-----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, AAsw4ksU7+HnCCAsbsyt/U4Y5shS5tud00Fkw6Vud5hfCrlGXZGvvLWxKWWz8eg2 pPZZ5msJkC5XOjQnBfTC8g== 0000070668-00-000033.txt : 20001228 0000070668-00-000033.hdr.sgml : 20001228 ACCESSION NUMBER: 0000070668-00-000033 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUI CORP CENTRAL INDEX KEY: 0000070668 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 221869941 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08353 FILM NUMBER: 795954 BUSINESS ADDRESS: STREET 1: 550 RTE 202-206 STREET 2: BOX 760 CITY: BEDMINSTER STATE: NJ ZIP: 07921-0760 BUSINESS PHONE: 9087810500 MAIL ADDRESS: STREET 1: 550 ROUTE 202-206 STREET 2: P.O. BOX 760 CITY: BEDMINSTER STATE: NJ ZIP: 07921-0760 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL UTILITIES & INDUSTRIES CORP DATE OF NAME CHANGE: 19830502 10-K405 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 OR 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 1-8353 NUI Corporation (Exact name of registrant as specified in its charter) New Jersey 22-1869941 (State of incorporation) (IRS employer identification no.) 550 Route 202-206, P. O. Box 760, Bedminster, New Jersey 07921-0760 (Address of principal executive offices, including zip code) (908) 781-0500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Common Stock, No Par Value New York Stock Exchange Preferred Stock Purchase Rights 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 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: X 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to the Form 10-K: X The aggregate market value of 12,258,999 shares of common stock held by non-affiliates of the registrant calculated using the $28.875 per share closing price on November 30, 2000 was $353,978,596. The number of shares outstanding for each of the registrant's classes of common stock, as of November 30, 2000: Common Stock, No Par Value: 12,979,793 shares outstanding. Documents incorporated by reference: NUI Corporation's definitive Proxy Statement for the Company's Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on December 19, 2000. NUI Corporation Annual Report on Form 10-K For The Fiscal Year Ended September 30, 2000 TABLE OF CONTENTS PART I Page Item 1. Business 1 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 21 PART III Item 10. Directors and Executive Officers of the Registrant 21 Item 11. Executive Compensation 21 Item 12. Security Ownership of Certain Beneficial Owners and Management 21 Item 13. Certain Relationships and Related Transactions 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22 NUI Corporation Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2000 PART I Item 1. Business NUI Corporation (collectively referred to as the Company) was incorporated in New Jersey in 1969. The Company is a multi-state company engaged in the sale and distribution of natural gas, energy commodity trading and marketing, and telecommunications. The Company's utility divisions serve more than 376,000 customers in six states along the eastern seaboard of the United States and comprise Elizabethtown Gas (NJ), City Gas Company of Florida, North Carolina Gas, Valley Cities Gas (PA), Elkton Gas (MD) and Waverly Gas (NY). The Company's non-regulated businesses include NUI Energy Brokers (Energy Brokers), an energy wholesaler; NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Solutions, Inc., an energy project development and consulting entity; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc. (UBS), a customer and geographic information systems and services subsidiary; NUI Telecom, Inc. (NUI Telecom), a full- service telecommunications company (see Note 2 of the Notes to the Consolidated Financial Statements). The Company also provides sales outsourcing through its 49 percent equity interest in TIC Enterprises, LLC (TIC). The principal executive offices of the Company are located at 550 Route 202-206, Box 760, Bedminster, NJ 07921-0760; telephone: (908) 781-0500. The Company's operations are organized and managed under three primary segments: Distribution Services, Energy Sales and Services and Customer Services. The Company also has corporate operations that do not currently generate operating revenues. Reference is made to Note 10, "Business Segment Information" of the "Notes to the Consolidated Financial Statements" for a discussion regarding financial information about the business segments of the Company. See also Item 6-"Selected Financial Data-Summary Consolidated Operating Data" for summary information by customer class with respect to operating revenues, gas volumes sold or transported and average number of utility customers served. A discussion of the business of each segment follows. Distribution Services Segment Products and Services The Distribution Services segment distributes natural gas in six states through the Company's regulated utility divisions. Such distribution services are regulated as to price, safety and return by the regulatory commissions of the states in which in the Company operates (see Regulation). The Distribution Services segment serves approximately 376,000 customers, of which 67% are in New Jersey and 33% are in other states. Most of the Company's utility customers are residential and commercial customers who purchase gas primarily for space heating. Distribution Services' operating revenues for fiscal 2000 amounted to approximately $409.8 million, of which 76% was generated by utility operations in New Jersey and 24% was generated by utility operations in other states. Gas volumes sold or transported in fiscal 2000 amounted to 86.6 million Mcf, of which approximately 79% was sold or transported in New Jersey and 21% was sold or transported in other states. An Mcf is a basic unit of measurement for natural gas comprising 1,000 cubic feet of gas. A description of each of the Company's utility divisions follows. Elizabethtown Gas (Elizabethtown). The Company, through Elizabethtown, provides gas service to approximately 251,000 customers in franchised territories within seven counties in central and northwestern New Jersey. Elizabethtown's 1,300 square-mile service territory has a total population of approximately 950,000. Most of the state's customers are located in densely-populated central New Jersey, where increases in the number of customers are primarily from conversions to gas heating from alternative forms of heating. Elizabethtown's regulated gas volumes sold or transported and customers served for the past three fiscal years were as follows: Regulated Gas Volumes Sold or Transported (in thousands of Mcf) 2000 1999 1998 Firm Sales: Residential 19,725 18,818 18,299 Commercial 6,857 6,802 7,587 Industrial 454 732 3,903 Interruptible Sales 14,712 15,477 11,927 Transportation Sales 27,076 24,586 23,367 ------ ------ ------ Total 68,824 66,415 65,083 ====== ====== ====== Utility Customers Served (twelve-month average) 2000 1999 1998 Firm Sales: Residential _ Heating 176,255 172,406 168,475 Residential - Non-heating 55,452 55,946 56,358 Commercial 16,159 15,821 15,907 Industrial 205 208 229 Interruptible Sales 23 25 72 Transportation Services 3,103 3,155 2,773 ------- ------- ------- Total 251,197 247,561 243,814 ======= ======= ======= Gas volumes sold to Elizabethtown's firm customers are sensitive to the weather in New Jersey. In fiscal 2000, the weather in New Jersey was 11% warmer than normal and 5% colder than the prior year. Additionally, weather in fiscal 1999 was 16% warmer than normal and 1% warmer than fiscal 1998. While the effect of the warm weather has impacted sales to heating customers, Elizabethtown's tariff contains a weather normalization clause that is designed to help stabilize the Company's results by increasing amounts charged to customers when weather has been warmer than normal and decreasing amounts charged when weather has been colder than normal. As a result of weather normalization clauses, operating margins were approximately $4.4 million and $5.4 million higher in fiscal 2000 and 1999, respectively, than they would have been without such clauses. For a further discussion on variations in revenues, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations". Elizabethtown's commercial and industrial customers currently have the ability to utilize transportation service and purchase their gas from other suppliers. The rate charged to transportation customers remains regulated as to price and returns. Tariffs for transportation service have been designed to provide the same margins as bundled sales tariffs. Therefore, except for the regulatory risk of full recovery of gas costs, Elizabethtown is financially indifferent as to whether it transports gas or sells gas and transportation together. On April 30, 1999, the Company made a filing with the NJBPU which will enable all customers in New Jersey to choose an alternative supplier of natural gas. This filing was a result of the "Electric Discount and Energy Competition Act" legislation. The legislation provides all gas customers with the ability to choose an alternate natural gas supplier. At the same time, the utility will continue to provide basic gas service through December 2002 when the NJBPU will decide if the gas supply function should be removed from the utility and made competitive. In accordance with the legislation and with a NJBPU order dated March 2, 2000, the Company filed testimony on March 17, 2000 in a proceeding to determine whether customers should be afforded the option of contracting with an alternative provider of billing, meter reading and other customer account services that may be deemed competitive by December 31, 2000. In January 2000, the NJBPU approved a Phase I stipulation that enables all customers to choose an alternative supplier of natural gas while the utility continues to offer basis gas supply services. Included in the stipulation was the approval by the NJBPU for the retroactive recovery of carrying costs on deferred expenditures incurred for the investigation and remediation of New Jersey manufactured gas plant sites. In addition, as part of the settlement, the Company has agreed to make a filing to address additional issues raised in the April 30, 1999 filing. Elizabethtown's "interruptible" customers have alternative energy sources and use gas on an "as available" basis. Variations in the volume of gas sold or transported to these customers do not have a significant effect on the Company's earnings because in accordance with New Jersey regulatory requirements, 80% of the margins that otherwise would be realized on gas sold or transported to interruptible customers are used to reduce gas costs charged to firm sales customers. City Gas Company of Florida. City Gas Company of Florida (City Gas) is the second largest natural gas utility in Florida, supplying gas to over 100,000 customers in Dade and Broward Counties in south Florida, and in Brevard, Indian River and St. Lucie Counties in central Florida. City Gas' service areas cover approximately 3,000 square miles and have a population of approximately 1.7 million. City Gas' regulated gas volumes sold or transported and customers served for the past three fiscal years were as follows: Regulated Gas Volumes Sold or Transported (in thousands of Mcf) 2000 1999 1998 Firm Sales: Residential 1,854 1,738 1,880 Commercial 3,077 3,353 3,572 Industrial 159 --- --- Interruptible Sales 70 111 461 Transportation Sales 4,701 4,174 3,388 ------ ------ ------ Total 9,861 9,376 9,301 ------ ------ ------ Utility Customers Served (twelve-month average) 2000 1999 1998 Firm Sales: Residential 95,442 94,784 93,227 Commercial 4,530 4,699 4,748 Industrial 8 --- --- Interruptible Sales 4 4 10 Transportation Services 617 315 125 ------- ------ ------ Total 100,601 99,802 98,110 ------- ------ ------ City Gas' residential customers purchase gas primarily for water heating, clothes drying and cooking. Some customers, principally in central Florida, also purchase gas to provide space heating during the relatively mild winter season. Year-to-year growth in the average number of residential customers primarily reflects new construction. City Gas' commercial business consists primarily of schools, businesses and public facilities, of which the number of customers tends to increase concurrently with the continuing growth in population within its service areas. As with its residential markets, the Company is seeking to maximize the utilization of its existing mains by emphasizing marketing efforts toward potential commercial business along these lines. Certain commercial and industrial customers have converted their natural gas service from a sales basis to a transportation basis. City Gas' transportation tariff provides margins on transportation services that are substantially the same as margins earned on gas sales. In November 1997, the Florida Public Service Commission (FPSC) approved City Gas' proposal to offer unbundled gas service to certain small commercial customers, in a manner similar to that currently in place in the Company's New Jersey service territory. City Gas was notified on October 17, 2000 that it had received approval from the FPSC to increase its annual base rates by $1.64 million. The increase represents a portion of the Company's request for a total increase of $7.2 million to recover the cost of service enhancements and reliability improvements since City Gas' last base rate increase in 1996. The Company is expecting a decision from the FPSC on the remaining $5.56 million by January 2001. If the full increase is granted, the new rate level would provide for an allowed return on equity of 11.7 percent and an overall rate of return of 7.88 percent. North Carolina Gas. The Company, through North Carolina Gas, provides gas service to approximately 13,700 customers in Rockingham and Stokes Counties in North Carolina, which territories comprise approximately 560 square miles. During fiscal 2000, the regulated operations of North Carolina Gas sold or transported approximately 3.6 million Mcf of gas as follows: 22% sold to residential customers, 13% sold to commercial customers, 18% sold to industrial customers and 47% transported to commercial and industrial customers. Elkton Gas Service (Elkton). The Company, through Elkton, provides gas service to approximately 4,300 customers in franchised territories comprising approximately 14 square miles within Cecil County, Maryland. During fiscal 2000, Elkton sold approximately 895,000 Mcf of gas as follows: 25% sold to residential customers, 19% sold to commercial customers and 56% sold to industrial customers. Valley Cities Gas Service (VCGS) and Waverly Gas Service (WGS). VCGS and WGS provide gas service to approximately 6,400 customers in franchised territories comprising 104 square miles within Bradford County, Pennsylvania and the Village of Waverly, New York and surrounding areas, respectively. During fiscal 2000, the regulated operations of VCGS and WGS sold or transported approximately 3.4 million Mcf of gas as follows: 16% sold to residential customers, 8% sold to commercial customers, 24% sold to industrial customers and 52% transported to commercial and industrial customers. On October 5, 2000, the Company agreed to sell the assets and customers of VCGS and WGS to C&T Enterprises, Inc. of Pennsylvania. The transaction is expected to close during the latter portion of fiscal 2001 after all regulatory approvals have been obtained (see Item 7- Management's Discussion and Analysis _ Sale of Valley Cities Gas and Waverly Gas for further discussion of this transaction). Holding Company As a result of recent federal and state regulatory changes intended to promote competition among natural gas and electricity suppliers, the Company believes a holding company structure will allow it to take full advantage of these changes. In addition, the holding company structure will allow for greater flexibility to pursue unregulated business and financing opportunities while insulating the regulated utility business from the risks and costs associated with unregulated activities. NUI filed for authorization to re-establish its holding company structure in Maryland, New Jersey, New York, North Carolina and Pennsylvania. Authorizations have been received in Maryland, New York and Pennsylvania and are pending in New Jersey and North Carolina. No formal approval is required in Florida. Gas Supply and Operations In recent years, the gas industry has been undergoing structural changes in response to policies of the Federal Energy Regulatory Commission (FERC) and local regulatory commissions designed to increase competition. Traditionally, interstate pipelines were wholesalers of natural gas to local distribution companies and generally did not provide separate transportation or other services for specific customers. In 1992, the FERC issued Order No. 636 that, among other things, mandated the separation or "unbundling" of interstate pipeline sales, transportation and storage services and established guidelines for capacity management effective in 1993. In fiscal 1995, the NJBPU unbundled the services provided and the rates charged to New Jersey commercial and small industrial customers as well. The transition to more competitive rates and services has the effect of increasing the opportunity for local gas distribution companies, and industrial and commercial customers to purchase natural gas from alternative sources, while increasing the potential business and regulatory risk borne by a local gas distribution company with respect to the acquisition and management of natural gas services. The Company endeavors to utilize its pipeline capacity efficiently by matching capacity to its load profile to the extent feasible. To this end, the Company has had a broad unbundled service tariff for certain of its customers since 1987. The Company continues to avail itself of opportunities to improve the utilization of its pipeline capacity by pursuing broad based customer growth, including off-peak markets and utilizing capacity release and off-system sales opportunities afforded by Order No. 636 when operationally feasible. The Company's gas supply for its utility divisions during fiscal 2000 came from the following sources: approximately 14 percent from long term purchase contracts; approximately 66 percent from seasonal or monthly purchase contracts and 20 percent from daily purchases made in the spot market. The Company manages its gas supply portfolio to assure a diverse, reliable and secure supply of natural gas at the lowest reasonable cost. In fiscal 2000, the Company's largest single supplier accounted for approximately 12 percent of the Company's total gas purchases. The Company has long-term gas delivery contracts with seven interstate pipeline companies. Under these contracts, the Company has a right to deliver, on a firm year-round basis, of up to 91.3 million Mcf of natural gas annually with a maximum of approximately 268,000 Mcf per day. Both the price and conditions of service under these contracts are regulated by the FERC. The Company has long-term gas purchase contracts for the supply of natural gas for its system with five suppliers, including one interstate pipeline company and five gas marketers. Under these contracts, the Company has a right to purchase, on a firm year-round basis, up to 18.1 million Mcf of natural gas annually with a maximum of approximately 50,000 Mcf per day. In order to achieve greater supply flexibility, and to more closely match its gas supply portfolio to changes in the market it serves, the Company recently allowed a long-term gas supply contract to expire at the conclusion of its primary terms. As a result, the Company has reduced its fixed gas cost obligations. The Company has replaced the supply with shorter-term, seasonal and monthly firm supply, thus reducing the average term of its gas purchase obligations. In addition, the Company has access to spot market gas through the interstate pipeline system to supplement or replace, on a short-term basis, portions of its long-term gas purchase contracts when such actions can reduce overall gas costs or are necessary to supply interruptible customers. In fiscal 1995, the Company, along with seven other Northeastern and Mid-Atlantic gas distribution companies, formed the East Coast Natural Gas Cooperative LLC (the "Co-op"). The Co-op was formed with the goal of jointly managing certain portions of the members' gas supply portfolios, to increase reliability and reduce costs of service to customers, and to improve the competitive position of the member companies. Participation in and reliance upon certain contractual arrangements among Co-op members has allowed the Company to reduce costs associated with winter services. In order to have available sufficient quantities of gas during the heating season, the Company stores gas during non-peak periods and purchases supplemental gas, including propane, LNG and gas available under contracts with certain large cogeneration customers, as it deems necessary. The storage contracts provide the Company with an aggregate of 14 million Mcf of natural gas storage capacity and provide the Company with the right to receive a maximum daily quantity of 176,536 Mcf. The contracts with cogeneration customers provide 26,200 Mcf of daily gas supply to meet peak loads by allowing the Company to take back capacity and supply that otherwise is dedicated to serve those customers. The Company has a LNG storage and vaporization facility in New Jersey for handling peak gas demand. It has a daily delivery capacity of 29,800 Mcf and storage capacity of 131,000 Mcf. The Company's maximum daily sendout in fiscal 2000 was approximately 415,700 Mcf in New Jersey and 100,300 Mcf in the other service territories combined. The Company maintains sufficient gas supply and delivery capacity for a maximum daily sendout capacity for New Jersey of approximately 408,100 Mcf and approximately 124,300 Mcf for the other service territories combined. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $68.6 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey and Pennsylvania, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.7 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations. The Company distributes gas through approximately 6,500 miles of steel, cast iron and plastic mains. The Company has physical interconnections with five interstate pipelines in New Jersey and one interstate pipeline in Florida. In addition, the Company has physical interconnections in North Carolina and Pennsylvania with interstate pipelines, which also connect to New Jersey. Common interstate pipelines along the Company's operating system provide the Company with greater flexibility in managing pipeline capacity and supply, and thereby optimizing system utilization. Regulation The Company is subject to regulation with respect to, among other matters, rates, service, accounting and the issuance of securities. The Company is subject to regulation as an operating utility by the public utility commissions of the states in which it operates. The Company is also subject to regulation by the United States Department of Transportation under the Natural Gas Pipeline Safety Act of 1968, with respect to the design, installation, testing, construction and maintenance of pipeline facilities. Natural gas purchases, transportation service and storage service provided to the Company by interstate pipeline companies are subject to regulation by the FERC (see "Gas Supply and Operations"). In addition, the Company is subject to federal and state legislation with respect to water, air quality, solid waste disposal and employee health and safety matters, and to environmental regulations issued by the United States Environmental Protection Agency, the New Jersey Department of Environmental Protection and other federal and state agencies. The Company's current rates and tariffs for New Jersey reflect a rate case that was settled in October 1991, under which the Company obtained a weather normalization clause - see "Elizabethtown Gas". In December 1994, the NJBPU authorized new tariffs which are designed to provide for unbundling of natural gas transportation and sales services for Elizabethtown's commercial and industrial customers. The new tariffs became effective on January 1, 1995 and are designed to be neutral as to the operating margins of the Company. On April 30, 1999, the Company made a filing with the NJBPU which will enable all customers in New Jersey to choose an alternative supplier of natural gas. This filing was a result of the "Electric Discount and Energy Competition Act" legislation, which was signed into law in New Jersey on February 9, 1999 (see Item 7- "Management's Discussion and Analysis - Regulatory Matters"). The current rates and tariffs for the Florida operations were authorized on October 29, 1996. The Company's City Gas division was notified on October 17, 2000, that it had received approval from the Florida Public Service Commission (FPSC) to increase its annual base rates on an interim basis by $1.64 million. The increase represents a portion of the Company's request for a total rate increase of $7.2 million to cover the cost of service enhancements and reliability improvements since City Gas' last base rate increase in 1996. The Company is expecting a decision from the FPSC on the remaining $5.56 million by January 2001. If the full increase is granted, the new rate level would provide for an allowed return on equity of 11.7 percent and an overall allowed rate of return of 7.88 percent. While the Company is optimistic that this increase will be granted, there can be no assurance that the expected returns will be fully realized. The current rates and tariffs for the North Carolina, Maryland, Pennsylvania and New York operations were authorized between October 1988 and September 1995. These operations serve approximately 20,000 customers in aggregate. The tariff for NCGS reflects a weather normalization clause for its temperature sensitive residential and commercial customers. The Company's tariffs for each state in which it operates contain adjustment clauses that enable the Company to recover purchased gas costs. The adjustment clauses provide for periodic reconciliations of actual recoverable gas costs with the estimated amounts that have been billed. Under or over recoveries at the reconciliation date are recovered from or refunded to customers in subsequent periods. Franchises The Company holds non-exclusive municipal franchises and other consents which enable it to provide natural gas in the territories it serves. The Company intends to seek to renew these franchises and consents as they expire. Seasonal Aspects Sales of gas to some classes of customers are affected by variations in demand due to changes in weather conditions, including normal seasonal variations throughout the year. The demand for gas for heating purposes is closely related to the severity of the winter heating season. Seasonal variations affect short-term cash requirements. The effects of weather that is above or below normal is offset in New Jersey and North Carolina through weather normalization clauses contained in the tariffs in those jurisdictions. The weather normalization clauses are designed to help stabilize the Company's results by increasing amounts charged to customers when weather has been warmer than normal and decreasing amounts charged when weather has been colder than normal. Competition The Company competes with distributors of other fuels and forms of energy, including electricity, fuel oil and propane, in all portions of the territories in which it has distribution mains. In addition, in 1992, the FERC issued Order No. 636 (see "Gas Supply and Operations"). Subsequently, initiatives were sponsored in various states, the purposes of which were to "unbundle" or separate into distinct transactions, the purchase of the gas commodity from the purchase of transportation services for the gas. To that end, as discussed under "Regulation", several of the Company's operating divisions have unbundled commercial and industrial gas purchase and transportation rates. The unbundled sale of gas to customers is subject to competition from unregulated marketers and brokers, which generally do not bear the obligations or costs related to operating a regulated utility. Tariffs for transportation service have generally been designed to provide the same margins as bundled sales tariffs. Therefore, except for the regulatory risk of full recovery of gas costs, the Company is financially indifferent as to whether it transports gas, or sells gas and transportation together. The Company also faces the risk of loss of transportation service for large industrial customers which may have the ability to build connections to interstate gas pipelines and bypass the Company's distribution system. Gas distributors can also expect increased competition from electricity as deregulation in that industry decreases prices and increases supply sources. Alternatively, opportunities may increase for gas service to fuel generators for large industrial customers, replacing electric utility service. Environment Reference is made to Item 7- "Management's Discussion and Analysis of Financial Condition and Results of Operations- Capital Expenditures and Commitments" and Note 11, "Commitments and Contingencies" of the "Notes to the Consolidated Financial Statements" for information regarding environmental matters affecting the Company. Energy Sales & Services Segment Products and Services The Energy Sales and Services segment reflects the operations of the Company's NUI Energy, NUI Energy Brokers and NUI Energy Solutions subsidiaries, as well as off-system sales by the utility divisions. Together, this segment offers wholesale and retail energy sales, energy portfolio management, risk management, utility asset management, project development and energy consulting services. NUI Energy, Inc. (NUI Energy) provides retail energy sales and related services to unbundled retail commercial and industrial customers. NUI Energy's operating margins were $2.4 million in fiscal 2000 as compared with $4.1 million in fiscal 1999 and $2.5 million in fiscal 1998. NUI Energy Brokers, Inc. (NUI Energy Brokers) was formed in 1996 to provide the wholesale energy trading, brokering, and risk management activities of the Company. In addition to providing these services to third parties, NUI Energy Brokers is also responsible for the supply acquisition activity for NUI's Distribution Services segment. NUI Energy Brokers trades physical natural gas in four geographic regions: the Northeast, Southeast, Gulf Coast, and Mid Continent. In addition, NUI Energy Brokers trades futures and options contracts on the New York Mercantile Exchange. The risk associated with trading activities is closely monitored on a daily basis and controlled in accordance with the Company's Risk Management Policy. As in any commodity brokerage activity, however, there are risks pertaining to market changes and credit exposure that can be managed but not eliminated. Therefore, the earnings from NUI Energy Brokers are likely to be more volatile than the Company's utility distribution business (see Item 7, _Management's Discussion and Analysis-Market Risk Exposure_). NUI Energy Brokers generated margins of $12.8 million in fiscal 2000, $8.3 million in fiscal 1999 and $2.8 million in fiscal 1998. NUI Energy Solutions, Inc. (NUI Energy Solutions) was formed by the Company in fiscal 1998 to provide energy management and consulting services to existing and new customers. NUI Energy Solutions' operating margins in fiscal 2000 was $1 million. Due to start-up costs associated with this business, NUI Energy Solutions recorded a loss in both fiscal 1999 and 1998. Another business line within Energy Sales and Services is off-system sales, or the use of utility-owned gas assets to make sales to customers outside of NUI's service areas. Such assets include pipeline capacity and gas storage facilities. These assets are managed separately from non-utility assets, and their use is monitored and regulated by state regulatory commissions. Pursuant to regulatory agreements in some states in which the Company operates, the Company is able to retain a portion of the margins from these sales in varying percentages depending on the state in which the assets are owned. Off-system sales margins totaled $1,580,000 in fiscal 2000, $771,000 in fiscal 1999 and $453,000 in fiscal 1998. Customer Services Segment Products and Services The Customer Services segment is comprised of the Company's Utility Business Service, Inc. subsidiary, NUI Telecom, Inc. subsidiary and its appliance business operations. Together this segment provides telecommunications services, including local, long distance, cellular, internet and data communications services; appliance repair, maintenance, installation and leasing; customer information system services including bill printing, mailing, collection and payment processing; network analysis; facilities database management; and operations mapping and field computing for other utilities. During fiscal 1999, the Company completed the separation of its appliance servicing and leasing business from its Distribution Services segment. This group performed more than 76,500 revenue- producing appliance service jobs in fiscal 2000 as compared to 74,000 jobs in fiscal 1999. The appliance group generated revenues of $14.6 million in fiscal 2000, $12.3 million in fiscal 1999 and $11.7 million in fiscal 1998. Utility Business Services, Inc. (UBS) provides customer information systems and geographic information system services to investor-owned and municipal utilities, as well as third-party providers in the gas, water and wastewater markets. WINS CIS, the premiere customer information system developed and maintained by UBS, is presently serving approximately 27 clients with state-of-the-art capabilities in support of more than 650,000 customers. In addition to generating over three million bills each year, UBS assists clients in allied areas such as automatic meter reading, payment processing, and account recovery. In fiscal 1999, UBS introduced a natural gas version of WINS CIS by converting three of the Company's Distribution Services utility divisions to the new system. UBS is expected to convert the remaining Distribution Services utility divisions in fiscal 2001. UBS is currently working on a web-enabled version of WINS CIS and plans to address the needs of the electric industry in the near term. Geographic information services are currently provided to 5 clients. UBS had margins of $3.9 in fiscal 2000 and $3.7 million in fiscals 1999 and 1998. On November 12, 1999, the Company closed on its acquisition of International Telephone Group, Inc (ITG). The acquisition was treated as a merger whereby ITG merged with and into a subsidiary of the Company. ITG subsequently changed its name to NUI Telecom, Inc. The purchase price totaled $3.8 million and included the issuance of 113,200 shares of NUI common stock, with the remainder paid in cash. NUI Telecom is a full service telephone company that provides its customers with a single service solution for all their telecommunication requirements including local, long distance, cellular, internet, and data communications services (see Note 2 of the Notes to the Consolidated Financial Statements). NUI Telecom generated revenues of $5.2 million in fiscal 2000. Other NUI Operations NUI Environmental. NUI Environmental Group, Inc. (NUI Environmental) was formed by the Company in fiscal 1996 to develop a solution to the rapidly decreasing accessibility of the New York/New Jersey harbor to international commercial shipping traffic. On December 23, 1998, NUI Environmental was selected from a group of sixteen firms that responded to a request for proposal by the State of New Jersey to participate in a Sediment Decontamination Demonstration Project designed to identify new technologies for the productive dredging of the harbor. On November 14, 2000, NUI Environmental received a $485,000 contract from the State of New Jersey to complete a Pilot Study to demonstrate the effectiveness of an innovative process for the treatment of dredged material from the harbor. The Sediment Decontamination Program involves two phases: the Pilot Study and a full-scale Demonstration Project. Funding for the Demonstration Project (which could range from $2.2 million to $5.9 million) will be determined after the successful completion of the Pilot Study. TIC Enterprises. On May 18, 1997, the Company closed on its acquisition of a 49% interest in TIC Enterprises, LLC (TIC), limited liability company, for a purchase price of $22 million. The acquisition was effective as of January 1, 1997 and is being accounted for under the equity method. TIC engages in the business of recruiting, training and managing sales professionals and serving as sales and marketing representatives for various businesses. Among these businesses are Nortel Networks, Nextel Communications, Qwest Communications, AT&T and the United States Postal Service. In early December 1999, TIC was awarded a national contract from the United States Postal Service (USPS) to market its expedited delivery services. TIC contributed $1.3 million of equity earnings in fiscal 2000, $1.2 million in fiscal 1999 and was flat in fiscal 1998. In August 2000, TIC positioned itself to capitalize upon the tremendous growth opportunities in the integration of voice and data communications equipment by entering into a distribution agreement with Nortel Networks (Nortel), a global internet and communications leader, under which TIC will exclusively distribute certain Nortel products and services throughout the United States. At that time, TIC terminated its previous arrangement to exclusively distribute another supplier's telecommunications equipment and will now only distribute Nortel business solutions. Under this agreement, TIC will serve a much larger market than it had with its previous supplier and will be able to offer a broader range of telephony and data products and services targeted to small and medium sized businesses businesses with up to 250 employees, a market size more than 12 times the size of TIC's current target market. These offerings significantly expand TIC's offerings to customers and TIC estimates that the new arrangement could create $200 million in revenue during its first full year, more than tripling its previous telecommunications equipment business of approximately $60 million per year. Persons Employed As of September 30, 2000, the Company employed a total of 1,078 persons, of which 270 employees in New Jersey were represented by the Utility Workers Union of America (Local 424) and 46 employees were represented by the Communications Workers of America (Local 1023); 82 employees in Florida (Locals 769 and 385) and 13 employees in Pennsylvania (Local 529) were represented by the Teamsters Union; and 37 employees in North Carolina were represented by the International Brotherhood of Electrical Workers (Local 2291). The current Utility Workers Union of America collective bargaining agreement with the New Jersey union was negotiated effective December 10, 1998 and expires on November 20, 2001. The North Carolina union collective bargaining agreement was negotiated on August 20, 1998, and expires on August 20, 2001. The collective bargaining agreement in Pennsylvania is currently being negotiated. The union is currently working without a contract. A final resolution is expected shortly. The collective bargaining agreement in Florida was negotiated on March 31, 1998 and expires on March 31, 2001. The Communications Workers of America contract became effective November 1, 2000 and expires on March 31, 2003. Persons employed by segment are as follows: Distribution Services segment- 684; Energy Sales and Services- 42; and Customer Services- 197 persons. In addition, the Corporate office of NUI employed a total of 155 persons, which employees primarily work in shared services for the entire corporation. Available Information The Company files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Any document the Company files with the Commission may be read or copied at the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. The Company's Commission filings are also available at the Commission's Web site at http://www.sec.gov or the Company's Web site at http://www.nui.com. Item 2. Properties The Company owns approximately 6,500 miles of steel, cast iron and plastic gas mains, together with gate stations, meters and other gas equipment. In addition, the Company owns peak shaving plants, including a LNG storage facility in Elizabeth, New Jersey. The Company also owns real property in Union, Middlesex, Warren, Sussex and Hunterdon counties in New Jersey, and in Dade, Broward, Brevard and St. Lucie counties in Florida, portions of which are under lease to others. The Company's properties include office buildings in Hialeah and Rockledge, Florida that serve as the principal operating offices for the Florida operations; and office buildings in both Reidsville, North Carolina and Sayre, Pennsylvania that serve as operating offices for the North Carolina and the Pennsylvania and New York operations, respectively. The Company also owns various service centers in New Jersey, Florida, North Carolina, Maryland and Pennsylvania from which the Company dispatches service crews and conducts construction and maintenance activities. The Company leases office space in Bedminster, New Jersey that serves as its corporate headquarters, and leases certain other facilities in New Jersey and Florida that are operated as customer business offices or operating offices. The Company also leases approximately 200,000 square feet in an office building in Union, New Jersey. Subject to minor exceptions and encumbrances, all other property materially important to the Company and all principal plants are owned in fee simple, except that most of the mains and pipes are installed in public streets under franchise or statutory rights or are constructed on rights of way acquired from the apparent owner of the fee. Item 3. Legal Proceedings The Company is involved in various claims and litigation incidental to its business. In the opinion of management, none of these claims and litigation will have a material adverse effect on the Company's results of operations or its financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matter was presented for submission to a vote of security holders through the solicitation of proxies or otherwise during the last quarter of fiscal 2000. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters NUI common stock is listed on the New York Stock Exchange and is traded under the symbol "NUI". The quarterly cash dividends paid and the reported price range per share of NUI common stock for the two years ended September 30, 2000 were as follows: Quarterly Price Range Cash Dividend High Low Fiscal 2000: First Quarter $0.245 $28.188 $23.438 Second Quarter 0.245 30.750 22.938 Third Quarter 0.245 28.188 25.250 Fourth Quarter 0.245 32.438 26.188 Fiscal 1999: First Quarter $0.245 $27.000 $21.563 Second Quarter 0.245 27.063 20.375 Third Quarter 0.245 25.625 20.813 Fourth Quarter 0.245 28.063 24.625 There were 5,686 shareholders of record of NUI common stock at November 30, 2000. It is the Company's intent to continue to pay quarterly dividends in the foreseeable future. NUI's dividend policy is reviewed on an ongoing basis and is dependent upon the Company's expectation of future earnings, cash flow, financial condition, capital requirements and other factors. The Company's long-term debt agreements include, among other things, restrictions as to the payment of cash dividends. Under the most restrictive of these provisions, the Company was permitted to pay $66.2 million of cash dividends at September 30, 2000. Item 6. Selected Financial Data Selected Consolidated Financial Data (in thousands, except per share amounts)
Fiscal Years Ended September 30, 2000 1999 1998 1997 1996 Operating Revenues $934,643 $826,194 $826,263 $606,285 $467,677 Net Income $ 26,747 $ 24,560 $ 12,314 $ 19,649 $ 14,896 Net Income Per Share $2.07 $1.93 $0.98 $1.75 $1.52 Dividends Paid Per Share $0.98 $0.98 $0.98 $0.94 $0.90 Total Assets $920,857 $844,226 $776,847 $803,666 $677,662 Capital Lease $ 4,396 $ 2,599 $ 8,566 $ 9,679 $ 10,503 Long-Term Debt $268,947 $268,911 $229,098 $229,069 $230,100 Common Shareholders' Equity $256,969 $237,318 $222,292 $218,921 $179,107 Common Shares Outstanding 12,929 12,750 12,680 12,429 11,086
Notes to the Selected Consolidated Financial Data: Net income for fiscal 2000 includes a gain on the sale of assets which increased net income by $1.7 million (after tax), or $0.13 per share. Net income for fiscal 1999 includes a pension settlement gain and other non-recurring items. The effect of these items increased net income by $2.3 million (after tax), or $0.18 per share. Net income for fiscal 1998 includes restructuring and other non- recurring charges amounting to $5.9 million (after tax), or $0.47 per share. Summary Consolidated Operating Data
Fiscal Years Ended September 30, 2000 1999 1998 1997 1996 Operating Revenues (Dollars in thousands) Firm Sales: Residential $208,461 $197,800 $197,955 $201,435 $194,094 Commercial 85,776 82,285 90,739 104,873 105,861 Industrial 8,950 8,694 19,684 23,263 25,321 Interruptible Sales 63,369 49,110 45,583 55,831 50,521 Unregulated Sales 502,430 432,414 421,381 177,565 55,479 Transportation Services 41,594 37,634 33,338 28,617 23,085 Customer Service, Appliance Leasing and Other 24,063 18,257 17,583 14,701 13,316 ------ ------ ------ ------ ------ $934,643 $826,194 $826,263 $606,285 $467,677 ======= ======= ======= ======= ======= Gas Sold or Transported (MMcf) Firm Sales: Residential 23,167 22,064 21,771 22,956 24,810 Commercial 10,839 11,058 12,076 14,254 16,575 Industrial 1,430 1,584 4,463 4,819 5,407 Interruptible Sales 15,929 16,420 13,183 15,074 16,003 Unregulated Sales 145,642 168,748 163,418 62,819 17,804 Transportation Services 35,235 32,601 30,831 28,294 25,051 ------ ------ ------ ------ ------ 232,242 252,475 245,742 148,216 105,650 ======= ======= ======= ======= ======= Average Utility Customers Served Firm Sales: Residential 348,626 344,448 338,958 335,632 332,440 Commercial 23,474 23,320 23,407 24,312 24,484 Industrial 253 254 275 306 338 Interruptible Sales 45 56 111 121 120 Transportation Services 3,787 3,535 2,948 1,460 668 ------ ------ ------ ------ ------ 376,185 371,613 365,699 361,831 358,050 ======= ======= ======= ======= ======= Degree Days in New Jersey 4,579 4,381 4,356 4,772 5,343 Employees (year end) 1,078 1,049 1,081 1,126 1,086 Ratio of Earnings to Fixed Charges 2.70 2.64 1.85 2.11 2.00
