such series to maturity or redemption, as the case may be; (3) in the case of the Legal Defeasance Option, 91 days pass after the deposit is made and during the 91-day period no Default specified in Section 5.01(5) or (6) occurs which is continuing at the end of the period; 38 PAGE 38 (4) no Default has occurred and is continuing on the date of such deposit and after giving effect thereto; and (5) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities of such series as contemplated by this Article 7 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 9. SECTION 7.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 7. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the relevant Securities. SECTION 7.04. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time not required for the payment of the Securities. With respect to the money or securities held under Sections 7.01 and 7.02, in determining whether such money or securities are excess, the Trustee may rely on the certificate provided to it under Section 7.02(2). Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. ARTICLE 8 Amendments SECTION 8.01. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article 4; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered 39 PAGE 39 form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as amended; (4) to add guarantees with respect to the Securities; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; or (7) to make any change that does not adversely affect the rights of any Securityholder in any material respect. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.02. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities. However, without the consent of each Securityholder affected, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the fixed maturity of any Security; (4) reduce the premium payable upon the redemption of any Security or change the time at which any Security may or shall be redeemed; (5) make any Security payable in money other than that stated in the Security; or (6) make any change in Section 5.04 or this Section; and, provided further, that in case more than one series of Securities (or Securities of a single series which have different Terms) shall be outstanding under this Indenture, and any such proposed amendment shall affect the rights of Holders of the Securities of one or more series (or Securities of a single series which have different Terms) and shall not affect the rights of Holders of the Securities of one or more of the other series (or Securities of a single series which have 40 PAGE 40 different Terms), then only Holders of Securities to be affected shall have authority or be required to consent to or approve such amendment. Any waiver of a default provided for in Section 5.04 shall be deemed to affect the Securities of all series, and, subject to the foregoing, any modification of the provisions of any sinking fund or covenant established in respect of Securities of a particular series (or Securities of a single series having the same Terms) shall be deemed to affect only such Securities. It shall not be necessary for the consent of the Holders under this Section 8.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Holders of the affected Securities a notice briefly describing such amendment. The failure to give such notice to all Securityholders (or all Holders of the affected Securities), or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 8.04. Revocation and Effect of Consents and Waivers. A consent to an amendment or any other action hereunder or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to take any action under this Indenture by vote or consent. Such record date shall be the later of 30 days prior to the first solicitation of such consent or vote or the date of the most recent list of Holders of the affected Securities furnished to the Trustee pursuant to Section 2.07 prior to such solicitation. If a record date is fixed, those persons who were Securityholders at such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Securityholders after such record date. SECTION 8.05. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new 41 PAGE 41 Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 8.06. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article 8 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. ARTICLE 9 Redemption SECTION 9.01. Applicability. Securities of any series which are redeemable before their final maturity shall be redeemable in accordance with their Terms and (except as otherwise specified as contemplated by Section 2.01 for Securities of any series) in accordance with this Article. SECTION 9.02. Notice to Trustee. The Company may, with respect to any series of Securities (or Securities of a series having the same Terms), reserve the right to redeem and pay such Securities or any part thereof, or may covenant to redeem and pay the series of Securities (or Securities of a series having the same Terms) or any part thereof, before maturity at such time and on such terms as provided for in such Securities. If a series of Securities (or Securities of a series having the same Terms) is redeemable and the Company wants or is obligated to redeem all or part of the series of Securities (or Securities of a series having the same Terms) pursuant to the Terms of such Securities, the Company shall notify the Trustee of the redemption date and the Principal Amount of the series of Securities (or Securities of a series having the same Terms) to be redeemed. The Company shall give such notice at least 60 days before the redemption date (or such shorter notice as may be acceptable to the Trustee in its sole discretion). SECTION 9.03. Selection of Securities To Be Redeemed. If less than all the Securities of a series (or Securities of a series having the same Terms) are to be redeemed, the Trustee, not more than 60 days prior to the redemption date, shall select the Securities of the series (or Securities of a series having the same Terms) to be redeemed pro rata or by lot or by such other method as the Trustee shall deem fair and appropriate. The Trustee shall make the selection from Securities that are outstanding and that have not previously been called for redemption. Securities of the series (or Securities of a series having the same Terms) and portions of them selected by the Trustee shall be in amounts of $1,000 or integral multiples of $1,000 or with respect to Securities of any Series issuable in other denominations pursuant to Section 2.01(8), in amounts equal to the minimum principal denomination for each such series 42 PAGE 42 and in integral multiples thereof. Provisions of this Indenture that apply to Securities of that series (or Securities of a series having the same Terms) called for redemption also apply to portions of Securities of that series (or Securities of a series having the same Terms) called for redemption. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the Principal Amount thereof to be redeemed. SECTION 9.04. Notice of Redemption. (a) At least 30 days but not more than 60 days before a redemption date, unless a shorter period is specified in the Terms of the Securities to be redeemed, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities that are to be redeemed. (b) All notices of redemption shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price and interest, if any, payable upon such redemption; (3) if less than all the outstanding Securities of a series (or Securities of a series having the same Terms) are to be redeemed, the identification (and, in the case of partial redemption, the Principal Amounts) of the particular Securities to be redeemed; (4) the name and address of the Paying Agent; (5) that the Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; and (6) that interest on Securities called for redemption ceases to accrue on and after the redemption date. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. SECTION 9.05. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price. Any failure to mail notice of redemption or any defect therein shall not affect the redemption of any other Securities called for redemption. Upon surrender to the Paying Agent of such Securities, such Securities shall be paid at the redemption price plus accrued interest to the redemption date, but installments of interest due on or prior to the redemption date will be payable to the Holders of such Securities of record at the close of business on the relevant record dates, unless otherwise specified in the Terms of such Securities. 43 PAGE 43 SECTION 9.06. Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and interest accrued to the redemption date on all Securities to be redeemed on that date. SECTION 9.07. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder of that Security a new Security or Securities of the same series and terms in authorized denominations equal in aggregate principal amount to the unredeemed portion of the Security surrendered. ARTICLE 10 Sinking Funds SECTION 10.01. Applicability. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities, except as otherwise specified as contemplated by Section 2.01 for Securities of any series. The minimum amount of any sinking fund payment provided for by the Terms of any Securities is herein referred to as a "Mandatory Sinking Fund Payment", and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "Optional Sinking Fund Payment". If provided for by the Terms of Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 10.02. Each sinking fund payment shall be applied to the redemption of Securities of any series (or Securities of a series having the same Terms) as provided for by the Terms of such Securities. SECTION 10.02. Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities to be made pursuant to the Terms of such Securities as provided for by such Terms, (1) deliver outstanding Securities of such series having the same Terms (other than any of such Securities previously called for redemption) and (2) apply as credit Securities of such series having the same Terms which have been redeemed either at the election of the Company pursuant to the Terms of such Securities or through the application of permitted Optional Sinking Fund Payments pursuant to the Terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities in lieu of cash payments pursuant to this Section 10.02, the Principal Amount of Securities to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities for redemption, except upon receipt of a Company Order that such action be taken, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment with 44 PAGE 44 respect to such series of Securities (or Securities of such series having the same Terms), provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series having the same Terms purchased by the Company having an unpaid Principal Amount equal to the cash payment required to be released to the Company. SECTION 10.03. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities (or Securities of such series having the same Terms), the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing Mandatory Sinking Fund Payment for that series (or Securities of such series having the same Terms) pursuant to the Terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that series (or Securities of such series having the same Terms) pursuant to Section 10.02, and the optional amount, if any, to be added in cash to the next ensuing Mandatory Sinking Fund Payment, and the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 9.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 9.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 9.05, 9.06 and 9.07. 45 PAGE 45 ARTICLE 11 Miscellaneous SECTION 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of TIA Section 318(c), the imposed duties shall control. SECTION 11.02. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: The Columbia Gas System, Inc. 20 Montchanin Road Wilmington, DE 19807 Attention: Corporate Secretary if to the Trustee: The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: 46 PAGE 46 (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such covenant or condition has been complied with. SECTION 11.06. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders or for evidencing the due execution of consents or waivers by Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not 47 PAGE 47 a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 11.09. Governing Law. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of Delaware but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 11.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities of this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 11.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 11.13 Table of Contents; Headings. The table of contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 48 PAGE 48 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. THE COLUMBIA GAS SYSTEM, INC., Attest: by - ------------------------- --------------------------- Title: Title: (Trustee) Attest: by - ------------------------- --------------------------- Title: Title: 49 PAGE 49 STATE OF DELAWARE ) ) ss.: COUNTY OF NEW CASTLE ) On this ____ day of ______, 199_, before me personally came _________________, to me known, who, being by me duly sworn, did depose and say that he resides at Wilmington, Delaware 19807; that he is Executive Vice President of THE COLUMBIA GAS SYSTEM, INC., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument bearing the corporate name of said corporation is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. ---------------------------- Notary Public STATE OF ___________ ) ) ss.: COUNTY OF ___________ ) On the ____ day of ________, 199_, before me personally came ______________________, to me known, who, being by me duly sworn, did depose and say that he resides at __________________________, and that he is an ____________________________________________ of _______________________________ , one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument bearing the corporate name of said corporation is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. --------------------------- Notary Public EX-99.B3 4 FORM OF SUPPLEMENTAL INDENTURE 1 PAGE 1 EXHIBIT B-3 [FORM OF SUPPLEMENTAL INDENTURE] =============================================================================== THE COLUMBIA GAS SYSTEM, INC. and , as Trustee ---------------------- -------------- _____________ SUPPLEMENTAL INDENTURE Dated as of ________________ Supplementing Indenture Dated as of ______, ____ ------------- _____% Debentures, Series Due _____________ =============================================================================== 2 PAGE 2 TABLE OF CONTENTS 1/ ------------
Page PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE ONE Definitions ----------- ARTICLE TWO % Debentures Due ------------------------------------- Sec. 2.01. Creation of Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.02. Date of issue, maturity, interest rate, place of payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.03. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.04. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.05. Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.06. Global Certificate Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 2.07. Covenant with respect to Columbia Gas Transmission Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE THREE Miscellaneous Provisions Sec. 3.01. Execution in counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 3.02. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sec. 3.03. Company Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXHIBIT A - Form of ____% Debenture, Series Due _____ . . . . . . . . . . . . . . . . . . . . . . . . . . - -----------------
1/The Table of Contents is included herein for convenience only and is not to be considered a part of the Supplemental Indenture. _____________ SUPPLEMENTAL INDENTURE dated as of 3 PAGE 3 ________________, between THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation (hereinafter called the Company), and ___________________________________________, a __________corporation (the "Supplemental Indenture"). RECITALS WHEREAS the Company has heretofore executed and delivered to the Trustee a certain indenture dated as of ______, ____ (hereinafter called the Original Indenture), providing for the issuance of senior debt securities of the Company, unlimited in aggregate principal amount (hereinafter called the Securities); and WHEREAS ARTICLE TWO of the Original Indenture provides, among other things, that the Securities may be issued in one or more series, the Securities of each series maturing on such dates and bearing interest at such rates and having such other terms and provisions as the Board of Directors of the Company may determine prior to the authentication thereof; and WHEREAS ARTICLES TWO and EIGHT of the Original Indenture provide, among other things, that the Company and the Trustee may from time to time enter into indentures supplemental thereto for the purpose of setting forth the terms and provisions of any one or more series of Securities and for any purpose not inconsistent with the terms of the Original Indenture, including such additional covenants not inconsistent with the provisions of the Original Indenture as may be agreed upon by the Company and the Trustee, or for the purpose of curing any ambiguity or of curing, correcting or supplementing any defective or inconsistent provision of the Original Indenture; and WHEREAS the Company, pursuant to resolutions duly adopted by its Board of Directors at a meeting of said Board duly called and held, has determined, under and in accordance with the provisions of the Original Indenture, to create a new series of Securities to be known as "_____% Securities, Series Due _____________" (hereinafter called the Securities Due _____________) limited to $___________ in aggregate principal amount, the further terms and provisions of which are hereinafter set forth; and 4 PAGE 4 WHEREAS the Company, pursuant to resolutions duly adopted by its Board of Directors at a meeting of said Board duly called and held, has determined that it is advisable to amend and supplement the Original Indenture by providing for a record date in connection with the payment of interest to the holders of Securities Due _____________, and WHEREAS at or pursuant to resolutions adopted at said meeting of the Board of Directors of the Company the form, terms and provisions of this Supplemental Indenture were duly approved and the execution and delivery by the Company of a supplemental indenture in the form approved and having the terms and provisions so approved were duly authorized and directed, and there was established for the Securities Due _____________ a form substantially as in Exhibit A and all things necessary to make the Securities Due _____________, when executed by the Company and authenticated by the Trustee and issued under the Original Indenture, as supplemented by this Supplemental Indenture, the valid, binding and legal obligations of the Company in accordance with their terms and to make this Supplemental Indenture a valid, binding and legal agreement, have been done and performed; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH that, in order to set forth the terms and provisions of the Securities Due _____________ and for and in consideration of the premises and of the acceptance or purchase of the Securities Due _____________ by the holders thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE ONE Definitions All terms defined in the Original Indenture referred to in the Recitals hereto or in any of the supplements thereto referred to in such Recitals are, unless the context otherwise requires, used herein with the same meanings therein set forth. ARTICLE TWO Securities Due SECTION 2.01. There shall be a series of Securities designated as "_____% Debentures, Series Due _____________," the aggregate principal amount of which that may be outstanding being limited to $___________, except as provided in Section 2.10 of the Original Indenture. The Securities Due _____________ shall be substantially in the form