-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fT/bA0l8I2RjuDKR3q/hw1BMWjUWp2i9malpus6nXrmkQMke9zWZXSfZvJkn/umt iLULv7GSn4EuPYS2uRdwtg== 0000950134-94-001214.txt : 19941031 0000950134-94-001214.hdr.sgml : 19941031 ACCESSION NUMBER: 0000950134-94-001214 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941025 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONEOK INC CENTRAL INDEX KEY: 0000074154 STANDARD INDUSTRIAL CLASSIFICATION: 4923 IRS NUMBER: 730383100 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02572 FILM NUMBER: 94554877 BUSINESS ADDRESS: STREET 1: 100 W FIFTH ST CITY: TULSA STATE: OK ZIP: 74103 BUSINESS PHONE: 9185887000 FORMER COMPANY: FORMER CONFORMED NAME: OKLAHOMA NATURAL GAS CO DATE OF NAME CHANGE: 19810111 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1994 COMMISSION FILE NUMBER 1-2572 ONEOK Inc. 100 West Fifth Street, Tulsa, OK 74103 (918) 588-7000 IRS EMPLOYER INCORPORATED IN IDENTIFICATION NO. DELAWARE 73-0383100 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - - ------------------- ----------------------------------------- Common stock, without par value New York Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Each Class - - ------------------- Preferred stock, $50 par value, Series A, 4 3/4% cumulative Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- Based on the closing price of October 1, 1994, the aggregate market value of the voting stock held by nonaffiliates of the registrant was: Common stock, without par value, $439.1 million; Preferred stock, $50 par value, Series A, 4 3/4% cumulative, $4.9 million. The number of common shares outstanding of the registrant was 26,690,004 as of October 1, 1994. DOCUMENTS INCORPORATED BY REFERENCES: (1) Annual Report to Shareholders for the year ended August 31, 1994 ...................Parts I, II, and IV (2) Proxy Statement for Shareholder meeting on January 19, 1995 .....................................Part III The Exhibit Index is located on pages 30-32. Page 1 of 207 1 2 1994 Annual Report ON FORM 10-K ONEOK Inc.
Page No. -------- PART I Item 1. Business 3 - 16 Item 2. Properties 16 - 20 Item 3. Legal Proceedings 21 - 25 Item 4. Results of Votes of Security Holders 25 - 27 PART II Item 5. Market Price and Dividends on the Registrant's Common Stock and Related Shareholder Matters 27 Item 6. Selected Financial Data 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Item 8. Financial Statements and Supplementary Data 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28 PART III Item 10. Directors, Executive Officers, Promoters, and Control Persons of the Registrant 28 - 29 Item 11. Executive Compensation 29 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 29 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 30 -207
2 3 PART I. ITEM 1. BUSINESS ONEOK Inc. and its subsidiaries, hereinafter referred to as the Company, engage in natural gas distribution, transmission, and storage operations. It also is involved in oil and gas operations. The Company originally was founded on October 12, 1906. Oklahoma Natural Gas Company purchases, distributes, and sells natural gas and leases pipeline capacity. ONG Transmission Company gathers, compresses, transports, and stores natural gas for intrastate distribution and into interstate commerce; and leases pipeline capacity. In addition, two subsidiaries own interests in partnerships that operate natural gas transmission systems. Exploration and production explores for and produces natural gas and oil, gas processing extracts and sells natural gas liquids, and buys and sells natural gas. Effective May 1, 1994, the Company sold all of its contract drilling operations. ONEOK Inc.'s wholly owned subsidiaries and corporate divisions are as follows:
Year of State of Establishment or Distribution and Transmission Operations Incorporation Incorporation - - ---------------------------------------- ------------- ------------- Oklahoma Natural Gas Company (Division) -- 1980 ONEOK Technology Company Delaware 1992 ONG Transmission Company (Division) -- 1985 ONG Sayre Storage Company Delaware 1964 ONG Red Oak Transmission Company Delaware 1966 ONG Western, Inc. Delaware 1973 Caney River Transmission Company Delaware 1981 TransTex Pipeline Company Delaware 1981 ONEOK Services, Inc. Delaware 1968 OkTex Pipeline Company Delaware 1990 Exploration and Production Operations - - ------------------------------------- ONEOK Resources Company Delaware 1970 ONEOK Exploration Company Delaware 1972 Gas Processing Operations - - ------------------------- ONEOK Products Company Delaware 1983 Other Operations - - ---------------- ONEOK Gas Marketing Company Delaware 1992 ONEOK Leasing Company Delaware 1983 ONEOK Parking Company Delaware 1983
3 4 (A) General Development of Business The general developments in the business of the Company during the past five years were as follows: (1) DISTRIBUTION AND TRANSMISSION OPERATIONS The Company's activities include those in its historic merchant role, purchasing and selling natural gas, and those in its newer role, transporting natural gas and leasing pipeline capacity. To provide flexibility in transporting gas under Sec. 311(a) of the Natural Gas Policy Act of 1978 (NGPA), in 1985 gathering, transmission, and storage activities were transferred to a separate division, ONG Transmission Company, which serves both intrastate and interstate markets. The Company's residential and commercial rates continue to remain among the lowest in the industry. A substantial portion of the gas delivered through the Company's pipeline system goes to industrial customers, in particular, several large fertilizer plants which use the gas as feed stock. Currently most industrial customers purchase gas in the spot market. The Company developed its pipeline capacity lease (PCL) program to allow the delivery and redelivery of this gas purchased by the customers to their facilities. The Company developed and received approval for a Special Industrial Sales Program (SISP) which allocated lower cost supplies to these customers. The Company offers its PCL and payment-in-kind program (PIK) to certain of these customers as a response to competitive pressure. Under its PIK program, the Company accepts gas in lieu of cash for PCL payments and for payment for exchanges of gas between intrastate pipelines. PIK gas is priced to general system gas distribution operations at the weighted average cost of gas (WACOG). Some of the PCL contracts include price caps, which reduce the volume of gas delivered to the Company as the price of gas purchased by the customer escalates. In order to meet competitive pressures, the Company has provided service at discounted rates substantially below the Company's mark-up on its industrial tariff rates. In recent years, certain interstate and intrastate pipeline companies have been very aggressive in attempting to capture industrial load within the Company's service area, a phenomenon generally referred to as "bypass" in the gas industry. The Company has moved to protect its load through its PCL and other special sales programs. The Company's transmission system serves much of the State of Oklahoma, including all of the major producing areas. The system, which intersects with ten interstate pipelines, allows natural gas to be moved to locations throughout the nation. In 1991, the Company purchased Lone Star Gas Company's Oklahoma properties which provide access to the Texas market through the Lone Star intrastate system in Texas. In 1993, the Company acquired two pipelines in western Oklahoma. One provides access 4 5 to a pipeline owned by Northern Natural Gas Company. The other provides access to Red River Pipeline in Texas. In April 1992, the Federal Energy Regulatory Commission (FERC) approved Order 636. The Company has complied with the Order for its FERC regulated properties. The Company's intrastate transportation operations are not regulated by the FERC. It is difficult to assess what long term impact, if any, the Order will have on the Company. The Company is interested in acquiring gas distribution and transmission facilities which will enhance its operations. In 1991, the Company acquired Lone Star Gas Company's Oklahoma properties located in south-central Oklahoma which added 36,000 customers, 700 miles of distribution line, and 1,000 miles of transportation pipeline. It also provides access to the Texas gas market (see above). During 1993, the Company negotiated for the purchase of gas distribution properties in Kansas and northeastern Oklahoma involving approximately 190,000 customers. Negotiations were terminated by the owner. The Company is prepared to pursue other opportunities as they occur. The Company experienced claims and potential liability in recent years arising out of long-term gas supply contracts containing "take-or-pay" provisions which purported to require the Company to pay for volumes of natural gas contracted for but not taken. There are no significant remaining gas purchase contract potential claims or cases pending against the Company at the present time. The Company currently has approximately $107.5 million of deferred take-or-pay and other settlement costs. The OCC has authorized an annual recovery of $6.7 million for such costs by a combination of a surcharge from customers and revenue from transportation under Section 311 (a) of the NGPA and other intrastate transportation revenues. The Company's long-standing commitment to the development of natural gas vehicles (NGV) has helped Oklahoma become the leading state in the nation regarding the number of NGV vehicles. The Company expects NGV vehicles to be a growing future market for natural gas in Oklahoma. In recent years, the Company and other regulated companies have experienced significant regulatory lag. In 1993, the Oklahoma Legislature enacted legislation that should reduce the lag. The OCC is required to act within 180 days of the filing of a rate application or the applicant may put the requested rates into effect subject to refund. 5 6 The following summarizes gas volumes sold or transported for the past five years and degree days (which primarily affect residential and commercial customers).
Volumes (MMcf) 1994 1993 1992 1991 1990 - - ------------------------------------------------------------------------------------------------------------ Sales: Residential 58,587 60,459 51,557 49,937 51,894 Commercial 27,343 27,989 24,350 25,462 25,936 Industrial Fertilizer plants 27,078 34,350 17,487 57,380 56,140 Other 21,907 20,855 21,707 30,859 30,550 ---------------------------------------------------------------------- Total industrial 48,985 55,205 39,194 88,239 86,690 Wholesale 1,797 2,253 2,830 2,836 2,885 ---------------------------------------------------------------------- Total intrastate sales 136,712 145,906 117,931 166,474 167,405 ---------------------------------------------------------------------- Pipeline Capacity Leases: Fertilizer plants 66,284 55,252 75,925 34,346 34,597 Other 54,335 53,732 49,680 37,208 38,121 ---------------------------------------------------------------------- Total PCL volumes 120,619 108,984 125,605 71,554 72,718 ---------------------------------------------------------------------- Transportation: Sec. 311(a) interstate 56,779 54,515 42,061 46,081 66,548 Other 3,029 3,349 3,201 - - ---------------------------------------------------------------------- Total transportation 59,808 57,864 45,262 46,081 66,548 ---------------------------------------------------------------------- Total PCL and transportation 180,427 166,848 170,867 117,635 139,266 ---------------------------------------------------------------------- Total volumes 317,139 312,754 288,798 284,109 306,671 ====================================================================== Degree days 3,874 3,953 3,085 3,192 3,369 ======================================================================
Through subsidiaries, the Company is a 25 percent partner in two natural gas transmission systems, Ozark Gas Transmission System (Ozark) and Red River Pipeline (Red River). Ozark operates in Oklahoma and Arkansas as an open access interstate transporter. Red River operates in Texas and is regulated by the Texas Railroad Commission. See notes (B) INVESTMENTS and (I) COMMITMENTS AND CONTINGENCIES in the Notes to Consolidated Financial Statements for further information. OkTex Pipeline Company owns short transmission pipelines between Oklahoma and Texas which connect the Company's intrastate systems to the intrastate systems of Lone Star Gas Company and Red River Pipeline. (c) ONEOK Technology Company is a partner in a company which has developed a device that allows quick meter change-out without interruption of service to customers. The partnership contracts out fabrication of the devices which are sold through an exclusive representative in the United States. The same party manufactures and markets the devices in Europe under license from the partnership. (2) EXPLORATION AND PRODUCTION OPERATIONS In 1989, the Company sold slightly more than 50 percent of its reserves for approximately $50 million. Because of the sale of the producing properties, sales of crude oil and natural gas declined substantially. Because of depressed prices for natural gas, the Company curtailed up to 6 7 25 percent of its normal production capability from March 1991 through August 1991 and from February 1992 through July 1992. The Company's current strategy is to acquire producing properties while maintaining a conservative capital budget. The following summarizes the oil and natural gas production sales and average prices for the last five-years.
Sales 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------- Oil (Bbls) 572,113 442,931 375,506 294,025 255,575 Oil (000s) $8,114 $8,192 $7,535 $7,081 $4,887 Average Price $14.18 $18.50 $20.07 $24.08 $19.12 (per Bbl) Gas (MMcf) 8,043 8,401 7,349 6,952 7,338 Gas (000s) $16,036 $16,905 $10,793 $10,228 $10,943 Average Price $1.99 $2.01 $1.47 $1.47 $1.49 (per Mcf)
(3) GAS PROCESSING OPERATIONS The following chart summarizes the Company's share of gas processing plant capacity and natural gas liquids production. Also shown are volumes, revenues, and average prices for residue and other gas sales. Intercompany transactions have not been eliminated. In 1990, natural gas liquids production was at less than full capacity because of reduced throughput due to a depressed market for natural gas. During 1990, 1991, and 1994 ethane was rejected from the recovery process because it was uneconomical to produce at the prevailing market prices. Volumes and prices increased significantly in 1991 partially due to the Middle East crisis. When prices escalate, recovery of ethane generally increases. The Company is participating with other plant owners in a more aggressive approach to acquiring more gas supplies for processing in an effort to increase throughput and liquid recoveries. Since 1989, the Company also has been buying natural gas for resale to others.