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis refers to NUI Corporation and all its operating divisions and subsidiaries (collectively referred to as the Company). The Company is a multi-state energy sales, services and distribution, and telecommunications company. Its utility operations distribute natural gas and related services in six states along the eastern seaboard and comprise Elizabethtown Gas Company (New Jersey), City Gas Company of Florida, North Carolina Gas, Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly Gas (New York). The Company's non-regulated subsidiaries include NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), a wholesale energy trading and portfolio management subsidiary; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc. (UBS), a geospatial and customer information systems and services subsidiary; and NUI Telecom, Inc. (NUI Telecom), a telecommunications services subsidiary (see Note 2 of the Notes to the Consolidated Financial Statements). The Company also provides sales outsourcing through its 49 percent equity interest in TIC Enterprises, LLC (TIC). Results of Operations Fiscal Years Ended September 30, 2000 and 1999 Net Income. Net income for fiscal 2000 was $26.7 million, or $2.07 per share, as compared with net income of $24.6 million, or $1.93 per share, in fiscal 1999. Net income in both fiscal 2000 and 1999 include non-recurring credits to income. Net income in fiscal 2000 includes after-tax non-recurring credits of $1.7 million, or $0.13 per share, related to the gain on the sale of assets. Net income in fiscal 1999 includes non-recurring items totaling $2.3 million, or $0.18 per share, after tax, incurred mainly as a result of the Company's 1998 reorganization (see Note 4 of the Notes to the Consolidated Financial Statements). Absent these non-recurring gains, net income would have been $25.1 million, or $1.94 per share, in fiscal 2000 and $22.2 million, or $1.75 per share, in fiscal 1999. The increase in earnings in fiscal 2000 was mainly attributed to improved results in the Company's non-regulated businesses. Operating Revenues and Operating Margins. The Company's operating revenues include amounts billed for the cost of purchased gas pursuant to purchased gas adjustment clauses utilized by the Company's utility operations. Such clauses enable the Company to pass through to its utility customers, via periodic adjustments to customers' bills, increased or decreased costs incurred by the Company for purchased gas without affecting operating margins. Since the Company's utility operations do not earn a profit on the sale of the gas commodity, the Company's level of regulated operating revenues is not necessarily indicative of financial performance. The Company's operating revenues increased $108.4 million, or 13 percent, during fiscal 2000 as compared with fiscal 1999. Distribution Services revenues increased approximately $30.2 million, mainly as a result of slightly colder weather than the prior year (4.5 percent colder) and customer growth. Energy Sales and Services revenue increased by approximately $70.1 million, mainly due to increased volatility in gas prices thereby creating more opportunity for wholesale trading by NUI Energy Brokers, as well as a significant increase in gas prices. Customer Services revenue increased $8.1 million, primarily due to the inclusion of NUI Telecom effective November 12, 1999 (see Note 2 of the Notes to the Consolidated Financial Statements), which contributed $5.2 million in revenues, increases in the Company's appliance leasing business and increases in revenues from UBS. The Company's operating margins increased by $13.1 million, or 7 percent, in fiscal 2000 as compared with fiscal 1999. The increase was primarily attributable to an increase of approximately $7 million, or 4 percent, in the Company's Distribution Services segment as a result of weather that was 4.5 percent colder than fiscal 1999, but still 11 percent warmer-than-normal, and customer growth. The Company has weather normalization clauses in its New Jersey and North Carolina tariffs, which are designed to help stabilize the Company's results by increasing amounts charged to customers when weather has been warmer- than-normal and by decreasing amounts charged when weather has been colder than normal. As a result of weather normalization clauses, operating margins were approximately $4.4 million and $5.4 million higher in fiscal 2000 and 1999, respectively, than they would have been without such clauses. These weather normalization clauses mitigate much of the risk to which the Company is exposed. To further reduce this risk, NUI Energy Brokers entered into a weather derivative during fiscal 2000, which resulted in approximately $1.5 million of margin. Operating margins increased in the Customer Services segment by approximately $1.6 million, or 31 percent, due to the inclusion of NUI Telecom, and increases in revenues for the appliance service business and UBS. Operating margins from the Company's Energy Sales and Services segment increased by approximately $4.4 million, or 33 percent, primarily due to an increase of almost 60 percent in operating margins from NUI Energy Brokers due to increased volatility in gas prices and the weather derivative, as noted previously. Partly offsetting this increase was a decrease in margins from NUI Energy, which had margins of $2.4 million in fiscal 2000 as compared with $4.1 million in fiscal 1999. Due to the surge in gas prices during fiscal 2000, NUI Energy's customers opted to enter into month-to-month contracts rather than long-term contracts, thereby decreasing the mark-to-market value of these contracts compared to last year. As a result, even though volumes and customers both increased during the current year, margins declined as compared to 1999. Other Operating Expenses. Operations and maintenance expenses increased by approximately $5.9 million, or 7 percent, in fiscal 2000 as compared with fiscal 1999. The increase was primarily the result of the inclusion of NUI Telecom beginning November 12, 1999 (see Note 2 of the Notes to the Consolidated Financial Statements), continued investment in the Company's non-regulated activities and higher benefits expenses due to the rising cost of medical claims. The Company recognized approximately $4.0 million of pre-tax, non- recurring income in fiscal 1999. These items were mainly the result of the Company's 1998 reorganization. (See Note 4 of the Notes to the Consolidated Financial Statements for a further description of these items.) Depreciation and amortization increased approximately $2.6 million in fiscal 2000 as compared to the prior year, primarily due to additional plant in service and an increase in depreciation rates for the Company's Florida utility division. Interest Expense. Interest expense decreased by approximately $0.2 million in fiscal 2000 as compared to fiscal 1999. Interest expense increased over the prior fiscal year due to higher average short term borrowings and higher interest rates (see "Financing Activities and Resources"). Offsetting this increase was the retroactive deferral of carrying costs associated with the Company's regulatory asset relating to investigation and remediation of manufactured gas plant sites in New Jersey. The Company received approval during fiscal 2000 to treat as a regulatory asset such carrying costs, which offset interest expense (see "Regulatory Matters"). Other Income and (Expense), Net. Other income and expense, net, increased by approximately $2.7 million in fiscal 2000 as compared to fiscal 1999. The increase was primarily the result of a gain on the sale of assets of $2.8 million, but also reflects improved results from TIC of approximately $0.1 million during the year. Fiscal Years Ended September 30, 1999 and 1998 The results for the 1999 and 1998 fiscal years reflect changes in the New Jersey tax law, which resulted in variations in certain line items on the consolidated statements of income. Effective January 1, 1998, New Jersey Gross Receipts and Franchise Taxes (GRAFT) were replaced by a combination of a New Jersey Sales and Use Tax (Sales Tax), a New Jersey Corporate Business Tax (CBT) and a temporary Transitional Energy Facilities Assessment (TEFA). In prior periods, GRAFT was recorded as a single line item as a reduction of operating margins. Effective January 1, 1998, TEFA is recorded in the energy taxes line item and Sales Tax is recorded as a reduction of operating revenues. The legislation was designed to be net income neutral over a 12-month period, however, variations of certain line items on the consolidated statement of income exist. For fiscal 1999 as compared to fiscal 1998, the three new taxes had the effect of reducing operating revenues by approximately $3.4 million, reducing energy taxes by approximately $4.1 million and increasing income tax expense by approximately $1.2 million. Net Income. Net income for fiscal 1999 was $24.6 million, or $1.93 per share, as compared with net income of $12.3 million, or $0.98 per share in fiscal 1998. Net income in both fiscal periods includes non- recurring items incurred mainly as a result of the Company's 1998 reorganization (see Note 4 of the Notes to the Consolidated Financial Statements). The after-tax non-recurring items in fiscal 1999 resulted in a net gain of approximately $2.3 million, or $0.18 per share, as compared to after-tax charges of approximately $5.9 million, or $0.47 per share, incurred during fiscal 1998. Absent these non-recurring items, net income would have been $22.2 million, or $1.75 per share in fiscal 1999 as compared to $18.2 million, or $1.45 per share in fiscal 1998. The increase in recurring earnings was mainly attributed to higher operating margins, other income and lower other taxes, partially offset by higher operations and maintenance expenses, depreciation and interest expense. Operating Revenues and Operating Margins. The Company's operating revenues remained relatively flat between fiscal 1999 and fiscal 1998, despite fluctuations within the Company's operating segments. Energy Sales and Services revenue increased by approximately $10.7 million, mainly due to increased operations by NUI Energy Brokers, while Customer Services revenue increased $0.2 million primarily due to increases in the Company's appliance leasing business. These increases were partially offset by a decrease of approximately $11.0 million in the Company's Distribution Services revenue primarily resulting from changes in the New Jersey tax law as well as a refund to New Jersey customers of approximately $4.4 million in September 1999 (see Regulatory Matters). Weather in New Jersey was approximately 16 percent warmer-than-normal in fiscal 1999 and relatively flat compared to the 1998 period. The Company's operating margins increased by $12.7 million, or 7 percent, in fiscal 1999 as compared with fiscal 1998. The increase was primarily attributable to an increase of approximately $4.9 million in the Company's Distribution Services segment as a result of customer growth, the effects of changes in the New Jersey tax law and the recovery of previously deferred post-retirement benefit expenses through rates (see Regulatory Matters). As a result of weather normalization clauses, operating margins were approximately $5.4 million and $5.6 million higher in fiscals 1999 and 1998, respectively, than they would have been without such clauses. Operating margins for the Customer Services segment were relatively flat in fiscal 1999, as compared to fiscal 1998. Margins in fiscal 1998 included certain one-time conversion revenues for UBS that did not occur in fiscal 1999. Operating margins from the Company's Energy Sales and Services segment increased by approximately $7.9 million primarily due to increases in the Company's wholesale trading and retail energy operations. Other Operating Expenses. Operations and maintenance expenses increased by approximately $3.9 million, or 5 percent, in fiscal 1999 as compared with fiscal 1998. The increase was primarily the result of previously deferred post-retirement benefit expenses which are being expensed and recovered through rates, higher levels of accrued incentives associated with the improved performance of the Company's unregulated wholesale trading and retail energy businesses and a lower pension credit in the current year. These increases were partially offset by labor and benefit savings from the Company's reorganization efforts over the prior year. The Company recognized approximately $4.0 million of pre-tax, non- recurring income in fiscal 1999, as compared to non-recurring expenses of approximately $9.7 million recognized in fiscal 1998. These items are mainly the result of the Company's 1998 reorganization. (See Note 4 of the Notes to the Consolidated Financial Statements for a further description of these items.) Depreciation and amortization increased approximately $2.0 million in fiscal 1999 as compared to the prior year, primarily due to additional plant in service. Interest Expense. Interest expense increased by approximately $0.7 million in fiscal 1999 as compared to fiscal 1998. This increase was primarily due to interest on the Company's $40 million bond issuance in December 1998. These increases were partially offset by an increase in interest income on funds held by trustee as a result of the $40 million issuance noted above being put into trust for use on qualified expenditures (see Financing Activities and Resources - Long-Term Debt and Funds for Construction Held by Trustee). Other Income and (Expense), Net. Other income and expense, net, increased by approximately $0.7 million in fiscal 1999 as compared to fiscal 1998. The increase reflects improved results from TIC of approximately $1.3 million as a result of higher revenues from TIC's various sales programs as well as contributions from additional product lines. This increase was partially offset by a gain of approximately $0.7 million recognized in the prior year period due to the sale of marketable securities. Regulatory Matters On October 10, 2000, the New Jersey Board of Public Utilities (NJBPU) approved an increase in the New Jersey Purchased Gas Adjustment clause (PGA) by 17.3 percent. The rate increase was effective immediately and results in a revenue increase of approximately $47 million annually. In addition, the Company can increase the PGA by an additional 2 percent each month between December 2000 and April 2001 if actual gas costs warrant such increases. Each of these monthly rate increases would add revenues of up to $6 million on an annual basis. The increased PGA was granted to cover the higher costs the Company has been paying for its natural gas purchases which have risen from about $2.50 per dekatherm in July 1999 to more than $7.00 per dekatherm in December 2000 (see "Financing Activities and Resources"). The Company's City Gas division was notified on October 17, 2000, that it had received approval from the Florida Public Service Commission (FPSC) to increase its annual base rates on an interim basis by $1.64 million. The increase represents a portion of the Company's request for a total rate increase of $7.2 million to cover the cost of service enhancements and reliability improvements since City Gas' last base rate increase in 1996. The Company is expecting a decision from the FPSC on the remaining $5.56 million by January 2001. If the full increase is granted, the new rate level would provide for an allowed return on equity of 11.7 percent and an overall allowed rate of return of 7.88 percent. While the Company is optimistic that this increase will be granted, there can be no assurance that the expected returns will be fully realized. On April 30, 1999, the Company made a filing with the NJBPU which will enable all customers in New Jersey to choose an alternative supplier of natural gas. This filing was a result of the "Electric Discount and Energy Competition Act" legislation. The legislation provides all gas customers with the ability to choose an alternate natural gas supplier. At the same time, the utility will continue to provide basic gas service through December 2002 when the NJBPU will decide if the gas supply function should be removed from the utility and made competitive. In accordance with the legislation and with a NJBPU order dated March 2, 2000, the Company filed testimony on March 17, 2000 in a proceeding to determine whether customers should be afforded the option of contracting with an alternative provider of billing, meter reading and other customer account services that may be deemed competitive by December 31, 2000. In January 2000, the NJBPU approved a Phase I stipulation that enables all customers to choose an alternative supplier of natural gas while the utility continues to offer basis gas supply services. Included in the stipulation was the approval by the NJBPU for the retroactive recovery of carrying costs on deferred expenditures incurred for the investigation and remediation of New Jersey manufactured gas plant sites. In addition, as part of the settlement, the Company has agreed to make a filing to address additional issues raised in the April 30, 1999 filing. On July 7, 1999, the NJBPU approved a final stipulation on the Company's New Jersey Purchased Gas Adjustment Clause filing in which the Company would continue to charge rates approved in an interim stipulation and approved by the NJBPU on March 3, 1999. In addition, the stipulation provided that the Company would refund to customers $10 million of previously over-recovered gas costs. Of this amount, $5.6 million was applied against a Weather Normalization Clause under- recovery and the balance was credited to customer bills in late fiscal 1999. On September 23, 1998, the NJBPU issued an order approving the Company's petition to increase base rates in New Jersey by approximately $2.4 million to recover post-retirement benefits computed under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other than Pensions" (SFAS 106). The rate increase was effective October 1, 1998 and allows for previously deferred costs, as well as future SFAS 106 costs, to be recovered over a rolling 15-year period. Financing Activities and Resources The Company's net cash provided by operating activities was $46.2 million in fiscal 2000, $59.0 million in fiscal 1999, and $20.9 million in fiscal 1998. The decrease in fiscal 2000 as compared with fiscal 1999 was primarily due to significantly higher gas prices paid during the current year. The increase in fiscal 1999 as compared with fiscal 1998 was primarily due to additional collections of gas costs through the Company's PGA clauses and the timing of payment to gas suppliers. Because the Company's primary business is highly seasonal, short-term debt is used to meet seasonal working capital requirements. The Company also borrows under its bank lines of credit to finance portions of its capital expenditures, pending refinancing through the issuance of equity or long-term indebtedness at a later date depending upon prevailing market conditions. Short-Term Debt. The weighted average daily amounts outstanding of notes payable to banks and the weighted average interest rates on those amounts were $75.3 million at 6.7 percent in fiscal 2000, $68.2 million at 5.3 percent in fiscal 1999, and $66.8 million at 5.7 percent in fiscal 1998. At September 30, 2000, the Company had outstanding notes payable to banks amounting to $96.7 million and available unused lines of credit amounting to $49.3 million. During the past several months, natural gas prices throughout the United States have increased to unprecedented highs. These price increases have resulted in the need for higher than anticipated levels of short-term borrowings. There is a lag from the time of payment for purchased gas by the Company to collection of such gas costs from customers through PGA clauses. Accordingly, the results for fiscal 2000 reflect the impact of this lag (see "Interest Expense"). As noted under Regulatory Matters, the Company has received a 17.3 percent increase in its PGA rate effective in October 2000 and may receive up to an additional 2 percent in each of the months December 2000 through April 2001. Since the Company received its PGA rate increase, gas prices have risen further. The Company is continuing to work with its regulators in order to mitigate the impact that these increases may have on its operations. Long-Term Debt and Funds for Construction Held by Trustee. On December 8, 1998, the Company issued $40 million of tax-exempt Gas Facilities Revenue Bonds at an interest rate of 5.25 percent. These bonds will mature in November 2033 and the proceeds will be used to finance a portion of the Company's capital expenditure program in New Jersey. The Company deposits in trust the unexpended portion of the net proceeds from its Gas Facilities Revenue Bonds until drawn upon for eligible expenditures. As of September 30, 2000, and September 30, 1999, the total unexpended portions of all of the Company's Gas Facilities Revenue Bonds were $21.3 million and $32.0 million, respectively, and are classified on the Company's consolidated balance sheet, including interest earned thereon, as funds for construction held by trustee. Common Stock. The Company periodically issues shares of common stock in connection with NUI Direct, the Company's dividend reinvestment and stock purchase plan, and various employee benefit plans. The proceeds from such issuances amounted to approximately $0.7 million in both fiscals 2000 and 1999, and $4.0 million in fiscal 1998, that were used primarily to reduce outstanding short-term debt. The decrease in proceeds received in fiscal 1999 as compared to fiscal 1998 reflects that the plans commenced purchasing shares directly in the open market rather than from the Company. The Company's long-term debt agreements include, among other things, restrictions as to the payment of cash dividends. Under the most restrictive of these provisions, the Company is permitted to pay approximately $66.2 million of cash dividends at September 30, 2000. Capital Expenditures and Commitments Capital Expenditures. Capital expenditures, which consist primarily of expenditures to expand and upgrade the Company's gas distribution systems, were $52.7 million in fiscal 2000, $47.9 million in fiscal 1999 and $60.9 million in fiscal 1998. The increased spending in fiscal 1998 was primarily due to special projects to expand operations of two large industrial customers in New Jersey. Capital expenditures are expected to be approximately $86 million in fiscal 2001. Included in this amount is approximately $33 million to be spent by Virginia Gas Company (VGC) (a merger agreement to acquire VGC is pending- see below) in connection with their efforts to expand their pipeline and storage facilities. The Company is expected to close on the acquisition of VGC in early 2001. As more fully described in Note 1- Notes Receivable- of the Notes to the Consolidated Financial Statements, as part of the merger agreement to acquire VGC, the Company may advance VGC up to $20 million prior to the completion of the merger to be used for the above construction. As of September 30, 2000, $7 million is outstanding under this agreement. The remaining capital expenditure budget of $53 million for fiscal 2001 will be used primarily for the continued expansion and upkeep of the Company's natural gas distribution system, as well as certain technology projects. Environmental. The Company owns or previously owned six former manufactured gas plant (MGP) sites in the state of New Jersey and ten former MGP sites in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. Based on the Company's most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $34 million, which is the probable minimum amount that the Company expects it will expend in the next 20 years to remediate the Company's MGP sites. Of this reserve, approximately $30 million relates to New Jersey MGP sites and approximately $4 million relates to the MGP sites located outside New Jersey. The Company believes that all costs associated with the New Jersey MGP sites will be recoverable in rates or from insurance carriers. In New Jersey, the Company is currently recovering environmental costs on an annual basis through base rates and over a rolling seven-year period through its MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $5.5 million of environmental costs incurred through June 30, 1998. Recovery of an additional $2.5 million in environmental costs incurred between July 1, 1998, and June 30, 2000, is currently pending NJBPU approval. With respect to costs that may be associated with the MGP sites located outside the state of New Jersey, the Company intends to pursue recovery from ratepayers, former owners and operators of the sites and from insurance carriers. However, the Company is not able, at this time, to express a belief as to whether any or all of these recovery efforts will ultimately be successful. Gas Procurement Contracts. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $68.6 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its PGA clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.7 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations. Long-term Debt. The Company is scheduled to repay $20 million of Medium-Term Notes in August 2002. Acquisition of Virginia Gas. In June 2000, the Company entered into a definitive merger agreement with Virginia Gas Company (VGC) providing for a merger of VGC into a subsidiary of NUI. Upon obtaining all necessary regulatory approvals, NUI will exchange $4.00 worth of NUI common stock for each share of VGC common stock, which values the acquisition of VGC at approximately $22 million. VGC is a natural gas storage, pipeline, and propane and natural gas distribution company which operates in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant development. It owns one natural gas facility with fast- injection, fast withdrawal capabilities and has 50 percent ownership of a second storage facility. VGC is also working to complete a 120- mile natural gas pipeline that, with strategic links to interstate suppliers, will play an important role in supplying natural gas and power generation for the growing Mid-Atlantic region. The merger will be accounted for as a purchase, and is expected to close early in 2001. VGC had unaudited revenues of $8.8 million and operating income of $1.1 million for the nine months ended September 30, 2000. Sale of Valley Cities Gas and Waverly Gas. On October 5, 2000, the Company agreed to sell the assets and customers of its Valley Cities Gas and Waverly Gas utility divisions (VCW) to C&T Enterprises, Inc. (C&T), of Pennsylvania for $15 million. C&T will pay an additional $3 million to the Company should certain revenue targets be achieved. The transaction is expected to close during the latter portion of fiscal 2001 after all regulatory approvals have been obtained. For the year ended September 30, 2000, VCW generated $8.0 million of operating revenues, $3.8 million of operating margin and $0.6 million of operating income. Market Risk Exposure The Company's wholesale trading subsidiary, NUI Energy Brokers, uses derivatives for multiple purposes: (i) to hedge price commitments and minimize the risk of fluctuating gas prices, (ii) to take advantage of market information and opportunities in the marketplace, and (iii) to fulfill its trading strategies and, therefore, ensure favorable prices and margins. These derivative instruments include forwards, futures, options and swaps. The risk associated with uncovered derivative positions is closely monitored on a daily basis, and controlled in accordance with NUI Energy Brokers' Risk Management Policy. This policy has been approved by the Company's Board of Directors and dictates policies and procedures for all trading activities. The policy defines both value- at-risk (VaR) and loss limits, and all traders are required to read and follow this policy. At the end of each day, all trading positions are marked-to-market and a VaR is calculated. This information, as well as the status of all limits, is disseminated to senior management daily. NUI Energy Brokers utilizes the variance/covariance VaR methodology. Using a 95 percent confidence interval and a one day time horizon, as of September 30, 2000, NUI Energy Brokers' VaR was $39,000. Effects of Inflation The Company's tariffs associated with its utility operating divisions provide PGA clauses through which rates charged to customers are adjusted for changes in the cost of gas on a reasonably current basis. Increases in other utility costs and expenses not otherwise offset by increases in revenues or reductions in other expenses could have an adverse effect on earnings due to the time lag associated with obtaining regulatory approval to recover such increased costs and expenses, and the uncertainty of whether regulatory commissions will allow full recovery of such increased costs and expenses. Forward-Looking Statements This document contains forward-looking statements. These statements are based on management's current expectations and information currently available and are believed to be reasonable and are made in good faith. However, the forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Factors that may make the actual results differ from anticipated results include, but are not limited to, economic conditions; competition from other providers of similar products; and other uncertainties, all of which are difficult to predict and some of which are beyond our control. For these reasons, you should not rely on these forward-looking statements when making investment decisions. The words "expect," "believe," "project," "anticipate," "intend," "should," "could," and variations of such words and similar expressions, are intended to identify forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, either as a result of new information, future events or otherwise. Item 8. Financial Statements and Supplementary Data Consolidated financial statements of the Company as of September 30, 2000 and 1999 and for each of the three years in the period ended September 30, 2000, the auditors' report thereon, and the unaudited quarterly financial data for the two-year period ended September 30, 2000, are included herewith as indicated on "Index to Financial Statements and Schedule" on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information concerning directors and officers of the Company is included in the definitive Proxy Statement for the Company's Annual Meeting of Stockholders, which is incorporated herein by reference. Such Proxy Statement was filed with the Securities and Exchange Commission on December 19, 2000. Item 11. Executive Compensation Information concerning executive compensation is included in the definitive Proxy Statement for the Company's Annual Meeting of Stockholders, which is incorporated herein by reference. Such Proxy Statement was filed with the Securities and Exchange Commission on December 19, 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is included in the definitive Proxy Statement for the Company's Annual Meeting of Stockholders, which is incorporated herein by reference. Such Proxy Statement was filed with the Securities and Exchange Commission on December 19, 2000. Item 13. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is included in the definitive Proxy Statement for the Company's Annual Meeting of Stockholders, which is incorporated herein by reference. Such Proxy Statement was filed with the Securities and Exchange Commission on December 19, 2000. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Consolidated financial statements of the Company as of September 30, 2000 and 1999 and for each of the three years in the period ended September 30, 2000, and the auditors' report thereon, and the unaudited quarterly financial data for the two-year period ended September 30, 2000, are included herewith as indicated on the "Index to Financial Statements and Schedule" on page F-1. (2) The applicable financial statement schedule for the fiscal years 2000, 1999 and 1998 is included herewith as indicated on the "Index to Financial Statements and Schedule" on page F-1. (3) Exhibits: Exhibit Description Reference No. 2(i) Letter Agreement, dated June 29, Incorporated by 1993, by and between NUI reference to Exhibit Corporation and Pennsylvania & 2(i) to Registration Southern Gas Company Statement No. 33-50561 2(ii) Agreement and Plan of Merger, Incorporated by dated as of July 27, 1993, by reference to Exhibit and between NUI Corporation and 2(ii) to Registration Pennsylvania & Southern Gas Statement No. 33-50561 Company 2(iii) Agreement and Plan of Merger, Incorporated by dated as of June 13, 2000 by and reference to Annex A of among NUI Corporation, VGC Registration Statement Acquisition Co. and Virginia Gas 333-46036 dated Co. September 18, 2000 3(i) Certificate of Incorporation, Incorporated by amended and restated as of reference to Exhibit December 1, 1995 3(i) of NUI's Form 10-K Report for Fiscal 1995 3(ii) By-Laws, amended and restated as Incorporated by of September 23, 1997 reference to Exhibit 3(ii) of NUI's Form 10-K Report for Fiscal 1997 4(i) Rights Agreement between NUI Incorporated by Corporation and Mellon reference to NUI's Form Securities Trust Company dated 8-K dated December 1, November 28, 1995 1995 10(i) Service Agreement by and between Incorporated by Transcontinental Gas Pipe Line reference to Exhibit Corporation and Elizabethtown 10(i) to Registration Gas Company ("EGC"), dated Statement No. 33- February 1, 1992 (#3686) 50561 10(ii) Service Agreement under Rate Incorporated by Schedule GSS by and between reference to Exhibit Transcontinental Gas Pipe Line 10(ii) of NUI's Form 10- Corporation and EGC, dated July K Report for Fiscal 1997 1, 1996 10(iii) Service Agreement under Rate Incorporated by Schedule LG-A by and between reference to Exhibit Transcontinental Gas Pipe Line 10(iii) of NUI's Form Corporation and EGC, dated 10-K Report for Fiscal January 12, 1971, as amended 1999 5/15/96 10(iv) Service Agreement by and between Incorporated by Transcontinental Gas Pipe Line reference to Exhibit Corporation and EGC, dated 10(iv) of NUI's Form 10- November 1, 1995 (Contract K Report for Fiscal 1996 #1.1997) 10(v) Service Agreement by and between Incorporated by Transcontinental Gas Pipe Line reference to Exhibit Corporation and EGC, dated 10(v) of NUI's Form 10-K November 1, 1995 (Contract Report for Fiscal 1996 #1.1995) 10(vi) Firm Gas Transportation Incorporated by Agreement by and among reference to Exhibit Transcontinental Gas Pipe Line 10(vi) to Registration Corporation, EGC and National Statement No. 33-50561 Fuel Gas Supply Corporation, dated November 1, 1984 10(vii) Service Agreement by and among Incorporated by Transcontinental Gas Pipe Line reference to Exhibit Corporation and EGC, dated 10(vii) of NUI's Form November 1, 1995 (Contract 10-K Report for Fiscal #1.1998) 1996 10(viii) Service Agreement for Rate Incorporated by Schedule CDS by and between reference to Exhibit Texas Eastern Transmission 10(viii) to NUI's Form Corporation and EGC, dated 10-K Report for Fiscal December 1, 1993 (Contract 1994 #800361) 10(ix) Service Agreement under Rate Incorporated by Schedule FTS-7 by and between reference to Exhibit Texas Eastern Transmission 10(ix) to NUI's Form 10- Corporation and EGC, dated K Report for Fiscal 1994 October 25, 1994 (Contract #331720) 10(x) Service Agreement for Rate Incorporated by Schedule FTS-5 by and between reference to Exhibit Texas Eastern Transmission 10(x) of NUI's Form 10-K Corporation and EGC, dated March Report for Fiscal 1997 18, 1996 (Contract #331501) 10(xi) Service Agreement under Rate Incorporated by Schedule FTS-8 by and between reference to Exhibit Texas Eastern Transmission 10(xi) to NUI's Form 10- Corporation and EGC, dated June K Report for Fiscal 1994 28, 1994 (Contract #331013) 10(xii) Firm Transportation Service Incorporated by Agreement under FTS-2 Rate reference to Exhibit Schedule by and between City Gas 10(xii) of NUI's Form and Florida Gas Transmission, 10-K Report for Fiscal dated August 12, 1993 1997 10(xiii) Service Agreement for Rate Incorporated by Schedule FTS-2 by and between reference to Exhibit Texas Eastern Transmission 10(xiii) to Registration Corporation and EGC, dated June Statement No. 33-50561 1, 1993 (Contract #330788) 10(xiv) Service Agreement under NTS Rate Incorporated by Schedule by and between Columbia reference to Exhibit Gas Transmission Corporation and 10(xiv) to NUI's Form EGC, dated November 1, 1993 10-K Report for Fiscal (Contract #39275) 1993 10(xv) Service Agreement under SST Rate Incorporated by Schedule by and between Columbia reference to Exhibit Gas Transmission Corporation and 10(xv) to NUI's Form EGC, dated November 1, 1993 10-K Report for Fiscal (Contract #38045) 1993 10(xvi) Service Agreement under FTS Rate Incorporated by Schedule by and between Columbia reference to Exhibit Gas Transmission Corporation and 10(xvi) to NUI's Form EGC, dated November 1, 1993 10-K Report for Fiscal (Contract #37882) 1993 10(xvii) Gas Transportation Agreement Incorporated by under FT-G Rate Schedule by and reference to Exhibit between Tennessee Gas Pipeline 10(xvii) to NUI's Form Company and EGC (Contract #597), 10-K Report for Fiscal dated September 1, 1993 1993 10(xviii) Gas Transportation Agreement Incorporated by under FT-G Rate Schedule by and reference to Exhibit between Tennessee Gas Pipeline 10(xviii) to NUI's Form Company and EGC (Contract #603), 10-K Report for Fiscal dated September 1, 1993 1993 10(xix) Service Agreement by and between Incorporated by Transcontinental Gas Pipe Line reference to Exhibit Company and EGC, dated November 10(xix) of NUI's Form 1, 1995 (Contract #3832) 10-K Report for Fiscal 1996 10(xx) Firm Transportation Service Filed herewith Agreement under FTS-1 Rate Schedule by and between City Gas and Florida Gas Transmission dated October 1, 1993 (Contract # 5034) as amended July 26, 2000 10(xxi) Amended and Restated Lease File herewith Agreement between NUI Corporation and Liberty Hall Joint Venture, dated April 28, 2000 10(xxii) 1988 Stock Plan Incorporated by reference to Exhibit 10(viii) to Registration Statement No. 33-21525 10(xxiii) First Amendment to 1988 Stock Incorporated by Plan reference to Exhibit 10(xxxiii) to Registration Statement No. 33-46162 10(xxiv) Form of Termination of Incorporated by Employment and Change in reference to Exhibit Control Agreements 10(xxiii) of NUI's Form 10-K Report for Fiscal 1995 10(xxv) Firm Transportation Service Incorporated by Agreement under FTS-2 Rate reference to Exhibit Schedule by and between City 10(xxiv) of NUI's Form Gas and Florida Gas 10-K Report for Fiscal Transmission, dated December 1994 12, 1991 and Amendment dated November 12, 1993 (Contract #3608) 10(xxvi) Service Agreement under Rate Incorporated by Schedule LG-A by and between reference to Exhibit Transcontinental Gas Pipeline 10(xxv) of NUI's Form and North Carolina Gas Service 10-K Report for Fiscal Division of Pennsylvania & 1994 Southern Gas Company, dated August 5, 1971 10(xxvii) Service Agreement under Rate Incorporated by Schedule GSS by and between reference to Exhibit Transcontinental Gas Pipeline 10(xxvi) of NUI's Form and North Carolina Gas 10-K Report for Fiscal Service, dated July 1, 1996 1997 10(xxviii) 1996 Employee Stock Purchase Incorporated by Plan, as amended reference to Exhibit 4 of Registration Statement No. 333-49349 10(xxix) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Transcontinental Gas Pipeline 10(xxviii) of NUI's Form and North Carolina Gas Service 10-K Report for Fiscal Division of Pennsylvania & 1994 Southern Gas Company, dated February 1, 1992 (Contract # 0.3922) 10(xxx) 1996 Directors Stock Purchase Incorporated by Plan reference to Exhibit 10(xxix) of NUI's Form 10-K Report for Fiscal 1996 10(xxxi) Gas Storage Contract under Incorporated by Rate Schedule FS by and reference to Exhibit between Tennessee Gas Pipeline 10(xxx) of NUI's Form Company and Pennsylvania & 10-K Report for Fiscal Southern Gas Company, dated 1994 September 1, 1993 (Contract #2277) 10(xxxii) Gas Transportation Agreement Incorporated by under Rate Schedule FT-A by reference to Exhibit and between Tennessee Gas 10(xxxi) of NUI's Form Pipeline Co. and Pennsylvania 10-K Report for Fiscal & Southern Gas Company, dated 1994 September 1, 1993 (Contract #935) 10(xxxiii) Gas Transportation Agreement Incorporated by under Rate Schedule FT-A by reference to Exhibit and between Tennessee Gas 10(xxxii) of NUI's Form Pipeline Co. and Pennsylvania 10-K Report for Fiscal & Southern Gas Company, dated 1994 September 1, 1993 (Contract #936) 10(xxxiv) Gas Transportation Agreement Incorporated by under Rate Schedule FT-A by reference to Exhibit and between Tennessee Gas 10(xxxiii) of NUI's Form Pipeline Co. and Pennsylvania 10-K Report for Fiscal & Southern Gas Company, dated 1994 September 1, 1993 (Contract #959) 10(xxxv) Gas Transportation Agreement Incorporated by under Rate Schedule FT-A by reference to Exhibit and between Tennessee Gas 10(xxxiv) of NUI's Form Pipeline Co. and Pennsylvania 10-K Report for Fiscal & Southern Gas Company, dated 1994 September 1, 1993 (Contract #2157) 10(xxxvi) Service Agreement for Rate Filed herewith Schedule CDS by and between Texas Eastern Transmission Corporation and EGC, dated December 1, 1993 (Contract #800217) 10(xxxvii) Service Agreement for Rate Incorporated by Schedule FT by and reference to Exhibit between Transcontinental Gas 10(xxxvi) of NUI's Form Pipe Line Corporation and EGC 10-K Report for Fiscal (Contract #1.0431) dated 1995 April 1, 1995 10(xxxviii) Service Agreement for Rate Incorporated by Schedule FT by and reference to Exhibit between Transcontinental Gas 10(xxxvii) of NUI's Form Pipe Line Corporation and EGC 10-K Report for Fiscal (Contract #1.0445) dated 1995 April 1, 1995 10(xxxix) Service Agreement for Rate Incorporated by Schedule SS-1 by and between reference to Exhibit Texas Eastern Transmission 10(xxxviii) of NUI's Corporation and EGC (Contract Form 10-K Report for (#400196) dated September 23, Fiscal 1995 1994 10(xl) Gas Storage Agreement under Incorporated by Rate Schedule FS by and reference to Exhibit between Tennessee Gas Pipeline 10(xxxix) of NUI's Form Company and EGC (Contract 10-K Report for Fiscal #8703) dated November 1, 1994 1995 10(xli) Consulting Agreement, dated as Incorporated by of March 24, 1995, between NUI reference to Exhibit Corporation and John Kean 10(xl) of NUI's Form 10- K Report for Fiscal 1995 10(xlii) Form of Deferred Compensation Incorporated by Agreement reference to Exhibit 10(xli) of NUI's Form 10-K Report for Fiscal 1999 10(xliii) 1996 Stock Option and Stock Incorporated by Award Plan, as amended reference to Exhibit 4 of Registration Statement No. 333-49337 10(xliv) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xliii) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #010003) 10(xlv) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xliv) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #010011) 10(xlvi) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xlv) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #010012) 10(xlvii) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xlvi) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #010013) 10(xlviii) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xlvii) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #020003) 10(xlvix) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xlviii) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1997 (Contract 1997 #020005) 10(l) Service Agreement under Rate Incorporated by Schedule FT by and between reference to Exhibit Elkton Gas and Eastern Shore 10(xlix) of NUI's Form Natural Gas Company, dated as 10-K Report for Fiscal of November 1, 1998 (Contract 1997 #010032) 10(li) Agreement between T.I.C. Incorporated by Enterprises, L.L.C and United reference to Exhibit States Postal Service 10(i) of NUI's Form 8-K filed 12/15/99. 10(lii) Service Agreement under Rate Filed herewith Schedule LNG by and between Transcontinental Gas Pipeline Corporation and NUI Corporation dated as of October 25, 1999 (Contract #2.3339) 10(liii) Gas Transportation Agreement Filed herewith under Rate Schedule FT-A by and between Tennessee Gas Pipeline Company and NUI Corporation dated as of October 17, 1999 (Contract #31117) 10(liv) Asset Sale Agreement between Filed herewith NUI Corporation and C&T Enterprises, Inc. dated as of October 4, 2000 12 Consolidated Ratio of Earnings Filed herewith to Fixed Charges 21 Subsidiaries of NUI Filed herewith Corporation 23 Consent of Independent Public Filed herewith Accountants 27 Financial Data Schedule Filed herewith Exhibits listed above which have heretofore been filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, and which were designated as noted above and have not been amended, are hereby incorporated by reference and made a part hereof with the same effect as if filed herewith. The Company is a party to various agreements with respect to long-term indebtedness to which the total amount of indebtedness authorized under each agreement, respectively, does not exceed 10% of the total assets of the Company on a consolidated basis. The Company hereby agrees to furnish to the Securities and Exchange Commission copies of such agreements upon request. (b) Reports on Form 8-K: On September 27, 2000, the Company filed a Form 8-K, Item 2, Acquisition or Disposition of Assets, reporting the sale of 22 acres of vacant land in Woodbridge, New Jersey. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Consolidated Financial Statements of NUI Corporation and Subsidiaries: Report of Independent Public Accountants F-2 Consolidated Financial Statements as of September 30, 2000 and 1999 and for each of the Three Years in the Period Ended September 30, 2000 F-3 Unaudited Quarterly Financial Data for the Two-Year Period Ended September 30, 2000 (Note 12 of the Notes to the Company's Consolidated Financial Statements) F-21 Financial Statement Schedule of NUI Corporation and Subsidiaries: Report of Independent Public Accountants F-2 Schedule II - Valuation and Qualifying Accounts for each of the Three Years in the Period Ended September 30, 2000 F-22 All other schedules are omitted because they are not required, are inapplicable or the information is otherwise shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NUI Corporation: We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of NUI Corporation (a New Jersey corporation) and Subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of income, cash flows and shareholders' equity, for each of the three years in the period ended September 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NUI Corporation and Subsidiaries as of September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York November 9, 2000 NUI Corporation and Subsidiaries Consolidated Statement of Income (Dollars in thousands, except per share amounts) Years Ended September 30, 2000 1999 1998 Operating Margins Operating revenues $934,643 $826,194 $826,263 Less- Purchased gas and fuel 713,380 621,363 629,608 Cost of sales and 14,864 10,385 10,048 services Energy taxes 11,571 12,702 17,550 ------- ------- ------- 194,828 181,744 169,057 ------- ------- ------- Other Operating Expenses Operations and maintenance 95,634 89,763 85,832 Depreciation and amortization 29,508 26,939 24,952 Restructuring and other non- recurring items --- (3,954) 9,686 Taxes, other than income taxes 9,410 8,909 9,263 ------- ------- ------- 134,552 121,657 129,733 ------- ------- ------- Operating Income 60,276 60,087 39,324 ------- ------- ------- Other Income and Expense, Net Equity in earnings (losses) of 1,309 1,223 (56) TIC Enterprises, LLC, net Gain on sales of assets 2,834 245 745 Other 177 115 224 ------- ------- ------- 4,320 1,583 913 ------- ------- ------- Income before Interest and Taxes 64,596 61,670 40,237 Interest expense 19,703 19,952 19,213 ------- ------- ------- Income before Income Taxes 44,893 41,718 21,024 Income taxes 18,146 17,158 8,710 ------- ------- ------- Net Income $26,747 $24,560 $12,314 ======== ======== ======== Net Income Per Share of Common $ 2.07 $ 1.93 $ 0 .98 ======== ======== ======== Dividends Per Share of Common $ 0.98 $ 0.98 $ 0 .98 ======== ======== ======== Weighted Average Number of Shares of Common Stock Outstanding 12,928,528 12,715,300 12,584,335 ========== ========== ========== See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Balance Sheet (Dollars in thousands) September 30, 2000 1999 ASSETS Current Assets Cash and cash equivalents $3,515 $1,561 Accounts receivable (less allowance for doubtful accounts of $1,544 in 2000 and $1,697 in 1999) 108,425 85,056 Notes receivable 7,000 --- Fuel inventories, at average cost 37,177 28,573 Unrecovered purchased gas costs 3,500 901 Prepayments and other 63,360 50,108 -------- -------- 222,977 166,199 -------- -------- Property, Plant and Equipment Property, plant, and equipment, at original cost 828,359 $779,131 Accumulated depreciation and amortization (281,976) (256,898) Unamortized plant acquisition adjustments, net 29,460 30,242 -------- -------- 575,843 552,475 -------- -------- Funds for Construction Held by Trustee 28,706 37,413 Investment in TIC Enterprises, LLC 26,225 24,905 Other Investments 1,191 1,385 Other Assets Regulatory assets 50,615 51,615 Deferred assets 15,300 10,234 -------- -------- 65,915 61,849 -------- -------- $920,857 $844,226 ======= ======= CAPITALIZATION AND LIABILITIES Current Liabilities Notes payable to banks $96,700 $73,615 Current portion of capital lease 1,965 7,776 obligations Accounts payable, customer deposits 132,207 108,023 and accrued liabilities Federal income and other taxes 11,884 4,359 -------- -------- 242,756 193,773 -------- -------- Other Liabilities Capital lease obligations 4,396 2,599 Deferred Federal income taxes 75,248 69,951 Unamortized investment tax credits 4,825 5,251 Environmental remediation reserve 33,361 33,981 Regulatory and other liabilities 34,355 32,442 -------- -------- 152,185 144,224 -------- -------- Capitalization (See accompanying statements) Common shareholders' equity 256,969 237,318 Preferred stock --- --- Long-term debt 268,947 268,911 -------- -------- 525,916 506,229 -------- -------- $920,857 $844,226 ======== ======== See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Statement of Cash Flows (Dollars in thousands) Years Ended September 30 2000 1999 1998 Operating Activities Net Income $26,747 $24,560 $12,314 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,155 28,914 26,050 Deferred Federal income taxes Non-cash portion of restructuring and other non-recurring items 5,297 7,454 357 Amortization of deferred investment tax credits (426) (459) (461) Other 4,508 3,237 1,743 Effects of changes in: Accounts receivable, net (22,011) (22,383) 1,826 Fuel inventories (8,604) 6,364 (3,869) Accounts payable, deposits and accruals 22,008 22,865 (7,347) Over (under) recovered purchased gas costs (2,599) 7,160 1,541 Other (9,843) (12,030) (18,604) ------ ------ ------ Net cash provided by operating activities 46,232 58,956 20,851 ------ ------ ------ Financing Activities Proceeds from sales of common stock, 703 340 3,658 net of treasury stock purchased Dividends to shareholders (12,671) (12,443) (12,311) Notes receivable from Virginia Gas (7,000) --- --- Proceeds from issuance of long-term debt --- 39,813 --- Principal payments under capital lease obligations --- --- (54,600) Funds for construction held by trustee, net 10,666 (24,871) 16,670 Principal payments under capital lease obligations (8,144) (1,810) (1,792) Net short-term (repayments) borrowings 22,850 (14,015) 33,202 ------ ------ ------ Net cash provided by (used for) financing activities 6,404 (12,986) (15,173) ------ ------ ------- Investing Activities Cash expenditures for utility plant (48,577) (47,213) (59,969) Other (2,105) 1,875 (3,573) ------ ------ ------- Net cash used in investing activities (50,682) (45,338) (63,542) ------ ------ ------- Net Increase (Decrease) in Cash and Cash Equivalents $ 1,954 $ 632 $(57,864) ======== ======= ======= Cash and Cash Equivalents At beginning of period $ 1,561 $ 929 $58,793 At end of period $ 3,515 $ 1,561 $ 929 Supplemental Disclosures of Cash Flows Income taxes paid, net $ 3,889 $ 7,695 $ 6,482 Interest paid $ 21,481 $20,732 $22,094 See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Statement of Capitalization (Dollars in thousands) September 30, 2000 1999 Long-Term Debt Gas facilities revenue bonds 6.35% due October 1, 2022 $46,500 $46,500 6.40% due October 1, 2024* 20,000 20,000 Variable rate due June 1, 2026* 39,000 39,000 5.70% due June 1, 2032 54,600 54,600 5.25% due November 1, 2033* 40,000 40,000 Medium-term notes 7.125% due August 1, 2002 20,000 20,000 8.35% due February 1, 2005 50,000 50,000 ------- ------- 270,100 270,100 Unamortized debt discount (1,153) (1,189) ------- ------- 268,947 268,911 ------- ------- Preferred Stock, 5,000,000 shares authorized; none issued --- --- Common Shareholders' Equity Common Stock, no par value; shares authorized: 30,000,000; shares outstanding: 12,982,526 in 2000 and 12,750,270 in 1999 215,484 209,984 Shares held in treasury: 103,158 in 2000 and 122,219 in 1999 (2,246) (2,311) Retained earnings 45,456 31,380 Unearned employee compensation (1,725) (1,735) ------- ------- 256,969 237,318 ------- ------- Total Capitalization $525,916 $506,229 ======== ======== * The total unexpended portions of the net proceeds from these bonds, amounting to $21.3 million and $32.0 million as of September 30, 2000, and September 30, 1999, respectively, are carried on the Company's consolidated balance sheet as funds for construction held by trustee, including interest earned thereon, until drawn upon for eligible construction expenditures. See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Statement of Shareholders' Equity (Dollars in thousands)