recited in 5 PAGE 5 Exhibit A. SECTION 2.02. The Securities Due _____________ shall be dated as provided in Section 2.05 of this Article One; shall mature ________________; shall bear interest at the rate of ____% per annum until paid or redeemed as herein and in the Original Indenture provided, payable semiannually on each _____ and __________ to the Securityholders in whose names such Securities Due _____________ are registered at the close of business on ________ or __________, as the case may be, next preceding such _____ or __________ or, if such date shall not be a business day, then the next preceding business day (unless such Security has been called for redemption on a date fixed for such redemption which is prior to such interest payment date), except that if the Company shall default in the payment of any installment of interest on any Securities Due _____________ , such interest in default shall be paid to the Securityholders in whose names the Securities Due _____________ are registered at the close of business on a record date established for the payment of such defaulted interest, and interest thereon, by the Company in any lawful manner not inconsistent with the requirements of any securities exchange on which the Securities Due _____________ may be listed (such record date to be not less than five days prior to the date for the payment of such defaulted interest); and shall be payable as to both principal and interest in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, at the corporate trust office of the Trustee in the Borough of Manhattan, the City of New York. Any such defaulted installment of interest on any Securities Due _________________ that is not paid when due shall bear interest, to the extent lawful, at the rate per annum (expressed in basis points) borne by such Securities plus 100 basis points. SECTION 2.03. The Securities Due _____________ shall be issued in registered form without coupons in the denominations of $1,000 and any integral multiple of $1,000. Temporary Securities Due _____________ may be issued in denominations as provided in Section 2.04 of the Original Indenture and shall be exchangeable as provided in such temporary Securities. SECTION 2.04. [FOR SECURITIES WITH NO REDEMPTION OPTION]. The Securities Due _________________________ are not subject to redemption prior to maturity. SECTION 2.04. [FOR SECURITIES WITH REDEMPTION OPTION]. The Securities Due _____________ may be redeemed prior to maturity, at the election of the Company, as a whole at any time or in part from time to time, at the applicable redemption price or prices (expressed in percentages of principal amount) set forth in the tabulation under the heading "Regular Redemption Prices" in the form of Securities Due ___________ contained in Exhibit A to this Supplemental Indenture, with accrued interest to the date fixed for redemption. SECTION 2.05. Each Securities Due _____________ shall be dated the date of 6 PAGE 6 authentication, and shall bear interest from the interest payment date to which interest has been paid last preceding the date thereof (unless the date thereof is an interest payment date to which interest has been paid, in which case from the date thereof, or unless the date thereof is prior to ___________ in which case from _________________). Notwithstanding the foregoing, if the date of a Securities Due _____________ is after ________ or __________, as the case may be, and before the following _____ or __________, as the case may be, such Securities shall bear interest from such _____ or __________; provided, however, that if and to the extent that the Company shall default in the payment of interest due on such _____ or __________, such Securities shall bear interest from the next preceding _____ or __________ to which interest has been paid or, if no interest has been paid, from _________________. SECTION 2.06. The Securities Due __________ will be issued in fully registered form and will be represented by a global certificate or certificates (the "Global Security") registered in the name of a nominee of The Depository Trust Company ("DTC" or the "Depositary"). The Global Security representing the Securities Due __________ will be deposited with, or on behalf of, the Depositary. The Securities Due __________ will not be exchangeable for certificates issued in definitive, registered form at the option of the holder and, except as set forth below, will not otherwise be issuable in definitive form. So long as the Depositary for the Global Security, or its nominee, is the registered owner of the Global Security, the Depositary or its nominee, as the case may be, will be considered the sole owner or holder of the Securities Due __________ for all purposes under the Indenture. Except as provided below, beneficial owners of the Securities Due __________ will not be entitled to have the Securities Due __________ registered in their names, will not receive or be entitled to receive physical delivery of Securities Due __________ in definitive form and will not be considered the owners or holders thereof under the Indenture. Unless and until it is exchanged in whole or in part for individual certificates evidencing the Securities Due __________ represented thereby, the Global Security may not be transferred except as a whole by the Depositary for the Global Security to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. If the Depositary with respect to the Global Security is at any time unwilling or unable to continue as Depositary and a successor Depositary is not appointed by the Company within 90 days, the Company will issue definitive certificates in exchange for the Securities Due __________ represented by such Global Security. In addition, the Company may at any time and in its sole discretion determine not to use the Depositary's book-entry system, and, in such event, will issue definitive certificates in exchange for the Securities Due __________ represented by such Global Security. SECTION 2.07. Until the earlier of (i) the date on which none of Columbia Gas 7 PAGE 7 Transmission Corporation, any successor thereto and any transferee of the assets of Columbia Gas Transmission Corporation as an entirety (or substantially as an entirety) (collectively "TCO"), is a Significant Subsidiary of the Company, and (ii) the fourth anniversary of the date on which any of the New Indenture Securities are first issued (each such date in (i) and (ii), a "Covenant Expiration Date"), the Company shall, subject to applicable law and regulation, hold not less than $600 million of First Mortgage Bonds of TCO (the "First Mortgage Bonds") issued pursuant to and entitled to the benefits of the TCO Indenture of Mortgage and Deed of Trust (the "TCO Mortgage"). Until the Covenant Expiration Date, the lien in favor of the Company under the TCO Mortgage securing the First Mortgage Bonds shall at all times (i) cover all property and assets of TCO intended to be subject to the TCO Mortgage as in effect on the date of this Supplemental Indenture, and (ii) be a first priority perfected lien subject only to those exceptions that are contained in the TCO Mortgage as in effect on the date of this Supplemental Indenture, and the Company shall not release, or consent to any release of, any property or assets from that lien, other than (x) as provided in the TCO Mortgage as in effect on the date of this Supplemental Indenture and (y) releases of property and assets in the normal course of TCO's business in connection with the sale, other transfer or abandonment of such property or assets. Until the Covenant Expiration Date, no other Debt of any Person shall be secured by any lien on any property or assets of TCO except as permitted under the TCO Mortgage as in effect on the date of this Supplemental Indenture. Notwithstanding the foregoing, the Company shall not be in breach of this Section 2.07 (A) if the amount of the Company's holdings of First Mortgage Bonds is less than $600 million for not more than an aggregate of 30 days prior to the Covenant Expiration Date (the first day, subsequent to such 30th day, on which the amount of such holdings is below $600 million being hereafter referred to as the "Trigger Date") or (B) if on or before the sixtieth day after the Trigger Date, the Company retires (as described below) or has previously retired Company Funded Debt in an amount equal to 150% of the amount by which $600 million exceeds the amount of the Company's holdings of First Mortgage Bonds on the Trigger Date, or (C) if subsequent to the Trigger Date, the amount of the Company's holdings of First Mortgage Bonds falls below the amount of such holdings as of the Trigger Date or below the lowest previous amount of such holdings subsequent to the Trigger Date (any such date, a "Further Trigger Date") and the Company retires (as described below) or has previously retired Company Funded Debt in an amount equal to 150% of the amount by which $600 million exceeds the amount of such holding on the Further Trigger Date, the amount of such retirement with respect to any Further Trigger Date to be measured for purposes of determining compliance with this provision as of the sixtieth day after such Further Trigger Date. The Company may "retire" Company Funded Debt by any one or more of the following methods: (1) by cancellation of Company Funded Debt which it acquires or reacquires, (2) by defeasance of Company Funded Debt in accordance with the terms of such Company Funded Debt, (3) by a bona fide tender offer for Company Funded Debt which, to the extent such tender offer is for New Indenture Securities, is for principal amounts of each series of New Indenture Securities that are proportionate to the 8 PAGE 8 relative principal amount of such issues outstanding on the relevant Trigger Date or Further Trigger Date (a tender offer for any of the New Indenture Securities at par will be deemed to retire an equivalent amount of Company Funded Debt, irrespective of the amount of New Indenture Securities or the amount of any series thereof actually tendered), or (4) by repayment or prepayment of Company Funded Debt in accordance with its terms; provided, however, that repayment or prepayment of Company Funded Debt under a term loan facility in effect on the date of this Supplemental Indenture shall not constitute retirement of such Debt unless the Company shall have waived any entitlement it may have thereunder to reborrow the amounts so repaid or prepaid. In connection with any such "retirement" of Company Funded Debt, the Company (i) shall "retire" New Indenture Securities (treating the New Indenture Securities as a single class) and other Company Funded Debt (treating all such other Company Funded Debt as a single class) pro rata based on their respective outstanding principal amounts on the relevant Trigger Date or Further Trigger Date or (ii) may, at its option, "retire" a greater principal amount of New Indenture Securities than is determined in accordance with the foregoing clause (i). The foregoing covenant shall not represent a limit on the amount of Company Funded Debt or Funded Debt of TCO that may be outstanding from time to time. "Company Funded Debt" means all Debt (other than debt under a bank loan commonly referred to as a "revolving credit facility") created, assumed or guaranteed by the Company which matures by its terms, or is renewable at the option of the Company to a date, more than one year after the date of the original creation, assumption or guarantee of such Debt by the Company. "New Indenture Securities" means (i) the Securities Due ______________, and (ii) the Company's _____% Debentures, Series Due ___________, ____% Debentures, Series Due ______________, ____% Debentures, Series Due ______________, ___% Debentures, Series Due __________, __% Debentures, Series Due and _____% Debentures, Series Due _____________, each issued under the Original Indenture "TCO Indenture of Mortgage and Deed of Trust" means the Indenture of Mortgage and Deed of Trust, dated August 30, 1985, between Columbia Gas Transmission Corporation and Wilmington Trust, as amended or restated from time to time. 9 PAGE 9 ARTICLE THREE Miscellaneous Provisions SECTION 3.01. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 3.02. This Supplemental Indenture and each of the Securities Due _____________ shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with and governed by the laws of said State. SECTION 3.03. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. IN WITNESS WHEREOF, The Columbia Gas System, Inc. has caused this Supplemental Indenture to be executed in its corporate name by its Chairman of the Board or its President or one of its Vice Presidents or its Treasurer, and its corporate seal to be hereunto affixed and to be attested by its Secretary or one of its Assistant Secretaries, and [TRUSTEE] has caused this Supplemental Indenture to be executed in its corporate name and its corporate seal to be hereunto affixed by one of its Trust Officers and to be attested by one of its Assistant Secretaries, all as of ________________. THE COLUMBIA GAS SYSTEM, INC. By --------------------------------- Attest: ------------------------ [CORPORATE SEAL] [TRUSTEE] ------------------------------ By --------------------------------- 10 PAGE 10 Attest: ------------------------ [CORPORATE SEAL] 11 PAGE 11 STATE OF DELAWARE New Castle County .: On the ____ of ____ in the year ____ before me personally came ________________, to me known, who, being by me duly sworn, did depose and say that he resides at Wilmington, Delaware 19807; that he is _____________________________ of THE COLUMBIA GAS SYSTEM, INC., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument bearing the corporate name of said corporation is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. - ---------------------------------- (NOTARIAL SEAL) STATE OF NEW YORK County of New York .: On the ____ of ____, in the year ____, before me personally came _________________ to me known, who, being by me duly sworn, did depose and say that he resides at __________, ______________; that she is a Trust Officer of _________________, one of the corporations described in and which executed the foregoing instrument; that she knows the seal of said corporation; that the seal affixed to said instrument bearing the corporate name of said corporation is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that she signed her name thereto by like authority. - ----------------------------------- (NOTARIAL SEAL) 12 PAGE 12 Exhibit A FORM OF DEBENTURE (FACE) Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer of its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. THE COLUMBIA GAS SYSTEM, INC. _____% DEBENTURE, SERIES DUE _____________ DUE _______________ No. ..... $ ..... THE COLUMBIA GAS SYSTEM, INC., a Delaware corporation (hereinafter called the Company), for value received, hereby promises to pay to ______ or registered assigns, the sum of $__________ on the [ ] day of _____________, at the corporate trust office of ___________________, Trustee under the Indenture referred to on the reverse hereof, or its successor as such Trustee, in the Borough of Manhattan, the City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon at the rate of _____% per annum in like coin or currency, payable at said office semiannually on the [ ] day of ___ and the [ ] day of ________ in each year, from the interest payment date to which interest has been paid last preceding the date hereof (unless the date hereof is an interest payment date to which interest has been paid, in which case from the date hereof, or unless the date hereof is prior to ___________, in which case from _________________) until the Company's obligation with respect to the payment of such principal shall have been discharged, such interest to be paid to the person who shall have been the registered owner hereof at the close of business on ________ or __________, as the case may be, next preceding an interest payment date, except as otherwise provided in the Indenture referred to on the reverse hereof. Notwithstanding, if the date of this Debenture is after ________ or __________, as the case may be, and before the immediately following _____ or __________, as the case may be, this Debenture shall bear interest from such _____ or __________; provided, however, that if and to the extent that the Company shall default in the payment of interest due on such _____ or __________, this Debenture shall bear interest from the next preceding _____ or __________ to which interest has been paid or, if no interest has been paid, from _________________. Any installment of interest on this Debenture that is not paid when due shall bear interest at the rate borne by this Debenture plus 1% per annum. Additional provisions of this Debenture are contained on the reverse hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. 13 PAGE 13 This Debenture shall not be valid or become obligatory for any purpose until it shall have been authenticated by the certificate, hereon endorsed, of the Trustee under the Indenture. IN WITNESS WHEREOF, The Columbia Gas System, Inc., has caused this Debenture to be executed in its name by the facsimile signature of its Chairman of the Board or its President or one of its Vice Presidents or its Treasurer, and its corporate seal to be hereunto affixed, or a facsimile thereof to be printed or engraved hereon, and to be attested by the facsimile signature of its Secretary or one of its Assistant Secretaries. THE COLUMBIA GAS SYSTEM, INC. Dated: ---------------- By -------------------------- Attest: - -------------------------------- (FORM OF TRUSTEE'S CERTIFICATE ON DEBENTURES) This is one of the Debentures, of the series designated therein, described in the within-mentioned Indenture. , as Trustee, ---------------------- By ------------------------------ Authorized Officer (REVERSE) THE COLUMBIA GAS SYSTEM, INC. _____% DEBENTURE, SERIES DUE _____________ DUE ________________ This Debenture is one of a duly authorized issue of Debentures of the Company issuable in series, and is one of a series known as its _____% Debentures, Series Due _____________ (herein called Debentures Due _____________), all issued and to be issued under an Indenture dated as of ________________, ________ in which the Debentures Due _____________ are created and described, all executed between the Company and _______________________(herein called the Trustee), Trustee, to which Indenture (herein called the Indenture) reference is hereby made for a statement of the rights thereunder of the Trustee and of the holders of the Debentures, and of the duties thereunder of the Trustee and of the Company. 