1994 1993 1992 1991 1990 ----------------------------------------------------------- Interest in Gas Processing Plant Capacity (MMcf per day) 327 327 327 327 327 Gas Liquids (Mgal.) 194,378 195,067 180,956 173,974 142,878 Gas Liquids (000) $48,838 $59,569 $52,080 $56,468 $34,289 Average Price (per gal.) $.25 $.31 $.29 $.32 $.24 Average Production Cost (per gal.) $.24 $.26 $.22 $.21 $.20 Residue Gas (MMcf) 7,180 7,328 8,500 9,186 8,875 Residue Gas (000) $14,266 $14,805 $13,259 $14,663 $14,393 Average Price (per Mcf) $1.99 $2.02 $1.56 $1.60 $1.62 Other Gas Sales (MMcf) 18,551 40,436 48,311 65,288 54,907 Other Gas Sales (000) $41,853 $83,578 $77,610 $98,215 $91,275 Average Price (per Mcf) $2.26 $2.07 $1.61 $1.50 $1.66
7 8 (4) OTHER OPERATIONS (a) Gas Marketing ONEOK Gas Marketing Company, a subsidiary of ONEOK Inc., was founded in 1992 to pursue natural gas marketing opportunities with local distribution companies and industrial customers, primarily outside of Oklahoma. ONEOK Gas Marketing and Ward Gas Marketing, Inc., entered into a partnership in October 1992, through which the Company participates in gas marketing. (b) Building Operations In 1983, the Company acquired a partially completed office building and parking garage in downtown Tulsa, Oklahoma. The parking garage was completed and is now owned and operated by ONEOK Parking Company. The partially completed office building and a long-term ground lease were transferred to a third party who completed the office building (ONEOK Plaza) and leased the completed building back to ONEOK Leasing Company. The initial term of the lease was twenty-five (25) years with six five-year renewal options. At the end of the initial lease term or any renewal period, the Company may purchase the office building at its fair market value. Ten and one-half floors of the seventeen-story building, the lower lobby, and portions of the two subbasements are used by the Company. The remainder of the space in the building is available for lease to others. Substantially all of the remaining office space is under lease. Lease rates have remained flat because of excess capacity caused by overbuilding in the local market. (B) Financial Information about Industry Segments Footnote H of the Notes to Consolidated Financial Statements of the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing is incorporated herein by reference. (C) Narrative Description of the Business (1) Principal Products Produced and Services Rendered (a) DISTRIBUTION AND TRANSMISSION OPERATIONS Two operating divisions, Oklahoma Natural Gas Company and ONG Transmission Company, along with four subsidiaries, ONG Red Oak Transmission Company, ONG Sayre Storage Company, ONG Western, Inc., and ONEOK Services, Inc. (collectively, ONG), constitute a fully integrated intrastate natural gas distribution and transmission segment which purchases, stores, transports, and distributes natural gas for sale to wholesale and retail customers primarily in the State of Oklahoma, and leases pipeline capacity to customers for their use in transporting natural gas to their facilities. In addition, ONG Transmission Company and the four transmission subsidiaries transport gas for others under Section 311(a) of the NGPA. Oklahoma Natural Gas Company, ONG Transmission Company, and the four subsidiaries are consolidated for ratemaking purposes by the Oklahoma Corporation Commission. For 8 9 regulatory purposes, ONG Transmission Company Division, which transports gas in interstate commerce under Section 311(a) of the NGPA, is being treated as a separate entity by the FERC. ONG purchases natural gas from gas processing plants, producing gas wells, and pipeline suppliers, and utilizes five underground storages as necessary to deliver natural gas to approximately 715,000 customers in 292 communities in Oklahoma. The Company's largest markets are in the Oklahoma City and Tulsa metropolitan areas. ONG Sayre Storage Company leases the excess capacity in its underground storage facility to Natural Gas Pipeline Company of America. ONG also sells natural gas at wholesale to other distributors serving 44 Oklahoma communities. ONG serves an estimated population of over 2 million. The all-time peak gas deliveries during a single day was 2.02 billion cubic feet of gas delivered on February 10, 1981. The peak for the most recent fiscal year was 1.59 billion cubic feet delivered on February 9, 1994. The Company leases space in its pipeline system under its PCL program to third party end users to allow them to buy gas in the field and transport it to their facilities. The Company, at times, has leased part of its gas storage to third parties, allowing them to store gas in the Company's gas storage facilities. Gas reserves committed to ONG's system are not subject to priority allocations or dedicated to certain classes of customers, except for certain low priced gas under the SISP Program, which is allocated to industrial customers. ONG's rate schedules contain an "Order of Curtailment" that provides for first reducing or totally discontinuing gas service to the very large industrial users, who are required to have standby fuel-burning equipment, and graduating down to requesting residential and commercial customers to reduce their gas requirements to an amount essential for public health and safety. Caney River Transmission Company has a 25 percent interest in Ozark Gas Transmission System (Ozark), a general partnership. Ozark owns a transmission pipeline and related facilities originating in Pittsburg County, Oklahoma, and connecting with existing facilities belonging to an interstate gas transmission company in White County, Arkansas. Ozark does not buy or sell gas but receives revenues from the transportation of gas for shippers pursuant to the terms of transportation agreements approved by FERC. Ozark is an open access interstate shipper. TransTex Pipeline Company has a 25 percent limited partnership interest in Red River Pipeline (Red River), a limited partnership, which owns a transmission pipeline system and related facilities. Red River originates in Hemphill County, Texas, and terminates in Pecos County, Texas, where it connects with Oasis Pipeline. In 1993, the system was modified to allow bidirectional flow. The system is regulated by the Texas Railroad Commission. OkTex Pipeline Company, regulated by the FERC, owns short transmission pipelines between Oklahoma and Texas which connect ONG's intrastate system to the intrastate system of Lone Star Gas Company, a division of ENSERCH Corporation and Red River Pipeline. The Company has the capacity to move up to 200 million cubic feet of gas per day into Lone Star's System in Texas. 9 10 ONEOK Technology Company has a fifty percent (50%) interest in Natural Energy Products Company, which was formed in 1992 to develop and market a meter-setting device that allows gas utilities to change meters without shutting off the flow of gas to the customer. The devices are sold through an exclusive representative in the United States which also manufactures and markets the devices in Europe under a license from Natural Energy. (b) EXPLORATION AND PRODUCTION OPERATIONS Two subsidiaries (collectively, the Subsidiaries), ONEOK Exploration Company and ONEOK Resources Company, are engaged in oil and gas exploration, development, and production. As of August 31, 1994, the Subsidiaries had working interests in 372 gas wells and 140 oil wells. A number of these wells are multiple completions. Such interests are in wells located in Oklahoma, Alabama, and Texas. The Subsidiaries participated in the drilling of 37 working interest wells during the 1994 fiscal year, compared with 35 wells the previous year. In 1994, 62 percent of such wells were completed as commercial producers compared with 69 percent in 1993. During the 1994 fiscal year, 17 wells were completed as gas wells and 6 as oil wells. The remaining 14 wells were dry holes. In addition, the Subsidiaries farmed out an additional 8 wells for drilling by others. Of these, 1 oil well and 5 gas wells were completed and the remaining 2 were dry holes. The Subsidiaries' share of production during the 1994 fiscal year averaged 1,567 barrels of oil per day and 22,035 million cubic feet of natural gas per day. On August 31, 1994, the Subsidiaries had a total of 24,960 net undeveloped leasehold acres, of which 51 percent is located in Oklahoma, 36 percent in Texas, and 11 percent in Arkansas. The Subsidiaries are currently concentrating exploration activities in Oklahoma and Texas, and for the present are pursuing a relatively conservative drilling and leasehold acquisition program due to uncertainty about gas price trends. The Subsidiaries acquired reserves in Alabama in 1993. On October 4, 1994, ONEOK Exploration Company closed the purchase of an interest in the Black Lake-Pettit Zone Unit in Natchitoches Parish, Louisiana. The purchase was effective as of July 1, 1994. The field covers in excess of 24,000 gross acres and is expected to add approximately 7.5 million cubic feet of gas and 460 barrels of liquids to daily production. The field consists of 28 active oil wells, 12 active gas wells, 4 salt disposal wells, a gas processing plant, and 5 satellite compression stations. (c) GAS PROCESSING OPERATIONS ONEOK Products Company (Products) owns varying interests in 16 plants which extract liquids from natural gas. Products' share of the liquids produced by these plants averaged 12,680 barrels per day during 1994. Products also purchased and resold 70,496 Mcf of natural gas per day, including intercompany transactions, during the fiscal year. Products is participating with other plant owners in programs to acquire more gas volumes for processing through the plants to increase liquid recoveries. 10 11 (d) OTHER OPERATIONS (i) Gas Marketing ONEOK Gas Marketing is a subsidiary of ONEOK Inc. ONEOK Gas Marketing and Ward Gas Marketing, Inc., have entered into a partnership to purchase and market natural gas. (ii) Building Operations ONEOK Parking Company operates a parking garage with 1,179 parking spaces. ONEOK Leasing Company operates a 500,000 square foot office building in which the Company's headquarters is located and leases excess space to others. (2) Status of New Products or Segments Meter-setting devices are being manufactured for and marketed in the United States by Natural Energy Products Company of which ONEOK Technology Company is a partner. The devices are sold through an exclusive representative in the United States that also manufactures and markets the device in Europe under license. The device allows gas meters to be changed out without having to shut off the flow of gas to the customer. (3) Source and Availability of Raw Material ONG's gas supply comes from 38 gas processing plants, and 958 gas purchase connections (in 126 producing fields in Oklahoma). The Company's 1994 gas supply was as follows (million cubic feet): Total Gas Purchases 112,406 Payment in Kind 26,824 Gas Storage Withdrawals 33,607 Less: Gas Storage Injections (32,928) ------- Total Supply 139,909 =======
(4) Patents, Trademarks, and Franchises Held Natural Energy Products Company, a partnership in which ONEOK Technology Company has a fifty percent (50%) interest, has an exclusive license to develop and market meter setting devices for which a patent is pending. ONEOK Inc. has two corporate divisions that operate under trade names in Oklahoma. One engages in distribution operations and operates under the trade name Oklahoma Natural Gas Company. The other engages in transmission operations and operates under the trade name ONG Transmission Company. In the state of Oklahoma, a utility franchise is a nonexclusive right to use the municipal streets, alleys, and other public ways for its facilities for a defined period of time for a fee. Oklahoma Natural Gas Company holds franchises, all of which are for an initial period of 25 years, in major towns in which it operates. Although the laws of the state of Oklahoma prohibit exclusive utility franchises, the Company nevertheless believes there are advantages to having franchises in the larger towns in which it operates. 11 12 Below is a list of the municipalities having a population of over 10,000 which have granted franchises to Oklahoma Natural Gas Company.