Common Stock Unrealized Gain (Loss)- Unearned Shares Paid-in Held in Retained Marketable Employee Outstanding Amount Treasury Earnings Securities Compensation Total Balance, September 30, 1997 12,428,952 $201,549 $ (1,615) $ 19,260 $120 $(1,023) $218,291 Common stock issued* 259,710 5,807 5,807 Treasury stock transactions (8,264) (317) (317) Net income 12,314 12,314 Cash dividends (12,311) (12,311) Unrealized (loss) (120) (120) Unearned compensation (672) (672) ---------- -------- -------- ------- ----- ------- --------- Balance, September 30, 1998 12,680,398 $207,356 $ (1,932) $19,263 $ - $(1,695) $222,992 Common stock 85,352 2,628 2,628 Treasury stock transactions (15,480) (379) (379) Net income 24,560 24,560 Cash dividends (12,443) (12,443) Unearned compensation (40) (40) __________ ________ ________ _______ _____ _______ ________ Balance, September 30, 1999 12,750,270 $209,984 $ (2,311) $31,380 $ - $(1,735) $237,318 Common stock issued -Purchase of NUI Telecom 113,200 2,800 2,800 -Employee benefit plans 99,995 2,700 2,700 Treasury stock transactions 19,061 65 65 Net income 26,747 26,747 Cash dividends (12,671) (12,671) Unearned compensation 10 10 __________ ________ ________ _______ _____ _______ ________ Balance, September 30, 2000 12,982,526 $215,484 $ (2,246) $45,456 $ - $ (1,725) $256,969 ========== ======== ======== ======= ===== ======== ========
* Represents common stock issued in connection with NUI Direct and various employee benefit plans. See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation. The consolidated financial statements include all operating divisions and subsidiaries of NUI Corporation (collectively referred to as the Company). The Company is a multi- state energy sales, services and distribution, and telecommunications company. Its utility operations distribute natural gas and related services in six states along the eastern seaboard and comprise Elizabethtown Gas Company (New Jersey), City Gas Company of Florida, North Carolina Gas, Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly Gas (New York). The Company's non-regulated subsidiaries include NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), a wholesale energy trading and portfolio management subsidiary; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc. (UBS), a geospatial and customer information systems and services subsidiary; and NUI Telecom, Inc. (NUI Telecom), a telecommunications services subsidiary (see Note 2). The Company also provides sales outsourcing through its 49 percent equity interest in TIC Enterprises, LLC (TIC). All intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. Regulation. The Company is subject to regulation as an operating utility by the public utility commissions of the states in which it operates. Property, Plant and Equipment. Property, plant and equipment includes both utility plant and non-regulated assets. Utility plant is stated at its original cost. Depreciation is provided on a straight-line basis over the remaining estimated lives of depreciable property by applying rates as approved by the state commissions. The composite average annual depreciation rate was 3 percent in each of fiscal years 2000, 1999 and 1998. At the time properties are retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation. Repairs of all utility plant and replacements and renewals of minor items of property are charged to maintenance expense as incurred. Non-regulated equipment consists primarily of technology assets and furniture and fixtures. Assets are recorded at original cost and are depreciated on a straight-line basis over a period ranging from 3-10 years. The net unamortized plant acquisition adjustments represent the remaining portion of the excess of the purchase price over the book value of utility net assets acquired. The excess is being amortized on a straight-line basis over 30 years from the date of acquisition. The results of operations of acquired entities have been included in the accompanying consolidated financial statements for the periods subsequent to their acquisition. Operating Revenues and Purchased Gas and Fuel Costs. Operating revenues include accrued unbilled revenues through the end of each accounting period. Operating revenues also reflect adjustments attributable to weather normalization clauses that are accrued during the winter heating season and billed or credited to customers in the following year. Costs of purchased gas and fuel for the Company's regulated utilities are recognized as expenses in accordance with the purchased gas adjustment clause applicable in each state. Such clauses provide for periodic reconciliations of actual recoverable gas costs and the estimated amounts that have been billed to customers. Under- or over- recoveries are deferred when they arise and are recovered from or refunded to customers in subsequent periods. The Company's subsidiaries, NUI Energy Brokers and NUI Energy, mark- to-market through the income statement all trading positions, including forward sales and purchase commitments. (See Note 8 for a further description of the Company's use of derivative financial instruments.) Environmental Reserve. The Company, with the aid of environmental consultants, regularly assesses the potential future costs associated with conducting investigative activities at each of the Company's sites and implementing appropriate remedial actions, as well as the likelihood of whether such actions will be necessary. The Company records a reserve if it is probable that a liability will be incurred and the amount of the liability can be reasonably estimated. Stock Compensation. The Company follows the accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its employee stock-based compensation. The Company has elected to adopt the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123), which requires proforma disclosure of the effect of adopting the accounting under SFAS 123. If the Company had adopted SFAS 123, there would not have been a material effect on the results of operations or financial position. Income Taxes. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the liability method to be used to account for deferred income taxes. Under this method, deferred income taxes related to tax and accounting basis differences are recognized at the statutory income tax rates in effect when the tax is expected to be paid. Investment tax credits, which were generated principally in connection with additions to utility plant made prior to January 1, 1986, are being amortized over the estimated service lives of the properties that gave rise to the credits. Regulatory Assets and Liabilities. The Company's utility operations follow the accounting for regulated enterprises prescribed by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71 requires deferral of certain costs and obligations, based upon orders received from regulators, to be recovered from or refunded to customers in future periods. The following represents the Company's regulatory assets and liabilities deferred in the accompanying consolidated balance sheet as of September 30, 2000 and 1999 (in thousands): 2000 1999 Regulatory Assets Environmental investigation and remediation costs $35,617 $35,950 Unrecovered gas costs 839 1,082 Postretirement and other employee benefits 8,756 8,877 Deferred piping allowances 1,334 1,692 Other 4,069 4,014 ------- ------- $50,615 $51,615 ------- ------- Regulatory Liabilities Net overcollection of income taxes $ 5,118 $ 5,183 Refunds to customers 2,021 2,928 Other 228 426 ------- ------- $ 7,367 $ 8,537 ======= ======= In the event that the provisions of SFAS 71 were no longer applicable, the Company would recognize a write-off of net regulatory assets (regulatory assets less regulatory liabilities) that would result in a charge to net income, which would be classified as an extraordinary item. However, although the gas distribution industry is becoming increasingly competitive, the Company's utility operations continue to recover their costs through cost-based rates established by the public utility commissions. As a result, the Company believes that the accounting prescribed under SFAS 71 remains appropriate. Cash Equivalents. Cash equivalents consist of a money market account which invests in securities with original maturities of three months or less. Notes Receivable. Notes receivable represent amounts advanced in conjunction with the June 13, 2000, merger agreement between Virginia Gas Corporation (VGC) and the Company (see Note 3). The agreement provides VGC with the ability to draw up to $20 million, which can be used to repay amounts outstanding under existing finance agreements of VGC, real property pursuant to an existing purchase agreement, and pipeline and gas storage construction and other related expenses. Interest is to be paid to the Company quarterly at the rate equal to LIBOR plus 3%. The principal balance is to be paid at the earlier of March 1, 2002, or the termination of the merger agreement. As of September 30, 2000 VGC had drawn a total of $7 million under the agreement. Net Income Per Share of Common Stock. Net income per share of common stock is based on the weighted average number of shares of NUI common stock outstanding. The Company follows the provisions of Statement of Financial Accounting Standards No. 128, _Earnings per Share_, which requires computing and presenting basic and diluted earnings per share. At September 30, 2000, the Company has approximately 29,000 shares of common stock equivalents related to the purchase of NUI Telecom (see Note 2), which do not have a dilutive effect on earnings per share. New Accounting Standards. The Company is required to adopt Statement of Financial Accounting Standards, No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) in fiscal 2001. SFAS 133 was issued in June 1998 and establishes accounting and reporting standards regarding derivative instruments. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value as either an asset or liability, and that changes in the fair value be recognized currently in earnings unless certain criteria are met. The Company has reviewed all of its contracts in accordance with the SFAS 133. Since both NUI Energy Brokers and NUI Energy currently utilize mark-to-market accounting, the adoption of SFAS 133 will not have a material impact on the Company's financial position or net income. 2. Purchase of NUI Telecom On November 12, 1999, the Company closed on its acquisition of International Telephone Group, Inc. (ITG). The acquisition was treated as a merger whereby ITG merged with and into a subsidiary of the Company. ITG subsequently changed its name to NUI Telecom, Inc. The purchase price totaled $3.8 million and included the issuance of 113,200 shares of NUI common stock, with the remainder paid in cash. NUI Telecom is a full service telephone company that provides its customers with a single service solution for all their telecommunication requirements including local, long distance, cellular, internet, and data communications services. The Agreement and Plan of Merger contains a provision whereby the previous shareholders of NUI Telecom will receive an additional $1.0 million in NUI common stock if NUI Telecom achieves certain earnings targets no later than December 31, 2003. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of the net assets of NUI Telecom was approximately $4.5 million, which includes the additional earnings contingency noted above, and is being amortized on a straight-line basis over a 20-year period. 3. Purchase of Virginia Gas Company In June 2000, the Company entered into a definitive merger agreement with Virginia Gas Company (VGC) providing for the merger of VGC into a subsidiary of NUI. Upon obtaining all necessary regulatory approvals, NUI will exchange $4.00 of NUI common stock for each share of VGC common stock, which values the acquisition of VGC at approximately $22 million. VGC is a natural gas storage, pipeline, and propane and natural gas distribution company which operates in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant development. It owns one natural gas facility with fast- injection, fast withdrawal capabilities and has 50 percent ownership of a second storage facility. VGC is also working to complete a 120- mile natural gas pipeline that, with strategic links to interstate suppliers, will play an important role in supplying natural gas and power generation for the growing Mid-Atlantic region. The merger will be accounted for as a purchase, and is expected to close early in 2001. VGC had unaudited revenues of $8.8 million and operating income of $1.1 million for the nine months ended September 30, 2000. 4. Restructuring and Other Non-Recurring Items In 1998, the Company commenced a reorganization effort that included early retirement programs for both non-bargaining and bargaining unit employees, as well as other workforce reductions. The reorganization efforts resulted in accounting charges and gains that were incurred in both fiscal 1999 and 1998. In fiscal 1999, the Company recognized approximately $4.0 million of pre-tax, non-recurring gains primarily relating to these reorganization efforts. In fiscal 1998, the Company incurred approximately $9.7 million of pre-tax, non-recurring charges primarily related to the reorganization effort. Specific detail on these non-recurring items follows. In June 1998, the Company offered an early retirement program to its non-bargaining unit personnel. The program was accepted by 74 of the eligible 77 employees. In accordance with Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" (SFAS 88), the Company recorded a special termination charge of approximately $7.3 million during fiscal 1998 when the cost was recognizable. In March 1999, the Company recorded a settlement gain of approximately $6.8 million as a result of satisfaction of all future liabilities associated with these employees. In January 1999, the Company offered an early retirement program to its bargaining unit employees in New Jersey. The program was accepted by 32 of the eligible 35 employees. In accordance with SFAS 88, the Company recorded a special termination charge of approximately $1.8 million in the second quarter of fiscal 1999 associated with these retirements. In June 1999, the Company recorded a settlement gain of approximately $3.2 million as the result of satisfaction of all future liabilities associated with these employees. Also in June 1999, the Company recorded an additional $0.6 million of other benefit expenses associated with these employees. In fiscal 1999, the Company also recorded approximately $1.8 million of charges relating to the write-off of certain regulatory assets which will not be recovered through rates, as well as $1.8 million of charges relating to other items which were deemed to be separate from recurring earnings. In fiscal 1998, the Company also recorded approximately $1.5 million of other benefit expenses associated with employees that accepted the early retirement program and approximately $0.9 million of other charges associated with the reorganization of the Company. 5. Capitalization Long-Term Debt. On December 8, 1998, the Company issued $40 million of tax-exempt Gas Facilities Revenue Bonds at an interest rate of 5.25 percent. These bonds will mature in November 2033 and the proceeds will be used to finance a portion of the Company's capital expenditure program in New Jersey. The Company deposits in trust the unexpended portion of the net proceeds from its Gas Facilities Revenue Bonds until drawn upon for eligible expenditures. As of September 30, 2000, and September 30, 1999, the total unexpended portions of all of the Company's Gas Facilities Revenue Bonds were $21.3 million and $32.0 million, respectively, and are classified on the Company's consolidated balance sheet, including interest earned thereon, as funds for construction held by trustee. The Company is scheduled to repay $20 million of Medium-Term Notes in August 2002. Preferred Stock. The Company has 5,000,000 shares of authorized but unissued preferred stock. Shares of Series A Junior Participating Preferred Stock have been reserved for possible future issuance in connection with the Company's Shareholder Rights Plan, described below. Shareholder Rights Plan. In November 1995, the Company's Board of Directors adopted a Shareholder Rights Plan under which shareholders of NUI common stock were issued as a dividend one right to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $50 (Right) for each share of common stock held. The Rights initially attach to the shares of NUI common stock and can be exercised or transferred only if a person or group (an Acquirer), with certain exceptions, acquires, or commences a tender offer to acquire beneficial ownership of 15 percent or more of NUI common stock. Each Right, except those held by the Acquirer, may be used by the non-acquiring shareholders to purchase, at the Right's exercise price, shares of NUI common stock having a market value equivalent to twice the Right's exercise price, thus substantially reducing the Acquirer's ownership percentage. The Company may redeem the Rights at $0.001 per Right at any time prior to the occurrence of any such event. All Rights expire on November 27, 2005. Common Stock. The Company periodically issues shares of common stock in connection with NUI Direct, the Company's dividend reinvestment and stock purchase plan, and various employee benefit plans. Effective May 26, 1998, several of these plans commenced purchasing shares on the open market to fulfill the their requirements. Under the terms of these plans, the Company may periodically change the method of purchasing shares from open market purchases to purchases directly from the Company, or vice versa. At September 30, 2000, shares reserved for issuance under the Company's common stock plans were: NUI Direct, 53,149; Savings and Investment Plan, 121,966; 1996 Stock Option and Stock Award Plan, 273,370; 1996 Employee Stock Purchase Plan, 113,355; and the 1996 Director Stock Purchase Plan, 46,918. Stock Plans. The Company's Board of Directors believes that the interests of both directors and management should be closely aligned with those of shareholders. As a result, under the 1996 Stock Option and Stock Award Plan, and the 1996 Director Stock Purchase Plan, the Company has a long-term compensation program for directors, executive officers and key employees involving shares of NUI common stock. Restricted shares of stock granted as long-term compensation for executive officers and key employees amounted to 82,750 in fiscal 2000, 75,900 in fiscal 1999 and 74,600 in fiscal 1998. As of September 30, 2000, a total of 195,575 shares of restricted stock that have been granted as long-term compensation are subject to future vesting requirements, and are restricted from resale. Executive officers and key employees are eligible to be granted options for the purchase of NUI common stock at prices equal to the market price per share on the date of grant. The option must be exercised within 10 years from the date of grant. As of September 30, 2000 there were no options outstanding and exercisable. During fiscal 2000, 5,000 options were exercised at a price of $17.625 per share, and during fiscal 1998, 4,800 options were exercised at a price of $15.77 per share. There were no other transactions during the last three fiscal years. Dividend Restrictions. The Company's long-term debt agreements include, among other things, restrictions as to the payment of cash dividends. Under the most restrictive of these provisions, the Company was permitted to pay approximately $66.2 million of cash dividends at September 30, 2000. 6. Notes Payable to Banks At September 30, 2000, the Company's outstanding notes payable to banks were $96.7 million with a combined weighted average interest rate of 7.3 percent. Unused lines of credit at September 30, 2000, were approximately $49.3 million. The weighted average daily amounts outstanding of notes payable to banks and the weighted average interest rates on those amounts were $75.3 million at 6.7 percent in fiscal 2000, $68.2 million at 5.3 percent in fiscal 1999 and $66.8 million at 5.7 percent in fiscal 1998. 7. Leases Property, plant and equipment held under capital leases amounted to $26.8 million at September 30, 2000, and $24.3 million at September 30, 1999, with related accumulated amortization of $17.3 million and $15.6 million, respectively. These properties consist principally of leasehold improvements and office furniture and fixtures. A summary of future minimum payments for properties held under capital leases follows (in thousands): 2001 $2,428 2002 2,120 2003 1,746 2004 1,266 2005 480 ----- Total future minimum payments 8,040 Amount representing interest (1,679) Current portion of capital lease obligations (1,965) ------ Capital lease obligations $4,396 ====== The Company has entered into non-cancelable operating leases which principally relate to office space used in its operations. The future minimum lease payments as of September 30, 2000 are as follows: 2001 $ 3,190 2002 3,190 2003 3,190 2004 3,190 2005 3,583 Thereafter 61,808 ------- Total $78,151 ======= Rents charged to operations expense were $6.9 million in fiscal 2000, $5.7 million in fiscal 1999, and $5.8 million in fiscal 1998. The Company has entered into subleases for a portion of the office space noted above. Amounts received from subleases were $1.7 million in fiscal 2000, $0.6 million in fiscal 1999, and $0.2 million in fiscal 1998. 8. Financial Instruments Derivatives. The Company's wholesale trading subsidiary, NUI Energy Brokers, utilizes financial instruments to provide competitive energy supplies and enhance the Company's profitability. These instruments include: forwards, futures, and options contracts which commit the Company to purchase or sell natural gas in the future, and swap agreements which require counterparties to exchange fixed for floating payments. NUI Energy Brokers accounts for its risk management activities by marking-to-market all trading positions and calculating its value-at- risk on a daily basis. The values used for these calculations include New York Mercantile Exchange (NYMEX) settlement prices, established pricing models, and quoted market volatilities. The Company manages their open positions within the guidelines of a Risk Management Policy that limits its exposure to market risks and requires that among other things, any breach of policy be reported to senior management. Margin requirements for natural gas futures contracts are recorded in other current assets. Profitable activity in NUI Energy Brokers' NYMEX trading accounts during fiscal 2000 resulted in a net withdrawal of $8.5 million from their broker accounts that was re-deposited with NUI. Realized and unrealized gains and losses are recorded in the consolidated statement of income under purchased gas and fuel. At September 30, 2000, NUI Energy Brokers had purchased and sold futures contracts totaling 31.8 Bcf of natural gas at prices ranging from $2.197 to $5.650 per Mcf. None of these contracts extend beyond December 2001. Their options positions consisted of 4,391 puts and calls at varying strike prices, none of which extend beyond October 2001. During fiscal 2000, swap activity increased and at year-end the mark-to-market value of all swaps was approximately $790,000. The swap transactions have terms that extend through March 2001. Additionally, NUI Energy Brokers had forward purchase and sale commitments extending through Dec 2005. At September 30, 2000, these transactions had an unrealized mark-to-market value of approximately $4.3 million. Net realized and unrealized gains on derivative trading for fiscal 2000 totaled $11.7 million, compared to $9.0 million in 1999, and has been included in income. The Company is exposed to credit risk in the event of default or non- performance by one of its trading partners. The Company adheres to credit policies that management believes minimize overall credit risk. Other Financial Instruments. The fair value of the Company's cash equivalents, funds for construction held by trustee and notes payable to banks are approximately equivalent to their carrying value. The carrying value of the Company's long-term debt exceeded its fair value by approximately $4.1 million and $2 million as of September 30, 2000 and 1999, respectively. The fair value of long-term debt was estimated based on quoted market prices for the same or similar issues. 9. Consolidated Taxes The provision for Federal and State income taxes was comprised of the following (in thousands): 2000 1999 1998 Currently payable - Federal $ 8,865 $ 5,759 $ 6,747 State 3,465 4,265 2,166 Deferred - Federal 5,297 7,454 357 State 945 139 (99) Amortization of investment tax credits (426) (459) (461) -------- -------- -------- Total provision for income $18,146 $17,158 $ 8,710 ======= ======= ======= The components of the Company's net deferred Federal tax liability (asset) as of September 30, 2000 and 1999 are as follows (in thousands): 2000 1999 Depreciation and other utility plant $60,482 $59,434 differences Plant acquisition adjustments 9,130 9,627 Alternative minimum tax credit (1,494) (3,614) Unamortized investment tax credit (1,972) (2,140) Deferred charges and regulatory assets 4,249 3,948 Pension 9,012 4,723 Other (4,159) (2,027) ------- ------- $75,248 $69,951 ======= ======= The alternative minimum tax credit can be carried forward indefinitely to reduce the Company's future tax liability. The Company's effective income tax rates differ from the statutory Federal income tax rates due to the following (in thousands): 2000 1999 1998 Pre-tax income $44,893 $41,718 $21,024 ------- ------- ------- Federal income taxes computed at Federal statutory tax rate of 35 percent 15,713 14,601 7,358 Increase (reduction) resulting from: Excess of book over tax depreciation 341 341 357 Amortization of investment tax (426) (459) (461) credits Federal benefit of state tax provision (1,544) (1,541) (723) Other, net (348) (188) 112 ------- ------- ------- Total provision for Federal 13,736 12,754 6,643 Provision for State income taxes 4,410 4,404 2,067 ------- ------- ------- Total provision for income taxes $18,146 $17,158 $ 8,710 ======= ======= ======= 10. Retirement Benefits Pension Benefits. The Company has non-contributory defined benefit retirement plans which cover all of its employees other than the City Gas of Florida union employees who participate in a union-sponsored multi-employer plan. The Company funds its plans in accordance with the requirements of the Employee Retirement Income Security Act of 1974 and makes contributions to the union sponsored plan in accordance with its contractual obligations. Benefits paid under the Company's plans are based on years of service and levels of compensation. The Company's actuarial calculation of pension expense is based on the projected unit cost method. The changes in the pension benefit obligation for the Company's plans were as follows (in thousands): 2000 1999 Benefit obligation at beginning of $80,845 $114,233 year Service cost 1,991 2,446 Interest cost 6,029 6,281 Amendments --- 5,990 Actuarial (gain) loss (1,677) (9,603) Benefits paid (5,885) (38,502) ------- -------- Benefit obligation at end of year $81,303 $80,845 ======= ======== The change in the Company's plan assets were as follows (in thousands): 2000 1999 Fair value of plan assets at beginning of year $123,546 $140,975 Actual return on plan assets 13,611 21,073 Estimated expenses (16) --- Benefits paid (5,885) (38,502) -------- -------- Fair value of plan assets at end of year $131,256 $123,546 ======== ========= The reconciliation of the funded status of the Company's funded plans as of September 30, 2000 and 1999 was as follows (in thousands): 2000 1999 Funded status $ 81,303 $ 80,845 Market value of plan assets 131,256 123,546 -------- -------- Plan assets in excess of projected benefit obligation 49,953 42,701 Unrecognized net gain (28,711) (27,107) Unrecognized prior service cost 3,018 3,361 Unrecognized net transition (488) (967) asset -------- -------- Pension prepayment $ 23,772 $ 17,988 ======== ======== The projected benefit obligation was calculated using a discount rate of 7.75 percent in fiscal 2000 and 7.50 percent in fiscal 1999, and an assumed annual increase in compensation levels of 4 percent in fiscals 2000 and 1999. The expected long-term rate of return on assets was calculated at 9.75 percent in both fiscal 2000 and fiscal 1999. The assets of the Company's funded plans are invested primarily in publicly traded fixed income and equity securities. The components of pension expense for the Company's plans were as follows (in thousands): 2000 1999 1998 Service cost $ 1,991 $ 2,446 $ 2,370 Interest cost 6,029 6,281 6,459 Estimated expenses 16 --- --- Return on plan assets (12,351) (13,048) (13,111) Net amortization and deferral (1,469) (1,069) (2,407) Special termination benefits --- 1,799 7,301 Settlement gain --- (10,051) --- -------- -------- -------- Pension (credit) expense $(5,784) $(13,642) $ 612 ======== ======== ======== Certain key employees also participate in an unfunded supplemental retirement plan. The projected benefit obligation under this plan was $4.9 million as of September 30, 2000, $6.5 million as of September 30, 1999, and $5.8 million as of September 30, 1998, and the expense for this plan was approximately $0.6 million in fiscal 2000 and $0.7 million in fiscals 1999 and 1998. Post-retirement Benefits Other Than Pensions. The Company provides certain health care benefits to all retirees receiving benefits under a Company pension plan other than the City Gas Company of Florida plan, who reach retirement age while working for the Company. The Company accounts for these plans under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post- retirement Benefits Other Than Pensions" (SFAS 106), which, among other things, requires companies to accrue the expected cost of providing other postretirement benefits to employees and their beneficiaries during the years that eligible employees render the necessary service. The Company currently funds these future benefits through a Voluntary Employees Beneficiary Association. Effective July 1, 2000, the Company no longer offers post-retirement benefits other than pensions for any new hires. In addition, the Company has capped its share of costs at $500 per participant, per month for retirees under age 65, and at $150 per participant, per month for retirees over age 65. The changes in the post-retirement benefit obligation for the Company's plans were as follows (in thousands): 2000 1999 Benefit obligation at beginning of year $29,247 $31,421 Service cost 770 1,243 Interest cost 2,062 2,087 Actuarial (gain) loss (395) (4,174) Plan amendments (9,078) --- Benefits paid (1,356) (1,345) Other 15 15 ------- ------- Benefit obligation at end of year $21,265 $29,247 ======= ======= The change in the Company's plan assets were as follows (in thousands): 2000 1999 Fair value of plan assets at beginning of year $1,500 $ --- Actual return on plan assets 119 --- Employer contributions 1,341 2,830 Plan participants' contributions 15 15 Benefits paid (1,356) (1,345) ------ ------ Fair value of plan assets at end of year $1,619 $1,500 ====== ====== The reconciliation of the funded status of the Company's post- retirement plans other than pensions as of September 30, 2000 and 1999, was as follows (in thousands): 2000 1999 Funded status $19,646 $27,747 Unrecognized transition obligation (23) (9,616) Unrecognized net (loss) (3,125) (3,568) ------- ------- Accrued post-retirement benefit $16,498 $14,563 obligation ======= ======= The components of post-retirement benefit expense other than pensions for the years ended September 30, 2000 and 1999, were as follows (in thousands): 2000 1999 1998 Service cost $ 770 $1,242 $ 813 Interest cost 2,062 2,089 1,683 Amortization of 516 730 774 transition obligation Other (72) 217 8 ------ ------ ------ Net postretirement $3,276 $4,278 $3,278 expense ====== ====== ====== The health care trend rate assumption is 8.25 percent in 2001 gradually decreasing to 5 percent for the year 2005 and later. The discount rate used to compute the accumulated post-retirement benefit obligation was 7.75 percent in fiscal 2000 and 7.5 percent in fiscal 1999. An increase in the health care trend rate assumption by one percentage point in all years would increase the accumulated post- retirement benefit obligation by approximately $5.5 million and the aggregate annual service and interest costs by approximately $0.9 million On September 23, 1998, the New Jersey Board of Public Utilities (NJBPU) issued an order approving the Company's petition to increase its base rates in New Jersey by approximately $2.4 million annually to recover post-retirement benefits computed under SFAS 106. The rate increase was effective October 1, 1998 and allows for previously deferred costs, as well as future SFAS 106 costs, to be recovered over a rolling 15-year period. The Company has previously received an order from the North Carolina Utilities Commission to include in rates the amount of post-retirement benefit expense other than pensions computed under SFAS 106. The Company continually evaluates alternative ways to manage these benefits and control their costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefit may have a significant effect on the amount of the reported obligation and expense. 11. Business Segment Information The Company's operations are organized and managed by three primary segments: Distribution Services, Energy Sales and Services and Customer Services. The Distribution Services segment distributes natural gas in six states through the Company's regulated utility divisions. The Energy Sales and Services segment reflects the operations of the Company's NUI Energy, NUI Energy Brokers and NUI Energy Solutions subsidiaries, as well as off-system sales made by NUI Energy Brokers on behalf of the utility divisions. The Customer Services segment reflects the operations of the Company's UBS and NUI Telecom subsidiaries, as well as appliance leasing, repair and maintenance operations. The Company also has corporate operations that do not generate any revenues. The following table provides information concerning the major segments of the Company for each of the three fiscal years ended September 30, 2000, 1999 and 1998. Revenues and operating margins include intersegment sales to affiliated entities, which are eliminated in consolidation. Identifiable assets include only those attributable to the operations of each segment. All of the Company's operations are in the United States and therefore do not need separate disclosure by geographic region. Certain reclassifications have been made to prior year segment data to conform with the current year's presentation. (Dollars in thousands) 2000 1999 1998 Revenues: Distribution Services $409,840 $379,670 $390,657 Energy Sales & Services 554,031 462,415 427,300 Customer Services 29,565 15,925 15,354 Intersegment Revenues (58,793) (31,816) (7,048) -------- -------- -------- Total Revenues $934,643 $826,194 $826,263 ======== ======== ======== Operating Margins: Distribution Services $170,285 $163,250 $158,357 Energy Sales & Services 17,767 13,319 5,441 Customer Services 6,776 5,175 5,259 ------- -------- -------- Total Operating Margins $194,828 $181,744 $169,057 ======== ======== ======== Pre-Tax Operating Income: Distribution Services $ 52,355 $ 52,740 $ 53,048 Energy Sales & Services 8,963 6,585 (1,744) Customer Services (241) (1,785) (1,618) -------- -------- -------- Total Pre-Tax Operating Income $ 61,077 $ 57,540 $ 49,686 ======= ======= ======= Depreciation & Amortization: Distribution Services $ 24,106 $ 22,577 $ 20,904 Energy Sales & Services 246 238 243 Customer Services 2,325 2,140 2,221 -------- -------- -------- Total Depreciation & Amortization $ 26,677 $ 24,955 $ 23,368 ======= ======= ======= Identifiable Assets: Distribution Services $750,196 $710,743 $678,776 Energy Sales & Services 76,718 70,220 39,849 Customer Services 25,341 14,976 14,866 ------- ------- ------- Total Identifable Assets $852,255 $795,939 $733,491 Capitable Expenditures Distribution Services $ 44,473 $ 39,471 $ 54,809 Energy Sales & Services 152 495 457 Customer Services 4,790 2,440 1,682 -------- -------- -------- Total Capital Expenditures $ 49,415 $ 42,406 $ 56,948 ======== ======== ======== A reconciliation of the Company's segment pre-tax operating income, depreciation and amortization, identifiable assets and capital expenditures to amounts reported on the consolidated financial statements is as follows: (Dollars in thousands) 2000 1999 1998 Segment Pre-Tax Operating Income $ 61,077 $ 57,540 $ 49,686 Non-segment pre-tax operating (loss) income (801) (1,407) (676) Non-recurring items --- 3,954 (9,686) -------- -------- -------- Operating income $ 60,276 $ 60,087 $ 39,324 ======== ======== ======== Segment Depreciation & Amortization $ 26,677 $ 24,955 $ 23,368 Non-segment depreciation & amortization 2,831 1,984 1,584 -------- -------- -------- Depreciation & Amortization $ 29,508 $ 26,939 $ 24,952 ======== ======== ======== Segment Identifiable Assets $852,255 $795,939 $733,491 Non-segment identifiable assets 68,602 48,287 43,356 -------- -------- -------- Total Assets $920,857 $844,226 $776,847 ======== ======== ======== Segment Capital Expenditures $ 49,415 $ 42,406 $ 56,948 Non-segment capital expenditures 3,331 5,523 3,918 -------- -------- -------- Total Capital Expenditures $ 52,746 $ 47,929 $ 60,866 ======== ======== ======== 12. Commitments and Contingencies Commitments. Capital expenditures are expected to be approximately $86 million in fiscal 2001. Included in this amount is approximately $33 million related to the expansion of pipeline and storage assets at Virginia Gas Company (see Note 1-Notes Receivable). Environmental Matters. The Company is subject to federal and state laws with respect to water, air quality, solid waste disposal and employee health and safety matters, and to environmental regulations issued by the United States Environmental Protection Agency (EPA), the New Jersey Department of Environmental Protection (NJDEP) and other federal and state agencies. The Company owns, or previously owned, certain properties on which manufactured gas plants (MGP) were operated by the Company or by other parties in the past. In New Jersey, the Company has reported the presence of the six MGP sites to the EPA, the NJDEP and the New Jersey Board of Public Utilities (NJBPU) and is currently conducting remedial activities at all six sites with oversight from the NJDEP. The Company also owns, or previously owned, 10 former MGP facilities located in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. Based on the most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $34 million, which is the probable minimum amount that the Company expects to expend during the next 20 years. Of this reserve, approximately $30 million relates to the six New Jersey MGP sites and approximately $4 million relates to the 10 sites located outside New Jersey. The Company's prudently incurred remediation costs for the New Jersey MGP sites have been authorized by the NJBPU to be recoverable in rates. In New Jersey, the Company is currently recovering MGP-related expenditures on an annual basis through base rates and over a rolling seven-year period through its NJBPU approved MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $5.5 million of environmental costs incurred through June 30, 1998. Recovery of an additional $2.5 million in environmental costs incurred between July 1, 1998 and June 30, 2000 is currently pending NJBPU approval. Accordingly, the Company has recorded a regulatory asset of approximately $35 million as of September 30, 2000, reflecting the future recovery of both incurred costs and future environmental remediation liabilities related to New Jersey MGP sites. The Company has also been successful in recovering a portion of MGP remediation costs incurred for the New Jersey sites from the Company's insurance carriers and continues to pursue additional recovery. With respect to costs associated with the remaining MGP sites located outside New Jersey, the Company intends to pursue recovery from ratepayers, former owners and operators, and insurance carriers, although the Company is not able to express a belief as to whether any or all of these recovery efforts will be successful. The Company is working with the regulatory agencies to prudently manage its MGP costs so as to mitigate the impact of such costs on both ratepayers and shareholders. Gas Procurement Contracts. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $68.6 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.7 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations. Other. The Company is involved in various claims and litigation incidental to its business. In the opinion of management, none of these claims and litigation will have a material adverse effect on the Company's results of operations or its financial condition. 13. Unaudited Quarterly Financial Data The quarterly financial data presented below reflects the seasonal nature of the Company's operations which normally results in higher earnings during the heating season, which is primarily in the first two fiscal quarters. (in thousands, except per share amounts): Fiscal Quarters First Second Third Fourth 2000: Operating Revenues $233,327 $279,411 $198,721 $223,184 Operating Income 18,329 35,159 6,932 (144) Net Income (Loss) 7,637 17,717 1,464 (71) Net Income (Loss) Per Share 0.60 1.37 0.11 (0.01) 1999: Operating Revenues $229,207 $254,051 $160,165 $182,771 Operating Income 17,339 34,887 8,335 (474) Net Income (Loss) 6,918 17,762 2,424 (2,544) Net Income (Loss) Per Share 0.55 1.40 0.19 (0.20) During the fourth quarter of fiscal 2000, the Company recorded an after-tax non-recurring gain of $1.7 million ($2.8 million before income taxes), or $0.13 per share. During the second quarter of fiscal 1999, the Company recorded after- tax non-recurring income and other non-recurring items totaling $1.3 million ($2.1 million before income taxes), or $0.10 per share (see Note 3). During the third quarter of fiscal 1999, the Company recorded after- tax non-recurring income and other non-recurring items totaling $1.1 million ($1.9 million before income taxes), or $0.08 per share (see Note 3). Quarterly net income (loss) per share in fiscal 1999 does not total to the annual amount due to rounding and to changes in the average common shares outstanding. SCHEDULE II NUI Corporation and Subsidiaries Valuation and Qualifying Accounts For each of the Three Years in the Period Ended September 30, 2000 (Dollars in thousands)
Additions Balance Charged to Balance Beginning Costs and End of Description of Period Expenses Other Deductions Period 2000 Allowance for doubtful accounts $ 1,697 $ 4,087 $1,622(a) $ 5,862(b) $ 1,544 Environmental remediation reserve $33,981 --- --- 620 $33,361 1999 Allowance for doubtful accounts $ 1,714 $ 1,832 $ 699(a) $ 2,514(b) $ 1,697 Environmental remediation reserve $33,981 --- --- --- $33,981 Restructuring reserve $ 556 149 --- 705 $ 0 1998 Allowance for doubtful accounts $ 2,318 $ 2,942 $ 224(a) $ 3,770(b) $ 1,714 Environmental remediation reserve $33,981 --- --- --- $33,981 Restructuring reserve $ 0 1,008 --- 452 $ 556 (a) Recoveries (b) Uncollectible amounts written off. 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, in the Township of Bedminster, State of New Jersey, on the day of December 22, 2000 NUI CORPORATION By: JAMES R. VAN HORN Chief Administrative Officer, General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. JOHN KEAN, JR. President, Chief December 22, 2000 Executive Officer and Director (Principal executive officer) JOHN KEAN Chairman and Director December 22, 2000 A. MARK ABRAMOVIC Senior Vice President, December 22, 2000 Chief Operating Officer and Chief Financial Officer (Principal financial and accounting officer) JAMES J. FORESE Director December 22, 2000 DR. VERA KING FARRIS Director December 22, 2000 J. RUSSELL HAWKINS Director December 22, 2000 BERNARD S. LEE Director December 22, 2000 R. V. WHISNAND Director December 22, 2000 JOHN WINTHROP Director December 22, 2000
