-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Heh4EvnEh/YS3Y2QWMWLkxLWiBBB/WmLq6YWJ7Xvn8PkIZHXKgpOu84wPHuRg2Q8 6ETbPbdsXaIQFUrdiEWnZg== 0000950128-01-000488.txt : 20010316 0000950128-01-000488.hdr.sgml : 20010316 ACCESSION NUMBER: 0000950128-01-000488 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITABLE RESOURCES INC /PA/ CENTRAL INDEX KEY: 0000033213 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 250464690 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03551 FILM NUMBER: 1569374 BUSINESS ADDRESS: STREET 1: ONE OXFORD CENTRE STREET 2: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4125535700 MAIL ADDRESS: STREET 1: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 FORMER COMPANY: FORMER CONFORMED NAME: EQUITABLE GAS CO DATE OF NAME CHANGE: 19841120 10-K 1 j8699301e10-k.txt FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________ COMMISSION FILE NUMBER 1-3551 EQUITABLE RESOURCES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0464690 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE OXFORD CENTRE, SUITE 3300 15219 Pittsburgh, Pennsylvania (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (412) 553-5700 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, no par value New York Stock Exchange Philadelphia Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Philadelphia Stock Exchange 7.35% Capital Securities due April 15, 2038 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of January 31, 2001: $1,886,728,416 The number of shares outstanding of the issuer's classes of common stock as of January 31, 2001: 32,533,034 DOCUMENTS INCORPORATED BY REFERENCE Part III, a portion of Item 10 and Items 11, 12 and 13 are incorporated by reference to the Proxy Statement for the Annual Meeting of Stockholders on May 17, 2001 to be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 2000, except for the performance graph, Compensation Committee Report, Audit Committee Report and the Audit Committee Charter. Index to Exhibits - Page 70 2 TABLE OF CONTENTS PART I Item 1 Business........................................................................3 Item 2 Properties......................................................................9 Item 3 Legal Proceedings..............................................................10 Item 4 Submission of Matters to a Vote of Security Holders............................10 Executive Officers of the Registrant...........................................11 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters..........12 Item 6 Selected Financial Data........................................................12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................13 Item 7A Qualitative and Quantitative Disclosures About Market Risk.....................30 Item 8 Financial Statements and Supplementary Data....................................32 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................66 PART III Item 10 Directors and Executive Officers of the Registrant.............................67 Item 11 Executive Compensation.........................................................67 Item 12 Security Ownership of Certain Beneficial Owners and Management.................67 Item 13 Certain Relationships and Related Transactions.................................67 PART IV Item 14 Exhibits and Reports on Form 8-K...............................................68 Index to Financial Statements Covered by Report of Independent Auditors........68 Index to Exhibits..............................................................70 Signatures.....................................................................75
2 3 PART I ITEM 1. BUSINESS Equitable Resources, Inc. (Equitable or the Company) is an integrated energy company, with emphasis on Appalachian area natural gas production and transportation, natural gas distribution and transmission, and energy services marketing in the northeastern section of the United States. The Company also has an interest in another public company with exploration and production interests in the Gulf of Mexico and Rocky Mountain areas and energy service management projects in selected United States and international markets. The Company and its subsidiaries offer energy (natural gas, natural gas liquids and crude oil) products and services to wholesale and retail customers through three primary business segments: Equitable Utilities, Equitable Production and NORESCO. The Company and its subsidiaries had 1,614 employees at the end of 2000. The Company was formed under the laws of Pennsylvania by the consolidation and merger in 1925 of two constituent companies, the older of which was organized in 1888. In 1984, the corporate name was changed to Equitable Resources, Inc. EQUITABLE UTILITIES Equitable Utilities contains both regulated and nonregulated operations. The regulated group consists of the distribution and interstate pipeline operations, while the unregulated group is involved in nonjurisdictional marketing and trading of natural gas, risk management activities and the sale of energy-related products and services. Equitable Utilities generated 41% of the Company's net operating revenues in 2000. NATURAL GAS DISTRIBUTION Equitable Utilities' distribution operations are carried out by Equitable Gas Company (Equitable Gas), a division of the Company. The service territory for Equitable Gas includes southwestern Pennsylvania, municipalities in northern West Virginia and field line sales in eastern Kentucky. The distribution operations provide natural gas services to more than 275,000 customers, comprised of 257,000 residential customers and 18,000 commercial and industrial customers. Equitable Gas' natural gas portfolio includes short-term, medium-term and long-term natural gas supply contracts obtained from various sources including purchases from major and independent producers in the Southwest, purchases from local producers in the Appalachian area, purchases from gas marketers, and third party underground storage fields. Because many of its customers use natural gas for heating purposes, Equitable Gas' revenues are seasonal, with approximately 65% of calendar year 2000 revenues occurring during the winter heating season from November through March. Significant quantities of purchased natural gas are placed in underground storage inventory during off-peak season to accommodate higher customer demand during the winter heating season. INTERSTATE PIPELINE The interstate pipeline operations of Equitable Utilities include the natural gas transmission and storage activities of Equitrans, L.P. (Equitrans) and Carnegie Interstate Pipeline Company, which are regulated by the Federal Energy Regulatory Commission (FERC). The pipeline division offers gas transportation, storage and related services to its affiliates and end users in the Northeast. The evolving regulatory environment designed to increase competition in the natural gas industry has created a number of opportunities for pipeline companies to expand services and serve new markets. The Company has taken advantage of selected market expansion opportunities, concentrating on Equitrans' underground storage facilities and the location and nature of its pipeline system as a link between the country's major long-line natural gas pipelines. 3 4 The pipeline operations consist of approximately 2,800 miles of transmission, storage and gathering lines, and interconnections with five major interstate pipelines. Equitrans also has 15 natural gas storage reservoirs with approximately 500 million cubic feet (MMcf) per day of peak delivery capability. ENERGY MARKETING Equitable Utilities' unregulated marketing operation, Equitable Energy, purchases, stores and markets natural gas at both the retail and wholesale level, primarily in the Appalachian and mid-Atlantic regions. Services and products offered by the marketing division include commodity procurement and delivery, physical natural gas management operations and control, and customer support services to the Company's energy customers. To manage the price exposure risk of its marketing operations, the Company engages in risk management activities including the purchase and sale of financial energy derivative products. Because of this activity, the energy marketing division is also able to offer energy price risk management services to its larger industrial customers. In conjunction with these activities, the Company also engages in limited trading activity. Equitable Energy uses prudent asset management to leverage the Company's assets through trading activities. Trading activities are entered into with the objective of profiting from exposure to shifts in market prices. RATES AND REGULATION Equitable's distribution rates, terms of service, contracts with affiliates and issuance of securities are regulated primarily by the Pennsylvania Public Utility Commission (PUC), along with the Kentucky Public Service Commission and the Public Service Commission of West Virginia. Pipeline safety is generally regulated by the rules of the Federal Department of Transportation and/or by the state regulatory commission. The Occupational and Health and Safety Administration (OSHA) also imposes certain additional safety regulations. The availability, terms and cost of transportation significantly affect sales of natural gas. The interstate transportation and sale for resale of natural gas is subject to federal regulation, including transportation rates, storage tariffs and various other matters, primarily by the FERC. Federal and state regulations govern the price and terms for access to natural gas pipeline transportation. The FERC's regulations for interstate natural gas transmission in some circumstances may also affect the intrastate transportation of natural gas. For additional discussion of regulatory matters involving Equitable Utilities, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A). ACQUISITIONS AND DIVESTITURES On December 15, 1999, Equitable acquired the distribution, transmission and production operations of Carnegie Natural Gas and subsidiaries (Carnegie) for $40.0 million, including transaction costs. The Carnegie acquisition is complementary to Equitable's plans to grow its core business and increase utilization and operational efficiencies of its local distribution and interstate pipeline operations. The acquisition of Carnegie added approximately 8,000 new distribution customers. See Note G to the consolidated financial statements for additional information related to the Carnegie acquisition. COMPETITIVE ENVIRONMENT Various regulatory and market trends have combined to increase competition in markets served by Equitable Gas. In addition, Equitable Gas faces price competition with other energy forms. The changes precipitated by the FERC restructuring of the natural gas industry in Order No. 636 have significantly increased competition in the natural gas industry. In the restructured marketplace, competition is increasing to provide natural gas sales to commercial and residential customers. However, since Equitable Gas has been managing a transportation service and gas supply risk for a number of years, the transition to a more competitive environment under Order No. 636 has not had a significant impact on its operations. Equitable Gas has responded to this competitive environment by offering a variety of firm and interruptible services, including natural gas transportation, supply pooling, balancing and brokering to industrial and commercial customers. 4 5 Gas industry competition at the retail level is receiving increased attention from both regulators and legislators. In June 1999, Pennsylvania Governor Tom Ridge signed into law the Natural Gas Choice and Competition Act (the Act) which required local natural gas distribution companies to extend the availability of natural gas transportation service to residential and commercial customers by July 1, 2000, pursuant to a PUC-approved plan. In accordance with the Act, Equitable Gas made its restructuring filing on August 16, 1999. The filing was generally a restatement of Equitable Gas' existing tariff previously in effect. The tariff provides for recovery of costs associated with Equitable Gas' existing pipeline capacity and natural gas supply contracts. After negotiations with intervenors, settlement was reached with all parties. The PUC entered an opinion and order adopting the settlement, and Equitable Gas' restructured rates and services became effective July 1, 2000. EQUITABLE PRODUCTION Equitable Production develops, produces and delivers natural gas and crude oil, with operations in the Appalachian region of the United States. It also engages in natural gas gathering and interstate transportation and the processing and sale of natural gas liquids. Equitable Production generated approximately 53% of the Company's net operating revenues in 2000. Equitable Production is one of the largest owners of proved natural gas reserves in the Appalachian Basin. The Company's exploration and production properties are located in the Appalachian Basin, which is the oldest and geographically one of the largest natural gas producing regions in the United States. Equitable Production currently owns 8,274 net producing wells in Appalachia. As of December 31, 2000, the Company estimates the total proved reserves to be 2,206 billion cubic feet equivalent (Bcfe), including undeveloped reserves of 602 Bcfe. The areas in which the Company's Appalachian properties are located are characterized by wells with comparatively low rates of annual decline in production, low production costs and high British thermal unit (Btu), or energy content. Once drilled and completed, wells in the Appalachian Basin typically have low ongoing operating and maintenance requirements and minimal capital expenditures. These formations are characterized by slow recovery of the reserves in place, low rates of production and wells that generally produce for longer than 20 years and often more than 50 years. Many of the Company's wells in these areas have been producing for many years, in some cases since the early 1900's. Reserve estimates for properties with long production histories are generally more reliable than estimates for properties with shorter histories. Substantially all of the Appalachian wells are relatively shallow, with depths ranging from 1,000 to 7,000 feet below the surface. Many of these wells are completed in more than one producing zone and production from these zones may be mixed or commingled. Commingled production lowers producing costs on a per unit basis compared to isolated zone completions. The average Btu content for each cubic foot of natural gas produced from the Company's Appalachian properties is approximately 1,130 at the well-head, which has historically provided an average 13% premium over the standard measure of 1,000 Btu per cubic foot when calculating realized prices on a per thousand cubic feet (Mcf) basis. The productive lives of producing natural gas properties are often compared using their reserve-to-production index. This index is calculated by dividing total proved reserves of the property by annual production for the prior 12 months. The reserve-to-production index for the underlying properties at December 31, 2000 was approximately 23 years. This reserve-to-production index shows a relatively long producing life compared to an average index of 13 years for U.S. natural gas properties at year-end 1999. Because production rates naturally decline over time, the reserve-to-production index may not be a useful estimate of how long properties should economically produce. Based on the Company's reserve report, production from the underlying properties is expected to continue for at least 50 more years. Equitable Production currently has an inventory of 3.7 million gross acres, of which approximately 71% have not been developed. As of December 31, 2000, the Company estimated the proved undeveloped reserves of the underlying leases to be 602 Bcfe from 1,800 proved undeveloped drilling locations. In the last three years, Equitable Production has completed approximately 99% of the wells it has drilled in Appalachia. 5 6 In December 1999, the unregulated production properties and well operations of Equitable Utilities' Equitrans pipeline division were transferred to Equitable Production (Appalachian). These properties include 800 producing natural gas wells and 38.9 Bcfe of proved developed reserves. ACQUISITIONS AND DIVESTITURES In February 2000, the Company acquired the Appalachian production assets of Statoil Energy Inc. (Statoil) for $630 million plus working capital adjustments for a total of $677 million. Statoil's operations consisted of approximately 1.2 trillion cubic feet of proven natural gas reserves and 6,500 gross natural gas wells in West Virginia, Kentucky, Virginia, Pennsylvania and Ohio. In April 2000, the Company combined its Gulf of Mexico operations with Westport Oil and Gas Company for $50 million in cash and approximately 49% interest in the combined company, Westport Resources Corporation (Westport). In October 2000, Westport had a successful initial public offering (IPO) of its shares. Equitable sold 1.325 million shares in this IPO for an after-tax gain of $4.3 million. Equitable now owns 13.911 million shares, or approximately 36% interest in the Company. Equitable's equity in Westport was $130.1 million as of December 31, 2000. On June 30, 2000, Equitable sold a substantial portion of its interest in properties qualifying for nonconventional fuel tax credit to a partnership that netted $122.2 million in cash and retained a minority interest in this partnership. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Prior to this transaction, the Company entered into financial hedges covering the first two years of production. Removal of these hedges upon closing of this transaction resulted in a $7.0 million pretax charge recorded as other loss. Equitable accounted for its remaining $26.3 million investment under the equity method of accounting. Equitable estimates that it will receive $6.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In December 2000, Equitable sold 133.3 Bcfe of reserves acquired from Statoil to a trust for proceeds of $255.8 million and a minority interest in this trust. In anticipation of this transaction, the Company had previously entered into financial hedges. Removal of these hedges upon closing of this transaction resulted in a $57.7 million charge that was equally offset against the gain recognized on the sale of these properties. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Equitable accounted for its $36.2 million investment under the equity method of accounting. Equitable estimates that it will receive $12.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In 2000, the Company entered into two natural gas advance sale contracts for 48.7 MMcf of reserves. The Company is required to deliver certain quantities of natural gas during the term of the contracts. The first contract is for five years with net proceeds of $104.0 million. The second contract is for three years with net proceeds of $104.8 million. As such, these contracts were recorded as prepaid gas forward sales and are being recognized in income as deliveries occur. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. See Notes F, G and I to the consolidated financial statements for additional information relating to the Company's acquisitions and divestitures. 6 7 COMPETITIVE ENVIRONMENT The combination of its long-lived production, low drilling costs, high drilling completion rates at shallow depths and proximity to natural gas markets has had a substantial impact on the development of the Appalachian Basin resulting in a highly fragmented operating environment. In 2000, Kentucky and West Virginia had approximately 3,000 independent operators and 90,000 producing natural gas and oil wells. Also, the historical availability of tax incentives has resulted in extensive drilling in the shallow formations with these low technical risk characteristics. HEDGING ACTIVITIES Equitable has historically entered into hedging contracts with respect to its natural gas and crude oil production at specified prices for a specified period of time. The Company's hedging strategy and information regarding derivative instruments used are outlined below in Item 7A, "Qualitative and Quantitative Disclosures About Market Risk," and in Note B to the consolidated financial statements. NORESCO NORESCO provides energy and energy-related products and services that are designed to reduce its customers' operating costs and improve their productivity. NORESCO's customers include commercial, governmental, institutional and industrial end-users. NORESCO operates in a highly competitive market segment, with a significant number of companies, including affiliates of large energy companies that have entered this market in recent years. NORESCO provided approximately 6% of the Company's net operating revenues in 2000. The segment's performance contracting group provides outsourced solutions for energy conservation and efficiency. Guaranteed energy savings are used to pay for implementation of new energy-efficient equipment and systems. Performance Contracting provides a "turnkey" solution including engineering analysis, project management, construction, financing, operations and maintenance, and energy savings metering, monitoring and verification. This is a growing market, primarily in the public sector, with a considerable opportunity in the Federal Government sector. NORESCO has significant federal contracts and continues to pursue opportunities in this market. The segment's energy infrastructure group develops and operates private power, cogeneration and central plant facilities in the United States and operates private power plants in selected international countries. These projects serve a diverse clientele including hospitals, universities, commercial and industrial customers and utilities. NORESCO's capabilities offer a "turnkey" approach to energy infrastructure programs including project development, equipment selection, fuel procurement, environmental permitting, construction, financing and operations and maintenance. Some of these projects are held through equity in nonconsolidated investments. At the end of 2000, NORESCO employed 324 people. Revenue backlog increased to $91.0 million at year-end 2000 from $71.0 million at the end of 1999. A substantial portion of the backlog is expected to be completed within the next 18 months. DISCONTINUED OPERATIONS In December 1998, the Company sold its natural gas midstream operations. The operations included an integrated gas gathering, processing and storage system in Louisiana and a natural gas and electricity trading and marketing business based in Houston, Texas, with an office in Calgary. These businesses are classified in the consolidated financial statements as discontinued operations. See Note E to the consolidated financial statements for additional information relating to the discontinued operations. 7 8 OPERATING REVENUES Operating revenues as a percentage of total operating revenues for each class of products and services greater than 10% of three business segments during the years 2000 through 1998 are as follows: 2000 1999 1998 ---- ---- ---- Equitable Utilities: Residential natural gas sales ...... 15% 19% 26% Marketed natural gas equivalents ... 53 33 29 Equitable Production: Produced natural gas ............... 13 13 13 NORESCO: Energy service contracting ......... 8 16 13 The Company believes that a better understanding of business segments revenue contributions can be obtained by analysis of net revenues by class of products and services. 2000 1999 1998 ---- ---- ---- Equitable Utilities: Residential natural gas sales....... 14% 16% 21% Transportation ..................... 12 18 13 Marketed natural gas................ 15 8 10 Equitable Production: Produced natural gas equivalents.... 40 30 29 NORESCO: Energy service contracting.......... 6 8 7 See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes U and V to the consolidated financial statements in Part II, Items 7 and 8, respectively, for financial information by business segment and information regarding environmental matters. 8 9 ITEM 2. PROPERTIES Principal facilities are owned by the Company's business segments, with the exception of various office locations and warehouse buildings. A limited amount of equipment is also leased. The majority of transmission, storage and distribution pipelines are located on or under (1) public highways under franchises or permits from various governmental authorities, or (2) private properties owned in fee, or occupied under perpetual easements or other rights acquired for the most part without examination of underlying land titles. The Company's facilities have adequate capacity, are well maintained and, where necessary, are replaced or expanded to meet operating requirements. Equitable Utilities. This segment owns and operates natural gas distribution properties as well as other general property and equipment in Pennsylvania, West Virginia and Kentucky. The segment also owns and operates underground storage and transmission facilities in Pennsylvania and West Virginia. Equitable Production. This business segment owns or controls all of the Company's acreage of proved developed and undeveloped natural gas and oil production properties principally located in the Appalachian region. In addition, Kentucky West Virginia Gas Company, LLC owns and operates gathering and transmission properties as well as other general property and equipment in Kentucky. Equitable Production's properties also include hydrocarbon extraction facilities in Kentucky with a 100-mile liquid products pipeline that extends into West Virginia. Information relating to Company estimates of natural gas and crude oil reserves and future net cash flows is provided in Note X to the consolidated financial statements in Part II.
Natural Gas and Crude Oil Production: 2000 1999 1998 ---- ---- ---- Natural Gas MMcf produced........................................... 87,134 66,328 59,893 Average sales price per Mcfe sold....................... $ 2.87 $ 2.39 $ 2.41 Crude Oil Thousands of barrels produced........................... 497 1,070 974 Average sales price per barrel.......................... $ 21.75 $ 15.53 $ 13.59
Average production cost (lifting cost) of natural gas and crude oil during 2000, 1999 and 1998 was $.509, $.373, and $.462 per Mcf equivalent, respectively.
NATURAL GAS OIL ---------------- ------------- Total productive wells at December 31, 2000: Total gross productive wells......................................... 12,433 551 Total net productive wells(a)........................................ 7,791 483 Total acreage at December 31, 2000:.................................... Total gross productive acres......................................... 1,089,263 Total net productive acres........................................... 1,078,558 Total gross undeveloped acres........................................ 2,623,942 Total net undeveloped acres.......................................... 2,377,888
(a) Reflects 2,320 wells which are subject to a term net profits interest and 2,017 wells which are subject to a term assignment of production which reduce the Company's interest in the wells. Number of net productive and dry exploratory and development wells drilled:
2000 1999 1998 ---- ---- ---- Exploratory wells: Productive........................................................... -- 3.5 4.3 Dry.................................................................. 1.0 0.8 5.0 Development wells: Productive........................................................... 284.6 118.6 74.6 Dry.................................................................. 2.0 -- 2.0
No report has been filed with any federal authority or agency reflecting a 5% or more difference from the Company's estimated total reserves. NORESCO. NORESCO is based in Westborough, Massachusetts, and leases offices in 17 locations throughout the United States. Headquarters. The headquarters is located in leased office space in Pittsburgh, Pennsylvania. 9 10 ITEM 3. LEGAL PROCEEDINGS In May 1998, the jury in U.S. Gas Transportation, Inc. v. Equitable Resources Marketing Company, a breach of contract action filed in the Judicial District Court of Dallas County, Texas, in July 1996, returned a verdict against the Company in the amount of $4.36 million. On motion by the Company, the judge subsequently reduced the award to $762,000 on which final judgment was entered, together with $550,000 in attorneys' fees. The case is on appeal. In Interstate Natural Gas Company v. Equitable Resources Energy Company et. al. (including Kentucky West Virginia Gas Company), a royalty case filed in June 1995 in the Kentucky Circuit Court in Floyd County, the judge granted plaintiff's motion for summary judgment against the Company for breach of fiduciary duty and contract unconscionability. In late 1998, the court entered judgment for damages totaling $1.9 million. After posting a guarantee of $2.6 million (including estimated postjudgment interest), the Company appealed to the Kentucky Court of Appeals. During 2000, the Kentucky Court of Appeals reduced this judgment from approximately $1.9 million to approximately $250,000 plus interest. On September 25, 2000, the Company filed a motion for discretionary review with the Kentucky Supreme Court. There are no other pending legal proceedings likely to have a material effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 2000. 10 11 EXECUTIVE OFFICERS OF THE REGISTRANT
Name and Age Title Business Experience ------------ ----- ------------------- Philip P. Conti (41) Vice President, Finance and Elected to present position August 21, 2000; Director of Treasurer Planning and Development from June 1, 1998, Assistant Treasurer - Finance from January 19, 1996. James M. Funk (51) Senior Vice President Elected to present position July 19, 2000; President, Equitable Production Company from June 12, 2000; President, J.M. Funk & Associates, Inc. from January 1999; President, Shell Continental Companies from January 1998; President and Chief Executive Officer, Shell Midstream Enterprises, Inc. from April 1996; Vice President and General Manager, Shell Offshore, Inc. from October 1991. Murry S. Gerber (48) Chairman, President and Elected to present position May 30, 2000; President and Chief Executive Officer Chief Executive officer from June 1, 1998; Chief Executive Officer of Coral Energy, Houston, TX, from November 1995. Joseph E. O'Brien (48) Vice President Elected to present position January 18, 2001; President, Northeast Energy Services, Inc. from January 17, 2000; Senior Vice President, Construction & Engineering from June 14, 1993. Johanna G. O'Loughlin (54) Vice President, General Elected to present position May 26, 1999; Vice President Counsel and Secretary and General Counsel from December 19, 1996; Deputy General Counsel from April 1996; Senior Vice President and General Counsel of Fisher Scientific Company, Pittsburgh, PA, from June 1986. David L. Porges (43) Executive Vice President and Elected to present position February 1, 2000; Senior Vice Chief Financial Officer President and Chief Financial Officer from July 1, 1998; Managing Director, Bankers Trust Corporation, Houston, TX, and New York, NY, from December 1992. Gregory R. Spencer (52) Senior Vice President and Elected to present position May 23, 1996; Vice President - Chief Administrative Officer Human Resources and Administration from May 1995.