Population Grantor 1990 Census Expiration Date ------- ----------- --------------- Ardmore* 23,015 July 16, 2012 Claremore 13,225 December 29, 2003 Del City 23,758 August 24, 1998 Durant 12,767 August 1, 1997 Elk City 10,419 November 21, 1998 El Reno* 15,382 December 6, 2015 Enid 45,175 January 16, 2015 Midwest City 52,037 July 14, 2019 Muskogee* 37,440 July 30, 2015 Norman* 79,579 November 15, 1998 Oklahoma City* 441,154 April 24, 2010 Ponca City* 26,328 August 16, 2007 Sand Springs 14,943 November 1, 2015 Shawnee 26,175 October 14, 1995 Stillwater 36,543 April 19, 2015 Tulsa* 364,572 August 29, 2011 Woodward* 12,287 May 26, 1995
*Grantor has an option to purchase property within the corporate limits at such terms and conditions as are provided in the franchise at a price to be agreed upon or determined by arbitration. The Company has franchises in 45 other municipalities in which there is an aggregate population of approximately 103,000. Of the remaining towns served in which ONG has no franchises, Bethany, Broken Arrow, Edmond, Guthrie, Moore, Mustang, Okmulgee, Owasso, Sapulpa, The Village, and Yukon, with a combined population of approximately 263,000, are the largest. In the Company's opinion, its franchises contain no unduly burdensome restrictions and are sufficient for the transaction of its business in the manner in which it is now conducted. (5) Seasonal Variations of Business Because residential and commercial customers use natural gas principally for space heating, the volume of ONG's gas sales is consistently higher during the heating season (November through May) than in other months of the year. Industrial sales, rentals for PCLs, and other energy-related operations tend to remain relatively constant throughout the year, while interstate transportation volumes fluctuate based on the customers' utilization or market demand. (6) Special Inventory Practices, Bill Payment Terms, and Average Payment Plans ONG stores gas during the summer months in underground storages for delivery to customers during the periods of higher demand. Typically, inventories of stored gas are near maximum levels immediately prior to the winter months and are reduced to much lower levels by the end of the winter heating season. ONG has a bill payment extension program which allows its customers with temporary financial hardships to spread the 12 13 payments of their bills over an extended period of time. In addition, the Company has an average monthly payment plan that allows the Company's customers to spread the payments of their average utility bills over a 12-month period. (7) Dependence Upon a Limited Number of Customers A material part of the combined gas sales and revenues from PCLs is dependent upon the amount of gas utilized by fertilizer plants. Fertilizer plant customers include Agricultural Minerals Limited Partnership, Wil-Gro Fertilizer, Inc., Farmland Industries, Inc., and Terra International, Inc. Sales of 27.1 billion cubic feet of gas were made to these customers during the 1994 fiscal year. In addition, such customers paid $39.7 million in rentals under PCLs. Revenues from no single customer accounted for more than 10 percent of the Company's total operating revenues. Currently, all the plants are operating at or near full capacity. For the effect of reduced fertilizer plant and other industrial sales, see Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing. None of the fertilizer plant customers are related to the Company. (8) Backlog of Orders Due to the nature of the Company's business, there was no backlog of firm orders at the end of the Company's fiscal year. (9) Government Contracts None (10) Competitive Conditions and Identity of Markets (a) DISTRIBUTION AND TRANSMISSION OPERATIONS In its fiscal year ended August 31, 1994, 78 percent of the Company's consolidated revenue came from the gas distribution and transmission operations. Revenue from sales to residential customers represented 37 percent of revenue; commercial customers, 15 percent; and wholesale customers, 1 percent. Revenues from sales to industrial customers, pipeline capacity leases, and other sources accounted for the remaining 25 percent. ONG sells natural gas service to its customers for three primary uses, energy, generally for heating, cooking, industrial processes, and feedstock for the production of fertilizer. ONG has experienced some competition in the sale of natural gas as an energy source. Electric utilities, offering electricity as a rival energy source, compete for the space heating, water heating, and cooking markets. The principal means to compete against alternative fuels is lower prices, and natural gas continues to maintain its price advantage in the residential, commercial, and both small and large industrial markets. In the last few years, the Company has experienced competition from other pipelines for its existing industrial load. The Company 13 14 offers its PCL program, Special Industrial Sales Program (SISP), and PIK program as a response to such competitive pressure. The Company developed its PCL program to allow the delivery and redelivery of gas purchased by the customers to their facilities. The Company developed and received approval for its SISP program, which allocated lower cost supplies to these customers. Under its PIK program, the Company accepts gas in lieu of cash for PCL payments and for payment for exchanges of gas between intrastate pipelines. PIK gas is priced to general system gas distribution operations at the weighted average cost of gas (WACOG). Some of the PCL contracts include price caps, which reduce the volume of gas delivered to the Company as the price of gas purchased by the customer escalates. PCL customers with contracts containing price caps represent approximately 76 percent of 1994 PCL volumes and 72 percent of 1993 PCL volumes. In recent years, certain interstate and intrastate pipeline companies have been very aggressive in attempting to capture industrial load within the Company's service area, a phenomenon generally referred to as "bypass" in the gas industry. The Company has moved to protect its load through its PCL and other special sales programs. All of ONG's rate schedules for gas sales filed with and approved by the Oklahoma Corporation Commission allow ONG to pass on to its customers changes in the field cost of gas by means of a purchased gas adjustment clause. In recent years, the field price of new gas for short-term deliveries has fallen sharply, resulting in prices substantially lower than the Company's current average cost of gas. Although the field price escalated sharply in 1993, it is anticipated that this condition may continue for several years until the supply and demand for gas becomes more balanced. While such conditions continue, the Company may be unable to make any off-system sales in interstate commerce or attract new large industrial customers to its system except through the use of the PCL, SISP, and PIK programs described above and any other new programs that may be developed to enable large industrial customers, whether existing or new, to compete economically. In the past, the Company's principal competitors for new gas supply were interstate purchasers and large users who had transportation contracts with interstate pipelines. However, FERC rules now allow the contract transportation of gas for others. Many additional purchasers, including large industrial users and distribution companies, now have direct access to gas supply, and the Company is faced with many more competitors for available new gas supply. Many of such purchasers are much larger and have much greater financial resources than the Company. Since 1982, the Company has had a surplus of natural gas available to its utility system and had ceased contracting for new gas reserves until 1993. In April 1992, the Federal Energy Regulatory Commission (FERC) approved Order 636. The Company has complied with the Order for its interstate pipeline, OkTex Pipeline Company. The Company's intrastate transportation operations are not regulated by the FERC. It is difficult to assess what long term impact, if any, the Order will have on the Company. 14 15 (b) EXPLORATION AND PRODUCTION OPERATIONS In the area of exploration and production operations, the Company competes with many large integrated oil and gas companies and numerous independent oil and gas companies of various sizes for leaseholds and drilling prospects. Many of these companies have greater financial resources than the Company. The Company continues to be able to sell its crude oil production at current market prices and anticipates continuing to be able to sell such production in the future. However, the Company, like the rest of the industry, has from time to time curtailed some of its natural gas production because of low prices. A small amount of production is still sold under long-term contracts. In certain instances, the Company has agreed to lower prices in order to continue sales. Most production is sold to brokers at spot-market prices. (c) GAS PROCESSING OPERATIONS The Company owns varying interests in 16 plants which extract liquids from natural gas. The industry as a whole operates substantial numbers of such plants, many owned by large integrated oil and gas companies and independents that have greater financial resources than the Company. In 1990, natural gas liquids production was at less than full capacity because of reduced throughput due to a depressed market for natural gas. During 1990, 1991, and 1994 ethane was rejected from the recovery process because it was uneconomical to produce at the prevailing market prices. Volumes and prices increased significantly in 1991 partially due to the Middle East crisis. When prices escalate, recovery of ethane generally increases. The production costs of such liquids generally depend on the cost of the natural gas being processed and the underlying agreements. Because of the generally favorable location of the plants and terms of the Company's processing and operating agreements, the Company anticipates continuing to have favorable product costs and anticipates that its currently competitive position in marketing will remain so for the near future. Such liquids are used as a petrochemical feedstock, for residential heating and cooking primarily in rural areas, and by refiners in producing motor fuels. In 1989, the Company began buying natural gas for resale to others. (11) Research and Development Costs During the 1994, 1993, and 1992 fiscal years, ONG spent $563,000, $195,000, and $320,000, respectively, on research and development activities. These activities were carried out primarily through the American Gas Association, a trade association of which the Company is a member, and the Gas Research Institute, which is the principal organization for cooperative research and development activities in the investor-owned gas utility industry. (12) Material Effects of Environmental Control Compliance. There have been no material effects upon capital expenditures, earnings, or the Company's competitive position during the 1994 fiscal year related to compliance with federal, state, or local regulations relating to the discharge of materials into the environment or the protection of 15 16 the environment. No material effects of this nature are anticipated during the 1995 fiscal year. (13) Number of Persons Employed The Company employed 2,061 persons at August 31, 1994, and is currently not a party to any collective bargaining agreements with such employees. ITEM 2. PROPERTIES (A) Description of Property (1) DISTRIBUTION AND TRANSMISSION OPERATIONS (a) Gas Distribution Operations The Company had 13,739 miles of pipeline and other distribution facilities at August 31, 1994. Oklahoma Natural Gas Company owns a five-story office building in Oklahoma City, Oklahoma, as well as a number of warehouses, garages, meter and regulator houses, service buildings, and other buildings throughout the state. The Company also owns a fleet of vehicles and maintains an inventory of spare parts, equipment, and supplies. (b) Gas Transmission Operations The Company had a combined total of 4,926 miles of transmission and gathering pipeline on August 31, 1994. In addition, the Company owns five underground storages located throughout the state. Four of the storages operated by the Company are located next to its large market areas. These four storages have a combined storage capacity of 124.5 billion cubic feet. The other storage is located in western Oklahoma and is leased to and operated by another company. However, 25 billion cubic feet of storage capacity has been retained for use by the Company in this reservoir. Compression and dehydration facilities are located at various points throughout the pipeline system. The Company owns a 25 percent interest in two partnerships, each of which owns a transmission pipeline system and related facilities for the transportation of natural gas. The Ozark Gas Transmission System consists of approximately 280 miles of 20-inch diameter trunk pipeline, approximately 170 miles of lateral pipeline of diameters ranging from 4 inches to 10 inches, and compression and dehydration facilities. Ozark's pipeline system originates in Pittsburg County, Oklahoma, crosses the Arkoma Basin in southeastern Oklahoma and north central Arkansas, and interconnects in White County, Arkansas, with facilities belonging to an interstate gas transmission company. The designed capacity of the trunk line is 170,000 Mcf per day. System throughput during 1994 averaged approximately 88,000 Mcf per day. Current throughput is approximately 98,000 Mcf per day. Red River Pipeline is a transmission pipeline system consisting of approximately 361 miles of 24-inch diameter pipeline and related 16 17 facilities. The system originates in Hemphill County, Texas, and terminates in Pecos County, Texas, where it connects with Oasis Pipeline. In 1993, the system was modified to allow bidirectional flow. The system has a designed capacity of 250,000 Mcf per day south and 200,000 Mcf per day north. System throughput during 1994 averaged approximately 119,000 Mcf per day. Current throughput is approximately 120,000 Mcf per day. (2) EXPLORATION AND PRODUCTION OPERATIONS The Company owns varying economic interests in 484 gas wells and 167 oil wells, some of which are multiple completions. Such interests are in wells located in Oklahoma, Alabama, Texas, and Louisiana. The Company owns 42,342 net onshore developed leasehold acres and 24,960 net onshore undeveloped acres. The Company owns no offshore acreage. Onshore acreage is located in Alabama, Arkansas, Colorado, Florida, Louisiana, Oklahoma, Texas, and Mississippi. Lease acreage in producing units is held by production. Leases not being held by production are generally for a term of three years. However, such leases require payments of rentals annually, or the leases terminate. (3) GAS PROCESSING OPERATIONS The Company owns interests in 16 gas processing plants in Oklahoma and one in Texas, which extract liquid hydrocarbons from natural gas. The residue gas remaining after such extraction is either taken by the Company or sold to other gas pipeline companies. The Company's share of the capacity of the plants is 327 million cubic feet per day. The Company's share of liquids extracted during the 1994 fiscal year averaged 12,680 barrels per day. During 1994, the Company sold 70,496 Mcf of natural gas per day, of which 69,822 Mcf per day was sold to unaffiliated customers. (4) OTHER OPERATIONS (a) Building Operations The Company owns a parking garage with 1,179 parking spaces and also land subject to a long-term ground lease upon which has been constructed a seventeen-story office building with approximately 500,000 square feet of net rentable space, which is being leased to the Company. The lease term is for 25 years with six five-year renewal options. After any renewal period, the Company can purchase the property at its fair market value. The Company has occupied and reserved approximately 300,000 square feet of net rentable space for its own use and leases the remaining space to others. (B) Other Information This data below has been prepared in accordance with the Securities and Exchange Commission (SEC) requirements, and readers are cautioned that the information can be readily misunderstood. Diligent care should be taken to read the Management's Discussion and Analysis of Financial Conditions and Results of Operations and the Notes to Consolidated Financial Statements in the 1994 Annual Report to Shareholders filed as 17 18 Exhibit 13 to this filing, in order to understand the specific data that is covered in each disclosure. Production figures are defined by the SEC to include natural gas liquids from Company-owned leases. The Company produces a substantial amount of natural gas liquids as a result of ownership in several gas processing plants, but the Company does not own the reserves attributable to the leases producing the gas processed by these plants. As a result of this exclusion by the SEC, information concerning these natural gas liquids is not included in any of the tables in this section but is included under GAS PROCESSING OPERATIONS on page 7. (1) Oil and Gas Reserves The oil and gas reserves owned by the Company are all located in the United States. (a) Quantities of Oil and Gas Reserves Note K of Notes to Consolidated Financial Statements in the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing is incorporated herein by this reference. (b) Present Value of Estimated Future Net Revenues Note L of Notes to Consolidated Financial Statements in the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing is incorporated herein by this reference. (2) Reserve Estimates Filed with Others There were no reserve estimates filed with or included in reports to any federal authority or agency other than the SEC during the last twelve months. (3) Quantities of Oil and Gas Produced The net quantities of oil and natural gas produced and sold, including intercompany transactions, for the last five fiscal years were as follows:
1994 1993 1992 1991 1990 ------------------------------------------------------------------------ Oil (Bbls) 572,113 442,931 375,506 294,025 255,575 Gas (MMcf) 8,043 8,401 7,349 6,952 7,338
18 19 (4) Average Sales Price and Production (Lifting) Costs The average sales price and average lifting costs for each of the last three fiscal years were:
1994 1993 1992 ----------------------------------------- Average Sales Price:(a) Oil (Bbl) $14.18 $18.50 $20.07 Gas (Mcf) $ 1.99 2.01 $ 1.47 Average Lifting Costs: Equivalent barrel of oil & gas (b) $ 2.57 $ 2.65 $ 2.46
(a) In determining the average sales prices of oil and gas, sales to affiliated companies were recorded on the same basis as sales to unaffiliated customers. (b) For the purpose of calculating the average lifting cost per equivalent barrel of production, natural gas was converted to a liquid equivalent using six (6) Mcf of natural gas to one barrel of oil. Lifting costs do not include depreciation or depletion. (5) Wells and Developed Acreage The total gross and net productive oil and gas wells either owned by the Company or in which the Company had a working interest and the total gross and net developed acres at the end of the fiscal year were as follows:
Oil Gas -------------------- Gross wells (a) 140 372 Net wells (a) 31 151 Gross acres (b) - - Net acres (c) - -
(a) The gross and net wells shown above are wells in which the Company has a working interest and does not include wells in which the Company has royalty or overriding royalty interests. Four of the 140 oil wells are dual completions. One of the 372 gas wells is a triple completion and 12 are dual completions. (b) The amount of gross developed acres is not available from the Company's records. (c) The total net developed acres for both oil and gas is 43,342 acres. The amount of net developed acres by well classification is not available from the Company's records. 19 20 (6) Undeveloped Acreage Of the Company's 24,960 net onshore undeveloped acres, approximately 11 percent lies in the Ardmore Basin area, approximately 31 percent lies in the Anadarko Basin area in Oklahoma, approximately 20 percent lies in the Oklahoma portion of the Arkoma Basin, and approximately 10 percent lies in the Texas Gulf Coast area. The gross and net undeveloped leasehold acreage held by the Company at the end of the fiscal year was as follows:
Gross Net ----------------------- Alabama 759 177 Arkansas 6,630 2,775 Colorado 80 1 Florida 770 196 Louisiana 149 28 Oklahoma 40,398 12,789 Texas 22,063 8,917 Mississippi 1,608 77 ----------------------- 72,457 24,960 =======================
(7) Net Exploratory and Development Wells Drilled
Exploratory Development ----------- ----------- 1992 Productive 1.8447 5.5757 Dry 1.5500 2.0922 ------ ------ Total 3.3947 7.6679 ====== ====== 1993 Productive 0.4840 5.4701 Dry 1.8487 2.3540 ------ ------ Total 2.3327 7.8241 ====== ====== 1994 Productive 0.8500 5.5760 Dry 3.5075 1.8866 ------ ------ Total 4.3575 7.4626 ====== ======
(8) Present Drilling Activities On August 31, 1994, the Company was participating in the drilling of 6 wells, with the Company's average net interest in these drilling activities amounting to 2.3105 wells. (9) Future Obligations to Provide Oil and Gas The Company is not obligated to provide any fixed or determinable quantities of oil or natural gas in the future. 20 21 ITEM 3. LEGAL PROCEEDINGS Agricultural Minerals, Limited Partnership v. ONEOK Inc., et al., No. CJ-94-93, District Court, Rogers County. On March 4, 1994, the Plaintiff filed a petition alleging that it is the successor to a 15-year gas service agreement and pipeline capacity lease agreement entered into with the Company in 1989, which is necessary to transport gas to its fertilizer plant, that such agreements are an exclusive dealing arrangement in furtherance and preservation of the Company's monopoly power preventing its customers from securing alternate sources of transportation service and causing artificially higher rates for transportation service because of the lack of any free and open competition; that in the exercise of its monopoly power the Company has devised and implemented an unregulated scheme to unlawfully discriminate against the Plaintiff, and that as a result the Company charges competitors of the Plaintiff substantially less than it charges the Plaintiff for comparable transportation services. The Plaintiff alleges that such conduct is in violation of the Oklahoma antitrust laws and asks for actual damages in excess of $10,000, trebling of the actual damages, costs, and reasonable attorney fees. On August 11, 1994, the Court denied the Company's motion to dismiss and/or stay the action on the grounds that the Court lacked jurisdiction. On August 31, 1994, the Company filed its answer denying the Plaintiff's allegations, and alleging that both the contracts with the Plaintiff and those with the Company's other pipeline capacity lease customers were entered into as a result of arm's length bargaining in a free and effective competitive market for industrial gas supplies. The case is now in the discovery stage. A related proceeding filed by the Company in the Oklahoma Corporation Commission, Application for a Determination that the Rate Charges Pursuant to a Pipeline Capacity Lease Agreement between ONG and AMLP is Just and Reasonable, Cause No. PUD 940000419, is described hereinafter. Cayman Resources Corporation v. ONEOK Resources Company, No. C-91-400-E, District Court, Stephens County. On November 22, 1991, the Plaintiff filed a petition alleging a breach of contract relating to an area of mutual interest, requesting a declaratory judgment of the rights of the parties under the contract, and asking for damages in excess of $10,000, plus attorney fees and costs. The Company estimates the value of the property involved to be approximately $200,000. The Company filed its answer generally denying the alleged breach of contract and alleging, as an affirmative defense, failure on the part of Plaintiff to state any claims upon which relief can be granted by the court. The case is currently in the discovery stage. Fent, et ux v. Oklahoma Natural Gas Company, a division of ONEOK Inc., et al., No. CJ-88-10148, District Court, Oklahoma County. On October 6, 1988, the Plaintiffs filed a petition for reimbursement for the cost of replacement of a yard line and for repairing the gap in piping caused by the relocation of the meter to the property line and as a class action for similarly situated customers. The Company moved to dismiss the action on the grounds the District Court did not have subject matter jurisdiction and a failure to state a cause of action for which relief could be granted. The District Court granted the motion to dismiss and the Plaintiffs appealed the decision. On August 14, 1991, the Court of Appeals reversed the trial court's decision and remanded the case for further proceedings. The Appellate court held that the trial court had erred in ruling both that it was without jurisdiction and that the Plaintiffs had failed to state a cause of action, instead finding that under Commission Rule 6(a) the Company could be responsible for maintenance of 21 22 the pipeline up to the outflow side of the meter. As a result, the Company could have a duty to repair the gap caused by removal of the meter and to maintain and repair the yard line. The case was remanded to the District Court; the Company filed a related proceeding with the Oklahoma Corporation Commission (see below); and, although the Plaintiffs filed a motion in district court to certify the class, further proceedings in the case were stayed pending resolution of the appeal of the decision in the Corporation Commission proceeding described below. Fent, et ux v. Oklahoma Natural Gas Company, a division of ONEOK Inc., No. 79,243, Oklahoma Supreme Court. On June 26, 1991, the Company filed an application with the Oklahoma Corporation Commission requesting an interpretation of applicable rules and an order that the Company's customers are responsible for installation and maintenance of all piping between the property or curb line and the customer's point of consumption, regardless of meter location on the premises. The Fents objected, asserting that the dispute was resolved by the District Court case described above and the Commission lacked power to decide the issue. The Commission ruled that it had jurisdiction, and under the Commission's Rules, the customer is financially responsible for the yard line. The Order of the Commission was appealed. On April 27, 1993, the Court of Appeals affirmed the order and the Fents sought review by the Oklahoma Supreme Court. The Supreme Court granted certiorari, and, by an opinion issued on October 4, 1994, held that the Commission's determination of an issue decided by the Court of Appeals in the District Court case constituted an impermissible collateral attack on that decision, which had become "the law of the case," vacated the opinion of the Court of Appeals, and reversed the Commission's order. The Company is filing a motion for rehearing with the Supreme Court. Hadson Energy Resources Corporation v. ONG Western, Inc., No. 93-3953-62, District Court, Oklahoma County. On May 5, 1993, the Plaintiff filed a petition seeking damages in an amount in excess of $500,000.00 for the alleged breach of the take-or-pay provisions of a gas purchase contract for the 1989-1992 contract years. The contract covers one well in Canadian County, Oklahoma. The Plaintiff also seeks to recover interest, costs, and reasonable attorney fees. The Company has filed an answer denying any amounts are owed under the Contract and alleging certain affirmative defenses and counterclaims. The case is in the discovery stage. The Company has entered into settlement discussions on this case with Apache Corporation, the successor to Hadson Energy Resources Corporation. McWilliams, et ux. v. ONEOK Inc., No. CJ-94-244, District Court, Kay County. On September 2, 1994, the Plaintiffs filed a petition alleging personal injury sustained by one of the Plaintiffs from a fire that ignited while he attempted to remove a fire extinguisher from equipment that had struck and ruptured a gas pipeline, asking for actual damages of $30,000,000 and punitive damages of $25,000,000, together with costs and attorney fees. The Company intends to answer denying the allegations. Mustang Fuel Corp. of Oklahoma, et al. v. ONEOK Exploration Company and ONEOK Resources Company, No. CJ-94-4293-63, District Court, Oklahoma County. In this action filed on June 21, 1994, the Plaintiffs seek a declaratory judgment interpreting the provisions of an Asset Purchase Agreement dated November 4, 1988 (the "Agreement"), between ONEOK Exploration Company and ONEOK Resources 22 23 Company (collectively "ONEOK") and Mustang Fuel Corp. of Oklahoma and Mustang Energy Corp. (collectively "Mustang"), concerning the sale of oil and gas properties by ONEOK to Mustang in 1988. Specifically, Mustang seeks an interpretation of the Agreement with respect to who bears the responsibility for making cash-balancing payments on certain gas wells that had been overproduced by ONEOK but which were not scheduled under the Agreement. In addition, Mustang seeks a judgment against ONEOK in the amount of $549,655.50, which it alleged represents the amount that ONEOK should have paid to Mustang for the overproduction on the gas wells, which were not scheduled under the Agreement. Mustang also seeks to recover interest, costs, and attorneys' fees. The Company has answered denying the allegations. The case is now in the discovery stage. This matter is related to the Payne case described below. Settlement discussions are in progress. Payne, et al. v. Mustang Fuel Corporation and ONEOK Resources Company, No. CJ-94-53, District Court, Grady County. In this action filed on February 10, 1991, the Plaintiff trustees allege that they are a working interest owner in a well, and they are entitled to be compensated for 30,379 Mcf of gas overproduction of the well for the account of the Company and another working interest owner, and asks for damages in excess of $10,000, interest, and attorney fees. The Company was a working interest owner when the well was overproduced in 1986 and 1987, which interest was subsequently sold to Mustang Fuel Corporation. The Company has filed an answer denying any liability. The case is now in the discovery stage. This matter is related to the Mustang Fuel case described above. Producers Selling Gas Processed at the Laverne and/or Mooreland Plants (including ONEOK Exploration Company), Docket No. IN 92-1-000, and Amoco Production Company and ORYX Energy Company, Docket No. IN 92-2-000, before the Federal Energy Regulatory Commission. On November 18, 1991, the Federal Energy Regulatory Commission ("FERC") initiated these proceedings against the owners of gas production behind the Laverne and Mooreland Gas Processing Plants to determine if the owners had violated the maximum lawful pricing provisions of the Natural Gas Policy Act of 1978 ("NGPA"). The owners collected the maximum lawful price for the gross volumes of gas sold at the wellhead to ANR Pipeline Company ("ANR"), but they failed to reimburse ANR for the full value of the gas that was lost, used or extracted in the gas plant operations. The FERC staff contends that the transactions are, in economic reality, one transaction, and therefore violate the maximum lawful pricing provisions of the NGPA. Even if it is found that there are separate gas purchase and processing transactions between the parties, the FERC contends that there was a scheme devised by the parties to circumvent the requirements of the NGPA. According to calculations made by ANR, the current potential financial exposure for ONEOK Exploration Company and its affiliates is approximately $7.5 million plus civil penalties and interest from January 1, 1992. On December 11, 1992, the presiding administrative law judge issued the Commission's Initial Decision in the Docket involving Amoco Production Company and ORYX Energy Company, and in which ONEOK Exploration Company was an intervenor. The administrative law judge determined that there was not a sufficient evidentiary basis for finding any specific violations of the maximum lawful pricing provisions of the NGPA. The FERC Staff, as well as Amoco, ORYX, and other parties, filed exceptions to the Commission's Initial Decision on January 11, 1993. 