EX-10.20 2 0002.txt FLORIDA GAS TRANSMISSION COMPANY P.O. Box 1188, Houston, TX 77251-1188 July 21, 2000 Mr. Thomas E. Smith Director, Energy Planning NUI Corporation P. O. Box 760 Bedminster, NJ 07921-0760 Ph: 908-719-4214 Fx: 908-781-9581 Re: FGT Contract No. 5034, FTS-1, Dated October 1, 1993 Dear Mr. Smith: Florida Gas Transmission Company ("Transporter") and NUI Corporation ("Shipper") are parties to the referenced Firm Transportation Service Agreement ("Agreement"). Pursuant to such Agreement, the primary term expires on July 31, 2000. Now, in consideration of the mutual benefits received hereunder, Transporter and Shipper hereby amend the Agreement adding the following sentence to the end of Section 4.1 of Article IV, Term of Agreement: Pursuant to the exercise of Shipper's Right of First Refusal rights, as approved by the Commission in NUI Corporation (City Gas of Florida Division) v. Florida Gas Transmission Company, 92 FERC q61,044 (July 14, 2000), the term of this Agreement shall extend from August 1, 2000 through July 31m 2005, for the MDTQ specified in the 5th Revised Exhibit A and the 4th Revised Exhibit B of this Agreement, attached hereto. Except as herein amended, the Agreement shall remain in full force and effect. The parties agree that a facsimile of this Letter Agreement, when properly executed and transmitted, shall be considered and deemed for all intents and purposes to be an original and binding agreement. If the foregoing correctly sets forth our agreement, please so indicate by executing this Letter Agreement and return via facsimile to my attention at 713/646-8260. After FGT has signed, one fully executed Agreement will be returned via facsimile to you at 908/781-9581 for your files. Please call me at 713/853-5127 if you have any questions. Sincerely, /s/ Georgi Landau Senior Contract Administrator Agreed to and accepted this 27th day of July, 2000 Shipper: NUI Corporation By: /s/ Thomas E. Smith Title: Director, Energy Planning Transporter: Florida Gas Transmission Company By: /s/ R. E. Hayes Title: Vice President EX-10.21 3 0003.txt AMENDED AND RESTATED LEASE BETWEEN LIBERTY HALL JOINT VENTURE, L.L.C. AND NUI CORPORATION Dated: April 28, 2000 TABLE OF CONTENTS PAGE 1. Agreement of Lease 1 2. Term 4 3. Rent 4 4. Use and Occupancy 6 5. Maintenance Obligations 7 6. Lessee Property 14 7. Alterations, Additions or Improvements 15 8. Abandonment 16 9. Assignment and Sublease 16 10. Destruction by Fire or Other Casualty 17 11. Condemnation 20 11A Restoration 23 12. Events of Default 25 13. Remedies; Conditional Limitation 26 14. Bankruptcy 29 15. Subordination of Lease 31 16. Right ot Cure Breaches 31 17. Construction Liens 32 18. Right of Entry 32 19. Utilities 33 20. Taxes 34 21. Insurance 36 22. Signs 43 23. [Intentionally Left Blank] 43 24. Estoppel Certificates 43 25. Right to Show Premises 44 26. Waiver of Trial by Jury 44 27. No Other Representations 45 28. Quiet Enjoyment 45 29. Force Majeure 45 30. General Cooperation 45 31. Holding Over 46 32. Memorandum of Lease 46 33. Section Headings 47 34. Applicability to Heirs and Assigns 47 35. [Intentionally Left Blank] 47 36. Notices 48 37. Effect of Waivers 49 38. Authority 49 39. Severability of Provisions 49 40. Governing Law 49 41. Number and Gender 49 42. Assignment of Existing Leases 50 43. Mortgagee's Notice and Opportunity to Cure 50 44. [Intentionally Left Blank] 51 45. Renewal Option 51 46. Right of Second Offer 51 47. Environmental Laws 52 48. Attorney's Fees 56 49. Replacement of 1987 Lease 56 50. Limitation of Lessor's Liability 56 51. Title and Conditions 57 52. Payment of Impositions, Compliance with Legal Requirements and Insurance Requirements 59 53. Net Lease 60 54. Miscellaneous 61 55. Compliance with Americans with Disabilities Act 65 56. Lender Approval and Modifications 65 Schedule A _ Description of Land Exhibit A _ Rent Schedule Exhibit B _ Lessee Improvements and Trade Fixtures Exhibit C _ Existing Leases Exhibit D _ Environmental Questionnaire THIS AMENDED AND RESTATED LEASE (this "Lease"), made as of the 28th day of April, 2000, by and between LIBERTY HALL JOINT VENTURE, L.L.C., a Delaware limited liability company, whose address is 11 Commerce Drive, Cranford, New Jersey, 07016 (hereinafter called "Lessor"), and NUI CORPORATION, a New Jersey corporation (and successor by merger on April 19, 1994, to Elizabethtown Gas Company, now an operating division of NUI Corporation) whose address is 550 Route 202-206, Bedminster, New Jersey, 07921 (hereinafter called "Lessee"). WITNESSETH: Whereas, Liberty Hall Joint Venture, a New Jersey general partnership (the "Beneficial Owner"), and Lessee are parties to a certain Lease dated August 17, 1987, as the same has been amended from time to time by formal amendments and letter agreements by and between Beneficial Owner and Lessee ("1987 Lease"), for approximately 160,000 gross rentable square feet of office space in a building located at 1085 Morris Avenue, Union, New Jersey and commonly known as Liberty Hall Corporate Center One; and Whereas, Beneficial Owner has conveyed its fee simple interest in the Premises, together with all of its right, title and interest in the 1987 Lease, to Lessor; and Whereas, Lessor and Lessee desire to amend and restate the 1987 Lease and replace the terms and conditions of the 1987 Lease in their entirety with this Lease; and Whereas, by execution and delivery by Lessor and Lessee of this Lease, Lessor assumes from and after the Commencement Date (hereafter defined) all obligations as owner of the Premises and as Lessor under this Lease, and Lessee shall look solely to Lessor for performance of all obligations of Lessor under this Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the terms and conditions herein set forth, Lessor and Lessee agree as follows: 1. Agreement of Lease. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, for the Term and upon the terms, conditions and covenants provided below, the "Premises" consisting of, collectively, all the following: a. A certain Condominium Unit known as "Corporate Center One Unit" as described in the Master Deed for Liberty Hall Corporate Center Condominium, dated March 31,1988, and recorded in the Union County Register's Office on April 5, 1988 in Deed Book 3546, page 198 ("Master Deed"), as amended by (i) First Amendment to Master Deed For Liberty Hall Corporate Center Condominium, dated August 11, 1989, and recorded in Deed Book 3608, page 656 ("First Amendment"), (ii) Second Amendment to Master Deed For Liberty Hall Corporate Center Condominium, dated May 27, 1992, and recorded in Deed Book 3844, page 335 ("Second Amendment"), Third Amendment to Master Deed For Liberty Hall Corporate Center Condominium, dated November 13, 1998, and recorded in Deed Book 4759, page 216 ("Third Amendment"), and Fourth Amendment to Master Deed for Liberty Hall Corporate Center Condominium, dated April 4,2000,and recorded or to be hereafter recorded in the Union County Register's Office ("Fourth Amendment," and together with the Master Deed, First Amendment, Second Amendment and Third Amendment, collectively, the "Master Deed")), such condominium unit being known and designated as Lot 4.0101 C0101, in Block 101 on the Tax Maps of the Township of Union, County of Union and State of New Jersey, and more particularly described on Schedule A annexed hereto and made a part hereof(hereinafter called the "Land"), together with a certain office building constructed on the Land consisting of approximately two hundred thousand (200,000) square feet and located at 1085 Morris Avenue in Union, New Jersey and commonly known as Liberty Hall Corporate Center One (hereinafter the "Building"), together with the existing three-story parking deck constructed for the use of tenants of the Building adjacent to the westerly side of the Building (hereinafter the "Parking Deck"), and together with all other improvements constructed on the Land and together with all easements, appurtenances, hereditaments, fixtures and rights and privileges appurtenant hereto; (b) All rights, title and interests of Lessor, as the owner of Corporate Center One Unit with respect to the Parking Deck and the Common Elements (as defined in the Master Deed) appurtenant to such Condominium Unit including, without limitation, the following: (i) as and to the extent now or hereafter provided in the Master Deed, the right, in common with other lessees of present and future buildings constructed, or to be constructed, on the Property (as such term is defined in the Master Deed) to use access driveways to public streets and to park in the parking areas now located or to be located on the Property, and the exclusive right to use all parking spaces (except 113 parking spaces which are allocated to Corporate Center Two Unit) in the Parking Deck; (ii) as and to the extent now or hereafter specifically designated by Lessee (or otherwise allocated to Lessee) for its exclusive use (A) the exclusive right to use one hundred (100) contiguous parking spaces in the Parking Deck, and (B) the exclusive right to use all of the visitor parking lot spaces immediately adjacent to the easterly side of the Building; and (iii) as and to the extent now or hereafter set forth in the Master Deed, the use of such other parking structures (including, without limitation, any Additional Parking Spaces, as provided in Section 5(c) hereto as may be constructed on the Property, in common with other lessees of present and future buildings constructed, or to be constructed, on the Property pursuant to the Master Deed. Nothing herein shall be construed as imposing any obligation on Lessor to provide any improvements or services relating to parking. Lessor and Lessee agree that they will not, except to the extent required to comply with any Legal Requirement, permit or cause the access driveways in, over and through the parking areas and to the public streets to be blocked or otherwise hindered, so as to restrict or deny free flow of vehicular traffic in, through and over said access driveways and parking areas. In any case where this Lease refers to any agreement, covenant, undertaking, obligation or liability of Lessee with respect to the "Premises," the "Premises" shall be deemed to include, in addition to all land, improvements, rights, title, estates and interests described in subsections (a) and (b) above of this Section 1, as comprising the Premises, all demising walls, finishes, systems, equipment apparatus, fixtures, and improvements of every kind affixed within the Building (including, without limitation, the property of Lessee referred to in Section 6 of this Lease) regardless of whether title thereto is vested in Lessor or in any person other than Lessor (including, without limitation, any tenant or occupant of the Building). 2. Term.. This Lease shall begin on April 28, 2000 (the "Commencement Date") and shall continue for a term of twenty-two (22) years from and after May 1, 2000, ending on April 30, 2022, unless sooner terminated pursuant to Section 10(c), 11(c), 13 or 14 of this Lease, or unless extended in accordance with Section 45 of this Lease (the "Term"). The last day of the scheduled Term of this Lease (meaning the original scheduled term or, if applicable, any renewal term) is sometimes referred to in this Lease as the "Expiration Date." 3.Rent. a. Basic Rent The Lessee shall pay to the Lessor during the Term annual basic rent ("Basic Rent") in United States Dollars in accordance with that certain Rent Schedule annexed hereto as Exhibit "A" and made a part hereof (b) Payment of Basic Rent. One-twelfth (1/12) of the then applicable annual Basic Rent shall be payable in advance on the first day of each calendar month during the Term (each a "Basic Rent Payment Date"). Basic Rent for any month only a part of which occurs during the Term shall be equitably allocated on a per diem basis. Lessee shall pay Basic Rent, and any Additional Rent (as defined below) as hereinafter provided, to Lessor at Lessor's above stated address, or at such other place or to such other person as Lessor may designate in writing by company check or by bank wire transfer of immediately available federal funds before 11:00 A.M., Eastern Time. If requested by the Lender, the foregoing payments shall be made by wire transfer of immediately available federal funds before I 1:00 A.M. Eastern Time. (c) Additional Rent. Lessee shall also be responsible for the payment at the time and in the manner provided for herein of additional rent consisting of all other sums of money which shall be due and payable by Lessee under the terms and conditions of this Lease (such sums are hereinafter referred to as "Additional Rent"). Additional Rent for any item only a part of which is equitably allocable to the Term shall be limited to the portion so allocable to the Term. Lessor shall have the same remedies for Lessee's default in the payment of Additional Rent as Lessor has for Lessee's default in the payment of Basic Rent. Additional Rent shall be billed separately from Basic Rent. (d) Late Charge. If all or any portion of a monthly installment of Basic Rent or Additional Rent is paid more than nine (9) days after its due date hereunder (a "Late Payment"), a late charge (a "Late Charge") equal to the lesser of four percent (4%) of the Late Payment or the maximum amount permitted by applicable law shall be due and payable as part of such Late Payment. In addition, if all or any portion of a monthly installment of Basic Rent or Additional Rent is not paid by its due date, Lessee shall pay to Lessor on demand, as Additional Rent, interest on such overdue installment or portion thereof from the due date until payment is received at a rate (the "Overdue Rate"), calculated on the basis of a 360-day year of twelve equal months, equal to the greater of (i) twelve percent (12%) per annum or (ii) four percent (4%) per annum over the prime commercial lending rate announced from time to time by Citibank, N.A., or its successor (or if no longer in existence, a banking institution selected by Lessor with a net worth of at least $5,000,000,000) but in no event greater than the maximum rate permitted by applicable law. (e) No Set-offs. Lessee's duty to pay Basic Rent and Additional Rent shall exist without demand for payment. Lessee shall have no right under any circumstances to withhold or refuse to pay when due all or any part of Basic or Additional Rent (f) Accord and Satisfaction. No payinent by Lessee or receipt by Lessor of a lesser amount than the Basic Rent or Additional Rent payable hereunder shall be deemed to be other than a payment on account of the Basic Rent or Additional Rent, nor shall any endorsement or statement on any check or any letter accompanying any check for payment for Basic Rent or Additional Rent be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such Basic Rent or Additional Rent or pursue any other remedy provided herein or by law. (g) Termination. Upon expiration or termination of this Lease, all obligations of Lessee to pay Basic Rent and Additional Rent as well as all other obligations of Lessee, shall terminate, except for (a) Basic Rent, Additional Rent and any other obligations of the Lessee which have accrued prior to the date of termination or expiration, and (b) any obligations of the Lessee which expressly survive such termination or expiration. Nothing herein shall limit any rights or remedies of Lessor under this Lease upon any default by Lessee. (h) True Lease. Lessor and Lessee agree that this Lease is a "true lease" and does not represent a financing arrangement. Each party shall reflect the transactions evidenced by this Lease in all books, records and reports in a manner consistent with "true lease" treatment rather than "financing" treatment. 4. Use and Occupancy. Lessee shall use and occupy the Premises for general offices or for any other lawful related use, all in keeping with uses for office buildings of similar quality and age in Northern New Jersey ("Permitted Use"). Lessee will not occupy or use the Premises, or permit any portion of the Premises to be occupied or used, for any business or purpose other than the Permitted Use or for any use or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner or extra hazardous on account of fire, nor permit anything to be done which will in any way increase the rate of insurance on the Building or contents contained therein. Lessee will conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance, nor interfere with, annoy or disturb other lessees, if any. Lessee will maintain the Premises in a clean, healthful and safe condition and will comply with all Legal Requirements. Lessee will not occupy or use the Premises, or permit any portion of the Premises to be occupied or used, for any purpose which would have, or has the potential to have, an adverse environmental impact on the Premises, Building, Land, Common Elements, or any other portion of the Property. In no event shall the Premises be used for any purpose which shall violate any of the provisions of any Legal Requirement, Insurance Requirement or any Permitted Encumbrances or any covenants, restrictions or agreements hereafter created by or consented to by Lessee applicable to the Premises. Lessee agrees that with respect to the Permitted Encumbrances and any covenants, restrictions or agreements hereafter created by or consented to by Lessee, Lessee shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Lessor. 5. Maintenance Obligations. (a) Lessee's Obligations With Respect To The Premises. Lessee shall, at its sole cost and expense, (i) perform all maintenance necessary to keep the Premises, including the Building and Parking Deck, in good condition and repair and in a manner consistent with maintenance practices generally followed by persons maintaining similar buildings in Northern New Jersey, (ii) make all repairs and replacements (including any capital expenditures) to the Premises, including the Building and the Parking Deck, whether or not necessitated by wear, tear, obsolescence, or casualty, (iii) keep the Premises clean and free from dirt, rubbish or other obstruction, (iv) comply in all material respects with all present and future applicable Legal Requirements, and remove all recorded or filed violations thereof, regardless of the nature, extent, or cost of the work, (v) use all reasonable caution to prevent and not commit or suffer waste, damage, or injury to the Premises, and (vi) maintain the landscaping, and keep the sidewalks and roadways on the Land in good and safe order and condition and free of snow and ice. Lessee shall perform its obligations under this Section 5(a) regardless of whether such obligation is occasioned by, or is claimed to have been occasioned by, any design defect, defect in original construction, or any other defect, act, omission or condition caused, or claimed to have been caused, by Lessor or its agents, servants, employees, or independent contractors. Lessee shall have the unrestricted right, at its sole expense, to retain property managers and service providers necessary to maintain the Premises, provided that Lessee's retention of any such property managers or service providers shall in no way diminish Lessee's obligations hereunder. (b) Lessee's Obligations With Respect To The Common Elements. Lessee shall, at its sole cost and expense, (i) perform all maintenance necessary to keep the Common Elements (as defined in the Master Deed) in good condition and repair and in a manner consistent with maintenance practices generally followed by persons maintaining property in Northern New Jersey similar to the Property, (ii) make all repairs and replacements (including any capital expenditures) to the Common Elements, whether or not necessitated by wear, tear, obsolescence, or casualty, (iii) keep the Common Elements clean and free from dirt rubbish or other obstruction, (iv) comply in all material respects with all Legal Requirements relating to the Common Elements, and remove all recorded or filed violations thereof, regardless of the nature, extent, or cost of the work, (v) use all reasonable caution to prevent and not commit or suffer waste, damage, or injury to the Common Elements, and (vi) maintain the landscaping, and keep the sidewalks and roadways on or within the Common Elements in good order and condition and free of snow and ice. It is the parties intent by this Section 5(b) that the Lessee by this Lease assumes and shall promptly and faithfully discharge any and all obligations of the Association (as defined in the Master Deed) with respect to the maintenance, repair and replacement of the Common Elements. Lessor agrees to provide to Lessee such documents and other further assurances to evidence that Lessor and Schering-Plough Real Estate Co., Inc. ("Schering") have both consented to the delegation by Lessor in this Section 5(b) concerning the obligations of the Association to maintain the Common Elements, and that such delegation is legal and binding. In addition, Lessor hereby assigns to Lessee the right, so long as no Event of Default has occurred and is continuing, to receive and collect all amounts due to Lessor from any other person or entity under any agreements between Lessor and such parties (including such rights that exist under the Master Deed) for payment or reimbursement of those expenses incurred by Lessee to fulfill its obligations under this Section 5(b). It is the intent of Lessor and Lessee that since Lessee has assumed all obligations with respect to the maintenance, repair and replacement of the Common Elements, that Lessee shall receive all amounts due and owing to the Association by any person or entity for the maintenance, repair and replacement of the Common Elements, provided that except for the assignment referred to above, Lessor shall have no obligation to take any action to ensure Lessee's receipt of any such amounts, except that Lessor agrees to cooperate with Lessee, at Lessee's sole expense, by way of executing any such documents as Lessee may during the Term reasonably require to facilitate Lessee's collection of such amounts and to facilitate Lessee's performance of its obligations under this Section 5(b), provided the terms of such documents do not impose any burden on Lessor. Lessee shall have no obligation to maintain other buildings which may be or have been constructed on the Property if such buildings are located on any Unit other than Corporate Center One Unit and do not comprise part of the Common Elements. (c) Additional Parking. Lessee acknowledges that, pursuant to this Lease and the Master Deed, it has the right to the exclusive use of 137 parking spaces in Parking Deck #2 or Parking Area #2 (as defined in the Master Deed) (hereinafter the "Additional Parking Spaces") if and when said spaces are constructed adjacent to the easterly side of the Building by Schering, or its successors or assigns, in accordance with the terms and conditions of the Master Deed and the Resolutions adopted by the Union Township Planning Board granting site plan approval for the Liberty Hall Corporate Center. in addition, in the event that additional parking spaces are required to be constructed (either for use by Lessee or to comply with Legal Requirements) prior to construction of Parking Deck #2 or Parking Area #2, Lessee shall have the right and obligation under this Lease (subject, however, to any applicable provisions of the Master Deed), at its sole cost and expense, to construct up to 137 temporary parking spaces on the easterly side of the Building (the "Temporary Parking Spaces"); provided, however, that Lessee shall have no obligation under this Lease under any circumstances to construct raised-level parking, its only obligation hereunder being to construct surface level parking spaces. Lessor shall have no obligation to Lessee to construct or provide the Additional Parking Spaces, the Temporary Parking Spaces or any other parking for the Building or otherwise for the use of Lessee. Lessor shall have no obligation to take any action with respect to any of the matters described in this Section 5(c), except that Lessor agrees to cooperate with Lessee, at Lessee's sole expense, by way of executing any such documents as Lessee may during the Term reasonably require to facilitate Lessee's performance of its obligations under this Section 5(c), provided the terms of such documents do not impose any burden on Lessor. (d) Lessee's Obligations With Respect to the Association. Lessee agrees that, during the Term of this Lease, Lessee shall assume, and hereby does assume, and shall faithfully discharge and perform all other duties and obligations of Lessor, as owner of the Premises, under the Master Deed, including but not limited to payment of (i) all assessments and other charges and expenses which Lessor is or may be required to pay to the Association (as defined in the Master Deed) pursuant to the terms and conditions of the Master Deed during the Term of this Lease, and (ii) all sums which Lessor is or may be required to pay to the owner of Corporate Center Three Unit (as defined in the Master Deed) for Lessor's pro rata share of real estate taxes with respect to Parking Deck #2 or Parking Area #2 (as defined in the Master Deed). Lessee further covenants and agrees, to the fullest extent permitted by law, to indemnify, defend and hold harmless Lessor from and against any claim, loss or damage incurred by Lessor by reason of Lessee's failure to pay or perform any of Lessor's obligations to the Association or to the Owner of Corporate Center Three Unit. Lessor shall in writing appoint a representative of Lessee (to be designated by Lessee) to serve as Lessor's representative on the Board of Directors of the Association (the "Board Representative") for the Term of this Lease, which appointment shall provide that: (i) Lessee may remove any such Board Representative and upon the removal, death or resignation of any Board Representative from time to time, designate a replacement Board Representative; (ii) such Board Representative shall, upon Lessor's request, provide periodic reports to Lessor regarding the business and affairs of the Association and shall otherwise keep Lessor fully informed regarding all significant matters affecting the Association and the Common Elements, and (iii) notwithstanding anything contained in the terms of such appointment to the contrary, such Board Representative shall not agree to any of the following matters without Lessor's prior written consent: (a) any amendment to the Master Deed or the By-Laws of the Association; (b) any material alteration, change, redesign, or reconstruction of the Common Elements or the Parking Deck; or (c) any material change in the quality or scope of maintenance performed with respect to the Parking Deck. (e) Further Assurances. Lessor and Lessee agree to execute and deliver such further documents as the other party may reasonably request in order to effectuate the intent and purpose of this Section 5, it being understood, however, that Lessor shall have no obligation to take any action to ensure Lessee's exercise of any rights or performance of any obligations with respect to the matters described in this Section 5, other than to cooperate with Lessee, at Lessee's sole expense, by way of executing any such documents as Lessee may during the Term reasonably require to facilitate Lessee's exercise of any rights or performance of any obligations with respect to the matters described in this Section 5, provided the terms of such documents do not impose any burden on Lessor. (f) Definitions. As used in this Lease, the terms "Legal Requirement" or "Legal Requirements" shall mean, as the case may be, any one or more of all present and future laws, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Lessee, Lessor or the Premises or the Common Elements) and all covenants, restrictions and conditions now of record which may be applicable to Lessee, Lessor (with respect to the Premises or the Common Elements) or to A or any part of or interest in Premises or the Common Elements, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Premises or the Common Elements, even if compliance therewith (i) necessitates structural changes or improvements (including changes required to comply with the "Americans with Disabilities Act") or results in interference with the use or enjoyment of the Premises or the Common Elements or (ii) requires Lessee to carry insurance other than as required by the provisions of this Lease. As used in this Lease, the terms "Insurance Requirement" or "Insurance Requirements" shall mean, as the case may be, any one or more of the terms of each insurance policy required to be carried by Lessee under this Lease or under any policy carried by Lessor and the requirements of the issuer of such policy. As used in this Lease, the term "Impositions" shall mean all taxes of every kind and nature (including real, ad valorem, personal property, gross income, Franchise, withholding, profits and gross receipts taxes) on or with respect to the Premises; all charges and/or taxes for any easement or agreement maintained for the benefit of the Premises, all general and special assessments, levies, permits, inspection and license fees on or with respect to the Premises; all water and sewer rents and other utility charges on or with respect to the Premises; all ground rents on or with respect to the Premises; and all other public charges and/or taxes whether of a Re or different nature, even if unforeseen or extraordinary, imposed or assessed upon or with respect to the Premises as a result of or arising in respect of the occupancy, leasing, use, maintenance, operation, management, repair or possession thereof, or any activity conducted on the Premises. As used in this Lease, the terms "Lender," "lender" and terms of similar import shall mean any lender which holds a Mortgage. As used in this Lease, "Mortgage" means any mortgage, deed of trust or similar security instrument which constitutes or is intended to constitute a first lien on the Premises and secures a permanent (as opposed to construction) loan made to Lessor. (g) Lessor shall not be required to make any repair, whether foreseen or unforeseen, or to maintain any of the Premises or the Common Elements in any way, and Lessee hereby expressly waives the right to require Lessor to make repairs and/or to make repairs at the expense of the Lessor, which right may be provided for in any law now or hereafter in effect. Nothing in the preceding sentence shall be deemed to preclude Lessee from being entitled to insurance proceeds or condemnation awards pursuant to Sections 10 and 11 of this Lease. Lessee shall, in all events, make all repairs for which it is responsible hereunder promptly, and all repairs shall be in a good, proper and workmanlike manner. (h) In the event that the Building or any other improvement on the Land or the Common Elements or Lessee's use thereof shall violate any Legal Requirements or Insurance Requirements and as a result of such violation enforcement action is threatened or commenced against Lessor, Lessee or with respect to the Premises, then Lessee shall, within thirty (30) days after first acquiring knowledge thereof (or sooner, if necessary to avoid cancellation of, or other adverse action with respect to, any insurance policy), either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such violation, whether the same shall affect Lessor, Lessee or both, or (ii) take such action as shall be necessary to commence removal of such violation and thereafter diligently prosecute such action to completion, including, if necessary, any Alteration. Any such repair or Alteration shall be made in conformity with the provisions of this Lease. (i) If Lessee shall be in default under any of the provisions of this Section 5, Lessor may after fifteen (15) days written notice given to Lessee and failure of Lessee to cure during said period, but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Lessee. In the event of an emergency Lessor shall notify Lessee of the situation by phone or other available communication. All sums so paid by Lessor and all reasonable costs and expenses (including, without limitation, reasonable attorneys fees and expenses) so incurred shall constitute Additional Rent payable by Lessee under this Lease and shall be paid by Lessee to Lessor upon demand. (j) Lessee shall from time to time replace with other operational equipment or parts (the "Replacement Equipment") any of the equipment (the "Replaced Equipment") which shall: have become worn out or unusable for the purpose for which it is intended; been taken by a Condemnation as provided in Section 11 (unless Lessee shall have terminated this Lease pursuant to Section 11(c); or been lost, stolen, damaged or destroyed as provided in Section 10 (unless Lessee shall have terminated this Lease pursuant to Section 19(c). Lessee shall repair at its sole cost and expense all damage to the Premises caused by the removal of equipment or Replaced Equipment or other personal property of Lessee or the installation of Replacement Equipment. All Replacement Equipment shall become the property of Lessor, shall be free and clear of all liens and rights of others and shall become a part of the equipment as if originally demised herein. 6. Lessee Property. The improvements and trade fixtures made by Lessee to the Premises as described in Exhibit B hereto shall remain the property of Lessee. Not later than the expiration or sooner termination of this Lease, Lessee shall, at Lessee's expense, remove (i) all of the aforesaid items of Lessee's property and (ii) all other items and/or improvements made by Lessee that, by the terms of this Lease or applicable law, have become the property of Lessor and that Lessor requests that Lessee remove (which request shall be made at least six (6) months before the expiration of this Lease (or as soon as possible in the event of a sooner termination of this Lease in which case Lessee shall be allowed a reasonable time to remove such property)). Lessee shall also, within such time, repair all injury done by or in connection with the installation or removal of said property and improvements; and surrender the Premises in good condition, reasonable wear and tear excepted. All other property of Lessee remaining on the Premises after the expiration or sooner termination of this Lease shall at Lessor's option be deemed abandoned and may be removed by Lessor, and Lessee shall reimburse Lessor for the cost of such removal or Lessor may have any such property stored at Lessee's risk and expense. 7. Alterations, Additions or Improvements. (a) Consent Not Reguired. Lessee shall have the right to make any and all alterations, additions or improvements in, to or about the Premises (such alterations, additions or improvements are hereinafter referred to as "Alterations"), whether for its own use or for the use of any subtenant, except for Major Structural Alterations and alterations to the exterior facade of the Building. (b) Major Structural Alterations. Anything to the contrary in Section 7(a) notwithstanding, Lessee shall not, in each case, without Lessor's prior written consent, which consent shall not be unreasonably withheld or delayed, (A) make any Alterations to the exterior facade of the Building, or (B) make any Major Structural Alteration. For purposes of this Section 7, a "Major Structural Alteration" shall mean any addition, alteration or improvement to the Premises which involves (i) the removal, replacement or relocation of any of the structural support beams of the Building, or (ii) any other additions, alterations or improvements which would (after the completion thereof) materially impair the structural integrity of the Building. Lessee shall not install any equipment of any kind or nature whatsoever which will or may damage the structural integrity of the Building. Notwithstanding Lessor's consent to any Major Structural Alteration or to any Alteration to the exterior facade of the Building, Lessor shall have the right to require that Lessee, upon the expiration or earlier termination of this Lease, remove any Major Structural Alteration or any Alteration to the exterior facade of the Building and/or restore the Building to the condition existing prior to the Major Structural Alteration or any Alteration to the exterior facade of the Building. 8. Abandonment. Lessee shall not, without first obtaining the written consent of Lessor, which consent shall not be unreasonably withheld or delayed, abandon the Premises or allow the Premises to become vacant or deserted during the Term, provided, however, that the Premises may be vacant or deserted if reasonably adequate security and maintenance is maintained and the windows are not boarded up. Notwithstanding any such abandonment or vacancy (whether with or without Lessor's consent), Lessee shall remain fully obligated under this Lease to pay all Basic Rent and Additional Rent as and when due and to perform all of its other covenants and obligations hereunder. 9. Assignment and Sublease. (a) Provided no Event of Default shall have occurred and be continuing, and subject to all provisions of this Section 9, Lessee may assign its interest in this Lease (but may not mortgage or otherwise hypothecate its interest in this Lease), and may sublet the Premises in whole or in part, from time to time, without the consent of Lessor. (b) Each sublease of the Premises or any part thereof shall be subject and subordinate to the provisions of this Lease. No assignment or sublease shall affect or reduce any of the obligations of Lessee hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment or sublease had been made. Notwithstanding any assignment or subletting, Lessee shall continue to remain liable and responsible for the payment of Basic Rent and Additional Rent and the performance of all its other obligations under this Lease. No assignment or sublease shall impose any new obligations on Lessor under this Lease or increase any existing obligations of Lessor under this Lease. Lessee agrees that in the case of an assignment of this Lease (including, without limitation, any assignment as a part of or in connection with any sale or transfer of all or substantially all of the assets of Lessee), Lessee shall, within fifteen (15) days after the execution and delivery of any such assignment, deliver to Lessor (i) a duplicate original of such assignment in recordable form, (ii) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall have unconditionally assumed and agreed to observe and perform all of the terms and provisions of this Lease on the part of the Lessee to be observed and performed from and after the date of such assignment, and (iii) a reaffirmation by Lessee that, notwithstanding the aforesaid assignment and assumption, Lessee shall continue to remain liable and responsible for the payment of Basic Rent and Additional Rent and the performance of all its other obligations under this Lease, all of which documents shall be in form and substance acceptable to Lessor and any Lender (collectively, the "Assignment Documents"). In the case of a sublease, Lessee shall, within fifteen (15) days after the execution and delivery of such sublease, deliver to Lessor a duplicate original of such sublease. (c) Upon the occurrence of an Event of Default under this Lease, Lessor shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Premises, and Lessee hereby irrevocably and unconditionally assigns such rents and money to Lessor, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default. 10. Destruction by Fire or Other Casualty. (a) Casualty, Notice, Claim Adjustment. As used in this Lease, the term "Casualty" shall mean any fire or other casualty affecting the Premises or the Common Elements or any part thereof which occurs during the Term of this Lease. In the event of any Casualty, Lessee shall give Lessor immediate notice thereof Provided no Event of Default shall have occurred and be continuing hereunder, Lessee shall adjust, collect and compromise any and all claims under policies maintained by Lessee hereunder, with the consent of Lender and Lessor, not to be unreasonably withheld or delayed, and Lessor and Lender shall have the right to join with Lessee therein. (b) Duly to Restore. In the event of any Casualty (whether or not insured) resulting in damage to the Premises or the Common Elements or any part thereof (any and all aforesaid improvements so damaged being referred to herein as, collectively, the "Casualty-Affected Improvements"), unless this Lease shall have been terminated as provided in Section 10(c) hereof, Lessee shall Restore (hereafter defined) the Casualty- Affected Improvements as hereafter provided, the Term shall continue and there shall be no abatement or reduction of Basic Rent, Additional Rent or any other sums payable by Lessee hereunder. If the estimated cost of restoration (hereafter defined) is $250,000.00 (the "Base Amount") or less, and if Lessee's corporate and/or senior debt securities at such time are rated at least BBB by Standard & Poor's rating service (the "Minimum Rating") all proceeds of any insurance required under Section 21 (a) of this Lease shall be paid to Lessee. If the estimated cost of Restoration exceeds the Base Amount or Lessee's corporate and/or senior debt securities are rated lower than the Minimum Rating, all such proceeds shall be paid over to a Trustee which shall be either a federally insured bank or other financial institution selected by Lessor and Lessee and reasonably satisfactory to Lender, or, to Lender itself if Lender so requires (as applicable, the "Trustee"). Each insurer is hereby authorized and directed to make payment under said policies directly to such Trustee instead of to Lessor and Lessee jointly; and Lessee and Lessor each hereby appoints such Trustee as its attorney-in-fact to endorse any draft therefor for the purposes set forth in this Lease after approval by Lessee of such Trustee, if Trustee is other than Lender. The entire proceeds of any insurance payments less any actual and reasonable expenses incurred by Lessor in collecting such proceeds (the "Net Proceeds") shall be retained by the Trustee and, promptly after such Casualty, Lessee, as required in Section 11A, shall commence and diligently continue to perform the Restoration to the Casualty- Affected Improvements. Upon payment to the Trustee of such Net Proceeds, the Trustee shall, to the extent available, make the Net Proceeds available to Lessee for Restoration, in accordance with the provisions of Section I IA. Lessee shall, whether or not the Net Proceeds are sufficient for the purpose, promptly repair or replace the Casualty-Affected Improvements and equipment in accordance with the provisions of Section 11A and the Net Proceeds of such loss shall thereupon be payable to Lessee, subject to the provisions of Section 11A hereof Regardless of whether or not this Lease is terminated pursuant to Section 10(c) hereof, in the event that any Casualty shall occur at such time as Lessee shall not have maintained insurance in accordance with the terms herein, Lessee shall pay to the Trustee the amount of the proceeds that would have been payable had such required insurance been in effect (the "Lessee Insurance Payment"), provided nothing herein shall be construed as entitling Lessee to "self-insure" any risk for which Lessee is required to provide insurance under Section 21 of this Lease. (c) Right to Terminate. Notwithstanding anything to the contrary in this Section 10, if the Building shall be damaged or destroyed in any Casualty so that the cost of restoration of the Building exceeds fifty percent (50%) of the replacement value of the Building, as reasonably determined by Lessor and Lessee, which damage or destruction even after restoration of the Building would, in Lessee's reasonable business judgment, be substantially and materially adverse to the business operations of Lessee at the Premises, Lessee may, within sixty (60) days after the Casualty, give notice to Lessor terminating this Lease as of a date specified in such notice, which date shall be a date not less than thirty (30) days from the date of such notice. In such event, this Lease shall be deemed to terminate on the date specified in such notice and Lessee shall surrender possession of the Premises to Lessor on or before such date and shall pay all Basic Rent, Additional Rent and other charges accrued under this Lease to and including such termination date. Any notice by Lessee electing to terminate this Lease as a result of any Casualty as aforesaid must be given within sixty (60) days after the Casualty or within ten (10) days after Lessee's receipt of an estimate setting forth the cost to restore the Building, whichever shall occur later, to be effective. (d) Waiver of Subrogation. In the event of a Casualty, each party hereby releases the other from any and all liability to the other or anyone claiming through or under them in connection with all losses covered by any insurance policy carried by or for either or both of the parties, whether for its negligence or that of its servants, agents, employees, officers, directors, contractors, or otherwise. 11. Condemnation. (a) Notice, Award, Etc. As used in this Lease, the term "Condemnation" means any taking of all or any portion of the Premises or the Common Elements or any part thereof which occurs during the Term of this Lease in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceedings or by any other means, or any defacto condemnation or any Requisition. Any and all aforesaid improvements or equipment damaged or lost as a result of any Condemnation are referred to in this Lease as, collectively, the "Condemnation- Affected Improvements". For the purposes of this Lease, "Net Award" means the award payable to Lessor by reason of a Condemnation, less any reasonable expenses incurred by Lessor in collecting such award. Lessee, promptly after obtaining knowledge of the institution of any proceeding for Condemnation, shall notify Lessor thereof and Lessor shall be entitled to participate in any Condemnation proceeding. Lessor, promptly after obtaining knowledge of the institution of any proceeding for Condemnation, shall notify Lessee thereof and Lessee shall have the right to participate in such proceedings. Subject to the provisions of this Section 11 and Section 11A, Lessee hereby irrevocably assigns to Lender or to Lessor, in that order, any award or payment in respect of any Condemnation of Lessor's interest in the Premises, except that (except as hereinafter provided) nothing in this Lease shall be deemed to assign to Lessor or Lender any award relating to the value of the leasehold interest created by this Lease or any award or payment on account of the trade fixtures, moving expenses and out-of-pocket expenses incidental to the move, if available, to the extent Lessee shall have a right to make a separate claim therefor against the condemnor, it being agreed, however, that Lessee shall in no event be entitled to any payment (i) that reduces the award to which Lessor is or would be entitled for the Condemnation of Lessor's interest in the Premises, or (ii) in respect of the leasehold interest created by this Lease if lessee elects to terminate this Lease pursuant to Section 11(c) hereof (provided this clause (ii) shall not be construed as depriving Lessee from receiving any award to which Lessee is entitled under this Section 11(a) by reason of such award relating to Lessee's trade fixtures, moving expenses and out-of- pocket expenses incidental to the move). Except with respect to an award or payment to which Lessee is entitled pursuant to the provisions of this Section 11, no agreement with any condemnor in settlement of or under threat of any Condemnation shall be made by either Lessor or Lessee without the written consent of the other, and of Lender, if the Premises are then subject to a Mortgage. (b) Duly to Restore. In the event of any Condemnation (regardless of the size of any award therefor) resulting in damage to or loss of the Premises or the Common Elements or any part thereof, unless this Lease shall have been terminated as provided in Section 11(c) hereof, Lessee shall Restore the Condemnation-Affected Improvements as hereafter provided, the Term shall continue and there shall be no abatement or reduction of Basic Rent, Additional Rent or any other sums payable by Lessee hereunder. In the event of a Condemnation which does not result in a termination of this Lease pursuant to Section 11(c), the Net Award of such shall be retained by Lessor and Lender and Lessor and Lender shall, to the extent received, make that portion of the Net Award equal to the cost of Restoration (the "Restoration Award") available to Lessee for Restoration, in accordance with the provisions of Section 11A, and promptly after such Condemnation, Lessee shall commence and diligently continue to Restore the Condemnation-Affected Improvements. Promptly after completion of the Restoration, and provided no Event of default has occurred and is continuing, the balance of the Net Award shall be paid to Lessee. (c) Right to Terminate. If (1) the entire Premises or the Building, or (2) at least twenty percent (20%) of the Building or the Parking Deck, or (3) all means of ingress, egress or access to the Premises, in any case the loss of which even after Restoration would, in Lessee's reasonable business judgment, be substantially and materially adverse to the business operations of Lessee at the Premises, shall be subject of a Condemnation (other than a Requisition) by a duty constituted entity having jurisdiction, Lessee may, within sixty (60) days after its receipt of notice of the Condemnation, give notice to Lessor terminating this Lease as of a date specified in such notice, which date shall be a date not less than thirty (30) days from the date of such notice by Lessee. In such event, this Lease shall be deemed to terminate on the date specified in such notice and Lessee shall surrender possession of the Premises to Lessor on or before such date and shall pay all Basic Rent, Additional Rent and other charges accrued under this Lease to and including such termination date. Any notice by Lessee electing to terminate this Lease as a result of any Condemnation as aforesaid must be given within sixty (60) days after Lessee receives notice of the Condemnation to be effective. (d) Requisition. In the event of any temporary Condemnation or confiscation of the use or occupancy of the Premises by any governmental authority, civil or military, whether pursuant to an agreement with such governmental authority in settlement of or under threat of any such temporary Condemnation or confiscation, or otherwise (collectively a "Requisition" of the Premises), the Term shall continue and there shall be no abatement or reduction of Basic Rent, Additional Rent or any other sums payable by Lessee hereunder. Lessor shall apply the Net Award of such Requisition, to the extent available, to the installments of Basic Rent, Additional Rent or other sums payable by Lessee hereunder thereafter payable and Lessee shall pay any balance remaining thereafter. Upon the expiration of the Term, any portion of such Net Award which shall not have been previously credited to Lessee on account of the Basic Rent and Additional Rent shall be retained by Lessor. 