- ---------------- Officers are elected annually to serve during the ensuing year or until their successors are chosen and qualified. Except as indicated, the officers listed above were elected on May 17, 2000. 11 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange and the Philadelphia Stock Exchange. The high and low sales prices reflected in the New York Stock Exchange Composite Transactions as reported by The Wall Street Journal, and the dividends declared and paid per share, are summarized as follows (in U.S. dollars per share):
2000 1999 --------------------------------- ---------------------------------- HIGH LOW DIVIDEND HIGH LOW DIVIDEND ---- --- -------- ---- --- -------- 1st Quarter...................... $46.00 $32.25 $0.295 $29.75 $24.25 $0.295 2nd Quarter...................... 52.88 41.63 0.295 37.75 23.25 0.295 3rd Quarter...................... 63.44 46.81 0.295 39.00 35.94 0.295 4th Quarter...................... 66.75 55.75 0.295 38.38 32.56 0.295
As of February 28, 2001, there were approximately 4,908 shareholders of record of the Company's common stock. The indentures under which the Company's long-term debt is outstanding contain provisions limiting the Company's right to declare or pay dividends and make certain other distributions on, and to purchase any shares of, its common stock. Under the most restrictive of such provisions, $565 million of the Company's consolidated retained earnings at December 31, 2000 was available for declarations or payments of dividends on, or purchases of, its common stock. The Company anticipates dividends will continue to be paid on a regular quarterly basis. ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) Operating revenues ........................... $1,652,218 $1,042,013 $ 851,811 $ 886,525 $ 854,822 ========== ========== ========== ========== ========== Net income (loss) from continuing operations (a) ............................ $ 106,173 $ 69,130 $ (27,052) $ 74,187 $ 53,527 ========== ========== ========== ========== ========== Net income (loss) from continuing operations per common share: Basic ................................... $ 3.26 $ 2.03 $ (0.73) $ 2.06 $ 1.52 ========== ========== ========== ========== ========== Assuming dilution ....................... $ 3.20 $ 2.01 $ (0.73) $ 2.05 $ 1.52 ========== ========== ========== ========== ========== Total assets ................................. $2,455,850 $1,789,574 $1,860,856 $2,328,051 $2,096,299 Long-term debt ............................... $ 287,789 $ 298,350 $ 281,350 $ 417,564 $ 422,112 Preferred trust securities ................... $ 125,000 $ 125,000 $ 125,000 $ -- $ -- Cash dividends paid per share of common stock .............................. $ 1.18 $ 1.18 $ 1.18 $ 1.18 $ 1.18
- --------- (a) Includes nonrecurring items in 1998 and 1997, as described in previous filings of the Form 10-K. Excludes discontinued operations and extraordinary items recognized in 1998 and 1997, as described in previous filings of the Form 10-K. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS Equitable's consolidated net income from continuing operations for 2000 was $106.2 million, or $3.20 per diluted share, compared with $69.1 million, or $2.01 per diluted share, for 1999 and a loss of $(27.1) million, or $(0.73) per diluted share, for 1998. The improved 2000 earnings are due to increased natural gas production attributable to the acquisition of Statoil's Appalachian oil and gas properties; higher commodity prices; increased throughput associated with the Carnegie acquisition; and lower operating and administrative expenses throughout the organization due to continuing process improvement efforts in all significant business units. The 2000 earnings were partially offset by increased performance-related incentive costs that were not allocated to business segments. Earnings for 1999 increased over 1998 as a result of increased natural gas production; increased throughput in the regulated distribution operations primarily due to colder weather; lower exploration costs; and lower operating and administrative expenses throughout the organization due to prior years' restructuring efforts. BUSINESS SEGMENT RESULTS Business segment operating results are presented in the segment discussions and financial tables on the following pages. Headquarters operating expenses are billed to operating segments based on a fixed allocation of the annual operating budget. Differences between budget and actual expenses are not allocated to operating segments. In 2000, certain performance-related incentive costs totaling $11.2 million were not allocated. Prior periods have been reclassified to conform to the current presentation. EQUITABLE UTILITIES Equitable Utilities' operations are comprised of the sale and transportation of natural gas to retail customers at state-regulated rates, interstate transportation and storage of natural gas subject to federal regulation, and the unregulated marketing of natural gas. NATURAL GAS DISTRIBUTION The local distribution operations of Equitable Gas Company (Equitable Gas) and Carnegie Natural Gas Company (Carnegie Gas), subsidiaries of the Company, provide natural gas services in southwestern Pennsylvania and in municipalities in northern West Virginia. In addition, Equitable Gas provides field line sales in eastern Kentucky. Both Equitable Gas and Carnegie Gas are subject to rate regulation by state regulatory commissions in Pennsylvania, West Virginia and Kentucky. Gas industry competition at the retail level is receiving increased attention from both regulators and legislators. In June 1999, Pennsylvania Governor Tom Ridge signed into law the Natural Gas Choice and Competition Act (the Act), which required local natural gas distribution companies to extend the availability of natural gas transportation service to residential and commercial customers by July 1, 2000, pursuant to a PUC-approved plan. In accordance with the Act, Equitable Gas made its restructuring filing on August 16, 1999. The filing was generally a restatement of Equitable Gas' existing tariff previously in effect. The tariff provides for recovery of costs associated with Equitable Gas' existing pipeline capacity and natural gas supply contracts. After negotiations with intervenors, settlement was reached with all parties. The PUC entered an opinion and order adopting the settlement, and Equitable Gas' restructured rates and services became effective July 1, 2000. INTERSTATE PIPELINE The pipeline operations of Equitrans, L.P. (Equitrans) and Carnegie Interstate Pipeline (Carnegie Pipeline), subsidiaries of the Company, are subject to rate regulation by the FERC. Under present rates, a majority of the annual costs are recovered through fixed charges to customers. Equitrans filed a rate case in April 1997, which addressed the recovery of certain stranded plant costs related to the implementation of FERC Order No. 636. The requested rates were placed into effect in August 1997, subject to refund, pending the issuance of a final order. On April 29, 1999, the FERC approved, without modification, the joint stipulated settlement agreement resolving all issues in the proceeding. 13 14 The approved settlement provides for prospective collection of increased gathering charges. In addition, the settlement provides Equitrans the opportunity to retain all revenues associated with interruptible transportation and negotiated rate agreements, as well as moving its gathering charge toward a cost based rate. In the second quarter of 1999, Equitrans recorded the final settlement of the rate case. The final settlement includes the adjustment of the prior provisions for refund and recognition of the previously deferred revenues and costs related to the stranding of certain gathering facilities. During 1999, the Company owned a third interstate pipeline, Three Rivers Pipeline Company, which was interconnected with Equitrans. On November 29, 1999, Equitrans filed an application with the FERC to acquire and operate the assets of Three Rivers Pipeline Company that was granted by an order dated April 13, 2000. ENERGY MARKETING Equitable's unregulated marketing division provides natural gas operations, commodity procurement and delivery, risk management and customer services to energy consumers including large industrial, utility, commercial, institutional and residential end-users. This division's primary focus is to provide products and services in those areas where the Company has a strategic marketing advantage, usually due to geographic coverage and ownership of physical or contractual assets. In conjunction with these activities, the Company also engages in limited trading activity. Equitable Energy uses prudent asset management to leverage the Company's assets through trading activities. Trading activities are entered into with the objective of profiting from shifts in market prices. CAPITAL EXPENDITURES Equitable Utilities has set the 2001 capital expenditure level at $60.8 million, a 114% increase over capital expenditures of $28.4 million for 2000. The 2001 capital expenditures include $29.5 million for the distribution operations, $6.0 million for pipeline operations, including maintenance and improvements to existing lines and facilities, and approximately $25.3 million for new business development opportunities and technology improvements. EQUITABLE UTILITIES
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ---- ---- ---- OPERATIONAL DATA Operating expenses/net revenues ...................... 60.85% 64.62% 75.51% Capital expenditures (Thousands)...................... $ 28,436 $ 43,979 $ 20,860 FINANCIAL DATA (THOUSANDS) Utility revenues ..................................... $ 377,700 $324,869 $ 322,057 Marketing revenues ................................... 1,009,554 487,005 329,967 ---------- -------- --------- Total revenues .................................. 1,387,254 811,874 652,024 Purchased natural gas cost ........................... 1,149,775 583,974 460,685 ---------- -------- --------- Net revenues .................................... 237,479 227,900 191,339 Operating and maintenance expense .................... 59,072 57,844 57,466 Selling, general and administrative expense .......... 57,244 53,819 66,436 Depreciation, depletion and amortization (DD&A) ...... 28,185 35,596 20,570 Restructuring and impairment charges ................. -- -- 14,693 ---------- -------- --------- Total expenses .................................. 144,501 147,259 159,165 ---------- -------- --------- Operating income ..................................... $ 92,978 $ 80,641 $ 32,174 ========== ======== =========
14 15 Operating income for Equitable Utilities increased 15.3% from 1999 to 2000. The increase in 2000 is a result of higher net revenues due principally to the Carnegie acquisition and cooler weather during the heating season. Results for the 2000 period include $.9 million for the recovery of stranded costs in rates from the previously mentioned Equitrans rate case settlement, which was partially offset by charges of $1.5 million for improvement of utility segment operating processes and consolidation of facilities. Results for 1999 benefited from the recognition of the settlement of Equitrans' rate case which included stranded cost recovery that had a positive net result of $3.9 million. This benefit was principally offset by charges of $3.0 million for improvement of utility segment operating processes and consolidation of facilities. Excluding the impact of the rate case settlement and process improvement charges in both periods, operating income increased $13.8 million, or 17.3% over the $79.7 million in 1999. Operating income for Equitable Utilities increased 151% from 1998 to 1999. The increase in 1999 is a result of higher net revenues due principally to cooler weather during the heating season, increased revenues from energy marketing activities and lower operating expenses due to restructuring initiatives begun in the fourth quarter of 1998. Results for the 1999 period include $3.9 million from the recognition of the settlement of Equitrans' rate case described above. This benefit was principally offset by charges of $3.0 million for improvement of utility segment operating processes and consolidation of facilities. Results for 1998 include a pretax charge of $14.7 million related to restructuring as more fully described in Note C to the consolidated financial statements. Excluding the nonrecurring items in both periods, operating income increased $32.9 million, or 70.1% over the $46.9 million in 1998. DISTRIBUTION OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 -------- -------- -------- OPERATIONAL DATA Degree days (normal* = 5,968) ............. 5,596 5,485 4,808 O&M** per customer (Thousands) ............ $ 271.94 $ 254.85 $ 311.94 Volumes (MMcf): Residential ............................ 27,776 25,431 22,641 Commercial and industrial ............. 32,521 22,209 19,165 -------- -------- -------- Total natural gas sales and transportation 60,297 47,640 41,806 ======== ======== ======== FINANCIAL DATA (THOUSANDS) Net revenues .............................. $159,886 $144,969 $133,393 Operating expenses ........................ 78,523 73,179 85,130 Depreciation, depletion and amortization .. 17,410 17,086 14,986 Restructuring and impairment charge ....... -- -- 2,892 -------- -------- -------- Operating income .......................... $ 63,953 $ 54,704 $ 30,385 ======== ======== ========
* Normal is based on the 30-year average determined by the National Oceanic and Atmospheric Administration. ** O&M is defined for this calculation as the sum of operating and maintenance and selling, general and administrative expenses, excluding other taxes. Net revenues for the distribution operations increased 10.3% from 1999 to 2000. The increase in net revenues for 2000 is due principally to the total system throughput increase from the Carnegie Gas acquisition and the impact of weather that was 2% colder than the prior year. Weather in the distribution service territory during 2000 was 6% warmer than normal (normal is based on the 30-year average determined by the National Oceanic and Atmospheric Administration). Operating expenses for the distribution operations for 2000 increased 6.3% from 1999. The increase in 2000 is due principally to the acquisition of Carnegie Gas, increased provision for performance-related bonuses and higher administrative costs. 15 16 Net revenues for the distribution operations increased 8.7% from 1998 to 1999. The increase in net revenues for 1999 is due to the impact of weather that was 14% colder than the prior year. In addition, total margin from delivery service customers was higher in 1999, reflecting higher average delivery rates and slightly higher volumes transported. Operating expenses for the distribution operations for 1999 decreased 12.4% from 1998. Results for the 1998 period include $2.9 million related to the restructuring of utility segment operating functions and consolidation of facilities. Excluding the restructuring charges in 1998, operating expenses decreased $9.9 million, or 9.8%, over the $100.1 million in 1998. The decrease in 1999 is due principally to restructuring initiatives begun in the fourth quarter of 1998. Operating income for 1999 increased 64.4% from the operating income of 1998, excluding the impact of the 1998 restructuring charges. The increase was due primarily to higher throughput, resulting from the colder weather and lower operating expenses due to restructuring initiatives begun in the fourth quarter of 1998. PIPELINE OPERATIONS
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ------- ------- ------- OPERATIONAL DATA Transportation throughput (MMBtu) ......... 81,692 76,727 67,590 FINANCIAL DATA (THOUSANDS) Net revenues .............................. $61,119 $73,273 $51,344 Operating expenses ........................ 29,040 32,607 28,611 Depreciation, depletion and amortization .. 10,577 18,312 5,299 Restructuring and impairment charge ....... -- -- 8,771 ------- ------- ------- Operating income .......................... $21,502 $22,354 $ 8,663 ======= ======= =======
Net revenues for the pipeline operations decreased 16.6% from 1999 to 2000. Pipeline revenues in 2000 include $3.8 million for the recovery of stranded costs in rates from the previously mentioned Equitrans' rate case settlement. Revenues in 1999 include $17.2 million related to recognition of the rate settlement, pass-through of stranded costs, and pass-through of FERC surcharges and products extraction costs. Excluding the impact of the rate settlement, net revenues increased $1.2 million primarily due to the increased throughput from the Carnegie Pipeline acquisition and increased gathering and storage services. Operating expenses for the pipeline operations decreased 22.2% from 1999 to 2000. The operating expenses for 2000 include $2.9 million of amortization expense related to the recovery of stranded costs in rates. Operating expenses for 1999 include $11.6 million of amortization expense related to the recovery of stranded costs, $4.0 million for utility segment process improvements and $1.7 million of pass-through products extraction costs. Excluding the special items in both periods, operating expenses of $36.0 million for 2000 increased by $2.4 million. The increase in operating expenses for 2000, excluding the special items in both periods, was principally due to the acquisition of Carnegie Interstate Pipeline and increased provisions for performance-related bonuses. Net revenues for the pipeline operations increased 42.7% from 1998 to 1999. Pipeline revenues in 1999 include $15.5 million related to recognition of the rate settlement and pass-through of stranded costs described above and $1.7 million for the pass-through of FERC surcharges and products extraction costs to customers. Net revenues of $56.1 million for the period, excluding the impact of the rate settlement and extraction revenues, increased $4.8 million, or 9.4%, over the $51.3 million for the 1998 period. The increase in revenues for 1999 was due primarily to increased margins on gathering throughput and increased storage service revenues. 16 17 Operating expenses increased 19.3% in 1999 over 1998. The operating expenses for 1999 include $11.6 million of amortization expense related to the stranded plant from recognition of the rate settlement, $1.7 million of products extraction costs and $4.0 million for utility segment process improvements. Operating expenses for 1998 include restructuring charges of $8.8 million as described in Note C to the consolidated financial statements. Operating expenses, excluding the nonrecurring charges in both periods, were essentially unchanged. Excluding the nonrecurring items in both periods, operating expenses of $33.6 million reflected a decrease of $0.3 million from $33.9 million in 1998. ENERGY MARKETING
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 -------- -------- --------- OPERATIONAL DATA Marketed gas sales (MMBtu) (Thousands) .... 240,922 188,133 134,455 Net revenue/MMBtu ......................... $ .0687 $ 0.0513 $ 0.0471 ======== ======== ======== FINANCIAL DATA (THOUSANDS) Net revenues .............................. $ 16,542 $ 9,658 $ 6,603 Operating expenses ........................ 8,822 5,877 10,161 Depreciation, depletion and amortization .. 197 198 285 Restructuring and impairment charge ....... -- -- 3,030 -------- -------- -------- Operating income (loss) ................... $ 7,523 $ 3,583 $ (6,873) ======== ======== ========
Net revenues for energy marketing operations increased 71.3% from 1999 to 2000. The increase in net revenues is attributable to greater sales volumes associated with asset management activities and higher unit margins. In addition, the sale of gas in storage during the first quarter of 2000 allowed the Company to benefit from the increasing natural gas prices. Operating expenses increased 48.5% from 1999 to 2000. The increase in expenses is due principally to the increased investment in the segment's asset management and retail marketing activities. Net revenues for energy marketing operations increased 46.3% from 1998 to 1999. The increase in gross margins in 1999 is attributable to increased throughput and more effective use of storage. The increased volume in 1999 compared to 1998 is a result of the addition of residential customer choice programs in Pennsylvania and Ohio and increased utility/marketing company volumes transported during the 1999 winter heating season. Gross margin per MMBtu was also higher in 1999, due primarily to the residential choice programs and greater volatility in weather in 1999. The 1999 decrease in operating expenses is primarily due to a significant staff reduction and office closings completed as part of the corporate-wide restructuring in the fourth quarter of 1998. 17 18 EQUITABLE PRODUCTION Production operations comprise the production, gathering, transportation and sale of natural gas. In April 2000, the Company merged its Equitable Production - Gulf business with Westport Oil and Gas Company to form Westport Resources Corporation (Westport). The operations of Equitable Production - Gulf through the date of the merger are presented after the operations of Equitable Production (Appalachian). The operational and financial data presented below have been reclassified to reflect the results in two business lines - production and production services. Production includes owned production, which comprises "equity" volumes (i.e., unaffected by monetizations) and "monetized" volumes, under the two prepaid gas forward sales and the 1995 sale of interests in certain Appalachian natural gas properties as described in Notes M and N to the consolidated financial statements. Cash is received in the period in which these monetization transactions are executed. In subsequent periods, monetized revenues are recognized as volumes are delivered, but no additional cash is received. The prices shown for owned production are well-head prices, which exclude gathering fees but includes financial hedges. Crude oil and natural gas liquid (NGL) product sales have been converted to natural gas volume equivalents and are included in the "Mcfe" volumes described. Production service revenues and volumes include gathering revenues and other revenues, principally fees for operating production in which Equitable Production sold an interest, as described previously in Item 1 of this Form 10-K. Total volumes handled include all gathered volumes, volumes sold at the well-head and not gathered, and crude oil and natural gas liquid equivalents. EQUITABLE PRODUCTION (APPALACHIAN) In February 2000, Equitable Production acquired the Appalachian production assets of Statoil for $630 million plus working capital adjustments for a total of $677 million. Statoil's operations consisted of approximately 1.2 trillion cubic feet of proven natural gas reserves and 6,500 natural gas wells in West Virginia, Kentucky, Virginia, Pennsylvania and Ohio. In December 1999, the Company acquired Carnegie. Carnegie Production Company operated more than 1,000 natural gas wells in Pennsylvania and West Virginia. In the Appalachian Region during 2000, 305 gross wells were drilled at a success rate of 99.3%. This drilling was concentrated within the core areas of southwest Virginia, West Virginia and southeast Kentucky. This activity resulted in an additional 21.3 MMcf per day of gas sales and developed reserve additions of 99.3 Bcfe. CAPITAL EXPENDITURES Equitable Production has set the 2001 capital budget level at $96 million. This includes $73 million for development of Appalachian holdings, $17 million for improvements to gathering system pipelines, and $6 million for technology initiatives. The evaluation of new development locations, market forecasts and price trends for natural gas and oil will continue to be the principal factors for the economic justification of drilling and gathering system investments. 18 19 EQUITABLE PRODUCTION (APPALACHIAN) OPERATIONAL AND FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 --------- -------- -------- OPERATIONAL DATA Production: Net equity sales, natural gas and equivalents (MMcfe) 66,356 30,844 30,869 Average (well-head) sales price ($/Mcfe) ............. $ 3.06 $ 2.30 $ 2.04 Monetized sales (MMcfe) .............................. 11,105 11,819 12,792 Average (well-head) sales price ($/Mcfe) ............. $ 2.04 $ 1.85 $ 1.85 Company usage (MMcfe) ................................ 6,568 3,232 2,583 Lease operating expense (LOE), excluding severance tax ($/Mcfe) ................... $ 0.33 $ 0.33 $ 0.34 Severance tax ($/Mcfe) ............................... $ 0.16 $ 0.09 $ 0.08 Depletion ($/Mcfe) ................................... $ 0.49 $ 0.42 $ 0.42 PRODUCTION SERVICES: Gathered volumes (MMcfe) ................................ 92,440 49,396 49,380 Average gathering fee ($/Mcfe) .......................... $ 0.58 $ 0.59 $ 0.68 Gathering and compression expense ($/Mcfe) .............. $ 0.27 $ 0.33 $ 0.35 Gathering and compression depreciation ($/Mcfe) ......... $ 0.11 $ 0.15 $ 0.14 Total operated volumes (MMcfe) .......................... 89,932 45,896 46,244 Volumes handled (MMcfe) ................................. 101,889 58,196 56,539 Selling, general, and administrative ($/Mcfe handled) ... $ 0.23 $ 0.33 $ 0.37 Capital expenditures (Thousands) ........................ $ 84,661 $ 29,155 $ 29,175 FINANCIAL DATA (THOUSANDS) Revenue from Production ................................. $ 225,774 $ 92,680 $ 87,600 Services: Revenue from gathering fees ........................ 53,268 29,178 33,500 Other revenues ..................................... 10,120 4,152 8,028 --------- -------- -------- Total revenues ..................................... 289,162 126,010 129,128 Operating expenses: Gathering and compression expenses ................... 25,237 16,424 17,345 Lease operating expense .............................. 27,893 15,009 15,913 Severance tax ........................................ 13,103 3,977 3,566 Depreciation, depletion and amortization ............. 57,175 29,141 28,728 Selling, general and administrative (SG&A) ........... 23,470 19,034 20,670 Exploration and dry hole expense ..................... 2,896 1,891 1,126 Strike-related expenses .............................. 18,694 Restructuring charges ................................ -- -- 7,574 --------- -------- -------- Total operating expenses ........................... 168,468 85,476 94,922 Equity from nonconsolidated investments ................. 167 -- -- Other loss .............................................. (6,951) -- -- --------- -------- -------- Earnings before interest and taxes (EBIT) from operations $ 113,910 $ 40,534 $ 34,206 ========= ======== ========
Revenues from production, which are derived primarily from the sale of produced natural gas, increased 143.6% from 1999 to 2000. The increase in revenues from production of $133.1 million from 1999 to 2000 is due primarily to increases in sales volumes related to the Statoil acquisition and higher effective commodity prices. The Statoil acquisition added 32.1 billion cubic feet equivalent (Bcfe) of sales in the current year. Equitable Production's average selling prices for natural gas increased 33.0% over the same period. The increase in revenues realized was reduced by the recognition of $77.6 million in hedge losses. The revenue from gathering fees increased 82.6% primarily due to the increase in gathered volumes related to the Statoil acquisition. Other revenues increased 19 20 by $6.0 million due to the sale of nonconventional fuel tax credits acquired from Statoil and from service fees from the sale of interests in producing properties. Operating expenses for the period ended December 31, 2000 totaled $168.5 million, an increase of $83.0 million from the same period in 1999, with the increase due primarily to the Statoil acquisition. Gathering and compression expenses per Mcfe decreased 18.2% due to lower cost gathering on the acquired assets. General and administrative expenses per Mcfe declined 30.3% due to initial synergies from the acquisitions. Severance taxes per Mcfe increased due to increased natural gas sales prices. Revenues from production increased 5.8% from 1998 to 1999. The increase in revenues from production of $5.1 million in 1999 compared to 1998 is due primarily to increases in natural gas sales prices ($8.0 million) offset by a decrease in monetized sales volumes ($2.9 million). In addition, 1998 includes $2.6 million of direct bill revenues resulting from a FERC pricing settlement, as described in Note D to the consolidated financial statements. The $4.3 million decrease in revenues from gathering fees is a result of a decrease in capacity fees earned at Kentucky West Virginia Gas Company, due to the expiration of certain long-term contracts. Operating expenses, excluding the 1998 restructuring charges, decreased 2.1% in 1999 from 1998. Included in 1999 operating expenses is $2.8 million related to process improvements, including the Company's decision to close its regional office in Kingsport, Tennessee, consolidate administration and realign field offices; $2.0 million of charges related to the decertification of Kentucky West Virginia Gas Company, LLC; and $1.8 million in performance-related compensation. Partially offsetting these items are $.7 million and $1.0 million reductions in environmental and pension liabilities, respectively. Overall the decrease in operating expenses in 1999, excluding the items above, is due to continued improvements in operating efficiencies and decreased staff, as a result of the initiatives begun in 1998. In the second quarter 2000, Equitable sold 66 Bcfe of reserves to a partnership for $122.2 million and an interest in the partnership. This volume represents seven years' production from wells acquired from Statoil that contain approximately 200 Bcfe of proved reserves. The proceeds from this sale were used to pay down acquisition-related short-term debt. Prior to the transaction, the Company entered into financial hedges covering the first two years of the production. Removal of these hedges upon closing of the transactions resulted in a $7 million pretax charge recorded as other loss. Equitable estimates that it will receive $6.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In December 2000, Equitable sold 133.3 Bcfe of reserves acquired from Statoil to a trust for proceeds of $255.8 million and a minority interest in the trust. In anticipation of this transaction, the Company had previously entered into financial hedges. Removal of these hedges upon closing of this transaction resulted in a $57.7 million charge that was equally offset against the gain recognized on the sale of these properties. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Equitable accounted for its $36.2 million investment under the equity method of accounting. Equitable estimates that it will receive $12.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In 2000, the Company entered into two natural gas advance sale contracts for 48.7 MMcf of reserves. The Company is required to sell and deliver certain quantities of natural gas during the term of the contracts. The first contract is for five years with net proceeds of $104.0 million. The second contract is for three years with net proceeds of $104.8 million. As such, these contracts were recorded as prepaid gas forward sale and are being recognized in income as deliveries occur. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. On December 10, 2000, a labor situation involving the Kentucky West Virginia unit of Equitable Production and members of the local PACE labor union was settled, after a 56-day strike which had curtailed production in the region. The agreement reached between the Company and the union resulted in a decrease in the represented work force in this unit by 85 people. This reduction from 152 to 67 resulted in a fourth quarter charge of $18.7 million, recorded as operations and maintenance expense in the consolidated income statement. It is expected that ongoing cost savings from the labor settlement will be approximately $5.0 million per year. 20 21 EQUITABLE PRODUCTION - GULF As described above, the Equitable Production - Gulf operations were merged into Westport effective April 1, 2000. The following description included results prior to the merger. During 2000, seven gross wells were drilled at a success rate of 86%. In the Gulf Region during 1999, 153 gross wells were drilled at a success rate of 82%. This activity resulted in additions of 48.5 Bcfe. The increase was the result of successful development of the West Cameron Block 180 and 198 fields and South Marsh Island 39 field. Equitable Production- Gulf operated both fields. Equitable Production also participated in exploratory activity during 1999, including a successful well at South Timbalier 196, in which Equitable Production had a 50% working interest. Unsuccessful exploratory activity during 1999 on the West Cameron 575 and the Eugene Island 44 blocks resulted in dry hole expense of approximately $2.5 million in 1999. PRODUCTION - GULF OPERATION
YEARS ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 ------- ------- --------- OPERATIONAL DATA PRODUCTION: Net sales, natural gas and equivalents (MMcfe) 6,087 26,853 19,493 Average sales price ($/Mcfe) ................ $ 2.77 $ 2.34 $ 2.33 LOE ($/Mcfe) ................................ $ 0.24 $ 0.25 $ 0.45 SG&A ($/Mcfe) ............................... $ 0.27 $ 0.26 0.46 Depletion ($/Mcfe) .......................... $ 1.11 $ 1.07 $ 1.20 Capital expenditures (Thousands) ............ $ 9,034 $62,944 $ 97,577 FINANCIAL DATA (THOUSANDS) Revenue from Production ..................... $16,885 $64,050 $ 51,758 Other revenues ......................... 70 844 777 ------- ------- -------- Total revenues ......................... 16,955 64,894 52,535 Gathering and compression expense ........... 17 155 45 Lease operating expense ..................... 1,454 6,868 10,090 Depreciation, depletion and amortization .... 6,891 29,424 27,652 Selling, general and administrative expense . 1,643 6,969 10,114 Exploration and dry hole expense ............ 524 7,396 26,083 Restructuring charges ....................... -- -- 37,100 ------- ------- -------- Total operating expenses ............... $10,529 $50,812 $111,084 ------- ------- -------- EBIT ................................... $ 6,426 $14,082 $(58,549) ======= ======= ========
Results of operations for the Gulf in 2000 include only the first quarter. During that period, revenues per Mcfe increased 18% over the full year 1999 average, due to increased commodity prices. Sales volumes decreased due to the faster decline of Gulf production and decreased drilling during 2000. Operating expenses per unit were essentially unchanged from 1999. Revenues from production for the Gulf operations increased 23.7% from 1998 to 1999. The increase in revenues from production of $12.2 million in 1999 compared to 1998, is due primarily to increases in natural gas and crude oil sales volumes of $8.0 million and $2.1 million, respectively. In addition, higher commodity prices in 1999 contributed $1.8 million to the increase in revenues from production. Operating expenses decreased 54.3% in 1999 from 1998. The 1998 expenses include $37.1 million of restructuring charges and $23.1 million of dry hole expense associated with the unsuccessful drilling of five wells. In 1999, two unsuccessful exploratory wells were drilled for a total of $2.5 million of dry hole cost. Other exploration expenses increased $2.0 million in 1999 due primarily to a lease impairment and the impairment of an equity investment in an oil and natural gas production company. DD&A increased $1.8 million in 1999 because of increased production. The remaining positive variance of $6.2 million is due to continued improvements in operating efficiencies and decreased staff. 21 22 NORESCO NORESCO provides energy and energy related products and services that are designed to reduce its customers' operating costs and improve their productivity. NORESCO's customers include commercial, governmental, institutional and industrial end-users. NORESCO provides the following integrated energy management services: project development and engineering analysis; construction; project management; financing; equipment operation and maintenance; and energy savings metering, monitoring and verification. NORESCO's energy infrastructure group develops and operates private power, cogeneration and central plant facilities in the U.S. and operates private power plants in selected international countries. During the second quarter of 2000, the Company announced its intention to sell ERI Services due to an overlap with NORESCO's federal contracts and contracting activities. Equitable subsequently re-evaluated that decision based in part on the recent performance of these two units and increasing energy costs which further improves their business prospects. Subject to government approval, the Company intends to combine ERI Services and NORESCO to take advantage of market conditions that are favorable toward energy cost saving projects.
YEARS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 -------- -------- -------- OPERATIONAL DATA Revenue backlog at December 31 (Thousands)(a) ... $ 90,978 $ 70,999 $ 97,394 Gross profit margin ............................. 24.8% 21.5% 26.2% SG&A as a % of revenue .......................... 17.0% 11.7% 17.6% Development expense as a % of revenue ........... 3.3% 2.6% 3.3% ======== ======== ======== Capital expenditures (thousands) ................ $ 1,596 $ 6,041 $ 11,102 FINANCIAL DATA (THOUSANDS) Energy service contracting revenues ............. $134,620 $169,633 $109,493 Energy service contract cost .................... 101,266 133,088 80,800 -------- -------- -------- Gross margin ............................... 33,354 36,545 28,693 Operating expenses: Selling, general and administrative .......... 22,873 19,889 19,218 Depreciation, depletion and amortization ..... 5,304 6,078 4,300 Restructuring charges ........................ -- -- 2,716 -------- -------- -------- Total operating expenses ................... 28,177 25,967 26,234 -------- -------- -------- Operating income ................................ 5,177 10,578 2,459 Equity earnings of nonconsolidated investments .. 5,109 2,863 2,667 -------- -------- -------- Earnings before interest and taxes .............. $ 10,286 $ 13,441 $ 5,126 ======== ======== ========
(a) Beginning in 2000, backlog is presented on a revenue basis. For comparison purposes, the 1999 and 1998 backlog was restated to conform with the 2000 presentation. Revenues decreased from 1999 to 2000 by $35.0 million, or 20.6%, primarily caused by low construction backlog at the end of 1999. In addition, NORESCO refined its focus on larger projects with higher gross margin. Gross margins increased to 24.8% in 2000 from 21.5% in 1999, reflecting a focus on higher margin producing products and services and a gross profit increase in a few operational energy services projects. During the fourth quarter of 2000, NORESCO completed receivable sales resulting in a $2.0 million decrease in gross margin and EBIT. Revenue backlog increased to $91.0 million at year-end 2000 from $71.0 million at year-end 1999. The increase in backlog is attributable to an increase in the energy infrastructure project backlog. A substantial portion of the backlog is expected to be completed within the next 18 months. Total construction completed during 2000 was $85.1 million versus $151.7 million, a decrease of $66.6 million over 1999. This decrease was primarily due to a $45 million decrease in construction of energy infrastructure projects in 1999. 22 23 SG&A expenses increased from 1999 to 2000 by $3.0 million. Increases during 2000 were $1.0 million related to the decision to discontinue developing international energy infrastructure projects and the integrating of this separate division with the energy services contracting business. Other costs include $0.4 million of additional costs related to the closing of three unprofitable energy services contracting offices in the Northwest United States. Depreciation, depletion and amortization (DD&A) expense decreased from 1999 to 2000 by $0.8 million, or 12.7%. This decrease was primarily due to a write-down of computer software development in 1999. Revenues increased from 1998 to 1999 by $60.1 million, or 55%, reflecting the continued expansion of the business. Total construction completed during 1999 was $151.8 million, an increase of $72.0 million over 1998. Gross margins from energy services contracting activities decreased to 21.5% in 1999 from 26.2% in 1998. The deterioration in gross margin results mainly from the higher proportion of lower margin government contracts implemented in 1999. SG&A expenses increased from 1998 to 1999 by $0.7 million. Increases during 1999 include project development expense of $0.8 million, marketing expense of $0.2 million and rent expense of $0.1 million that were partially offset by a $0.7 million reduction in corporate overhead expense. Depreciation, depletion and amortization (DD&A) expense increased from 1998 to 1999 by $1.8 million, or 41.3%. This increase is primarily due to the Company's cogeneration facility in Jamaica, which was put into service in February 1999. Other income of $2.9 million in 1999 and $2.7 million in 1998 reflects NORESCO's share of the earnings from its equity investments in power plant assets, primarily a 50 mega-watt facility in Panama, which is 50% owned by the Company. A 96 mega-watt facility in Panama and a 7 mega-watt facility in Providence, RI were brought on line in late 1999. 1998 RESTRUCTURING, IMPAIRMENT AND OTHER NONRECURRING CHARGES During 1998, management expressed its intention to focus on fundamental strengths in its core businesses. In October 1998, the Company's Board of Directors approved a restructuring plan. As a result of this plan, along with its earlier decision to discontinue and sell the natural gas midstream business, and the sustained decrease in oil and natural gas commodity prices, the Company took specific actions to reduce its overall cost structure. Certain of the actions taken by the Company resulted in pretax impairment, restructuring and other nonrecurring charges in the fourth quarter of 1998 amounting to $81.8 million. The restructuring activities (shown below in tabular format) primarily relate to the following: The elimination of employment positions Company-wide: Early in the fourth quarter of 1998, the Company announced that the restructuring plan would eliminate a substantial number of positions. Related charges included severance packages, cash payments made directly to terminated employees as well as outplacement services and noncash charges for curtailment of certain defined benefit pension and other postretirement benefit plans. A total of 164 employees terminated employment. Redirection of offshore Gulf production: As a result of the decrease in oil and natural gas prices and unsuccessful drilling results in several of the Company's nonoperated blocks, a review of the Gulf operations was undertaken. The Company eliminated several layers of management and focused its operations on lower risk, Company-operated exploration and development. In addition, the production and commodity price trends indicated that the undiscounted cash flows from this division would be substantially less than the carrying value of the producing properties. Producing property write-downs were measured based on a comparison of the assets' net book value to the net present value of the properties' estimated future net cash flows. The undeveloped leases no longer intended to be developed were written down to estimated market value less costs to dispose. 23 24 Improved integration of Appalachian production operations: To improve the efficiency of Appalachian production operations, the Company obtained authority in 1999 from the FERC to decertify the pipeline facilities of Kentucky West Virginia Gas Company, LLC. Decentralization of administrative functions: In the fall of 1998, management initiated a major decentralization and downsizing of administrative functions. Costs incurred, in addition to severance and other employee separation costs described above, included one-time costs for third party processing, costs to make assets available for sale, lease cancellations for office and computer equipment and noncash charges for the write-down of assets no longer in use and subsequently sold. Exiting certain noncore businesses: As a result of the continued evaluation of profitability of the Company's nonregulated retail natural gas sales business, the Company has refocused its marketing along core regional lines and eliminated five field offices. In addition, the Company intends to curtail its involvement in several auxiliary business ventures, such as radio dispatch operations and residential real estate development, and has written these investments down to net realizable value.