14 PAGE 14 The rights and obligations of the Company and of the holders of Debentures may be changed and modified at the request of the Company by an indenture or indentures supplemental to the Indenture, executed pursuant to the consent in writing of the holders of at least a majority in principal amount of the Debentures then outstanding affected by such change or modification, all in the manner and subject to the limitations set forth in the Indenture, provided that no such change or modification by such supplemental indenture shall extend the maturity of, or reduce the rate of interest on, or otherwise modify the terms of payment of the principal of, or the premium, if any, or the interest on, this Debenture, or reduce the percentage of Debentures the holders of which are required to consent to any such supplemental indenture, or modify the provision as to the holders of any series of Debentures authorized or required to consent to any such supplemental indenture, without the express consent of the holder hereof. Any such consent by the holder of this Debenture (unless effectively revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture, whether or not any notation of such consent is made upon this Debenture. [THE DEBENTURES DUE __________ MAY NOT BE REDEEMED PRIOR TO MATURITY.] [ THE DEBENTURES DUE _____________ MAY BE REDEEMED, PRIOR TO MATURITY, AT THE ELECTION OF THE COMPANY, AS A WHOLE AT ANY TIME, OR IN PART FROM TIME TO TIME, AS PROVIDED IN THE INDENTURE, AT THE REDEMPTION PRICES (EXPRESSED IN PERCENTAGES OF PRINCIPAL AMOUNT) SET FORTH IN THE TABULATION BELOW UNDER THE HEADING "REGULAR REDEMPTION PRICES":] If Redeemed During Regular 12 Months' Period Redemption Commencing ____ Prices ------------------------ ----------- 15 PAGE 15 In case a default, as defined in the Indenture, shall occur, the principal of all the Debentures then outstanding may become or be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture provides that in certain events such declaration and certain defaults under the Indenture may be waived by the holders of a majority in principal amount of all Debentures outstanding. This Debenture is transferable and exchangeable as prescribed in the Indenture by the registered holder hereof in person, or by his duly authorized attorney, at the corporate trust office of the Trustee in said Borough of Manhattan, upon surrender and cancellation of this Debenture, and, thereupon, a new fully registered Debenture or Debentures Due _____________ of the same aggregate principal amount shall be issued in exchange therefor as provided in the Indenture. The Company and the Trustee may deem and treat the person in whose name this Debenture is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal, premium, if any, and interest (except as stated in the first paragraph on the face hereof) due hereon and for all other purposes. No recourse shall be had for the payment of the principal of, or the premium, if any, or the interest on, this Debenture, or any part hereof, or for any claim based hereon or otherwise in respect hereof, or of the indebtedness represented hereby, or upon any obligation, covenant or agreement of the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation (either directly or through the Company or any such successor corporation), whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all liability, if any, of that character against every such incorporator, stockholder, officer and director being by the acceptance hereof, and as part of the consideration for the issue hereof, expressly waived and released. This Debenture shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with and governed by the laws of said State. EX-99.B4 5 DRAFT CERT. OF DESIGNATION FOR DECS 1 PAGE 1 Exhibit B.4 THE COLUMBIA GAS SYSTEM, INC. CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND RIGHTS OF THE [$ ] CONVERTIBLE PREFERRED STOCK PAR VALUE $10.00 PER SHARE LIQUIDATION VALUE [$ ] PER SHARE Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned, the [ ] of The Columbia Gas System, Inc., a Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the following resolution has been duly adopted by the Board of Directors of the Company: RESOLVED that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by the provisions of the Restated Certificate of Incorporation of the Company, this Board of Directors hereby authorizes the issuance of a series (this "Series") of the Preferred Stock of the Company (the "Preferred Stock") which shall consist of [ ] shares, and this Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of this Series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the Company which are applicable to the Preferred Stock) as follows: 1. Designation. The designation of this Series of Preferred Stock shall be [$ ] Convertible Preferred Stock. The number of shares of this Series shall be [ ]. The "Liquidation Price" of shares of this Series shall be [$ ] per share. 2. Dividends. (a) The holders of shares of this Series shall be entitled to receive, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, cumulative preferential dividends from the issue date of such shares (the "Issue Date"), payable in arrears on the [ ] day of each [ ], [ ], [ ] and [ ], respectively (each a "Dividend Payment Date") or, if any Dividend 2 PAGE 2 Payment Date is not a business day, then the Dividend Payment Date shall be the next succeeding business day, at the rate per share of [ ]% per annum, and no more; provided, however, that (i) effective as of [ ] (the "Deferred Dividend Payment Date") and thereafter such rate per share per annum shall be the rate set forth above (expressed in basis points) plus 100 basis points and no more and (ii) the initial dividend payment shall be for the period from the Issue Date to and including [ ], and shall be payable on [ ] (the "Deferred Dividend Payment Date"). With respect to any dividend period during which a redemption occurs, the Company may, at its option, declare accrued dividends to, and pay such dividends on, the redemption date, in which case such dividends would be payable on the redemption date in cash to the holders of the shares of this Series as of the record date for such dividend payment and such accrued dividends would not be included in the calculation of the related Call Price (as hereinafter defined). Each dividend on the shares of this Series shall be payable to holders of record as they appear on the stock books of the Company on such record dates, not less than 10 nor more than 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends (or amounts equal to accrued and unpaid dividends) payable on shares of this Series for any period shorter than a quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends on the shares of this Series shall accrue (whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared) on a daily basis from the previous Dividend Payment Date, except that the first dividend shall accrue from the Issue Date. For purposes of the immediately preceding sentence, the Dividend Payment Date for the dividend payable on the Deferred Dividend Payment Date shall be deemed to be [ ]. Dividends accumulate to the extent they are not paid on the Dividend Payment Date for the quarter for which they accrue. Accumulated unpaid dividends shall not bear interest. The foregoing notwithstanding, no dividend shall accrue or be payable with respect to shares of this Series that are redeemed on or prior to [ ] (the "Threshold Date") (b) Unless full cumulative dividends, if any, accrued on the shares of this Series that are payable in cash have been paid or contemporaneously are declared and paid and a sum set aside sufficient for such payment through the most recent Dividend Payment Date, then, whether or not the Mandatory Conversion Date (as hereinafter defined) has occurred: (i) no full cash dividend shall be declared by the Board of Directors or paid or set aside for payment by the Company or other distribution declared or made on any shares of the Company ranking on a parity with the shares of this Series as to dividends; (ii) no dividend (other than a dividend or distribution paid in shares of, or warrants, rights or options exercisable for or convertible into shares of, Common Stock or in any other shares of the Company ranking junior to the shares of this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other shares of the Company ranking junior to the shares of this Series as to dividends; and (iii) no Common Stock or any other shares of the Company ranking junior to or on a parity with the shares of this Series as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made 3 PAGE 3 available for a sinking fund for the redemption of any shares of any such series or class) by the Company, except by conversion into or exchange for shares of the Company ranking junior to the shares of this Series as to dividends and upon liquidation. When dividends which are payable in cash have not been paid or set aside in full with respect to the shares of this Series and any other shares of the Company ranking on a parity with the shares of this Series as to dividends, all dividends declared with respect to the shares of this Series and any other shares of the Company ranking on a parity with the shares of this Series as to dividends shall be declared pro rata so that the amount of dividends declared per share on this Series and such other shares shall in all cases bear to each other the same ratio that, at the time of declaration, accrued and payable but unpaid dividends per share on the shares of this Series and such other shares bear to each other. Holders of the shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein described. (c) Subject to the foregoing provisions of this paragraph 2 and paragraph 4(a), the Board of Directors may declare and the Company may pay or set aside for payment dividends and other distributions on any shares of the Company ranking on a parity with or junior to the shares of this Series as to dividends or upon liquidation, and may redeem, purchase or otherwise acquire any shares of the Company ranking on a parity with or junior to the shares of this Series as to dividends or upon liquidation, and the holders of the shares of this Series shall not be entitled to share therein. (d) Any dividend payment made on the shares of this Series shall first be credited against the earliest accrued but unpaid dividend due with respect to the shares of this Series. (e) All dividends paid with respect to the shares of this Series shall be paid pro rata to the holders entitled thereto. (f) Holders of the shares of this Series shall be entitled to receive dividends in preference to and in priority over any dividends upon any shares of the Company ranking junior to the shares of this Series as to dividends, but subject to the rights of holders of shares of the Company having a preference and a priority over the payment of dividends on the shares of this Series. 3. Redemptions and Conversions. (a) Mandatory Conversion. On the fifth anniversary of the Issue Date or, if such fifth anniversary is not a business day, the next succeeding business day (the "Mandatory Conversion Date"), each outstanding share of this Series shall convert automatically (the "Mandatory Conversion") into a number of shares of Common Stock at the Common Equivalent Rate (as hereinafter defined) in effect on the Mandatory Conversion Date and the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of this Series (other than dividends payable to a holder of record on a prior date) to the Mandatory 4 PAGE 4 Conversion Date, whether or not declared, out of funds legally available for the payment of dividends, subject to the right of the Company to redeem the shares of this Series (i) on or prior to the Deferred Dividend Payment Date and (ii) on or after the Regular Redemption Date (as hereinafter defined) and prior to the Mandatory Conversion Date, as described below, and subject to the conversion of the shares of this Series at the option of the holder at any time after the Deferred Payment Date and prior to the Mandatory Conversion Date. The Common Equivalent Rate is equal to the product of (i) one and (ii) the Special Factor, and is subject to adjustment as set forth below. Dividends on the shares of this Series shall cease to accrue and such shares shall cease to be outstanding on the Mandatory Conversion Date. The Company shall make such arrangements as it deems appropriate for the issuance of certificates representing shares of Common Stock and for the payment of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu of fractional shares, if any, in exchange for and contingent upon surrender of certificates representing the shares of this Series, and the Company may defer the payment of dividends on such shares of Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the shares of this Series; provided, however that the Company shall give the holders of the shares of this Series such notice of any such actions as the Company deems appropriate and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to the Mandatory Conversion Date. Amounts payable in cash in respect of the shares of this Series or in respect of such shares of Common Stock shall not bear interest. (b) Redemption by the Company. (i) Right To Redeem. Shares of this Series are not redeemable by the Company prior to [ ] (the "Regular Redemption Date"), except that shares in this Series are redeemable by the Company on or prior to the Deferred Dividend Payment Date; provided however, that no such redemption may be made on or prior to the Deferred Dividend Payment Date if, after giving effect thereto, less than $50,000,000 (as calculated by Liquidation Price) of shares of this Series would remain outstanding; provided further, however, that the Company may effect any such redemption if, after giving effect thereto, no shares of the Series would remain outstanding. At any time and from time to time (i) on or prior to the "Deferred Dividend Payment Date and (ii) on or after the Regular Redemption Date and prior to the Mandatory Conversion Date, the Company, subject to the limitation set forth in the preceding sentence, shall, in the case of a redemption that occurs on or prior to the Deferred Payment Date, have the right to redeem, in whole or in part, the outstanding shares of this Series. Upon any such redemption that occurs on or prior to the Deferred Dividend Payment Date, the Company shall deliver to holders of shares of this Series, in accordance with the provisions of this Certificate, in exchange for each share so redeemed, cash in an amount equal to this sum of (i) the Liquidation Price therefor set forth in paragraph 1 above plus (ii) if such redemption occurs after the Threshold Date, all accured and unpaid dividends thereon to the date of redemption. Upon any such redemption that occurs on or after the Regular Redemption Date, the Company shall deliver to the holders of shares of this Series, in accordance with the provisions of this Certificate, in exchange for each share so redeemed, a number of shares of Common Stock (the "Optional Call Number") equal the lesser of (i) the (A) the Call Price (as hereinafter defined) in effect on the redemption date, divided by (B) the Current Market Price (as hereinafter defined) of the Common Stock determined as of the date which is one trading day (as hereinafter defined) prior to the public announcement of the redemption, and (ii) the sum of (x) the Common Equivalent Rate and (y) an amount determined by dividing the [premium] Accured Dividend Amount (as hereinafter defined) by the Current Market Price determined as of the date which is one trading day prior to the public announcement of the redemption. The Call Price of each share of this Series is the sum of (x) The Base Call Price, (y) [for each period set forth in the table below, the amount shown in such table for such period and (z)] all accrued and unpaid dividends thereon to the redemption date (other than dividends payable to a holder of record as of a prior date), subject to the right of the Company pursuant to paragraph 2 to pay such accrued and unpaid dividends in cash (the [sum of the] amount[s] referred to in (y) [and (z)] [are] [is] referred to as the "[Premium-] Accured Dividend Amount"). The Base Call Price is equal to the product of the Liquidation Price and the Special Factor. The public announcement of any call for redemption that will occur on or after the Regular Redemption Date shall be made prior to the mailing of the notice of such call to holders of shares of this Series as described below. If fewer than all the outstanding 5 PAGE 5 shares of this Series are to be redeemed, shares to be redeemed shall be selected by the Company from outstanding shares of this Series not previously redeemed by lot or pro rata (as nearly as may be practicable) or by any other method determined by the Board of Directors of the Company in its sole discretion to be equitable. (ii) Current Market Price. As used in this subparagraph (b), the term "Current Market Price" per share of the Common Stock on any date of determination means the lesser of (x) the average of the Closing Prices (as hereinafter defined) of the Common Stock for the 15 consecutive trading days ending on and including such date of determination, and (y) the Closing Price of the Common Stock for such date of determination; provided, however, that, with respect to any redemption of shares of this Series, if any event that results in an adjustment of the Common Equivalent Rate occurs during the period beginning on the first day of such 15 day period and ending on the applicable redemption date, the Current Market Price as determined pursuant to the foregoing shall be appropriately adjusted to reflect the occurrence of such event. (iii) Notice of Redemption. The Company shall provide notice of any redemption of the shares of this Series to holders of record of this Series to be called for redemption not less than 15 nor more than 60 days prior to the date fixed for such redemption. Such notice shall be provided by mailing notice of such redemption first class postage prepaid, to each holder of record of shares of this Series to be redeemed, at such holder's address as it appears on the stock register of the Company; provided, however, that neither failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of this Series to be redeemed. Each such notice shall state, as appropriate, the following and may contain such other information as the Company deems advisable: (A) the redemption date; (B) that all outstanding shares of this Series are to be redeemed or, in the case of a call for redemption of fewer than all outstanding shares of this Series, the number of such shares held by such holder to be redeemed; (C) the redemption price, in the case of a redemption that will occur on or prior to the Deferred Dividend Payment Date, or the number of shares of Common Stock deliverable upon redemption of each share of this Series to be redeemed and the Current Market Price used to calculate such number of shares of Common Stock in the case of a redemption that will occur on or after the Regular Redemption Date. (D) the place or places where certificates for such shares are to be surrendered for redemption; and 6 PAGE 6 (E) that dividends on the shares of this Series to be redeemed shall cease to accrue on such redemption date (except as otherwise provided herein). (iv) Deposit of Shares and Funds. The Company's obligation to deliver shares of Common Stock and provide funds upon redemption in accordance with this paragraph 3 shall be deemed fulfilled if, on or before a redemption date, the Company shall irrevocably deposit, with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City and having a capital and surplus of at least $50,000,000, or shall set aside or make other reasonable provisions for the issuance of such number of shares of Common Stock as are required to be delivered by the Company pursuant to this paragraph 3 upon the occurrence of the related redemption (and for the payment of cash, if any, payable in respect of the redemption price of shares of this Series, in lieu of the issuance of fractional share amounts and in respect of accrued and unpaid dividends payable in cash on the shares to be redeemed as and to the extent provided by this paragraph 3). Any interest accrued on such funds shall be paid to the Company from time to time. Any shares of Common Stock or funds so deposited and unclaimed at the end of two years from such redemption date shall be repaid and released to the Company, after which the holder or holders of such shares of this Series so called for redemption shall look only to the Company for delivery of such shares of Common Stock or funds. (v) Surrender of Certificates; Status. Each holder of shares of this Series to be redeemed shall surrender the certificates evidencing any shares (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state) to the Company at the place designated in the notice of such redemption and shall thereupon be entitled to receive certificates evidencing any shares of Common Stock and to receive any funds payable pursuant to this paragraph 3 following such surrender and following the date of such redemption. In case fewer than all the shares represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Company representing the unredeemed shares. If such notice of redemption shall have been given, and if on the date fixed for redemption shares of Common Stock and any funds necessary for the redemption shall have been irrevocably either set aside by the Company separate and apart from its other funds or assets in trust for the account of the holders of the shares to be redeemed or converted (and so as to be and continue to be available therefor) or deposited with a bank or a trust company or an affiliate thereof as provided herein or the Company shall have made other reasonable provision therefor, then, notwithstanding that the certificates evidencing any shares of this Series so called for redemption or subject to conversion shall not have been surrendered, the shares represented thereby so called for redemption shall be deemed no longer outstanding, dividends with respect to the shares so called for redemption shall cease to accrue on the date fixed for redemption (except that holders of shares of this Series at the close of business on a record date for any payment of 7 PAGE 7 dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares following such record date and prior to such Dividend Payment Date) and all rights with respect to the shares so called for redemption shall forthwith after such date cease and terminate, except for the rights of the holders to receive the shares of Common Stock, if any, and funds, if any, payable pursuant to this paragraph 3 without interest upon surrender of their certificates therefor. Holders of shares of this Series that are redeemed shall not be entitled to receive dividends declared and paid on such shares of Common Stock, and such shares of Common Stock shall not be entitled to vote, until such shares of Common Stock are issued upon the surrender of the certificates representing such shares of this Series and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to such redemption date. (c) Conversion at Option of Holder. Each share of this Series is convertible, in whole or in part, at the option of the holder thereof, at any time after the Deferred Dividend Payment Date and prior to the Mandatory Conversion Date, unless previously redeemed, into a number of shares of Common Stock determined by multiplying .8333 by the Special Factor (the "Optional Conversion Rate"), subject to adjustment as set forth below. The right to convert shares of this Series called for redemption shall terminate at the close of business on the redemption date. Conversion of shares of this Series may be effected by delivering certificates evidencing such shares, together with written notice of conversion and a proper assignment of such certificates to the Company or in blank, to the office or agency to be maintained by the Company for that purpose (and, if applicable, payment of an amount equal to the dividend payable on such shares), and otherwise in accordance with conversion procedures established by the Company. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the foregoing requirements shall have been satisfied. The conversion shall be at the Optional Conversion Rate in effect at such time and on such date. Holders of shares of this Series at the close of business on a record date for any payment of dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion of such shares following such record date and prior to such Dividend Payment Date. However, shares of this Series surrendered for conversion after the close of business on a record date for any payment of dividends and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the dividend thereon which is to be paid on such Dividend Payment Date (unless such shares are subject to redemption on a redemption date in that period). Except as provided above, the Company shall make no payment or allowance for unpaid dividends whether or not in arrears, on converted shares of this Series or for dividends or distributions on the shares of Common Stock issued upon such conversion. 8 PAGE 8 (d) Adjustments. The Common Equivalent Rate and the Optional Conversion Rate shall be subject to adjustment from time to time as provided below in this paragraph. (i) If the Company shall, after the date hereof,: (A) pay a dividend or make a distribution with respect to its Common Stock in shares of such stock; (B) subdivide or split its outstanding Common Stock into a greater number of shares; (C) combine its outstanding shares of Common Stock into a smaller number of shares; or (D) issue by reclassification of its shares of Common Stock any shares of Common Stock of the Company; then, in any such event, the Common Equivalent Rate and the Optional Conversion Rate in effect immediately prior to such event shall each be adjusted so that the holder of any shares of this Series shall thereafter be entitled to receive, upon Mandatory Conversion or upon conversion at the option of the holder, the number of shares of Common Stock of the Company which such holder would have owned or been entitled to receive immediately following any event described above had such shares of this Series been converted immediately prior to such event or any record date with respect thereto. Such adjustment shall become effective at the opening of business on the business day next following the record date for determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, split, combination or reclassification. Such adjustment shall be made successively. (ii) If the Company shall, after the date hereof, issue rights or warrants to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price of the Common Stock, then in each case the Common Equivalent Rate and Optional Conversion Rate shall each be adjusted by multiplying the Common Equivalent Rate and the Optional Conversion Rate, in effect immediately prior to the date of issuance of such rights or warrants, by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase 9 PAGE 9 pursuant to such rights or warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such current market price (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such current market price). Such adjustment shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Common Equivalent Rate shall be readjusted to the Common Equivalent Rate which would then be in effect had the adjustments been made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. Such adjustment shall be made successively. (iii) If the Company shall pay a dividend or make a distribution to all holders of its Common Stock of evidences of its indebtedness or other assets (excluding any dividends or distributions referred to in subparagraph (i) above or any cash dividends) or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in subparagraph (ii) above), then in each such case, the Common Equivalent Rate and the Optional Conversion Rate shall each be adjusted by multiplying the Common Equivalent Rate and the Optional Conversion Rate in effect on the record date mentioned below, by a fraction of which the numerator shall be the current market price per share of the Common Stock on the record date for the determination of stockholders entitled to receive such dividend or distribution, and of which the denominator shall be such current market price per share of Common Stock less the fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive, and described in a resolution adopted with respect thereto) as of such record date of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights or warrants applicable to one share of Common Stock. Such adjustment shall become effective on the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such dividend or distribution. Such adjustment shall be made successively. (iv) Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under subparagraph (ii) above. For purposes of any computation under 10 PAGE 10 subparagraphs (ii) and (iii) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily Closing Prices for the 30 consecutive trading dates preceding the date in question; provided, however, if any event that results in an adjustment of the Common Equivalent Rate occurs during such 30-day period, the current market price as determined pursuant to the foregoing shall be appropriately adjusted to reflect the occurrence of such event. (v) The Company shall also be entitled to make upward adjustments in the Common Equivalent Rate, the Optional Conversion Rate and the Optional Call Number, as it in its discretion shall determine to be advisable, in order that any stock dividends, subdivisions of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Company to its stockholders shall not be taxable. (vi) In any case in which this subparagraph 3(d) shall require that an adjustment as a result of any event become effective at the opening of business on the business day next following a record date and the date fixed for conversion pursuant to subparagraph 3(a) or redemption pursuant to subparagraph 3(b) occurs after such record date, but before the occurrence of such event, the Company may in its sole discretion, elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any converted or redeemed shares of this Series the additional shares of Common Stock issuable upon such conversion or redemption over the shares of Common Stock issuable before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to subparagraph 3(i). (vii) All adjustments to the Common Equivalent Rate and the Optional Conversion Rate shall be calculated to the nearest 1/1000th of a share of Common Stock (or if there is not a nearest 1/1000th of a share to the next lower 1/1000th of a share). No adjustment in the Common Equivalent Rate or the Optional Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (e) Adjustment for Consolidation or Merger. In case of any consolidation or merger to which the Company is a party (other than a merger or consolidation in which the Company is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation remains unchanged), or in case of any sale or transfer to another corporation of the property of the Company as an entirety or substantially as 11 PAGE 11 an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), proper provision shall be made so that each share of this Series shall, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of this Series might have been converted immediately prior to consummation of such transaction, (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of this Series would have converted if the conversion on the Mandatory Conversion Date had occurred immediately prior to the date of consummation of such transaction, and (iii) redemption on any redemption date that occurs on or after the Regular Redemption Date in exchange for the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of a number of shares of Common Stock equal to the Optional Call Number in effect immediately prior to consummation of such transaction, assuming that the public announcement of such redemption had been made on the last possible date permitted by the terms of this Series and applicable law; assuming in each case that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction (provided, however, that if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). The kind and amount of securities into which the shares of this Series shall be convertible after consummation of such transaction shall be subject to adjustment as described in the immediately preceding paragraph following the date of consummation of such transaction. The Company may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (f) Notice of Adjustments. Whenever the Common Equivalent Rate and the Optional Conversion Rate are adjusted as herein provided, the Company shall: (i) forthwith compute the adjusted Common Equivalent Rate and Optional Conversion Rate in accordance herewith and prepare a certificate signed by an officer of the Company setting forth the adjusted Common Equivalent Rate and the Optional Conversion Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and file such certificate forthwith with the transfer agent for the shares of this Series and the Common Stock; and 12 PAGE 12 (ii) mail a notice to the holders of the outstanding shares of this Series stating that the Common Equivalent Rate and the Optional Conversion Rate have been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Common Equivalent Rate and Optional Conversion Rate, such notice to be mailed at or prior to the time the Company mails an interim statement to its stockholders covering the fiscal quarter during which the facts requiring such adjustment occurred, but in any event within 45 days of the end of such fiscal quarter. (g) Notices. In case, at any time while any of the shares of this Series are outstanding: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock, excluding any cash dividends; or (ii) the Company shall authorize the issuance to all holders of its Common Stock of rights or warrants to subscribe for or purchase shares of its Common Stock or of any other subscription rights or warrants; or (iii) of any reclassification of Common Stock of the Company (other than a subdivision or combination thereof) or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required (except for a merger of the Company into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Company to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Company other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or of the sale or transfer of all or substantially all of the assets of the Company; or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of this Series, and shall cause to be mailed to the holders of shares of this Series at their last addresses as they shall appear on the stock register, at least 10 days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to 13 PAGE 13 become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. The failure to give or receive the notice required by this subparagraph 3(g) or any defect therein shall not affect the legality or validity of any such dividend, distribution, right or warrant or other action. (h) Effect of Conversions and Redemptions. The person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon any conversion or redemption shall be deemed to have become on the date of any such conversion or redemption the holder or holders of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person or persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. (i) No Fractional Shares. No fractional shares or script representing fractional shares of Common Stock shall be issued upon the redemption or conversion of any shares of this Series. In lieu of any fractional share otherwise issuable in respect of all the shares of this Series of any holder which are redeemed or converted on any redemption date or upon Mandatory Conversion or any optional conversion, such holder shall be entitled to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the (i) Current Market Price in the case of redemption, or (ii) Closing Price of the Common Stock determined (A) as of the fifth trading day immediately preceding the Mandatory Conversion Date, in the case of Mandatory Conversion, or (B) as of the second trading day immediately preceding the effective date of conversion, in the case of an optional conversion by a holder. If more than one share shall be surrendered for conversion or redemption at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of this Series so surrendered or redeemed. (j) Reissuance. Shares of this Series that have been issued and reacquired in any manner, including shares purchased, exchanged, redeemed or converted, shall not be reissued as part of this Series and shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock. 14 PAGE 14 (k) Definitions. As used in this Certificate: (i) the term "business day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of Delaware are authorized or obligated by law or executive order to close or are closed because of a banking moratorium or otherwise; (ii) the term "Closing Price" on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on such Exchange, then on the principal national securities exchange on which the Common Stock is listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of Common Stock has been traded during the five consecutive trading days ending on and including the date of determination), or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of the Common Stock on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available as determined in good faith by the Board of Directors, on the basis of such relevant factors as it in good faith considers appropriate; (iii) the term "trading days" shall mean a date on which the New York Stock Exchange (or any successor thereto) is open for the transaction of business; and (iv) the term "Common Stock" shall mean any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, shares of Common Stock issuable upon conversion of shares of this Series shall include only shares of the class designated as Common Stock as of the original date of issuance of shares of this Series, or shares of the Company of any class or classes resulting from any reclassification or reclassification thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from such reclassification bears to the total number of shares of all classes resulting from all such reclassification. (v) The term "Special Factor" means the quotient obtained by dividing (x) the Liquidation Price per share of this Series by (y) the weighted average of the trading prices of all trades on the New York Stock Exchange of shares of Common Stock for the five trading day period which ends on the fifth trading day prior to the Deferred Dividend Payment Date; provided, however, that if any event that results in an adjustment of the Common Equivalent Rate occurs during the period beginning on the Issue Date and ending on the last day of such five trading day period, the Special Factor as determined pursuant to the foregoing shall be appropriately adjusted to reflect the occurrence of such event. 15 PAGE 15 (l) Payment of Taxes. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or deliver of shares of Common Stock on the redemption or conversion of shares of this Series pursuant to this paragraph 3; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of shares of this Series redeemed or converted or to be redeemed or converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid. (m) Reservation of Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock and/or its issued Common Stock held in its treasury, for the purpose of effecting any Mandatory Conversion of the shares of this Series or any conversion of the shares of this Series at the option of the holder, the full number of shares of Common Stock then deliverable upon any such conversion of all outstanding shares of this Series. 4. Liquidation Rights. (a) In the event of the liquidation, dissolution, or winding up of the business of the Company, whether voluntary or involuntary, the holders of shares of this Series then outstanding, after payment or provision for payment of the debts and other liabilities of the Company and the payment or provision for payment of any distribution on any shares of the Company having a preference and a priority over the shares of this Series on liquidation, and before any distribution to the holders of the Common Stock or any other stock ranking junior to the shares of this Series with respect to distribution upon liquidation, dissolution or winding up, shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, an amount per share of this Series in cash equal to the sum of (i) the Liquidation Price, plus (ii) all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of shares of the Company ranking junior to the shares of this Series upon liquidation. In the event the assets of the Company available for distribution to the holders of the shares of this Series upon any dissolution, liquidation or winding up of the Company shall be insufficient to pay in full the liquidation payments payable to the holders of outstanding shares of this Series and any shares of the Company ranking on a parity with the shares of this Series upon liquidation, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of this Series and the holders of outstanding shares of such shares of the Company ranking on a parity with the shares of this Series upon liquidation are entitled were paid in full. Except as provided in this paragraph 4, holders of this Series shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Company. 