11A. Restoration. As used in this Lease, the terms "Restore" and "Restoration" mean the restoration (whether by repair or replacement) of all Casualty-Affected Improvements or Condemnation-Affected Improvements, whichever is applicable, so as to be returned as nearly as reasonably possible to their value, condition and character immediately prior to such Casualty or Condemnation, using materials of like kind and quality and in accordance with all applicable building codes, and otherwise in accordance with the provisions of this Lease, including but not limited to the provisions of Sections 5, 7 and this Section 11A. Net Proceeds, Restoration Award and Lessee Insurance Payment (the aggregate of which being herein defined as the "Restoration Fund") shall be disbursed by the Trustee in accordance with the following conditions: (a) If the cost of Restoration is estimated to exceed the Base Amount, prior to commencement of the Restoration the architects, general contractor(s), and plans and specifications for the Restoration shall be approved by Lessor, which approval shall not be unreasonably withheld or delayed; and which approval shall be granted to the extent that the plans and specifications depict a Restoration which is substantially similar to the improvements and equipment which existed prior to the occurrence of the Casualty or Condemnation, whichever is applicable. (b) At the time any disbursement is otherwise required, no Event of Default shall exist and no construction liens shall have been filed and remain undischarged or unbonded. (c) Disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (1) satisfactory evidence, including architects' certificates of the stage of completion, of the estimated cost of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (2) partial releases of liens, and (3) other reasonable evidence of cost and payment so that Lessor can verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of construction lien claims. (d) Each request for disbursement shall be accompanied by a certificate of Lessee describing the work, materials or other costs or expenses, for which payment is requested, stating the cost incurred in connection therewith and stating that Lessee has not previously received payment for such work or expense and the certificate to be delivered by Lessee upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease. (e) The Trustee may retain ten percent (10%) of the Restoration Fund until the Restoration is substantially complete. (f) The Restoration Fund shall be kept in one or more separate interest- bearing accounts by the Trustee or by Lender and, if the Restoration Fund exceeds $3,000,000.00, then the Restoration Fund shall be kept in one or more separate interest-bearing accounts at a financial institution selected by Lessor with a net worth of at least $5,000,000,000. (g) At all times the undisbursed balance of the Restoration Fund held by Trustee plus any funds contributed thereto by Lessee, at its option, shall be not less than the cost of completing the Restoration, free and clear of all liens. (h) In addition, prior to commencement of Restoration and at any time during Restoration, if the estimated cost of restoration, as reasonably determined by Lessor, exceeds the amount of the Restoration Fund available for such Restoration (the amount of any such excess, a "Restoration Fund Shortfall"), then, either (i) the amount of such Restoration Fund Shortfall shall be paid by Lessee to the Trustee to be added to the Restoration Fund, or (ii) Lessee shall fund the amount of such Restoration Fund Shortfall at its own expense until the remaining Restoration Fund is sufficient for the completion of the Restoration; provided that, if at the time any Restoration Fund Shortfall exists, (x) Lessee shall be in default in the payment of any Basic Rent or Additional Rent, or (y) any of the circumstances described in clauses (v) through (viii), inclusive, of Section 12 shall exist, then Lessee shall pay the amount of such Restoration Fund Shortfall to the Trustee as provided in clause (i) of this Section 11A(h). Any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of Restoration shall be paid to Lessee. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of Restoration, the Net Proceeds or the Restoration Award shall be deemed to be disbursed prior to any amount added by Lessee. 12. Events of Default The occurrence of any one or more of the following events (any such event being specified herein as a "failure" or "default") shall constitute an Event of Default under this Lease: (i) a failure by Lessee to make (regardless of the pendency of any bankruptcy, reorganization, receivership, insolvency or other proceedings, in law, in equity or before any administrative tribunal which had or might have the effect of preventing Lessee from complying with the provisions of this Lease) any payment of Basic Rent or Additional Rent which continues unremedied for a period of ten (10) days after notice thereof is sent by Lessor or Lessor's agent to Lessee , (ii) failure by Lessee to perform, observe or comply with any provision of this Lease relating to Insurance Requirements which continues unremedied for a period of five (5) days after written notice thereof is given by Lessor or Lender or Lender's designee; (iii) [intentionally omitted]; (iv) failure by Lessee to perform and observe, or a violation or breach of, any other provision in this Lease and such default shall continue for a period of thirty (30) days after the earlier of the date a Responsible Officer of Lessee (hereafter defined) acquires actual knowledge thereof or the date written notice thereof is given by Lessor or Lender or Lender's designee to Lessee, or if such default is of such a nature that it cannot reasonably be cured within such period of thirty (30) days, such period shall be extended for such longer time as is reasonably necessary provided that Lessee has commenced to cure such default within said period of thirty (30) days and is actively, diligently and in good faith proceeding with continuity to remedy such default; (v) Lessee shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) voluntary consent to the appointment of a receiver or trustee for itself or for any of the Premises, (C) voluntarily file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (D) voluntarily file a general assignment for the benefit of creditors; (vi) a court shall enter an order, judgment or decree appointing, with the voluntary consent of Lessee, a receiver or trustee for Lessee or for the Premises or approving a petition filed against Lessee or Lessee's obligations hereunder which seeks relief under the bankruptcy or other similar laws of the United States or any State, and such order, judgment or decree shall remain in force, undischarged or unstayed, ninety (90) days after it is entered; (vii) Lessee shall in any insolvency proceedings be liquidated or dissolved or shall voluntarily commence proceedings towards its dissolution; (viii) the estate or interest of Lessee in the Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated or discharged within ninety (90) days after such levy or attachment; (ix) any Mortgage shall lose its status as a first lien on the Premises as a result of any action by Lessee; or (x) Lessee shall be in breach of any material representation made by it in this Lease or in any estoppel certificate or other written instrument delivered by it under or in connection with this Lease. 13. Remedies, Conditional Limitation. This Lease and the term and estate hereby granted are subject to the limitation that whenever an Event of Default shall have occurred and be continuing Lessor shall have the right at its election at any time thereafter to exercise any one or more or all, and in any order, of the remedies hereinafter set forth, it being expressly understood that no remedy herein conferred is intended to be exclusive of any other remedy but each and every remedy shall be in addition to every other remedy given herein or now or hereafter existing at law or in equity or by statute: (a) Lessor may take all steps to protect and enforce the rights of Lessor or obligations of Lessee hereunder, whether by action, suit or proceeding at law or in equity (for the specific performance of any provision of this Lease, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable remedy) or otherwise as Lessor shall deem most advisable to protect and enforce any of its rights or the obligations of Lessee hereunder; (b) Lessor may terminate this Lease by giving a written termination notice to Lessee specifying a date not less than ten (10) days (or such shorter period as may be allowed by applicable law) after the date of such notice on which the term of this Lease shall terminate and on such date the term of this Lease and the estate hereby granted shall expire and terminate by limitation and all rights of Lessee under this Lease shall cease on the termination date so specified; (c) Lessor, whether or not this Lease shall have been terminated as provided above, shall have the right to terminate Lessee's right to possession under this Lease and to re-enter and take possession of the Premises by giving a written notice to Lessee to quit and surrender possession on a date not less than ten (10) days (or such shorter period as may be allowed by applicable law) after the date of such notice whereupon the right of Lessee to the possession of the Premises shall cease and terminate on such date, and Lessor shall have the immediate and continuing right then and at any time and from time to time thereafter without further notice, to re-enter upon and take possession of the Premises or any part thereof with or without legal proceedings (summary or otherwise) and to remove all persons and property therefrom as Lessor may elect to do. Should Lessor elect to re-enter as herein provided or should Lessor take possession pursuant to legal proceedings or pursuant to any notice provided for by law or upon termination of this Lease or termination of Lessee's right to possession as provided herein or otherwise as permitted by law, then neither Lessee nor any person claiming through or under Lessee shall be entitled to possession or to remain in possession of the Premises, or any part thereof, but shall forthwith quit and surrender the Premises to Lessor; (d) In any case where Lessor has recovered possession of the Premises by reason of Lessee's default, Lessor may, at Lessor's option, occupy the Premises or cause the Premises to be redecorated, altered, divided, or otherwise changed or prepared for reletting, and may relet the Premises or any part thereof as agent of Lessee or otherwise, for a term or terms to expire prior to, at the same time as, or subsequent to, the Expiration Date, at Lessor's option, and receive the rent therefor. Rent so received shall be applied first to the payment of such reasonable expenses as Lessor may have incurred in connection with the recovery of possession, redecorating, altering, dividing, or otherwise changing or preparing for reletting, and the reletting, including brokerage and reasonable attorneys' fees, and then to the payment of damages in amounts equal to the rent hereunder and to the costs and expenses of performance of the other covenants of lessee as herein provided. Lessee agrees, in any such case, to pay to Lessor damages equal to the Basic Rent and Additional Rent and other sums herein agreed to be paid by Lessee, less the net proceeds of the reletting, if any, as ascertained from time to time, and the same shall be payable by Lessee on the several rent days above specified. Lessee shall not be entitled to any surplus accruing as a result of any such reletting. In reletting the Premises as aforesaid, Lessor may grant rent concessions, and Lessee shall not be credited therewith. No such relenting shall constitute a surrender and acceptance or be deemed evidence thereof If Lessor elects, pursuant hereto, actually to occupy and use the Premises or any part thereof during any part of the balance of the Term, there shall be allowed against Lessee's obligation for rent or damages as herein defined, during the period of Lessor's occupancy, the reasonable value of such occupancy (not to exceed, however, the Basic and Additional Rent reserved herein for the period of occupancy) as if an amount equal to such value were the net proceeds of a reletting and such occupancy shall not be construed as a release of Lessee's liability hereunder but the provisions of this Section 13 governing the application of the proceeds of a reletting shall apply as if an amount equal to the reasonable value of Lessor's occupancy were the net proceeds of reletting; and (e) Alternatively, in any case where Lessor has recovered possession of the Premises by reason of Lessee's default, Lessor may at Lessor's option, and at any time thereafter, and without notice or other action by Lessor, and without prejudice to any other rights or remedies it might have hereunder or at law or equity, become entitled to recover from Lessee, as damages for such breach, in addition to such other sums herein agreed to be paid by Lessee (except such sums as are in lieu of the Basic Rent and Additional Rent payable hereunder), to the date of re-entry, expiration and/or dispossess, an amount equal to the difference between the Basic Rent and Additional Rent reserved in this Lease from the date of such default to the Expiration Date and the then-fair and reasonable rental value of the Premises for the same period. Said damages shall become due and payable to Lessor immediately upon such breach of this Lease and without regard to whether this Lease is terminated, and if this Lease is terminated, without regard to the manner in which it is terminated. In the computation of such damages, the difference between any installments of basic Rent and Additional Rent thereafter becoming due and the fair and reasonable rental value of the Premises for the period for which such installment was payable shall be discounted to the date of such default at the rate of six percent (6%) per annum. To the extent permitted by law, Lessee hereby waives all right of redemption to which Lessee or any person under Lessee might be entitled by any law now or hereafter in force. 14. Bankruptcy. (a) Right To Terminate. If Lessee shall make an assignment for the benefit of creditors, or shall file a voluntary petition under any bankruptcy or insolvency law, or an involuntary petition alleging an act of bankruptcy or insolvency is filed against Lessee, or if a petition shall be filed by or against Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, or Lessee shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of all or any substantial part of its properties, or if a permanent or temporary receiver of Lessee of or for the property of Lessee shall be appointed, or if Lessee shall plead bankruptcy or insolvency as a defense in any action or proceeding, Lessor may, by notice to Lessee terminate this Lease on the later of (a) any time within a reasonable time period after receipt by Lessor of notice of the occurrence of any such event, or (b) sixty (60) days after any such event occurs without the acquiescence of Lessee and remains unstayed or undischarged during such sixty (60) day period. In the event Lessor gives such a notice of termination to Lessee, the Term shall expire on the date set forth in such notice (which date shall be not less than fifteen (I 5) days from the giving of such notice), and on such date this Lease shall terminate with the same effect as if that day were the Expiration Date, but Lessee shall remain liable for damages as provided herein. (b) Reorganization. Notwithstanding anything to the contrary contained herein, if a petition for reorganization shall be filed by or against Lessee, Lessor may not cancel or terminate this Lease so long as an Event of Default shall not have occurred, provided this Lease shall not have been disaffirmed by Lessee or by any legally appointed representative of Lessee. (c) Bankruptcy Security. In the event of (i) Lessee's insolvency, (ii) the filing of a petition by or against Lessee under Federal bankruptcy laws or other laws for the relief of debtors, or (iii) an assignment of this Lease pursuant to such bankruptcy laws, then in such event Lessor may require Lessee or Lessee's assignee, as the case may be (who are hereinafter collectively called "Lessee") to deposit security in an amount equal to three (3) months Basic Rent and Additional Rent (such Additional Rent to be calculated on the basis of the immediately proceeding three-month period) to assure Lessee's performance of all its obligations under this Lease. The failure of Lessee to deposit such security within (15) business days after Lessor's demand shall constitute an Event of Default under this Lease. This deposit shall be held by Lessor for the balance of the Term, without interest, as security for the full performance of all of Lessee's obligations under the Lease. If Lessor applies any part of said deposit to cure any default of Lessee, Lessee shall within fifteen (15) business days of lessor's demand, deposit with Lessor the amount so applied so that Lessor shall have the full deposit on hand at all times during the Tenn. If at the end of the Term, Lessee is not in default under the Lease, the security deposit or any balance of it shall be returned to Lessee without interest. If the Premises are sold, Lessor will transfer the security to the purchaser of the Premises and will notify Lessee of such transfer. Upon giving such notice, Lessor shall be discharged from any future obligation in relation to the security deposit. Any security deposit made hereunder shall not be mortgaged, assigned or encumbered by Lessee without Lessor's written consent. 15. Subordination Of Lease. This Lease shall, at Lessor's option, or at the option of any holder of any Mortgage, be subject and subordinate to any Mortgage which may now or hereafter affect the Land, the Building, the Parking Deck, the Premises or any part thereof, and also to all renewals, modifications, consolidations and replacements of said Mortgage, provided, however, that this Lease shall not be so subordinated unless and until a fully executed subordination, non-disturbance and attornment agreement ("SNDA") in form and substance reasonably satisfactory to Lessee is entered into between Lessee and any such Lender whose loan is secured by such Mortgage but provided, however, that Lessee agrees to accept in such SNDA any terms or conditions which may reasonably be required by such Lender, provided such terms and conditions do not in any manner increase Lessee's financial obligations or otherwise materially increase Lessee's obligations or decrease Lessee's rights hereunder. Upon the execution of such an SNDA between Lessee and any such Lender, if not included within such SNDA, Lessee will execute and deliver any instruments confirming such subordination of this Lease as may reasonably be desired by the said Lender. Lessor and Lessee agree, at the sole expense of Lessee, to use commercially reasonable efforts to obtain an SNDA in form and substance reasonably satisfactory to Lessee from the holder of any existing Mortgage as soon as practicable after the execution of this Lease. 16. Right To Cure Breaches. Lessee covenants and agrees that if it shall at any time fail to make any payment or perform any act which it is obligated to make or perform under this Lease, then Lessor may, but shall not be obligated to, make any such payment or perform any such act, after the time to make any such payment or perform any such act has expired (including any applicable notice and cure provisions). In exercising any such rights, Lessor may pay necessary and incidental costs and expenses, employ counsel and incur and pay reasonable attorneys' fees. Notwithstanding the foregoing, Lessor may make any such payment or perform any such act before the time to do so has expired, if the same is necessary or required for the preservation or protection of the Premises or the contents thereof. All sums so paid by Lessor and all necessary and incidental costs and expenses in connection with the performance of any such act by Lessor shall be deemed Additional Rent hereunder and shall be payable to Lessor on demand, and Lessee covenants to pay any such sum or sums as aforesaid. The exercise by Lessor of the above remedies shall not be a waiver of any other rights of such party hereunder. Except in the case of emergencies, Lessor will give fifteen (15) days' written notice of its intention to pay or do such acts as hereinabove set forth. 17. Construction Liens. Lessee shall, within thirty (30) days after notice from Lessor, or Lessee's otherwise acquiring actual notice thereof if earlier, discharge or satisfy by bonding or otherwise any construction liens for materials or labor claimed to have been furnished to the Premises on Lessee's behalf. 18. Right of Entry. Lessor or any Lender may enter the Premises at any reasonable time on reasonable notice to Lessee and accompanied by a representative of Lessee (except that no notice need by given in case of emergency) only for the purposes of viewing the Premises or making such repairs or replacements in, to, or about the Premises that Lessee has failed to so make in accordance with the terms of this Lease. Notwithstanding the above, Lessor acknowledges the necessity of security in the conduct of Lessee's business and agrees that the access of Lessor and Lessor's agents and designees to any areas of the Premises deemed by Lessee to require security shall be only at such times, and subject to such requirements of Lessee, as are reasonable under the circumstances (except that these requirements shall not apply in case of emergency). Lessee agrees that provided that Lessor uses commercially reasonable efforts not to interfere with Lessee's or any sublessee's business, Lessee shall not make any claim against Lessor for interruption to its or any sublessee's business, however occurring, including but not limited to that arising from the negligence of Lessor or its agents, servants or invitees, or from defects, errors or omissions in the construction or design of the Building or the Parking Deck. In the event of any such entry by Lessor or any Lender following the occurrence and during the continuance of any Event of Default, all reasonable costs and expenses incurred by Lessor and/or Lender in connection with such entry shall be payable on demand by Lessee and constitute Additional Rent under this Lease. 19. Utilities. Lessee acknowledges that Lessor has previously arranged for gas, water and sewer services to be supplied to the Premises and has caused electricity to be supplied for the operation of all Building systems and Common Elements, as well as for lighting of the Parking Deck, access roadways and other exterior areas of the Premises, and that all such facilities, hook-ups and services are satisfactory to Lessee. Lessor has provided an electric meter or meters serving only the Premises and Lessee shall pay all charges with respect to consumption of electricity in the Premises directly to the electric utility. Lessee shall provide telephone service to the Premises and Lessor and Lessee shall cooperate, at Lessee's sole expense, in permitting fiber-optic communication lines and facilities to be provided to the Premises provided the permitting and installation thereof imposes no burden on Lessor. Lessee shall also pay (directly to the applicable utility provider) all charges for all other utilities supplied to the Premises. Lessee shall defend, indemnify and hold Lessor harmless from and reimburse Lessor for all liability, damages, costs, fees, expenses, penalties and charges (including, but not limited to, attorneys' fees and disbursements) incurred in connection with any utility services or telephone services metered or provided directly to Lessee hereunder. Lessor shall provide no utilities or other building services of any kind to the Premises, all of which shall be Lessee's responsibility. Lessor shall in no event be liable for any interruption or failure of utility services on the Premises for any cause whatsoever. 20. Taxes. (a) During the Term, Lessee shall pay directly to the appropriate governmental authority any and all taxes, assessments, general and special, ordinary as well as extraordinary, charges, levies, and impositions, including, but not limited to, water and sewer rents and charges (collectively hereinafter the "Taxes") presently or hereafter in effect, which are or may be made liens upon or against the Land, the Building and the Parking Deck and which are allocable to the Term. Lessee shall pay such amounts when due and payable before any fine, penalty, interest or cost is incurred thereon or becomes due or is imposed by laws for the nonpayment of such Taxes. Lessor agrees to promptly assign to Lessee its right to receive payment of Taxes for all or any portion of the Premises from any third party. If any Taxes are levied, assessed, or imposed on the Land, the Building, the Parking Deck or any other portion of the Premises or on the income or rents derived therefrom as a substitute, in whole or in part, for the current ad valorem real estate tax, Lessee shall pay the same, measured however, as though the Premises were the sole asset of Lessor. In the event that the holder of any Mortgage requires Lessor to create an escrow account for payment of Taxes, Lessee's obligations under this Section 20 shall be met by paying to Lessor the amount it otherwise would have to pay to governmental authorities under this Section 20 sufficiently in advance in order that Lessor may satisfy the requirements of its Lender. In furtherance of the foregoing, Lessee agrees to create an escrow account for such payment with Lessor in the event that Lessor's Lender shall require the same. Notwithstanding the foregoing, Lessee shall not be obligated to pay any federal, state or local income, revenue or excise tax or any inheritance, estate, succession, transfer or gift tax or any capital stock, corporate franchise or excess profits tax that may be levied, imposed or assessed against Lessor, though the failure to pay the same may result in the placing of a lien upon the Land, the Building or the Parking Deck. (b) Fiscal Period. If any Taxes are assessed or collected on a basis of a fiscal period, a portion of which includes the Term and the remainder of which occurs prior to or after the Term, then the Taxes payable for such fiscal period shall be equitably apportioned between Lessor and Lessee. (c) Receipts. Lessee shall endeavor to arrange for all bills for Taxes which Lessee is required to pay in accordance with this Section 20 to be sent directly to Lessee by the applicable Tax authority. If such arrangements are not made, Lessor shall promptly forward to Lessee all bills for Taxes which Lessee is required to pay directly in accordance with this Section 20. Upon request by Lessor, Lessee shall provide to Lessor satisfactory evidence of payment of such Taxes. (d) Contests. Lessee shall have the right, subject to any requirements in any Mortgage, after notice to Lessor, to contest or review the amount or validity, in whole or in part of any Taxes by appropriate proceedings diligently conducted in good faith in its or Lessor's name, or in the names of both, before any tribunal having jurisdiction, or in such other manner as it may deem suitable (which, if instituted, Lessee shall conduct at its own expense, and free of any expense to Lessor) provided that, if the contested items shall not have been paid before the last day for paying the same without penalty and prior to instituting any such proceeding, Lessee shall promptly pay such items under protest. If, prior to or during the pendency of any such contest, Lessor or its Lender shall reasonably so request, Lessee shall deliver to Lessor security in the form of a surety bond, cash, letter of credit or other security, reasonably satisfactory to Lessor, of its ability to pay such contested Taxes, together with any and all interest, penalties or other charges which may have accrued thereon. Lessor shall cooperate with Lessee, and if required or desirable shall, at Lessee's sole cost and expense, join in any proceeding initiated by Lessee and referred to above. Lessor shall not incur or be subjected to any liability, or be responsible for the payment of any costs, fees, expenses or charges in connection with any such proceedings, and Lessee agrees to indemnify, defend and hold Lessor harmless from and reimburse Lessor for any such liability, damages, costs, fees, expenses, penalties and charges. Notwithstanding the foregoing, Lessor may, if it shall so desire, seek a reduction of the assessed valuation of the Land, Building or Parking Deck for the purpose of reducing Taxes thereon and, in such event, Lessor shall so notify Lessee. If there shall be any Tax refund as a result of any proceeding initiated pursuant to this Section 20(d), then the refund shall be applied as follows: (i) first, to reimburse the party or parties for its expenses and fees in connection with the proceeding resulting in the refund, (ii) second, to Lessee, if the Tax refund relates to a fiscal year falling entirely within the Term, or equitable apportioned between Lessee and Lessor if the Tax refund relates to a fiscal year in which the Term commences or ends. (e) Conditions Of Contest Lessee's right to contest the validity and amount of any Taxes payable by Lessee shall be specifically subject to the following conditions: (i) the exercise of such right shall not result in the violation of the terms of any Mortgage; (ii) the exercise of such right shall be permitted by law, and shall not result in a forfeiture or in criminal liability to Lessor; and (iii) such additional conditions as are provided under Section 52(d) of this Lease. 21. Insurance. (a) Required Insurance. (i) Lessee, at its sole cost, shall procure, provide and maintain in force for Lessor's benefit, Lessee's benefit and the benefit of any Lender at all times during the Term an "All Risk" insurance policy insuring the Premises and the Common Elements against loss or damage by fire and other casualties covered by "All Risk" coverage, including, but not limited to, fire, the extended coverages, vandalism, malicious mischief, earth movement, flood, sprinkler leakage, and collapse, which policy shall contain terms and conditions and amounts adequate to provide for the actual full replacement cost of the Premises, including the Building, Building improvements, the Parking Deck and the other improvements on the Land, including foundations, excavations, grading, and backfilling with materials of like kind and quality, and in accordance with the building and/or zoning codes, ordinances, and laws in effect at the time of the rebuilding and in any event in an amount not less than the amount required by the holder of any Mortgage on the Building. The policy shall contain no provision for coinsurance. (ii) Lessee, at its sole cost, shall procure, provide and maintain, for Lessor's benefit, business interruption insurance, including rent loss insurance covering the loss of rental income and other continuing costs to the Lessor (e.g., Taxes, utilities and other costs of the Premises) for a period of twenty-four (24) months and such additional length of time to restore all of the operations at the Premises (including reletting of the Building) to the same condition that would have existed had no loss occurred. The policy shall contain no provision for coinsurance. (iii) Lessee, at its sole cost, shall also procure, provide and maintain in force for the benefit of Lessee, Lessor and any Lender, contractual and comprehensive general public liability insurance against liability arising out of or connected with the operation, use, maintenance, condition, possession, leasing, or control of the Premises, including, but not limited to, contractual liability in connection with the indemnification of Lessor with coverage of at least $5,000,000 per person and per occurrence for bodily injury, at least $5,000,000 per occurrence for property damage and an aggregate limit of at least $10,000,000. Such comprehensive general liability insurance policy(ies) shall be written on an occurrence basis and shall include coverage for all court costs and attorneys fees and expenses. To the extent any policy procured by Lessee under this Section 21(a) contains a deductible, Lessee hereby agrees to indemnify, defend and hold Lessor harmless from any claims, damages or expenses (including, but not limited to, reasonable attorney's fees) which would have been covered by such insurance if it had no deductible. Notwithstanding anything herein to the contrary, so long as both (A) Lessee's corporate and/or senior debt securities are rated at least BBB by Standard & Poor's rating service, and (B) Lessee maintains a tangible net worth, as determined in accordance with generally accepted accounting principles, of not less than $ 100,000,000.00, the insurance policies required by this Section 21(a)(iii) may contain a deductible of up to $200,000.00, provided that, if at any time either (X) Lessee's corporate and/or senior debt securities are rated lower than BBB by Standard & Poor's rating service (or such rating has been withdrawn or Lessee's corporate and/or senior debts securities are otherwise not rated), or (Y) Lessee fails to maintain a tangible net worth, as determined in accordance with generally accepted accounting principles, of at least $100,000,000.00, the deductible under the insurance policies required by this Section 21(a)(iii) may not exceed $50,000.00. Such insurance policies may contain only such exclusions as Lessor and any Lender shall approve; and any such exclusions approved in writing by Lessor and any Lender at the time of closing on the Mortgage loan from such Lender shall be deemed approved by Lessor and Lender for the term of such Mortgage loan. (iv) Lessee, at its sole cost, shall also procure and maintain (or cause its contractors to procure and maintain) worker's compensation insurance covering all persons employed by Lessee and such contractors at or with respect to the Premises in connection with any work done on or about any of the Premises for which claims for death or bodily injury could be asserted against Lessor, Lessee or the Premises. (v) Lessee, at its sole cost, shall also: (A) procure and maintain broad form boiler and machinery insurance (including coverage for explosion) covering all boilers and other pressure vessels, machinery, and equipment located in or about the Building in an amount not less than the actual replacement cost of the Building and equipment (excluding footings and foundations and other parts of the improvements which are not insurable); (B) procure and maintain or cause its contractor to procure and maintain completed value builder's risk insurance when the estimated cost of Alterations to be performed by Lessee in any one instance exceeds either (x) the Base Amount if Lessee's debt securities have a rating lower than the Minimum Rating, or (y) $25,000.00 if Lessee's corporate and/or senior debt securities have a rating lower than the Minimum Rating, and Lessee or its contractor shall obtain worker's compensation insurance or other adequate insurance coverage covering all persons employed in connection with such work, whether by Lessee, its contractors or subcontractors and with respect to whom death or bodily injury claims could be asserted against Lessor; (C) pay for all costs associated with Lessor's procuring for Lender "Special Risk Insurance" as required by any Lender to cover the contingencies set forth in Section 10(c) and 11(c) of this Lease, (D) procure and maintain environmental liability insurance and remediation coverage for the Premises in such amounts and upon such terms and conditions (including coverage for third party acts) as are reasonably determined by Lessee and reasonably approved by Lessor and any Lender, and (E) procure and maintain such additional and/or other insurance with respect to the improvements located on the Land and in such amounts as at the time is customarily carried by prudent owners or tenants with respect to improvements similar in character, location and use and occupancy to such improvements. All insurance required herein shall be subject to the reasonable review and approval by Lessor and Lender, provided, that, so long as the insurance carried by Lessee otherwise complies with all requirements of this Section 21 (subject to such departures therefrom, if any, as are approved in writing by any Lender at the time of closing on the Mortgage loan from such Lender) such insurance carried by Lessee shall be deemed approved by Lessor and Lender for the term of such Mortgage loan. Anything contained in this Section 21 to the contrary notwithstanding, any and all insurance which Lessee is obligated to carry pursuant to this Section 2 1 (a) may be carried under a "blanket" policy or policies covering other properties or liabilities of Lessee, provided that such "blanket" policy or policies otherwise comply with the provisions of this Section 21. such policy of blanket insurance either shall specify therein, or Lessee shall at Lessor's request furnish Lessor with a written statement from the insurer under such policy so specifying, the amount of the total insurance allocated to the Premises, which amount shall not be less than the amount required pursuant to this Section 2 1. (b) Insured Parties. The insurance required by this Section 21 shall be written by companies having a claims paying ability rating by Standard & Poor's of not less than A, and all such companies shall be licensed to do insurance business in the State of New Jersey, or otherwise agreed to by Lessor and Lender. The insurance policies (i) shall contain no provisions for coinsurance, (ii) shall (except for the worker's compensation insurance referred to in this Section 21) name Lessor and Lessee as named insureds (except for the Special Risk Insurance which shall designate Lender as the named insured), (iii) shall name any Lender as mortgagee and loss payee on all property insurance policies and shall name Lender as an additional named insured on all liability insurance policies, and (iv) provide a waiver of subrogation endorsement for the benefit of Lender and Lessor. If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Lessee or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Lessee shall immediately obtain new or additional insurance reasonably satisfactory to Lessor and Lender. All insurance policies shall contain an effective waiver by the insurer of all claims for insurance premiums against any loss payees, additional insureds, and named insureds other than Lessee. Each insurance policy referred to in Section 21(a) hereof shall contain standard non-contributory mortgagee clauses in favor of any Lender. Each policy shall provide that it may not be canceled or modified except after thirty (30) days prior notice to Lessor and any Lender. Each policy shall also provide (to the extent such can be obtained) that any losses otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Lessor or Lessee which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, or (ii) the occupation or use of any of the Premises for purposes more hazardous than permitted by the provisions of such policy. Lessee shall pay as they become due all premiums for the insurance required by this Section 21, shall renew or replace each policy, and shall deliver to Lessor and Lender a certificate, endorsement or other evidence (reasonably satisfactory to Lender and Lessor) of the existing policy and such renewal or replacement policies at least thirty (30) days prior to the expiration date of each policy. Upon Lessor's request, Lessee shall also deliver to Lessor true copies of all insurance policies, including renewal and replacement policies. Each such policy shall provide that it shall not expire until the Lessor and Lender shall receive a notice from the insurer to the effect that a policy will expire on a date which shall be thirty (30) days following the date of the receipt by Lessor and Lender of such notice. In the event of Lessee's failure to comply with any of the foregoing requirements of this Section 21 within five (5) days of the giving of written notice by Lessor to Lessee, Lessor shall be entitled to procure such insurance. Any sums expended by Lessor in procuring such insurance shall be Additional Rent and shall be repaid by Lessee. (c) Insurance Proceeds. All proceeds payable under the required insurance described in Section 21(a)(i) above shall, subject to and in accordance with the provisions of Sections 10 and 11A, be applied toward the Restoration of the Premises, including the Building, Building improvements or the Parking Deck, as the case may be, unless this Lease shall be terminated in accordance with the terms of Section 10(c) and/or Section 11(c), if applicable, in which case such proceeds, subject to the rights of the holder of the Mortgage, shall, without set- off or deduction by Lessee, be paid to Lessor upon the termination of this Lease. In the event that such proceeds have not been paid or assigned to Lessor by the date of termination of this Lease, Lessor as attorney-in-fact for Lessee may direct that any proceeds being held in trust be paid to Lessor immediately, and/or may execute and deliver to the insurance company holding such proceeds an assignment of such proceeds to Lessor. Lessee hereby appoints Lessor, as Lessee's attorney-in-fact for the purposes provided for herein. All insurance proceeds payable under the policy referred to in Section 21 (a)(ii) shall be payable to Lessor, provided that, so long as this Lease shall not have been terminated, and, throughout the period with respect to which proceeds under such policy have been paid to Lessor, Lessee shall have paid all Basic Rent and Additional Rent when due under this Lease, Lessor shall reimburse to Lessee (or if such proceeds have been paid to Lender, cause Lender to reimburse to Lessee) all proceeds of such insurance up to the amount of such Basic Rent and Additional Rent paid by Lessee. (d) Notice. Each policy of insurance required by this Section 21 shall provide that it may not be canceled, modified or amended except upon thirty (30) days' prior written notice to Lessor, Lessee and to any Lender named in such policy. Lessee shall deliver to Lessor, at the commencement of the term of each policy, a certificate or endorsement of insurance evidencing the insurance coverage required to be obtained by Lessee under this Lease. (e) Indemnification. Except to the extent Lessor's gross negligence or willful misconduct was in whole or in part a proximate cause of any loss, injury or damage, Lessee agrees, to the fullest extent permitted by law, to defend, indemnify and hold Lessor and Lender harmless from and reimburse Lessor and Lender for all liability, damage, costs, fees, expenses, penalties and charges (including, but not limited to, reasonable attorneys' fees and disbursements), causes of action, suits, claims, demand or judgments of whatever nature incurred or instituted in connection with the use or operation of the Premises or in any way connected with (i) any accident, loss, injury or damage whatsoever caused by or to any person (including, but not limited to, Lessee, its servants, employees, agents, invitee and licensees) or property arising out of or resulting from Lessee's occupancy, possession, use, management, repair or control of the Premises, (ii) any breach of this Lease by Lessee, (iii) any act or omission of Lessee, its servants, employees, agents, invitee, licensees or of any person on the preniises with Lessee's consent, occurring in or on the Premises, or (iv) any contest or proceeding brought by Lessee. Specifically excepted from Lessee's indemnification hereunder are liability, claims and expenses arising out of the breach of any covenant of this Lease on the part of Lessor to be performed. 22.Signs. Lessee shall have the right to install signs in the lobby of the Building and on the Premises and Lessee may construct and maintain sips containing the name of Lessee and any subtenant on the Building and on the Land, provided however that all such signs shall be placed in such locations and shall be of such design as to make their placement and design consistent with similarly situated office buildings. 23. [Intentionally Left Blank] 24. Estoppel Certificates. Each party agrees that, upon not less than fifteen (15) days' prior written request, it shall execute, acknowledge and deliver to the other party or its designee a written statement certifying: (i) that this Lease is unmodified and is in full force and effect (or if there have been modifications, the specifics thereof and that the Lease is in full force and effect as modified); (ii) the dates to which the Basic Rent and Additional Rent have been paid; (iii) the amount of all Basic Rent and Additional Rent paid in advance, if any; and (iv) that there are no defaults under the Lease (or, if there are, specifying the same in reasonable detail). It is intended, insofar as Lessor is concerned, that any statement delivered pursuant to this Section 24 may be relied upon by a prospective purchaser of Lessor's interest, Lender and any assignee of any Mortgage. It is intended, insofar as Lessee is concerned, that any statement delivered pursuant to this Section 24 may be relied upon by a prospective subtenant, assignee or creditor of Lessee. The foregoing obligation shall be deemed a substantial obligation of Lessee or Lessor, the breach of which shall give Lessor or Lessee all remedies provided for by law. 25. Right To Show Premises. Lessor may show the Premises to prospective purchasers and lenders, and, during the thirty-six (36) months prior to the end of the Term and during any period following and during the continuance of any Event of Default, to prospective tenants, during business hours on reasonable notice to Lessee and when accompanied by a representative of Lessee. Notwithstanding the above, Lessor acknowledges the necessity of security in the conduct of Lessee's business and agrees that the access of Lessor and Lessor's agents and designees to any areas of the Premises deemed by Lessee to require security shall be only at such times, and subject to such requirements of Lessee, as are reasonable under the circumstances. 26. Waiver Of Trial By Jury. Lessor and Lessee hereby waive trial by jury in any action or proceeding brought by either party against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Lessor and Lessee, Lessee's use or occupancy of the Premises, and/or any claim of injury or damage, and emergency, or statutory remedy; provided, however, that nothing herein shall preclude a jury trial in actions where a jury is demanded by right by third parties and severance of claims between Lessor and Lessee is not available under the court rules. Lessee further agrees that Lessee will not interpose any counterclaim or right to set-off in any summary proceeding for eviction based in whole or in part on the nonpayment of Basic Rent or Additional Rent or in any other proceeding between Lessor and Lessee. 27. No Other Representations. No representations or promises shall be binding on the parties hereto except those representations and promises contained herein. 28. Quiet Enjoyment. Lessor covenants that if and so long as, Lessee pays the Basic Rent and Additional Rent as herein provided, and performs the covenants hereof, Lessor shall do nothing to affect Lessee's right to peaceably and quietly have, hold and enjoy the Premises for the Term herein mentioned, subject to the provisions of this Lease. 29. Force Majeure. Lessor shall not be liable to Lessee and Lessee shall not be liable to Lessor and neither party shall be in default under this Lease by reason of delays in the performance of any covenant, condition or obligation under this Lease which is caused solely by present or future governmental regulations, restrictions, strikes, lockouts, shortages or unavailability of materials or labor, or for any other reason whether or not similar to the foregoing, which is beyond the reasonable control of either Lessor or Lessee, as the case may be ("Force Majeure"). Notwithstanding the foregoing, the parties agree that an event of Force Majeure will not excuse, reduce, delay or otherwise affect Lessee's obligations (i) to pay Basic Rent and any Additional Rent hereunder or to comply with the provisions of Section 21 hereof, or (ii) to perform any other obligation under this Lease to the extent such delay could (A) expose Lessor or Lender to any civil or criminal liability, penalty or sanction or (B) result in any decrease in the value of the Premises or in defeasance of Lessor's or Lender's interest in the Premises, for which Lessee has not made provisions reasonably acceptable to Lessor and Lender. 