RESERVE RESERVE CASH/ RESTRUCTURING 1998 BALANCE AT 1999 BALANCE AT 1998 NONCASH CHARGE ACTIVITY 12/31/98 ACTIVITY 12/31/99 -------------------------------------------------------------------- (MILLIONS) Elimination of employment positions Company-wide: Severance and other employment packages .............. Cash $ (8.2) $ 2.6 $(5.6) $5.6 $-- Pension/other benefit plan curtailments .............. Noncash (2.1) 2.1 -- -- -- Other ................................................ Cash (0.8) 0.5 (0.3) 0.3 -- Redirection of offshore Gulf production: Impairment of undeveloped leases ..................... Noncash (15.9) 15.9 -- -- -- Impairment of producing properties ................... Noncash (19.6) 19.6 -- -- -- Improved integration of Appalachian production operations: Impairment of regulatory assets ...................... Noncash (4.0) 4.0 -- -- -- Impairment of undeveloped leases ..................... Noncash (1.4) 1.4 -- -- -- Decentralization of administrative functions: Impairment of headquarters building .................. Noncash (5.1) 5.1 -- -- -- Impairment of enterprise-wide computer system ........ Noncash (7.7) 7.7 -- -- -- Impairment of other assets ........................... Noncash (3.3) 3.3 -- -- -- Exiting certain noncore businesses: Office closing/lease buyout .......................... Cash (1.7) 1.6 (0.1) 0.1 -- Impairment of radio system assets/buyout lease ....... Noncash/Cash (3.3) 2.1 (1.2) 1.2 -- Impairment of investments ............................ Noncash (1.5) 1.5 -- -- -- Impairment of other assets ........................... Noncash (3.6) 3.6 -- -- -- Impairment of pipeline stranded costs ................ Noncash (3.6) 3.6 -- -- -- ------ ----- ----- ---- --- Total ..................................................... $(81.8) $74.6 $(7.2) $7.2 $-- ====== ===== ===== ==== ===
24 25 OTHER INCOME STATEMENT ITEMS OTHER INCOME
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 ---- ---- ---- (THOUSANDS) Other income (loss): Equity earnings of nonconsolidated investments $25,161 $2,863 $2,667 Gain on sale of investment ................... 6,561 -- -- Other loss ................................... (6,951) -- -- ------- ------ ------ Total other income ......................... $24,771 $2,863 $2,667 ======= ====== ======
Equity earnings of nonconsolidated investments increased in 2000 from 1999 primarily due to the equity earnings from the Company's ownership in Westport. In October 2000, Westport Resources Corporation had a successful initial public offering (IPO) of its shares. Equitable sold 1.325 million shares in this IPO for a pretax gain of $6.6 million. On June 30, 2000, Equitable sold a substantial portion of its interest in properties qualifying for nonconventional fuel tax credit to a partnership which netted $122.2 million in cash and retained a minority interest in this partnership. In anticipation of this transaction, the Company had previously entered into financial hedges covering the first two years of production. Removal of these hedges upon closing of this transaction resulted in a $7.0 million pretax charge recorded as other loss. INTEREST CHARGES YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 -------------- -------------- ----------- (THOUSANDS) Interest charges............... $ 75,661 $ 37,132 $ 40,302 Interest costs increased in 2000 as a result of the acquisition of Statoil's Appalachian assets which increased average debt outstanding by $580 million. The outstanding debt was reduced significantly during the fourth quarter by the proceeds received from the two prepaid gas forward sales, the sale of reserves to a trust and sales of assets. Interest expense also increased as a result of higher interest rates in 2000 compared to 1999. Interest costs decreased in 1999 as a result of an $86 million decrease in average debt outstanding, due to proceeds from the sale in late 1998 of the natural gas midstream operations, lower capital expenditures and improved cash flows from operations. The savings from the lower debt level were partially offset by a slightly higher overall interest rate, due to the full year effect of the Preferred Trust Debentures issued in 1998. Average annual interest rates on short-term debt were 6.4% for 2000 and ranged from 5.0% to 5.7% between 1998 and 1999. 25 26 CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES Cash flows provided from continuing operating activities were $361.2 million in 2000 compared to $154.3 million in 1999 and $114.7 million in 1998. Operating cash flows used in discontinued operations in 1998 were $24.5 million. Cash flows from operations primarily increased in 2000 as a result of the $37.1 million increase in net income from 1999 and from cash received in December 2000 from two natural gas advance sale contracts recorded as prepaid gas forward sale. Equitable Utilities Distribution and Energy Marketing operations had increased accounts receivable, inventory and deferred purchased gas costs due to the increased natural gas commodity prices and the increased marketed gas sales volumes in 2000 compared to 1999. This negative operating cash flow effect was partially offset by the increase in accounts payable also attributable to the higher gas prices and increased volumes. Deferred income taxes increased from the prior year primarily due to the Statoil acquisition and the deferred taxes associated with the undistributed earnings from Westport. The undistributed earnings from nonconsolidated investments also increased from 1999 principally as a result of the asset merger with Westport. During 1998, the Company divested its natural gas midstream operations for $338.3 million, which included working capital adjustments. Prior to this divestiture, these operations had entered into large volume natural gas trading contracts with expiration dates in 1999. Subsequent to the divestiture, these contracts were served out by the Marketing operations of Equitable Utilities. The balance in accounts receivable and payable at December 31, 1998 included $42.4 million and $44.8 million, respectively, related to these deals, which did not recur in 1999. There were no other significant changes in cash flows from operations between 1998 and 1999. INVESTING ACTIVITIES Cash flows used in investing activities were $363.0 million in 2000 and $137.5 in 1999 compared to cash flows provided by investing activities of $142.0 million in 1998. Cash used in investing activities in 2000 primarily include the first quarter acquisition of Statoil properties for $630 million plus working capital adjustments for a total of $677 million and the increase in equity in nonconsolidated investments due to the Westport merger and the ownership interests received in the sales of producing properties in June and December 2000. Cash provided in investing activities in 2000 includes the net proceeds received from the reserve sales totaling $382.9 million, the proceeds received from the Westport merger, the proceeds received from the sale of 1.325 million shares of Westport stock in conjunction with the Westport IPO and the proceeds received from the NORESCO receivable sales in the fourth quarter. The Company expended approximately $123.7 million in 2000 compared to $102.0 million in 1999 and $158.7 million in 1998 for continuing operations capital expenditures. These expenditures in all years represented growth projects in the Equitable Production segment, and replacements, improvements and additions to plant assets in the Equitable Utilities and NORESCO units. Equitable Production invested $84.7 million in 2000 in the Appalachian region for new coal-bed methane and conventional natural gas wells. In addition to its equity in nonconsolidated investments, NORESCO expended $1.6 million for leasehold improvements and equipment additions and replacements. The Equitable Utilities segment expended $28.4 million for distribution plant replacements and improvements. The Company had $32.0 million in discontinued operations capital expenditures in 1998. A total of $175 million has been authorized for the 2001 capital expenditure program, as previously described in the business segment results. The Company expects to finance this program with cash generated from operations and with short-term loans. In December 1999, the Company acquired Carnegie for $40 million, including natural gas distribution, pipeline, exploration and production operations. 26 27 During 1998, the Company completed its sales of its natural gas midstream operations for $338.3 million. Proceeds from the sales were used to reduce outstanding debt, repurchase shares of the Company's common stock and for operating purposes. FINANCING ACTIVITIES Cash flows provided from financing activities were $35.8 million in 2000 compared to cash flows used of $101.2 million and $199.2 million in 1999 and 1998, respectively. Financing activities in 2000 included the $630 million increase in short-term financing associated with the first quarter 2000 Statoil acquisition. Short-term loans were significantly reduced in the second and fourth quarters of 2000 resulting from the proceeds from the Company's sales and monetizations of 248 Bcfe of reserves in several transactions. The Company continued its October 1998 stock buyback program in 2000. Total purchases under the program of 6.7 million shares include .6 million shares of stock repurchased in 2000 for $29.5 million. In total, the Company has repurchased 12.7% of shares outstanding at December 31, 2000. On July 19, 2000, the Board of Directors approved a resolution to increase the shares authorized for repurchase to 9.4 million. Cash generated in all years was partially offset by the payment of the Company's dividends on common shares, which for 2000, 1999 and 1998 were $38.5 million, $40.4 million and $43.8 million, respectively. In July 1999, the Company repaid $75.0 million of 7-1/2% debentures, using cash proceeds received in 1998 from the sale of its natural gas midstream operations. In 1999, the Company received proceeds of $17.0 million from the issuance of nonrecourse debt used to finance a cogeneration facility owned by a subsidiary of the Company and located in Jamaica. The note is secured by the assets of the Jamaican facility. SHORT-TERM BORROWINGS Cash required for operations is affected primarily by the seasonal nature of the Company's natural gas distribution operations and the volatility of oil and natural gas commodity prices. Short-term loans are used to support working capital requirements during the summer months and are repaid as natural gas is sold during the heating season. The Company has adequate borrowing capacity to meet its financing requirements. Bank loans and commercial paper, supported by available credit, are used to meet short-term financing requirements. Interest rates on these short-term loans averaged 6.37% during 2000. The Company maintains a revolving credit agreement with a group of banks providing $325 million of available credit, which expires in 2003. The Company also maintains a 364-day credit agreement with a group of banks providing $325 million of available credit, which expires in 2001. As of December 31, 2000, the Company has the authority and credit backing to support a $650 million commercial paper program. RISK MANAGEMENT The Company's overall objective in its hedging program is to protect earnings from undue exposure to the risk of falling commodity prices. Since it is primarily a natural gas company, this leads to different approaches to hedging natural gas than for crude oil and natural gas liquids. With respect to hedging the Company's exposure to changes in natural gas commodity prices, management's objective is to provide price protection for the majority of expected production for the year 2001. Its preference is to use derivative instruments that create a price floor, in order to provide down-side protection while allowing the Company to participate in a portion of the upward price movements. This is accomplished with the use of a mix of costless collars, straight floors and some fixed price swaps. This mix allows the Company to participate in a range of prices, while protecting shareholders from significant price deterioration. 27 28 Crude oil and natural gas liquids prices are currently at relatively high levels compared to historical averages. As a result, the Company has used swaps and other derivative instruments to lock in current prices for the majority of expected production of crude oil and of natural gas liquids for the year 2001. EQUITY IN NONCONSOLIDATED INVESTMENTS The Company, within the NORESCO segment, has equity ownership interests in independent power plant (IPP) projects located domestically and in select international countries. Long-term power purchase agreements (PPAs) are signed with the customer whereby they agree to purchase the energy generated by the plant. The length of these contracts range from 5 to 30 years. The Company has invested approximately $32.7 million in these operations since January 1998. The Company's share of the earnings for this same time period is approximately $10.6 million. These projects generally are financed on a project basis with nonrecourse financings established at the foreign subsidiary level. In April 2000, the Company combined its Gulf of Mexico operations with Westport Oil and Gas Company for $50 million in cash and approximately 49% interest in the combined company, Westport. In October 2000, Westport Resources Corporation had a successful IPO of its shares. Equitable sold 1.325 million shares in this IPO for an after-tax gain of $4.3 million. Equitable now owns 13.911 million shares, or approximately 36% interest in the Company. Equitable's investment in Westport was $130.1 million as of December 31, 2000. During 2000, Equitable Production sold 199.3 Bcfe in reserves located in the Appalachian Basin region of the United States in two transactions which resulted in Equitable Production retaining minority interest in a resulting partnership and trust. The partnership and trust properties include assets that qualify for nonconventional fuels tax credits. Both of these investments are accounted for under the equity method of accounting. ACQUISITIONS AND DISPOSITIONS In February 2000, the Company acquired the Appalachian production assets of Statoil for $630 million plus working capital adjustments for a total of $677 million. The Company initially funded this acquisition through commercial paper, which was replaced by a combination of financings and cash from asset sales. In April 2000, the Company merged Equitable Production - Gulf with Westport Oil and Gas Company based in Denver, Colorado, for a 49% ownership interest in the combined entity, Westport. In October 2000, Westport had a successful initial public offering whereby Equitable sold 1.325 million shares and reduced its ownership percentage to approximately 36%. On June 30, 2000, Equitable sold a substantial portion of its interest in properties qualifying for nonconventional fuel tax credit to a partnership which netted $122.2 million in cash and retained a minority interest in this partnership. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Prior to the transaction, the Company entered into financial hedges covering the first two years of production. Removal of these hedges upon closing of this transaction resulted in a $7.0 million pretax charge recorded as other loss. Equitable accounted for its remaining $26.3 million investment under the equity method of accounting. Equitable estimates that it will receive $6.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In December 2000, Equitable sold 133.3 Bcfe of reserves acquired from Statoil to a trust for proceeds of $255.8 million and a minority interest in this trust. In anticipation of this transaction, the Company had previously entered into financial hedges. Removal of these hedges upon closing of this transaction resulted in a $57.7 million charge that was equally offset against the gain recognized on the sale of these properties. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Equitable accounted for its $36.2 million investment under the equity method of accounting. Equitable estimates that it will receive $12.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. 28 29 In 2000, the Company entered into two natural gas advance sale contracts for 48.7 MMcf of reserves. The Company is required to sell and deliver certain quantities of natural gas during the term of the contracts. The first contract is for five years with net proceeds of $104.0 million. The second contract is for three years with net proceeds of $104.8 million. As such, these contracts were recorded as prepaid gas forward sales and are being recognized in income as deliveries occur. RATE REGULATION Accounting for the operations of Equitable's Utilities segment is in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." As described in Note A to the consolidated financial statements, regulatory assets and liabilities are recorded to reflect future collections or payments through the regulatory process. The Company believes that it will continue to be subject to rate regulation that will provide for the recovery of deferred costs. ENVIRONMENTAL MATTERS Equitable and its subsidiaries are subject to extensive federal, state and local environmental laws and regulations that affect their operations. Governmental authorities may enforce these laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties, assessment and remediation requirements and injunctions as to future activities. Management does not know of any environmental liabilities that will have a material effect on Equitable's financial position or results of operations. The Company has identified situations that require remedial action for which approximately $8.7 million is accrued at December 31, 2000. Environmental matters are described in Note V to the consolidated financial statements. INFLATION AND THE EFFECT OF CHANGING ENERGY PRICES The rate of inflation in the United States has been moderate over the past several years and has not significantly affected the profitability of the Company. In prior periods of high general inflation, oil and natural gas prices generally increased at comparable rates; however, there is no assurance that this will be the case in the current environment or in possible future periods of high inflation. Regulated utility operations would be required to file a general rate case in order to recover higher costs of operations. Margins in the energy marketing business in the Equitable Utilities segment are highly sensitive to competitive pressures and may not reflect the effects of inflation. The results of operations in the Company's three business segments will be affected by future changes in oil and natural gas prices and the interrelationship between oil, natural gas and other energy prices. AUDIT COMMITTEE The Audit Committee, composed entirely of outside directors, meets periodically with Equitable's independent auditors and management to review the Company's financial statements and the results of audit activities. The Audit Committee, in turn, reports to the Board of Directors on the results of its review and recommends the selection of independent auditors. 29 30 FORWARD-LOOKING STATEMENTS Disclosures in the Annual Report on Form 10-K contain statements that express the expectations of future plans, objectives and anticipated financial performance of the Company and its subsidiaries, future cost savings, growth and operational matters including labor relations, and constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Act of 1995. Except as otherwise disclosed, the Company's forward-looking statements do not reflect the impact of the possible or pending acquisitions, divestitures, or restructurings. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, economic and competitive conditions, earnings to be recorded for the Company's investment in Westport, inflation rates, changing prices, legislative and regulatory changes, obtaining necessary regulatory approvals, financial market conditions, availability of financing, curtailments or disruptions in production, future business decisions, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. In addition, the drilling of development and exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns and these risks can be affected by lease and rig availability, complex geology and other factors. Although the Company engages in hedging activities to mitigate risks, fluctuations in future crude oil and gas prices could affect materially the Company's financial position and results of operations. Furthermore, the Company cannot guarantee the absence of errors in input data, calculations, and formulas used in estimates, assumptions and forecasts. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is the volatility of future prices for natural gas, crude oil and propane, which can affect the operating results of Equitable through the Equitable Production segment and the unregulated marketing group within the Equitable Utilities segment. The Company's use of derivatives to reduce the effect of this volatility is described in Note B to the consolidated financial statements. The Company uses simple, nonleveraged derivative instruments that are placed with major institutions whose creditworthiness is continually monitored. The Company also enters into energy trading contracts to leverage its assets and limit the exposure to shifts in market prices. The Company's use of these derivative financial instruments is implemented under a set of policies approved by the Board of Directors. For commodity price derivatives used to hedge Company production, Equitable sets policy limits relative to expected production and sales levels which are exposed to price risk. The level of price exposure is limited by the value at risk limits allowed by this policy. Volumes associated with future activities, such as new drilling, recompletions and acquisitions, are not eligible for hedging. Management monitors price and production levels on essentially a continuous basis and will make adjustments to quantities hedged as warranted. In general, Equitable's strategy is to become more highly hedged at prices considered to be at the upper end of historical levels. For commodity price derivatives held for trading positions, the marketing group will engage in financial transactions also subject to policies that limit the net positions to specific value at risk limits. In general, this marketing group considers profit opportunities in both physical and financial positions, and Equitable's policies apply equally thereto. These financial instruments include forward contracts, which may involve physical delivery of an energy commodity, swap agreements, which may require payments to (or receipt of payments from) counterparties based on the differential between a fixed and variable price for the commodity, options and other contractual agreements. With respect to the energy derivatives held by the Company for purposes other than trading as of December 31, 2000, a decrease of 10% in the market price of natural gas and crude oil from the December 31, 2000 levels would increase the fair value of the natural gas instruments by approximately $12.7 million and would increase the fair value of the crude oil instruments by approximately $1.0 million. A 10% decrease would have minimal impact on the fair value of the propane instruments. With respect to derivative contracts held by the Company for trading purposes as of December 31, 2000, a decrease of 10% in the market price of natural gas from the December 31, 2000 level would increase the fair value by approximately $1.9 million. There were no crude oil or propane instruments held for trading purposes. 30 31 The above analysis of the energy derivatives utilized for risk management purposes does not include the unfavorable impact that the same hypothetical price movement would have on the Company and its subsidiaries' physical sales of natural gas. The portfolio of energy derivatives held for risk management purposes approximates the notional quantity of the expected or committed transaction volume of physical commodities with commodity price risk for the same time periods. Furthermore, the energy derivative portfolio is managed to complement the physical transaction portfolio, reducing overall risks within limits. Therefore, an adverse impact to the fair value of the portfolio of energy derivatives held for risk management purposes associated with the hypothetical changes in commodity prices referenced above would be offset by a favorable impact on the underlying hedged physical transactions, assuming the energy derivatives are not closed out in advance of their expected term, the energy derivatives continue to function effectively as hedges of the underlying risk, and as applicable, anticipated transactions occur as expected. The disclosure with respect to the energy derivatives relies on the assumption that the contracts will exist parallel to the underlying physical transactions. If the underlying transactions or positions are liquidated prior to the maturity of the energy derivatives, a loss on the financial instruments may occur, or the options might be worthless as determined by the prevailing market value on their termination or maturity date, whichever comes first. The Company has variable rate short-term debt. As such, there is some limited exposure to future earnings due to changes in interest rates. A 100 basis point increase or decrease in interest rates would not have a significant impact on future earnings of the Company. 31 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE REFERENCE -------------- Report of Independent Auditors .......................................................... 33 Statements of Consolidated Income for each of the three years in the period ended December 31, 2000 .................................................................... 34 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 2000 .................................................................... 35 Consolidated Balance Sheets December 31, 2000 and 1999 .................................. 36 & 37 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 2000 .................................................................... 38 Notes to Consolidated Financial Statements .............................................. 39-66
32 33 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Equitable Resources, Inc. We have audited the accompanying consolidated balance sheets of Equitable Resources, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equitable Resources, Inc. and Subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP ----------------------------- Ernst & Young LLP Pittsburgh, Pennsylvania February 5, 2001 33 34 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME YEARS ENDED DECEMBER 31,
2000 1999 1998 ----------- ---------- --------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) Operating revenues .......................................... $1,652,218 $1,042,013 $851,811 Cost of sales ............................................... 1,075,267 586,663 450,115 ---------- ---------- -------- Net operating revenues ................................. 576,951 455,350 401,696 ---------- ---------- -------- Operating expenses: Operation and maintenance ................................ 103,020 74,424 74,859 Exploration .............................................. 3,420 9,288 27,211 Production ............................................... 42,450 25,854 29,568 Selling, general and administrative ...................... 116,050 102,307 114,846 Depreciation, depletion and amortization ................. 97,777 100,722 85,170 Restructuring and impairment charges ..................... -- -- 81,840 ---------- ---------- -------- Total operating expenses ............................... 362,717 312,595 413,494 ---------- ---------- -------- Operating income (loss) ..................................... 214,234 142,755 (11,798) Equity in earnings of nonconsolidated investments ........... 25,161 2,863 2,667 Gain on sale of Westport stock .............................. 6,561 -- -- Other loss .................................................. (6,951) -- -- ---------- ---------- -------- Earnings (loss) from continuing operations, before interest & taxes .................................. 239,005 145,618 (9,131) Interest charges ............................................ 75,661 37,132 40,302 ---------- ---------- -------- Income (loss) before income taxes ........................... 163,344 108,486 (49,433) Income taxes (benefits) ..................................... 57,171 39,356 (22,381) ---------- ---------- -------- Net income (loss) from continuing operations before extraordinary loss ................................ 106,173 69,130 (27,052) Loss from discontinued operations after taxes ............... -- -- (8,804) Extraordinary loss after taxes - early extinguishment of debt -- -- (8,263) ---------- ---------- -------- Net income (loss) ........................................... $ 106,173 $ 69,130 $(44,119) ========== ========== ======== Earnings (loss) per share of common stock: Basic: Continuing operations, before extraordinary loss ....... $ 3.26 $ 2.03 $ (0.73) Discontinued operations ................................ -- -- (0.24) Extraordinary loss - early extinguishment of debt ...... -- -- (0.22) ---------- ---------- -------- Net income (loss) ...................................... $ 3.26 $ 2.03 $ (1.19) ========== ========== ======== Diluted: Continuing operations, before extraordinary loss ....... $ 3.20 $ 2.01 $ (0.73) Discontinued operations ................................ -- -- (0.24) Extraordinary loss - early extinguishment of debt ...... -- -- (0.22) ---------- ---------- -------- Net income (loss) ...................................... $ 3.20 $ 2.01 $ (1.19) ========== ========== ========
See notes to consolidated financial statements. 34 35 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS YEARS ENDED DECEMBER 31,
2000 1999 1998 --------- --------- --------- (THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) from continuing operations, before extraordinary items.... $ 106,173 $ 69,130 $ (27,052) --------- --------- --------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of assets ................................................... -- -- 75,245 Provision for losses on accounts receivable ............................ 12,129 11,917 15,634 Depreciation, depletion and amortization ............................... 97,777 100,722 85,170 Dry hole expense ....................................................... -- 2,455 23,101 Amortization of construction contract costs ............................ 1,229 23,100 8,271 Recognition of deferred revenue ........................................ (13,715) (13,034) (14,498) Deferred income taxes (benefits) ....................................... 54,519 14,635 (29,537) Increase in undistributed earnings from nonconsolidated investments .... (23,632) (717) (2,617) Gain on sale of investment ............................................. (4,265) -- -- Changes in other assets and liabilities: Accounts receivable and unbilled revenues ............................. (183,654) 30,722 101,887 Contract receivables .................................................. (50,903) (43,530) (8,400) Inventory ............................................................. (35,853) (7,116) 3,413 Deferred purchased gas cost ........................................... (15,429) 10,370 5,646 Prepaid expenses and other ............................................ (12,429) (19,460) 32,353 Accounts payable ...................................................... 199,843 (66,535) (121,396) Prepaid gas forward sale .............................................. 209,294 -- -- Other - net ........................................................... 20,069 41,659 (32,520) --------- --------- --------- Total adjustments .................................................... 254,980 85,188 141,752 --------- --------- --------- Net cash provided by continuing operating activities ............... 361,153 154,318 114,700 Net cash used in discontinued operations ........................... -- -- (24,473) --------- --------- --------- Net cash provided by operating activities .......................... 361,153 154,318 90,227 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on continuing operations ............................. (123,727) (101,991) (158,714) Capital expenditures on discontinued operations ........................... -- -- (32,004) Acquisition of Statoil production assets .................................. (677,235) -- -- Carnegie acquisition ...................................................... -- (40,128) -- Proceeds from Gulf asset merger ........................................... 158,214 -- -- Proceeds from sale of interest in producing properties .................... 382,942 -- -- Increase in equity in nonconsolidated investments ......................... (181,757) (22,719) (14,393) Proceeds from sale of equity in nonconsolidated investments ............... 19,875 -- -- Proceeds from sale of receivables ......................................... 56,553 18,360 8,859 Proceeds from sale of property ............................................ 2,127 8,935 338,255 --------- --------- --------- Net cash (used in) provided by investing activities ................ (363,008) (137,543) 142,003 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ............................................................ (38,490) (40,384) (43,800) Proceeds from issuance of common stock .................................... -- -- 2,496 Purchase of treasury stock ................................................ (29,483) (101,574) (41,737) Proceeds from exercises under employee compensation plans ................. 9,039 6,959 3,990 Proceeds from issuance of nonrecourse note for project financing .......... -- 17,000 -- Purchase of debt due 2000 through 2026 .................................... -- -- (68,556) Proceeds from preferred trust securities .................................. -- -- 125,000 Repayments and retirements of long-term debt .............................. -- (74,972) (10,880) Increase (decrease) in short-term loans ................................... 94,781 91,783 (165,741) --------- --------- --------- Net cash provided by (used in) financing activities ................ 35,847 (101,188) (199,228) --------- --------- --------- Net increase (decrease) in cash and cash equivalents ...................... 33,992 (84,413) 33,002 Cash and cash equivalents at beginning of year ............................ 18,031 102,444 69,442 --------- --------- --------- Cash and cash equivalents at end of year .................................. $ 52,023 $ 18,031 $ 102,444 ========= ========= ========= CASH PAID DURING THE YEAR FOR: Interest (net of amount capitalized) .................................... $ 81,023 $ 54,516 $ 46,973 ========= ========= ========= Income taxes ............................................................ $ 11,711 $ 5,759 $ 15,568 ========= ========= =========