23 24 In the Matter of the Ad Valorem Tax Protest of Oklahoma Natural Gas Company, ONG Sayre Storage, ONG Transmission Company, ONEOK Services, Inc., ONG Western, Inc., ONG Red Oak Transmission Company, and OkTex Pipeline Company, Case Nos. E-94-32, E-94-33, E-94-34, E-94-35, E-94-36, E-94-37, E-94-38, Court of Tax Review, Oklahoma Board of Equalization. On August 8, 1994, the companies filed protests of the 1994 Oklahoma ad valorem tax assessments in the Oklahoma Court of Tax Review. The protests asserted that the ad valorem tax ratio set for the companies by the Oklahoma State Board of Equalization is excessive and unlawful. The cases are pending possible consolidation with 68 other protests filed by public service corporations and pipelines on similar grounds. (In a separate action filed in the Oklahoma Supreme Court, another corporation has asked the court to assume original jurisdiction and decide the legality of the Board's action.) Application of Oklahoma Natural Gas Company for Limited Deviation From the General Priority Schedule Established by OCC-OGR 1-305, General Cause No. 28738, Oklahoma Corporation Commission. This is a request by the Company for an exception from the Commission's Market Demand Rules so that the Company will not be required to purchase ratably from wells producing gas priced in excess of NGPA Sec. 102 price, filed December 16, 1983. The Oklahoma Fertilizer Manufacturers' Association and Damson Oil Corporation have intervened in the case. No date for a hearing has ever been set by the Commission. In the Matter of the Application of Oklahoma Natural Gas Company, a Division of ONEOK Inc. for Examination of Standby Service, Cause CD No. 598, Oklahoma Corporation Commission. This is a request filed on September 6, 1988, by the Company to determine if standby and/or partial service shall be offered by the Company, and if offered, what rates should apply, what the priority for such service should be, what class of customers should be able to utilize such service, and remaining terms and conditions applicable to such service. The Company's brief argued that the Commission had no jurisdiction to require standby service, or alternatively, if jurisdiction does exist, no standby service should be required. On December 11, 1990, an Administrative Law Judge recommended that the Commission assert jurisdiction to determine the issue of standby service. The Company appealed the recommendation to the full Commission, and the Commission voted to accept the recommendation. The matter was appealed to the Oklahoma Supreme Court. On October 20, 1992, the Supreme Court decided the Commission is empowered to determine whether standby is in the public interest and what rates to apply, and the matter has been returned to the Commission for further proceedings. No hearing date has been set. In the Matter of the Application of Oklahoma Natural Gas Company, a Division of ONEOK Inc., for a Review and Determination Concerning its Rates and Earnings in Compliance with the Requirements of 17 O.S. Supp. 1990, Section 263, and for Other Appropriate Relief, Cause PUD No. 910001190, Oklahoma Corporation Commission. The Company filed an application on December 6, 1991, requesting in increase of $63.3 million in rates. Subsequently consolidated were proceedings relating to the Take-or-Pay Settlements Account (Cause PUD No. 91000115), the SISP Program Modifications (Cause PUD No. 920001394 and Cause CD No. 92000165303), and the Lone Star Acquisition (Cause PUD No. 910001144). On March 5, 1992, the Commission granted an interim rate increase of $18.2 on an annualized basis, subject to refund with interest. On January 6, 1994, the Commission approved a joint stipulation by an order which has become final, which provides for recovery of the settlement costs in take-or-pay and similar 24 25 claims. Rates implementing the approved recovery procedures were approved by the Director of the Public Utility Division on February 1, 1994. Decisions reached by the Commissioners during posthearing public deliberations on the rate order during the first half of 1994 and concluded on June 29, 1994, indicate a rate increase of approximately $5.5 million in addition to the interim annual rate increase. This amount is subject to review and approval of a final order which is pending. With reference to the consolidated proceeding relating to the acquisition of the Oklahoma properties of Lone Star Gas Company, in which the Company asked that the full purchase price be included in the rate base for ratemaking purposes, and in its public deliberations, the Commission has voted to allow the Company to amortize the amount over a 5-year period but earn no return on the outstanding balance. With reference to the consolidated Application in Cause PUD No. 01394 to modify the SISP Program to permit the Company to purchase sufficient volumes of gas to supply its SISP market demand at whatever price is necessary to ensure that the Company can meet the needs of its SISP customers, and an Application in Cause CD No. 165303 requesting modification of the limited deviation under which SISP operates, emergency relief was granted on October 28, 1992, effective September 30, 1992, pending further review in the rate proceedings. The Commissioners in their rate case deliberations voted to make the granted emergency relief permanent, subject to review and approval of a final order in the proceedings. Application for a Determination that the Rate Charges Pursuant to a Pipeline Capacity Lease Agreement between ONG and AMLP is Just and Reasonable, Cause No. PUD 940000419. On August 19, 1994, the Company filed an Application with the Commission requesting that the Commission determine that the rate the Company charges Agricultural Minerals Limited Partnership ("AMLP") pursuant to a 1989 pipeline capacity lease agreement is just and reasonable. On September 9, 1994, the Commission Staff filed a Motion to Establish Procedural Schedule, which was set for hearing on September 15, 1994. At the hearing, the administrative law judge established a schedule on the issue of jurisdiction. Initial briefs were filed October 3, 1994, and reply briefs on October 10, 1994. Oral arguments, if requested by the judge, will be on October 31, 1994. The Company has also filed a motion to limit the scope of the hearing to the matters raised in the Company's application. This proceeding is related to the Agricultural Minerals, Limited Partnership v. ONEOK Inc. lawsuit filed in Rogers County District Court described earlier. ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS (A) Matters Submitted to a Vote of Security Holders No matters were submitted to a vote of the security holders during the fourth quarter of the 1994 fiscal year. (B) Executive Officers of the Registrant Larry W. Brummett is Chairman of the Board of Directors, President, and Chief Executive Officer - ONEOK Inc. He was born in Tulsa, Oklahoma, and received B.S. and M.S. degrees in civil engineering from the University of Oklahoma in 1974 and 1984, respectively. He joined Oklahoma Natural Gas in 1974 as an engineer trainee and subsequently served in positions of increasing responsibility. He was promoted to Vice President - Tulsa District on 25 26 September 1, 1986, to Executive Vice President of Oklahoma Natural Gas on May 17, 1990, to Executive Vice President - ONEOK Inc. on January 21, 1993, and to President and Chief Executive Officer of ONEOK Inc. on February 17, 1994. Mr. Brummett was elected to the position of Chairman of the Board of Directors effective June 1, 1994. Mr. Brummett is 44. D. L. Kyle is President and Chief Operating Officer of Oklahoma Natural Gas Company and ONG Transmission Company. He was born in Wichita, Kansas, and reared in Oklahoma City, Oklahoma. He received a B.S. degree in industrial engineering and management from Oklahoma State University in 1974 and an MBA degree in 1987 from the University of Tulsa. He joined Oklahoma Natural Gas in 1974 as an engineer trainee and subsequently served in positions of increasing responsibility. He was elected to Vice President of Gas Supply in 1986 and Executive Vice President in 1990. Mr. Kyle was elected to the position of President and Chief Operating Officer on September 1, 1994. Mr. Kyle is 42. B. M. Van Meter is President - Energy Companies of ONEOK. He was born in Bartlesville, Oklahoma, and received a petroleum engineering degree from the University of Oklahoma in 1955. After approximately 30 years of experience in various managerial and technical positions in the oil and gas industry, he joined ONEOK in 1985 as President of ONEOK Exploration Company and ONEOK Resources Company. He was named to his present position in 1986. Mr. Van Meter is 61. J. D. Neal is Vice President, Chief Financial Officer, and Treasurer. He was born in Shawnee, Oklahoma, and has a bachelor of arts degree from Oklahoma Baptist University with majors in both economics and management. He joined the Company in 1961 and has held various positions in operations and accounting. He was promoted to Assistant Treasurer in June 1988 and to Treasurer in January of 1989. He was elected to the position of Vice President - Finance in May 1990. On January 1, 1992, he assumed his current position. Mr. Neal is 55. Lavon W. Neal is Vice President, Secretary, and Assistant Treasurer. She was born in Ponca City, Oklahoma, and received a B.S. degree in business administration in 1954 from the University of Oklahoma. Joining ONG in 1957, she became Secretary to the Chairman of the Board in 1972 and Executive Assistant to the Chairman and Assistant Secretary and Assistant Treasurer in 1974. She became Vice President Corporate Responsibilities and Services in 1976. Effective December 1, 1991, she assumed her present position. Ms. Neal is 62. F. W. Schemm is Vice President of Business Development - ONEOK Inc. He was born in South Dakota and reared in Hutchinson, Kansas. He received a B. S. degree in engineering from Kansas State University in 1960 and went to work at Oklahoma Natural Gas Company as an engineer trainee. He has served in various management positions, including Manager of Pipeline Systems Design and district operating management positions. He was promoted to Vice President of Enid district in 1990 and to his current position in April 1994. Mr. Schemm is 60. There is no relationship by blood, marriage, or adoption between any of the above executive officers. All executive officers are elected at the annual 26 27 meeting of directors held in January. All officers serve for a period of one year or until their successors are duly elected. PART II ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS (A) Market Information The Company's common stock is listed on the New York Stock Exchange and the Midwest Stock Exchange. The high and low market prices of the Company's common stock as traded on the New York Stock Exchange for each fiscal quarter during the last two fiscal years were as follows:
High Low ------------------------------- 1993 - - ---- First quarter $18 3/8 $16 1/4 Second quarter $20 5/8 $16 7/8 Third quarter $24 7/8 $20 Fourth quarter $26 1/4 $20 3/8 1994 - - ---- First quarter $22 5/8 $19 5/8 Second quarter $20 1/2 $17 5/8 Third quarter $18 1/2 $15 3/4 Fourth quarter $19 3/4 $15 3/4
(B) Holders There were 12,208 holders of the Company's common stock at August 31, 1994. (C) Dividends Quarterly dividends declared on the Company's common stock during the last two fiscal years were as follows:
1994 1993 ------------------------ First quarter $.27 $.25 Second quarter .28 .27 Third quarter .28 .27 Fourth quarter .28 .27 ---- ---- Total $1.11 $1.06 ==== ====
Dividend restrictions are as follows: the debt agreements pursuant to which the Company's outstanding long-term and short-term debt has been issued limit dividends and other distributions on the Company's common stock. Under the most restrictive of these provisions, $27,412,000 of retained earnings is so restricted. On August 31, 1994, $147,514,000 was available for dividends on the Company's common stock. 27 28 ITEM 6. SELECTED FINANCIAL DATA The following are selected financial data for the Company for each of the last five fiscal years. Dollar amounts are in millions of dollars, except per share amounts.
1994 1993 1992 1991 1990 ---------------------------------------------------------------------- Operating revenues $ 792.4 $ 789.1 $ 677.1 $ 689.5 $668.0 Operating income $ 70.9 $ 75.7 $ 65.0 $ 62.4 $ 57.5 Net income $ 36.2 $ 38.4 $ 32.6 $ 35.9 $ 33.0 Total assets $1,137.0 $1,104.5 $1,069.9 $1,051.9 $939.7 Long-term debt $ 376.9 $ 391.9 $ 397.9 $ 291.2 $244.5 Earnings per common share $1.34 $1.43 $1.21 $1.33 $1.21 Dividends per common share $1.11 $1.06 $ .96 $ .82 $ .75 Percent of payout 82.8% 74.1% 79.3% 61.7% 62.0% Common equity per share $13.88 $13.63 $13.28 $13.03 $12.51 Return on common equity 9.65% 10.46% 9.09% 10.24% 9.76% Ratio of earnings to fixed charges 2.39 2.33 2.21 2.54 2.48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, including Consolidated Statements of Earnings, Consolidated Statements of Cash Flows, Consolidated Balance Sheets, Consolidated Statements of Shareholders' Equity, and the Notes to Consolidated Financial Statements, together with the report of KPMG Peat Marwick LLP, independent certified public accountants, as contained in the 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing, are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE REGISTRANT (A) Directors of the Registrant Information concerning the directors of the Company is shown in the 1994 definitive Proxy Statement, which is incorporated herein by this reference. (B) Executive Officers of the Registrant 28 29 Information concerning the executive officers of the Company is included in Part I of this Annual Report on Form 10-K. (C) Compliance with Section 16(a) of the Exchange Act Information on compliance with Section 16(a) of the Exchange Act is included in the 1994 definitive Proxy Statement, which is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION Information on executive compensation is shown in the 1994 definitive Proxy Statement, which is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) Security Ownership of Certain Beneficial Owners Information on security ownership of certain beneficial owners is shown in the 1994 definitive Proxy Statement, which is incorporated herein by this reference. (B) Security Ownership of Management Information on security ownership of directors and officers is shown in the 1994 definitive Proxy Statement, which is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 29 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) Documents Filed as a Part of This Report
Page Number or Incorporation by Reference to --------------- (1) Exhibits (3)(a) Third Restated Certificate of 42- 81 Incorporation of ONEOK Inc. (3)(b) By-Laws of ONEOK Inc. as 82- 99 Amended (4)(a) Indenture dated November 28, Exhibit (4) to 1989, between ONEOK Inc. and Registration Security Pacific National Bank Statement on Form S-3, File No. 33-31979 (4)(b) Indenture dated December 1, Exhibit (4)(b) to 1990, between ONEOK Inc. and Annual Report on Security Pacific National Bank Form 10-K dated August 31, 1991 (4)(c) First Supplemental Indenture Exhibit (4)(c) to dated December 1, 1990, between Annual Report on ONEOK Inc. and Security Pacific Form 10-K dated National Bank August 31, 1991 (4)(d) Second Supplemental Indenture Exhibit (4)(d) to dated October 1, 1991, between Annual Report on ONEOK Inc. and Security Pacific Form 10-K dated National Bank August 31, 1991 NOTE: Certain instruments defining the rights of holders of long-term debt are not being filed as exhibits hereto pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company agrees to furnish copies of such agreements to the Commission upon request. (10)(a) ONEOK Inc. Stock Performance Exhibit A of 1991 Plan Definitive Proxy Statement
30 31