30. General Cooperation. In addition to the foregoing provisions, each party covenants and agrees that it will execute, acknowledge and deliver all documents and other instruments, as may reasonably be required by the other party in order to fully carry out and effectuate the terms of this Lease, provided that such shall be done at the sole cost of Lessee and no such document or instrument shall impose any material burden on Lessor. 31. Holding Over. If Lessee holds over in the Premises beyond the expiration or sooner termination of this Lease, Lessee shall become a tenant from month-to- month at 150% of Basic Rent for the first thirty (30) days after the expiration or sooner termination of this Lease and at 200% of Basic Rent thereafter, in either case plus all Additional Rent, and upon all the other terms and conditions of this Lease. Lessee shall continue to be a month-to-month tenant until such tenancy shall be terminated by Lessor or until such possession shall cease. Nothing contained in this Lease shall be construed as a consent by Lessor to the occupancy or possession by Lessee of the Premises beyond the Expiration Date or earlier termination of this Lease and Lessor shall be entitled to the benefit of all legal remedies that may now be in effect or may subsequently be enacted for summary possession of the Premises. 32. Memorandum of Lease. At any time during the Term and within thirty (30) days after written request therefor from either party, Lessor and Lessee will execute, acknowledge and deliver a memorandum of this Lease for recording which shall constitute a short form of this Lease and shall set forth a description of the Premises, the Term, and any other provisions which either party may request, except the rental provisions contained in Section 3 and in the Rent Schedule attached hereto as Exhibit A. Upon the expiration or sooner termination of Ns Lease, Lessee shall execute, acknowledge and deliver to Lessor such documents and other instruments as may be reasonably required by Lessor, each in a form suitable for recording, to evidence the termination of this Lease and of any and all rights of Lessee hereunder. If such documents or other instruments are not delivered to Lessor within thirty (30) days of the expiration or sooner termination of this Lease, Lessee agrees that Lessor may apply immediately, at Lessee's sole cost and expense, in a summary action (or an action brought by order to show cause, or any other form of action Lessor elects to interpose) to any court of competent jurisdiction for an order (a) compelling Lessee to specifically perform its obligations under this Section 32, (b) declaring that the Lessee's rights under this Lease are terminated, (e) authorizing the recording of a certified true copy of such order in the Union County Clerk's Office for the purpose of giving notice of the termination of such rights, and (d) awarding Lessor's reasonable attorney's fees and costs and other proper relief. Lessor agrees that in any such action service of process may be made upon it in the manner provided for the giving of notice under this Lease. 33. Section Headings. The Section headings in this Lease and position of its provisions are intended for convenience only and shall not be taken into consideration in any construction or interpretation of this Lease or any of its provisions. 34. Applicability to Heirs and Assigns. The Provisions of this Lease shall apply to, bind and inure to the benefit of Lessor and Lessee, and their respective successors and permitted assigns. In the event Lessor shall sell or transfer its entire interest in the Premises or if a Lender shall take possession of the Premises, then and in either such event the Lessor shall be released from any and all obligations it has hereunder which arise after the date of such sale or transfer or taking of possession by such Lender. Subject to any limitations on the liability and obligations of any Lender, its successors and assigns under the terms of an SNDA, any such purchaser, transferee or Lender in possession shall, without further covenant or agreement, be bound by and assume and discharge any and all of the obligations and liabilities of the Lessor hereunder which arise after the date of such sale, transfer or possession. 35. [Intentionally left blank] 36. Notices. Any notice by either party to the other shall be in writing and shall be deemed to have been duly given only if sent by registered mail or certified mail in a postpaid envelope or by private overnight delivery service addressed to the Lessor at the address as set forth above and to Lessee at the address set forth above, marked to the attention of the Corporate Secretary, with a copy to the parties' respective attorneys addressed as follows: To Lessor's Attomey: Alan G. Trembulak, Esq. Woods & Trembulak 11 Commerce Drive Cranford, NJ 07016 To Lessee's Attorney: Charles F. Gergel, Esq. Cullen and Dykman 177 Montague Street Brooklyn, NY 11201 or, at such other address as Lessor or Lessor, or their respective attorneys, as the case may be, may designate in writing. Notice shall be deemed delivered upon the third (3rd) day after the mailing thereof or if by overnight express delivery, the day after the delivery of such notice to the overnight express delivery company, prepaid for next day delivery. If any Lender shall have advised Lessee by notice in the manner aforesaid that it Is the holder of a Mortgage and states in said notice its address for the receipt of Notices, then simultaneously with the giving of any notice by Lessee to Lessor, Lessee shall send a copy of such notice to Lender in the manner aforesaid. Any notice may be given on behalf of any party by its counsel. 37. Effect of Waivers. No failure by either party to insist upon the strict performance of any covenant, agreement, term or condition of this Lease, or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach or of such covenant, agreement, term or condition. No consent or waiver, express or implied, by either party to or of any breach of any covenant, condition or duty of the other party shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty, unless in writing signed by the party so consenting or waiving. 38. Authority. Each party represents that the person executing and delivering this Lease has been duly authorized and that the execution and delivery of this Lease by such party does not and shall not violate any provision of any by-law, agreement, order, judgment, governmental regulation or any other obligation to which such party is a party or is subject. 39. Severability of Provisions. If any term or provision of this Lease or the application thereof to any party or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such term or provision to parties or circumstances other than those with respect to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 40. Governing Law. This Lease and the performance thereof shall be governed and construed in accordance with the laws of the State of New Jersey, without application of conflicts of law principles. 41. Number and Gender. The terms "Lessor" and "Lessee" wherever used herein shall be applicable to one or more persons, as the case may be, and singular shall include the plural and neuter shall include the masculine and/or feminine, and if there be more than one, the obligation thereof shall be joint and several. 42. Assignment of Existing Leases. Lessee acknowledges that portions of the Premises demised under this Lease were heretofore demised by Beneficial Owner to others under the leases referred to in Exhibit C attached hereto (the "Existing Leases"), copies of which have been reviewed by Lessee, and that Beneficial Owner entered into a certain Shared Tenant Services Agreement, dated as of January 11, 2000, between Beneficial Owner and Broadband Office, Inc. (the "Broadband Agreement"), a copy of which has been reviewed by Lessee. Simultaneous with the execution of this Lease, Beneficial Owner, Lessor and Lessee have executed the following agreements: (a) an Assignment and Assumption Agreement pursuant to which Beneficial Owner and Lessor have transferred and assigned to Lessee, and Lessee has assumed, all of Beneficial Owner's and Lessor's rights, duties and obligations under the Broadband Agreement; and (b) an Assignment and Assumption Agreement pursuant to which Beneficial Owner and Lessor have transferred and assigned to Lessee, and Lessee has assumed, all of Beneficial Owner's and Lessor's rights, duties and obligations under the Existing Leases. Lessee hereby agrees to honor and faithfully perform all of Beneficial Owner's and Lessor's duties and obligations under the Existing Leases and the Broadband Agreement from and after the Commencement Date, and Lessee agrees to indemnify, defend and hold Beneficial Owner and Lessor harmless from and against any and all claims, liabilities, losses, damages, costs and expenses incurred in connection with or arising under the obligations of Beneficial Owner and Lessor under the Existing Leases and the Broadband Agreement from and after the Commencement Date of this Lease. Lessee's rights under this Lease are, as to those portions of the Premises demised under the Existing Leases, subject to the tenants' rights under the Existing Leases. 43. Mortgagee's Notice and Opportunity to Cure. Lessee agrees to give any Lender with whom it has entered into an SNDA, by certified mail, return receipt requested, a copy of any notice of default served upon Lessor. Lessee further agrees that, if Lessor shall have failed to cure such default within the time provided for in this Lease, then the Lender shall have such additional time as is provided in such SNDA within which to cure such default. 44. [Intentionally Left Blank] 45. Renewal Option. Lessee is hereby granted the following options to extend the Term of this Lease: (A) a first option ("First Renewal Option"), exercisable at any time prior to the date which is thirty (30) months before the then expiration of the Term, to extend the Term of this Lease for an additional ten (10) year period (the "First Renewal Term"); and (B) a second option ("Second Renewal Option"), exercisable at any time prior to the date which is twenty-four (24) months before the expiration of the First Renewal Term, to extend the Term of this Lease for an additional ten (IO) year period (the "Second Renewal Term"). All of the terms and conditions of this Lease shall remain in effect during any renewal term, except that the Basic Rent payable during the renewal term shall be as set forth on Exhibit A hereto. It shall be a condition of the exercise of the options set forth in this Section 45, that at the time of the exercise of said option, Lessee shall not be in default under this Lease beyond any applicable grace period. 46. Right of Second Offer. Lessor hereby grants Lessee a right of second offer for the purchase of Corporate Center One Unit (hereinafter referred to as the ("Unit"). In the event that Lessor shall desire to market or offer for sale the Unit to a third party (other than to any entity controlled by Lessor or either of its partners or their principals or members of their immediate family or trusts created for their benefit), Lessor shall promptly so advise Lessee in writing setting forth the purchase price and the other terms and conditions of the proposed sale which Lessor would be willing to offer to a third party, including: (a) the total amount of the purchase price; (b) the amount of the deposit required; (c) the form of payment of the deposit and the purchase price, and (d) the date and place of transfer of title. Lessee shall have twenty (20) days after its receipt of Lessor's written offer to advise Lessor if it desires to purchase the Unit on the terms and conditions set forth in Lessor's offer. If Lessee elects to accept Lessor's offer, and if Schering has not exercised its prior right to purchase the Unit pursuant to its Right of First Offer, Lessor and Lessee shall enter into a formal contract of sale on the terms set forth in Lessor's offer. In the event, however, that within the aforesaid twenty (20) day period Lessee fails to accept or elects not to accept Lessor's offer, the offer shall be deemed rejected and Lessor shall be free to sell the Unit for a period of one (1) year from the date of Lessor's written offer (any contract of sale entered into during the one (1) year period regardless of closing date set forth therein shall be deemed a sale within the one (1) year period provided for herein) for a purchase price not less than 95% of the purchase price set forth in Lessor's offer and such other terms and conditions acceptable to Lessor without any further obligation to Lessee under this Right of Second Offer, provided, however, Lessee's Right of Second Offer shall be reinstated following the expiration of such one (1) year period if Lessor shall fail to sell the Unit within said one (1) year period. Notwithstanding anything to the contrary contained herein, the Right of Second Offer provided for herein shall be null and void and of no force and effect upon judicial foreclosure or the granting of a deed in lieu of foreclosure. This Right of Second Offer is subject and subordinate to the Right of First Offer previously granted by Beneficial Owner to Schering. 47. Environmental Laws. (a) Compliance with Environmental Laws. Lessee shall, at Lessee's own expense, promptly comply with each and every Legal Requirement now or hereafter existing related in any way to environmental matters (collectively, "Environmental Laws"), applicable to the Premises, Lessee, Lessee's operations at the Premises, or all of them. As used herein, "Contaminant" shall mean, without limitation, any regulated substance, toxic substance hazardous substance, hazardous waste, pollution, pollutant, irritant or contaminant, as defined or referred to in the New Jersey Environmental Rights Act, N.J.S.A. 2A:35A-1 et seq.; the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq.; the New Jersey Air Pollution Control Act, N.J.S.A. 26:2C-1 et seq.; the Hazardous Substances Discharge, Reports and Notices Act, N.J. S.A. 13:1 K-15 et seq.; the Industrial Site Recovery Act, N.J. S.A. 13:1K-6 et seq. ("ISRA"); the New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq., and the federal underground storage tank law (Subtitle 1) of Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. 6901 et seq.; the Water Pollution and Control Act, 33 U.S.C. 1251 et seq. together with any amendments to any of the foregoing, any regulations promulgated under any of the foregoing and all substitutions under any of the foregoing, as well as words of similar purport or meaning referred to in any other applicable Environmental Law, including, without limitation, radon, lead, asbestos, polychlorinated biphenyls, urea-formaldehyde and petroleum products and petroleum derivatives. If any Environmental Law defines any of these terms more broadly than another, the broader definition shall apply. (b) ISRA Compliance. Lessee shall, at Lessee's own expense, comply with ISRA and the regulations promulgated thereunder and any amending and successor legislation and regulations. (c) Information to Lessor. At no expense to Lessor, Lessee shall promptly provide all information and sign all documents reasonably requested by Lessor with respect to compliance with Environmental Laws. (d) Lessor, Lender Audit. Lessee shall permit Lessor, Lender and their representatives access to the Premises, from time to time, to conduct an environmental assessment, investigation and sampling. (e) Lessee's Remediation. Should any assessment, investigation or sampling reveal the existence of any spill, discharge or placement of Contaminants in, on, under, or about or migrating from or onto the Premises, the Building or the Land, as the result of the action or omission of Lessee or a "Lessee Responsible Party", then, in addition to being in default under this Lease and Lessor having all rights available to Lessor under this Lease and by law by reason of such default, Lessee shall, at Lessee's own expense, in accordance with Environmental Laws, undertake all action required by Lessor and any governmental authority to remediate such condition, including without limitation, promptly obtaining and delivering to Lessor an unconditional No Further Action Letter or its equivalent issued in accordance with all Legal Requirements. For purposes of this Section 47, the term "Lessee's Responsible Party" shall mean any officer, director, employee, agent, licensee, assignee, sublessee or invitee of Lessee. Lessee's remedial action shall meet those standards and protocols established by the applicable governmental authority for soil, surface water, groundwater and drinking water. Promptly upon completion of all required investigatory and remedial activities, Lessee shall, at Lessee's own expense, to Lessor's satisfaction, restore the affected areas of the Premises, the Building or the Land, as the case may be, from any damage or condition caused by the investigatory or remedial work. (f) Environmental Questionnaire. Lessee shall, from time to time, but no more frequently than once each calendar year, upon Lessor's request, fill out and complete the environmental questionnaire attached hereto as Exhibit C (which questionnaire may be revised by Lessor from time to time in its reasonable discretion) with respect to Contaminants upon the Premises and within the Building, as a result of the activities of Lessee or any Lessee Responsible Party. (g) Environmental Documents and Conditions. For purposes of this Section 47, the term "Environmental Documents" shall mean all environmental documentation concerning the Building or the Land, of which the Premises is a part, or its environs, in the possession or under the control of Lessee, including, without limitation, plans, reports, correspondence and' submissions. During the term of this Lease, promptly upon receipt by Lessee or its agents, Lessee shall deliver to Lessor all Environmental Documents concerning or generated by or on behalf of Lessee, whether currently or hereafter existing. In addition, Lessee shall promptly notify Lessor of any environmental condition of which Lessee has knowledge, which may exist in, on, under, or about, or may be migrating from or onto the Building or the Land. (h) Lessor's Right to Perform Lessee's Obligations. Notwithstanding anything to the contrary set forth in this Lease, in the event, pursuant to this Lease, Lessee is required to undertake any sampling, assessment, investigation or remediation with respect to the Premises, the Building or the Land, as the case may be, then, at Lessor's discretion, Lessor shall have the right, upon notice to Lessee, from time to time, to perform such activities at Lessee's expense, and all sums reasonably incurred by Lessor shall be paid by Lessee to Lessor, upon demand, as Additional Rent. (i) Indemnity. Lessee agrees, to the fullest extent permitted by law, to indemnify, defend and hold harmless Lessor, Lender and their respective officers, directors, shareholders, employees and personal or legal representatives from and against any and all claims, liabilities, losses, damages, penalties and costs, foreseen or unforeseen, including, without limitation, counsel, engineering and other professional or expert fees, which an indemnified party may incur resulting directly or indirectly, wholly or partly from Lessee's actions or omissions with regard to Lessee's obligations under this Section 47. (j) Survival. This Section 47 shall survive the expiration or earlier termination of this Lease. Without limiting any other rights or remedies of Lessor under this Lease, Lessee's failure to abide by the terms of this Section 47 shall be restrainable or enforceable, as the case may be, by injunction. 48. Attorney's Fees. In addition to any other rights and remedies hereunder, in the event of any default by Lessee or Lessor under this Lease, the defaulting party shall reimburse the other party for all attorneys' fees and costs reasonably incurred by the other party in enforcing its rights under this Lease or in exercising any rights and remedies available to it under this Lease or otherwise. Notwithstanding the foregoing, no sum payable by Lessor to Lessee under this Section 48 will be payable or recoverable from any rent or sums pledged or assigned (or intended to have been pledged or assigned) by Lessor to Lender, Lessee's right to recover such sums from Lessor being subordinate to the rights of Lender, such sums only being recoverable after payment to Lender in full of all principal, interest and other sums secured by its Mortgage. 49. Replacement of 1987 Lease. As of the Commencement Date, all terms and conditions of the 1987 Lease shall be replaced in their entirety by the terms and conditions of this Lease. Notwithstanding the foregoing, (i) neither Beneficial Owner nor Lessee, by executing and delivering this Lease, waives its rights to any claim it may have against the other under the 1987 Lease which accrued prior to the execution and delivery of this Lease, Lessee acknowledging and agreeing, however, that it shall have no rights or claims whatsoever against Lessor with respect to any matter other than Lessor's rights and obligations arising under this Lease following the Commencement Date, and (ii) for purposes only of allocations among Lessee and subtenants of Lessee under subleases created by Lessee under the 1987 Lease, the definition of the term "operating expenses" used in the 1987 Lease shall be deemed to survive replacement of the 1987 Lease (provided the foregoing shall in no way diminish, limit or otherwise affect Lessee's obligations under this Lease). 50. Limitation on Lessor's Liability. Notwithstanding anything to the contrary herein, Lessee agrees that the partners and/or members of the Lessor shall have no personal liability with respect to a breach by Lessor of any of the terins and conditions of this Lease. In addition, Lessee agrees that in the event of any such breach of any of the terms or conditions of this Lease by Lessor, Lessor's liability for such breach shall be limited to the value of Lessor's equity interest in the Premises, and Lessee shall look solely to such equity interest of Lessor for the satisfaction of any claim or judgment which Lessee may have or obtain against Lessor as a result of such breach. 51. Title and Condition. (i) The Premises are demised and let subject to the following: (A) Impositions (as defined herein), Legal Requirements, any matters consented to by Lessee, those covenants, restrictions, reservations, liens, conditions, encroachments, easements, encumbrances and other matters of title that affect the Premises as of the date of the Lease (including, without limitation, the Master Deed) or which arise due to the acts or omissions of Lessee, or due to the acts or omissions of Lessor with Lessee's consent, after the date hereof (collectively the "Permitted Encumbrances"), (B) all Legal Requirements and Insurance Requirements, including any existing violation of any thereof, and (C) the condition of the Premises as they exist as of the date of this Lease; all without representation or warranty by Lessor, it being understood and agreed, however, that the recital of the Permitted Encumbrances herein shall not be construed as a revival of any thereof which for any reason may have expired. (ii) Lessor has not made and will not make any inspection of any of the premises, and Lessor leases and will lease and Lessee takes and will take the premises "as is", and Lessee acknowledges that Lessor (whether acting as Lessor hereunder or in any other capacity) has not made and will not make, nor shall Lessor be deemed to have made, any warranty or representation, express or implied, with respect to any of the premises, including any warranty or representation as to its fitness for use or purpose, design or condition for any particular use or purpose, as to the quality of the material or workmanship therein, latent or patent, as to Lessor's title thereto, or as to value, compliance with specifications, location, use, condition, merchantability, quality, description, durability or operation, it being agreed that all risks incident thereto are to be borne by Lessee. Lessee acknowledges that the premises are of its selection and to its specifications, and that the premises have been inspected by lessee and are satisfactory to it. In the event of any defect or deficiency in any of the premises of any nature, whether patent or latent, Lessor shall not have any responsibility or liability with respect thereto or for any incidental or consequential damages (including strict liability in tort). The provisions of this section have been negotiated, and the foregoing provisions are intended to be a complete exclusion and negation of any warranties by Lessor, express or implied, with respect to any of the premises, arising pursuant to the uniform commercial code or any other law now or hereafter in effect or otherwise. (iii) Lessee acknowledges and agrees that Lessee has examined the title to the Premises prior to the execution and delivery of this Lease (including, without limitation, the Master Deed and all other recorded documents, and documents referred to in recorded documents, governing the Liberty Hall Corporate Center Condominium) and has found such title to be satisfactory for the purposes contemplated by this Lease. 52. Payment of Impositions, Compliance with Legal Requirements and Insurance Requirements. (a) Lessee shall pay and discharge before the imposition of any fine, lien, interest or penalty may be added thereto for late payment thereof, as Additional Rent, all other amounts and obligations which Lessee assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty, interest and cost which may be added by the party to whom such payment is due for nonpayment or late payment thereof. In the event of any failure by Lessee to pay or discharge any of the foregoing, Lessor shall have all rights, powers and remedies provided herein, by law or otherwise, in the event of nonpayment of Basic Rent. (b) Lessee shall promptly comply with and conform to (in all material respects) all of the Legal Requirements and insurance Requirements. Lessee shall promptly upon written reasonable request of Lessor provide evidence of such compliance. (c) Lessee shall not, directly or indirectly, create or permit to be created or to remain, and shall promptly discharge, any lien on the Premises, on the Basic Rent, Additional Rent or on any other sums payable by Lessee under this Lease, other than the Permitted Encumbrances and any Mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Lessor or those claiming by, through or under Lessor (except Lessee). Notice is hereby given that Lessor shall not be liable for any labor, services or materials furnished or to be furnished to Lessee, or to anyone holding any of the Premises through or under Lessee, and that no construction or other liens for any such labor, services or materials shall attach to or affect the interest of Lessor in and to any of the Premises. (d) In no event shall Lessee pursue any contest with respect to any Imposition, Legal Requirement, lien, or violation, referred to above in such manner that exposes Lessor or Lender to (i) criminal liability, penalty or sanction, (ii) any civil liability, penalty or sanction for which Lessee has not made provisions reasonably acceptable to Lessor and Lender or (iii) defeasance of its interest in the Premises. (e) Lessee agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Lessee shall have the right to attempt to settle or compromise such contest through negotiations. Lessee shall pay and save Lender and Lessor harmless against any and all losses, judgments, decrees and costs (including all attorneys' fees and expenses) in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof (f) Nothing in this Lease and no action or inaction by Lessor shall be deemed or construed to mean that Lessor has granted to Lessee any right, power or permission to do any act or to make any agreement which may create, give rise to, or be the foundation for, any right, title, interest or lien in or upon the estate of Lessor in any of the Premises. 53. Net Lease. (a) This is a net Lease and Basic Rent, Additional Rent and all other sums payable hereunder by Lessee shall be paid without notice, demand, setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense. (b) Lessee agrees that it shall remain obligated under this Lease in accordance with its provisions and that it shall not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding affecting Lessor, (ii) the exercise of any remedy, including foreclosure, under any Mortgage, or (iii) any action with respect to this Lease (including the disaffirmance hereof) which may be taken by Lessor under the Federal Bankruptcy Code or by any trustee, receiver or liquidator of Lessor or by any court under the Federal Bankruptcy Code or otherwise. (c) Except as expressly provided in Sections 10(c) and 11(c) Of this Lease, (i) Lessee shall not have any right to terminate this Lease for any reason whatsoever during the Term, and (ii) Lessee shall not for any reason whatsoever be entitled to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease. (d) This Lease is the absolute and unconditional obligation of Lessee. Lessee waives all rights which are not expressly stated in this Lease but which may now or hereafter otherwise be conferred by law (i) to quit, terminate or surrender this Lease or any of the Premises, (ii) to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease, and (iii) for any statutory lien or offset right against Lessor or its property. 54. Miscellaneous. (a) No Merger. There shall be no merger of this Lease or of the leasehold estate hereby created with the fee estate in the Premises or any part thereof by reason of the fact that the same person may acquire or hold, directly or indirectly, this Lease or the leasehold estate hereby created or any interest in this Lease or in such leasehold estate as well as the fee estate in the Premises or any interest in such fee estate. No such merger shall occur unless and until all persons (including, without limitation, any Lender) having any interest in this Lease or the leasehold estate created hereby, and the fee estate in or ownership of the Premises sought to be merged, shall join in a written instrument effecting such merger and shall duly record the same. (b) No Representations. Neither Lessor nor Lessor's agents have made any representations or promises with respect to the Premises, the Building or the Land. (c) Corporate Authority. Lessee does hereby represent and warrant (i) that Lessee is a duly authorized and existing corporation, in good standing and qualified to do business in the State of New Jersey, (ii) that Lessee has fall right and authority to execute, deliver and perform this Lease, (iii) that Lessee's execution, delivery and performance of this Lease has been approved by all necessary corporate action on Lessee's part, (iv) that all permits, consents and approvals (if any) required of any governmental or quasi-governmental agency, bureau, regulatory body or other authority for Lessee's execution, delivery and performance of this Lease have been obtained and remain in full force and effect, and (v) that each of the persons signing on behalf of Lessee is duly authorized to do so. (d) No Usury, Etc. The intention of the parties being to conform strictly to the applicable usury and other laws restricting amounts payable by a debtor to a creditor or a lessee to a lessor, whenever any provision herein provides for payment by Lessee to Lessor of interest or any other monies at a rate or in an amount in excess of the legal rate or amount permitted to be charged or paid, such rate or amount herein provided to be paid shall be deemed reduced to such legal rate or amount. (e) Performance of Obligations. Subject to the terms of this Lease, any act which Lessor is permitted to perform under this Lease may be performed at any time and from time to time by Lessor or any person or entity designated by Lessor. Any act which Lessee is required to perform under this Lease shall be performed at Lessee's sole cost and expense by Lessee or any person or entity designated by Lessee. (f) Surrender of Premises. At the expiration or sooner termination of this Lease, Lessee shall promptly quit and surrender the Premises in broom-clean condition reasonable wear and tear excepted, and shall deliver all keys and combinations to locks, safes and vaults to Lessor. Before surrendering said Premises, Lessee shall remove (i) all of its improvements and trade fixtures described on Exhibit B hereto, (ii) its signs, and (iii) and other property and items required to be removed by Lessee under Section 6 of this Lease, and will repair any damage caused thereby. Lessee's obligations under this Section 54(f) shall survive the expiration of the Term. If Lessee fails to remove its property upon the expiration or sooner termination of this Lease, the said property shall, at Lessor's option, be deemed abandoned and shall become the property of Lessor and Lessee shall be liable to Lessor for all costs incurred by Lessor related to such property. No act or thing done by Lessor or its agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless the same be made in writing and signed by Lessor. (g) Lessor Consent. Lessee acknowledges that so long as any Mortgage exists, no consent of or approval of Lessor shall be effective without the prior written consent of Lender, and that Lender, in Lender's sole and absolute discretion, may withhold or condition in anyway its consent to any consent, approval, waiver, extension, forbearance or other act by Lessor (including, without limitation, any amendment or modification of this Lease or of any document executed by Lessee in connection herewith or of the Master Deed) which would or could, directly or indirectly, (i) diminish the amount or delay the time for payment of any Basic Rent, Additional Rent or other sum payable under this Lease, (ii) alter in any way the absolute and unconditional nature of Lessee's obligations under this Lease or diminish, defer, suspend, delay the time for performance, waive or otherwise affect in any way any such obligations, (iii) result in any termination of this Lease prior to the end of its scheduled Term, (iv) adversely affect the value of the Premises, (v) adversely affect in any way any rights, remedies, powers or benefits of Lessor under this Lease, (vi) adversely affect in any way any rights, remedies, powers, benefits or estate of Lessor as the owner of the Corporate Center One Unit of the Liberty Hall Corporate Center Condominium, (vii) adversely affect any of the rights of Lender under the Mortgage or any other document relating to the loan secured thereby, or (viii) otherwise, in Lender's judgment, materially diminish any of the rights of Lessor under this Lease. Notwithstanding anything above to the contrary, Lender's consent shall not be required with respect to any extension of this Lease beyond its scheduled Term or to the provisions of this Lease applicable during any renewal term, provided, that, the provisions of any such extension do not directly or indirectly affect any of the provisions of this Lease or the rights or obligations of the parties in effect during the scheduled Term hereof, and further provided that Lessor and Lessee shall provide Lender a copy of any instrument intended to effect any extension of this Lease prior to its execution by Lessor and Lessee. (h) Statements. If and so long as Lessee is a public company, Lessee shall submit to Lessor and/or such other person or entity as Lessor may designate, when filed with the Securities and Exchange Commission, copies of each Form 10Q and 10K filed by Lessee during the Term. If at any time Lessee is not a public company, Lessee shall submit to Lessor and/or such other person or entity as Lessor may designate (a) such financial statements of Lessee which are reasonably requested by Lessor, and (b) annual audited financial reports, and quarterly audited or unaudited financial reports, of lessee within one hundred twenty (120) days following the close of each fiscal year (in the case of annual reports), and within forty-five days following the close of each fiscal quarter (in the case of quarterly reports). (i) Responsible Officer of Lessee. As used in this Lease, the term "Responsible Officer of Lessee" means any of the following: (i) the head of any operating division or business unit of Lessee who is charged with overall supervisory responsibility for the administration of this Lease and/or for the maintenance, management and operation of the Premises; or (ii) any person occupying the position of Chairman, President, Chief Executive Officer, Chief0perating Officer, Chief Financial Officer, Chief Administrative Officer, General Counsel, Secretary, Senior Vice President and/or Vice President of Lessee. 55. Compliance with Americans with Disabilities Act. Notwithstanding anything contained herein to the contrary, Lessee shall be responsible for all repairs, replacements, maintenance and liabilities with respect to any improvements made to the Premises by Lessee and any such repairs, replacements, maintenance and improvements shall comply with the Americans with Disabilities Act. In addition, Lessee shall be responsible for, and shall indemnify Lessor with respect to, any costs and expenses in connection with the Premises being in compliance with the Americans with Disabilities Act. 56. Lender Approval and Modifications. Lessor and Lessee agree to modify this Lease to accommodate any Lender's reasonable requests, provided that doing so will no impose any additional obligation upon Lessee. In Witness Whereof, the parties have hereunto set their hands an dseals the day and year first above written. Liberty Hall Joint Venture, L.L.C. A Delaware Limited Liability Company By: Liberty Hall Joint Venture, its Member By: Cali Liberty Associates, its General Partner By: /s/ Brant B. Cali Title: General Partner NUI Corporation A New Jersey Corporation By: /s/ James R. Van Horn Title: Chief Administrative Officer, General Counsel & Secretary Acknowledgement and Consent The undersigned executes below for the sole purpose of acknowledging and consenting to this Amended and Restated Lease the day and ear first above written. Liberty Hall Joint Venture A New Jersey General Partnership By: Cali Liberty Hall Assocites Its General Partner By: /s/ Brant B. Cali Title: General Partner EX-10.36 4 0004.txt Contract #800217 SERVICE AGREEMENT FOR RATE SCHEDULE CDS This Service Agreement, made and entered into this 1st day of June, 1993, by and between TEXAS EASTERN TRANSMISSION CORPORATION, a Delaware Corporation (herein called "Pipeline") and ELIZABETHTOWN GAS COMPANY (herein called "Customer", whether one or more), WITNESSETH: WHEREAS, the Federal Energy Regulatory Commission required Pipeline to restructure Pipeline's services to reflect compliance with Order Nos. 636, 636-A, and 636-B (collectively hereinafter referred to as "Order No. 63611); and WHEREAS, by order issued January 13, 1993 (62 FERC P61,015) and order issued April 22, 1993 (63 FERC P61,100), the Federal Energy Regulatory Commission accepted Pipeline's revised tariff sheets filed in compliance with Order No. 636 to become effective June 1, 1993, subject to certain conditions set forth in the April 22, 1993 order; and WHEREAS, Customer made its final Order No. 636 service elections on May 3, 1993 pursuant to the April 22, 1993 order and Pipeline filed revised tariff sheets to become effective June 1, 1993 in compliance with the April 22, 1993 order; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties do covenant and agree as follows: ARTICLE I SCOPE OF AGREEMENT Subject to the terms, conditions and limitations hereof, of Pipeline's Rate Schedule CDS, and of the General Terms and Conditions, transportation service hereunder will be firm. Subject to the terms, conditions and limitations hereof and of Sections 2.3 and 2.4 of Pipeline's Rate Schedule CDS, Pipeline shall deliver to those points on Pipeline's system as specified in Article IV herein or available to Customer pursuant to Section 14 of the General Terms and Conditions (hereinafter referred to as Point(s) of Delivery), for Customer's account, as requested for any day, natural gas quantities up to Customer's MDQ. Customer's MDQ is as follows: Maximum Daily Quantity (MDQ) 20,220 dth Subject to variances as may be permitted by Sections 2.4 of Rate Schedule CDS or the General Terms and Conditions, Customer shall deliver to Pipeline and Pipeline shall receive, for Customer's account, at those points on Pipeline's system as specified in Article IV herein or available to Customer pursuant to Section 14 of the General Terms and Conditions (hereinafter referred to as Point(s) of Receipt) daily quantities of gas equal to the daily quantities delivered to Customer pursuant to this Service Agreement up to Customer's MDQ, plus Applicable Shrinkage as specified in the General Terms and Conditions. Pipeline shall not be obligated to, but may at its discretion, receive at any Point of Receipt on any day a quantity of gas in excess of the applicable Maximum Daily Receipt Obligation (MDRO), plus Applicable Shrinkage, but shall not receive in the aggregate at all Points of Receipt on any day a quantity of gas in excess of the applicable MDQ, plus Applicable Shrinkage. Pipeline shall not be obligated to, but may at its discretion, deliver at any Point of Delivery on any day a quantity of gas in excess of the applicable Maximum Daily Delivery Obligation (MDDO), but shall not deliver in the aggregate at all Points of Delivery on any day a quantity of gas in excess of the MDQ. In addition to the MDQ and subject to the terms, conditions and limitations hereof, Rate Schedule CDS and the General Terms and Conditions, Pipeline shall deliver within the Access Area under this and all other service agreements under Rate Schedules CDS, FT-1, and/or SCT, quantities up to Customer's Operational Segment Capacity Entitlements, excluding those Operational Segment Capacity Entitlements scheduled to meet Customer's NDQ, for Customer's account, as requested on any day. ARTICLE II TERM OF AGREEMENT The term of this Service Agreement shall commence on June 1, 1993 and shall continue in force and effect until 10/31/2012 and year to year thereafter unless this Service Agreement is terminated as hereinafter provided. This Service Agreement may be terminated by either Pipeline or Customer upon five (5) years prior written notice to the other specifying a termination date of any year occurring on or after the expiration of the primary term. In addition to Pipeline rights under Section 22 of Pipeline's General Terms and Conditions and without prejudice to such rights, this Service Agreement may be terminated at any time by Pipeline in the event Customer fails to pay part or all of the amount of any bill for service hereunder and such failure continues for thirty (30) days after payment is due; provided, Pipeline gives thirty (30) days prior written notice to Customer of such termination and provided further such termination shall not be effective if, prior to the date of termination, Customer either pays such outstanding bill or furnishes a good and sufficient surety bond guaranteeing payment to Pipeline of such outstanding bill. The termination of this service agreement with a fixed contract term or the provision of a termination notice by customer triggers pregranted abandonment under section 7 of the natural gas act as of the effective date of the termination. provision of a termination notice by pipeline also triggers customer's right of first refusal under section 3.13 of the general terms and conditions on the effective date of the termination. Any portions of this Service Agreement necessary to correct or cash- out imbalances under this Service Agreement as required by the General Terms and Conditions of Pipeline's FERC Gas Tariff, Volume No. 1, shall survive the other parts of this Service Agreement until such time as such balancing has been accomplished. ARTICLE III RATE SCHEDULE This Service Agreement in all respects shall be and remain subject to the applicable provisions of Rate Schedule CDS and of the General Terms and Conditions of Pipeline's FERC Gas Tariff on file with the Federal Energy Regulatory Commission, all of which are by this reference made a part hereof. Customer shall pay Pipeline, for all services rendered hereunder and for the availability of such service in the period stated, the applicable prices established under Pipeline's Rate Schedule CDS as filed with the Federal Energy Regulatory Commission, and as same may hereafter be legally amended or superseded. Customer agrees that Pipeline shall have the unilateral right to file with the appropriate regulatory authority and make changes effective in (a) the rates and charges applicable to service pursuant to Pipeline's Rate Schedule CDS, (b) Pipeline's Rate Schedule CDS pursuant to which service hereunder is rendered or (c) any provision of the General Terms and Conditions applicable to Rate Schedule CDS. Notwithstanding the foregoing, Customer does not agree that Pipeline shall have the unilateral right without the consent of Customer subsequent to the execution of this Service Agreement and Pipeline shall not have the right during the effectiveness of this Service Agreement to make any filings pursuant to Section 4 of the Natural Gas Act to change the NDQ specified in Article I, to change the term of the agreement as specified in Article 11, to change Point(s) of Receipt specified in Article IV, to change the Point(s) of Delivery specified in Article IV, or to change the firm character of the service hereunder. Pipeline agrees that Customer may protest or contest the aforementioned filings, and Customer does not waive any rights it may have with respect to such filings. ARTICLE IV POINT(S) OF RECEIPT AND POINT(S) OF DELIVERY The Point(s) of Receipt and Point(s) of Delivery at which Pipeline shall receive and deliver gas, respectively, shall be specified in Exhibit(s) A and B of the executed service agreement. Customer's Zone Boundary Entry Quantity and Zone Boundary Exit Quantity for each of Pipeline's zones shall be specified in Exhibit C of the executed service agreement. Exhibit(s) A, B and C are hereby incorporated as part of this Service Agreement for all intents and purposes as if fully copied and set forth herein at length. ARTICLE V QUALITY All natural gas tendered to Pipeline for Customer's account shall conform to the quality specifications set forth in Section 5 of Pipeline's General Terms and Conditions. Customer agrees that in the event Customer tenders for service hereunder and Pipeline agrees to accept natural gas which does not comply with Pipeline's quality specifications, as expressly provided for in Section 5 of Pipeline's General Terms and Conditions, Customer shall pay all costs associated with processing of such gas as necessary to comply with such quality specifications. Customer shall execute or cause its supplier to execute, if such supplier has retained processing rights to the gas delivered to Customer, the appropriate agreements prior to the commencement of service for the transportation and processing of any liquefiable hydrocarbons and any PVR quantities associated with the processing of gas received by Pipeline at the Point(s) of Receipt under such Customer's service agreement. In addition, subject to the execution of appropriate agreements, Pipeline is willing to transport liquids associated with the gas produced and tendered for transportation hereunder. ARTICLE VI ADDRESSES Except as herein otherwise provided or as provided in the General Terms and Conditions of Pipeline's FERC Gas Tariff, any notice, request, demand, statement, bill or payment provided for in this Service Agreement, or any notice which any party may desire to give to the other, shall be in writing and shall be considered as duly delivered when mailed by registered, certified, or regular mail to the post of f ice address of the parties hereto, as the case may be, as follows: (a) Pipeline: TEXAS EASTERN TRANSMISSION CORPORATION 5400 Westheimer Court Houston, TX 77056-5310 (b) Customer: ELIZABETHTOWN GAS COMPANY ONE ELIZABETHTOWN PLAZA P. 0. BOX 3175 UNION, NJ 07083 Attention: Director, Gas Supply & Federal Regulatory Matters or such other address as either party shall designate by formal written notice. ARTICLE VII ASSIGNMENTS Any company which shall succeed by purchase, merger, or consolidation to the properties, substantially as an entirety, of Customer, or of Pipeline, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this Service Agreement; and either Customer or Pipeline may assign or pledge this Service Agreement under the provisions of any mortgage, deed of trust, indenture, bank credit agreement, assignment, receivable sale, or similar instrument which it has executed or may execute hereafter; otherwise, neither Customer nor Pipeline shall assign this Service Agreement or any of its rights hereunder unless it first shall have obtained the consent thereto in writing of the other; provided further, however, that neither Customer nor Pipeline shall be released from its obligations hereunder without the consent of the other. In addition, Customer may assign its rights to capacity pursuant to Section 3.14 of the General Terms and Conditions. To the extent Customer so desires, when it releases capacity pursuant to Section 3.14 of the General Terms and Conditions, Customer may require privity between Customer and the Replacement Customer, as further provided in the applicable Capacity Release Umbrella Agreement. ARTICLE VIII INTERPRETATION The interpretation and performance of this Service Agreement shall be in accordance with the laws of the State of Texas without recourse to the law governing conflict of laws. This Service Agreement and the obligations of the parties are subject to all present and future valid laws with respect to the subject matter, State and Federal, and to all valid present and future orders, rules, and regulations of duly constituted authorities having jurisdiction. ARTICLE IX CANCELLATION OF PRIOR CONTRACT(S) This Service Agreement supersedes and cancels, as of the effective date of this Service Agreement, the contracts between the parties hereto as described below: Service Agreement(s) dated, 01/01/1993 between Pipeline and Customer under Pipeline's Rate Schedule GS, and FT-1 (Pipeline's Contract No. 200407 and 200406). IN WITNESS WHEREOF, the parties hereto have caused this Service Agreement to be signed by their respective Presidents, Vice Presidents or other duly authorized agents and their respective corporate seals to be hereto affixed and attested by their respective Secretaries or Assistant Secretaries, the day and year first above written. Texas Eastern Transmission Corporation By: /s/ Diane T. Tom Vice President Attest: /s/ Robert W. Reed Secretary Elizabethtown Gas Company By: /s/ Thomas E. Smith Vice President Supply & Planning Attest: /s/ Kenneth G. Ward Assistant Secretary EX-10.52 5 0005.txt Contract # 3.2229 SERVICE AGREEMENT UNDER RATE SCHEDULE LNG THIS AGREEMENT entered into this 25 day of October, 1999 by and between TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, hereinafter referred to as Seller, first party, and NUI CORPORATION, a New Jersey corporation, hereinafter referred to as Buyer, second party WITNESSETH: WHEREAS, Buyer and Seller are parties to a service agreement under Seller's Rate Schedule LG-A dated January 12, 1971 pursuant to which Seller provides liquefied natural gas storage service for Buyer up to a total volume of 94,770 Mcf of natural gas which is Buyer's Liquefaction Capacity Volume; and WHEREAS, Buyer submitted to Seller on April 17, 1998, a binding nomination for additional service under Rate Schedule LG-A in response to Seller's open season announcement of the availability of Rate Schedule LG-A service as of November 1, 1998; and WHEREAS, such firm storage service under Rate Schedule LG-A became available on November 1, 1998, as a result of the termination effective October 31, 1998 of a certain Rate Schedule LG-A service agreement between Seller and PG Energy Inc.; and WHEREAS, Buyer and Seller were allowed to enter into an agreement for service under Rate Schedule LG-A for one year only, after which time remaining service must be under Part 284 of the Commission's regulations; and WHEREAS, Seller has made available to Buyer storage capacity from its liquefaction plant upstream of Carlstadt, New Jersey under Part 284 of the Commission's regulations; and Buyer desires to purchase and Seller desires to sell natural gas storage service under Seller's Rate Schedule LNG as set forth herein; NOW, THEREFORE, Seller and Buyer agree as follows: ARTICLE I SERVICE TO BE RENDERED Subject to the terms and provisions of this agreement, and of Seller's Rate Schedule LNG, Seller agrees to liquefy natural gas, store such gas in liquefied form, withdraw from storage, gasify and deliver to Buyer, quantities of natural gas as follows: To withdraw from liquid storage and gasify the gas stored in liquefied form by Seller for Buyer's account up to a maximum quantity in any day of 15,000 dt which quantity shall be Buyer's Liquefaction Demand. To liquefy and store in liquefied form for Buyer's account during the Injection Period of any year up to a total quantity of 56,864 dt, which quantity shall be Buyer's Liquefaction Capacity Quantity. ARTICLE II POINT(S) OF RECEIPT/DELIVERY The Point or Points of Receipt/Delivery for all natural gas delivered by Seller to so Buyer under this agreement shall be at or near 1. ERIE STREET METER STATION, located at milepost 1811.25 on Seller's main transmission line, near the junction of Caspian Street and Third Avenue, in the City of Elizabeth, Union County, New Jersey. 