16 PAGE 16 (b) For the purposes of this paragraph 4, none of the following shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company: (i) the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company; (ii) the consolidation or merger of the Company with or into one or more other corporations, or other associations; (iii) the consolidation or merger of one or more corporations or other associations with or into the Company; or (iv) the participation by the Company in a share exchange. 5. Parity. Shares of Preferred Stock of this Series may be on a parity with any class or series of shares of the Company at the time outstanding which by its terms states that such series or class is on a parity with this Series both as to payment of dividends and as to the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding-up of the Company. This Series is on a parity with the Company's series of [ ]% Preferred Stock. 6. No Preemptive Rights. The holders of shares of this Series shall have no preemptive rights, including preemptive rights with respect to any shares of capital stock or other securities of the Company convertible into or carrying rights or options to purchase any such shares. 7. Voting Rights. (a) Except as otherwise provided in this paragraph 7 or as otherwise provided by law or the Restated Certificate of Incorporation of the Company the holders of shares of this Series shall have no voting rights. (b) If at any time dividends payable on the shares of this Series are in arrears and unpaid in an aggregate amount equal to or exceeding the aggregate amount of dividends payable thereon for six quarterly dividend periods, the holders of the shares of this Series, together with the holders of any other series of Preferred Stock ranking on a parity with the shares of this Series then having a right to elect directors as a result of a dividend arrearage, shall have the exclusive right, voting separately as a class with any such other series, to elect two directors of the Company, such directors to be in addition to the number of directors constituting the Board of Directors of the Company immediately prior to the accrual of such right. Such right of the holders of shares of this Series to elect two directors shall, when vested, continue until all dividends in default on the shares of this Series shall have been paid in full and, when so paid, such right of the holders of shares of this Series to elect two directors separately as a class shall 17 PAGE 17 cease, subject, always, to the same provisions for the vesting of such right of the holders of the shares of this Series to elect two directors in the case of future dividend defaults. At any time when such right to elect such directors separately as a class shall have so vested, the Company may, and upon the written request of the holders of record of not less than 25 percent of the total number of shares of this Series and such other series of Preferred Stock then outstanding shall, call a special meeting of the holders of such shares for the election of directors to fill such newly created directorships. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the By-laws of the Company; provided that the Company shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing annual meeting of stockholders of the Company, in which case such newly created directorships shall be filled by the holders of such shares of this Series and such other series of Preferred Stock at such meeting. The term of office of each director elected pursuant to the preceding paragraph shall terminate on the earlier of (i) the next annual meeting of stockholders at which a successor shall have been elected and qualified or (ii) the termination of the right of the holders of shares of this Series and such other series of Preferred Stock to vote for directors pursuant to the preceding paragraph. If, prior to the end of the term of any director elected as aforesaid, a vacancy in the office of such director shall occur, such vacancy shall be filled for the unexpired term by the appointment by the remaining director elected as aforesaid of a new director for the unexpired term of such former director. If both directors so elected by the holders of shares of this Series and such other series of Preferred Stock shall cease to serve as directors before their terms shall expire, the holders of the shares of this Series, together with the holders of such other series of Preferred Stock may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of such directors whose places shall be vacant. (c) So long as any shares of this Series remain outstanding, the consent of the holders of at least two- thirds thereof (voting separately as a class) given in person or by proxy, at any annual meeting or special meeting called for such purpose, shall be necessary to amend, alter or repeal any of the provisions of the Restated Certificate of Incorporation of the Company which would materially and adversely affect any right, preference, privilege or voting power of the shares of this Series; provided, however, that any such amendment, alteration or repeal, that would authorize, create or issue any additional shares of Preferred Stock or any other shares of stock (whether or not already authorized) ranking senior to, on a parity with or junior to the shares of this Series as to dividends or on the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Company, shall be deemed not to materially and adversely affect such right, preference, privilege or voting power and shall not be subject to approval by the holders of shares of this Series. 18 PAGE 18 THE COLUMBIA GAS SYSTEM, INC., by ---------------------------------- Name: Title: Attest: - ------------------------------- Name: Title: EX-99.B5 6 DRAFT CERT. OF DESIGNATION FOR PREFERRED STOCK 1 PAGE 1 Exhibit B.5 THE COLUMBIA GAS SYSTEM, INC. CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND RIGHTS OF THE [ ]% PREFERRED STOCK PAR VALUE $10.00 PER SHARE LIQUIDATION VALUE $25.00 PER SHARE Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned, the [ ] of The Columbia Gas System, Inc., a Delaware corporation (the "Company"), DOES HEREBY CERTIFY that the following resolution has been duly adopted by the Board of Directors of the Company: RESOLVED that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by the provisions of the Restated Certificate of Incorporation of the Company, this Board of Directors hereby authorizes the issuance of a series (this "Series") of the Preferred Stock of the Company (the "Preferred Stock") which shall consist of [ ] shares, and this Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of this Series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the Company which are applicable to the Preferred Stock) as follows: 1. Designation. The designation of this Series of Preferred Stock shall be [ %] Preferred Stock. The number of shares of this Series shall be [ ]. The liquidation value of shares of this Series shall be $25.00 per share. 2. Dividends. (a) The holders of shares of this Series shall be entitled to receive, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, cumulative preferential dividends from the issue date of such shares (the "Issue Date"), payable in arrears on the [ ] day of each 2 PAGE 2 [ ], [ ], [ ] and [ ], (each a "Dividend Payment Date") or, if any Dividend Payment Date is not a business day, then the Dividend Payment Date shall be the next succeeding business day. At the rate per share per annum or [ ]% and no more; provided however, that (i) effective as of [ ] (the "Deferred Dividend Payment Date" and thereafter, such rate per share per annum shall be the rate (expressed in basis points) that is determined in accordance with the pricing methodology attached hereto as Exhibit A on [ ] plus 100 basis points and no more and (ii) the initial Dividend Payment shall be for the period from the Issue Date to and including [ ] and shall be payable on the Deferred Dividend Payment Date. Each dividend on the shares of this Series shall be payable to holders of record as they appear on the stock books of the Company on such record dates, not less than 10 nor more than 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends (or amounts equal to accrued and unpaid dividends) payable on shares of this Series for any period shorter than a quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends on the shares of this Series shall accrue (whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared) on a daily basis from the previous Dividend Payment Date, except that the first dividend shall accrue from the Issue Date. For purposes of the immediately preceding sentence, the Dividend Payment Date for the dividend payable on the Deferred Dividend Payment Date shall be deemed to be [ ]. Dividends accumulate to the extent they are not paid on the Dividend Payment Date for the quarter for which they accrue. Accumulated unpaid dividends shall not bear interest. The foregoing notwithstanding, no dividends shall accrue or be payable with respect to shares of this Series that are redeemed on or prior to [ ] (the "Threshold Date"). (b) Unless full cumulative dividends, if any, accrued on the shares of this Series that are payable in cash have been paid or contemporaneously are declared and paid and a sum set aside sufficient for such payment through the most recent Dividend Payment Date: (i) no full cash dividend shall be declared by the Board of Directors or paid or set aside for payment by the Company or other distribution declared or made on any shares of the Company ranking on a parity with the shares of this Series as to dividends; (ii) no dividend (other than a dividend or distribution paid in shares of, or warrants, rights or options exercisable for or convertible into shares of, Common Stock or in any other shares of the Company ranking junior to the shares of this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other shares of the Company ranking junior to the shares of this Series as to dividends; and (iii) no Common Stock or any other shares of the Company ranking junior to or on a parity with the shares of this Series as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any con- 3 PAGE 3 sideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such series or class) by the Company, except by conversion into or exchange for shares of the Company ranking junior to the shares of this Series as to dividends and upon liquidation. When dividends which are payable in cash have not been paid or set aside in full with respect to the shares of this Series and any other shares of the Company ranking on a parity with the shares of this Series as to dividends, all dividends declared with respect to the shares of this Series and any other shares of the Company ranking on a parity with the shares of this Series as to dividends shall be declared pro rata so that the amount of dividends declared per share on this Series and such other shares shall in all cases bear to each other the same ratio that, at the time of declaration, accrued and payable but unpaid dividends per share on the shares of this Series and such other shares bear to each other. Holders of the shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein described. (c) Subject to the foregoing provisions of this paragraph 2 and paragraph 4(a), the Board of Directors may declare and the Company may pay or set aside for payment dividends and other distributions on any shares of the Company ranking on a parity with or junior to the shares of this Series as to payment of dividends or preference upon liquidation, and may redeem, purchase or otherwise acquire any shares of the Company ranking on a parity with or junior to the shares of this Series as to dividends or upon liquidation, and the holders of the shares of this Series shall not be entitled to share therein. (d) Any dividend payment made on the shares of this Series shall first be credited against the earliest accrued but unpaid dividend due with respect to the shares of this Series. (e) All dividends paid with respect to the shares of this Series shall be paid pro rata to the holders entitled thereto. (f) Holders of the shares of this Series shall be entitled to receive dividends in preference to and in priority over any dividends upon any shares of the Company ranking junior to the shares of this Series as to payment of dividends, but subject to the rights of holders of shares of the Company having a preference and a priority over the payment of dividends on the shares of this Series. 4 PAGE 4 3. Redemptions. (a) Optional Redemptions for Cash. (i) Shares of this Series shall not be redeemable prior to the fifth anniversary of the Issue Date. Except that shares of the series are redeemable by the Company on or prior to the Deferred Dividend Payment Date. On or prior to the Deferred Dividend Payment Date and on or after the fifth annuiversary of the Issue Date, shares of this Series shall be redeemable at the option of the Company in whole or from time to time in part in cash at (i) $25.00 per share, plus, (ii) if such redemption occurs after the Threshold Date, an amount equal to the dividends accrued and unpaid thereon to the redemption date (the sum of (i) and (ii) being the "Call Price"); provided however, that no such redemption may be made on or prior to the Deferred Dividend Payment Date if, after giving effect thereto, either (x) one or more but fewer than 2,000,000 shares of this Series would remain outstanding, or (y) any shares of the Company's Series of $[ ] Convertible Preferred Stock would remain outstanding. (ii) The outstanding shares of this Series are to be redeemed, shares to be redeemed shall be selected by the Company from outstanding shares of this Series not previously redeemed by lot or pro rata (as nearly as may be practicable) or by any other method determined by the Board Directors of the Company in its sole discretion to be equitable. (iii) Shares of this Series are not mandatorily redeemable and are not subject to exchange for or conversion into any other securities. (b) Notice of Redemption. The Company shall provide notice of any redemption of the shares of this Series to holders of record of this Series to be called for redemption not less than 15 nor more than 60 days prior to the date fixed for such redemption. Such notice shall be provided by mailing notice of such redemption first class postage prepaid, to each holder of record of shares of this Series to be redeemed, at such holder's address as it appears on the stock register of the Company; provided, however, that neither failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of this Series to be redeemed. Each such notice shall state, as appropriate, the following and may contain such other information as the Company deems advisable: (i) the redemption date; (ii) that all outstanding shares of this Series are to be redeemed or, in the case of a call for redemption of fewer than all outstanding shares of this Series, the number of such shares held by such holder to be redeemed; (iii) the Call Price; (iv) the place or places where certificates for such shares are to be surrendered for redemption; and 5 PAGE 5 (v) that dividends on the shares of this Series to be redeemed shall cease to accrue on such redemption date (except as otherwise provided herein). (c) Deposit of Shares and Funds. The Company's obligation to provide funds upon redemption in accordance with this paragraph 3 shall be deemed fulfilled if, on or before a redemption date, the Company shall irrevocably deposit such funds with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City and having a capital and surplus of at least $50,000,000, or shall set aside or make other reasonable provision for the payment of such funds. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds so deposited and unclaimed at the end of two years from such redemption date shall be repaid and released to the Company, after which the holder or holders of such shares of this Series so called for redemption shall look only to the Company for delivery of such funds. (d) Surrender of Certificates; Status. Each holder of shares of this Series to be redeemed shall surrender the certificates evidencing such shares (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state) to the Company at the place designated in the notice of such redemption and shall thereupon be entitled to receive any funds payable pursuant to this paragraph 3 following such surrender and following the date of such redemption. In case fewer than all the shares represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Company representing the unredeemed shares. If such notice of redemption shall have been given, and if on the date fixed for redemption funds necessary for the redemption shall have been irrevocably either set aside by the Company separate and apart from its other funds or assets in trust for the account of the holders of the shares to be redeemed (and so as to be and continue to be available therefor) or deposited with a bank or a trust company or an affiliate thereof as provided herein or the Company shall have made other reasonable provision therefor, then, notwithstanding that the certificates evidencing any shares of this Series so called for redemption shall not have been surrendered, the shares represented thereby so called for redemption shall be deemed no longer outstanding, dividends with respect to the shares so called for redemption shall cease to accrue on the date fixed for redemption (except that holders of shares of this Series at the close of business on a record date for any payment of dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares following such record date and prior to such Dividend Payment Date) and all rights with respect to the shares so called for redemption shall forthwith after such date cease and terminate, except for the rights of the holders to receive funds payable pursuant to this paragraph 3 without interest upon surrender of their certificates therefor. 6 PAGE 6 (e) Reissuance. Shares of this Series that have been issued and reacquired in any manner, including shares purchased, exchanged or redeemed, shall not be reissued as part of this Series and shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock. (f) Definitions. As used in this Certificate: (i) the term "business day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of Delaware are authorized or obligated by law or executive order to close or are closed because of a banking moratorium or otherwise; and (ii) the term "Common Stock" shall mean any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. 4. Liquidation Rights. (a) In the event of the liquidation, dissolution, or winding up of the business of the Company, whether voluntary or involuntary, the holders of shares of this Series then outstanding, after payment or provision for payment of the debts and other liabilities of the Company and the payment or provision for payment of any distribution on any shares of the Company having a preference and a priority over the shares of this Series on liquidation, and before any distribution to the holders of the Common Stock or any other stock ranking junior to the shares of this Series with respect to distribution upon liquidation, dissolution or winding up, shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, an amount per share of this Series in cash equal to the sum of (i) $25.00 per share plus (ii) all accrued and unpaid dividends thereon to the date of liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of shares of the Company ranking junior to the shares of this Series upon liquidation. In the event the assets of the Company available for distribution to the holders of the shares of this Series upon any dissolution, liquidation or winding up of the Company shall be insufficient to pay in full the liquidation payments payable to the outstanding shares of this Series and any shares of the Company ranking on a parity with the shares of this Series upon liquidation, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of this Series and the holders of holders of 7 PAGE 7 outstanding shares of such shares of the Company ranking on a parity with the shares of this Series upon liquidation are entitled were paid in full. Except as provided in this paragraph 4, holders of this Series shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Company. (b) For the purposes of this paragraph 4, none of the following shall be deemed to be a voluntary involuntary liquidation, dissolution or winding up of the Company: (i) the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company; (ii) the consolidation or merger of the Company with or into one or more other corporations, or other associations; (iii) the consolidation or merger of one or more corporations or other associations with or into the Company; or (iv) the participation by the Company in a share exchange. 