See notes to consolidated financial statements. 35 36 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31,
2000 1999 ---------- ---------- (THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents ......................... $ 52,023 $ 18,031 Accounts receivable (less accumulated provision for doubtful accounts: 2000, $15,413; 1999, $13,024) ........................................ 300,399 148,103 Unbilled revenues ................................. 80,157 46,686 Inventory ......................................... 85,246 40,859 Deferred purchased gas cost ....................... 44,504 29,075 Derivative commodity instruments, at fair value ... 31,220 2,695 Prepaid expenses and other ........................ 21,123 41,389 ---------- ---------- Total current assets .......................... 614,672 326,838 ---------- ---------- EQUITY IN NONCONSOLIDATED INVESTMENTS ................ 230,651 40,873 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT: Equitable Utilities ............................... 951,612 919,815 Equitable Production .............................. 1,248,605 1,107,345 NORESCO ........................................... 26,204 25,368 ---------- ---------- Total property, plant and equipment ........... 2,226,421 2,052,528 Less accumulated depreciation and depletion .......... 806,992 831,097 ---------- ---------- Net property, plant and equipment ............. 1,419,429 1,221,431 ---------- ---------- OTHER ASSETS: Regulatory assets ................................. 62,755 63,382 Goodwill .......................................... 60,635 64,382 Other ............................................. 67,708 72,668 ---------- ---------- Total other assets ............................ 191,098 200,432 ---------- ---------- Total ....................................... $2,455,850 $1,789,574 ========== ==========
See notes to consolidated financial statements. 36 37 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31,
2000 1999 ----------- ----------- (THOUSANDS) LIABILITIES AND COMMON STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ....................... $ 10,100 $ -- Current portion of nonrecourse project financing ........ 461 -- Short-term loans ........................................ 302,267 207,486 Accounts payable ........................................ 285,723 81,444 Prepaid gas forward sale ................................ 55,705 -- Derivative commodity instruments, at fair value ......... 30,243 2,914 Other current liabilities ............................... 192,018 151,402 ---------- ---------- Total current liabilities ............................. 876,517 443,246 ---------- ---------- LONG-TERM DEBT: Debentures and medium-term notes ........................ 271,250 281,350 Nonrecourse project financing ........................... 16,539 17,000 ---------- ---------- Total long-term debt .................................. 287,789 298,350 DEFERRED AND OTHER CREDITS: Deferred income taxes ................................... 247,833 183,896 Deferred investment tax credits ......................... 15,411 16,614 Prepaid gas forward sale ................................ 153,589 -- Deferred revenue ........................................ 30,232 45,735 Other ................................................... 25,784 33,923 ---------- ---------- Total deferred and other credits ...................... 472,849 280,168 ---------- ---------- Commitments and contingencies .............................. -- -- ---------- ---------- PREFERRED TRUST SECURITIES ................................. 125,000 125,000 ---------- ---------- COMMON STOCKHOLDERS' EQUITY: Common stock, no par value, authorized 80,000 shares; shares issued: 2000 and 1999, 37,252 ................. 281,100 280,617 Treasury stock, shares at cost: 2000, 4,713; 1999, 4,522 ................................................. (151,167) (133,913) Retained earnings ....................................... 563,755 496,072 Accumulated other comprehensive income .................. 7 34 ---------- ---------- Total common stockholders' equity ..................... 693,695 642,810 ---------- ---------- Total ............................................... $2,455,850 $1,789,574 ========== ==========
See notes to consolidated financial statements. 37 38 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF COMMON STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
COMMON STOCK ACCUMULATED ------------------------- OTHER COMMON SHARES NO RETAINED COMPREHENSIVE STOCKHOLDERS' OUTSTANDING PAR VALUE EARNINGS INCOME EQUITY ----------- --------- -------- ------ ------ (THOUSANDS) BALANCE, DECEMBER 31, 1997 ................. 36,929 $ 268,328 $555,245 $(53) $823,520 Comprehensive income: Net loss for the year 1998 ............ (44,119) (44,119) Foreign currency translation ......... 44 44 -------- Total comprehensive income ............ (44,075) Dividends ($1.18 per share) ............. (43,800) (43,800) Stock issued: Acquisition of subsidiary ............. 171 5,460 5,460 Stock-based compensation plans ........ 56 3,990 3,990 Dividend reinvestment plan ............ 40 1,071 1,071 Stock repurchase program ................ (1,340) (37,747) (37,747) -------- Net change in common stock .............. (27,226) ------ --------- -------- ---- -------- BALANCE, DECEMBER 31, 1998 ................. 35,856 241,102 467,326 (9) 708,419 Comprehensive income: Net income for the year 1999 .......... 69,130 69,130 Foreign currency translation .......... 43 43 -------- Total comprehensive income ............ 69,173 Dividends ($1.18 per share) ............. (40,384) (40,384) Stock issued: Stock-based compensation plans ........ 220 6,959 6,959 Stock repurchase program ................ (3,347) (101,357) (101,357) -------- Net change in common stock .............. (94,398) ------ --------- -------- ---- -------- BALANCE, DECEMBER 31, 1999 ................. 32,729 146,704 496,072 34 642,810 Comprehensive income: Net income for the year 2000 .......... 106,173 106,173 Foreign currency translation .......... (27) (27) -------- Total comprehensive income ............ 106,146 Dividends ($1.18 per share) ............. (38,490) (38,490) Stock issued: Stock-based compensation plans ........ 399 12,712 12,712 Stock repurchase program ................ (589) (29,483) (29,483) -------- Net change in common stock .............. (16,771) ------ --------- -------- ---- -------- BALANCE, DECEMBER 31, 2000 ................. 32,539 $ 129,933 $563,755 $ 7 $693,695 ====== ========= ======== ==== ========
- ----------------- Common shares authorized: 80,000,000 shares. Preferred shares authorized: 3,000,000 shares. There are no preferred shares issued or outstanding. Retained earnings of $565,037,000 are available for dividends on, or purchase of, common stock pursuant to restrictions imposed by indentures securing long-term debt. See notes to consolidated financial statements. 38 39 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Equitable Resources, Inc. and all subsidiaries, ventures and partnerships in which a controlling interest is held (Equitable or the Company). Equitable, in most instances, utilizes the equity method of accounting for companies where its ownership is less than or equal to 50%. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. These investments are accounted for at cost. Interest earned on cash equivalents is included in interest charges. Inventories: Inventories, which consist of natural gas stored underground and materials and supplies, are stated at average cost. Properties, Depreciation and Depletion: Plant, property and equipment is carried at cost. Depreciation is provided on the straight-line method based on estimated service lives, ranging from 3 to 70 years except for most natural gas and crude oil production properties as explained below. The Company uses the successful efforts method of accounting for exploration and production activities. Under this method, the cost of productive wells and development dry holes, as well as productive acreage, are capitalized and depleted on the unit-of-production method. Deferred Purchased Gas Cost and Other Regulatory Assets: The Company's distribution and interstate pipelines are subject to rate regulation by state and federal regulatory commissions. Accounting for these operations is in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Where permitted by regulatory authority under purchased natural gas adjustment clauses or similar tariff provisions, the Company defers the difference between purchased natural gas cost, less refunds, and the billing of such cost and amortizes the deferral over subsequent periods in which billings either recover or repay such amounts. Certain other costs, which will be passed through to customers under ratemaking rules for regulated operations, are deferred by the Company as regulatory assets when recovery through rates is expected. These amounts relate primarily to the accounting for income taxes. The Company believes that it will continue to be subject to rate regulation that will provide for the recovery of deferred costs. Derivative Commodity Instruments: The Company uses exchange-traded natural gas and crude oil futures contracts and options and over-the-counter (OTC) natural gas and crude oil swap agreements and options to hedge exposures to fluctuations in oil and natural gas prices and for trading purposes. At contract inception, the Company designates derivative commodity instruments as hedging or trading activities. The Company uses the deferral accounting method to account for exchange-traded derivative commodity instruments designated and effective as hedges. Under this method, changes in the market value of these hedge positions are deferred and included in other current assets and other current liabilities. These deferred realized and unrealized gains and losses are included in operating revenues when the hedged transactions occur. In the event a hedge contract is terminated early, the deferred gain or loss realized on early termination of the contract will be recognized as the hedged production occurs. The Company uses the settlement method to account for OTC swap agreements and options designated and effective as hedges. Under this method, gains or losses associated with the 39 40 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) contract are recognized at the time the hedged production occurs. Premiums on option contracts are deferred in other current assets and recognized in operating revenues over the option term. Transactions that are not designated and effective as hedges are marked to market. Cash flows from derivative contracts are considered operating activities. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This statement was subsequently amended by SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," and by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of Statement 133." SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet and measure the effectiveness of the hedges, or the degree that the gain/(loss) for the hedging instrument offsets the loss/(gain) on the hedged item, at fair value each reporting period. The intended use of the derivatives and their designation as either a fair value hedge or a cash flow hedge will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income, until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value is required to be recognized in earnings immediately. The Company adopted SFAS 133, as amended, effective January 1, 2001. The cumulative effect of this change will decrease fiscal 2000 net income by approximately $0.7 million. The cumulative effect of this change will decrease other comprehensive income by approximately $37.0 million, net of tax. Capitalized Interest: Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. Interest costs during 2000, 1999 and 1998 of $3.3 million, $4.6 million and $2.7 million, respectively, were capitalized as a portion of the cost of the related long-term assets. Goodwill: Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Goodwill is amortized on a straight-line basis over a period of 20 years. The Company assesses the impairment of goodwill related to consolidated subsidiaries whenever events or changes in circumstances indicate that the carrying value may not be recoverable. A determination of impairment (if any) is made based on estimates of future cash flows. In instances where goodwill has been recorded for assets that are subject to an impairment loss, the carrying amount of the goodwill is eliminated before any reduction is made to the carrying amounts of impaired long-lived assets and identifiable intangibles. Stock-Based Compensation: The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock options and awards. Accordingly, compensation cost for stock options and awards is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the stock option or award. Revenue Recognition: Revenues for regulated natural gas sales to retail customers are recognized as service is rendered, including an accrual for unbilled revenues from the date of each meter reading to the end of the accounting period. Revenue is recognized for exploration and production activities when deliveries of natural gas, crude oil and natural gas liquids are made. Revenues from natural gas transportation and storage activities are recognized in the period service is provided. Revenues from energy marketing activities are recognized when deliveries occur. Revenues from activities classified as energy trading are recognized immediately. The Company recognizes revenue from shared energy savings contracts as energy savings are measured and verified. Revenue received from customer contract termination payments is recognized when received. Revenue from other long-term contracts, such as turnkey contracts, is recognized on a percentage-of-completion basis, determined using the cost-to-cost method. Any maintenance revenues are recognized as related services are performed. 40 41 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Sales of Receivables: The Company sells some amounts due from customers to financial institutions. At the time of the transfer, the amounts due from the customer are recognized as revenue, the transfer is accounted for as the sale of a receivable, the receivable is no longer reflected in the financial statements and any related deferred costs are charged to operations. In September 2000, the Financial Accounting Standards Board issued Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," that replaces in its entirety, FASB Statement No. 125. Although Statement 140 has changed many of the rules regarding securitizations, it continues to require an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred and to derecognize financial assets when control has been surrendered in accordance with the criteria provided in the Statement. As required, the Company will apply the new rules prospectively to transactions beginning in the second quarter 2001. Based on current circumstances, the Company believes the application of the new rules will not have a material impact on its financial statements and footnote disclosures. Income Taxes: The Company files a consolidated federal income tax return. The current provision for income taxes represents amounts paid or estimated to be payable. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Where deferred tax liabilities will be passed through to customers in regulated rates, the Company establishes a corresponding regulatory asset for the increase in future revenues that will result when the temporary differences reverse. Investment tax credits realized in prior years were deferred and are being amortized over the estimated service lives of the related properties where required by ratemaking rules. Earnings Per Share (EPS): Basic EPS is computed by dividing income (loss) from continuing operations before extraordinary loss by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing income (loss) from continuing operations before extraordinary loss, adjusted for the assumed conversion of debt, by the weighted average number of common shares and potentially dilutive securities, net of shares assumed to be repurchased using the treasury stock method. Purchases of treasury shares are calculated using the average share price for the Company's common stock during the period. Potentially dilutive securities arise from the assumed conversion of outstanding stock options and awards. Segment Disclosures: Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and are subject to evaluation by the Company's chief executive officer in deciding how to allocate resources. Operating segments are evaluated on their contribution to the Company's consolidated results, based on earnings before interest and taxes. Interest charges, income taxes and certain corporate office expenses are managed on a consolidated basis. Reclassification: Certain previously reported amounts have been reclassified to conform with the 2000 presentation. B. DERIVATIVE COMMODITY INSTRUMENTS The Company uses exchange-traded natural gas, crude oil and propane futures contracts, options and OTC natural gas, crude oil and propane swap agreements and options (collectively, derivative contracts) to hedge exposures to fluctuations in natural gas, oil and propane prices and for trading purposes. Futures contracts obligate the Company to buy or sell a designated commodity at a future date for a specified price and quantity at a specified location. Swap agreements involve payments to or receipts from counterparties based on the differential between a fixed and variable price for the commodity. Exchange-traded instruments are generally settled with offsetting positions but may be settled by delivery or receipt of commodities. OTC arrangements require settlement in cash. 41 42 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 B. DERIVATIVE COMMODITY INSTRUMENTS (CONTINUED) HEDGING ACTIVITIES The Company is exposed to risk from fluctuations in energy prices in the normal course of business. The Company uses derivative contracts to hedge exposures to natural gas, oil and propane price changes. The following table summarizes the absolute notional quantities of the derivative contracts held for purposes other than trading at December 31, 2000 and 1999. The open futures, swaps, and options contracts at year-end 2000 have maturities extending through December 2001. At December 31, 1999, the open futures and options contracts had maturities extending through December 2000 while the swap agreements had maturities extending through March 2001. The deferred gain (loss) noted in the table below is based on the commodities marked against the New York Mercantile Exchange (NYMEX) on December 29, 2000.
ABSOLUTE NOTIONAL DEFERRED QUANTITY GAIN (LOSS) ------------------- -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (BCF EQUIVALENT) (MILLIONS) Natural gas Futures ....... -- 18.8 $ -- $(0.8) Swaps ......... 15.9 71.2 (17.0) (2.9) Options ....... 61.8 17.0 (36.8) 0.8 ---- ----- ------ ----- Totals ...... 77.7 107.0 $(53.8) $(2.9) ==== ===== ====== ===== (MMBLS EQUIVALENT) (MILLIONS) Oil Futures ....... -- 0.2 $ -- $(0.7) Swaps ......... 0.4 0.8 (1.6) (0.5) Options ....... -- 0.3 -- (0.9) ---- ----- ------ ----- Totals ...... 0.4 1.3 $ (1.6) $(2.1) ==== ===== ====== ===== (MMBLS EQUIVALENT) (MILLIONS) Propane Futures ....... -- -- $ -- $ -- Swaps ......... 0.2 0.8 (1.5) (0.3) Options ....... -- 0.1 -- -- ---- ----- ------ ----- Totals ...... 0.2 0.9 $ (1.5) $(0.3) ==== ===== ====== =====
Deferred realized amounts from hedge transactions were a $10.8 million loss at December 31, 2000 and a $.1 million gain at December 31, 1999. The Company recognized net losses on its hedging activities of $77.6 million, $8.5 million and $3.0 million in 2000, 1999 and 1998, respectively. These losses are offset when the underlying products are sold. 42 43 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 B. DERIVATIVE COMMODITY INSTRUMENTS (CONTINUED) The Company is exposed to credit loss in the event of nonperformance by counterparties to derivative contracts. This credit exposure is limited to derivative contracts with a positive fair value. Futures contracts have minimal credit risk because futures exchanges are the counterparties. The Company manages the credit risk of the other derivative contracts by limiting dealings to those counterparties who meet the Company's criteria for credit and liquidity strength. TRADING ACTIVITIES The Company conducts trading activities through its unregulated marketing group. The function of the Company's trading business is to contribute to the Company's earnings by taking market positions within defined limits subject to the Company's corporate risk management policy. At December 31, 2000, the absolute notional quantities of the futures, swaps and physical contracts held for trading purposes were 29.0 Bcfe, 45.3 Bcfe, and 253.1 Bcfe, respectively. The table below sets forth the end of period fair value and average fair value during the year for all the derivative contracts held for trading purposes.
2000 1999 --------------------------- ------------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- (THOUSANDS) (THOUSANDS) Fair value at December 31 ............. $544,485 $514,809 $2,695 $2,914 Average fair value .................... $273,590 $258,862 $2,583 $2,837
Excluding any offsetting physical activity, derivative trading activity resulted in net losses of $8.6 million and $0.6 million for 2000 and 1999, respectively. There was no trading activity in 1998. C. ASSET IMPAIRMENT AND OTHER NONRECURRING ITEMS The Company's 1998 results of operations include several significant nonrecurring items, which are included in operating expense. In December 1998, as a result of a sustained decrease in natural gas and crude oil prices and a change in management's objectives in the Gulf of Mexico, the Company recognized a write-down in the carrying value of crude oil and natural gas production assets of $36.9 million. To improve the efficiency of Appalachian production operations, the Company obtained authority in 1999 from the FERC to decertify the pipeline facilities of Kentucky West Virginia Gas Company, LLC (Kentucky West). In decertifying the pipeline, the Company determined that not all costs would be collectible in rates and reduced regulatory and other assets by $9.2 million, including $3.6 million in Equitable Utilities and $5.6 million in Equitable Production. In addition, the Company implemented a fundamental restructuring of its utility, nonregulated retail sales and headquarters groups. This process included a voluntary work force reduction incentive offer to reduce staff, the closing or consolidation of several offices, reconfiguration of management information systems, the realignment of many administrative functions to specific operating segments and the curtailment of several auxiliary business ventures. Expenses associated with these initiatives totaled $35.7 million including $8.1 million in the utility group, $2.1 million in the production group, $2.7 million in energy services, $3.0 million in the energy sales unit and $19.8 million in headquarters. 43 44 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 D. DIRECT BILLING AND OTHER SETTLEMENTS Kentucky West received FERC approval of settlement agreements with all customers for direct billing to recover the higher Natural Gas Policy Act (NGPA) prices, which the FERC had denied on natural gas produced from exploration and production properties between 1978 and 1983. The portion of the settlement with the Equitable Gas Company division was subject to Pennsylvania Public Utility Commission (PUC) review. The PUC approved Equitable Gas Company's collection of $2.6 million in September 1998 related to the direct billing settlement. This amount is recognized as other operating revenues in the production segment for 1998. E. DISCONTINUED OPERATIONS In April 1998, management adopted a formal plan to sell the Company's natural gas midstream operations. The operations included an integrated natural gas gathering, processing and storage system in Louisiana and a natural gas and electricity trading and marketing business based in Houston. The financial statements for all periods have been restated to classify these as discontinued operations. In December 1998, the Company completed the sale of these operations to various parties for $338.3 million, which included working capital adjustments. Net loss from discontinued operations was $(8.8) million for the year ended December 31, 1998. The net loss in 1998 reflects an after-tax gain on the sale of $10.1 million. The net loss was reported net of income tax benefit of $(0.2) million. Interest expense allocated to discontinued operations was $7.4 million for the year ended December 31, 1998. F. SALE OF PROPERTY In April 2000, the Company combined its Gulf of Mexico operations with Westport Oil and Gas Company for $50 million in cash and approximately 49% interest in the combined company, Westport. Equitable accounts for the investment in Westport under the equity method of accounting. The effect of this acquisition is not material to the results of operations or financial position of Equitable, and therefore, pro forma financial information is not presented. In October 2000, Westport had a successful IPO of its shares. Equitable sold 1.325 million shares in this IPO for an after-tax gain of $4.3 million. Equitable now owns 13.911 million shares, or approximately 36% interest in Westport. Equitable's investment in Westport was $130.1 million as of December 31, 2000. On June 30, 2000, Equitable sold a substantial portion of its interest in properties qualifying for nonconventional fuel tax credit to a partnership that netted $122.2 million in cash and retained a minority interest in this partnership. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Prior to this transaction, the Company entered into financial hedges covering the first two years of production. Removal of these hedges upon closing of this transaction resulted in a $7.0 million pretax charge recorded as other loss. Equitable accounted for its remaining $26.3 million investment under the equity method of accounting. Equitable estimates that it will receive $6.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. In December 2000, Equitable sold 133.3 Bcfe of reserves acquired from Statoil to a trust for proceeds of $255.8 million and a minority interest in this trust. In anticipation of this transaction, the Company entered into financial hedges. Removal of these hedges upon closing of this transaction resulted in a $57.7 million charge that was equally offset against the gain recognized on the sale of these properties. The proceeds received were used to pay down short-term debt associated with the Statoil acquisition. Equitable accounted for its $36.2 million investment under the equity method of accounting. Equitable estimates that it will receive $12.0 million in fees for operating the wells and gathering and marketing the gas on behalf of the purchaser in 2001 based on expected production volumes. 44 45 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 G. ACQUISITIONS On February 15, 2000, Equitable, through its subsidiary, ERI Investments, Inc., acquired the Appalachian oil and gas properties of Statoil for $630 million plus working capital adjustments for a total of $677 million. The Company acquired all of the issued and outstanding shares and interests of Eastern States Oil & Gas, Inc. and Eastern States Exploration Co., subsidiaries of Statoil Energy, Inc. The acquisition was initially funded through commercial paper and was replaced with transactions designed to monetize the oil and gas properties. This acquisition has been accounted for under the purchase method of accounting. Accordingly, the allocation of the cost of the acquired assets and liabilities assumed has been made on the basis of the estimated fair value. The consolidated financial statements include the operating results of these properties from the date of acquisition. The following summarized unaudited pro forma financial information assumes that this acquisition occurred on January 1, 1999. Adjustments have been made for DD&A and certain other adjustments together with related income tax effects. YEARS ENDED DECEMBER 31, 2000 1999 ---------------------------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenue ........... $1,669,490 $1,166,978 ========== ========== Net income ........ $ 107,843 $ 75,430 ========== ========== Earnings per share: Basic ............. $ 3.31 $ 2.22 ========== ========== Diluted ........... $ 3.25 $ 2.20 ========== ========== This information is not necessarily indicative of the results the Company would have obtained had these events actually occurred on January 1, 1999, or of the Company's actual or future results of operations of the combined companies. In December 1999, the Company acquired Carnegie Natural Gas Company and subsidiaries (Carnegie) for $40 million, including transaction costs. The Carnegie operations include natural gas distribution and pipeline businesses that were integrated into those divisions of the Company's Utilities segment, as well as exploration and production businesses that were integrated into the Production segment. Carnegie operates more than 1,000 natural gas wells in Pennsylvania and West Virginia and supplies approximately 8,000 industrial, commercial and residential customers. No goodwill was recorded in connection with the acquisition, which was accounted for under the purchase method of accounting. The effect of this acquisition is not material to the results of operations or financial position of Equitable, and therefore, pro forma financial information is not presented. 45 46 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 H. INCOME TAXES The following table summarizes the source and tax effects of temporary differences between financial reporting and tax bases of assets and liabilities.
DECEMBER 31, -------------------------- 2000 1999 --------- --------- (THOUSANDS) Deferred tax liabilities (assets): Exploration and development costs expensed for income tax reporting $ 148,347 $ 104,628 Tax depreciation in excess of book depreciation ................... 165,229 163,755 Regulatory temporary differences .................................. 24,791 25,069 Deferred purchased gas cost ....................................... 12,163 6,710 Equity earnings in Westport ....................................... 6,960 -- Deferred revenues/expenses ........................................ (14,774) (14,507) Alternative minimum tax ........................................... (49,540) (50,114) Investment tax credit ............................................. (7,754) (6,565) Uncollectible accounts ............................................ (7,407) (6,450) Postretirement benefits ........................................... (3,905) (3,982) Other ............................................................. (13,547) (21,836) --------- --------- Total (including amounts classified as current liabilities of $12,730 for 2000 and $12,812 for 1999) ................... $ 260,563 $ 196,708 ========= =========
As of December 31, 2000 and 1999, $59.2 million and $59.1 million, respectively, of the net deferred tax liabilities are related to rate-regulated operations and have been deferred as regulatory assets. Income tax expense (benefit) is summarized as follows: YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ------- -------- -------- (THOUSANDS) Current: Federal ...... $ 2,042 $23,758 $ 5,331 State ........ 610 916 339 Foreign ...... -- 47 -- ------- ------- -------- Subtotal ... 2,652 24,721 5,670 ------- ------- -------- Deferred: Federal ...... 49,300 14,756 (22,033) State ........ 5,219 (121) (7,504) Foreign ...... -- -- 1,486 ------- ------- -------- Subtotal ... 54,519 14,635 (28,051) ------- ------- -------- Total ...... $57,171 $39,356 $(22,381) ======= ======= ======== 46 47 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 H. INCOME TAXES (CONTINUED) Provisions for income taxes differ from amounts computed at the federal statutory rate of 35% on pretax income. The reasons for the difference are summarized as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 -------- -------- -------- (THOUSANDS) Tax at statutory rate .............. $ 57,171 $ 37,970 $(17,301) State income taxes ................. 3,789 517 (4,657) Nonconventional fuels tax credit ... (900) (817) (1,199) Other .............................. (2,889) 1,686 776 -------- -------- -------- Income tax expense (benefit) ..... $ 57,171 $ 39,356 $(22,381) ======== ======== ======== Effective tax rate (benefit) ....... 35.0% 36.3% (45.3)% ======== ======== ========
An income tax benefit of $1.6 million triggered by the exercise of nonqualified employee stock options is reflected as an addition to common stockholders' equity. The consolidated federal income tax liability of the Company has been settled through 1994. The Company has not provided any U.S. tax on undistributed earnings of foreign subsidiaries or joint ventures that are reinvested indefinitely outside the United States. At December 31, 2000, consolidated retained earnings of the Company included approximately $9.9 million of undistributed earnings from these investments. I. EQUITY IN NONCONSOLIDATED INVESTMENTS The Company has ownership interests in various nonconsolidated investments that are accounted for under the equity method of accounting. The following table summarizes the equity in nonconsolidated investments.