2. CLOVERLEAF METER STATION, located at milepost 1802.79 on Seller's main transmission line, on the southwesterly side of St. George Avenue between Roanoke Avenue and Port Reading Railroad, in Woodbridge Township, Middlesex County, New Jersey. 3. GRANDVEEW METER STATION, located at milepost 1799.62 on Seller's main transmission line, near the junction of U.S. Highway No. 1 and Grandview Avenue, in Edison Township, Middlesex County, New Jersey. 4. NORTH AVENUE METER STATION, located adjacent to Seller's main transmission line at the intersection of North Avenue with Central Railroad of New Jersey in the city of Elizabeth, Union County, New Jersey. 5. FORD MOTOR CONMANY METER STATION, located adjacent to Seller's main transmission line in Nixon, New Jersey, near U. S. Highway No. 1 where the facilities of Buyer connect with those of Seller. 6. NEW VIILLAGE METER STATION, located at milepost 22.10 on Seller's Leidy Line, near New Village, Warren County, New Jersey. 7. PENNINGTON METER STATION, located at milepost 1770.11 on Seller's main transmission line. 8. CLINTON METER STATION, located at milepost 12.51 on Seller's Leidy Line, southwest of the City of Clinton, Hunterdon County, New Jersey. 9. SEWAREN GENERATING STATION, Cliff Road and Smith Creek, Sewaren Section of Woodbridge Township, New Jersey. 10. SPRUCE RUN METER STATION, located near milepost 15.91 on Seller's Leidy Line in Hunterdon, New Jersey. ARTICLE III DELIVERY PRESSURE Seller shall deliver natural gas to Buyer at the Point(s) of Delivery at a pressure(s) of Not less than fifty (50) pounds per square inch gauge or at such other pressures as may be agreed upon in the day-to-day operations of Buyer and Seller. ARTICLE IV TERM OF AGREEMENT This agreement shall be effective as of November 1, 1999 and shall remain in force and effect for a period terminating October 31, 2002, and year to year thereafter, subject to termination by either party upon at least one hundred eighty (180) days prior written notice to the other party. ARTICLE V RATE SCHEDULE AND PRICE Buyer shall pay Seller for natural gas service rendered hereunder in accordance with Seller's Rate Schedule LNG and the applicable provisions of the General Terms and Conditions of Seller's FERC Gas Tariff as filed with the Federal Energy Regulatory Commission, and as the same may be amended or superseded from time to time at the initiative of either party. Such rate schedule and General Terms and Conditions are by this reference made a part hereof In the event Buyer and Seller mutually agree to a negotiated rate and specified term for service hereunder, provisions governing such negotiated rate (including surcharges) and term shall be set forth on Exhibit A to the service agreement. ARTICLE VI MISCELLANEOUS 1. The subject headings of the Articles of this agreement are inserted for the purpose of convenient reference and are not intended to be a part of this agreement nor to be considered in the interpretation of the same. 2. This agreement supersedes and cancels as of the effective date hereof the following contracts between the parties hereto: Contract # 2.6998 3. No waiver by either party of any one or more defaults by the other in the performance of any provisions of this agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different character. 4. This agreement shall be interpreted, performed and enforced in accordance with the laws of the State of Texas. 5. This agreement shall be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns. In witness whereof, the parties hereto have caused this agreement to be signed by their respective officers or representatives thereunto duly authorized. TRANSCONTINENTAL GAS PIPELINE CORPORATION (Seller) By: /s/ Frank J. Ferazzi, Vice President, Customer Service and Rates NUI CORPORATION D/B/A Elizabethtown Gas Company (Buyer) By: /s/ Thomas E. Smith, Director, Energy Planning EX-10.53 6 0006.txt SERVICE PACKAGE NO. 31117 AMENDMENT NO. 0 GAS TRANSPORTATION AGREEMENT For Use Under FT-A Rate Schedule) THIS AGREEMENT is made and entered into as of the 17th day of October, 1999, by and between TENNESSEE GAS PIPELINE COMPANY, a Delaware Corporation, hereinafter referred to as "Transporter" and NUI CORPORATION, a NEW JERSEY Corporation, hereinafter referred to as "Shipper". Transporter and Shipper shall collectively be referred to herein as the "Parties." ARTICLE I DEFINITIONS 1.1 TRANSPORTATION QUANTITY (TQ) - shall mean the maximum daily quantity of gas which Transporter agrees to receive and transport on a firm basis, subject to Article II herein, for the account of Shipper hereunder on each day during each year during the term hereof, which shall be 1,654 dekatherms. Any limitations of the quantities to be received from each Point of Receipt and/or delivered to each Point of Delivery shall be as specified on Exhibit "A" attached hereto. 1.2 EQUIVALENT QUANTITY - shall be as defined in Article I of the General Terms and Conditions of Transporter's FERC Gas Tariff. ARTICLE II TRANSPORTATION Transportation Service - Transporter agrees to accept and receive daily on a firm basis, at the Point(s) of Receipt from Shipper or for Shipper's account such quantity of gas as Shipper makes available up to the Transportation Quantity, and to deliver to or for the account of Shipper to the Point(s) of Delivery an Equivalent Quantity of gas. ARTICLE III POINT(S) OF RECEIPT AND DELIVERY The Primary Point(s) of Receipt and Delivery shall be those points specified on Exhibit "A" attached hereto. ARTICLE IV All facilities are in place to render the service provided for in this Agreement. ARTICLE V QUALITY SPECIFICATIONS AND STANDARDS FOR MEASUREMENT For all gas received, transported and delivered hereunder the Parties agree to the Quality Specifications and Standards for Measurement as specified in the General Terms and Conditions of Transporter's FERC Gas Tariff Volume No. 1. To the extent that no new measurement facilities are installed to provide service hereunder, measurement operations will continue in the manner in which they have previously been handled. In the event that such facilities are not operated by Transporter or a downstream pipeline, then responsibility for operations shall be deemed to be Shipper's. ARTICLE VI RATES AND CHARGES FOR GAS TRANSPORTATION 6.1 TRANSPORTATION RATES - Commencing upon the effective date hereof, the rates, charges, and surcharges to be paid by Shipper to Transporter for the transportation service provided herein shall be in accordance with Transporter's Rate Schedule FT-A and the General Terms and Conditions of Transporter's FERC Gas Tariff. Except as provided to the contrary in any written or electronic agreements) between Transporter and Shipper in effect during the term of this Agreement, Shipper shall pay Transporter the applicable maximum rate(s) and all other applicable charges and surcharges specified in the Summary of Rates in Transporter's FERC Gas Tariff and in this Rate Schedule. Transporter and Shipper may agree that a specific discounted rate will apply only to certain volumes under the agreement. Transporter and Shipper may agree that a specified discounted rate will apply only to specified volumes (MDQ, TQ, commodity volumes, Extended Receipt and Delivery Service Volumes or Authorized Overrun volumes) under the Agreement; that a specified discounted rate will apply only if specified volumes are achieved (with the maximum rates applicable to volumes above the specified volumes or to all volumes if the specified volumes are never achieved); that a specified discounted rate will apply only during specified periods of the year or over a specifically defined period of time; and/or that a specified discounted rate will apply only to specified points, zones, markets or other defined geographical area. Transporter and Shipper may agree to a specified discounted rate pursuant to the provisions of this Section 6.1 provided that the discounted rate is between the applicable maximum and minimum rates for this service. 6.2 INCIDENTAL CHARGES - Shipper agrees to reimburse Transporter for any filing or similar fees, which have not been previously paid for by Shipper, which Transporter incurs in rendering service hereunder. 6.3 CHANGES IN RATES AND CHARGES - Shipper agrees that Transporter shall have the unilateral right to file with the appropriate regulatory authority and make effective changes in (a) the rates and charges applicable to service pursuant to Transporter's Rate Schedule FT-A, (b) the rate schedule (s) pursuant to which service hereunder is rendered, or (c) any provision of the General Terms and Conditions applicable to those rate schedules. Transporter agrees that Shipper may protest or contest the aforementioned filings, or may seek authorization from duly constituted regulatory authorities for such adjustment of Transporter's existing FERC Gas Tariff as may be found necessary to assure Transporter just and reasonable rates. ARTICLE VII BILLINGS AND PAYMENTS Transporter shall bill and Shipper shall pay all rates and charges in accordance with Articles V and VI, respectively, of the General Terms and Conditions of the FERC Gas Tariff. ARTICLE VIII GENERAL TERMS AND CONDITIONS This Agreement shall be subject to the effective provisions of Transporter's Rate Schedule FT-A and to the General Terms and Conditions incorporated therein, as the same may be changed or superseded from time to time in accordance with the rules and regulations of the FERC. ARTICLE IX REGULATION 9.1 This Agreement shall be subject to all applicable and lawful governmental statutes, orders, rules and regulations and is contingent upon the receipt and continuation of all necessary regulatory approvals or authorizations upon terms acceptable to Transporter. This Agreement shall be void and of no force and effect if any necessary regulatory approval is not so obtained or continued. All Parties hereto shall cooperate to obtain or continue all necessary approvals or authorizations, but no Party shall be liable to any other Party for failure to obtain or continue such approvals or authorizations. 9.2 The transportation service described herein shall be provided subject to Subpart G, Part 284, of the FERC Regulations. ARTICLE X RESPONSIBILITY DURING TRANSPORTATION Except as herein specified, the responsibility for gas during transportation shall be as stated in the General Terms and Conditions of Transporter's FERC Gas Tariff Volume No. 1. ARTICLE XI WARRANTIES In addition to the warranties set forth in Article IX of the General Terms and Conditions of Transporter's FERC Gas Tariff, Shipper warrants the following: a. Shipper warrants that all upstream and downstream transportation arrangements are in place, or will be in place as of the requested effective date of service, and that it has advised the upstream and downstream transporters of the receipt and delivery points under this Agreement and any quantity limitations for each point as specified on Exhibit "A" attached hereto. Shipper agrees to indemnify and hold Transporter harmless for refusal to transport gas hereunder in the event any upstream or downstream transporter fails to receive or deliver gas as contemplated by this Agreement. b. Shipper agrees to indemnify and hold Transporter harmless from all suits, actions, debts, accounts, damages, costs, losses and expenses (including reasonable attorneys fees) arising from or out of breach of any warranty by Shipper herein. Transporter shall not be obligated to provide or continue service hereunder in the event of any breach of warranty. ARTICLE XII TERM 12.1 This Agreement shall be effective as of the 17th day of October, 1999, and shall remain in force and effect until the 31st day of October, 2000, ("Primary Term") and on a month to month basis thereafter unless terminated by either Party upon at least thirty (30) days prior written notice to the other Party; provided, however, that if the Primary Term is one year or more, then unless Shipper elects upon one year's prior written notice to Transporter to request a lesser extension term, the Agreement shall automatically extend upon the expiration of the Primary Term for a term of five years and shall automatically extend for successive five year terms thereafter unless Shipper provides notice described above in advance of the expiration of a succeeding term; provided further, if the FERC or other governmental body having jurisdiction over the service rendered pursuant to this Agreement authorizes abandonment of such service, this Agreement shall terminate on the abandonment date permitted by the FERC or such other governmental body. 12.2 Any portions of this Agreement necessary to resolve or cash out imbalances under this Agreement as required by the General Terms and Conditions of Transporter's Tariff, shall survive the other parts of this Agreement until such time as such balancing has been accomplished; provided, however, that Transporter notifies Shipper of such imbalance not later than twelve months after the termination of this Agreement. 12.3 This Agreement will terminate automatically upon written notice from Transporter in the event Shipper fails to pay all of the amount of any bill for service rendered by Transporter hereunder in accord with the terms and conditions of Article VI of the General Terms and Conditions of Transporter's FERC Gas Tariff. ARTICLE XIII NOTICE Except as otherwise provided in the General Terms and Conditions applicable to this Agreement, any notice under this Agreement shall be in writing and mailed to the post office address of the Party intended to receive the same, as follows: TRANSPORTER: TENNESSEE GAS PIPELINE COMPANY P.O. Box 2511 Houston, Texas 77252-2511 Attention: Director, Transportation Control SHIPPER: NOTICES: NUI CORPORATION 550 ROUTE 202-206 P. 0. BOX 760 BEDMINSTER, NJ 07921-0760 Attention: CONTRACT ADMINISTRATION BILLING: NUI CORPORATION 550 ROUTE 202-206 P. 0. BOX 760 BEDMINSTER, NJ 07921-0760 Attention: TRACY ROBINSON or NORENE NAVARRO or to such other address as either Party shall designate by formal written notice to the other. In Witness Whereof, the Parties hereto have caused this Agreement to be duly executed as of the date first hereinabove written. TENNESSEE GAS PIPELINE COMPANY By: /s/ Mary Milendry Agent and Attorney-in-fact Date: 12/15/99 NUI CORPORATION By: /s/ Thomas E. Smith Director of Energy Planning Date: 11/30/99 EX-10.54 7 0007.txt ASSET SALE AGREEMENT BETWEEN NUI CORPORATION AND C&T ENTERPRISES, INC. Dated as of October 4, 2000 ASSET SALE AGREEMENT This Asset Sale Agreement (the "Agreement") is made as of this 4th day of October, 2000 by and between NUI CORPORATION, a New Jersey corporation having offices at 550 Route 202-206, P.O. Box 760, Bedminster, New Jersey 07921-0760 (the "Seller") and C&T ENTERPRISES, INC., a Pennsylvania corporation having offices at 1775 Industrial Boulevard, P.O. Box 551, Lewisburg, Pennsylvania 17837 (the "Buyer"). WITNESSETH: WHEREAS, Seller owns certain assets described herein, which assets are presently used in that portion of the Seller's business which is operated under the name of "Valley Cities Gas Service" and "Waverly Gas Service" which are operating divisions of Seller (hereinafter referred to as the "VCW Business"); and WHEREAS, Seller wishes to sell the assets constituting the VCW Business as more fully described herein to Buyer and Buyer wishes to buy such assets constituting the VCW Business subject to the terms and conditions of this Agreement. NOW THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE 1. SALE, TRANSFER AND ASSIGNMENT OF ASSETS. Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to purchase from Seller at the Closing described in Article 3 hereof, the assets, properties and interests of Seller constituting the VCW Business of every kind, character and description, whether tangible, intangible, real, personal or mixed, and wherever located except for the Excluded Assets, all of which are sometimes collectively referred to in this Agreement as the "Assets", including, but not limited to, the following: 1.1 Owned Real Property. Those certain parcels of land more fully described on Schedule 1.1, together with all privileges and appurtenances thereto and all buildings, structures, fixtures and other improvements situated thereon and together with all easements used or useful in connection therewith (such land, improvements and easements together hereinafter collectively referred to as the "Owned Real Property"). 1.2 Real Property Leases; Easements. All right, title and interest of Seller in the leases of the real property more fully described on Schedule 1.2(a), together with all rights and privileges under such leases (hereinafter referred to as the "Real Property Leases") and to the real property subject to such leases (hereinafter referred to as the "Leased Real Property" and together with the Owned Real Property being hereinafter collectively referred to as the "Real Property"), and the easements, rights-of-way, rights of access or licenses relating to the distribution mains and pipelines utilized in the VCW Business described on Schedule 1.2(b) (hereinafter referred to as the "Easements"). 1.3 Equipment. All the machinery, tools, appliances, vehicles, furniture, equipment (including, without limitation, essential spares and replacement parts), gas distribution mains and pipelines, together with gate stations, meters and other gas distribution equipment and other tangible personal property of every kind and description that are located upon or within the Real Property, and/or are owned or held by Seller, and are utilized in connection with the operations of the VCW Business, a current list of which is attached hereto as Schedule 1.3. (hereinafter referred to collectively as the "Equipment"). 1.4 Transportation and Storage Contracts / Supply Contracts. Seller's interest in the transportation and storage contracts and gas supply contracts relating to the operation of the VCW Business to be assumed by Buyer pursuant to Article 4, subject to Seller's continuing interest in such interstate pipeline deliverability and supply contracts necessary to serve Seller's New Jersey operations, all as fully described in Schedule 1.4 attached hereto (hereinafter referred to as the "Contracts"). 1.5 Accounts Receivable. All of Seller's accounts receivable as of the Closing Date (as defined in Article 3 below) arising out of the operation of the VCW Business in the ordinary course and unpaid as of the Closing Date (hereinafter referred to as "Accounts Receivable"), but excluding any reserves or allowance for bad debt maintained by Seller as of the Closing Date. 1.6 Intangibles. All intangible assets of the VCW Business listed on Schedule 5.12 as well as any other trade names (other than names used in the VCW Business which include the "NUI" name), trademarks, service marks, copyrights, patents, intellectual property, software licenses, customer lists, goodwill and other intangibles used exclusively in the VCW Business, if any, as of the Closing Date (as defined in Article 3 below) including, without limitation, tort or insurance proceeds arising out of any damage or destruction of any of the Assets between the date of this Agreement and the Closing Date. 1.7 Books and Records. All papers, computerized databases and records in Seller's care, custody or control relating to any or all of the above described Assets or exclusive to Seller's operation of the VCW Business, including, but not limited to all blueprints, plans and specifications, personnel and labor relations records, environmental compliance records, sales records, customer records, marketing materials, accounting and financial records, maintenance records, plats and surveys of the Real Property, and plans and designs of buildings, structures, fixtures and equipment. 1.8 Prepaid Expenses. All prepaid expenses and other prepaid items relating to any of the Assets and the operation of the VCW Business as of the Closing Date subject to allocations which may be made by Seller consistent with the terms of this Agreement and subject to Seller's retention of amounts attributable to pension payments and pension expenses as adjusted by Seller after Seller's valuation of its pension obligations to the employees of the VCW Business. 1.9 Permits, etc. All permits, licenses, consents or authorizations issued by, and all registrations and filings with, any governmental agency in connection with, the VCW Business whenever issued or filed, excepting only those which by law or by their terms are non-transferable or those which have expired. 1.10 Plant Material, Merchandise, Gas and Propane. All plant material and operating supplies, all merchandise, all gas stored underground and all propane in bulk storage tank utilized in connection with the VCW Business existing as of the Closing Date. 1.11 Excluded Assets. Seller shall not transfer to Buyer and Buyer shall not acquire Seller's cash, bank deposits or similar cash and cash equivalent items existing as of the Closing Date, whether or not arising from Seller's operation of the VCW Business (the "Excluded Assets") other than restricted cash held for regulatory purposes in connection with the VCW Business which shall be transferred to Buyer. ARTICLE 2. PURCHASE PRICE. 2.1 Payment of Purchase Price. In consideration for the transfer and assignment by Seller of the Assets, Buyer on the conditions set forth herein, (a) shall deliver to Seller at the Closing (as hereinafter defined) (i) Fifteen Million Dollars ($15,000,000) plus or minus any customary prorations as of the Closing Date relating to the transfer of the Real Property under this Agreement, and (ii) an amount required to reimburse Seller for reasonable amounts expended by Seller for the NUCOR expansion allocable to the VCW Business as more fully described in Section 8.12 of this Agreement, all payable in cash as more fully described in Section 3.2 hereof; and (b) shall assume and discharge, and shall indemnify Seller against liabilities and obligations of Seller under the leases, contracts or other agreements, if any, specified on Schedule 4. (c) shall pay Three Million Dollars ($3,000,000) to Seller at such time as the entire amount of the rate increase, consisting of the sum of: (i) the rate increase of Five Hundred Seventy Thousand Dollars ($570,000) described in the Regulatory Relief Section of Seller's Information Memorandum (dated June 2000), Page 5, Part F, and (ii) One Hundred Thousand Dollars ($100,000) (the agreed amount representing any annual insurance premium and/or accrual of funds associated with the remediation described in Section 8.8 of this Agreement), receives all necessary government approvals subject to reasonable and customary restrictions and limitations. If a rate increase of a lesser amount receives all necessary government approvals subject to reasonable and customary restrictions and limitations, then a linearly pro rated portion of the aforementioned $3 million payment shall be paid to Seller, provided, however, that if the amount of the approved rate increase does not yield additional annual revenue equal to at least $385,000 - the sum of (x) $285,000 and (y) $100,000 (the agreed amount of any annual insurance premium and/or accrual of funds associated with the remediation described in Section 8.8) - then no portion of the $3 million will be paid to Seller. As an illustration of the above proration, if the total rate increase approved is $500,000, the portion of the $3 million payable to Seller shall be calculated as follows: ($500,000 - ($285,000 + $100,000)) / $285,000 x $3,000,000 = $1,210,526.32. Buyer shall pursue approval of such rate increase with diligence and shall commence formal proceedings to obtain such increase by the later of: (i) eighteen (18) months after the Closing; or (ii) such date as the New York Public Service Commission and the Pennsylvania Public Utility Commission permit the Buyer to commence such proceedings. In the event Buyer breaches its obligation to diligently pursue such rate increase in accordance with the terms of this subparagraph, Buyer shall pay to Seller $3 million. Buyer's obligation to pursue the rate increase shall survive the Closing. Notwithstanding the foregoing, if Buyer applies for a rate increase and such increase is not approved, or only partially approved, as a result of such proceedings, Buyer shall have no obligation to reapply for a rate increase and Buyer's obligation to make payment to Seller pursuant to Section 2.1(c) shall be fixed on the basis of such initial application and decision. 2.2 Allocation of Purchase Price. The parties agree to make an allocation of the Purchase Price (defined as the sum of the amounts specified in paragraphs (a) and (c) of Section 2.1 above) at the Closing and to use such allocation in reporting the transaction contemplated by this Agreement for Federal and state tax purposes. ARTICLE 3. THE CLOSING. The closing of the purchase and sale of the Assets by Seller to Buyer (the "Closing") shall take place at the offices of Seller at 10:00 a.m. local time, no later than five (5) business days after all conditions to the Closing contained in this Agreement have been satisfied or waived in writing, or at such other place and/or time as the parties may agree in writing (the "Closing Date"). 3.1 Seller's Obligations at the Closing At the Closing, the Seller shall deliver or cause to be delivered to Buyer: (a) For all the owned Real Property and interests in the Owned Real Property, warranty deeds with covenants against grantor's acts in recordable form, properly executed and acknowledged, conveying title to the same; (b) Assignments of all Real Property Leases and Easements properly executed by Seller, and accompanied by all consents of lessors required by this Agreement and the leases being assigned; (c) Assignment and assumption agreements for personal property leases, licenses and permits and all Contracts of Seller to be assumed by Buyer in connection herewith, in a form legally sufficient to accomplish the assignment of the same and assumptions of the liabilities thereunder, and accompanied by all third party consents required by this Agreement and the personal property leases and Contracts being assigned to Buyer; and (d) Other instruments of assignment and transfer (including bills of sale) of all of the other Assets of Seller to be transferred hereunder reasonably requested by Buyer to effect, evidence or facilitate the transactions contemplated by this Agreement, in form legally sufficient to properly assign or convey such title. Simultaneously with the consummation of the transfer of the Assets, Seller, through its officers, agents, and employees, shall put Buyer into full possession and enjoyment of all the Assets to be sold, conveyed, transferred, assigned and delivered under this Agreement. 3.2 Buyer's Obligations at the Closing. At the Closing, Buyer shall deliver to Seller against delivery of the items specified in Section 3.1: (i) a certified or bank cashier's check, or a wire transfer of immediately available funds, in the amount of the balance of the Purchase Price, payable to Seller in accordance with Sections 2.1(a) and 2.1(b) of this Agreement; and (ii) appropriate instruments of assumption of the Assumed Obligations as defined herein in form legally sufficient to accomplish such assumption. ARTICLE 4. ASSUMPTION OF LIABILITIES Buyer is assuming certain debts, liabilities or obligations of Seller relating to the VCW Business, including all Accounts Payable that have become due and payable in the ordinary course of business no more than forty-five (45) days prior to the Closing Date and such other obligations as herein specifically provided. Buyer shall have the benefit of and shall perform and assume all Real Property Leases, Contracts (subject to Seller's retained rights thereunder), Easements, and other agreements and obligations relating to the VCW Business, if any, specifically listed on Schedule 4, in accordance with the terms and conditions thereof (the "Assumed Obligations"). Buyer specifically assumes no debts, liabilities or obligations of Seller other than those listed in Schedule 4. ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller does hereby represent and warrant to Buyer as follows: 5.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and has full corporate power and authority to carry on its business, and in particular the VCW Business, and to own, lease or operate its properties, and in particular, the Assets utilized in the VCW Business. 5.2 Authority. Seller has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. The Agreement has been duly and validly authorized, executed and delivered by Seller and constitutes the valid and binding obligation of Seller enforceable against Seller in accordance with its terms. 5.3 No Violation or Conflict. Assuming that all of the consents described in Schedule 5.4 and Schedule 6.4 are obtained, neither the execution and delivery nor performance of this Agreement by Seller will, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to, any provision of Seller's Certificate of Incorporation or Bylaws or, to Seller's knowledge, any material franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, ordinance, rule or regulation or any order, judgment, award or decree to which Seller is a party or by which it is bound. 5.4 Consents. Except as set forth on Schedule 5.4, no approval, consent, withholding of objection or other authorization is required from any court, administrative agency, regulatory agency, governmental authority or any other third party in connection with the execution and delivery of this Agreement by Seller or for the consummation by Seller of the transactions contemplated by this Agreement. 5.5 Claims and Litigation. To Seller's knowledge, except as set forth on Schedule 5.5, there is no material claim, legal action, suit, arbitration, governmental investigation or other legal, regulatory or administrative proceeding, or any order, judgment, decree or award in progress, pending, threatened or in effect against or relating to the Assets or the VCW Business. 5.6 Compliance with Laws and Other Requirements. To Seller's knowledge, Seller has not received any notice of material noncompliance with any laws, statutes, regulations, ordinances and orders, judgments, decrees and awards applicable to the Assets or the VCW Business, which notice remains unresolved and which noncompliance would have a material adverse effect on the Assets or the VCW Business. 5.7 Real Property. Schedules 1.1 and 1.2 to this Agreement contain complete listings of each parcel of real property owned by or leased to Seller and used in the VCW Business. Schedules 1.1 and 1.2 contain a description of all buildings, fixtures and other improvements located on the Real Property and a list of the policies of title insurance issued, if any, to Seller for these properties. True, correct and complete copies of the Real Property Leases and Easements are available for inspection by the Buyer. All the Real Property Leases, and to Seller's knowledge, all Easements, are valid and in full force, and there does not exist any default or event that with notice or lapse of time, or both, would constitute a default under any of such Leases or Easements. The zoning of each parcel of real property described in Schedules 1.1 and 1.2 permits the presently existing improvements and the continuation of the VCW Business presently being conducted thereon. 5.8 Tangible Personal Property The Equipment described in Section 1.3 and Schedule 1.3 of this Agreement constitutes all the items of tangible personal property owned by, in the possession of, or exclusively used by Seller in connection with the VCW Business. The Equipment listed in Schedule 1.3 constitutes all tangible personal property necessary for the conduct by Seller of the VCW Business as now conducted by Seller. Except as stated in Schedule 1.3, no Equipment used by Seller in connection with the VCW Business is held under any lease, security agreement, conditional sales contract, or other title retention or security arrangement. 5.9 Financial Statements of the VCW Business. Schedule 5.9(a) to this Agreement sets forth the balance sheet of the VCW Business as of September 30, 1999, (the "Last Fiscal Year End"), and the related statement of income for the year then ending which balance sheet and related statement of income are included in the consolidated financial statements of the Seller which are audited annually by Arthur Andersen LLP, Seller's independent certified public accountants. Schedule 5.9(b) to this Agreement sets forth the balance sheet of the VCW Business as of June 30, 2000, (the "Stub Period Date"), together with the related statement of income for the three month period then ending, certified by the Chief Financial Officer of Seller. The financial statements in Schedules 5.9(a) and 5.9(b) are hereinafter referred to as the "Financial Statements". The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed by Seller throughout the periods indicated, are complete and correct in all material respects and accurately and fairly present the financial position of the VCW Business as of the respective dates of the balance sheets included in the Financial Statements, and the results of operations of the VCW Business for the respective periods indicated. 5.10 Absence of Specified Changes. Since the Last Fiscal Year End, there has not been any: (a) Adverse change in the financial condition, liabilities, Assets, business, operating results or prospects of the VCW Business; (b) Destruction, damage to, or loss of any Assets of the VCW Business (whether or not covered by insurance) that adversely affects the Assets, financial condition, business, operating results or prospects of the VCW Business; (c) Labor trouble or other event or condition of any character adversely affecting the financial condition, business, Assets or prospects of the VCW Business; or (d) Other event or condition of any character that has or might reasonably have an adverse effect on the financial condition, business, Assets, operating results or prospects of the VCW Business. 5.11 Accounts Receivable. The Accounts Receivable reflected on the balance sheet dated the Stub Period Date included in the Financial Statements, and the Accounts Receivable created after the date thereof, are valid and genuine and arose from bonafide transactions involving the distribution of natural gas to the VCW Business customers and the performance of other services or other transactions in the ordinary course of the VCW Business. 5.12 Intangible Assets. Schedule 5.12 to this Agreement is a complete schedule of all trade names (other than names including the "NUI" name), trademarks, service marks, copyrights, patents, intellectual property, software licenses and other intangibles owned by or licensed to Seller and used exclusively in the VCW Business. Seller owns or has the right to use all trade names, trademarks, service marks, copyrights, patents, intellectual property, software licenses and other intangibles necessary to carry on the VCW Business substantially as currently conducted, except the failure of which to own or have the right to use individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Assets or on the VCW Business. 5.13 Title to Assets. Seller has good and marketable title to all the Assets and its interests in the Assets, whether real, personal, tangible and intangible, which constitute all the Assets and interests in Assets that are exclusively used in Seller's operation of the VCW Business. All the Assets are free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions or restrictions, except for (i) those disclosed in Seller's balance sheet as of the Stub Period Date, included in the Financial Statements, or disclosed in Schedule 5.13 and the other Schedules to this Agreement; (ii) the lien of current taxes not yet due and payable; and (iii) possible minor matters that, in the aggregate, are not substantial in amount and do not materially detract from or interfere with the present or intended use of any of the Assets, nor materially impair the business operations of the VCW Business. 5.14 Employee Agreements and Benefit Plans. (a) Schedule 5.14(a) contains a complete list of all employment contracts with respect to the employees of the VCW Business to which Seller is a party or by which Seller is bound (all the foregoing being herein called "Employee Agreements"). At the present time there are no Employee Agreements in effect, and to Seller's knowledge neither Seller nor any other party is in default under any Employee Agreement previously in effect. There have been no claims of default and, to the knowledge of the Seller, there are no facts or conditions which, if continued, or with the passage of time or compliance with any applicable notice requirements or both, will result in a default under the Employee Agreements. At the present time Seller is not a party to any collective bargaining agreement other than its collective bargaining agreement with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers (the "Union"), which agreement has expired. Seller is currently compensating bargaining unit employees of the VCW Business in accordance with the terms of the expired agreement. There is no pending or, to the knowledge of the Seller, threatened labor dispute, strike or work stoppage by the VCW Employees or any representative of the VCW employees. Seller made its last and best offer to Union in August, 2000 and Seller believes it is likely that a new collective bargaining agreement will be reached. A copy of the Seller's last and best offer has been provided to Buyer. (b) Schedule 5.14(b) contains a complete list of all pension plans, practices, policies or arrangements, profit sharing plans, bonus, deferred compensation, supplemental executive retirement plans, excess benefit plans, stock options, stock appreciation or other forms of incentive or other compensation plans or arrangements (including, "employee pension benefit plans" as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA")), and all welfare, severance, vacation, and other employee fringe benefit plans (including "employee welfare benefit plans" as defined in Section 3(1) of ERISA) maintained, or contributed to, by Seller for the benefit of the employees of the VCW Business or former employees of the VCW Business (all the foregoing being herein called "Benefit Plans"). (c) With respect to the NUI Corporation Savings and Investment Plan (the "Seller's Savings Plan") and the Pennsylvania & Southern Gas Company Employees Pension Plan (the "Seller's Pension Plan"), Seller has made available to Buyer copies of each of the following: (i) plan document; (ii) summary plan description; (iii) trust agreement; (iv) most recent annual report on IRS Form 5500 and (v) most recent Internal Revenue Service determination letter. To the knowledge of the Seller, the Seller's Savings Plan and the Seller's Pension Plan are "qualified" within the meaning of Section 401(a) of the Code. (d) Except as disclosed on Schedule 5.14(d), the Seller's Savings Plan and Seller's Pension Plan have been maintained in substantial compliance with their terms and within the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). No "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred which could subject the Buyer to the tax or penalty on prohibited transactions imposed by Section 4975 of the Code or the sanctions imposed under Title I of ERISA. 5.15 Personnel Identification and Compensation Schedule 5.15 contains a list of the names of all permanent, full time employees of the VCW Business stating the rates of compensation payable to each of them. All of the persons named in Schedule 5.15 have been employees of the VCW Business for at least One Hundred Twenty (120) days prior to the date of this Agreement and no other individuals have been employed by the VCW Business on a permanent basis during this period. 5.16 Contracts. Prior to the date hereof, Seller has provided Buyer with access to true and correct copies of all of the Contracts set forth in Schedule 1.4. Seller has performed and, to the knowledge of Seller, every other party has performed, each material term, covenant and condition of each of the Contracts that is to be performed by any of them at or before the date hereof. No event has occurred that would, with the passage of time or compliance with any applicable notice requirements or both, constitute a default by Seller or, to the knowledge of Seller, any other party under any of the Contracts and, to the knowledge of Seller, no party to any of the Contracts intends to cancel, terminate or exercise any option under any of such Contracts. 5.17 Environmental Conditions. (a) When used in this Section 5.17 and elsewhere in this Agreement: (i) "Environmental Laws" shall mean any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Materials or environmental protection as now or at any time hereafter in effect, together with any amendment or re- authorization thereto or thereof, (ii) "Governmental Authority" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court. (iii) "Hazardous Materials" shall mean any hazardous material, hazardous waste, infectious medical waste, Petroleum and Natural Gas Products, hazardous or toxic substance defined or regulated as such in or under any Environmental Law, including, without limitation, materials exhibiting the characteristics of ignitability, corrosivity, reactivity or extraction procedure toxicity, as such terms are now or hereafter defined in connection with hazardous materials or hazardous wastes or hazardous or toxic substances in any Environmental Law; and (iv) "Petroleum and Natural Gas Products" shall mean crude oil, petroleum or fractions thereof, gasoline, diesel fuel, motor oil, waste or used oil, heating oil, kerosene and any other petroleum products and natural gas, natural gas liquids, liquefied natural gas or synthetic gas useable for fuel. (b) Except for past operations conducted at the Athens, Pennsylvania manufactured gas plant (the "Athens MGP") and as otherwise disclosed in Schedule 5.17(b) attached hereto, and except for such violations that in the aggregate would not have a material adverse effect on the Assets or the VCW Business, (i) to Seller's knowledge, Seller has not used, stored, treated, transported, manufactured, refined, handled, produced, disposed of, managed, spilled or released any Hazardous Materials on, under, at from or in any way affecting any Real Estate or other Assets or otherwise, in any manner which at the time of the action in question violated, or at the time of this Agreement violate, any Environmental Law governing the use, storage, treatment, transportation, manufacture, refinement, handling, production, disposal, management, spill or release of Hazardous Materials; and (ii) to Seller's knowledge, no prior owner of such Real Property or Assets or any tenant, subtenant, prior tenant or prior subtenant thereof has used Hazardous Materials on, from or in any way affecting any such Real Property or Asset, or otherwise, in any manner which at the time of the action in question violated, or at the time of this Agreement violate, any Environmental Law governing the use, storage, treatment, transportation, manufacture, refinement, handling, production, disposal, management, spill or release of Hazardous Materials. (c) Except as set forth in Schedule 5.17(c), and except for such permits or noncompliance that in the aggregate would not have a material adverse effect on the Assets or the VCW Business, to Seller's knowledge (i) Seller has received all permits as may be required under applicable Environmental Laws to conduct the VCW businesses, (ii) Seller is in compliance in all material respects with the terms and conditions of any such permits, and (iii) Seller has not received any notices or claims, nor is there a factual basis for such a claim, that it is a responsible party in connection with any claim or notice asserted pursuant to 42 U.S.C. Section 9601 et seq., or any state superfund law with respect to any Real Property or the Assets. 