5. Parity. Shares of Preferred Stock of this Series may be on a parity with any class or series of shares of the Company at the time outstanding which by its terms states that such series or class is on a parity with this Series both as to payment of dividends and as to the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding-up of the Company. This Series is on a parity with the Company's series of [$ ] Convertible Preferred Stock. 6. No Preemptive Rights. The holders of shares of this Series shall have no preemptive rights, including preemptive rights with respect to any shares of capital stock or other securities of the Company convertible into or carrying rights or options to purchase any such shares. 7. Voting Rights. (a) Except as otherwise provided in this paragraph 7 or as otherwise provided by law or the Restated Certificate of Incorporation of the Company the holders of shares of this Series shall have no voting rights. (b) If at any time dividends payable on the shares of this Series are in arrears and unpaid in an aggregate amount equal to or exceeding the aggregate amount of dividends payable thereon for six quarterly dividend periods, the holders of the shares of this Series, together with the holders of any other series of Preferred Stock ranking on a 8 PAGE 8 parity with the shares of this Series then having a right to elect directors as a result of a dividend arrearage, shall have the exclusive right, voting separately as a class with any such other series, to elect two directors of the Company, such directors to be in addition to the number of Directors constituting the Board of Directors of the Company immediately prior to the accrual of such right. Such right of the holders of shares of this Series to elect two directors shall, when vested, continue until all dividends in default on the shares of this Series shall have been paid in full and, when so paid, such right of the holders of shares of this Series to elect two directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right of the holders of the shares of this Series to elect two directors in the case of future dividend defaults. At any time when such right to elect such directors separately as a class shall have so vested, the Company may, and upon the written request of the holders of record of not less than 25 percent of the total number of shares of this Series and such other series of Preferred Stock then outstanding shall, call a special meeting of the holders of such shares for the election of directors to fill such newly created directorships. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the By-laws of the Company; provided that the Company shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing annual meeting of stockholders of the Company, in which case such newly created directorships shall be filled by the holders of such shares of this Series and such other series of Preferred Stock at such meeting. The term of office of each director elected pursuant to the preceding paragraph shall terminate on the earlier of (i) the next annual meeting of stockholders at which a successor shall have been elected and qualified or (ii) the termination of the right of the holders of shares of this Series and such other series of Preferred Stock to vote for directors pursuant to the preceding paragraph. If, prior to the end of the term of any director elected as aforesaid, a vacancy in the office of such director shall occur, such vacancy shall be filled for the unexpired term by the appointment by the remaining director elected as aforesaid of a new director for the unexpired term of such former director. If both directors so elected by the holders of shares of this Series and such other series of Preferred Stock shall cease to serve as directors before their terms shall expire, the holders of the shares of this Series, together with the holders of such other series of Preferred Stock may, at a special meeting of the holders called as provided above, elect successors to hold office for the unexpired terms of such directors whose places shall be vacant. (c) So long as any shares of this Series remain outstanding, the consent of the holders of at least two-thirds thereof (voting separately as a class) given in person or by proxy, at any annual meeting or special meeting called for such purpose, shall be 9 PAGE 9 necessary to amend, alter or repeal any of the provisions of the Restated Certificate of Incorporation of the Company which would materially and adversely affect any right, preference, privilege or voting power of the shares of this Series; provided, however, that any such amendment, alteration or repeal, that would authorize, create or issue any additional shares of Preferred Stock or any other shares of stock (whether or not already authorized) ranking senior to, on a parity with or junior to the shares of this Series as to dividends or on the distribution of assets upon liquidation, dissolution or winding up of the affairs of the Company, shall be deemed not to materially and adversely affect such right, preference, privilege or voting power and shall not be subject to approval by the holders of shares of this Series. THE COLUMBIA GAS SYSTEM, INC., by ---------------------------------- Name: Title: Attest: - --------------------------------- Name: Title: EX-27.1 7 FINANCIAL DATA SCHEDULE - CGS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 1 CGS 1000 12-MOS 12-MOS DEC-31-1994 DEC-31-1994 MAR-01-1994 MAR-01-1994 FEB-28-1995 FEB-28-1995 PER-BOOK PRO-FORMA 3,450,775 3,450,775 912,038 886,339 2,698,723 1,543,403 288,845 288,845 0 0 7,350,381 6,168,362 505,633 505,633 601,827 585,361 526,926 (244,972) 1,564,420 1,246,022 0 0 0 400,000 4,138 2,554,138 0 0 0 0 0 0 1,287 1,287 0 0 1,665 1,665 0 0 5,781,823 2,369,202 7,350,381 6,169,362 2,778,730 2,776,730 142,069 42,818 2,420,042 2,420,042 2,420,042 2,420,042 358,688 358,688 38,759 48,262 397,447 406,950 16,828 306,628 238,622 57,576 0 44,000 238,622 13,576 0 0 0 0 0 0 4.72 0.27 4.72 0.27
EX-27.2 8 FINANCIAL DATA SCHEDULE - CG WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 2 CG 1000 12-MOS 12-MOS DEC-31-1994 DEC-31-1994 MAR-01-1994 MAR-01-1994 FEB-28-1995 FEB-28-1995 PER-BOOK PRO-FORMA 0 0 3,719,864 4,057,381 479,633 711,239 2,747 2,747 0 0 4,202,494 4,771,347 505,633 505,633 601,827 585,361 526,926 (244,972) 1,564,420 1,246,022 0 0 0 400,000 0 2,550,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,638,074 975,325 4,202,494 4,771,347 0 0 54,417 29,390 96,322 8,322 96,322 8,322 (96,322) (8,322) 389,881 385,608 293,559 377,286 513 290,313 238,622 57,576 0 44,000 238,622 13,576 0 0 0 0 0 0 4.72 0.27 4.72 0.27
EX-27.3 9 FINANCIAL DATA SCHEDULE - TCO WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 3 TCO 1000 12-MOS 12-MOS DEC-31-1994 DEC-31-1994 MAR-01-1994 MAR-01-1994 FEB-28-1995 FEB-28-1995 PER-BOOK PRO-FORMA 1,881,283 1,881,283 205,255 205,255 1,648,481 356,774 237,743 237,743 0 0 3,972,762 2,681,055 241,784 241,784 70,289 1,130,289 (782,774) (755,539) (470,701) 616,534 0 0 0 0 0 0 0 0 0 1,454,000 0 0 0 0 0 0 0 0 0 0 4,443,463 610,521 3,972,762 2,881,055 677,828 677,828 5,473 3,573 513,344 513,344 513,344 513,344 164,484 164,484 22,722 30,188 187,206 194,672 154,441 154,941 27,292 36,158 0 0 27,292 36,158 0 0 0 0 0 0 0.00 0.00 0.00 0.00
EX-99.H 10 SECURITIES AND EXCHANGE COMMISSION 1 PAGE 1 EXHIBIT H SECURITIES AND EXCHANGE COMMISSION Release No. _________ June 23, 1995 Notice is hereby given that the following filing has been made with the Commission pursuant to provisions of the Public Utility Holding Company Act of 1935, as amended (the "Act") and rules promulgated thereunder. All interested persons are referred to the Application-Declaration for a complete statement of the proposed transactions summarized below. The Application-Declaration and any amendments thereto are available for public inspection through the Commission's Office of Public Reference. Interested persons wishing to comment or request a hearing on the Application-Declaration should submit their views in writing by July 18, 1995 to the Secretary, U.S. Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on the Applicant-Declarant at the address specified below. Proof of service (by affidavit or, in the case of an attorney-at-law, by certificate) should be filed with the request. Any request for hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After said date, the Application-Declaration, as filed or amended, may be granted and/or permitted to become effective. 2 PAGE 2 *************************** The Columbia Gas System, Inc. ("Columbia"), 20 Montchanin Road, Wilmington, Delaware 19807, a Delaware corporation, has filed an Application- Declaration under sections 6, 7, 9, 10, 11(f), 11(g), 12(b), 12(c) and 12(e) of the Act and rules 42, 43, 45, 60, 62, 63, 64 and 65 thereunder. The Application-Declaration includes (i) an amended plan of reorganization and disclosure statement for Columbia (the "Columbia Plan" and "Columbia Disclosure Statement," respectively) and (ii) an amended plan of reorganization and disclosure statement for Columbia Gas Transmission Corporation ("Columbia Transmission"), a Delaware corporation and wholly-owned subsidiary of Columbia (the "TCO Plan" and "TCO Disclosure Statement," respectively), which were filed on June 14, 1995 with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") pursuant to the provisions of Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code").(1) Columbia requests the Commission to issue (i) an order pursuant to section 11(f) approving the Columbia Plan(2) and certain related transactions under the TCO Plan and (ii) a report on the Columbia Plan pursuant to section 11(g) that may accompany a solicitation of creditors and any other interest holders for approval of the Columbia Plan in Columbia's bankruptcy - -------------------- (1) The Columbia Plan and the TCO Plan are collectively referred to herein as the "Plans." Columbia and Columbia Transmission are sometimes collectively referred to herein as the "Debtors" (2) Section 11(f) of the Act provides, in relevant part, that "a reorganization plan for a registered holding company ... shall not become effective unless such plan shall have been approved by the Commission after opportunity for hearing prior to its submission to the court." 3 PAGE 3 proceedings.(3) Columbia, a registered holding company under the Act, and Columbia Transmission, a wholly-owned nonutility subsidiary thereof, filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the Bankruptcy Code on July 31, 1991 (the "Petition Date"). Since that time, the Debtors have continued in the management of their respective businesses and possession of their respective properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. The Commission has filed a notice of appearance under section 1109 of the Bankruptcy Code in each Debtor's bankruptcy proceeding. Except for the appointment of a fee examiner to review the reasonableness of fees and expenses incurred by certain professionals involved in each of the Debtors' cases, no trustee or examiner has been appointed by the Bankruptcy Court. Columbia believes that it is in the best interests of both Columbia's and Columbia Transmission's estates -- in that values will be maximized and the reorganization process expedited after nearly four years under Chapter 11 -- for Columbia to retain ownership of Columbia Transmission as a wholly-owned subsidiary, to recapitalize Columbia Transmission and to fund payments to Columbia Transmission's creditors pursuant to the provisions of the TCO Plan. The Debtors contemplate concurrent implementation of the Columbia Plan and the TCO Plan. - -------------------- (3) Section 11(g)(2) of the Act provides, in relevant part, that any solicitation for consents to or authorization of any reorganization plan of a registered holding company or any subsidiary company thereof shall be "accompanied or preceded by a copy of a report on the plan which shall be made by the Commission after an opportunity for a hearing on the plan and other plans submitted to it, or by an abstract of such report made or approved by the Commission." 4 PAGE 4 Certain transactions contemplated by the Columbia Plan and Columbia's sponsorship of the TCO Plan require the Commission's approval under the Act. The proposed issuance by Columbia Transmission of securities pursuant to the TCO Plan, however, is exempt from approval pursuant to rule 49(c) under the Act. The jurisdictional aspects of the Plans are summarized below. I. The Columbia Plan A. Overview As described in the Columbia Disclosure Statement, the Columbia Plan is intended to provide for payment on the Plan's effective date (the "Effective Date")(4) of substantially all liquidated allowed claims of Columbia's creditors. Holders of claims for borrowed money generally will receive a combination of (i) cash, to the extent available (as determined by Columbia), (ii) new debentures of Columbia ("New Indenture Securities") to be issued under a new form of indenture (the "New Indenture") and (iii) equity securities of Columbia. The equity securities proposed under the Columbia Plan will be preferred stock (the "Preferred Stock") and Dividend Enhanced Convertible Stock ("DECS"). Under certain circumstances provided in the Columbia Plan, Columbia may redeem the Preferred Stock and DECS for cash. Under the Columbia Plan, Columbia may issue up to an aggregate of $3.65 billion in new securities, consisting of up to $3.25 billion in debt and up to $400 million in equity. With respect to the debt, Columbia requests authorization to issue up to $3 billion of New Indenture Securities but contemplates issuing up to $2.1 billion of New Indenture - -------------------- (4) Both the CG Plan and the TCO Plan assume that the Effective Date will occur by December 31, 1995 for purposes of financial projections. The Plans allow for the Effective Date to occur as late as June 28, 1996. 5 PAGE 5 Securities and entering into bank credit facilities (the "Bank Facilities") aggregating up to $1.15 billion. With respect to equity, Columbia contemplates issuing up to $200 million in aggregate value each of the Preferred Stock and DECS. Columbia also contemplates that if cash available from the Bank Facilities or operations is reduced from currently projected levels, the principal amount of New Indenture Securities to be issued pursuant to the Columbia Plan would be proportionately increased, provided that the aggregate of the debt to be issued thereunder would not exceed $3.25 billion. Columbia also proposes to repurchase and possibly reissue common stock of Columbia (the "Common Stock") in connection with the termination of the leveraged employee stock ownership feature (the "LESOP") of the Employees' Thrift Plan of Columbia Gas System (the "Thrift Plan") and, if allowed claims of certain Columbia Transmission creditors exceed the values estimated under the TCO Plan, to issue Common Stock to fund distributions pursuant to the TCO Plan. In addition, the Columbia Plan gives Columbia the flexibility to, under certain conditions, offer Common Stock with respect to claims relating to litigation against Columbia, certain of its current and former directors and officers and other non-debtor defendants currently pending before the United States District Court for the District of Delaware (the "Securities Action"). Finally, holders (collectively, the "Stockholders") of the Common Stock will retain their equity interests in Columbia pursuant to the Columbia Plan and are asked to approve certain amendments to Columbia's certificate of incorporation. B. New Indenture Securities The New Indenture Securities will be general, unsecured senior obligations of Columbia. They will be issued in seven series with maturities of approximately five, seven, 6 PAGE 6 ten, twelve, fifteen, twenty and thirty years. Each New Indenture Security will bear interest from the Effective Date (or from the most recent interest payment date to which interest has been paid) which will be payable semi- annually. The interest rates for each series of New Indenture Securities will be based on market rates for comparable securities. It is expected that the interest rate on any series of New Indenture Securities will not exceed 10 percent per annum. The principal amounts of each series of New Indenture Securities will be payable on their respective maturity dates.(5) The Application-Declaration states that the proposed New Indenture, pursuant to which the New Indenture Securities will be issued, will contain customary affirmative covenants and limitations consistent with market practice for similarly rated companies. The New Indenture also contains limitations on the ability of Columbia's significant subsidiaries (as defined under Regulation S-X) to incur long-term debt with or issue preferred stock to third parties and a negative pledge with respect to Columbia, subject to specified exceptions. C. Preferred Stock The Preferred Stock proposed under the Columbia Plan will have a liquidation value of $25 per share and, as to dividend and liquidation rights, will rank equally with the DECS but prior to the Common Stock. Holders of Preferred Stock will be entitled to receive, when, as and if declared by Columbia's board of directors, cumulative preferential cash dividends accruing from the Effective Date at a rate per share that is to be determined in accordance with a pricing formula. It is currently expected that the dividend rate for Preferred Stock will not exceed 11 percent per annum. The Preferred Stock may be redeemable, in - -------------------- (5) It is contemplated that certain series of the New Indenture Securities may be redeemable, at a premium, at the option of Columbia, as more specifically described in the Application- Declaration. 