Page Number or Incorporation by Reference to --------------- (10)(b) Unfunded Excess Benefit Plan Exhibit (10)(e) to of ONEOK Inc. Annual Report on Form 10-K dated August 31, 1984 (10)(c) Termination Agreement Exhibit (10)(d) to between ONEOK Inc. and Annual Report on ONEOK Inc. Executives Form 10-K dated dated January 20, 1984 August 31,1984 (10)(d) Indemnification Agreement Exhibit (28)(c) to between ONEOK Inc. and Annual Report on ONEOK Inc. Officers and Form 10-K dated Directors August 31, 1987 (10)(e) Ground Lease Between ONEOK Exhibit (10)(a) to Leasing Company and South- Annual Report on western Associates dated Form 10-K dated May 15, 1983 August 31, 1983 (10)(f) First Amendment to Ground Exhibit (19)(b) to Lease between ONEOK Leasing Annual Report on Company and Southwestern Form 10-K dated Associates dated October 1, August 31, 1984 1984 (10)(g) Sublease Between RMZ Corp. Exhibit (10)(c) to and ONEOK Leasing Company Annual Report on dated May 15, 1983 Form 10-K dated August 31, 1983 (10)(h) First Amendment to Sublease Exhibit (19)(c) to between RMZ Corp. and ONEOK Annual Report on Leasing Company dated Form 10-K dated October 1, 1984 August 31, 1984 (10)(i) ONEOK Leasing Company Lease Exhibit (19)(a) to Agreement with Oklahoma Annual Report on Natural Gas Company Form 10-K dated dated August 31, 1984 August 31, 1985 (10)(j) Rights Agreement between Exhibit 1 to ONEOK Inc. and Chase Form 8-A Manhattan Bank, N. A. Registration dated March 31, 1988 Statement dated March 1988
31 32
Page Number or Incorporation by Reference to --------------- (10)(k) Credit Agreement between 100-177 ONEOK Inc. and Bank of America National Trust and Savings Association, dated August 20, 1993 (10)(l) First Amendment to Credit 178-184 Agreement between ONEOK Inc. and Bank of America National Trust and Savings Association, dated August 18, 1994 (10)(m) Private Placement Agreement Exhibit (10)(l) to between ONEOK Inc. and Annual Report on Paine Webber Incorporated, Form 10-K dated dated April 6, 1993 August 31, 1993 (Medium-term Notes, Series A, up to U.S. $150,000,000) (10)(n) Issuing and Paying Agency Exhibit (10)(1) to Agreement between Bank America Annual Report on Trust Company of New York, Form 10-K dated as Issuing and Paying Agent, August 31, 1993 and ONEOK Inc. (Medium-term Notes, Series A, up to U.S. $150,000,000) (13) Pages 28 through 49 of the 185-206 1994 Annual Report to Shareholders for ONEOK Inc. (22) Required information concerning the registrant's subsidiaries is included in Item 1. of this document. (24) Independent Auditors' Consent 207 (28) History of Gas Pricing Exhibit (99) to Annual Report on Form 10-K dated August 31, 1993
32 33 (2) Financial Statements The following financial statements are contained in the Company's 1994 Annual Report to Shareholders filed as Exhibit 13 to this filing. (a) Independent Auditors' Report (b) Consolidated Statements of Earnings for the years ended August 31, 1994, 1993, and 1992 (c) Consolidated Balance Sheets as of August 31, 1994 and 1993 (d) Consolidated Statements of Shareholders' Equity for the years ended August 31, 1994, 1993, and 1992 (e) Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1993, and 1992 (f) Notes to Consolidated Financial Statements
Page Number or Incorporation by Reference to --------------- (3) Financial Statement Schedules Included in Part IV of this report for the years ended August 31, 1994, 1993, and 1992, are the following: (a) Independent Auditors' Report 34 (b) Schedule V - Property and Equipment 35-36 (c) Schedule VI - Accumulated Depreciation, Depletion, and Amortization 37 (d) Schedule IX - Short-Term Borrowings 38 (e) Schedule X - Supplementary Income Statement Information 38
All other schedules have been omitted since the required information is inapplicable or is included in the Consolidated Financial Statements or footnotes thereto. (B) Reports on Form 8-K One report on Form 8-K was filed by the Company during the last quarter of the period covered by this Form 10-K. The Form 8-K reported the settlement of the Carmen Field Limited Partnership case on August 4, 1994. 33 34 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders ONEOK Inc.: Under date of October 14, 1994, we reported on the consolidated balance sheets of ONEOK Inc. and subsidiaries as of August 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended August 31, 1994, as contained in the 1994 Annual Report to Shareholders. Our report refers to a change in the method of accounting for certain postemployment and postretirement benefit obligations. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Tulsa, Oklahoma October 14, 1994 34 35 Property and Equipment (Thousands of Dollars) Schedule V
Balance Retire- Transfers Balance August 31, Additions ments & Other August 31, System 1993 at Cost or Sales Changes 1994 - - ------------------------------------------------------------------------------- Gas property: Distribution 515,923 39,249 5,551 34 549,655 Transmission 316,423 18,931 3,231 (14) 332,109 Gas storage 43,010 2,949 13 (2) 45,944 Other 107,137 1,000 5,479 0 102,658 - - ------------------------------------------------------------------------------ Total gas property 982,493 62,129 14,274 18 1,030,366 Exploration and production 96,773 8,327 3,103 0 101,997 Drilling 33,249 724 33,973 0 0 Gas processing 68,507 2,729 1,282 0 69,954 Other 15,411 19 8 0 15,422 - - ------------------------------------------------------------------------------ Total 1,196,433 73,928 52,640 18 1,217,739 ==============================================================================
Balance Retire- Transfers Balance August 31, Additions ments & Other August 31, System 1992 at Cost or Sales Changes 1993 - - ------------------------------------------------------------------------------- Gas property: Distribution 484,221 32,475 4,868 4,095 515,923 Transmission 314,539 7,135 2,991 (2,260) 316,423 Gas storage 38,851 4,209 50 0 43,010 Other 93,386 14,972 1,239 18 107,137 - - ------------------------------------------------------------------------------ Total gas property 930,997 58,791 9,148 1,853 982,493 Exploration and production 76,635 24,872 4,716 (18) 96,773 Drilling 34,655 722 2,128 0 33,249 Gas processing 66,764 1,743 0 0 68,507 Other 15,316 95 0 0 15,411 - - ------------------------------------------------------------------------------ Total 1,124,367 86,223 15,992 1,835 1,196,433 ==============================================================================
Balance Retire- Transfers Balance August 31, Additions ments & Other August 31, System 1991 at Cost or Sales Changes 1992 - - ------------------------------------------------------------------------------- Gas property: Distribution 449,063 39,978 5,964 1,144 484,221 Transmission 308,359 9,803 2,502 (1,121) 314,539 Gas storage 38,260 2,874 2,260 (23) 38,851 Other 85,706 4,628 (3,052) 0 93,386 - - ------------------------------------------------------------------------------ Total gas property 881,388 57,283 7,674 0 930,997 Oil and gas 69,577 10,562 3,504 0 76,635 Drilling 36,157 679 2,181 0 34,655 Gas processing 65,022 1,742 0 0 66,764 Other 15,924 (608) 0 0 15,316 - - ------------------------------------------------------------------------------ Total 1,068,068 69,658 13,359 0 1,124,367 ==============================================================================
35 36 Depreciation Rates and Methods Schedule V (Continued) Exploration and production properties are depreciated and depleted using the unit-of-production method based upon periodic estimates of oil and gas reserves. Undeveloped properties are amortized based upon remaining lease terms and exploratory and developmental drilling experience. Gas processing plants are depreciated using various rates based on estimated lives of available gas reserves. All other property and equipment is depreciated using the straight-line method over its estimated useful life. Depreciation is computed by major groups of properties based on the following annual depreciation rates: Exploration and production and drilling * Transmission .22% to 7.60% Gas storage 1.55% to 4.74% Gas processing * Distribution 1.41% to 5.91% General 1.80% to 33.33%
*As described above. 36 37 Accumulated Depreciation, Depletion, and Amortization Schedule VI (Thousands of Dollars)
Additions ------------------ Balance Charged Transfer Balance August 31, to Other Retire- &/or August 31, System 1993 Income Accounts ments Reclass 1994 - - ------------------------------------------------------------------------------ Gas property: Distribution 163,801 19,957 0 5,648 0 178,110 Transmission 144,690 7,698 18 4,235 0 148,171 Gas storage 11,997 848 0 23 0 12,822 Other 23,561 7,377 0 4,199 0 26,739 - - ------------------------------------------------------------------------------ Total 344,049 35,880 18 14,105 0 365,842 Expl. and prod. 51,035 12,048 0 2,012 0 61,071 Drilling 26,516 580 0 27,096 0 0 Gas processing 49,328 1,894 0 1,239 0 49,983 Other 3,757 456 0 821 0 3,392 - - ------------------------------------------------------------------------------ Total 474,685 50,858 18 45,273 0 480,288 ==============================================================================
Additions ------------------ Balance Charged Transfer Balance August 31, to Other Retire- &/or August 31, System 1992 Income Accounts ments Reclass 1993 - - ------------------------------------------------------------------------------ Gas property: Distribution 150,866 18,698 0 5,589 (174) 163,801 Transmission 138,056 7,690 1,835 3,065 174 144,690 Gas storage 11,325 739 0 67 0 11,997 Other 18,584 5,974 0 997 0 23,561 - - ------------------------------------------------------------------------------ Total 318,831 33,101 1,835 9,718 0 344,049 Expl. and prod. 43,651 10,716 0 3,332 0 51,035 Drilling 27,735 884 0 2,103 0 26,516 Gas processing 46,479 2,849 0 0 0 49,328 Other 3,324 476 0 43 0 3,757 - - ------------------------------------------------------------------------------ Total 440,020 48,026 1,835 15,196 0 474,685 ==============================================================================
Additions ------------------ Balance Charged Transfer Balance August 31, to Other Retire- &/or August 31, System 1991 Income Accounts ments Reclass 1992 - - ------------------------------------------------------------------------------ Gas property: Distribution 138,683 17,943 0 5,499 (261) 150,866 Transmission 131,485 7,515 0 1,205 261 138,056 Gas storage 10,738 722 0 135 0 11,325 Other 15,472 4,375 0 1,263 0 18,584 - - ----------------------------------------------------------------------------- Total 296,378 30,555 0 8,102 0 318,831 Oil and gas 33,326 12,054 0 1,729 0 43,651 Drilling 28,994 887 0 2,146 0 27,735 Gas processing 43,633 2,846 0 0 0 46,479 Other 2,934 475 0 85 0 3,324 - - ----------------------------------------------------------------------------- Total 405,265 46,817 0 12,062 0 440,020 =============================================================================
37 38 Short-Term Borrowings Schedule IX (Thousands of Dollars)
(2) Weighted Weighted Balance Average (1) Average at End Interest Maximum Average Interest Short-Term Notes Payable of Period Rate Outstanding Outstanding Rate - - ------------------------------------------------------------------------------ 1994 Fiscal Year $50,000 5.2% $65,000 $32,000 4.0% ====== === ====== ====== === 1993 Fiscal Year $22,000 3.5% $50,000 $14,000 4.0% ====== === ====== ====== === 1992 Fiscal Year $5,000 6.0% $104,000 $41,000 6.1% ===== === ======= ====== ===
(1) The average amount outstanding during the period was computed by dividing the total of month-end outstanding principal balances by 12. (2) The weighted average interest rate during the period was computed by dividing the total annualized interest cost per issue by the total short-term debt outstanding during the year. Supplementary Income Statement Information Schedule X (Thousands of Dollars)
Charged to Ad Valorem Taxes Costs and Expenses - - ------------------------------------------------------------------------------ 1994 Fiscal Year $11,948 ====== 1993 Fiscal Year $11,768 ====== 1992 Fiscal Year $11,247 ======
38 39 OTHER MATTERS For the purpose of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference in registrant's Registration Statements on Form S-8 Registration Nos. 33-38059 (filed December 3, 1990), 33-52733 (filed March 18, 1994), and 33-69062 (filed September 21, 1993): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its Counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed by the Act and will be governed by the final adjudication of such issue. 39 40 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, on this 20th day of October, 1994. ONEOK Inc. Registrant By: J. D. NEAL --------------------------- J. D. Neal Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) 40 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 20th day of October, 1994. LARRY W. BRUMMETT J. D. NEAL - - -------------------------- -------------------------- Larry W. Brummett J. D. Neal Chairman of the Board, Vice President, Chief President, Chief Executive Financial Officer, and Officer, and Director Treasurer (Principal Financial and Accounting Officer) W. M. BELL D. A. NEWSOM - - -------------------------- --------------------------- W. M. Bell D. A. Newsom Director Director D. R. CUMMINGS G. D. PARKER - - -------------------------- --------------------------- D. R. Cummings G. D. Parker Director Director W. L. FORD J. D. SCOTT - - -------------------------- --------------------------- W. L. Ford J. D. Scott Director Director J. M. GRAVES J. E. TYREE - - -------------------------- --------------------------- J. M. Graves J. E. Tyree Director Director S. J. JATRAS G. R. WILLIAMS - - -------------------------- --------------------------- S. J. Jatras G. R. Williams Director Director B. H. MACKIE S. L. YOUNG - - -------------------------- --------------------------- B. H. Mackie S. L. Young Director Director
41 42 Index to Exhibits
Filed herewith or Incorporation by Reference to --------------- (3)(a)* Third Restated Certificate of Incorporation of ONEOK Inc. (3)(b)* By-Laws of ONEOK Inc. as Amended (4)(a) Indenture dated November 28, Exhibit (4) to 1989, between ONEOK Inc. and Registration Security Pacific National Bank Statement on Form S-3, File No. 33-31979 (4)(b) Indenture dated December 1, Exhibit (4)(b) to 1990, between ONEOK Inc. and Annual Report on Security Pacific National Bank Form 10-K dated August 31, 1991 (4)(c) First Supplemental Indenture Exhibit (4)(c) to dated December 1, 1990, between Annual Report on ONEOK Inc. and Security Pacific Form 10-K dated National Bank August 31, 1991 (4)(d) Second Supplemental Indenture Exhibit (4)(d) to dated October 1, 1991, between Annual Report on ONEOK Inc. and Security Pacific Form 10-K dated National Bank August 31, 1991 NOTE: Certain instruments defining the rights of holders of long-term debt are not being filed as exhibits hereto pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company agrees to furnish copies of such agreements to the Commission upon request. (10)(a) ONEOK Inc. Stock Performance Exhibit A of 1991 Plan Definitive Proxy Statement
43
Filed herewith or Incorporation by Reference to --------------- (10)(b) Unfunded Excess Benefit Plan Exhibit (10)(e) to of ONEOK Inc. Annual Report on Form 10-K dated August 31, 1984 (10)(c) Termination Agreement Exhibit (10)(d) to between ONEOK Inc. and Annual Report on ONEOK Inc. Executives Form 10-K dated dated January 20, 1984 August 31,1984 (10)(d) Indemnification Agreement Exhibit (28)(c) to between ONEOK Inc. and Annual Report on ONEOK Inc. Officers and Form 10-K dated Directors August 31, 1987 (10)(e) Ground Lease Between ONEOK Exhibit (10)(a) to Leasing Company and South- Annual Report on western Associates dated Form 10-K dated May 15, 1983 August 31, 1983 (10)(f) First Amendment to Ground Exhibit (19)(b) to Lease between ONEOK Leasing Annual Report on Company and Southwestern Form 10-K dated Associates dated October 1, August 31, 1984 1984 (10)(g) Sublease Between RMZ Corp. Exhibit (10)(c) to and ONEOK Leasing Company Annual Report on dated May 15, 1983 Form 10-K dated August 31, 1983 (10)(h) First Amendment to Sublease Exhibit (19)(c) to between RMZ Corp. and ONEOK Annual Report on Leasing Company dated Form 10-K dated October 1, 1984 August 31, 1984 (10)(i) ONEOK Leasing Company Lease Exhibit (19)(a) to Agreement with Oklahoma Annual Report on Natural Gas Company Form 10-K dated dated August 31, 1984 August 31, 1985 (10)(j) Rights Agreement between Exhibit 1 to ONEOK Inc. and Chase Form 8-A Manhattan Bank, N. A. Registration dated March 31, 1988 Statement dated March 1988
44