DECEMBER 31, ------------------------- INVESTEES LOCATION OWNERSHIP 2000 1999 - -------------------------------------- ------------- -------------- ------- --------- (THOUSANDS) Eastern Seven Partners, L.P. ......... USA 1% $ 26,414 $ -- Appalachian Natural Gas Trust ........ USA 1% 36,235 -- -------- ------- Total Equitable Production ......... 62,649 -- -------- ------- IGC/ERI Pan-Am Thermal .............. Panama 50% 17,719 14,863 Petroelectrica de Panama ............ Panama 45% 9,837 9,228 Capital Center Energy ............... USA 50% 4,757 12,779 Dona Julia .......................... Costa Rica 24% 3,590 3,235 Hunterdon Cogeneration LP ........... USA 50% 1,645 193 Other ............................... USA Various 352 575 -------- ------- Total NORESCO ...................... 37,900 40,873 -------- ------- Westport Resources Corporation ...... USA 36% 130,102 -- -------- ------- Total equity in nonconsolidated investments .................... $230,651 $40,873 ======== =======
47 48 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 I. EQUITY IN NONCONSOLIDATED INVESTMENTS (CONTINUED) Equitable Production's equity in nonconsolidated investments represent ownership interests in transactions by which natural gas producing properties located in the Appalachian Basin region of the United States were sold. The partnership and trust properties include assets that qualify for nonconventional fuels tax credits. Both of these investments follow the equity method of accounting. The NORESCO segment, through its energy infrastructure division, has investments in unconsolidated partnerships. These investments represent equity ownership interests in independent power plant (IPP) projects located domestically in the United States as well as in selected international countries. IPP projects which NORESCO and its partners develop, construct and operate are the result of specific needs of private or governmental entities to secure power that is more cost effective and reliable than the current source of power as well as to meet the growing energy demands of many international countries. Long-term power purchase agreements are signed with the customer whereby they agree to purchase the energy generated by the plant. The length of these contracts ranges from 5 to 30 years. The Company has invested approximately $32.7 million in these operations since January 1998, and the Company's ownership share of the earnings for this same time period is approximately $10.6 million. All projects have been completed within the NORESCO segment using nonrecourse financing at the subsidiary level. Foreign investments represent $31.1 million, or 82%, of NORESCO's equity in nonconsolidated investments. In addition, $19.1 and $20.0 million of fixed assets are included in NORESCO's property, plant and equipment balance at December 31, 2000 and 1999, respectively, related to an independent power project located in Jamaica, of which NORESCO is a majority owner. Total Company investments located in foreign countries was $50.2 million at December 31, 2000 and $47.3 million at December 31, 1999. On April 10, 2000, Equitable combined its Gulf of Mexico operations with Westport Oil and Gas Company for approximately $50 million in cash and approximately 49% minority interest in the combined company, Westport. Equitable accounted for this investment under the equity method of accounting. In October 2000, Westport had a successful IPO of its shares. Equitable sold 1.325 million shares in this IPO for an after-tax gain of $4.3 million. Equitable now owns 13.911 million shares, or approximately 36% interest in Westport. Equitable's investment in Westport was $130.1 million as of December 31, 2000 and the aggregate market value of this investment was $305.2 million as of December 31, 2000. J. INTANGIBLE ASSETS Amortization of the goodwill is provided on the straight-line method over a life of 20 years. Accumulated amortization at December 31, 2000 and 1999 was $13,758 and $10,011, respectively. For the years ended December 31, 2000, 1999 and 1998, amortization expense, included in depreciation, depletion and amortization, was $3,747, $3,746, and $3,858, respectively. K. SHORT-TERM LOANS Maximum lines of credit available to the Company at December 31, 2000 were $650 million and $500 million at December 31, 1999. The Company is not required to maintain compensating bank balances. Commitment fees averaging one-ninth of one percent in 2000 and one-tenth of one percent in 1999 were paid to maintain credit availability. 48 49 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 K. SHORT-TERM LOANS (CONTINUED) At December 31, 2000, short-term loans consisted of $302.0 million of commercial paper at a weighted average annual interest rate of 6.59% and the subsidiary note for project financing described below. At December 31, 1999, short-term loans consisted of $207.2 million of commercial paper at a weighted average annual interest rate of 5.95%. The maximum amount of outstanding short-term loans was $900.0 million in 2000 and $208.0 million in 1999. The average daily total of short-term loans outstanding was approximately $706.7 million during 2000 and $127.9 million during 1999; weighted average annual interest rates applicable thereto were 6.37% in 2000 and 5.26% in 1999. L. LONG-TERM DEBT
DECEMBER 31, ------------------------- 2000 1999 -------- -------- (THOUSANDS) 7 3/4 debentures, due July 15, 2026 ........................ $115,000 $115,000 Medium-term notes: 8.05% to 8.19% Series A, due 2001 ......................... 10,100 -- 8.0% to 9.0% Series A, due 2003 thru 2021 ................. 62,750 72,850 6.5% to 7.6% Series B, due 2003 thru 2023 ................. 75,500 75,500 6.8% to 7.6% Series C, due 2007 thru 2018 ................. 18,000 18,000 -------- -------- 281,350 281,350 Less debt payable within one year ............................ 10,100 -- -------- -------- Total debentures and medium-term notes .................. 271,250 281,350 Nonrecourse note for project financing ....................... 17,000 17,000 Less current portion of nonrecourse note for project financing 461 -- -------- -------- Long-term portion of nonrecourse note for project financing ..................................... 16,539 17,000 -------- -------- Total long-term debt .................................... $287,789 $298,350 ======== ========
At December 31, 2000, the Company has the ability to issue $150 million of additional long-term debt under the provisions of shelf registrations filed with the Securities and Exchange Commission. During 1999, a subsidiary of the Company issued a $17 million 9.25% nonrecourse note for project financing. The proceeds of this note were used to fund the operations of an independent power plant located in St. Catherine, Jamaica. Interest payments related to this note are due quarterly. Interest expense on long-term debt amounted to $33.0 million in 2000, $35.2 million in 1999, and $34.9 million in 1998. Aggregate maturities of long-term debt will be $10.1 million in 2001, none in 2002, $24.3 million in 2003, $20.5 million in 2004 and $10.0 million in 2005. 49 50 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 M. PREPAID GAS FORWARD SALE In 2000, the Company entered into two natural gas advance sale contracts for 48.7 MMcf of reserves. The Company is required to sell and deliver certain quantities of natural gas during the term of the contracts. The first contract is for five years with net proceeds of $104.0 million. The second contract is for three years with net proceeds of $104.8 million. As such, these contracts were recorded as prepaid gas forward sale and are being recognized in income as deliveries occur. N. DEFERRED REVENUE In 1995, the Company sold an interest in certain Appalachian natural gas properties, the production from which qualifies for nonconventional fuels tax credit. The Company retained an interest in the properties that will increase based on performance. As such, the proceeds of $133.5 million were recorded as deferred revenues and are being recognized in income as financial targets are achieved. O. TRUST PREFERRED CAPITAL SECURITIES In April 1998, $125 million of 7.35% trust preferred capital securities were issued. The capital securities were issued through a subsidiary trust, Equitable Resources Capital Trust I, established for the purpose of issuing the capital securities and investing the proceeds in 7.35% Junior Subordinated Debentures issued by the Company. The capital securities have a mandatory redemption date of April 15, 2038; however, at the Company's option, the securities may be redeemed on or after April 23, 2003. Proceeds were used to reduce short-term debt outstanding. Interest expense for the years ended December 31, 2000 and 1999 includes $9.2 million of preferred dividends related to the trust preferred capital securities. 50 51 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 P. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has pension and other postretirement benefit plans covering union members that generally provide benefits of stated amounts for each year of service. Plans covering salaried employees use a benefit formula which is based upon employee compensation and years of service. The following table sets forth the pension and other benefit plans' funded status and amounts recognized for those plans in the Company's consolidated balance sheets:
PENSION BENEFITS OTHER BENEFITS ----------------------------- ---------------------------- 2000 1999 2000 1999 --------- --------- -------- -------- (THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year ...... $123,237 $148,493 $ 41,930 $ 43,491 Service cost ................................. 2,634 2,294 290 297 Interest cost ................................ 9,335 9,488 3,297 3,002 Amendments ................................... 818 5,038 (2,999) 582 Actuarial (gain) loss ........................ (2,800) (9,513) 6,427 (577) Benefits paid ................................ (8,737) (9,726) (5,112) (4,866) Expenses paid ................................ (475) (558) -- -- Acquisitions ................................. 6,905 -- -- -- Curtailments ................................. 1,844 (12) 1,496 -- Settlements .................................. (29,451) (22,267) -- -- Special termination benefits ................. 10,629 -- 1,169 -- -------- -------- -------- -------- Benefit obligation at end of year ......... $113,939 $123,237 $ 46,498 $ 41,929 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of year $158,819 $177,205 $ 5,448 $ 8,454 Actual return on plan assets ................. (10,774) 13,958 (293) 407 Employer contribution ........................ 90 91 -- 219 Benefits paid ................................ (8,737) (9,726) (3,106) (3,632) Expenses paid ................................ (475) (558) -- -- Settlements .................................. (28,402) (22,151) -- -- -------- -------- -------- -------- Fair value of plan assets at end of year .. $110,521 $158,819 $ 2,049 $ 5,448 ======== ======== ======== ======== Funded status ................................ $ (3,418) $ 35,582 $(44,449) $(36,481) Unrecognized net actuarial (gain) loss ....... (6,833) (31,733) 21,474 14,988 Unrecognized prior service cost (credit) ..... 12,636 14,825 (2,452) 410 Unrecognized initial net (asset) obligation .. (119) (436) 10,545 12,420 -------- -------- -------- -------- Net asset (liability) recognized .......... $ 2,266 $ 18,238 $(14,882) $ (8,663) ======== ======== ======== ======== Weighted average assumptions as of December 31: Discount rate ................................ 8.00% 7.75% 8.00% 7.75% Expected return on plan assets ............... 10.00% 10.00% 10.00% 10.00% Rate of compensation increase ................ 4.50% 4.50% 4.50% 4.50%
51 52 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 P. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED) For measurement purposes, the annual rate of increase in the per capita cost of covered health care benefits in 2000 for the Pre-65 managed care, Pre-65 nonmanaged care and all Post-65 medical changes are 4.75%, 5.90% and 6.10%, respectively. The rates were assumed to decrease gradually to ultimate rates of 4.75%, 5.05% and 4.95% in 2001, 2002, and 2003, respectively. The pension asset of $2,266 at December 31, 2000 and $18,238 at December 31, 1999 is included in prepaid expenses and other current assets in the consolidated balance sheets. The accrued liability for other postretirement benefits of $14,882 at December 31, 2000 and $8,663 at December 31, 1999 is included in other current liabilities. The Company's costs related to defined benefit pension and other benefit plans comprised the following:
PENSION BENEFITS OTHER BENEFITS ---------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- ------- ------- ------- (THOUSANDS) Components of net periodic benefit cost: Service cost ........................ $ 2,634 $ 2,294 $ 2,177 $ 290 $ 297 $ 334 Interest cost ....................... 9,335 9,488 9,933 3,297 3,002 2,759 Expected return on plan assets ...... (12,893) (13,048) (13,377) (545) (898) (522) Amortization of prior service cost .. 1,783 1,823 1,579 (145) 31 (15) Amortization of initial net (asset) obligation ................ (265) (333) (390) 956 955 986 Recognized net actuarial (gain) loss (29) 90 3 979 921 749 Divestitures ........................ -- -- -- -- -- (1,719) Special termination benefits ........ 10,629 -- 970 1,169 -- 1,506 Settlement (gain) loss .............. (3,143) (5,781) (2,295) -- -- -- Curtailment loss .................... 1,105 1,453 319 2,425 -- 419 -------- -------- -------- ------ ------ ------- Net periodic benefit cost ......... $ 9,156 $ (4,014) $ (1,081) $8,426 $4,308 $ 4,497 ======== ======== ======== ====== ====== =======
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $113,939, $112,820, and $110,403, respectively, as of December 31, 2000 and $1,336, $1,336 and $0, respectively, as of December 31, 1999. Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
ONE-PERCENTAGE-POINT ONE-PERCENTAGE-POINT INCREASE DECREASE -------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- Effect on total of service and interest cost components .... $ 211 $ 218 $ 188 $ (201) $ (207) $ (177) Effect on postretirement benefit obligation .................. $2,421 $2,105 $2,316 $(2,337) $(2,815) $(2,238)
As of December 31, 2000 and 1999, approximately $2.0 million and $1.5 million, respectively, of the accrued postretirement benefits related to rate-regulated operations have been deferred as regulatory assets. Expense recognized by the Company related to the 401(k) employee savings plans totaled $2.8 million in 2000, $2.3 million in 1999, and $3.5 million in 1998. 52 53 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 Q. COMMON STOCK AND EARNINGS PER SHARE At December 31, 2000, shares of Equitable's authorized and unissued common stock were reserved as follows: (THOUSANDS) Possible future acquisitions ..... 6,594 Stock compensation plans ......... 4,630 ------ Total ......................... 11,224 ====== EARNINGS PER SHARE The computation of basic and diluted earnings (loss) per common share from continuing operations is shown in the table below:
YEARS ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 -------- ------- -------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) BASIC EARNINGS (LOSS) PER COMMON SHARE: Net income (loss) from continuing operations, before extraordinary item, applicable to common stock ....... $106,173 $69,130 $(27,052) Average common shares outstanding ...................... 32,550 34,044 36,833 Basic earnings (loss) per common share from continuing operations, before extraordinary item ..... $ 3.26 $ 2.03 $ (0.73) DILUTED EARNINGS (LOSS) PER COMMON SHARE: Net income (loss) from continuing operations, before extraordinary item, applicable to common stock ....... $106,173 $69,130 $(27,052) Average common shares outstanding ...................... 32,550 34,044 36,833 Potentially dilutive securities: Stock options and awards (a) ......................... 616 293 -- -------- ------- -------- Total .................................................. 33,166 34,337 36,833 Diluted earnings (loss) per common share from continuing operations, before extraordinary item ................ $ 3.20 $ 2.01 $ (0.73)
(a) Options to purchase 21,000 and 12,000 shares of common stock were not included in the computation of diluted earnings per common share because the options' exercise prices were greater than the average market prices of the common shares for 2000 and 1999, respectively. 53 54 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 R. STOCK-BASED COMPENSATION PLANS LONG-TERM INCENTIVE PLANS The Company's 1994 and 1999 Long-Term Incentive Plans provide for the granting of shares of common stock to officers and key employees of the Company. These grants may be made in the form of stock options, restricted stock, stock appreciation rights and other types of stock-based or performance-based awards as determined by the Compensation Committee of the Board of Directors at the time of each grant. Stock awarded under the plan, or purchased through the exercise of options, and the value of stock appreciation units are restricted and subject to forfeiture should an optionee terminate employment prior to specified vesting dates. In no case may the number of shares granted under the plan exceed 1,725,500 and 3,000,000 shares, respectively. Options granted under the plans expire 5 to 10 years from the date of grant and some contain vesting provisions which are based upon the Company's performance. Also reflected in the option tables below are options assumed in conjunction with the NORESCO acquisition in July 1997. All outstanding options granted under NORESCO's 1990 Incentive Stock Option Plan were converted by Equitable to nonqualified stock options with the right to receive, upon exercise of the option, the same Equitable stock and cash that shareholders of NORESCO received in the acquisition. As a result of this conversion, 872,000 NORESCO stock options were converted to 256,400 Equitable stock options with the exercise price per share proportionately adjusted. The adjusted exercise prices of these stock options range from $5.1012 to $5.9516 per share. The acquisition also accelerated the vesting period of these options, the latest of which expire in 2006. During 2000, 10,000 stock options were exercised under this plan, with 3,000 outstanding at December 31, 2000. Pro forma information regarding net income and earnings per share for options granted is required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these option grants was estimated at the dates of grant using a Black-Scholes option pricing model with the following assumptions for 2000, 1999, and 1998, respectively.
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2000 1999 1998 ---- ---- ---- Risk-free interest rate (range) .................. 5.42% to 6.80% 4.75% to 6.41% 4.80% to 5.63% Dividend yield ................................... 2.36% 3.35% 4.06% Volatility factor ................................ .231 .216 0.173 Weighted average expected life of options ........ 8 years 7 years 4 years Options granted .................................. 1,561,370 1,050,200 1,014,900 Weighted average fair market value of options granted during the year ....................... $14.38 $7.16 $3.91
54 55 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 R. STOCK-BASED COMPENSATION PLANS (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Had compensation cost for these options been determined in accordance with SFAS No. 123, the Company's net income and diluted earnings per share would have been $103.4 million, or $3.12 per share in 2000. The amounts of estimated expenses that would have been recognized in 1999 and 1998 are not considered material to the financial statements.
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ---- ---- ---- Options outstanding January 1 ...... 1,689,563 1,258,185 758,534 Granted ............................ 1,561,370 1,050,200 1,014,900 Forfeitures ........................ (321,719) (452,900) (453,257) Exercised .......................... (326,903) (165,922) (61,992) ---------- ---------- ---------- Options outstanding December 31 .... 2,602,311 1,689,563 1,258,185 ========== ========== ==========
Options outstanding at December 31, 2000 include 610,542 exercisable at that date.
2000 1999 1998 ------------------- ------------------- ------------------ At December 31: Prices of options outstanding ............. $5.10 to $63.56 $5.10 to $37.88 $5.10 to $34.63 Average option price ...................... $39.31 $29.58 $29.26
On September 5, 1997, the Company granted 106,127 stock awards from the 1994 Long-Term Incentive Plan for the Executive Retention Program. This program was established to provide additional incentive benefits to retain senior executive employees of the Company. The vesting of these awards was contingent on attainment of specific stock price targets and the continued employment of the participants until January 1, 2001. In 1998, 1999 and 2000, the Company granted 25,000, 128,000, and 88,000 additional stock awards, respectively, to key executives. The weighted average fair value of these restricted stock grants is $26.97, $23.00 and $40.14, respectively, for 1998, 1999 and 2000. The shares granted under these plans vest at the end of a three year period. Upon vesting, shares are released to participants. Compensation expense recorded by the Company related to stock awards was $14.1 million in 2000, $4.6 million in 1999 and $1.0 million in 1998. NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLANS The Company's 1994 and 1999 Nonemployee Directors' Stock Incentive Plans provide for the granting of up to 80,000 and 300,000 shares, respectively, of common stock in the form of stock option grants and restricted stock awards to nonemployee directors of the Company. The exercise price for each share is equal to market price of the common stock on the date of grant. Each option is subject to time-based vesting provisions and expires 5 to 10 years after date of grant. At December 31, 2000, 91,000 options were outstanding at prices ranging from $28.38 to $48.88 per share, and 14,500 options had been exercised under these plans. 55 56 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 S. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, as well as short-term loans, approximates fair value due to the short maturity of the instruments. The estimated fair value of long-term debt described in Note L at December 31, 2000 and 1999 is $311.2 million and $294.4 million, respectively. The fair value was estimated based on discounted values using a current discount rate reflective of the remaining maturity. The estimated fair value of liabilities for derivative commodity instruments described in Note B, excluding trading activities which are marked-to-market, was $56.9 million and $5.3 million at December 31, 2000 and 1999, respectively. T. CONCENTRATIONS OF CREDIT RISK Revenues and related accounts receivable from the Equitable Production segment's operations are generated primarily from the sale of produced natural gas to Equitable Energy, other Appalachian Basin purchasers, and utility and industrial customers located mainly in the Appalachian area, the sale of crude oil to refinery customers in the Appalachian area, the sale of produced natural gas liquids to a refinery customer in Kentucky and transportation of natural gas in Kentucky, Virginia, Ohio, Pennsylvania and West Virginia. The Equitable Utilities Distribution operating revenues and related accounts receivable are generated from state-regulated utility natural gas sales and transportation to more than 278,000 residential, commercial and industrial customers located in southwest Pennsylvania and parts of West Virginia and Kentucky. The Transmission operations include FERC-regulated interstate pipeline transportation and storage service for the affiliated utility, Equitable Gas, as well as other utility and end-user customers located in the Appalachian and mid-Atlantic regions. The unregulated Marketing operations provides natural gas operations commodity procurement and delivery, risk management and customer services to energy consumers including large industrial, utility, commercial, institutional and residential end-users primarily in the Appalachian and mid-Atlantic regions. Under state regulations, the utility is required to provide continuous natural gas service to residential customers during the winter heating season. The NORESCO segment's operating revenues and related accounts receivable are generated from cogeneration and power plant development facilities in several U.S. and Latin American markets, and performance contracting for commercial, industrial and institutional customers and various government facilities including military facilities throughout the United States. The Company is not aware of any significant credit risks that have not been recognized in provisions for doubtful accounts. U. FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company reports operations in three segments which reflect its lines of business. The Equitable Utilities segment's activities are comprised of the operations of the Company's state-regulated local distribution company, natural gas transportation, storage and marketing activities involving the Company's interstate natural gas pipelines, and supply and transportation services for the natural gas and electricity markets. The Equitable Production segment's activities are comprised of the exploration, development, production, gathering and sale of natural gas and oil, and the extraction and sale of natural gas liquids. NORESCO segment's activities are comprised of cogeneration and power plant development, the development and implementation of energy and water efficiency programs, performance contracting and central facility plant operations. 56 57 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 U. FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED) Operating segments are evaluated on their contribution to the Company's consolidated results, based on earnings before interest and taxes. Interest charges and income taxes are managed on a consolidated basis and allocated pro forma to operating segments. Headquarters costs are billed to operating segments based on a fixed allocation of the annual headquarters operating budget. Differences between budget and actual headquarters expenses are not allocated to operating segments, but included as a reconciling item to consolidated earnings from continuing operations. Substantially all of the Company's operating revenues, net income from continuing operations and assets are generated or located in the United States of America. The financial information by business segment in the following tables excludes amounts related to discontinued operations.
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 ---------- ----------- --------- (THOUSANDS) REVENUES FROM EXTERNAL CUSTOMERS: Equitable Utilities .................................................. $1,235,756 $ 703,969 $580,767 Equitable Production ................................................. 281,842 168,411 161,551 NORESCO .............................................................. 134,620 169,633 109,493 ---------- ---------- -------- Total .............................................................. $1,652,218 $1,042,013 $851,811 ========== ========== ======== INTERSEGMENT REVENUES: Equitable Utilities .................................................. $ 151,498 $ 107,905 $ 71,257 Equitable Production ................................................. 24,275 22,493 20,112 ---------- ---------- -------- Total .............................................................. $ 175,773 $ 130,398 $ 91,369 ========== ========== ======== DEPRECIATION, DEPLETION AND AMORTIZATION: Equitable Utilities .................................................. $ 28,185 $ 35,596 $ 20,570 Equitable Production ................................................. 64,065 58,565 56,380 NORESCO .............................................................. 5,304 6,078 4,300 Headquarters ......................................................... 223 483 3,920 ---------- ---------- -------- Total .............................................................. $ 97,777 $ 100,722 $ 85,170 ========== ========== ======== SEGMENT PROFIT (LOSS): Equitable Utilities .................................................. $ 92,978 $ 80,641 $ 32,174 Equitable Production ................................................. 120,336 54,616 (24,344) NORESCO .............................................................. 10,286 13,441 5,126 ---------- ---------- -------- Total segment profit ............................................... 223,600 148,698 12,956 RECONCILING ITEMS: Headquarters earnings (loss) before interest and taxes from continuing operations not allocated to operating segments: Impairments of investments and other assets ...................... -- -- (19,756) Other ............................................................ 15,405 (3,080) (2,331) ---------- ---------- -------- Earnings (loss) before interest and taxes from continuing operations ............................................ 239,005 145,618 (9,131) Interest expense ..................................................... 75,661 37,132 40,302 Income tax expenses (benefit) ........................................ 57,171 39,356 (22,381) ---------- ---------- -------- Net income (loss) from continuing operations, before extraordinary item ...................................... $ 106,173 $ 69,130 $(27,052) ========== ========== ========
57 58 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 U. FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED)
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ---------- ----------- ------- (THOUSANDS) OTHER SIGNIFICANT NONCASH EXPENSE ITEMS: Equitable Utilities: Increase (decrease) in deferred purchased natural gas cost $ 15,429 $ (10,370) $ 4,608 Noncash restructuring charges ............................ -- -- 12,009 Equitable Production: Lease impairments ........................................ 1,960 3,518 36,908 Noncash restructuring charges ............................ -- -- 6,812 NORESCO: Cost of contracts in excess of billings .................. 7,677 2,771 8,271 Noncash restructuring charges ............................ -- -- 1,764 ---------- ---------- ------- Total .................................................. $ 25,066 $ (4,081) $70,372 ========== ========== ======= SEGMENT ASSETS: Equitable Utilities ........................................ $1,146,896 $ 914,630 Equitable Production ....................................... 975,523 670,828 NORESCO .................................................... 143,030 145,925 ---------- ---------- Total operating segments ............................... 2,265,449 1,731,383 Headquarters assets, including cash and short-term investments ................................................ 190,401 58,191 ---------- ---------- Total .................................................. $2,455,850 $1,789,574 ========== ========== EXPENDITURES FOR SEGMENT ASSETS (a): Equitable Utilities ........................................ $ 28,436 $ 43,979 Equitable Production ....................................... 770,930 92,099 NORESCO .................................................... 1,596 6,041 ---------- ---------- Total ................................................ $ 800,962 $ 142,119 ========== ==========
(a) 2000 expenditures include $677 million for the acquisition of Statoil Energy, Inc. See Note G; 1999 expenditures include $40 million for the acquisition of Carnegie Natural Gas Company, including $17.7 million in Equitable Utilities and $22.3 million in Equitable Production. See Note G. V. COMMITMENTS AND CONTINGENCIES There are various claims and legal proceedings against the Company arising from the normal course of business. Although counsel is unable to predict with certainty the ultimate outcome, management and counsel believe the Company has significant and meritorious defenses to any claims and intends to pursue them vigorously. Management believes that the ultimate outcome of any matter currently pending against the Company will not materially affect the financial position of the Company although they could be material to the reported results of operations for the period in which they occur. The Company has annual commitments of approximately $30.8 million for demand charges under existing long-term contracts with pipeline suppliers for periods extending up to 12 years at December 31, 2000, which relate to natural gas distribution and production operations. However, approximately $21.5 million of these costs are recoverable in customer rates. 58 59 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 V. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is subject to federal, state and local environmental laws and regulations. These laws and regulations, which are constantly changing, can require expenditures for remediation and may in certain instances result in assessment of fines. The Company has established procedures for ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. The estimated costs associated with identified situations that require remedial action are accrued. However, certain of these costs are deferred as regulatory assets when recoverable through regulated rates. Ongoing expenditures for compliance with environmental laws and regulations, including investments in plant and facilities to meet environmental requirements, have not been material. Management believes that any such required expenditures will not be significantly different in either their nature or amount in the future and does not know of any environmental liabilities that will have a material effect on the Company's financial position or results of operations. W. INTERIM FINANCIAL INFORMATION (UNAUDITED) The following quarterly summary of operating results reflects variations due primarily to the seasonal nature of the Company's utility business and volatility of oil and natural gas commodity prices:
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 Operating revenues .......................... $374,877 $332,497 $335,284 $609,560 Operating income ............................ 75,748 50,671 42,626 45,189 Net income from continuing operations before extraordinary items ...................... 39,103 16,225 19,141 31,704 Earnings per share from continuing operations before extraordinary items: Basic .................................. $ 1.20 $ 0.50 $ 0.59 $ 0.98 Assuming dilution ...................... $ 1.18 $ 0.49 $ 0.58 $ 0.95 1999 Operating revenues .......................... $413,308 $185,318 $186,682 $256,705 Operating income ............................ 56,224 20,369 17,309 48,853 Net income from continuing operations before extraordinary items ...................... 29,739 7,238 5,732 26,421 Earnings per share from continuing operations before extraordinary items: Basic .................................. $ 0.84 $ 0.21 $ 0.17 $ 0.80 Assuming dilution ...................... $ 0.84 $ 0.21 $ 0.17 $ 0.79
59 60 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) The supplementary information summarized below presents the results of natural gas and oil activities for the Equitable Production segment in accordance with SFAS No. 69, "Disclosures About Oil and Natural Gas Producing Activities." The Company information presented for 2000 excludes data associated with reserves that were combined with Westport or sold in 2000 and are now included in the Company's nonconsolidated investments. Information about the natural gas and oil producing activities of these nonconsolidated investments is disclosed separately in this footnote and is calculated based on the Company's proportionate ownership interest percentage. The information presented for 1998 and 1999 excludes data associated with natural gas reserves related to rate-regulated and other utility operations. In 1999, the exploration and production operations conducted by Equitrans were transferred from Equitable Utilities to Equitable Production. Accordingly, the 1999 oil and natural gas information presented below reflects this transfer. These reserves (proved developed) are less than 5% of total Company proved reserves for the years presented. PRODUCTION COSTS The following table presents the costs incurred relating to natural gas and oil production activities:
2000 1999 1998 -------- -------- -------- (THOUSANDS) At December 31: Capitalized costs .................... $954,734 $947,803 $861,035 Accumulated depreciation and depletion 332,994 410,921 355,535 -------- -------- -------- Net capitalized costs ................... $621,740 $536,882 $505,500 ======== ======== ======== Costs incurred: Property acquisition: Proved properties .................. $604,082 $ 23,165 $ 4,799 Unproved properties ................ 9,199 722 18,069 Exploration ............................. 3,420 7,143 27,144 Development ............................. 93,695 59,647 76,762
60 61 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES The following table presents the results of operations related to natural gas and oil production, including the effect in 1998 of impairment of assets as described in Note C:
2000 1999 1998 -------- -------- -------- (THOUSANDS) Revenues: Affiliated ................................. $ -- $ 14,067 $39,553 Nonaffiliated .............................. 247,390 158,369 99,437 Production costs .............................. 42,450 26,206 30,390 Exploration expenses .......................... 3,420 4,001 30,982 Depreciation and depletion .................... 48,121 52,009 49,348 Impairment of assets .......................... -- 5,018 29,230 Income tax expense (benefit) .................. 56,740 32,911 (1,166) -------- -------- ------- Results of operations from producing activities (excluding corporate overhead) ............. $ 96,659 $ 52,291 $ 206 ======== ======== =======
RESERVE INFORMATION The information presented below represents estimates of proved natural gas and oil reserves prepared by Company engineers. Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. In February 2000, the Company purchased reserves in conjunction with the Statoil acquisition. The Company sold reserves in the April 2000 Westport merger, and interests in producing properties in the June 2000 and December 2000 sale transactions. In 1999, the Company decreased its estimate of the annual production decline from 4% to 3%, to be more representative of the region. This revision increased 1999 proved developed natural gas and crude oil reserves by 85,574 million cubic feet equivalent. Also during 1999, the exploration and production operations conducted by Equitrans were transferred to Equitable Production and reflected in the reserve information for 1999 as other additions to proved reserves of 43,829 million cubic feet equivalent. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred. All of the Company's proved reserves are in the United States. 61 62 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
2000 1999 1998 ---------- ---------- -------- (MILLIONS OF CUBIC FEET) NATURAL GAS Proved developed and undeveloped reserves: Beginning of year ........................................... 1,146,433 899,881 889,828 Revision of previous estimates .............................. 56,388 134,576 6,502 Purchase of natural gas in place ............................ 1,220,509 46,124 8,474 Sale of natural gas in place ................................ (311,770) -- -- Extensions, discoveries and other additions ................. 140,204 132,180 54,970 Production .................................................. (87,134) (66,328) (59,893) ---------- ---------- -------- End of year ................................................. 2,164,630 1,146,433 899,881 ========== ========== ======== Proved developed reserves: Beginning of year ........................................... 965,969 780,817 769,312 End of year ................................................. 1,563,076 965,969 780,817