7 PAGE 7 whole or in part, by Columbia, at its option, on or prior to the 120th day following the Effective Date, so long as at least $50 million in Preferred Stock or none remain outstanding or if all Preferred Stock is to be redeemed no DECs are outstanding. If the Preferred Stock is not so redeemed the dividend rate will be reset and increased by 100 basis points per share per year effective as of the 120th day after the Effective Date. Columbia may also redeem the Preferred Stock in whole or in part on or after the fifth anniversary of the Effective Date. Upon any such redemption by Columbia, a holder of Preferred Stock will receive, in exchange for each share so redeemed, cash in an amount equal to the sum of the liquidation value thereof and all accrued and unpaid dividends thereon to the date fixed for redemption. The holders of Preferred Stock shall not have voting rights except as required by law and as follows: (i) if dividends on the Preferred Stock are in arrears and unpaid for six quarterly dividend periods, the holders of the Preferred Stock will be entitled to vote, on the basis of one vote for each share, for the election of two directors of Columbia, such directors to be in addition to the number of directors constituting the board of directors immediately prior to the accrual of such right; and (ii) the holders of Preferred Stock will have voting rights with respect to certain modifications of Columbia's certificate of incorporation. D. DECS The proposed DECS will be shares of convertible preferred stock of Columbia and have dividend, liquidation and voting rights similar to the Preferred Stock described above. The dividend rate will be determined to make the market value of the DECS comparable to the market value of the Common Stock and the liquidation value will be based on the market value of the Common Stock as of a specified date. It is currently expected that the dividend rate on the DECS will not exceed 11 percent per annum. The DECS will be 8 PAGE 8 mandatorily convertible into Common Stock. Columbia will have the right on or prior to the 120th day after the Effective Date to redeem the DECS, so long as at least $50 million DECS or none remain outstanding. If Columbia fails to redeem the DECs, the dividend rate will increase by 100 basis points per share per year effective as of the 120th day after the Effective Date. Until the fifth anniversary of the Effective Date (the "Mandatory Conversion Date"), a holder of DECS may, at its option, convert its DECS into shares of Common Stock at the applicable conversion rate. On or after the fourth anniversary of the Effective Date or the month before the fifth anniversary after the Effective Date (as determined by Columbia prior to the Effective Date) and prior to the Mandatory Conversion Date, Columbia may redeem the outstanding DECS in whole or in part. Upon any such redemption by Columbia, each holder of DECS will receive, in exchange for the redeemed shares, a certain number of shares of Common Stock equal to the call price of the DECS in effect on the date of redemption divided by the current market price of Common Stock on the trading day prior to the public announcement of Columbia's call for redemption. If the DECS have not already been converted by the holder or redeemed by Columbia, as described above, then all then outstanding DECS will convert automatically on the Mandatory Conversion Date into shares of Common Stock at the applicable conversion rate in effect on such date. The Columbia Plan proposes that the conversion rate initially will be subject to adjustment. E. Bank Facilities As described above, Columbia proposes to enter into the Bank Facilities on or before the Effective Date. Columbia states in its Application-Declaration that it will seek to arrange a senior unsecured term credit facility (the "Term Facility") and one or more senior 9 PAGE 9 unsecured revolving credit facilities (collectively, the "Revolving Facility") in an aggregate principal amount of up to $1.15 billion. The facilities may be combined in a single facility. The Term Facility would be used to fund payments to Columbia's creditors pursuant to the Columbia Plan, obligations of Columbia Transmission pursuant to the TCO Plan and for general corporate purposes. It is anticipated that the initial term of the Term Facility will be two years. Interest rates on borrowings under the Term Facility will be, depending on the nature of the borrowing, the prime rate or the applicable LIBOR rate plus no more than .75% or the applicable certificate of deposit rate plus no more than .875%. Amounts borrowed under the Term Facility will be senior unsecured debt of Columbia. Columbia proposes to enter into the Revolving Facility on or before the Effective Date. It is contemplated that the Revolving Facility will be used to provide working capital for Columbia and its subsidiaries. It is anticipated that the initial term of the Revolving Facility will not exceed five years. Up to $100 million of the Revolving Facility is expected to be used solely for letters of credit to be issued for the account of Columbia (a portion of which may be denominated in Canadian dollars) in the ordinary course of its business. Interest rates on borrowings under the Revolving Facility will be, depending on the nature of the borrowing, the prime rate or specified margins over the applicable LIBOR rate or applicable certificate of deposit rate on the same or similar margin and maturity terms as the Term Faciity. Amounts borrowed under the Revolving Facility will be senior unsecured debt of Columbia. The specific terms of the Revolving Facility, including, without limitation, interest rates, repayment terms, conditions to borrowings, representations and 10 PAGE 10 warranties, covenants and events of default will be negotiated by Columbia and prospective providers of the Revolving Facility. F. Disposition of LESOP Shares Columbia established the LESOP in 1990 to pre-fund, on a tax- advantaged basis, a portion of the employer-matching obligation under the terms of the Thrift Plan. The Columbia Plan proposes that the LESOP will be terminated on the Effective Date in accordance with the provisions of the LESOP trust and that Columbia will concurrently repurchase the Common Stock currently held by the LESOP trust (the "LESOP Shares"). It is Columbia's intention to initially hold the LESOP Shares in treasury and later reissue or otherwise utilize them in such amounts and to use the LESOP Shares for one of the following puposes deemed appropriate by Columbia: (i) selling LESOP Shares on the market over time, (ii) utilizing them to fund distributions to Columbia Transmission's creditors pursuant to the Guarantee, (iii) utilizing them in connection with funding approved employee benefit programs and/or (iv) using them to fund the settlement of the Securities Action pursuant to the Columbia Plan. G. Public Offering of Additional Columbia Equity If Columbia elects to redeem the Preferred Stock and DECS on or prior to the 120th day after the Effective Date and elects to fund such redemption through the issuance and sale of up to 16 million shares of Common or preferred stock, authorization is requested over the issuance of such securities subject to a reservation of jurisdiction over the terms of any such issuance and sale of Common and preferred stock. 11 PAGE 11 H. Potential Offering of Columbia Securities in Connection with Settlement of Securities Action The Columbia Plan proposes the payment by Columbia and other non-debtor defendants of up to $18 million to settle the claims in connection with the Securities Action. Under the Columbia Plan, Columbia has the option to increase this settlement amount if, based on the filing of supplemental proofs of claim or questionnaires, as authorized by the Bankruptcy Court, it is insufficient to meet the range of recoveries provided for in the Columbia Plan. In that event, the Columbia Plan provides that Columbia may elect to pay its portion of the settlement amount exceeding $18 million in the form of Common Stock or may withdraw the Settlement Offer and elect to pay securities claims, when and if allowed by the Bankruptcy Court, in Columbia Common Stock or cash. I. Restated Certificate of Incorporation The Columbia Plan provides that Columbia's certificate of incorporation will be amended and restated (the "Restated Certificate of Incorporation") in accordance with applicable provisions of the Delaware General Corporation Law and the Bankruptcy Code. The Restated Certificate of Incorporation, as more specifically described in the Application-Declaration, would, among other things, prohibit the issuance of non-voting equity securities as required by the Bankruptcy Code, increase the number of authorized shares of Preferred Stock (some of which may be issued on and after the Effective Date in order to effectuate the Columbia Plan as described above). The Restated Certificate of Incorporation also includes various provisions that are necessary to permit the issuance of Preferred Stock and DECS under the Columbia Plan. These provisions differ from the similar provisions in the current Certificate of Incorporation 12 PAGE 12 in that they (i) decrease the par value of Preferred Stock from fifty dollars ($50) to ten dollars ($10), (ii) delete the restriction on Common Stock dividends and amounts of secured debt, (iii) remove and conform specific provisions regarding preferred voting rights, dividend rights and liquidation rights and (iv) permit the Board of Directors to determine the specific rights, powers and preferences of each series of Preferred Stock, and the limitations thereon, at the time of issuance. II. The Columbia Omnibus Settlement Under the TCO Plan To facilitate the TCO Plan and in exchange for settlement of the litigation challenging Columbia's claims against Columbia Transmission and certain transfers made by Columbia Transmission to Columbia and another affiliate prior to the Petition Date and retention of its ownership of Columbia Transmission, the Columbia Board of Directors authorized the "Columbia Omnibus Settlement" whereby Columbia will: (i) Make a capital infusion into Columbia Transmission of approximately one billion dollars, said capital contribution to have two components: (A) Columbia will agree to a restructuring of Columbia Transmission secured debt and the acceptance of $1.5 billion in new secured debt in settlement of the $2 billion claim held by Columbia under existing the secured debt, resulting in an approximate $500 million capital contribution of the balance of the claim. (B) Columbia will agree to provide cash to Columbia Transmission necessary so that the total amount distributable under the TCO Plan equals approximately $3.9 billion including the approximate $2 billion of Columbia's secured claim referred to above. Columbia Transmission is projecting cash on hand totaling approximately $1.4 billion as of December 31, 1995. Therefore, the shortfall that Columbia would fund through an additional capital contribution 13 PAGE 13 would be approximately $500 million, of which about $300 million could be met by Columbia's proportionate recovery on the Columbia Transmission unsecured debt held by it and recovery by another subsidiary on its claims followed by a dividend out of retained earnings by that subsidiary to Columbia. (ii) Guarantee (the "TCO Guarantee") a) the settlement reached by Columbia Transmission with its customers and payments to dissenting customers with respect to ultimately allowed claims(6) (the "Customer Settlement") and b) the payment of the same distribution percentage of ultimately allowed claims of claimants who do not accept the TCO Plan, including producers that ultimately do not accept the Columbia Transmission Producer Settlement ("Dissenting Producers"). In the event that payments required by the TCO Plan to Dissenting Producers (and dissenting customers) increase the total required distributions over the projected $3.9 billion by an amount which requires external funding, Columbia will have the option to utilize Common Stock(7) in lieu of cash payments (and, of course, the option to sell Common Stock in the marketplace and utilize the proceeds for such excess distributions). Under these possible circumstances, whichever technique is employed Columbia's investment in Columbia Transmission will be correspondingly increased. - -------------------- (6) Columbia Transmission's Customer Settlement has the support of all of its major customers, affected state commissions and consumer groups. While the Settlement permits non-supporting parties to litigate their claims against Columbia Transmission, Columbia Transmission's financial exposure from such litigation is considered de minimis. (7) To the extent that the TCO Plan reserves to Columbia the right to issue securities other than Common Stock, the Commission is requested to reserve jurisdiction over the issuance of said securities. 14 PAGE 14 Accepting Producers have agreed to a 5 percent (5%) holdback from the distributions due to them and have agreed that, to the extent that claim values in excess of the settlement values contained in the TCO Plan are agreed to or proven, the holdback will be applied with dollar for dollar matching by Columbia Transmission (and Columbia under the TCO Guarantee) to pay the ultimate distributions to Dissenting Producers. Thus, there is a sharing by Accepting Producers of a portion of the risk of the aggregate distribution to producers pursuant to the TCO Plan to exceed settlement amount contained in the Plan. If the holdback were ever to be used up, Columbia Transmission would be required to pay the entire amount of the excess. Based on the history of the estimation proceedings, Columbia Management does not believe that the Dissenting Producers will be able to prove to the Bankruptcy Court claim values which would so significantly exceed settlement values contained in the TCO Plan that the obligation under the TCO Guarantee would be material to the financial condition of Columbia. For the Commission, by the Division of Investment Management, pursuant to delegated authority. EX-99.I1 11 COLUMBIA GAS SYSTEM PROJECTED STATEMENTS 1995-1999 1 EXHIBIT I-1 PAGE 1 OF 3 COLUMBIA GAS SYSTEM FIVE-YEAR BUSINESS PLAN PROJECTED CONDENSED INCOME STATEMENTS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- -------- Operating Revenues 2,833.4 2,957.8 3,255.5 3,571.9 3,745.1 3,933.5 Operating Expenses: Products Purchased 976.7 1,088.4 1,223.0 1,409.6 1,477.4 1,560.2 Operation and Maintenance 1,012.8 1,082.2 1,086.6 1,128.9 1,171.5 1,216.0 Depreciation and Depletion 261.7 275.7 295.5 315.0 326.0 339.4 Taxes Other than Income 209.0 220.0 229.3 245.3 259.0 273.7 -------- --------- ------- --------- --------- --------- Total Operating Expenses 2,460.2 2,666.3 2,834.4 3,098.8 3,233.9 3,389.3 -------- --------- -------- --------- --------- --------- Operating Income 373.2 291.5 421.1 473.1 511.2 544.2 Other Income (Deductions): Interest Income and Other, Net 46.1 22.3 23.0 18.5 14.7 17.1 Interest Expense and Related Charges (14.8) (978.3) (205.4) (195.8) (196.2) (200.2) Reorganization Items, Net (12.3) (374.4) -- -- -- -- -------- --------- --------- --------- --------- --------- Total Other Income (Deducts) 19.0 (1,330.4) (182.4) (177.3) (181.5) (183.1) -------- --------- --------- --------- --------- --------- Income before Income Taxes 392.2 (1,038.9) 238.7 295.8 329.7 361.1 Income Taxes 146.0 (356.8) 89.6 110.8 121.2 133.7 -------- --------- --------- --------- --------- --------- Income before Extraordinary Charges 246.2 (682.1) 149.1 185.0 208.5 227.4 Extraordinary Items (net) -- 288.1 -- -- -- -- Change in Accounting (5.6) -- -- -- -- -- -------- --------- --------- --------- --------- --------- Net Income 240.6 (394.0) 149.1 185.0 208.5 227.4 Preferred Dividend Payments -- -- 35.0 35.0 35.0 35.0 -------- --------- --------- --------- --------- --------- Earnings on Common Stock 240.6 (394.0) 114.1 150.0 173.5 192.4 ======== ========= ========= ========= ========= ========= Primary Earnings per Share $ 4.76 $ (7.79) $ 2.30 $ 2.93 $ 3.34 $ 3.67 (DECS converted at $30/share) Fully Diluted Earnings per Share (DECS converted at $25/share) $ 4.76 $ (7.79) $ 2.25 $ 2.86 $ 3.26 $ 3.58
2 EXHIBIT I-1 PAGE 2 OF 3 COLUMBIA GAS SYSTEM FIVE-YEAR BUSINESS PLAN PROJECTED CONDENSED BALANCE SHEETS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- -------- Net Property, Plant, and Equipment 4,081.0 4,329.7 4,466.9 4,707.4 4,926.9 5,133.1 Investments and Other Assets 306.4 208.9 176.7 103.5 113.4 123.2 Current Assets: Cash 1,481.8 1.0 1.0 1.0 1.0 1.0 Accounts Receivable 561.4 516.6 479.0 449.8 475.5 469.7 Gas Inventory 230.3 225.8 225.3 223.8 222.9 223.1 Other Current Assets 211.6 446.1 437.0 403.7 380.4 354.2 --------- -------- --------- --------- --------- --------- Total Current Assets 2,485.1 1,189.5 1,142.3 1,078.3 1,079.8 1,048.0 Deferred Charges 292.4 298.7 292.1 288.7 289.5 287.5 --------- -------- --------- --------- --------- --------- Total Assets 7,164.9 6,026.8 6,078.0 6,177.9 6,409.6 6,591.8 ========= ======== ========= ========= ========= ========= Capitalization: Equity 1,468.0 1,474.0 1,598.3 1,717.8 1,855.8 2,008.0 Long Term Debt 4.3 2,432.3 2,265.4 2,232.8 2,308.6 2,326.7 --------- -------- --------- --------- --------- --------- Total Capitalization 1,472.3 3,906.3 3,863.7 3,950.6 4,164.4 4,334.7 Current Liabilities: Short-Term Debt 1.2 300.0 300.0 300.0 300.0 300.0 Rate Refunds Payable 92.2 76.6 39.3 45.5 45.6 46.2 Other Current Liabilities 766.5 621.2 742.5 759.1 775.4 785.4 --------- -------- --------- --------- --------- --------- Total Current Liabilities 859.9 997.8 1,081.8 1,104.6 1,121.0 1,131.6 Liabilities Subject to Chapter 11 Proceedings 3,988.9 -- -- -- -- -- Other Non-Current Liabilities 843.8 1,122.7 1,132.5 1,122.7 1,124.2 1,125.5 --------- -------- --------- --------- --------- --------- Total Capitalization and Liabilities 7,164.9 6,026.8 6,078.0 6,177.9 6,409.6 6,591.8 ========= ======== ========= ========= ========= =========
3 EXHIBIT I-1 PAGE 3 OF 3 COLUMBIA GAS SYSTEM FIVE-YEAR BUSINESS PLAN PROJECTED CONDENSED CASH FLOW SHEETS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- -------- Cash from Operations: Net Income 240.6 (394.0) 149.1 185.0 208.5 227.4 Depreciation and Depletion 261.7 275.7 295.5 315.0 326.0 339.4 Deferred Income Taxes (non-current) 72.2 274.7 19.3 (2.1) 9.8 10.0 Reorganization Items, Net 16.9 (1,515.6) -- -- -- -- Other (net) (41.9) 47.3 (2.9) (4.3) (9.1) (6.7) Change in Working Capital 23.3 (343.0) 144.4 118.1 (29.8) (0.7) -------- --------- -------- --------- --------- --------- Net Cash from Operations 572.8 (1,654.9) 605.4 611.7 505.4 569.4 Investment Activities: Capital Expenditures 433.6 465.7 428.7 515.0 512.0 513.6 Other 1.3 (25.2) -- -- -- -- -------- --------- -------- --------- --------- --------- Net Investment Activities 434.9 440.5 428.7 515.0 512.0 513.6 -------- --------- -------- --------- --------- --------- Net Cash before Financing Activities 137.9 (2,095.4) 176.7 96.7 (6.6) 55.8 Financing Activities: Debt Financing 3.5 650.0 (167.0) (32.4) 75.8 18.1 Equity Financing -- (35.4) 35.5 -- -- -- Dividend Payments -- -- (45.2) (64.3) (69.2) (73.9) -------- --------- -------- --------- --------- --------- Net Financing Activities 3.5 614.6 (176.7) (96.7) 6.6 (55.8) -------- --------- -------- --------- --------- --------- Change in Cash and Equivalents 141.4 (1,480.8) -- -- -- -- ======== ========= ======== ========= ========= ========= Supplemental Cash Flow Disclosures: - ---------------------------------- Interest Paid 0.8 995.8 208.3 198.0 199.6 203.2 Income Taxes Paid 38.8 77.2 (102.1) 43.6 88.8 102.3 Supplemental Schedule of 1995 Noncash Financing - ----------------------------------------------- Activity: - -------- Extinguishment/Retirement of Historical (2,382.0) Indebtedness Interest Expense not Paid in Cash (96.1) Issuance of New Long-Term Debt 2,078.1 Issuance of DECS 200.0 Issuance of Preferred Stock 200.0 --------- Total -- =========
EX-99.I2 12 COLUMBIA GAS TRANSMISSION PROJECTED STAT 1995-1999 1 EXHIBIT I-2 PAGE 1 OF 3 COLUMBIA GAS TRANSMISSION FIVE YEAR BUSINESS PLAN PROJECTED CONDENSED INCOME STATEMENTS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- ---------- ----------- ---------- ------------ ------------ Operating Revenues 705.0 655.4 726.9 762.4 810.9 858.4 Operating Expenses: Operation and Maintenance 407.0 427.3 389.4 404.7 418.7 433.0 Depreciation and Depletion 76.7 83.8 90.9 96.4 104.0 112.2 Taxes Other Than Income 45.6 48.9 52.3 54.8 57.9 60.7 ------ ------ ------ ------ ------ ------ Total Operating Expenses 529.3 560.0 532.6 555.9 580.6 605.9 ------ ------ ------ ------ ------ ------ Operating Income 175.7 95.4 194.3 206.5 230.3 252.5 Other Income (Deductions): Interest Income and Other, Net 26.5 11.9 15.8 12.3 9.4 9.0 Interest Expense and Related Charges -149.9 -171.9 -110.6 -95.9 -97.3 -104.9 Reorganization Items, Net -11.8 -347.1 - - - - ------ ------ ------ ------ ------ ------ Total Other Income (Deducts) -135.2 -507.1 -94.8 -83.6 -87.9 -95.9 ------ ------ ------ ------ ------ ------ Income before Income Taxes 40.5 -411.7 99.5 122.9 142.4 156.6 Income Taxes 9.2 127.2 36.6 44.7 47.3 53.7 ------ ------ ------ ------ ------ ------ Income before Extraordinary Charges 31.3 -284.5 62.9 78.2 95.1 102.9 Extraordinary Items (net) - 350.8 - - - - Change in Accounting -3.1 - - - - - ------ ------ ------ ------ ------ ------ Net Income 28.2 66.3 62.9 78.2 95.1 102.9 Preferred Dividend Payments - - - - - - Earnings on Common Stock 28.2 66.3 62.9 78.2 95.1 102.9 ====== ====== ====== ====== ====== ======