Filed herewith or Incorporation by Reference to --------------- (10)(k)* Credit Agreement between ONEOK Inc. and Bank of America National Trust and Savings Association, dated August 20, 1993 (10)(l)* First Amendment to Credit Agreement between ONEOK Inc. and Bank of America National Trust and Savings Association, dated August 18, 1994 (10)(m) Private Placement Agreement Exhibit (10)(l) to between ONEOK Inc. and Annual Report on Paine Webber Incorporated, Form 10-K dated dated April 6, 1993 August 31, 1993 (Medium-term Notes, Series A, up to U.S. $150,000,000) (10)(n) Issuing and Paying Agency Exhibit (10)(1) to Agreement between Bank America Annual Report on Trust Company of New York, Form 10-K dated as Issuing and Paying Agent, August 31, 1993 and ONEOK Inc. (Medium-term Notes, Series A, up to U.S. $150,000,000) (13)* Pages 28 through 49 of the 1994 Annual Report to Shareholders for ONEOK Inc. (22) Required information concerning the registrant's subsidiaries is included in Item 1. of this document. (24)* Independent Auditors' Consent (27)* Financial Data Schedules (28) History of Gas Pricing Exhibit (99) to Annual Report on Form 10-K dated August 31, 1993
____________________ * Filed herewith EX-3.A 2 THIRD RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit (3)(a) THIRD RESTATED CERTIFICATE OF INCORPORATION OF ONEOK INC. ONEOK Inc., a Corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is ONEOK Inc., formerly Oklahoma Natural Gas Company. The date of the filing of its original Certificate of Incorporation was November 10, 1933, the date of the filing of its first Restated Certificate of Incorporation was June 23, 1973, and the date of the filing of its Second Restated Certificate of Incorporation was May 11, 1984. 2. This Third Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Second Restated Certificate of Incorporation of this Corporation, as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Third Restated Certificate of Incorporation. 3. This Third Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. 4. The text of the Second Restated Certificate of Incorporation as amended or supplemented is hereby restated without further amendments or changes to read as herein set forth in full: FIRST The name of the Corporation is ONEOK Inc. SECOND The principal office or place of business of the Corporation in the State of Delaware is to be located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its resident agent is The Corporation Trust Company and the address of said resident agent is 1209 Orange Street, Wilmington, Delaware. THIRD The nature of the business of the Corporation and the objects and purposes to be transacted, promoted and carried on by it are as follows: 1 2 1. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 2. To manufacture, design, construct, own, use, buy, sell, lease, hire and deal in and with articles and property of all kinds and to render service of all kinds. 3. To engage in the general conduct of a public utility business. In connection with the foregoing, to have all powers necessary or incident thereto, including, but not limited to, the following, viz: (a) To prospect for, mine, dig or drill for, or otherwise obtain, natural gas, casinghead gas, petroleum, rock or carbon oils, and other mineral solutions and substances of every nature and description; (b) To manufacture, produce, generate, acquire, refine and prepare for market natural or artificial gas, casinghead gas, casinghead gasoline, crude oil or any product or by-product thereof, in the crude or refined condition, for light, heat, power and other purposes, and to sell, transport, distribute and supply the same to cities, towns and villages and the inhabitants thereof, and to individuals, companies, corporations, joint stock companies, syndicates, partnerships and associations of every kind and nature; (c) To lay, construct, build, maintain, operate, purchase or otherwise acquire, or obtain the use of, to mortgage, pledge or otherwise encumber, and to sell, lease, and otherwise dispose of, and generally to deal in, conduits, pipes, pipe lines or tubing, including transmission and distributing lines, storage tanks, tank cars, pumping stations, compressor stations, steam plants, oil plants, gasoline plants and casinghead gas plants, and all other means of conveyance, transportation, refining and storage used or useful for the purpose of transporting, distributing and storing gas, oil, casinghead gas or casinghead gasoline, and all products and by-products thereof; (d) To purchase or otherwise acquire, or obtain the use of, and to hold, maintain, develop, deal in, sell, lease, exchange, hire, convey, mortgage or otherwise dispose of or turn to account gas and oil lands, and all other lands and leaseholds, and any interests, estates and rights in real property, and any rights, licenses and privileges appurtenant to such property; to purchase, 2 3 erect, construct, make, improve and operate or aid or subscribe for the erection, construction, making, improvement and operation of refineries, buildings, plants, factories, stores, shops, offices, warehouses, mills and facilities of every kind and character and any and all other structures and erections of every description upon such property, or which may appertain thereto, or which may be necessary, useful, convenient or appropriate in connection therewith or with the business of the Corporation or of any corporation, association, co-partnership or individual in which the Corporation shall be in any manner interested, including railways, tramways, telegraph and telephone lines and all other plant and equipment necessary or convenient in the prosecution of the business of the Corporation; (e) To purchase or otherwise acquire, and to obtain the use of, to own, use, deal in, pledge and otherwise encumber, and to sell, lease, exchange or otherwise dispose of, machinery, equipment, rolling stock, appliances, tools and other articles and materials necessary or useful in any branch of the business of the Corporation, together with other property, real, personal or mixed, of every nature and description; (f) To own, lease or otherwise acquire stores, and to do a general merchandise business, to engage in any manufacturing, trading, mercantile or commercial business, enterprise, venture or pursuit of any kind or character whatsoever, which is or may appear necessary, useful, convenient or appropriate in connection with any of the purposes and objects of the Corporation, and to that end or for the purpose of investment or otherwise, to acquire, lease, hold, own and dispose of or turn to account any and all property, real, personal or mixed, assets, stocks, bonds, and rights of any and every kind, and to acquire, conduct, manage, operate or control the whole or any part of any such business conducted, managed, operated or controlled by any other corporation, association, co- partnership or individual; (g) To purchase, acquire, sell, hold, exchange, pledge, hypothecate, deal in and dispose of stocks, bonds, notes, debentures or other evidences of indebtedness and obligations and securities of, and shares or other interests in, any corporation, company, joint stock association, fixed or other trust or other association, domestic or foreign, or of any domestic or foreign state, government, or governmental authority or of any political or administrative subdivision or department thereof, and certificates or receipts of any kind 3 4 representing or evidencing any interest in any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations or securities; to issue its own shares of stock, bonds, notes, debentures or other evidences of indebtedness and obligations and securities for the acquisition of any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, securities, certificates and receipts purchased or acquired by it, and, while the owner or holder of any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, securities, certificates and receipts, to exercise all the rights, powers and privileges of ownership in respect thereof, including the right to vote thereon for any and all purposes; (h) To adopt, apply for, obtain, register, purchase, lease, take assignments or licenses of or otherwise acquire, or obtain the use of and to hold, protect, own, use, develop, introduce and otherwise dispose of, and to sell, assign, lease, grant licenses or other rights in respect to, make contracts concerning or otherwise deal with, dispose of or turn to account, any and all copyrights, trademarks, trade names, brands, labels, patent rights, letters patent and patent applications of the United States of America or of any other country, government or authority, and any inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges, whether in connection with or secured under letters patent or otherwise, and to carry on any business, whether manufacturing or otherwise, which is or may be necessary, convenient, advisable or adaptable for the utilization by the Corporation in any way, directly or indirectly, of such letters patent and patent applications, trademarks, trade names, copyrights and pending applications therefor, inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges; (i) To organize and to promote, and to facilitate the organization and promotion of subsidiary corporations, and to convey, transfer or assign all or any part of its assets to any subsidiary corporation or corporations in exchange for shares of the capital stock or other securities of such subsidiary corporation or corporations, or otherwise; (j) To aid by the lending of money or in any other manner whatsoever, any corporation, association, co- partnership or individual in whose business the Corporation may be in any way interested or any of 4 5 whose properties, including shares or capital stock, bonds or other obligations or securities are held by the Corporation or in which it is in any way interested, and to do any acts or things which are or may appear necessary, useful, convenient or appropriate for the preservation, protection, improvement or enhancement of the value of any such business or property, or for the promotion of any such interest of the Corporation; (k) To guarantee the payment of any bonds or other obligations of any corporation, in which the Corporation shall own a majority of the capital stock, and to guarantee the performance and fulfillment of any contracts or obligations made or entered into by any such corporation; (l) To enter into, make and perform contracts of every sort and description with any person, firm, association, corporation, municipality, body politic, county, state or government or colony or dependency thereof; (m) To acquire its own bonds or other obligations or shares of its capital stock and to resell or otherwise dispose of the same from time to time to such extent and in such manner and upon such terms as the Board of Directors may deem expedient; (n) To borrow or raise money for any of the purposes of the Corporation, to issue bonds, debentures, notes or other obligations of any nature or in any manner for moneys so borrowed without limit as to amount, and if and to the extent so determined to secure the principal thereof, and the interest thereon, by mortgage or granting of a charge upon, or pledge or conveyance or assignment in trust of, the whole or any part of the property of the Corporation, real or personal, including contract rights either at the time owned or thereafter acquired or in any other manner; (o) To acquire all or any part of the goodwill, rights, property and business of any person, firm, association or corporation heretofore or hereafter engaged in any business similar to any business which the Corporation has the power to conduct, to pay for the same in cash or stock or bonds of the Corporation or otherwise to hold, utilize, or in any manner dispose of the whole or any part of the rights and properties so acquired, and to assume in connection therewith any liabilities of any such person, firm, association or corporation and conduct in any lawful manner the whole or any part of the business thus acquired; 5 6 (p) Specifically, and without limiting the generality of any other power or powers contained herein, to acquire the properties, issue the securities, enter into the agreements, assume the obligations, and perform the acts, contemplated to be acquired, issued, entered into, assumed and performed, respectively, by the New Company under the Oklahoma Natural Gas Corporation Plan and Agreement of Reorganization, dated September 21, 1933; (q) To conduct its business in all or any of its branches in the State of Delaware, except as hereinafter expressly limited, and in any or all other States, territories, possessions, colonies and dependencies of the United States of America and in the District of Columbia, and in any or all foreign countries; to have one or more offices within or out of the State of Delaware; and to carry on all or any of its operations and business without restriction or limit as to amount; and to hold, purchase, mortgage and convey real and personal property within and without the State of Delaware; (r) To carry out all or any part of the foregoing objects and purposes as principal, agent, contractor or otherwise, either alone or in conjunction with any person or persons, firms, associations, or corporations and in any part of the world, and in carrying on any of its business and for the attainment or furtherance of any of its objects and purposes to make and perform such agreements and contracts of any kind and description, and to do such acts and things and to exercise any and all such powers as a natural person could lawfully make, perform, do or exercise and, as aforesaid, to do anything and everything which is or may appear necessary, useful, convenient or appropriate for the attainment, furtherance or exercise of any of its purposes, objects or powers if not inconsistent with the laws of the State of Delaware; but the Corporation shall not by any implication or construction be deemed to possess the power of constructing, maintaining and operating public utilities within the State of Delaware, and nothing in all the purposes, objects and powers hereinbefore stated shall be construed to give the Corporation any rights, powers or privileges not permitted by the laws of the State of Delaware to corporations organized under the laws of the State of Delaware. The specification herein contained of particular powers of the Corporation is not in limitation, but rather in furtherance of the powers granted to the Corporation under the laws of the 6 7 State of Delaware under and in pursuance of the provisions of which the Corporation is formed, it being intended that the Corporation shall be authorized to do or cause to be done all things permitted by any statute or law of the State of Delaware applicable to the Corporation and incidental to its business. FOURTH The minimum amount of capital with which the Corporation will begin business is One Thousand Dollars ($l,000). The total number of shares of all classes of stock which the Corporation shall have authority to issue is Sixty Three Million Three Hundred Forty Thousand (63,340,000) of which Three Hundred Forty Thousand (340,000) shares are to be Preferred Stock of the par value of Fifty Dollars ($50) per share, Three Million (3,000,000) shares are to be Preference Stock without par value, and Sixty Million (60,000,000) shares are to be Common Stock without par value. A statement of the designations of the different classes of stock of the Corporation and of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, and of the powers conferred upon the Board of Directors with respect to the creation of series of the Preferred Stock and of limitation of variations between such series is as follows: DIVISION A-PREFERRED STOCK 1. Series. The shares of the Preferred Stock may be divided into and issued in series, from time to time, as herein provided. Each such series shall be designated so as to distinguish the shares thereof from the shares of all other series. The initial series of the Preferred Stock shall be designated as Preferred Stock, Series A. All shares of the Preferred Stock of all series shall be of equal rank and all shares of any particular series of the Preferred Stock shall be identical except as to the date or dates from which dividends thereon shall be cumulative, as provided in the next paragraph hereof entitled "Dividends." The shares of the Preferred Stock of different series, subject to any applicable provision of law, may vary as to the following terms, which shall be fixed in the case of each such series, at any time prior to the issuance of the shares thereof, in the manner hereinafter in this paragraph 1 provided: (a) The annual dividend rate (within such limits as shall be permitted by law) for the particular series and the