2000 1999 1998 ---------- ---------- -------- (THOUSANDS OF BARRELS) OIL Proved developed and undeveloped reserves: Beginning of year ........................................... 9,932 9,826 10,100 Revision of previous estimates .............................. 134 (23) (966) Purchase of oil in place .................................... 1,872 44 5 Sale of oil in place ........................................ (4,574) -- -- Extensions, discoveries and other additions ................. -- 1,155 1,661 Production .................................................. (497) (1,070) (974) ---------- ---------- -------- End of year ................................................. 6,867 9,932 9,826 ========== ========== ======== Proved developed reserves: Beginning of year ........................................... 7,996 8,331 8,941 End of year ................................................. 6,867 7,996 8,331
62 63 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) STANDARD MEASURE OF DISCOUNTED FUTURE CASH FLOW Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of natural gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at an arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil reserves based on selling prices and costs at year-end price levels are as follows:
2000 1999 1998 ------------ ----------- ----------- (THOUSANDS) Future cash inflows ........................................ $ 24,633,861 $ 2,877,829 $1,870,002 Future production costs .................................... (2,864,814) (808,115) (606,777) Future development costs ................................... (327,875) (139,626) (84,454) ------------ ----------- ---------- Future net cash flow before income taxes ................... 21,441,172 1,930,088 1,178,771 10% annual discount for estimated timing of cash flows ..... (14,969,946) (1,098,185) (635,296) ------------ ----------- ---------- Discounted future net cash flows before income taxes ....... 6,471,226 831,903 543,475 Future income tax expenses, discounted at 10% annually ..... (2,394,354) (251,467) (118,602) ------------ ----------- ---------- Standardized measure of discounted future net cash flows ... $ 4,076,872 $ 580,436 $ 424,873 ============ =========== ==========
Summary of changes in the standardized measure of discounted future net cash flows:
2000 1999 1998 ------------- ------------ ------------ (THOUSANDS) Sales and transfers of natural gas and oil produced - net ........ $ (206,393) $(146,230) $(108,600) Net changes in prices, production and development costs .......... 2,557,134 156,020 (343,061) Extensions, discoveries, and improved recovery, less related costs .................................................. 408,844 140,402 67,986 Development costs incurred ....................................... 61,496 30,479 32,497 Purchase (sale) of minerals in place - net ....................... 2,627,587 26,152 6,439 Revisions of previous quantity estimates ......................... 167,784 101,778 (260) Accretion of discount ............................................ 65,230 42,487 84,463 Net change in income taxes ....................................... (2,142,887) (128,301) 158,285 Other ............................................................ (42,359) (67,224) (13,870) ----------- --------- --------- Net increase (decrease) .......................................... 3,496,436 155,563 (116,121) Beginning of year ................................................ 580,436 424,873 540,994 ----------- --------- --------- End of year ...................................................... $ 4,076,872 $ 580,436 $ 424,873 =========== ========= =========
63 64 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) The following tables present information about the natural gas and oil producing activities of the Company's nonconsolidated investments. PRODUCTION COSTS OF NONCONSOLIDATED INVESTMENTS
2000 -------- (THOUSANDS) At December 31: Capitalized costs ................................................................... $226,895 Accumulated depreciation and depletion .............................................. 55,915 -------- Net capitalized costs .................................................................. $170,980 ======== Costs incurred: Property acquisition: Proved properties ................................................................. $ 71,225 Unproved properties ............................................................... 11,424 Exploration ............................................................................ 12,429 Development ............................................................................ 21,166
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES OF NONCONSOLIDATED INVESTMENTS
2000 -------- (THOUSANDS) Revenues ............................................................................... $78,995 Production costs ....................................................................... 17,255 Exploration expenses ................................................................... 4,592 Depreciation and depletion ............................................................. 23,283 Impairment of assets ................................................................... 2,885 Income tax expense ..................................................................... 10,936 ------- Results of operations from producing activities ........................................ $20,044 =======
64 65 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) RESERVE INFORMATION OF NONCONSOLIDATED INVESTMENTS
2000 ------------------------ (MILLIONS OF CUBIC FEET) NATURAL GAS Proved developed and undeveloped reserves: Beginning of year ................................................. 42,842 Revision of previous estimates .................................... 3,828 Purchase of natural gas in place .................................. 41,925 Sale of natural gas in place ...................................... (160) Extensions, discoveries and other additions ....................... 12,007 Production ........................................................ (12,319) ------- End of year ....................................................... 88,123 ======= Proved developed reserves: Beginning of year ................................................. 29,728 End of year ....................................................... 66,542
2000 ---------------------- (THOUSANDS OF BARRELS) OIL Proved developed and undeveloped reserves: Beginning of year ................................................. 11,757 Revision of previous estimates .................................... 509 Purchase of oil in place .......................................... 1,166 Sale of oil in place .............................................. (778) Extensions, discoveries and other additions ....................... 1,125 Production ........................................................ (1,287) ------- End of year ....................................................... 12,492 ======= Proved developed reserves: Beginning of year ................................................. 10,587 End of year ....................................................... 10,294
65 66 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) STANDARD MEASURE OF DISCOUNTED FUTURE CASH FLOW OF NONCONSOLIDATED INVESTMENTS Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of natural gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at an arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil reserves based on selling prices and costs at year-end price levels are as follows:
2000 ----------- (THOUSANDS) Future cash inflows ........................................ $1,074,495 Future production costs .................................... (196,143) Future development costs ................................... (42,870) ---------- Future net cash flow before income taxes ................... 835,482 10% annual discount for estimated timing of cash flows ..... (193,070) ---------- Discounted future net cash flows before income taxes ....... 642,412 Future income tax expenses, discounted at 10% annually ..... (248,086) ---------- Standardized measure of discounted future net cash flows ... $ 394,326 ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 66 67 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by Item 10 with respect to directors is incorporated herein by reference to the section describing "Election of Directors" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2001, which will be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 2000. Information required by Item 10 with respect to compliance with Section 16(a) of the Exchange Act is incorporated by reference to the section describing "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2001. Information required by Item 10 with respect to executive officers is included herein after Item 4 at the end of Part I under the heading "Executive Officers of the Registrant." The information required by Item of Regulation S-K contained under the caption "Compliance with Section 16(a) Reporting" on pages 4-5 of the Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 is incorporated herein by reference to the sections describing "Executive Compensation," "Employment Contracts and Change-In-Control Arrangements" and "Pension Plan" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 is incorporated herein by reference to the section describing "Voting Securities and Record Date" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 67 68 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying index to financial statements are filed as part of this Annual Report on Form 10-K. 2. Financial Statement Schedule The financial statement schedule listed in the accompanying index to financial statements and financial schedule is filed as part of this Annual Report on Form 10-K. 3. Exhibits The exhibits listed on the accompanying index to exhibits (pages 63 through 66) are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K filed during the quarter ended December 31, 2000. None. EQUITABLE RESOURCES, INC. INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (ITEM 14 (a)) 1. The following consolidated financial statements of Equitable Resources, Inc. and Subsidiaries are included in Item 8: PAGE REFERENCE Statements of Consolidated Income for each of the three years in the period ended December 31, 2000 34 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 2000 35 Consolidated Balance Sheets December 31, 2000 and 1999 36 - 37 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 2000 38 Notes to Consolidated Financial Statements 39 - 66 2. Schedule for the Years Ended December 31, 2000, 1999 and 1998 included in Part IV: II-- Valuation and Qualifying Accounts and Reserves 69 All other schedules are omitted since the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedules. 68 69 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 2000 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ------------------ ------------- --------------------------------- ----------- ------------- ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD ------------------------------------------------------------------------------------------------------------------- (THOUSANDS) 2000 Accumulated Provisions for Doubtful Accounts $13,024 $12,129 $400(b) $(10,140)(a) $15,413 1999 Accumulated Provisions for Doubtful Accounts $ 9,818 $11,917 $108(c) $ (8,819)(a) $13,024 1998 Accumulated Provisions for Doubtful Accounts $10,284 $15,634 $ 21(d) $(16,121)(a) $ 9,818
Note: (a) Customer accounts written off, less recoveries. (b) Addition to the Provision for Doubtful Accounts relates to the acquisition of Statoil Energy, Inc. (c) Addition to the Provision for Doubtful Accounts relates to the acquisition of Carnegie Distribution. (d) Addition to the Provision for Doubtful Accounts relates to the acquisition of LMI and Scallop. 69 70 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING --------------- --------------------------------------------------- ----------------------------------------- 3.01 Restated Articles of Incorporation of the Company Filed as Exhibit 3.01 to Form 10-K for dated May 18, 1999 the year ended December 31, 1999 3.02 Bylaws of the Company (amended through May 17, Filed as Exhibit 3.02 to Form 10-Q for 2000) the quarter ended June 30, 2000 4.01 (a) Indenture dated as of April 1, 1983 between the Filed as Exhibit 4.01 (Revised) to Company and Pittsburgh National Bank relating to Post-Effective Amendment No. 1 to Debt Securities Registration Statement (Registration No. 2-80575) 4.01 (b) Instrument appointing Bankers Trust Company as Filed as Exhibit 4.01 (b) to Form 10-K successor trustee to Pittsburgh National Bank for the year ended December 31, 1998 4.01 (c) Resolutions adopted June 22, 1987 by the Finance Filed as Exhibit 4.01 (c) to Form 10-K Committee of the Board of Directors of the for the year ended December 31, 1998 Company establishing the terms of the 75,000 units (debentures with warrants) issued July 1, 1987 4.01 (d) Supplemental indenture dated March 15, 1991 with Filed as Exhibit 4.01 (f) to Form 10-K Bankers Trust Company eliminating limitations on for the year ended December 31, 1996 liens and additional funded debt 4.01 (e) Resolution adopted August 19, 1991 by the Ad Hoc Filed as Exhibit 4.01 (g) to Form 10-K Finance Committee of the Board of Directors of for the year ended December 31, 1996 the Company Addenda Nos. 1 through 27, establishing the terms and provisions of the Series A Medium-Term Notes 4.01 (f) Resolutions adopted July 6, 1992 and February 19, Refiled as Exhibit 4.01 (h) to Form 1993 by the Ad Hoc Finance Committee of the Board 10-K for the year ended December 31, of Directors of the Company and Addenda Nos. 1 1997 through 8, establishing the terms and provisions of the Series B Medium-Term Notes 4.01 (g) Resolution adopted July 14, 1994 by the Ad Hoc Filed as exhibit 4.01(i) to Form 10-K Finance Committee of the Board of Directors of for the year ended December 31, 1995 the Company and Addenda Nos. 1 and 2, establishing the terms and provisions of the Series C Medium-Term Notes 4.01 (h) Resolution adopted January 18 and July 18, 1996 Filed as Exhibit 4.01 (j) to Form 10-K by the Board of Directors of the Company and for the year ended December 31, 1996 Resolutions adopted July 18, 1996 by the Executive Committee of the Board of Directors of the Company, establishing the terms and provisions of the 7.75% Debentures issued July 29, 1996 4.01 (i) Junior Subordinated Indenture Between Equitable Filed as Exhibit 4.1 to Form 10-Q for Resources, Inc. and Bankers Trust Company the quarter ended June 30, 1998
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 70 71 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING --------------- --------------------------------------------------- ----------------------------------------- 4.01 (j) Amended and Restated Trust Agreement Between Filed as Exhibit 4.2 to Form 10-Q for Equitable Resources, Inc. and Bankers Trust the quarter ended June 30, 1998 Company 4.01 (k) Equitable Resources, Inc. 7.35% Junior Filed as Exhibit 4.3 to Form 10-Q for Subordinated Deferrable Interest Debentures the quarter ended June 30, 1998 Certificate 4.01 (l) Rights Agreement dated as of April 1, 1996 Filed as Exhibit 1 to Registration between the Company and Chemical Mellon Statement on Form 8-A filed April 16, Shareholder Services, L.L.C., setting forth the 1996 terms of the Company's Preferred Stock Purchase Rights Plan 10.01 Trust Agreement with Pittsburgh National Bank to Refiled as Exhibit 10.01 to Form 10-K act as Trustee for Supplemental Pension Plan, for the year ended December 31, 1999 Supplemental Deferred Compensation Benefits, Retirement Program for Board of Directors and Supplemental Executive Retirement Plan *10.02 Equitable Resources, Inc. Filed as Exhibit 10.4 to Form 10-Q for Directors' Deferred Compensation Plan (Amended the quarter ended June 30, 2000 and Restated Effective May 16, 2000) *10.03 1999 Equitable Resources, Inc. Filed as Exhibit 10.2 to Form 10-Q for Long-Term Incentive Plan (as amended May 26, 1999) the quarter ended June 30, 1999 *10.04 1999 Equitable Resources, Inc. Filed as Exhibit 10.04 to Form 10-K for Short-Term Incentive Plan the year ended December 31, 1999 *10.05 1999 Equitable Resources, Inc. Non-Employee Filed as Exhibit 10.1 to Form 10-Q for Directors' Stock Incentive Plan (as amended May the quarter ended June 30, 1999 26, 1999) *10.06 Equitable Resources, Inc. 1994 Long-Term Refiled as Exhibit 10.06 to Form 10-K for Incentive Plan the year ended December 31, 1999 *10.07 Equitable Resources, Inc. and Subsidiaries Filed as Exhibit 10.3 to Form 10-Q for Deferred Compensation Plan (Amended and Restated the quarter ended June 30, 2000 Effective May 16, 2000) *10.08 Equitable Resources, Inc. Breakthrough Long-Term Filed as Exhibit 10.01 to Form 10-Q for Incentive Plan with certain executives of the the quarter ended September 30, 2000 Company (as amended through November 30, 1999) *10.09 (a) Employment Agreement dated as of May 4, 1998 with Filed as Exhibit 10.2 to Form 10-Q for Murry S. Gerber the quarter ended June 30, 1998 *10.09 (b) Amendment No. 1 to Employment Agreement with Filed as Exhibit 10.09 (b) to Form 10-K Murry S. Gerber for the year ended December 31, 1999
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 71 72 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING --------------- --------------------------------------------------- ----------------------------------------- *10.10 Change in Control Agreement dated December 1, Filed as Exhibit 10.10 to Form 10-K for 1999 with Murry S. Gerber the year ended December 31, 1999 *10.11 Supplemental Executive Retirement Agreement dated Filed as Exhibit 10.4 to Form 10-Q for as of May 4, 1998 with Murry S. Gerber the quarter ended June 30, 1998 *10.12 Amended and Restated Post-Termination Filed as Exhibit 10.12 to Form 10-K for Confidentiality and Non-Competition Agreement the year ended December 31, 1999 dated December 1, 1999 with Murry S. Gerber *10.13 (a) Employment Agreement dated as of July 1, 1998 Filed as Exhibit 10.1 to Form 10-Q for with David L. Porges the quarter ended September 30, 1998 *10.13 (b) Amendment No. 1 to Employment Agreement with Filed as Exhibit 10.13 (b) to Form 10-K David L. Porges for the year ended December 31, 1999 *10.14 Change of Control Agreement dated July 1, 1998 Filed as Exhibit 10.14 to Form 10-K for with David L. Porges the year ended December 31, 1999 *10.15 Amended and Restated Post-Termination Filed as Exhibit 10.15 to Form 10-K for Confidentiality and Non-Competition Agreement the year ended December 31, 1999 dated December 1, 1999 with David L. Porges *10.16 Change of Control Agreement dated December 1, Filed as Exhibit 10.16 to Form 10-K for 1999 with Gregory R. Spencer the year ended December 31, 1999 *10.17 Noncompete Agreement dated December 1, 1999 with Filed as Exhibit 10.17 to Form 10-K for Gregory R. Spencer the year ended December 31, 1999 *10.18 Change of Control Agreement dated December 1, Filed as Exhibit 10.18 to Form 10-K for 1999 with Johanna G. O'Loughlin the year ended December 31, 1999 *10.19 Noncompete Agreement dated December 1, 1999 with Filed as Exhibit 10.19 to Form 10-K for Johanna G. O'Loughlin the year ended December 31, 1999 *10.20 (a) Agreement dated May 29, 1996 with Paul Christiano Filed as Exhibit 10.04 (a) to Form 10-K for deferred payment of 1996 director fees for the year ended December 31, 1996 beginning May 29, 1996 *10.20 (b) Agreement dated November 26, 1996 with Paul Filed as Exhibit 10.04 (b) to Form 10-K Christiano for deferred payment of 1997 for the year ended December 31, 1996 director fees *10.20 (c) Agreement dated December 1, 1997 with Paul Filed as Exhibit 10.04 (c) to Form 10-K Christiano for deferred payment of 1998 for the year ended December 31, 1997 director fees *10.20 (d) Agreement dated December 15, 1998 with Paul Filed as Exhibit 10.19 (d) to Form 10-K Christiano for deferred payment of 1999 for the year ended December 31, 1998 director fees *10.20 (e) Agreement dated November 29, 1999 with Paul Filed as Exhibit 10.20 (e) to Form 10-K Christiano for deferred payment of 2000 for the year ended December 31, 1999 director fees
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 72 73
EXHIBITS DESCRIPTION METHOD OF FILING - ------------- --------------------------------------------------- ----------------------------------------- * 10.21 (a) Agreement dated May 24, 1996 with Phyllis A. Domm Filed as Exhibit 10.14 (a) to Form 10-K for deferred payment of 1996 director fees for the year ended December 31, 1996 beginning May 24, 1996 * 10.21 (b) Agreement dated November 27, 1996 with Phyllis A. Filed as Exhibit 10.14 (b) to Form 10-K Domm for deferred payment of 1997 director fees for the year ended December 31, 1996 * 10.21 (c) Agreement dated November 30, 1997 with Phyllis A. Filed as Exhibit 10.14 (c) to Form 10-K Domm for deferred payment of 1998 director fees for the year ended December 31, 1997 * 10.21 (d) Agreement dated December 5, 1998 with Phyllis A. Filed as Exhibit 10.20 (d) to Form 10-K Domm for deferred payment of 1999 director fees for the year ended December 31, 1998 * 10.21 (e) Agreement dated November 30, 1999 with Phyllis A. Filed as Exhibit 10.21 (e) to Form 10-K Domm for deferred payment of 2000 director fees for the year ended December 31, 1999 * 10.22 (a) Agreement dated December 31, 1987 with Malcolm M. Filed as Exhibit 10.21 (a) to Form 10-K Prine for deferred payment of 1988 director fees for the year ended December 31, 1998 * 10.22 (b) Agreement dated December 30, 1988 with Malcolm M. Filed as Exhibit 10.21 (b) to Form 10-K Prine for deferred payment of 1989 director fees for the year ended December 31, 1998 * 10.23 Release Agreement dated December 8, 1999 with Filed as Exhibit 10.23 to Form 10-K for John C. Gongas, Jr. the year ended December 31, 1999 * 10.24 Change in Control Agreement dated June 12, 2000 Filed as Exhibit 10.1 to Form 10-Q for by and between Equitable Resources, Inc. and the quarter ended June 30, 2000 James M. Funk * 10.25 Noncompete Agreement dated June 12, 2000 by and Filed as Exhibit 10.2 to Form 10-Q for between Equitable Resources, Inc. and James M. the quarter ended June 30, 2000 Funk * 10.26 Change of Control Agreement dated October 30, Filed as Exhibit 10.2 to Form 10-Q for 2000 by and between Equitable Resources, Inc. and the quarter ended September 30, 2000 Philip P. Conti * 10.27 Purchase Agreement by and among Equitable Filed as Exhibit 10.5 to Form 10-Q for Resources Energy Company, ET Bluegrass Company, the quarter ended September 30, 1998 EREC Nevada, Inc. and ERI Services. Inc. and AEP Resources, Inc. dated September 12, 1998 for the purchase of midstream assets * 10.28 Indemnification Agreement effective July 19, 2000 Filed herewith as Exhibit 10.28 by and between Equitable Resources, Inc. and James M. Funk
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 73 74
EXHIBITS DESCRIPTION METHOD OF FILING - ------------- --------------------------------------------------- ----------------------------------------- *10.29 Indemnification Agreement effective August 11, Filed herewith as Exhibit 10.29 2000 by and between Equitable Resources, Inc. and Philip P. Conti *10.30 Indemnification Agreement dated January 18, 2001 Filed herewith as Exhibit 10.30 by and between Equitable Resources, Inc. and Joseph E. O'Brien *10.31 Change of Control Agreement dated January 30, Filed herewith as Exhibit 10.31 2001 by and between Equitable Resources, Inc. and Joseph E. O'Brien *10.32 Noncompete Agreement dated January 30, 2001 by Filed herewith as Exhibit 10.32 and between Equitable Resources, Inc. and Joseph E. O'Brien 21 Schedule of Subsidiaries Filed herewith as Exhibit 21 23.01 Consent of Independent Auditors Filed herewith as Exhibit 23.01
- ------------ The Company agrees to furnish to the Commission, upon request, copies of instruments with respect to long-term debt which have not previously been filed. Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 74 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EQUITABLE RESOURCES, INC. By: /s/ MURRY S. GERBER ----------------------------------------------- Murry S. Gerber Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ MURRY S. GERBER Chairman, President and March 14, 2001 - ------------------------------------ Chief Executive Officer Murry S. Gerber (Principal Executive Officer) /s/ DAVID L. PORGES Executive Vice President and March 14, 2001 - ------------------------------------ Chief Financial Officer David L. Porges (Principal Financial Officer) /s/ JOHN A. BERGONZI Corporate Controller and March 14, 2001 - ------------------------------------ Assistant Treasurer John A. Bergonzi (Principal Accounting Officer) /s/ PAUL CHRISTIANO Director March 14, 2001 - ------------------------------------ Paul Christiano /s/ PHYLLIS A. DOMM Director March 14, 2001 - ------------------------------------ Phyllis A. Domm /s/ E. LAWRENCE KEYES, JR. Director March 14, 2001 - ------------------------------------ E. Lawrence Keyes, Jr. /s/ THOMAS A. MCCONOMY Director March 14, 2001 - ------------------------------------ Thomas A. McConomy /s/ GEORGE L. MILES, JR. Director March 14, 2001 - ------------------------------------ George L. Miles, Jr. /s/ DONALD I. MORITZ Director March 14, 2001 - ------------------------------------ Donald I. Moritz /s/ MALCOLM M. PRINE Director March 14, 2001 - ------------------------------------ Malcolm M. Prine /s/ JAMES E. ROHR Director March 14, 2001 - ------------------------------------ James E. Rohr /s/ DAVID S. SHAPIRA Director March 14, 2001 - ------------------------------------- David S. Shapira /s/ J. MICHAEL TALBERT Director March 14, 2001 - ------------------------------------ J. Michael Talbert
75
EX-10.28 2 j8699301ex10-28.txt INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.28 INDEMNIFICATION AGREEMENT This Agreement is made effective as of the July 19, 2000, by and between Equitable Resources, Inc., a Pennsylvania corporation (the "Company") and James M. Funk (the "Indemnitee"), a director and/or officer of the Company. WHEREAS, it is essential that the Company retain and attract as directors and officers the most capable persons available; and WHEREAS, Indemnitee is a director and/or officer of the Company and in that capacity is performing a valuable service for the Company; and WHEREAS, Company Bylaws (the "Bylaw") contain a provision which provides for indemnification of and advancement of expenses to the directors and officers of the Company for liabilities and expenses they incur in their capacities as such, and the Bylaws and the applicable indemnification statutes of the Commonwealth of Pennsylvania provide that they are not exclusive; and WHEREAS, in recognition of Indemnitee's need for protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the potential difficulty in obtaining satisfactory Directors and Officers Liability Insurance ("D & O Insurance") coverage, and Indemnitee's reliance on the Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Bylaws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company desires to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's D & O Insurance policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Indemnity of Indemnitee. (a) The Company shall indemnify and hold harmless the Indemnitee against any and all reasonable expenses, including fees and expenses of counsel, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, incurred or paid by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter "a proceeding") and whether or not by or in the right of the Company or otherwise, to which the Indemnitee is, was or at any time becomes a party, or is threatened to be made a party or is involved (as a witness or otherwise) by reason of the fact that Indemnitee is or was a 2 director or officer of the Company or is or was serving at the request of the Company as director, officer, employee, trustee or representative of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, employee, trustee or representative, unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness; provided, however, that the Company shall indemnify the Indemnitee in connection with a proceeding (or part thereof) initiated by the Indemnitee (other than a proceeding to enforce the Indemnitee's rights to indemnification under this Agreement or otherwise) prior to a Change of Control, as defined in Section 2(e), only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (b) Subject to the foregoing limitation concerning certain proceedings initiated by the Indemnitee prior to a Change of Control, the Company shall pay the expenses (including fees and expenses of counsel) incurred by Indemnitee in connection with any proceeding in advance of the final disposition thereof promptly after receipt by the Company of a request therefor stating in reasonable detail the expenses incurred or to be incurred. (c) If a claim under paragraph (a) or (b) of this section is not paid in full by the Company within forty-five (45) days after a written claim has been received by the Company, the Indemnitee may, at any time thereafter, bring suit against the Company to recover the unpaid amount of the claim. The burden of proving that indemnification or advances are not appropriate shall be on the Company. The Indemnitee shall also be entitled to be paid the expenses of prosecuting such claim to the extent he or she is successful in whole or in part on the merits or otherwise in establishing his or her right to indemnification or to the advancement of expenses. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 2. Maintenance of Insurance and Funding. (a) The Company represents that a summary of the terms of the policies of D&O Insurance in effect as of the date of this Agreement is attached hereto as Exhibit A (the "Insurance Policies"). Subject only to the provisions of Section 2(b) hereof, the Company agrees that, so long as Indemnitee shall continue to serve as an officer or director of the Company (or shall continue at the request of the Company to serve as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director or officer of the Company (or served in any of said other capacities), the Company shall purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policy or policies of D & O Insurance providing coverage at least comparable to that provided pursuant to the Insurance Policies. 2 3 (b) The Company shall not be required to maintain said policy or policies of D & O Insurance in effect if, in the reasonable, good faith business judgment of the then Board of Directors of the Company (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage, (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance or (iii) said insurance is not otherwise reasonably available; provided, however, that in the event the then Board of Directors makes such a judgment, the Company shall purchase and maintain in force a policy or policies of D & O Insurance in the amount and with such coverage as the then Board of Directors determines to be reasonably available. Notwithstanding the general provisions of this Section 2(b), following a Change of Control, any decision not to maintain any policy or policies of D & O Insurance or to reduce the amount or coverage under any such policy or policies shall be effective only if there are Disinterested Directors (as defined in Section 2(e) hereof) and shall require the concurrence of a majority of the Disinterested Directors. (c) If and to the extent the Company, acting under Section 2(b), does not purchase and maintain in effect the policy or policies of D & O Insurance described in Section 2(a), the Company shall indemnify and hold harmless the Indemnitee to the full extent of the coverage which would otherwise have been provided by such policies. The rights of the Indemnitee hereunder shall be in addition to all other rights of Indemnitee under the remaining provisions of this Agreement. (d) In the event of a Potential Change of Control or if and to the extent the Company is not required to maintain in effect the policy or policies of D & O Insurance described in Section 2(a) pursuant to the provisions of Section 2(b), the Company shall, upon written request by Indemnitee, create a "Trust" for the benefit of Indemnitee and from time to time, upon written request by Indemnitee, shall fund such Trust in an amount sufficient to pay any and all expenses, including attorneys' fees, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement actually and reasonably incurred by him or on his behalf for which the Indemnitee is entitled to indemnification or with respect to which indemnification is claimed, reasonably anticipated or proposed to be paid in accordance with the terms of this Agreement or otherwise; provided that in no event shall more than $100,000 be required to be deposited in any Trust created hereunder in excess of the amounts deposited in respect of reasonably anticipated expenses, including attorneys' fees. The amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by a majority of the Disinterested Directors whose determination shall be final and conclusive. The terms of the Trust shall provide that upon a Change of Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trust shall advance, within two business days of a request by the Indemnitee, any and all expenses, including attorneys' fees, to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 5 of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended 3 4 funds in such Trust shall revert to the Company upon a final determination by a majority of the Disinterested Directors or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable and approved of by the Company. (e) For the purposes of this Agreement: (i) a "Change of Control" shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): A. The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; B. The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; 4 5 C. The Company's termination of its business and liquidation of its assets; D. There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or E. The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the 5 6 date hereof or whose appointment, election or nomination for election was previously so approved. (ii) a "Disinterested Director" means any member of the Board of Directors of the Company who is unaffiliated with, and not a representative of, an Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder or became a member subsequently to fill a vacancy created by an increase in the size of the Board of Directors and did receive the favorable vote of two-thirds (2/3) of the Disinterested Directors in connection with being nominated for election by the shareholders to fill such vacancy or in being elected by the Board of Directors to fill such vacancy, and any successor of a Disinterested Director who is unaffiliated with, and not a representative of, the Interested Shareholder and is recommended or elected to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board of Directors. (iii) "Interested Shareholder" means any person (other than the Company or any subsidiary of the Company and other than any profit sharing, employee stock ownership, or other employee benefit plan of the Company or any subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: A. is at such time the beneficial owner, directly or indirectly, of more then ten percent (10%) of the voting power of the outstanding common stock of the Company; B. was at any time within the two-year period immediately prior to such time the beneficial owner, directly or indirectly, of more than ten percent (10%) of the voting power of the then outstanding common stock of the Company; C. is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of common stock of the Company which were at any time within the two-year period immediately prior to such time beneficially owned by any Interested Shareholder, if such assignment or succession has occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. (iv) a "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (or any subdivision, department, commission or agency thereof), and includes without limitation any "person", as such term is used in Sections 13(d) of 14(d) of the Securities Exchange Act of 1934, as amended. 6 7 (v) a "Potential Change of Control" shall occur if: A. the Company enters into an agreement or arrangement the consummation of which would result in the occurrence of a Change of Control; B. any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or C. the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 3. Continuation of Indemnity. The Company's obligations hereunder shall be applicable to any and all claims made after the date hereof regardless of when the facts upon which such claims are based occurred, including times prior to the date hereof. All agreements and obligations of the Company contained in this Agreement shall continue during the period the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan) and shall continue thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to herein. 4. Contribution. The full indemnification provided in Section 2 hereof may not be paid to an Indemnitee because such indemnification is prohibited by law, then in respect of any actual or threatened proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such proceeding) the Company shall contribute to the amount of expenses incurred by the Indemnitee for which indemnification is not available in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company and the Indemnitee, as well as any other relevant equitable considerations. The relative fault of the Company (which shall be deemed to include its other directors, officers and employees) on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses. The Company agrees that it would not be just and equitable if contribution pursuant to this section were determined by any method of allocation which does not take account of the foregoing equitable considerations. 7 8 5. Notification and Defense of Claim. As soon as practicable after receipt by the Indemnitee of actual knowledge of any action, suit or proceeding, the Indemnitee shall notify the Company thereof if a claim in respect thereof may be or is being made by the Indemnitee against the Company under this Agreement; provided, that the failure of the Indemnitee to give such notice shall not relieve the Company of its obligations hereunder except to the extent the Company is actually prejudiced by such failure. With respect to any action, suit or proceeding as to which the Indemnitee has so notified the Company: (a) The Company will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of its election to so assume the defense, the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense, other than reasonable costs of investigation, including an investigation in connection with determining whether there exists a conflict of interest of the type described in (ii) of this paragraph, or as otherwise provided in this paragraph. The Indemnitee shall have the right to employ his or her counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after the Company notifies the Indemnitee of its assumption of the defense shall be at the expense of the Indemnitee unless (i) the Company authorizes the Indemnitee's employment of counsel, provided, that following a Change of Control, the Indemnitee shall be entitled to employ his or her own counsel at the Company's expense after giving not less than 30 days' notice to the Company unless a majority of the Disinterested Directors determine that the Indemnitee's interests are adequately represented by the counsel employed by the Company; (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense or (iii) the Company shall not have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have made the conclusion described in (ii) of this paragraph. (c) The Company shall not be obligated to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. Neither the Company nor the Indemnitee shall unreasonably withhold their consent to any proposed settlement. 