2 EXHIBIT I-2 PAGE 2 OF 3 COLUMBIA GAS TRANSMISSION FIVE YEAR BUSINESS PLAN PROJECTED CONDENSED BALANCE SHEETS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- -------- Net Property, Plant, and Equipment 1,877.5 1,969.0 1,984.9 2,132.9 2,271.4 2,402.0 Investments and Other Assets 206.5 127.8 85.7 2.0 1.7 1.7 Current Assets: Cash 1,253.5 1.5 10.0 1.5 1.5 1.5 Accounts Receivable 310.1 394.9 113.9 108.3 111.0 114.2 Other Current Assets 50.1 281.3 247.8 188.9 150.8 133.3 -------- ------- ------- ------- ------- ------- Total Current Assets 1,613.7 677.7 371.7 298.7 263.3 249.0 Deferred Charges 237.5 6.8 6.8 6.8 6.9 6.9 -------- ------- ------- ------- ------- ------- Total Assets 3,935.2 2,781.3 2,449.1 2,440.4 2,543.3 2,659.6 ======== ======= ======= ======= ======= ======= Capitalization: Equity -489.1 637.2 662.4 693.7 731.7 772.9 Long-Term Debt - 1,454.2 1,109.9 1,044.8 1,108.1 1,198.2 -------- ------- ------- ------- ------- ------- Total Capitalization -489.1 2,091.4 1,772.3 1,738.5 1,839.8 1,971.1 Current Liabilities: Short-Term Debt - 1.5 - 28.0 40.0 40.0 Rate Refunds Payable 8.8 2.2 38.4 38.4 38.5 38.5 Other Current Liabilities 321.2 247.6 204.6 215.9 216.5 211.4 -------- ------- ------- ------- ------- ------- Total Current Liabilities 330.0 251.3 243.0 282.3 295.0 289.9 Liabilities Subject to Chapter 11 Proceedings 3,862.3 - - - - - Other Non-Current Liabilities 232.0 438.6 433.8 419.6 408.5 398.6 -------- ------- ------- ------- ------- ------- Total Capitalization and Liabilities 3,935.2 2,781.3 2,449.1 2,440.4 2,543.3 2,659.6 ======== ======= ======= ======= ======= =======
3 EXHIBIT I-2 PAGE 3 OF 3 COLUMBIA GAS TRANSMISSION FIVE YEAR BUSINESS PLAN PROJECTED CONDENSED CASH FLOW STATEMENTS ($ MILLIONS)
1994 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- ------- Cash from Operations: Net Income 28.2 66.3 62.9 78.2 95.1 102.9 Depreciation and Depletion 76.7 83.8 90.8 96.5 104.0 112.2 Deferred Income Taxes (non-current) 17.4 454.6 10.2 0.8 4.9 6.7 Reorganization Items, Net 212.9 -1,878.3 - - - - Other (net) -39.9 61.5 27.1 68.7 -15.8 -16.7 Change in Working Capital -124.0 -396.2 307.7 75.8 36.0 9.2 ------ -------- ------- -------- ------ ------- Net Cash from Operations 171.3 -1,608.3 498.7 320.0 224.2 214.3 Investment Activities: Capital Expenditures -138.0 -175.4 -106.7 -244.5 -242.5 -242.7 ------ -------- ------- -------- ------ ------- Net Investment Activities -138.0 -175.4 -106.7 -244.5 -242.5 -242.7 ------ -------- ------- -------- ------ ------- Net Cash before Financing Activities 33.3 -1,783.7 392.0 75.5 -18.3 -28.4 Financing Activities: Debt Discharge - -1,984.0 - - - - Debt Financing - 1,455.7 -345.8 -37.1 75.3 90.2 Equity Financing - 1,060.0 - - - - Dividend Payments - - -37.7 -46.9 -57.0 -61.8 Other Financing Activities 11.0 - - - - ------ -------- ------- -------- ------ ------- - - Net Financing Activities 11.0 531.7 -383.5 -84.0 18.3 28.4 ------ -------- ------- -------- ------ ------- Change in Cash and Equivalents 44.3 -1,252.0 8.5 -8.5 - - ====== ======== ======= ======== ====== =======
EX-99.I3 13 ANALYSIS OF SOURCES AND USES OF FUNDS 1 Exhibit I-3 Columbia Plan Source and Use of Funds ($ Millions)
Sources Uses ------- ---- External Financing CG Creditor Recovery New Indenture Securities 2,078 Borrowed Money Claims 3,378 Preferred Stock 200 Other 39 DECS 200 ------- Term Facility 350 Total 3,417 Revolving Facility 300 ======= ------- Total 3,128 ======= TCO CG CASH CONTRIBUTION TO TCO CG Unsecured 254 CNR Recovery 63 Total 527 Other 149 ------- Total 466 ======= SYSTEM Cash on Hand 266 Other 84 ------- Total 350 ======= Total Sources 3,944 Total Uses 3,944 ======= =======
EX-99.I4 14 NEW INDENTURE SECURITIES PRICING FORMULA 1 PAGE 1 EXHIBIT I-4 NEW INDENTURE SECURITIES PRICING FORMULA a.GENERAL Purpose: To establish an appropriate methodology for pricing Columbia's New Indenture Securities by application of the criteria designated below, subject to limited adjustments to reflect market conditions during the period commencing some 15 days before the first date set for confirmation hearing. Columbia, its Creditors' and Equity Committees have agreed to the following procedures for this pricing methodology. In general, the interest rates for each Issue of New Indenture Securities will be calculated based on (1) U.S. Treasury rates and (2) yields to maturity for market Baskets of debt securities having comparable maturities, ratings, and call protection and issued by comparable companies, as described below. b. CRITERIA FOR DEBT SECURITIES IN THE BASKETS Purpose: To establish three Baskets that contain debt securities which will be comparable to the New Indenture Securities. All debt issues which have the following characteristics shall be included in the Baskets: i. Issuers' assets shall be principally in regulated interstate natural gas pipelines and/or natural gas distribution in the United States. ii. Debt issues shall be rated Baa1, Baa2 or Baa3 by Moody's Investors' Service Inc. and BBB+, BBB or BBB- by Standard & Poor's Ratings Group, respectively. iii. Debt Issues in the 5 Year Basket shall mature in 4 to 6 years. Debt Issues in the 10 Year Basket shall mature in 8 to 12 years. Debt Issues in the 30 Year Basket shall mature in greater than 24 years. iv. Debt Issues in the 5 Year Basket shall be non-callable. Debt Issues in the 10 Year Basket shall be non-callable. Debt Issues in the 30 Year Basket shall be non-callable for at least 5 years from the date such debt issue is considered for inclusion in the 30 Year Basket. v. Each included series of debt shall have $100 million or more in principal amount outstanding. vi. Only fixed coupon debt shall be included. 2 PAGE 2 vii. Only fully taxable debt shall be included. viii. Mortgage bonds, privately-placed debt, 144A debt, convertible debt, lease obligation debt, putable debt and debt issues which are subject to sinking funds shall be excluded. In addition, debt issues which are defeased, or are being called or tendered for, shall be excluded. If debt issues cease to be rated within, or are placed under review for removal from, the broad Baa/BBB categories, they shall be excluded from the Baskets. There shall be no limit on the number of debt issues eligible for inclusion in each Basket. A minimum of five issues shall be included in each Basket throughout the pricing period, however, and, if the minimum number of issues cannot be reached within the current criteria parameters, then the maturity parameter shall be broadened to enlarge the Basket to allow for inclusion of at least the minimum five issues. Notwithstanding all of the above, if Salomon Brothers and Barr Devlin jointly agree to add or delete one or more debt issues from any Basket it shall be done. c. BASKET PRICING METHODOLOGY Purpose: The Baskets will be used to determine the spread over the U.S. Treasury curve for pricing of the 5, 10 and 30 year maturities. Additional Adjustment Amounts may be added or subtracted to the three Basket spreads to determine the appropriate spreads over the Treasury curve for the pricing of the 7, 12, 15 and 20 year maturities as identified below. COUPON SETTING MECHANICS
NEW INDENTURE ADDITIONAL SECURITIES ADJUSTMENT MATURITY TREASURY + SPREAD + AMOUNT A. 5 5 Year + 5 year Basket B. 7 7 Year + 5 year Basket + 5 bpts C. 10 10 Year + 10 year Basket D. 12 10 Year + 10 year Basket + 10 bpts E. 15 10 Year + 10 year Basket + 25 bpts F. 20 30 Year + 30 year Basket - 10 bpts G. 30 30 Year + 30 year Basket
Pricing each of the three Basket spreads will be determined by calculation of the average (as determined by the median) spread above the respective 5, 10 or 30 year on the run Treasury issue for the debt issues in each Basket for each of the five business (trading) days (ending five business (trading) days prior to the Effective Date) and then calculating the mean of the five day average spreads. Each Issue of New Indenture Securities shall be priced on the day that is 5 business (trading) 3 PAGE 3 days prior to the Effective Date utilizing on the run Treasury prices at 4 PM Eastern time. To price the seven year tranche, an actual Treasury bond will be selected (based on the criteria of (i) remaining life close to seven years and (ii) coupon close to the interpolated seven year Treasury yield) and used in the absence of an on the run seven year Treasury. The Additional Adjustment Amounts (referred to in the table above) reflect the following pricing factors. (1) Interpolation of the Treasury Yield curve in the case of pricing the 12, 15 and 20 year New Indenture Securities. (2) Differentials between the nominal maturities (5, 10 and 30 years) of the Baskets and the maturities of certain New Indenture Securities as well as the presence or absence of call protection on such New Indenture Securities during those differential periods as identified and limited to the information included in the table below.
NEW INDENTURE MATURITY DIFFERENTIAL DIFFERENTIAL SECURITIES VERSUS PERIOD MATURITY RESPECTIVE BASKET CALL DATA ------------- --------------------- ------------ 7 Year + 2 years Non callable 12 Year + 2 years Callable 15 Year + 5 years Callable 20 Year - 10 years Callable
d. BASKET PRICING ADJUSTMENTS 1. BOND RATINGS Purpose: To adjust by a number of basis points the Basket's daily spread over the Treasury curve for differences between the expected ratings of the New Indenture Securities and the average rating of debt issues in each Basket. This mechanism is designed solely to reflect credit quality spreads in the market for the debt of issuers having assets principally in regulated interstate natural gas pipelines and/or natural gas distribution in the United States. If the average (mean) debt rating for securities within each Basket differs from the expected ratings (as publicly indicated by both Standard & Poor's Rating Group and Moody's Investor's Service Inc.) for the New Indenture Securities, then each Basket's daily spread in basis points over the Treasury curve shall be adjusted by identifying and averaging the applicable number of basis points from Chart A and Chart B. 4 PAGE 4 CHART A (Based on Standard & Poor's Ratings Group)
New Indenture Basket Average Rating Securities Rating BBB+ BBB BBB- ----------------- ------------------------------------------------- BBB+ 0 (10) (20) BBB 10 0 (10) BBB- 20 10 0
CHART B (Based on Moody's Investor's Service Inc.)
New Indenture Basket Average Rating Securities Rating Baa1 Baa2 Baa3 ----------------- ---- ---- ---- Baa1 0 (10) (20) Baa2 10 0 (10) Baa3 20 10 0
i. MATURITIES Purpose: To adjust each Basket spread by a number of basis points for differences between the average maturity of the debt issues in each Basket and the maturity of the related New Indenture Security. If the average (mean) debt maturity for each Basket differs from the related New Indenture Security maturities by one or more years as rounded to the nearest full year, then the following adjustments shall be made to that Basket's daily spread (making an addition of basis points for a shorter Basket maturity, and a subtraction of basis points for a longer Basket maturity): a. 5 Year Basket: 5 basis points per year of difference. b. 10 Year Basket: 3 basis points per year of difference. c. 30 Year Basket: 1 basis point per year of difference. ii. CALL PROTECTION Purpose: To adjust the 30 Year Basket spread by a number of basis points for differences between the number of years of call protection of debt issues in the 30 Year Basket and the number of years of call protection of the New Indenture Securities. a. No pricing adjustments relative to call protection are contemplated for the Five and 10 Year Basket spreads; these baskets include only non-callable debt. b. Spread pricing for the 30 Year Basket shall be increased by the following amount: add or 5 PAGE 5 subtract, as appropriate, one basis point for each year (rounded to nearest full year) that each debt issue in the Basket has longer (plus) or shorter (minus) call protection than 10 years and divide by the number of bond issues in the Basket. E. ALTERATIONS IN THE BONDS IN THE BASKETS, BASKET PRICING METHODOLOGY AND BASKET PRICING ADJUSTMENTS Columbia believes that its Creditors' and Equity Committees agree that this pricing methodology and the data contained herein would appropriately price the New Indenture Securities as of June 13, 1995, and that the following procedures for possible alterations to pricing the New Indenture Securities, limited to the resolution of issues identified below in this Section E, will do so as of the Effective Date. Fifteen days prior to the first date set for the Confirmation hearing, the financial advisor to the Creditors' Committee, Barr Devlin, and the financial advisor to the Company, Salomon Brothers in consultation with the financial advisor to the Equity Committee, shall each identify to the other party proposed changes, if any, (and basing such proposal solely on the criteria in Section B hereof) to the debt issues in the Baskets reviewed and selected by Salomon Brothers and Barr Devlin as of June 13, 1995. If Salomon and Barr Devlin agree on such changes, then such changes to the contents of the Baskets will be final and binding. If Salomon and Barr Devlin are unable to agree on such change, then 10 days prior to the first date set for the Confirmation hearing, the party proposing such change may request arbitration pursuant to Section F hereof. Fifteen days prior to the first date set for the Confirmation hearing, Salomon and Barr Devlin shall each identify to the other party proposed changes, if any, (and basing such proposed changes solely on changes in market conditions from June 1995 and the criteria and purposes found in this Pricing Formula) to the number of basis points found (a) under the column titled Additional Adjustment Amount in Section C, lines, B, D, E and F only; (b) in Chart A and Chart B of Section D.1; (c) in the maturity adjustments found in Section D.2.a, D.2.b, and D.2.c; and (d) in the call protection adjustment found in Section D.3.b. No other changes may be proposed. If Salomon and Barr Devlin agree on such change, then the change will be final and binding. If Salomon and Barr Devlin are unable to agree on such change, then 10 days prior to the first date set for the Confirmation hearing, the party proposing such change may request arbitration pursuant to Section F hereof. Other than the changes allowed in accordance with this Section E, this Pricing Formula may not be changed. F. ARBITRATION In accordance with Section E hereof, if Salomon and Barr Devlin are unable to agree on proposed changes, then the party proposing such change may request arbitration on the date that is 10 days prior to the first date set for the confirmation hearing. Arbitration may not be requested at any other time. Any arbitration so requested shall be conducted in accordance with this Section, and shall be conducted without reference to rules of any arbitration association. Each party must participate in an arbitration properly requested under Section E, and no party may "opt out" of such properly requested arbitration. In the event of arbitration, the position advocated by Salomon Brothers shall be advanced only after consultation with Smith Barney in its role as 6 PAGE 6 advisor to the Equity Committee. Upon a request for arbitration of any proposed change allowed under Section E, each party shall submit to the Arbitrator, within 2 business days, its position on the item or items for which arbitration has been requested, along with a short statement of rationale for its position. Within 2 business days of receipt of the parties' submission, on the bases of (x) this Pricing Formula (and particularly, the statements of purpose found herein) and (y) the Arbitrator's review of market changes between June 1995 and the date that is 15 days prior to the first date set for the confirmation hearing, the Arbitrator shall for each item subject to arbitration choose either (a) the position of Salomon Brothers or (b) the position of Barr Devlin; no compromise or other provision shall be selected by the Arbitrator, provided, however, that if one party fails to submit a position or statement of rationale, the position of the party which does not fail to so submit must be chosen. The decision of the Arbitrator shall be final and binding and shall not be subject to further review. The Arbitrator shall be agreed to by Columbia and its Creditors' Committee. G. PRICING Pricing of the New Indenture Securities shall be administered by Salomon Brothers. Barr Devlin retains the right to timely review all data inputs and calculations as these pertain to the pricing of the New Indenture Securities. Salomon Brothers, Smith Barney, J.P. Morgan Securities and Merrill Lynch (if the latter two parties are willing to do so), and one additional company as agreed to by Columbia and its Creditors' Committee (the "Pricing Agents") shall provide market pricing on individual debt issues. The specific debt issues in each Basket shall be identified to the Pricing Agents no later than 10 business days before the commencement of Basket pricing. Prices of each Issue shall be the average (mean) of prices provided by the agents after the highest price and the lowest price are excluded. Each Pricing Agent shall price according to the institutional/ wholesale market each Basket of debt instruments as well as the on the run 5, 10 and 30 year U.S. Treasury issues at 4 PM daily. All pricing is to be on a yield to maturity basis, and, if necessary, averaging the bid-ask quotes. EX-99.I5 15 DECS PRICING FORMULA 1 PAGE 1 EXHIBIT I-5 DECS PRICING FORMULA DECS ISSUE PRICE: The Liquidation Value of each share of DECS shall be the weighted average of the trading prices of all trades on the New York Stock Exchange of shares of Columbia Common Stock for the five trading day period which ends on the fifth trading day prior to the Effective Date (the "Average"). DECS DIVIDEND RATE: If the anticipated Common Dividend rate (calculated by dividing the Average into Columbia's anticipated initial annual dividend per Common Share following the Effective Date, and expressing such result in basis points), (the "ACDY") equals 300 basis points or less, then the DECS dividend rate shall be the ACDY plus either (a) 450 basis points, if the DECS are redeemable at Columbia's option beginning on the date that is four years after the Effective Date, or (b) 400 basis points, if the DECS are redeemable at Columbia's option beginning on the date that is four years and eleven months after the Effective Date. If the ACDY is greater than 300 basis points, then the DECS dividend rate shall be the ACDY plus either (x) 425 basis points, if the DECS are redeemable at Columbia's option beginning on the date that is four years after Effective Date, or (y) 375 basis points, if the DECS are redeemable at Columbia's option beginning on the date that is four years and eleven months after the Effective Date. In addition to the foregoing, (a) for each 100 basis point increase in the rate on the [benchmark treasury (either a four year or a five year Treasury depending on the selected redemption period)] that occurs after the date of the entry of the order of the Bankruptcy Court approving the Disclosure Statement, an additional 25 basis points shall be added to the DECS dividend rate (as determined 2 PAGE 2 above), and (b) for each 100 basis point decline in the rate on the [benchmark treasury] that occurs after the date of the entry of the order of the Bankruptcy Court approving the Disclosure Statement, 25 basis points shall be subtracted from the DECS dividend rate (as determined above). EX-99.I6 16 PREFERRED STOCK PRICING FORMULA 1 PAGE 1 EXHIBIT I-6 NEW PREFERRED STOCK PRICING FORMULA The annual percentage dividend rate on the New Preferred Stock shall be equal to the sum of (a) the interest rate on Columbia's Issue G New Indenture Securities (expressed in basis points), plus (b) the "Rating Differential Factor" (as defined below), divided by 100. The "Rating Differential Factor" is calculated by averaging the applicable number from Chart A below and Chart B below. CHART A (Based on Standard & Poor's Ratings Group Ratings)
New Preferred New Indenture Security Rating Stock Rating BBB+ BBB BBB- -------------- ------------------------------- BBB+ 5 N/A N/A BBB 10 5 N/A BBB- 25 20 10 BB+ 50 45 35 BB 55 50 40
CHART B (Based on Moody's Investors' Service Inc. Ratings)
New Preferred New Indenture Security Rating Stock Rating Baa1 Baa2 Baa3 ----------------- -------------------------------- baa1 5 N/A N/A baa2 10 5 N/A baa3 25 20 10 ba1 50 45 35 ba2 55 50 40
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