5.18 Fees and Expenses of Brokers and Others Seller has not had any dealings, negotiations or communications with any broker or other intermediary in connection with the transactions contemplated by this Agreement, is not committed to any liability for any brokers' or finders' fees or any similar fees in connection with the transactions contemplated by this Agreement, and has not retained any broker or other intermediary to act on its behalf in connection with the transactions contemplated by this Agreement, except that Seller has engaged Berenson, Minella & Company to represent it in connection with such transactions, and Seller shall pay all of Berenson Minella's fees and expenses in connection with such engagement. 5.19 Taxes. To Seller's knowledge, Seller has not received any notice of material noncompliance with any federal, state or municipal tax law and Seller is current in its payment of all taxes including without limitation all income, gross receipts, property, sales, excise and franchise taxes, assessments or duties and no such tax is a lien or encumbrance upon any Asset which is a subject of this Agreement, except for the lien of current taxes not yet due and payable. 5.20 Gas Operations. To Seller's knowledge: (a) there have been no changes in the VCW gas transmission and distribution system between January 1, 2000 and the date of this Agreement other than changes made in the ordinary course of the VCW Business; (b) VCW's propane air peaking plants are capable of normal and safe operations; and (c) None of VCW's largest customers listed in Exhibit 8 of the June 2000 Information Memorandum have "bypassed" in the period between January 1, 2000 and the date of this Agreement, and Seller has no knowledge of any such customer who plans to "bypass." 5.21 Definition of Seller's Knowledge. As set forth in this Agreement, certain representations and warranties of Seller are being made to "Seller's knowledge" or terminology similar to such phrase. In determining Seller's knowledge and whether Seller has knowledge, Seller shall be deemed to have knowledge only of information actually known or which ought to be reasonably known by Seller's management team who are listed on Schedule 5.19. Each such member, in turn, shall be deemed to have knowledge of information of which that person has actual knowledge or which that person ought to reasonably know as of the Closing Date and information which that person personally possesses or reasonably ought to possess (including information in that person's respective files), but that person shall not be deemed to have knowledge of any information otherwise in the files of Seller or possessed by any other employee, officer or agent of Seller. The knowledge of each of such named persons shall not be imputed to any of the other named persons. Article 6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer does hereby represent and warrant to Seller as follows: 6.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Pennsylvania and has full corporate power and authority to carry on its business as now being conducted and to own, lease and operate its properties, as and in the places where such business is now conducted and such properties are now owned, leased or operated. 6.2 Authorization. Buyer has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. The Agreement has been duly and validly authorized, executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. 6.3 No Violation or Conflict. Assuming that all of the consents described in Schedules 5.4 and Schedule 6.4 are obtained, neither the execution and delivery nor performance of this Agreement by Buyer will, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to, any provision of Buyer's Certificate of Incorporation or Bylaws or, to Buyer's knowledge, any material franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, ordinance, rule or regulation or any order, judgment, award or decree to which Buyer is a party or by which it is bound. 6.4 Consents. Except as set forth in Schedule 6.4, no approval, consent, withholding of objection or other authorization is required from any court, administrative agency, regulatory agency, governmental authority or any other third party in connection with the execution and delivery of this Agreement by Buyer or for the consummation by Buyer of the transactions contemplated by this Agreement. 6.5 Financial Ability to Perform. Buyer has the financial ability and has access to funding sources to obtain the funds necessary to consummate the transactions contemplated to occur at the Closing. As of the date of this Agreement, Buyer knows of no reason that the funding sources Buyer has access to will not be able to provide Buyer such funding. 6.6 Fees and Expenses of Brokers and Others. Buyer has not had any dealings, negotiations or communications with any broker or other intermediary in connection with the transactions contemplated by this Agreement, is not committed to any liability for any brokers' or finders' fees or any similar fees in connection with the transactions contemplated by this Agreement, and has not retained any broker or other intermediary to act on its behalf in connection with the transactions contemplated by this Agreement, except that Buyer has engaged Management Consulting Services, Inc. ("MCS") to assist it in connection with such transactions, and Buyer shall pay all of the fees and expenses of MCS in connection with such engagement. 6.7 Acknowledgment by Buyer. Buyer has conducted, to its satisfaction, an independent investigation of the financial condition, Assets, liabilities to be assumed by Buyer and projected operations of the VCW Business in making its determination to proceed with the transactions contemplated by this Agreement, and Buyer has relied on the results of its own independent investigation, as well as the representations and warranties of Seller expressly and specifically set forth herein. 6.8 Definition of Buyer's Knowledge. As set forth in this Agreement, certain representations and warranties of Buyer are being made to "Buyer's knowledge" or terminology similar to such phrases. In determining Buyer's knowledge and whether Buyer has knowledge, Buyer shall be deemed to have knowledge only of information actually known or which ought to be reasonably known by Buyer's management team who are listed on Schedule 6.8. Each such member, in turn, shall be deemed to have knowledge of information of which that person has actual knowledge or which that person ought to reasonably know as of the Closing Date and information which that person personally possesses or reasonably ought to possess (including information in that person's respective files), but that person shall not be deemed to have knowledge of any information otherwise in the files of Buyer or possessed by any other employee, officer or agent of Buyer. The knowledge of each such named persons shall not be imputed to any of the other named persons. ARTICLE 7. SELLER'S Seller covenants and agrees that, except as otherwise agreed in writing by Buyer, from the date of this Agreement until the Closing Date: 7.1 Conduct of Business in the Ordinary Course. Seller shall continue to conduct the VCW Business in the ordinary course and consistent with past practice. Seller will use all commercially reasonable efforts to preserve the VCW Business, maintain all real and personal property, keep available the services of the present employees of the VCW Business and maintain the goodwill of the customers, suppliers and others having a business relationship with the VCW Business. Notwithstanding the foregoing, Seller shall not extend the term of any expiring interstate pipeline transportation and/or storage contracts without the consent of Buyer, nor will Seller enter into a gas "customer choice" program that has a material adverse effect on VCW's distribution margin, or volume delivered to customers on a weather normalized basis, except as otherwise required by the Pennsylvania Public Utility Commission and/or the Public Service Commission of the State of New York or any other entity having jurisdiction over such matters. 7.2 Maintenance of Insurance. Seller shall continue to carry its existing insurance covering the Assets and the VCW Business subject to variations in amounts required by the ordinary operations of the VCW Business. 7.3 Employees and Compensation. Seller shall not do, or agree to do, any of the following: (a) grant any increase in salaries payable or to become payable to any employee of the VCW Business other than such increases which are made in the ordinary course of business to employees and other than such increase which may be required under a collective bargaining agreement or other understanding with the representative of the employees who are members of a bargaining unit; (b) increase benefits payable to any employee of the VCW Business under any bonus or pension plan or other contract or commitment other than with respect to changes to any such plans, contracts or commitments made by Seller which affect its employees generally. Seller shall permit Buyer to contact Seller's employees at all reasonable times for the purpose of discussing with such employees prospective employment by Buyer on or after the Closing Date, and Seller shall take reasonable steps to assist Buyer's efforts to encourage employees of Seller to accept any employment offered by Buyer; (c) hire any new employee for, or transfer any existing employee to, the VCW Business, or terminate (other than for cause) or transfer any existing employee of the VCW Business without the consent of Buyer. 7.4 Access by Buyer. Seller shall give to Buyer and its authorized representatives access, during normal business hours and upon reasonable advance notice, in such a manner as not to disrupt the normal business activities of Seller's business, to the Assets and books of account and records of the VCW Business reasonably relevant to an evaluation of the Assets and the VCW Business. Seller will also cause its officers to furnish to Buyer any and all material financial, technical and operating data, and other information pertaining to the VCW Business operations of Seller and the Assets, as Buyer shall from time to time reasonably request for such purpose. 7.5 Covenant Not to Compete. Seller covenants and agrees that, for a period of five (5) years after the Closing Date (the "Restrictive Period") Seller shall not, in any capacity, directly or indirectly, distribute natural gas to any customers in the areas of Pennsylvania or New York (as applicable) served by the VCW Business. In addition, except as otherwise set forth in this Section 7.5, Seller covenants and agrees that during the Restrictive Period Seller shall not, in any capacity, directly or indirectly, sell natural gas to (i) any residential customer, or (ii) any other customer that would not be eligible for transportation service under tariffs in effect for the VCW Business as of the Closing Date. During the Restrictive Period, Seller shall not solicit non- transportation customers of the VCW Business to become transportation customers and it shall not solicit any customers of the VCW Business to "bypass." The foregoing notwithstanding, Seller shall be permitted to make bulk sales of natural gas to retail customers who were transportation customers of the VCW Business on or before the Closing Date. In the event that Buyer establishes a retail "choice" program in Pennsylvania and/or New York, permitting retail customers to purchase supply from a third-party, Buyer agrees to permit Seller to participate in any such "choice" program as a third-party marketer. If any court determines that this covenant not to compete, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. For purposes of this section, the term Seller shall include any parent, subsidiary or affiliated corporation of Seller or any entity, organization, or enterprise which Seller, directly or indirectly controls or in which Seller directly or indirectly possesses an ownership interest equal to or greater than fifty percent (50%) ARTICLE 8. ADDITIONAL AGREEMENTS. 8.1 Regulatory Matters. (a) The parties shall cooperate with each other and use all commercially reasonable efforts promptly to prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all governmental entities and third parties which are necessary to consummate the transactions contemplated by this Agreement as set forth in Schedule 5.4 and Schedule 6.4. The Seller and Buyer shall have the right to review in advance, and, to the extent practicable, each will consult with the other on, in each case, subject to applicable laws relating to the exchange of information, all the information relating to the Seller, the VCW Business or the Buyer, as the case may be, which appear in any application, notice, petition and filing made with or written materials submitted to, any governmental entity or third party in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all governmental entities and third parties necessary or advisable to consummate the transactions contemplated by this Agreement as set forth in Schedule 5.4 and Schedule 6.4, and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (b) Seller and Buyer shall promptly furnish each other with copies of written communications received by Seller and Buyer, as the case may be, from, or delivered by any of the foregoing to, any governmental entity in respect of the transactions contemplated hereby. 8.2 Legal Conditions to the Transaction. Each of Seller and Buyer shall use all reasonable efforts to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party with respect to the consummation of the transactions contemplated by this Agreement and to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of or any exemption by, any governmental entity and any other third party which is required to be obtained by Seller or Buyer in connection with the transactions contemplated by this Agreement. 8.3 Additional Agreements. If at any time after the Closing Date any further action is necessary or desirable to carry out the purpose of this Agreement or to vest Buyer with full title to the Assets and the VCW Business, the proper officers of each party to this Agreement shall take all such necessary actions as may be reasonably requested by the Buyer (without additional cost to it). 8.4 Disclosure Supplements. Prior to the Closing Date, each party will supplement or amend the Schedules hereto delivered in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Schedules or which is necessary to correct any information in such Schedules which has been rendered inaccurate thereby. No supplement or amendment to such Schedules shall have any effect for the purposes of determining satisfaction of the conditions set forth in Sections 9.2(a), 9.2(b), 9.3(a) and 9.3(b) hereof. 8.5 No Inconsistent Actions. Prior to the Closing Date, except as otherwise permitted by this Agreement, no party will enter into any transaction or make any agreement or commitment and will use reasonable efforts not to permit any event to occur, which could reasonably be anticipated to result in a denial of the regulatory or governmental approvals referred to in Schedules 5.4 and 6.4, the imposition of any condition or requirement that would materially adversely affect the economic or business benefits to the Buyer of the transactions contemplated by this Agreement. 8.6 Confidentiality. The parties agree to continue to comply with the terms of the Confidentiality Agreement dated May 31, 2000 between Seller and Buyer the terms of which are incorporated herein by reference. 8.7 Employment Matters. (a) Buyer will offer to each employee of the VCW Business (the "VCW Employees") employment in a position of comparable seniority and at least the same pay as that received by each such VCW Employee immediately prior to the Closing Date. Each VCW Employee who is tendered and accepts Buyer's offer of employment will be referred to as a "Transferred Employee." Buyer agrees not to terminate any Transferred Employee during the three (3) month period following the Closing Date except for cause. Buyer will provide the Transferred Employees with the same benefits it provides to its other employees in similar positions, subject to any changes that Buyer may negotiate with any union, which may be the collective bargaining representative of any of the Transferred Employees. Furthermore, for a one year period commencing on the Closing Date, Buyer will agree to pay severance to any Transferred Employee terminated by Buyer (other than a Transferred Employee terminated for cause) during such one year period in an amount equal to two weeks' pay for each year of service to Seller and Buyer up to a maximum of the Transferred Employee's annual salary, but in no event less than three month's pay or such amount required to be paid under a collective bargaining agreement, if applicable. Any severance payment provided for herein shall be payable in a lump sum and shall be based on the salary payable to the Transferred Employee at the time of the termination of employment. Seller shall reimburse Buyer for all severance costs for the first five (5) Transferred Employees that are terminated without cause between the Closing Date and one year after the Closing Date. Seller agrees to indemnify, defend and hold harmless Buyer with respect to any and all compensation, severance and/or employee benefits claims by any current or former employee (or any spouse, former spouse, dependent or former dependents of any such current or former employee) of Seller accruing prior to the Closing Date. (b) Subject to Seller's obligations to comply with applicable labor laws, rules and regulations, Seller agrees that it will not make, or agree to, any material changes to its last and best offer in connection with the collective bargaining agreement submitted to the Union in August, 2000 without consulting Buyer. In the event that after the Closing Date, Buyer terminates the employment of any Transferred Employee who is represented by a collective bargaining representative, Buyer shall pay severance benefits in accordance with any collective bargaining agreement, if applicable, in lieu of the severance payments provided in subsection (a) above. (c) Effective immediately after the Closing Date, all Transferred Employees shall be eligible to participate in Buyer's employee benefit plans, including, but not limited to, the defined benefit pension (the "Buyer's Pension Plan") and 401(k) savings plan (the "Buyer's Savings Plan") maintained by Buyer, in accordance with the terms of such plans unless and until different benefit plans are negotiated with an applicable collective bargaining representative. Buyer agrees to amend its employee benefit plans to provide that service completed by Transferred Employees while employed by the Seller or its predecessor or its affiliates shall be recognized under Buyer's employee benefit plans for purposes of determining eligibility for participation and vesting of benefits. (d) Effective immediately after the Closing Date, all Transferred Employees shall be eligible to participate in the Buyer's Savings Plan, unless and until different benefit plans are negotiated with any applicable collective bargaining representative. Effective as of the Closing Date, Seller shall amend Seller's Savings Plan to provide that all Transferred Employees shall be fully vested in their account balances thereunder. Seller shall cause the trustees of the Seller's Savings Plan to transfer to the trustees of the Buyer's Savings Plan the aforementioned fully vested account balances of the Transferred Employees to the Buyer's Savings Plan as soon as practicable following the Closing Date but in no event more than 150 days following the Closing Date ("Transfer Date") and Buyer shall cause the trustees of the Buyer's Savings Plan to accept such transfer of the account balances. In no event shall the amount transferred be less than the amount required to be transferred to satisfy Sections 401(a)(12) and 414(1) of the Code. The transfer of the Transferred Employees account balances shall be in cash, except that the account balances or portions thereof invested in notes representing participant loans shall be transferred in-kind to the Buyer's Savings Plan (except for mortgage loans, which shall not be transferred to the Buyer's Savings Plan). Buyer agrees to provide Seller with evidence that the Buyer's Savings Plan is qualified under Section 401(a) of the Code and Seller agrees to provide Buyer with evidence that Seller's Savings Plan is qualified under Section 401(a) of the Code. (e) Effective as of the Closing Date, all Transferred Employees shall cease benefit accruals in the Seller's Pension Plan and Seller shall amend Seller's Pension Plan to provide that all Transferred Employees shall be fully vested in their accrued benefits as of the Closing Date. Effective immediately after the Closing Date, all Transferred Employees shall be eligible to participate in the Buyer's Pension Plan, unless and until different benefit plans are negotiated with any applicable collective bargaining representative. Seller shall cause the trustees of the Seller's Pension Plan to transfer to the trustees of the Buyer's Pension Plan the assets and liabilities attributable to the Transferred Employees (as described below) as soon as practicable following the Closing Date but in no event more than 150 days following the Closing Date (the "Transfer Date") and Buyer shall cause the trustees of the Buyer's Pension Plan to accept such transfer of assets and liabilities. The amount transferred to the Buyer's Pension Plan shall equal the Accumulated Benefit Obligation as defined below for the Transferred Employees as of the Closing Date, increased by 7 3/4% interest from the Closing Date to the date of transfer, and decreased by the amount of any benefit payments to the Transferred Employees after the Closing Date but prior to the date of transfer. The Accumulated Benefit Obligation for the Transferred Employees shall be determined by using the accumulated benefits obligation methodology of Statement of Financial Accounting Standards No. 87, on the basis of (i) each participant's age, years of vesting service and years of benefit accrual service on the Closing Date, and (ii) the actuarial assumptions and methods used for determining the accumulated benefits obligation as of the January 1, 2000 actuarial report for the Seller's Pension Plan including the lump sum distribution assumption of 50%; provided, however, that the discount rate shall instead be a rate midway between the GATT annual interest rate for the month prior to the month during which the Closing Date occurs and 7 3/4%. In no event shall the amount transferred be less than the amount required to be transferred to satisfy Sections 401(a)(12) and 414(1) of the Code. The calculation of the above described present value of accrued benefits shall be made by an actuary designated by the Seller and shall be reviewed and approved by an actuary designated by the Buyer (which approval shall not be unreasonably withheld). The Seller shall cooperate fully in the gathering of any necessary data to be used by the respective actuaries and shall certify or cause the certification of the accuracy of such data to the actuaries. The costs and expenses of any third party engaged to perform services with regard to this section shall be paid by the party engaging such third party. Seller shall cause the plan administrator of the Seller's Pension Plan and Buyer shall cause the plan administrator of the Buyer's Pension Plan to make such timely filings as may be required by the Internal Revenue Service with respect to the transfer of assets and liabilities, including Forms 5310-A. Buyer agrees to provide Seller with evidence that Buyer's Pension Plan is qualified under Section 401(a) of the Code and Seller agrees to provide evidence to Buyer that Seller's Pension Plan is similarly qualified under Section 401(a) of the Code. Buyer's Pension Plan will provide that each Transferred Employee will be entitled to a benefit at least equal to his accrued benefit under the Seller's Pension Plan as of the Closing Date. (f) With respect to any medical, dental, prescription drug, vacation, death, accidental death and dismemberment, short-term disability and long-term disability benefit plans maintained by Buyer for its employees, immediately after the Closing Date, the Transferred Employees shall participate in such plans (i) without any waiting periods , exclusions due to pre-existing conditions and without any evidence of insurability; and (ii) Buyer shall take into account claims arising during the calendar year in which occurs the Closing Date for purposes of satisfying deductibles, out-of-pocket maximums and all other similar limitations. Notwithstanding the foregoing, Seller will assume responsibility for any and all outstanding employee benefits claims, including, but not limited to, any and all heath insurance claims, relating to claims and/or expenses incurred on or prior to the Closing Date. (g) Buyer shall be responsible for any legally-mandated continuation of health care coverage for all Transferred Employees and/or their covered dependents who have a loss of health coverage due to a "qualifying event" (as defined in Section 4980B of the Code) that occurs on or after the Closing Date. (h) After the Closing Date, the Buyer will have sole responsibility for any obligations or liabilities to Transferred Employees under the Worker Adjustment and Retraining Notification Act or any similar applicable law of any jurisdiction relating to any plant closing or mass layoff or as otherwise required by any applicable law. 8.8 Environmental Condition of the Athens MGP. Buyer shall, at its sole cost and expense, in accordance with all applicable Environmental Laws, assume responsibility for the environmental condition associated with the former operations of the Athens MGP, including, but not limited to, conducting such investigations and remediation activities with respect to any Hazardous Materials that may exist in, on, under or about the Athens MGP and any contiguous property used in connection with the former operations of the Athens MGP as may be required by any Governmental Authority. Notwithstanding anything contained in this Agreement to the contrary, it is understood and agreed that Buyer shall assume all risk relating to the past, present and future environmental condition of the Athens MGP and any contiguous property used in connection with the former operations of the Athens MGP. Buyer intends to seek insurance and/or to accrue funds to address the potential liability stemming from its ownership of the Athens MGP and its assumption of responsibility for the environmental conditions described herein. Buyer will seek a rate increase from the Pennsylvania Public Utility Commission and the New York Public Service Commission for the amount of the insurance premiums and/or the accrual of funds for the eventual remediation of the Athens MGP. 8.9 Bulk Sales Law. No action is required by either party with respect to any bulk sales or bulk transfer laws. In the event that any such law is deemed to apply to the sale of the Assets and the VCW Business by Seller, by execution of this Agreement Seller agrees that it shall be solely liable and Seller hereby waives any and all obligations and requirements imposed upon Buyer under such laws. 8.10 Existing Arrangements between NUI and VCW. Buyer will have the right, as its sole option, to assume under existing terms and conditions, renegotiate, or immediately terminate any arrangements that existed between Seller and the VCW Business as of January 1, 2000 or at any time thereafter, up to and including the Closing Date; provided, however that Buyer shall not have the right to renegotiate or terminate any arrangement with Seller's New Jersey division relating to interstate pipeline capacity or deliverability and gas supply. Buyer intends to continue the current contract between the VCW Business and Utility Business Services, Inc., a wholly-owned subsidiary of Seller ("UBS"), for billing services at least until August 31, 2001 or until the Closing Date whichever is later. In the event that Buyer terminates such contract after such period, Seller agrees to cause UBS to waive any termination fee, penalty or any other termination payment which may be provided for under the terms of such contract. 8.11 Post-Closing Servicing Agreements. The parties agree to use commercially reasonable efforts to negotiate certain post-Closing servicing agreements on mutually acceptable terms relating to the provision of on-going services by Seller to Buyer in connection with the operation of the VCW Business relating to gas supply procurement, billing, information systems and other administrative functions. It is understood and agreed by the parties that the Closing of the transactions contemplated by this Agreement is not subject to or in any way conditioned upon the successful negotiation and execution of any such post-Closing servicing agreements. 8.12 The NUCOR Expansion. The parties agree that Seller shall use commercially reasonable efforts to obtain the franchise, permits and approvals to secure grant monies from the State of New York and to expend the funds reasonably necessary to secure the same and for the construction required for the NUCOR expansion. Seller has provided Buyer with cost estimates for the NUCOR expansion. It being understood that such expansion will benefit the future of the VCW Business, Buyer agrees to reimburse Seller at Closing for Seller's reasonable NUCOR expansion expenses properly allocable to the VCW Business in excess of the grant monies awarded to Seller. ARTICLE 9. CONDITIONS TO CLOSING 9.1 Conditions to Each Party's Obligation to Effect the Sale. The respective obligation of each party to effect the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) Regulatory Approvals. All necessary approvals, authorizations and consents of all governmental entities required to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or have been terminated. (b) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated by this Agreement shall be in effect and no proceeding initiated by any governmental entity seeking an injunction shall be pending. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any governmental entity which prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement. 9.2 Conditions to Obligations of Buyer. The obligation of the Buyer to effect the transactions contemplated in this Agreement is also subject to the satisfaction or waiver by Buyer, at or prior to the time set for performance of the following conditions: (a) Representations and Warranties. The representations and warranties of the Seller set forth in this Agreement shall be true and correct as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. Buyer shall have received a certificate signed on behalf of the Seller by its Chief Financial Officer to the foregoing effect. (b) Performance of Obligations of Seller. The Seller shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Buyer shall have received a Certificate signed on behalf of the Seller by its Chief Financial Officer. (c) Third Party Consents. The consent, approval, or waiver of each person (other than the governmental entities) whose consent or approval shall be required in order to permit the sale, transfer or assignment of the Assets (including, but not limited to, all gas supply contracts identified on Schedule 1.4) shall have been obtained. 9.3 Conditions to Obligations of the Seller. The obligations of the Seller to effect the transactions contemplated in this Agreement are also subject to the satisfaction, or waiver by the Seller, at or prior to the Closing of the following conditions: (a) Representations and Warranties. The representations and warranties of the Buyer set forth in this Agreement shall be true and correct as of the date of this Agreement and (except to the extent such representations and warranties speak as of a earlier date) as of the Closing Date as though made on and as of the Closing Date. The Seller shall have received a certificate signed on behalf of the Buyer by its Chief Financial Officer to the foregoing effect. (b) Performance of Obligations of Buyer. The Buyer shall have performed in all material respects all obligations required to be performed by the Buyer under this Agreement at or prior to the Closing Date, and the Seller shall have received a Certificate signed on behalf of Buyer by its Chief Financial Officer to such effect. ARTICLE 10. TERMINATION AND AMENDMENT 10.1 Termination. This Agreement may be terminated and the transactions contemplated herein abandoned at any time prior to the Closing Date: (a) by mutual consent of the Seller and the Buyer in a written instrument, if the Board of Directors of each so determines by a vote of a majority of the members of its entire Board; (b) by either the Seller or the Buyer upon written notice to the other party (i) at least thirty (30) days after the date on which any request or application for an approval of a governmental entity required to consummate the transactions contemplated by this Agreement shall have been denied or withdrawn at the request or recommendation of the governmental entity which must grant such requisite approval; provided however, that no party shall have the right to terminate this Agreement pursuant to this Section 10.1(b)(i) if such denial or request or recommendation for withdrawal shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein, or (ii) if any governmental entity having jurisdiction over the transactions contemplated by this Agreement shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of any of the transactions contemplated in this Agreement; (c) by either the Seller or the Buyer if the purchase and sale of the Assets shall not have been consummated on or before the first anniversary date of the execution of this Agreement by the parties; provided, however, that if all of the conditions provided in Article 9 hereof, other than the receipt of Regulatory Approvals described in Article 9.1(a) have been satisfied or waived, and diligent efforts are being undertaken to satisfy the conditions in Article 9.1(a), then the references to the first anniversary date in this Article 9.1(c) shall be deemed to be the second anniversary of the date of this Agreement. (d) by either the Seller or the Buyer (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the representations or warranties set forth in this Agreement on the part of the other party, (i) which breach (if susceptible to cure) is not cured within twenty (20) business days following receipt by the breaching party of written notice of such breach by the other party hereto, or (ii) which breach, by its nature, cannot be cured; or (e) by either the Seller or the Buyer (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the covenants or agreements set forth in this Agreement on the party of the other party, (i) which breach (if susceptible to cure) is not cured within twenty (20) business days following receipt by the breaching party of written notice of such breach from the other party hereto, or (ii) which breach, by its nature, cannot be cured. 10.2 Effect of Termination. In the event of termination of this Agreement by either the Seller or the Buyer as provided in Section 10.1, this Agreement shall forthwith become void and have no effect, except that Sections 8.6 and 10.3 shall survive any termination of this Agreement, and there shall be no further obligation on the part of the Buyer, the Seller or their respective officers or directors except for the obligations under such provisions. Notwithstanding anything to the contrary contained in this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its intentional breach of any provision of this Agreement; provided, however, that no claim for any intentional breach shall survive the Closing. 10.3 Expenses; Break-Up Fee (a) All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. (b) In order to induce Seller to enter into this Agreement and to deal exclusively with Buyer, and to reimburse the Seller for incurring the costs and expenses related to entering into this Agreement and consummating the transactions contemplated by this Agreement, in the event that the transactions contemplated by this Agreement are not consummated as a result of any failure to satisfy the conditions set forth in Section 9.3(b) of this Agreement, Seller shall be entitled to receive from Buyer the payment of Five Hundred Thousand Dollars ($500,000) as liquidated damages in full satisfaction of Seller's claims under this Agreement. Notwithstanding the foregoing, Buyer shall have no obligation to make such payment to Seller if the transactions contemplated by this Agreement are not consummated as a result of any failure to satisfy the conditions set forth in Sections 9.1, 9.2(a) or 9.2(b) of this Agreement or if any material consents under Section 9.2(c) are not obtained, provided the failure to obtain such material consents is not due to the financial condition of Buyer, whether or not the conditions set forth Section 9.3(b) have been satisfied. (c) In order to induce Buyer to enter into this Agreement and to deal exclusively with Seller, and to reimburse the Buyer for incurring the costs and expenses related to entering into this Agreement and consummating the transactions contemplated by this Agreement, in the event that (i) the transactions contemplated by this Agreement are not consummated as a result of any failure to satisfy the conditions set forth in Section 9.2(b) of this Agreement or (ii) Seller terminates this Agreement without cause hereunder and, at the time of termination Seller has received, or thereafter receives, an alternative offer to purchase the VCW Business which offer is accepted by Seller within six (6) months after such termination, Seller shall pay to Buyer an amount equal to Five Hundred Thousand Dollars ($500,000.00) as liquidated damages in full satisfaction of Buyer's claims under this Agreement. Notwithstanding the foregoing, Seller shall not be obligated to make such payment to Buyer if the transactions contemplated by this Agreement are not consummated as a result of any failure to satisfy the conditions set forth in Sections 9.1, 9.3(a) or 9.3(b) of this Agreement, whether or not the conditions set forth in Section 9.2(b) have been satisfied. 10.4 Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 10.5 Extension; Waiver The parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, extend the time for the performance of any of the obligations or other acts of the parties hereto, waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. ARTICLE 11. POST-CLOSING INDEMNIFICATION OBLIGATIONS 11.1 Indemnification. (a) Seller shall indemnify and hold Buyer harmless against and in respect of all claims, costs, losses, expenses, liabilities, suits, actions or damages, including reasonable attorneys' and accountants' fees and disbursements (hereinafter "Damages") arising out of Seller's breach of its representations and warranties contained in this Agreement or asserted against Buyer relating to or directly arising from Seller's ownership of the Assets or the conduct of the VCW Business prior to the Closing Date other than Assumed Obligations; (b) Buyer shall indemnify and hold Seller harmless against and in respect of all Damages arising out of Buyer's breach of its representations and warranties contained in this Agreement or asserted against Seller relating to or directly arising from Buyer's ownership of the Assets or conduct of the VCW Business or Buyer's failure to satisfy the Assumed Obligations or Buyer's Obligations under Section 8.7 of this Agreement as of and subsequent to the Closing Date; (c) Buyer shall indemnify and hold Seller harmless against and in respect of all Damages asserted against Seller relating to the environmental condition associated with the former operations of the Athens MGP or Buyer's failure to satisfy its obligations contained in Section 8.8 concerning the environmental condition of the Athens MGP and any contiguous property used in connection with the former operations of the Athens MGP. (d) In the event of a claim for indemnification under this Section 11.1, the party seeking indemnification shall promptly notify the indemnifying party in writing of the nature of the claim for which indemnification is sought within a reasonable time after the assertion of the claim. The indemnifying party shall be entitled to participate at its own expense in the defense, or if it so elects, within a reasonable time after receipt of such notice, to assume the defense of any suit brought to enforce any such claim. If the indemnifying party so elects to assume the defense, such defense shall be conducted by counsel chosen by the indemnifying party and reasonably satisfactory to the party seeking indemnification. In the event that the indemnifying party elects to assume the defense of any such suit and retain its own counsel, the party seeking indemnification shall (i) bear the fees and expenses of any additional counsel thereafter retained by it, and (ii) not settle such suit without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. In the event the party seeking indemnification fails to promptly notify the indemnifying party, the indemnifying party shall be relieved of liability for such claim to the extent such delay materially adversely affects the indemnifying party's ability to defend the claim. (e) Notwithstanding anything to the contrary contained herein: (i) all claims by either party arising out of or relating to this Agreement shall be brought under this Section 11.1; (ii) all claims arising under subparagraphs (a) and (b) of this Section 11.1 must be made within eighteen (18) months from the Closing Date; and (iii) neither Buyer nor Seller shall be liable for any claim arising under subparagraphs (a) and (b) of this Section 11.1 until the aggregate amount of all such claims made against such party exceeds $100,000.00, it being understood that, once the aggregate amount of claims exceeds $100,000.00, the indemnifying party shall be fully liable for any claims made by the other party (including the first $100,000.00 of any such claims) up to an aggregate amount equal to the Purchase Price. The limitations on the indemnification obligation of the parties contained in this subparagraph shall not limit in any way Buyer's indemnification obligation contained in subparagraph (c) of this Section 11.1. ARTICLE 12. GENERAL PROVISIONS 12.1 Survival of Representations and Warranties. Notwithstanding any term or provision of this Agreement to the contrary and regardless of any investigation made by any party, the representations and warranties contained in this Agreement or otherwise made or delivered pursuant to, or in connection with, this Agreement, the transaction contemplated hereunder or any related transactions shall survive the Closing for a period of twenty-four (24) months from the Closing Date. 12.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when personally delivered or telecopied (with confirmation from recipient), three (3) days after mailed by registered or certified mail (return receipt requested) or on the day delivered by any express courier (with confirmation from recipient) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to the Buyer, to: C&T Enterprises, Inc. 1775 Industrial Boulevard P.O. Box 551 Lewisburg, PA 17837 Attn: General Counsel With copies to: Management Consulting Services, Inc. 1667 K Street, N.W., 210 Washington, D.C. 20006 and Facer & Stamoulas, P.C. 1025 Connecticut Avenue, N.W., #610 Washington, D.C. 20036 (b) if to the Seller, to: NUI Corporation 550 Route 202-206 P.O. Box 760 Bedminister, New Jersey 07921-0760 Attn: General Counsel with a copy to: Bourne, Noll & Kenyon 382 Springfield Avenue P.O. Box 690 Summit, New Jersey 07902-0690 Attention: Roger Mehner, Esq Facsimile No.: (908) 277-6808 12.3 Interpretation. When a reference is made to this Agreement to Sections, or Schedules, such reference shall be to a Section of or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to be October 4, 2000. 12.4 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 12.5 Entire Agreement. This Agreement (including the documents and instruments referred to herein), constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 12.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to any applicable conflicts of law, and the Seller consents to jurisdiction in a Court of Common Pleas in Pennsylvania with respect to any claims arising out of this Agreement. 12.7 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provision of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is deemed to be so broad as to be unenforceable, the provisions shall be interpreted to be only so broad as is enforceable. 12.8 Publicity. Except as otherwise required by law, neither the Seller nor the Buyer nor either of their subsidiaries shall be permitted to issue or cause the publication or any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the consent of the other party, which consent shall not by unreasonably withheld. 12.9 Assignment. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties except that Buyer and Seller shall each have the right to assign its right, interest or obligations hereunder to a wholly-owned subsidiary of Buyer so long as Buyer remains liable for all terms, conditions, obligations and agreements contained in this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties any rights or remedies hereunder. IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NUI CORPORATION (SELLER) By: /s/John Kean, Jr. President and Chief Executive Officer C & T ENTERPRISES, INC. (BUYER) By: /s/ Robert O. Toombs President and Chief Executive Officer EX-12 8 0008.txt EXHIBIT NO. 12 NUI CORPORATION AND SUBSIDIARIES CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Dollars in thousands) Year Ended September 30, 2000 1999 1998 1997 1996 Income from continuing operations before income taxes $44,893 $41,718 $21,024 $30,172 $23,040 Less: Adjustment related to equity investments (2,187) (631) (402) (2,317) -- Add: Interest element of rentals charged to income(a) 2,288 3,144 3,239 3,299 2,930 Interest expense 21,708 21,836 20,496 21,374 19,808 ------- ------- ------- ------- ------- Earnings as defined $66,702 $66,067 $44,357 $52,528 $45,782 ======= ======= ======= ======= ======= Interest expense $21,708 $21,836 $20,496 $21,374 $19,808 Capitalized interest 754 83 272 186 150 Interest element of rentals charged to income (a) 2,288 3,144 3,239 3,299 2,930 ------- ------- ------- ------- ------- Fixed charges as defined $24,750 $25,063 $24,007 $24,859 $22,888 ======= ======= ======= ======= ======= Consolidated ratio of earnings to fixed charges 2.70 2.64 1.85 2.11 2.00 ---- ---- ---- ---- ---- (a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no readily defined interest element can be determined. EX-21 9 0009.txt EXHIBIT NO. 21 SUBSIDIARIES OF NUI CORPORATION NUI Capital Corp. (a Florida Corporation) is a wholly-owned subsidiary of NUI Corporation. NUI Energy, Inc. (a Delaware Corporation), NUI Energy Brokers, Inc. (a Delaware Corporation), Utility Business Services, Inc. (a New Jersey Corporation), NUI Environmental Group, Inc. (a New Jersey Corporation), NUI Energy Solutions Inc. (a New Jersey Corporation), NUI Sales Management, Inc. (a Delaware Corporation), NUI International, Inc. (a Delaware Corporation) and NUI Telecom, Inc. (formerly known as International Telephone Group, Inc. (a New Jersey Corporation) are wholly-owned subsidiaries of NUI Capital Corp. NUI/Caritrade International, L.L.C. (a Delaware Limited Liability Company) is a 90 percent wholly-owned subsidiary of NUI International, Inc. EX-23 10 0010.txt EXHIBIT NO. 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated November 9, 2000, included in this Form 10-K of NUI Corportion for the year ended September 30, 2000, into the Company's previously filed Registration Statements File No. 33-56509 relating to Amendment No. 1 to Form S-3 Registration Statement, File No. 33-51459 relating to NUI Direct, File No. 33-57183 relating to the Savings and Investment Plan, File No. 33-24169 relating to the 1988 Stock Plan, File No. 333-02425 relating to the 1996 Stock Option and Stock Award Plan, File No. 333-02421 relating to the Employee Stock Purchase Plan, File No. 333-02423 relating to the 1996 Director Stock Purchase Plan, and File No. 333-92817 relating to Form S-3 Registration Statement. ARTHUR ANDERSEN LLP New York, New York December 22, 2000 EX-27 11 0011.txt
UT YEAR SEP-30-2000 SEP-30-2000 PER-BOOK 575,843 56,122 222,977 65,915 0 920,857 0 215,484 45,456 256,969 0 0 268,947 96,700 0 0 0 0 4,396 1,965 291,880 920,857 934,643 18,146 874,367 892,513 42,130 4,320 46,450 19,703 26,747 0 26,747 12,671 8,905 46,232 2.07 2.07
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