6. Undertaking to Repay Expenses. In the event it shall ultimately be determined that the Indemnitee is not entitled to be indemnified for the expenses paid by the Company pursuant to Section 1(b) hereof or otherwise or was not entitled to be fully indemnified, the Indemnitee shall repay to the Company such 8 9 amount of the expenses or the appropriate portion thereof, so paid or advanced. Indemnitee shall reimburse the Company for any amounts paid by the Company as indemnification of expenses to the extent Indemnitee receives payment for the same expenses from any insurance carrier or from another party. 7. Notice. Any notice to the Company shall be directed to Equitable Resources, Inc., 301 Grant Street, One Oxford Centre Suite 3300, Pittsburgh, Pennsylvania 15219-1410, Attention: Corporate Secretary (or such other address as the Company shall designate in writing to the Indemnitee). 8. Enforcement. In the event the Indemnitee is required to bring any action to enforce rights or to collect monies due under this Agreement, the Company shall pay to the Indemnitee the fees and expenses incurred by the Indemnitee in bringing and pursuing such action if the Indemnitee is successful, in whole or in part, on the merits or otherwise, in such action. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 9. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 10. Indemnification Under this Agreement Not Exclusive. (a) The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Articles of Incorporation of the Corporation or its Bylaws, any other agreement, any vote of stockholders or directors, or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding such office. The protection and rights provided by this Agreement and all of such other protections and rights are intended to be cumulative. 9 10 (b) It is the intention of the parties in entering into this Agreement that the insurers under any D & O Insurance policy shall be obligated ultimately to pay any claims by Indemnitee which are covered by such policy or to give such insurers any rights against the Company under or with respect to this Agreement, including, without limitation, any right to be subrogated to any of Indemnitee's right hereunder, unless otherwise expressly agreed to by the Company in writing and the obligation of such insurers to the Company or Indemnitee shall not be deemed reduced or impaired in any respect by virtue of the provisions of this Agreement. 11. Miscellaneous. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement shall be binding upon the Indemnitee and upon the Company, its successors and assigns, and shall inure to the benefit of the Indemnitee and his or her heirs, executors, personal representatives and assigns, and to the benefit of the Company, its successors and assigns. If the Company shall merge or consolidate with another corporation or shall sell, lease, transfer or otherwise dispose of all or substantially all of its assets to one or more persons or groups (in one transaction or series of transactions), (i) the Company shall cause the successor in the merger or consolidation or the transferee of the assets that is receiving the greatest portion of the assets or earning power transferred pursuant to the transfer of the assets, by agreement in form and substance satisfactory to the Indemnitee, to expressly assume all of the Company's obligations under and agree to perform this Agreement, and (ii) the term "Company" whenever used in this Agreement shall mean and include any such successor or transferee. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both of the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the day and year first above written. EQUITABLE RESOURCES, INC. By: /s/ MURRY S. GERBER -------------------------- Name: Murry S. Gerber Title: Chairman, President and Chief Executive Officer INDEMNITEE /s/ JAMES M. FUNK -------------------------------- By: James M. Funk 10 EX-10.29 3 j8699301ex10-29.txt INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.29 INDEMNIFICATION AGREEMENT This Agreement is made effective as of the August 21, 2000, by and between Equitable Resources, Inc., a Pennsylvania corporation (the "Company") and Philip P. Conti (the "Indemnitee"), a director and/or officer of the Company. WHEREAS, it is essential that the Company retain and attract as directors and officers the most capable persons available; and WHEREAS, Indemnitee is a director and/or officer of the Company and in that capacity is performing a valuable service for the Company; and WHEREAS, Company Bylaws (the "Bylaw") contain a provision which provides for indemnification of and advancement of expenses to the directors and officers of the Company for liabilities and expenses they incur in their capacities as such, and the Bylaws and the applicable indemnification statutes of the Commonwealth of Pennsylvania provide that they are not exclusive; and WHEREAS, in recognition of Indemnitee's need for protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the potential difficulty in obtaining satisfactory Directors and Officers Liability Insurance ("D & O Insurance") coverage, and Indemnitee's reliance on the Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Bylaws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company desires to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's D & O Insurance policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Indemnity of Indemnitee. (a) The Company shall indemnify and hold harmless the Indemnitee against any and all reasonable expenses, including fees and expenses of counsel, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, incurred or paid by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter "a proceeding") and whether or not by or in the right of the Company or otherwise, to which the Indemnitee is, was or at any time becomes a party, or is threatened to be made a party or is involved (as a witness or otherwise) by reason of the fact that Indemnitee is or was a 2 director or officer of the Company or is or was serving at the request of the Company as director, officer, employee, trustee or representative of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, employee, trustee or representative, unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness; provided, however, that the Company shall indemnify the Indemnitee in connection with a proceeding (or part thereof) initiated by the Indemnitee (other than a proceeding to enforce the Indemnitee's rights to indemnification under this Agreement or otherwise) prior to a Change of Control, as defined in Section 2(e), only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (b) Subject to the foregoing limitation concerning certain proceedings initiated by the Indemnitee prior to a Change of Control, the Company shall pay the expenses (including fees and expenses of counsel) incurred by Indemnitee in connection with any proceeding in advance of the final disposition thereof promptly after receipt by the Company of a request therefor stating in reasonable detail the expenses incurred or to be incurred. (c) If a claim under paragraph (a) or (b) of this section is not paid in full by the Company within forty-five (45) days after a written claim has been received by the Company, the Indemnitee may, at any time thereafter, bring suit against the Company to recover the unpaid amount of the claim. The burden of proving that indemnification or advances are not appropriate shall be on the Company. The Indemnitee shall also be entitled to be paid the expenses of prosecuting such claim to the extent he or she is successful in whole or in part on the merits or otherwise in establishing his or her right to indemnification or to the advancement of expenses. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 2. Maintenance of Insurance and Funding. (a) The Company represents that a summary of the terms of the policies of D&O Insurance in effect as of the date of this Agreement is attached hereto as Exhibit A (the "Insurance Policies"). Subject only to the provisions of Section 2(b) hereof, the Company agrees that, so long as Indemnitee shall continue to serve as an officer or director of the Company (or shall continue at the request of the Company to serve as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director or officer of the Company (or served in any of said other capacities), the Company shall purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policy or policies of D & O Insurance providing coverage at least comparable to that provided pursuant to the Insurance Policies. 2 3 (b) The Company shall not be required to maintain said policy or policies of D & O Insurance in effect if, in the reasonable, good faith business judgment of the then Board of Directors of the Company (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage, (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance or (iii) said insurance is not otherwise reasonably available; provided, however, that in the event the then Board of Directors makes such a judgment, the Company shall purchase and maintain in force a policy or policies of D & O Insurance in the amount and with such coverage as the then Board of Directors determines to be reasonably available. Notwithstanding the general provisions of this Section 2(b), following a Change of Control, any decision not to maintain any policy or policies of D & O Insurance or to reduce the amount or coverage under any such policy or policies shall be effective only if there are Disinterested Directors (as defined in Section 2(e) hereof) and shall require the concurrence of a majority of the Disinterested Directors. (c) If and to the extent the Company, acting under Section 2(b), does not purchase and maintain in effect the policy or policies of D & O Insurance described in Section 2(a), the Company shall indemnify and hold harmless the Indemnitee to the full extent of the coverage which would otherwise have been provided by such policies. The rights of the Indemnitee hereunder shall be in addition to all other rights of Indemnitee under the remaining provisions of this Agreement. (d) In the event of a Potential Change of Control or if and to the extent the Company is not required to maintain in effect the policy or policies of D & O Insurance described in Section 2(a) pursuant to the provisions of Section 2(b), the Company shall, upon written request by Indemnitee, create a "Trust" for the benefit of Indemnitee and from time to time, upon written request by Indemnitee, shall fund such Trust in an amount sufficient to pay any and all expenses, including attorneys' fees, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement actually and reasonably incurred by him or on his behalf for which the Indemnitee is entitled to indemnification or with respect to which indemnification is claimed, reasonably anticipated or proposed to be paid in accordance with the terms of this Agreement or otherwise; provided that in no event shall more than $100,000 be required to be deposited in any Trust created hereunder in excess of the amounts deposited in respect of reasonably anticipated expenses, including attorneys' fees. The amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by a majority of the Disinterested Directors whose determination shall be final and conclusive. The terms of the Trust shall provide that upon a Change of Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trust shall advance, within two business days of a request by the Indemnitee, any and all expenses, including attorneys' fees, to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 5 of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended 3 4 funds in such Trust shall revert to the Company upon a final determination by a majority of the Disinterested Directors or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable and approved of by the Company. (e) For the purposes of this Agreement: (i) a "Change of Control" shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): A. The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; B. The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; 4 5 C. The Company's termination of its business and liquidation of its assets; D. There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or E. The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the 5 6 date hereof or whose appointment, election or nomination for election was previously so approved. (ii) a "Disinterested Director" means any member of the Board of Directors of the Company who is unaffiliated with, and not a representative of, an Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder or became a member subsequently to fill a vacancy created by an increase in the size of the Board of Directors and did receive the favorable vote of two-thirds (2/3) of the Disinterested Directors in connection with being nominated for election by the shareholders to fill such vacancy or in being elected by the Board of Directors to fill such vacancy, and any successor of a Disinterested Director who is unaffiliated with, and not a representative of, the Interested Shareholder and is recommended or elected to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board of Directors. (iii) "Interested Shareholder" means any person (other than the Company or any subsidiary of the Company and other than any profit sharing, employee stock ownership, or other employee benefit plan of the Company or any subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: A. is at such time the beneficial owner, directly or indirectly, of more then ten percent (10%) of the voting power of the outstanding common stock of the Company; B. was at any time within the two-year period immediately prior to such time the beneficial owner, directly or indirectly, of more than ten percent (10%) of the voting power of the then outstanding common stock of the Company; C. is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of common stock of the Company which were at any time within the two-year period immediately prior to such time beneficially owned by any Interested Shareholder, if such assignment or succession has occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. (iv) a "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (or any subdivision, department, commission or agency thereof), and includes without limitation any "person", as such term is used in Sections 13(d) of 14(d) of the Securities Exchange Act of 1934, as amended. 6 7 (v) a "Potential Change of Control" shall occur if: A. the Company enters into an agreement or arrangement the consummation of which would result in the occurrence of a Change of Control; B. any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or C. the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 3. Continuation of Indemnity. The Company's obligations hereunder shall be applicable to any and all claims made after the date hereof regardless of when the facts upon which such claims are based occurred, including times prior to the date hereof. All agreements and obligations of the Company contained in this Agreement shall continue during the period the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan) and shall continue thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to herein. 4. Contribution. The full indemnification provided in Section 2 hereof may not be paid to an Indemnitee because such indemnification is prohibited by law, then in respect of any actual or threatened proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such proceeding) the Company shall contribute to the amount of expenses incurred by the Indemnitee for which indemnification is not available in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company and the Indemnitee, as well as any other relevant equitable considerations. The relative fault of the Company (which shall be deemed to include its other directors, officers and employees) on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses. The Company agrees that it would not be just and equitable if contribution pursuant to this section were determined by any method of allocation which does not take account of the foregoing equitable considerations. 7 8 5. Notification and Defense of Claim. As soon as practicable after receipt by the Indemnitee of actual knowledge of any action, suit or proceeding, the Indemnitee shall notify the Company thereof if a claim in respect thereof may be or is being made by the Indemnitee against the Company under this Agreement; provided, that the failure of the Indemnitee to give such notice shall not relieve the Company of its obligations hereunder except to the extent the Company is actually prejudiced by such failure. With respect to any action, suit or proceeding as to which the Indemnitee has so notified the Company: (a) The Company will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of its election to so assume the defense, the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense, other than reasonable costs of investigation, including an investigation in connection with determining whether there exists a conflict of interest of the type described in (ii) of this paragraph, or as otherwise provided in this paragraph. The Indemnitee shall have the right to employ his or her counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after the Company notifies the Indemnitee of its assumption of the defense shall be at the expense of the Indemnitee unless (i) the Company authorizes the Indemnitee's employment of counsel, provided, that following a Change of Control, the Indemnitee shall be entitled to employ his or her own counsel at the Company's expense after giving not less than 30 days' notice to the Company unless a majority of the Disinterested Directors determine that the Indemnitee's interests are adequately represented by the counsel employed by the Company; (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense or (iii) the Company shall not have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have made the conclusion described in (ii) of this paragraph. (c) The Company shall not be obligated to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. Neither the Company nor the Indemnitee shall unreasonably withhold their consent to any proposed settlement. 6. Undertaking to Repay Expenses. In the event it shall ultimately be determined that the Indemnitee is not entitled to be indemnified for the expenses paid by the Company pursuant to Section 1(b) hereof or otherwise or was not entitled to be fully indemnified, the Indemnitee shall repay to the Company such 8 9 amount of the expenses or the appropriate portion thereof, so paid or advanced. Indemnitee shall reimburse the Company for any amounts paid by the Company as indemnification of expenses to the extent Indemnitee receives payment for the same expenses from any insurance carrier or from another party. 7. Notice. Any notice to the Company shall be directed to Equitable Resources, Inc., 301 Grant Street, One Oxford Centre Suite 3300, Pittsburgh, Pennsylvania 15219-1410, Attention: Corporate Secretary (or such other address as the Company shall designate in writing to the Indemnitee). 8. Enforcement. In the event the Indemnitee is required to bring any action to enforce rights or to collect monies due under this Agreement, the Company shall pay to the Indemnitee the fees and expenses incurred by the Indemnitee in bringing and pursuing such action if the Indemnitee is successful, in whole or in part, on the merits or otherwise, in such action. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 9. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 10. Indemnification Under this Agreement Not Exclusive. (a) The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Articles of Incorporation of the Corporation or its Bylaws, any other agreement, any vote of stockholders or directors, or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding such office. The protection and rights provided by this Agreement and all of such other protections and rights are intended to be cumulative. 9 10 (b) It is the intention of the parties in entering into this Agreement that the insurers under any D & O Insurance policy shall be obligated ultimately to pay any claims by Indemnitee which are covered by such policy or to give such insurers any rights against the Company under or with respect to this Agreement, including, without limitation, any right to be subrogated to any of Indemnitee's right hereunder, unless otherwise expressly agreed to by the Company in writing and the obligation of such insurers to the Company or Indemnitee shall not be deemed reduced or impaired in any respect by virtue of the provisions of this Agreement. 11. Miscellaneous. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement shall be binding upon the Indemnitee and upon the Company, its successors and assigns, and shall inure to the benefit of the Indemnitee and his or her heirs, executors, personal representatives and assigns, and to the benefit of the Company, its successors and assigns. If the Company shall merge or consolidate with another corporation or shall sell, lease, transfer or otherwise dispose of all or substantially all of its assets to one or more persons or groups (in one transaction or series of transactions), (i) the Company shall cause the successor in the merger or consolidation or the transferee of the assets that is receiving the greatest portion of the assets or earning power transferred pursuant to the transfer of the assets, by agreement in form and substance satisfactory to the Indemnitee, to expressly assume all of the Company's obligations under and agree to perform this Agreement, and (ii) the term "Company" whenever used in this Agreement shall mean and include any such successor or transferee. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both of the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the day and year first above written. EQUITABLE RESOURCES, INC. By: /s/ MURRY S. GERBER ------------------------------ Name: Murry S. Gerber Title: Chairman, President and Chief Executive Officer INDEMNITEE /s/ PHILIP P. CONTI ----------------------------------- By: Philip P. Conti 10 EX-10.30 4 j8699301ex10-30.txt INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.30 INDEMNIFICATION AGREEMENT This Agreement is made effective as of the January 18, 2001, by and between Equitable Resources, Inc., a Pennsylvania corporation (the "Company") and Joseph E. O'Brien (the "Indemnitee"), a director and/or officer of the Company. WHEREAS, it is essential that the Company retain and attract as directors and officers the most capable persons available; and WHEREAS, Indemnitee is a director and/or officer of the Company and in that capacity is performing a valuable service for the Company; and WHEREAS, Company Bylaws (the "Bylaw") contain a provision which provides for indemnification of and advancement of expenses to the directors and officers of the Company for liabilities and expenses they incur in their capacities as such, and the Bylaws and the applicable indemnification statutes of the Commonwealth of Pennsylvania provide that they are not exclusive; and WHEREAS, in recognition of Indemnitee's need for protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the potential difficulty in obtaining satisfactory Directors and Officers Liability Insurance ("D & O Insurance") coverage, and Indemnitee's reliance on the Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Bylaws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company desires to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's D & O Insurance policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Indemnity of Indemnitee. (a) The Company shall indemnify and hold harmless the Indemnitee against any and all reasonable expenses, including fees and expenses of counsel, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, incurred or paid by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter "a proceeding") and whether or not by or in the right of the Company or otherwise, to which the Indemnitee is, was or at any time becomes a party, or is threatened to be made a party or is involved (as a witness or otherwise) by reason of the fact that Indemnitee is or was a 2 director or officer of the Company or is or was serving at the request of the Company as director, officer, employee, trustee or representative of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, employee, trustee or representative, unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness; provided, however, that the Company shall indemnify the Indemnitee in connection with a proceeding (or part thereof) initiated by the Indemnitee (other than a proceeding to enforce the Indemnitee's rights to indemnification under this Agreement or otherwise) prior to a Change of Control, as defined in Section 2(e), only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. (b) Subject to the foregoing limitation concerning certain proceedings initiated by the Indemnitee prior to a Change of Control, the Company shall pay the expenses (including fees and expenses of counsel) incurred by Indemnitee in connection with any proceeding in advance of the final disposition thereof promptly after receipt by the Company of a request therefor stating in reasonable detail the expenses incurred or to be incurred. (c) If a claim under paragraph (a) or (b) of this section is not paid in full by the Company within forty-five (45) days after a written claim has been received by the Company, the Indemnitee may, at any time thereafter, bring suit against the Company to recover the unpaid amount of the claim. The burden of proving that indemnification or advances are not appropriate shall be on the Company. The Indemnitee shall also be entitled to be paid the expenses of prosecuting such claim to the extent he or she is successful in whole or in part on the merits or otherwise in establishing his or her right to indemnification or to the advancement of expenses. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 2. Maintenance of Insurance and Funding. (a) The Company represents that a summary of the terms of the policies of D&O Insurance in effect as of the date of this Agreement is attached hereto as Exhibit A (the "Insurance Policies"). Subject only to the provisions of Section 2(b) hereof, the Company agrees that, so long as Indemnitee shall continue to serve as an officer or director of the Company (or shall continue at the request of the Company to serve as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director or officer of the Company (or served in any of said other capacities), the Company shall purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policy or policies of D & O Insurance providing coverage at least comparable to that provided pursuant to the Insurance Policies. 2 3 (b) The Company shall not be required to maintain said policy or policies of D & O Insurance in effect if, in the reasonable, good faith business judgment of the then Board of Directors of the Company (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage, (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance or (iii) said insurance is not otherwise reasonably available; provided, however, that in the event the then Board of Directors makes such a judgment, the Company shall purchase and maintain in force a policy or policies of D & O Insurance in the amount and with such coverage as the then Board of Directors determines to be reasonably available. Notwithstanding the general provisions of this Section 2(b), following a Change of Control, any decision not to maintain any policy or policies of D & O Insurance or to reduce the amount or coverage under any such policy or policies shall be effective only if there are Disinterested Directors (as defined in Section 2(e) hereof) and shall require the concurrence of a majority of the Disinterested Directors. (c) If and to the extent the Company, acting under Section 2(b), does not purchase and maintain in effect the policy or policies of D & O Insurance described in Section 2(a), the Company shall indemnify and hold harmless the Indemnitee to the full extent of the coverage which would otherwise have been provided by such policies. The rights of the Indemnitee hereunder shall be in addition to all other rights of Indemnitee under the remaining provisions of this Agreement. (d) In the event of a Potential Change of Control or if and to the extent the Company is not required to maintain in effect the policy or policies of D & O Insurance described in Section 2(a) pursuant to the provisions of Section 2(b), the Company shall, upon written request by Indemnitee, create a "Trust" for the benefit of Indemnitee and from time to time, upon written request by Indemnitee, shall fund such Trust in an amount sufficient to pay any and all expenses, including attorneys' fees, and any and all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement actually and reasonably incurred by him or on his behalf for which the Indemnitee is entitled to indemnification or with respect to which indemnification is claimed, reasonably anticipated or proposed to be paid in accordance with the terms of this Agreement or otherwise; provided that in no event shall more than $100,000 be required to be deposited in any Trust created hereunder in excess of the amounts deposited in respect of reasonably anticipated expenses, including attorneys' fees. The amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by a majority of the Disinterested Directors whose determination shall be final and conclusive. The terms of the Trust shall provide that upon a Change of Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trust shall advance, within two business days of a request by the Indemnitee, any and all expenses, including attorneys' fees, to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 5 of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended 3 4 funds in such Trust shall revert to the Company upon a final determination by a majority of the Disinterested Directors or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable and approved of by the Company. (e) For the purposes of this Agreement: (i) a "Change of Control" shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): A. The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; B. The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; 4 5 C. The Company's termination of its business and liquidation of its assets; D. There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or E. The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the 5 6 date hereof or whose appointment, election or nomination for election was previously so approved. (ii) a "Disinterested Director" means any member of the Board of Directors of the Company who is unaffiliated with, and not a representative of, an Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder or became a member subsequently to fill a vacancy created by an increase in the size of the Board of Directors and did receive the favorable vote of two-thirds (2/3) of the Disinterested Directors in connection with being nominated for election by the shareholders to fill such vacancy or in being elected by the Board of Directors to fill such vacancy, and any successor of a Disinterested Director who is unaffiliated with, and not a representative of, the Interested Shareholder and is recommended or elected to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board of Directors. (iii) "Interested Shareholder" means any person (other than the Company or any subsidiary of the Company and other than any profit sharing, employee stock ownership, or other employee benefit plan of the Company or any subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: A. is at such time the beneficial owner, directly or indirectly, of more then ten percent (10%) of the voting power of the outstanding common stock of the Company; B. was at any time within the two-year period immediately prior to such time the beneficial owner, directly or indirectly, of more than ten percent (10%) of the voting power of the then outstanding common stock of the Company; C. is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of common stock of the Company which were at any time within the two-year period immediately prior to such time beneficially owned by any Interested Shareholder, if such assignment or succession has occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. (iv) a "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (or any subdivision, department, commission or agency thereof), and includes without limitation any "person", as such term is used in Sections 13(d) of 14(d) of the Securities Exchange Act of 1934, as amended. 6 7 (v) a "Potential Change of Control" shall occur if: A. the Company enters into an agreement or arrangement the consummation of which would result in the occurrence of a Change of Control; B. any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or C. the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 3. Continuation of Indemnity. The Company's obligations hereunder shall be applicable to any and all claims made after the date hereof regardless of when the facts upon which such claims are based occurred, including times prior to the date hereof. All agreements and obligations of the Company contained in this Agreement shall continue during the period the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan) and shall continue thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to herein. 4. Contribution. The full indemnification provided in Section 2 hereof may not be paid to an Indemnitee because such indemnification is prohibited by law, then in respect of any actual or threatened proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such proceeding) the Company shall contribute to the amount of expenses incurred by the Indemnitee for which indemnification is not available in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company and the Indemnitee, as well as any other relevant equitable considerations. The relative fault of the Company (which shall be deemed to include its other directors, officers and employees) on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses. The Company agrees that it would not be just and equitable if contribution pursuant to this section were determined by any method of allocation which does not take account of the foregoing equitable considerations. 7 8 5. Notification and Defense of Claim. As soon as practicable after receipt by the Indemnitee of actual knowledge of any action, suit or proceeding, the Indemnitee shall notify the Company thereof if a claim in respect thereof may be or is being made by the Indemnitee against the Company under this Agreement; provided, that the failure of the Indemnitee to give such notice shall not relieve the Company of its obligations hereunder except to the extent the Company is actually prejudiced by such failure. With respect to any action, suit or proceeding as to which the Indemnitee has so notified the Company: (a) The Company will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of its election to so assume the defense, the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense, other than reasonable costs of investigation, including an investigation in connection with determining whether there exists a conflict of interest of the type described in (ii) of this paragraph, or as otherwise provided in this paragraph. The Indemnitee shall have the right to employ his or her counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after the Company notifies the Indemnitee of its assumption of the defense shall be at the expense of the Indemnitee unless (i) the Company authorizes the Indemnitee's employment of counsel, provided, that following a Change of Control, the Indemnitee shall be entitled to employ his or her own counsel at the Company's expense after giving not less than 30 days' notice to the Company unless a majority of the Disinterested Directors determine that the Indemnitee's interests are adequately represented by the counsel employed by the Company; (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense or (iii) the Company shall not have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have made the conclusion described in (ii) of this paragraph. (c) The Company shall not be obligated to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. Neither the Company nor the Indemnitee shall unreasonably withhold their consent to any proposed settlement. 6. Undertaking to Repay Expenses. In the event it shall ultimately be determined that the Indemnitee is not entitled to be indemnified for the expenses paid by the Company pursuant to Section 1(b) hereof or otherwise or was not entitled to be fully indemnified, the Indemnitee shall repay to the Company such 8 9 amount of the expenses or the appropriate portion thereof, so paid or advanced. Indemnitee shall reimburse the Company for any amounts paid by the Company as indemnification of expenses to the extent Indemnitee receives payment for the same expenses from any insurance carrier or from another party. 7. Notice. Any notice to the Company shall be directed to Equitable Resources, Inc., 301 Grant Street, One Oxford Centre Suite 3300, Pittsburgh, Pennsylvania 15219-1410, Attention: Corporate Secretary (or such other address as the Company shall designate in writing to the Indemnitee). 8. Enforcement. In the event the Indemnitee is required to bring any action to enforce rights or to collect monies due under this Agreement, the Company shall pay to the Indemnitee the fees and expenses incurred by the Indemnitee in bringing and pursuing such action if the Indemnitee is successful, in whole or in part, on the merits or otherwise, in such action. The Company shall pay such fees and expenses in advance of the final disposition of such action on the terms and conditions set forth in Section 1(b). 9. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 10. Indemnification Under this Agreement Not Exclusive. (a) The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Articles of Incorporation of the Corporation or its Bylaws, any other agreement, any vote of stockholders or directors, or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding such office. The protection and rights provided by this Agreement and all of such other protections and rights are intended to be cumulative. 9 10 (b) It is the intention of the parties in entering into this Agreement that the insurers under any D & O Insurance policy shall be obligated ultimately to pay any claims by Indemnitee which are covered by such policy or to give such insurers any rights against the Company under or with respect to this Agreement, including, without limitation, any right to be subrogated to any of Indemnitee's right hereunder, unless otherwise expressly agreed to by the Company in writing and the obligation of such insurers to the Company or Indemnitee shall not be deemed reduced or impaired in any respect by virtue of the provisions of this Agreement. 11. Miscellaneous. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement shall be binding upon the Indemnitee and upon the Company, its successors and assigns, and shall inure to the benefit of the Indemnitee and his or her heirs, executors, personal representatives and assigns, and to the benefit of the Company, its successors and assigns. If the Company shall merge or consolidate with another corporation or shall sell, lease, transfer or otherwise dispose of all or substantially all of its assets to one or more persons or groups (in one transaction or series of transactions), (i) the Company shall cause the successor in the merger or consolidation or the transferee of the assets that is receiving the greatest portion of the assets or earning power transferred pursuant to the transfer of the assets, by agreement in form and substance satisfactory to the Indemnitee, to expressly assume all of the Company's obligations under and agree to perform this Agreement, and (ii) the term "Company" whenever used in this Agreement shall mean and include any such successor or transferee. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both of the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the day and year first above written. EQUITABLE RESOURCES, INC. By: /s/ GREGORY R. SPENCER ------------------------------- Name: Gregory R. Spencer Title: Sr. Vice President and Chief Administrative Officer INDEMNITEE /s/ JOSEPH E. O'BRIEN ------------------------------- Joseph E. O'Brien 10 EX-10.31 5 j8699301ex10-31.txt CHANGE OF CONTROL AGREEMENT 1 Exhibit 10.31 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT (the "Agreement") dated as of the 30th day of January, 2001 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a Pennsylvania corporation with its principal place of business at Pittsburgh, Pennsylvania (the "Company"), and, Joseph E. O'Brien, an individual (the "Employee"); WHEREAS, the Board of Directors of the Company (the "Board"), believes that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; that it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control; and that it is appropriate to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Employee will be satisfied and which are competitive with those of other corporations in the industry in which the Company's principal business activity is conducted; and WHEREAS, in order to more fully accomplish the foregoing objectives, the Company and the Employee desire to enter into this Agreement, which provides for certain benefits payable to the Employee if the Employee's employment terminates in certain circumstances following a Change in Control of the Company. NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on the Effective Date hereof and, subject to Sections 3(f), 5 and 8, shall terminate on the earlier of (i) the date of the termination of Employee's employment by the Company for any reason prior to a Change of Control; or (ii) unless further extended as hereinafter set forth, the date which is thirty-six (36) months after the Effective Date; provided, that, commencing on the last day of the first full calendar month after the Effective Date and on the last day of each succeeding calendar month, the term of this Agreement shall be automatically extended without further action by either party (but not beyond the date of the termination of Employee's employment prior to a Change of Control) for one (1) additional month unless one party provides written notice to the other party that such party does not wish to extend the term of this Agreement. In the event that such notice shall have been delivered, the term of this Agreement shall no longer be subject to automatic extension and the term hereof shall expire on the date which is thirty-six (36) calendar months after the last day of the month in which such written notice is received. 2. Change of Control. Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): 2 (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) - 2 - 3 beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or (e) The following individuals cease for any reasons to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. 3. Salary and Benefits Continuation. (a) Salary and Benefits Continuation" shall be defined to mean the following: (i) payment of an amount of cash equal to three (3) times the Employee's annual base salary in effect immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher; (ii) payment of an amount of cash equal to three (3) times the highest annual incentive (bonus) payment earned by the Employee for any year in the three years prior to the termination of Employee's employment; (iii) provision to Employee and his/her eligible dependents of medical, long-term disability, dental and life insurance coverage (to the extent such coverage was in effect immediately prior to the Change of Control) for thirty-six (36) months; (iv) contribution by the Company to Employee's account under the Company's defined contribution retirement plan (known as the Equitable Resources, Inc. Employee Savings Plan) of an amount of cash equal to the amount that the Company would have contributed to such plan had the Employee continued to be employed by the Company for an additional thirty-six (36) months at a base salary equal to the Employee's base salary immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher, such contribution being deemed to be made immediately prior to the termination of Employee's employment; provided, that to the extent that the amount of such contribution exceeds the amount then allowed to be contributed to the plan under the applicable rules relating to tax qualified retirement plans, then the excess shall be paid to the Employee in cash; (v) reimbursement to Employee of reasonable costs incurred by Employee for outplacement services in the twenty-four (24) month period following termination of Employee's employment. - 3 - 4 (b) All amounts payable by the Company to the Employee in cash pursuant to Section 3(a) shall be made in a lump sum unless the Employee otherwise elects and notifies the Company in writing prior to the termination of Employee's employment of Employee's desire to have all payments made in accordance with the Company's regular salary and benefit payment practices, provided that (i) the lump sum payment or first payment shall be made within thirty (30) days after the Employee's termination hereunder, and (ii) the Employee may elect to defer such payments pursuant to the Company's then-existing deferred compensation plan(s). All other amounts payable by the Company to the Employee pursuant to Section 3 shall be paid or provided in accordance with the Company's standard payroll and reimbursement procedures, as in effect immediately prior to the Change of Control. (c) In the event that medical, long-term disability, dental and life insurance benefits cannot be provided under appropriate Company group insurance policies, an amount equal to the premium necessary for the Employee to purchase directly the same level of coverage in effect immediately prior to the Change of Control shall be added to the Company's payments to Employee pursuant to Section 3(a) (payable in the manner elected by the Employee pursuant to Section 3(b)). (d) If there is a Change of Control as defined above, the Company will provide Salary and Benefits Continuation if at any time during the first twenty-four (24) months following the Change of Control, either (i) the Company terminates the Employee's employment other than for Cause as defined in Section 4 below or (ii) the Employee terminates his/her employment for "Good Reason" as defined below. (e) For purposes of this Agreement, "Good Reason" is defined as: (i) Removal of the Employee from the position he/she held immediately prior to the Change of Control (by reason other than death, disability or Cause); (ii) The assignment to the Employee of any duties inconsistent with those performed by the Employee immediately prior to the Change of Control or a substantial alteration in the nature or status of the Employee's responsibilities which renders the Employee's position to be of less dignity, responsibility or scope; (iii) A reduction by the Company in the Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for proportional across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that in no event shall the Employee's annual base salary be reduced by an amount equal to ten percent or more of the Employee's annual base salary as of the end of the calendar year immediately preceding the year in which the Change of Control occurs, without the Employee's consent; - 4 - 5 (iv) The failure to grant the Employee an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Employee's in the industry in which the Company's then principal business activity is conducted; (v) The Company requiring the Employee to be based anywhere other than the Company's principal executive offices in the city in which the Employee is principally located immediately prior to the Change of Control, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations prior to the Change of Control; (vi) Any material reduction by the Company of the benefits enjoyed by the Employee under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Employee of any material fringe benefits, or the failure by the Company to provide the Employee with the number of paid vacation days to which he/she is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company; or (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 15 hereof, or any other material breach by the Company of its obligations contained in this Agreement. (f) The Employee's right to Salary and Benefits Continuation shall accrue upon the occurrence of either of the events specified in (i) or (ii) of Section 3(d) and shall continue as provided, notwithstanding the termination or expiration of this Agreement pursuant to Section 1 hereof. The Employee's subsequent employment, death or disability within the thirty-six (36) month period following the Employee's termination of employment in connection with a Change of Control shall not affect the Company's obligation to continue making Salary and Benefits Continuation payments. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking employment or otherwise. The rights to Salary and Benefits Continuation shall be in addition to whatever other benefits the Employee may be entitled to under any other agreement or compensation plan, program or arrangement of the Company; provided, that the Employee shall not be entitled to any separate or additional severance payments pursuant to the Company's severance plan as then in effect and generally applicable to similarly situated employees. The Company shall be - 5 - 6 authorized to withhold from any payment to the Employee, his/her estate or his/her beneficiaries hereunder all such amounts, if any, that the Company may reasonably determine it is required to withhold pursuant to any applicable law or regulation. 4. Termination of Employee for Cause. (a) Upon or following a Change of Control, the Company may at any time terminate the Employee's employment for Cause. Termination of employment by the Company for "Cause" shall mean termination upon: (i) the willful and continued failure by the Employee to substantially perform his/her duties with the Company (other than (A) any such failure resulting from Employee's disability or (B) any such actual or anticipated failure resulting from Employee's termination of his/her employment for Good Reason), after a written demand for substantial performance is delivered to the Employee by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Employee has not substantially performed his/her duties, and which failure has not been cured within thirty days (30) after such written demand; or (ii) the willful and continued engaging by the Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (iii) the breach by the Employee of the confidentiality provision set forth in Section 8 hereof. (b) For purposes of this Section 4, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him/her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his/her counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Employee is guilty of the conduct set forth above in clauses (a)(i), (ii) or (iii) of this Section 4 and specifying the particulars thereof in detail. 5. Prior Termination. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs either (i) by the Company other than for Cause or (ii) by the Employee for Good Reason, and it is reasonably demonstrated by Employee that such termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, or (b) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the termination shall be deemed to have occurred upon a Change of Control and the Employee will be entitled to Salary and Benefits Continuation as provided for in Section 3 hereof. - 6 - 7 6. Employment at Will. Subject to the provisions of any other agreement between the Employee and the Company, the Employee shall remain an employee at will and nothing herein shall confer upon the Employee any right to continued employment and shall not affect the right of the Company to terminate the Employee for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any rights the Employee may have to Salary and Benefits Continuation hereunder. 7. Construction of Agreement. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. (b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement. 8. Covenant as to Confidential Information. (a) Confidentiality of Information and Nondisclosure. The Employee acknowledges and agrees that his/her employment by the Company under this Agreement necessarily involves his/her knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Employee agrees that at all times during the term of this Agreement and for a period of two (2) years after the termination of the Employee's employment hereunder, he/she will not, directly or indirectly, without the express written authority of the Company, unless directed by applicable legal authority having jurisdiction over the Employee, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself/herself, any person, corporation or other entity other than the Company, (i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company and its subsidiaries, (ii) any management, operational, trade, technical or other secrets or any other proprietary information or other data of the Company or its subsidiaries, or (iii) any other information related to the Company or its subsidiaries or which the Employee subsidiaries which has not been published and is not generally known outside of the Company. The Employee acknowledges that all of the foregoing, constitutes confidential and proprietary information, which is the exclusive property of the Company. - 7 - 8 (b) Company Remedies. The Employee acknowledges and agrees that any breach of this Agreement by him/her will result in immediate irreparable harm to the Company, and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of an actual or threatened breach by the Employee of the provisions of this Section 8, the Company shall be entitled, to the extent permissible by law, immediately to cease to pay or provide the Employee or his/her dependents any compensation or benefit being, or to be, paid or provided to him pursuant to Section 3 of this Agreement, and also to obtain immediate injunctive relief restraining the Employee from conduct in breach or threatened breach of the covenants contained in this Section 8. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 9. Reimbursement of Fees. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest by the Company, Internal Revenue Service or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 3 of this Agreement) or in connection with any dispute arising from this Agreement, regardless of whether Employee prevails in any such contest or dispute. 10. Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") (i) would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to the excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax") or (ii) is made pursuant to a Change of Control, then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Payment and Gross-Up Payment, the Employee retains an amount equal to (x) the Payment plus (y) the Excise Tax (if any) imposed upon the Payment and the Gross-Up Payment. (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after there has been a Payment, or - 8 - 9 such earlier time as requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; - 9 - 10 provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) The payments provided for in this Section 10 hereof shall be made not later than the tenth (10th) day following the termination of the Employee's employment; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Employee on such day an estimate, as determined in good faith by the Employee of the - 10 - 11 minimum amount of such payments to which the Employee is clearly entitled and shall pay the remainder of such payments (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the termination of the Employee's employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event the Company should fail to pay when due the amounts described in this Section 10, the Employee shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 10, to the date of payment at a rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, or arising out of any other matter relating to the Employee's employment with the Company or the termination of such employment, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive relief is sought, the Company and the Employee agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 11 of this Agreement and the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the "Arbitration Panel"). The Company and the Employee shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof. 12. Treatment of Certain Incentive Awards. All "Awards" held by the Employee under the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") or any business unit breakthrough incentive plan (the "Breakthrough Plan") shall, upon a Change of Control, be treated in accordance with the terms of those Plans as in effect on the date of this Agreement, without regard to the subsequent amendment of those Plans. For purposes of this Section 12, the terms "Award" and "Change of Control" shall have the meanings ascribed to them in the 1999 Plan and the Breakthrough Plan, as the case may be. 13. Release. The Employee hereby acknowledges and agrees that prior to the Employee's or his/her dependents' right to receive from the Company any compensation or benefit to be paid or provided to him/her or his/her dependents pursuant to Section 3 of this Agreement, the Employee may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims (other than amounts to be paid to Employee as expressly provided for - 11 - 12 under this Agreement) the Employee has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns arising under any public policy, tort or common law or any provision of state, federal or local law, including, but not limited to, the Pennsylvania Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, or the Age Discrimination in Employment Act of 1967. 14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by a party hereto. 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. The Company shall be obligated to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the Company's business or assets, by a written agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Employee or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him shall be void and of no force and effect with respect to matters relating to his/her employment and termination of employment. Without limiting the foregoing, the Employee's rights to receive payments and benefits hereunder shall not be assignable or transferable, other than a transfer by Employee's will or by the laws of descent and distribution. 16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Employee, to his/her residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, in care of the Chairman of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing. 17. Pronouns. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the matters set forth herein and all promises, representations, understandings, arrangements and prior agreements regarding the subject matter hereof are merged herein and superseded hereby. The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a - 12 - 13 resolution of the Board of Directors shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his/her hand, all as of the day and year first above written. EQUITABLE RESOURCES, INC. /s/ STEPHANIE L. MACUS /s/ GREGORY R. SPENCER - ----------------------------------- ----------------------------------- By: Stephanie L. Macus By: Gregory R. Spencer Sr. Vice President and Chief Administrative Officer WITNESS: /s/ DEBORAH A. CERMINARA /s/ JOSEPH E. O'BRIEN - ----------------------------------- ----------------------------------- By: Deborah A. Cerminara By: Joseph E. O'Brien - 13 - EX-10.32 6 j8699301ex10-32.txt NONCOMPETE AGREEMENT 1 Exhibit 10.32 NONCOMPETE AGREEMENT This Agreement is made as of January 30, 2001 by and between Equitable Resources, Inc., a Pennsylvania corporation (Equitable Resources, Inc. and its majority-owned subsidiaries are hereinafter collectively referred to as the "Company"), and Joseph E. O'Brien (the "Employee"). WITNESSETH: WHEREAS, the Company and Employee are parties to Noncompete and Change of Control Agreements dated June 14, 2000 which provide for severance benefits in certain circumstances in exchange for, among other things, an agreement by the Employee not to compete for a stated period of time ("Existing Agreements"); WHEREAS, in connection with his election on January 18, 2001 as a Company officer, Employee has been offered enhanced change of control benefits requiring execution of new agreements which contain a change in the scope of the noncompetition provision to reflect Employee's corporate-level position and enhancement of change of control benefits; WHEREAS, in order to protect the business and goodwill of the Company, the Company desires to obtain certain non-competition covenants from the Employee and the Employee desires to agree to such covenants in exchange for the Company's agreement to pay certain severance benefits in the event that the Employee's employment with the Company is terminated in certain events; and WHEREAS, the Employee is willing to enter into this Agreement, which contains, among other things, specific non-competition agreements, in consideration of the simultaneous execution by the Company and the Employee of a Change of Control Agreement (the "Change of Control Agreement"), which enhances in certain respects the benefits that the Company will pay to the Employee if the Employee's employment with the Company is terminated in certain events following a change of control of the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. If the employment of the Employee with the Company is terminated by the Company for any reason other than Cause (as defined below) or if the Employee terminates his or her employment with the Company for Good Reason (as defined below), the Company shall pay the Employee, from the date of termination, in addition to any payments to which the Employee is entitled under the Company's severance pay plan, twenty-four (24) months of base salary at the Employee's annual base salary level in effect at the time of such termination or immediately prior to the salary reduction that serves as the basis for termination for Good Reason. Employee will also be entitled to twenty-four (24) months of health benefits continuation and outplacement assistance for a period not to exceed twelve (12) months. Such base salary amount shall be paid by the Company to the Employee in one lump sum payable within thirty (30) days after the Employee's termination or resignation hereunder. Solely for 2 purposes of this Agreement, "Cause" shall mean (i) a conviction of a felony, a crime of moral turpitude or fraud, (ii) the Employee's willful and continuous engagement in conduct which is demonstrably and materially injurious to the Company, or (iii) the willful and continued refusal by the Employee to perform the duties of his or her position in a reasonable manner for thirty (30) days after written notice is given to the Employee by the Company specifying in reasonable detail the nature of the deficiency in the Employee's performance. Solely for purposes of this Agreement, termination for "Good Reason" shall mean termination of employment by the Employee within ninety (90) days after (i) being demoted, or (ii) being given notice of a reduction in his or her annual base salary (other than a reduction of not more than 10% applicable to all senior officers of the Company). 2. While the Employee is employed by the Company and for a period of twelve (12) months after date of Employee's termination of employment with Company for any reason, the Employee shall not (i) directly or indirectly engage, whether as an employee, consultant, partner, owner, agent, stockholder, officer, director or otherwise, alone or in association with any other person or entity, in (A) the energy industry, including the exploration, production, transmission, distribution and marketing of oil, natural gas or electricity and the provision of related energy services (including project development and engineering analysis, construction management, project financing, equipment operation and maintenance, energy savings metering, monitoring and verification, and facilities management (developing and operating private power, cogeneration and central plant facilities)) anywhere in the continental United States east of the Mississippi River (excluding the Gulf of Mexico), except that the restriction as to the regulated distribution of oil, natural gas or electricity shall be limited to the markets in which the Company conducted such business or contemplated (with the Employee's knowledge) conducting such business at the time of the termination of Employee's employment, or (B) any business activity that competes with any project or proposed project which was discussed by or with the Employee in the course of his or her employment with the Company or any project or proposed project with respect to which the Company initiated any business activity during the course of his or her employment (for purposes of this subsection (i) employment or engagement by a customer of the Company to provide or manage services that are provided by the Company shall be deemed to violate this subsection (i)); (ii) directly or indirectly on his or her own behalf or on behalf of any other person or entity contact (A) any customer of the Company with whom he or she had contact while employed by the Company, or (B) any person or entity to whom he or she attempted to market the Company's products and services while employed by the Company, in either case, for the purpose of soliciting the purchase of any product or service that competes with any product or service offered by the Company or which was considered to be offered by the Company while the Employee was employed by the Company; (iii) take away or interfere, or attempt to interfere, with any custom, trade or existing contractual relations of the Company, including any business project or any contemplated business project which representatives of the Company have discussed with any potential participant in such project; or (iv) directly or indirectly on his or her own behalf or on behalf of any other person or entity solicit or induce, or cause any other person or entity to solicit or induce, or attempt to induce, any employee or consultant to leave the employ of or engagement by the Company or its successors, assigns, or affiliates, or to violate the terms of their contracts with the Company. Employee may purchase or otherwise acquire up to (but not more than) 1% of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934. 3 3. The Company may terminate this Agreement by giving twenty-four (24) months' prior written notice to the Employee; provided that all provisions of this Agreement shall apply if any event specified in sections 1 or 2 occurs prior to the expiration of such twenty-four (24) month period. Notwithstanding anything in this Agreement to the contrary, upon the occurrence of a Change of Control as such term is defined in the Change of Control Agreement, this Agreement shall remain in full force and effect and may not thereafter be terminated (even if notice of termination has been given in the previous twenty-four (24) months under the first sentence of this paragraph), except upon written notice by Employee to the Company. If Employee receives payment of benefits under the Change of Control Agreement, he shall not receive benefits under this, which shall thereupon terminate and be of no further force or effect. 4. The provisions of this Agreement are severable. To the extent that any provision of this Agreement is deemed unenforceable in any court of law the parties intend that such provision be construed by such court in a manner to make it enforceable. 5. The Employee acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of the Company; (ii) the restrictions contained in this Agreement are reasonable; (iii) the Employee has no intention of competing with the Company within the limitations set forth above; (iv) the Employee acknowledges and warrants that Employee believes that Employee will be fully able to earn an adequate livelihood for Employee and Employee's dependents if the covenant not to compete contained in this Agreement is enforced against the Employee; and (v) the Employee has received adequate and valuable consideration for entering into this Agreement. 6. The Employee stipulates and agrees that any breach of this Agreement by the Employee will result in immediate and irreparable harm to the Company, the amount of which will be extremely difficult to ascertain, and that the Company could not be reasonably or adequately compensated by damages in an action at law. For these reasons, the Company shall have the right, without objection from the Employee, to obtain such preliminary, temporary or permanent mandatory or restraining injunctions, orders or decrees as may be necessary to protect the Company against, or on account of, any breach by the Employee of the provisions of Section 2 hereof. In the event the Company obtains any such injunction, order, decree or other relief, in law or in equity, (i) the duration of any violation of Section 2 shall be added to the 12 month restricted period specified in Section 2, and (ii) the Employee shall be responsible for reimbursing the Company for all costs associated with obtaining the relief, including reasonable attorneys' fees and expenses and costs of suit. Such right to equitable relief is in addition to the remedies the Company may have to protect its rights at law, in equity or otherwise. 7. This Agreement (including the covenant not to compete contained in Section 2) shall be binding upon and inure to the benefit of the successors and assigns of the Company. 8. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. For the purpose of any suit, action or proceeding arising out of or relating to this Agreement, Employee irrevocably consents and submits to the jurisdiction and venue of any state or federal court located in Allegheny County, Pennsylvania. Employee agrees that service of the summons and complaint and all other process which may be served in any such suit, action or proceeding may be effected by mailing by registered mail a copy of such process Employee at the addresses set forth below. Employee irrevocably waives 4 any objection which they may now or hereafter have to the venue of any such suit, action or proceeding brought in such court and any claim that such suit, action or proceeding brought in such court has been brought in an inconvenient forum and agrees that service of process in accordance with this Section will be deemed in every respect effective and valid personal service of process upon Employee. Nothing in this Agreement will be construed to prohibit service of process by any other method permitted by law. The provisions of this Section will not limit or otherwise affect the right of the Company to institute and conduct an action in any other appropriate manner, jurisdiction or court. The Employee agrees that final judgment in such suit, action or proceeding will be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. 9. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements (including the Existing Agreements) and understandings, oral or written (other than the Change of Control Agreement). This Agreement may not be changed, amended, or modified, except by a written instrument signed by the parties. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his hand, all as of the day and year first above written. EQUITABLE RESOURCES, INC. /s/ STEPHANIE L. MACUS /s/ GREGORY R. SPENCER - ------------------------------------ ---------------------------------- By: Stephanie L. Macus By: Gregory R. Spencer Sr. Vice President and Chief Administrative Officer WITNESS: /s/ DEBORAH A. CERMINARA /s/ JOSEPH E. O'BRIEN - ------------------------------------ ---------------------------------- By: Deborah A. Cerminara By: Joseph E. O'Brien EX-21 7 j8699301ex21.txt SUBSIDIARIES OF REGISTRANT AS OF 12/31/2000 1 Exhibit 21
SUBSIDIARIES OF THE REGISTRANT AS OF STATE OF ADDITIONAL NAMES UNDER WHICH SUCH DECEMBER 31, 2000 INCORPORATION SUBSIDIARY DOES BUSINESS - --------------------------------------------------------------------------------------------------------------- 1 CARNEGIE INTERSTATE PIPELINE COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 2 CARNEGIE NATURAL GAS COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 3 CARNEGIE NATURAL GAS SALES, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 4 EQT CAPITAL CORPORATION Delaware - --------------------------------------------------------------------------------------------------------------- 5 EQUITABLE ENERGY, LLC Delaware Equitable Energy Equitable Energy Enterprises ERI Energy - --------------------------------------------------------------------------------------------------------------- 6 EQUITABLE GAS COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 7 EQUITABLE HOMEWORKS, LLC Pennsylvania - --------------------------------------------------------------------------------------------------------------- 8 EQUITABLE PRODUCTION COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 9 EQUITABLE PRODUCTION EASTERN STATES, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 10 EQUITRANS, L.P. Pennsylvania - --------------------------------------------------------------------------------------------------------------- 11 EREC NEVADA, INC. Nevada - --------------------------------------------------------------------------------------------------------------- 12 ERI COSTA RICA LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 13 ERI GLOBAL PARTNERS, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 14 ERI GROUP LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 15 ERI HOLDINGS Cayman Islands - --------------------------------------------------------------------------------------------------------------- 16 ERI HOLDINGS II Cayman Islands - --------------------------------------------------------------------------------------------------------------- 17 ERI INVESTMENTS, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 18 ERI JAM, LLC Delaware - --------------------------------------------------------------------------------------------------------------- 19 ERI PROVIDENCE, L.L.C. Delaware - --------------------------------------------------------------------------------------------------------------- 20 ERI SERVICES (ST. LUCIA) LIMITED West Indies - --------------------------------------------------------------------------------------------------------------- 21 ERI SERVICES, INC. Delaware Equitable Resources Services, Inc. - --------------------------------------------------------------------------------------------------------------- 22 ERI-INDEPENDENT ENERGY GROUP-HONDURAS LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 23 ET AVOCA COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 24 ET BLUE GRASS COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 25 IEC HUNTERDON, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 26 IEC MANAGEMENT SERVICES, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 27 IEC MONTCLAIR, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 28 IEC PLYMOUTH, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 29 INDEPENDENT ENERGY CORPORATION Connecticut - --------------------------------------------------------------------------------------------------------------- 30 INDEPENDENT ENERGY FINANCE CORPORATION Connecticut - --------------------------------------------------------------------------------------------------------------- 31 INDEPENDENT ENERGY OPERATIONS, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 32 KENTUCKY WEST VIRGINIA GAS COMPANY, L.L.C. Delaware - --------------------------------------------------------------------------------------------------------------- 33 NORESCO, LLC Delaware - --------------------------------------------------------------------------------------------------------------- 34 NORTHEAST ENERGY SERVICES, INC. Delaware Noresco - --------------------------------------------------------------------------------------------------------------- 35 THREE RIVERS PIPELINE CORPORATION Texas - ---------------------------------------------------------------------------------------------------------------
EX-23.1 8 j8699301ex23-1.txt CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.01 Consent of Independent Auditors We consent to the incorporation by reference of our report dated February 5, 2001, with respect to the consolidated financial statements and schedule of Equitable Resources, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2000 in the Prospectus part of the following Registration Statements: o Registration Statement No. 33-52151 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Long-Term Incentive Plan; o Registration Statement No. 33-52137 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan; o Registration Statement No. 33-53703 on Form S-3 pertaining to the registration of $100,000,000 Medium-Term Notes, Series C of Equitable Resources, Inc.; o Post-effective Amendment No. 1 to Registration Statement No. 33-00252 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings Plan; o Registration Statement No. 333-01879 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Stock Purchase Plan; o Registration Statement No. 333-22529 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings and Protection Plan; o Registration Statement No. 333-20323 on Form S-3 pertaining to the registration of 164,345 shares of Equitable Resources, Inc. common stock. o Registration Statement No. 333-32197 on Form S-8 pertaining to the Equitable Resources, Inc. Nonstatutory Stock Option Plan. o Registration Statement No. 333-06839 on Form S-3 pertaining to the registration of $168,000,000 of debt securities of Equitable Resources, Inc. 2 -2- o Registration Statement No. 333-82193 on Form S-8 pertaining to the 1999 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan; o Registration Statement No. 333-82189 on Form S-8 pertaining to the 1999 Equitable Resources, Inc. Long-Term Incentive Plan; o Registration Statement No. 333-32410 on Form S-8 pertaining to the Equitable Resources, Inc. Deferred Compensation Plan and the Equitable Resources, Inc. Directors' Deferred Compensation Plan. Pittsburgh, Pennsylvania March 15, 2001
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