date from which such dividends shall be cumulative on all shares of such series issued on or prior to the record date for the first dividend for such series; (b) The redemption price or prices, if any, for the particular series; 7 8 (c) The amount or amounts per share for the particular series payable to the holders thereof upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, which may be different for voluntary and involuntary liquidation, dissolution or winding up; (d) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the particular series; and (e) The conversion, participating or other special rights, and the qualifications, limitations or restrictions thereof, if any, of the particular series. The Board of Directors of the Corporation may, at any time or from time to time, within the then total authorized number of shares of the Preferred Stock of all series, increase the authorized number of shares of any series of the Preferred Stock or of any Preferred Stock which is not part of a then existing series, establish or reestablish any unissued shares of the Preferred Stock as shares of the Preferred Stock of any series or as Preferred Stock which is not part of a then existing series, create one or more additional series of the Preferred Stock, fix the authorized number of shares of any series (which number of shares shall be subject to change from time to time by like action), and fix the designations and the terms of any series of the Preferred Stock in the respects in which the shares of any series may vary from the shares of other series of the Preferred Stock as hereinbefore in this paragraph 1 provided. A. PREFERRED STOCK, SERIES A (1) That One Hundred Eighty Thousand (180,000) shares of such series Preferred Stock authorized shall be designated as Preferred Stock, Series A; (2) the annual dividend rate for such Preferred Stock, Series A, payable as provided in the Certificate of Incorporation, as amended, shall be $2.375 per share and that the date from which such dividends shall be cumulative shall be February 15, 1944; (3) the redemption price for the Preferred Stock, Series A, shall be $55 per share if redeemed prior to February 1, 1949, $54 per share if redeemed on February 1, 1949 or thereafter prior to February 1, 1954, and $53 per share if redeemed on or after February 1, 1954, in each case together with a sum computed at the said annual dividend rate from the date from which dividends thereon became cumulative to the date fixed for such redemption, less the aggregate of the dividends 8 9 theretofore or on such date paid thereon or declared and set apart for payment thereon, all as provided in said Certificate of Incorporation, as amended; and (4) the amount per share payable on the Preferred Stock, Series A, before any payment on the Common Stock (a) in the event of any voluntary liquidation, dissolution or winding up or any reduction of capital resulting in any distribution of assets to the stockholders shall be the amount per share at which such stock could at the time be redeemed, and (b) in the event of any involuntary liquidation, dissolution or winding up, shall be Fifty Dollars ($50) per share, together with a sum computed at the said annual dividend rate from the date from which dividends thereon became cumulative to the date fixed for the payment of such distributive amount, less the aggregate of the dividends theretofore or on such date paid thereon or declared and set apart for payment thereon, all as provided in the Certificate of Incorporation, as amended. 2. Dividends. The holders of shares of each series of the Preferred Stock at the time outstanding shall be entitled to receive, but only when and as declared by the Board of Directors, out of the assets of the Corporation available for dividends, cumulative preferential dividends in preference to dividends on the Common Stock, at the annual dividend rate for the particular series fixed therefor, as herein provided, payable quarterly on the fifteenth day of February, May, August and November in each year to the stockholders of record on the respective dates, not exceeding forty (40) days preceding such dividend payment date, fixed for the purpose by the Board of Directors. No dividend shall be declared on any series of the Preferred Stock in respect of any quarter-yearly dividend period unless there shall likewise be declared on all shares of all series of the Preferred Stock, at the time outstanding, like proportionate dividends, ratably, in proportion to the respective annual dividend rates fixed therefor, in respect of the same quarter-yearly dividend period, to the extent that such shares are entitled to receive dividends for such quarter-yearly dividend period. The term "quarter-yearly dividend period" shall mean the quarter-yearly period ending on the fifteenth day of February, May, August and November, respectively, in each year. In the case of all shares of each particular series, the dividends on shares of such series shall be cumulative: (a) If issued on or prior to the record date for the first dividend on the shares of such series, then from the date for the particular series fixed therefor as herein provided; 9 10 (b) If issued during the period commencing immediately after a record date for a dividend and terminating at the close of the payment date for such dividend, then from such dividend payment date; and (c) Otherwise from the quarter-yearly dividend payment date next preceding the date of issue of such shares; so that unless dividends on all outstanding shares of each series of the Preferred Stock at the annual dividend rate and from the dates for accumulation thereof fixed as herein provided shall have been paid or declared and set apart for payment for all past quarter-yearly dividend periods, but without interest on accrued dividends, no dividends shall be paid or declared and no other distribution shall be made on the Preference Stock or the Common Stock, and no Preference Stock or Common Stock shall be purchased or otherwise acquired for value by the Corporation. Any accumulation of dividends on the Preferred Stock shall not bear interest. The holders of the Preferred Stock of any series shall not be entitled to receive any dividends thereon other than the dividends referred to in this paragraph 2. 3. Preference on liquidations, etc. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any reduction of its capital resulting in any distribution of assets to its stockholders, the holders of all shares of each series of the Preferred Stock at the time outstanding shall be entitled to receive in cash out of the assets of the Corporation, whether from capital or from earnings, available for distribution to its stockholders, before any amount shall be paid to the holders of the Preference Stock and the Common Stock, the amount for the shares of the particular series fixed therefor as herein provided, together with a sum in the case of each such share of each series, computed at the annual dividend rate for the series of which the particular share is a part, from the date from which dividends on such share became cumulative, to the date fixed for the payment of such distributive amount, less the aggregate of the dividends theretofore or on such date paid thereon or declared and set aside for payment thereon; but no payments on account of such distributive amounts shall be made to the holders of shares of any series of the Preferred Stock unless there shall likewise be paid at the same time to the holders of the shares of each other series of the Preferred Stock at the time outstanding like proportionate distributive amounts, ratably, in proportion to the full distributive amounts to which they are respectively entitled as herein provided. If the assets of the Corporation available for distribution to the holders of the Preferred 10 11 Stock shall be insufficient to permit the payment in full of the sums payable as aforesaid to the holders of the Preferred Stock upon any such liquidation, or dissolution or winding up or reduction, then all such assets of the Corporation shall be distributed ratably among the holders of the Preferred Stock according to the amounts which they respectively would be entitled to receive if such assets were sufficient to permit the payment in full of said sums. The purchase or redemption by the Corporation of shares of any class of stock in any manner permitted by law, shall not, for the purpose of this paragraph 3, be regarded as a liquidation, dissolution or winding up of the Corporation or a reduction of its capital; provided that the Corporation shall not, so long as any shares of Preferred Stock remain outstanding, purchase or redeem any shares of stock otherwise than from earned surplus or net profits of the Corporation at the time available for the payment of dividends on its Common Stock or from the proceeds of the sale of stock of any class subordinate to the Preferred Stock, both as to dividends and assets, received within a period of six (6) months prior to such purchase or redemption. Nothing in this paragraph 3 contained, however, shall prevent the Corporation from acquiring its Preferred Stock for retirement by exchange therefor of Common Stock of the Corporation. Neither the consolidation nor merger of the Corporation with or into any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this paragraph 3. A dividend or distribution to stockholders from net profits or surplus earned after the date of the reduction of capital, or the purchase or redemption of any class of stock by the application of such net profits or surplus, shall not be deemed to be a distribution resulting from any such reduction. The holders of the Preferred Stock of any series shall not be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Corporation other than the amounts referred to in this paragraph 3. 4. Redemption. The Corporation, by action of its Board of Directors, may redeem the whole or any part of any series of the Preferred Stock which by its terms shall be redeemable, at any time or from time to time, at the redemption price or prices of the shares of the particular series fixed therefor as herein provided, together with a sum in the case of each share of each series so to be redeemed, computed at the annual dividend rate for the series of which the particular share is a part from the date from which dividends on such share became cumulative to the date fixed for such redemption, less the aggregate of the dividends theretofore 11 12 or on such redemption date paid thereon or declared and set apart for payment thereon. Notice of the election of the Corporation to redeem any of the Preferred Stock shall be given by the Corporation by mailing a copy of such notice, postage prepaid, not less than thirty (30) nor more than ninety (90) days prior to the date designated therein as the date for such redemption, to the holders of record on the date of such mailing of the shares of the Preferred Stock to be redeemed, addressed to them at their respective addresses appearing on the books of the Corporation. In case of the redemption of a part only of any series of the Preferred Stock at the time outstanding, the Corporation shall select by lot or pro rata, in such reasonable manner as the Board of Directors may determine, the shares so to be redeemed. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained, to prescribe the manner in which and the terms and conditions upon which the shares of Preferred Stock shall be redeemed from time to time. On and after the date specified in such notice, each holder of shares of Preferred Stock called for redemption as aforesaid, upon presentation and surrender at the place designated in such notice, of the certificates for such shares of Preferred Stock held by him, properly endorsed in blank for transfer or accompanied by proper instruments of assignment or transfer in blank (if required by the Corporation) and bearing all necessary transfer stock tax stamps thereto affixed and canceled, shall be entitled to receive therefor the redemption price thereof. From and after the date of redemption specified in such notice (unless default shall be made by the Corporation in providing moneys for the payment of the redemption price) all dividends upon the Preferred Stock so called for redemption shall cease to accrue and, from and after said date (unless default shall be made by the Corporation as aforesaid), or if the Corporation shall so elect, from and after the date specified therefor in the notice of redemption (prior to the date of redemption so specified) on which the Corporation shall provide the moneys for the payment of the redemption price by depositing the amount thereof with a bank or trust company doing business in the Borough of Manhattan, City and State of New York, having a capital and surplus of at least Five Million Dollars ($5,000,000), all rights of the holders of the shares so called for redemption as stockholders of the Corporation, except only the right to receive the redemption price then due and the right to exercise any conversion right applicable to any of such shares, shall cease and determine. The Corporation may also from time to time repurchase shares of its Preferred Stock at not exceeding the redemption price thereof. The Corporation shall not, however, at any time redeem or repurchase, except in accordance with an offer (which may vary with respect to shares of different series) 12 13 made to all holders of shares of Preferred Stock, less than the whole of its then outstanding Preferred Stock, unless full cumulative dividends, to such date of redemption or repurchase if the same be a quarterly dividend payment date, or to the next preceding quarterly dividend payment date if such date of redemption or repurchase is not a quarterly dividend payment date, upon all shares of the Preferred Stock then outstanding, and not to be then redeemed or repurchased, shall have been paid or declared and set aside for payment. All shares of Preferred Stock at any time so redeemed or repurchased may thereafter, in the discretion of the Board of Directors, be reissued or otherwise disposed of at any time or from time to time to the extent and in the manner now or hereafter permitted by law, subject, however, to the limitations imposed upon the issue of Preferred Stock provided for in subparagraph (c) of paragraph 2 of Division D of this Article FOURTH. 5. Right to Amend and Reclassify Stock and Create New Classes of Stock. From time to time, and without limitation of other rights and powers of the Corporation as provided by law, the Corporation may reclassify its capital stock and may create or authorize one or more classes or kinds of stock ranking prior to or on a parity with or subordinate to the Preferred Stock or may increase the authorized amount of the Preferred Stock or of the Common Stock or of any other class of stock of the Corporation or may amend, alter, change or repeal any of the rights, privileges, terms and conditions of shares of the Preferred Stock or of any series thereof then outstanding or of shares of the Common Stock or of any other class of stock of the Corporation, upon the vote, given at a meeting called for that purpose, of the holders of a majority of the shares of stock then entitled to vote thereon, or upon such other vote of such holders as may then be provided by law; provided that the consent of the holders of shares of the Preferred Stock (or of any series thereof) required by the provisions of paragraph 2 of Division D of this Article FOURTH, if any such consent be so required, shall have been obtained; and provided further that the rights, privileges, terms and conditions of shares of the Common Stock shall not be subject to amendment, alteration, change or repeal without the consent (given in writing or by vote at a meeting called for that purpose) of the holders of a majority of the total number of shares of the Common Stock then outstanding. DIVISION B-PREFERENCE STOCK Of the authorized stock of the Corporation there shall be a class, to consist of Three Million (3,000,000) shares, designated as "Preference Stock," that may be divided into and issued in series, which shall rank junior to the Preferred Stock in respect 13 14 of and amounts payable upon any dissolution, liquidation or winding up of the Corporation, and which shall otherwise have the terms and provisions hereinafter provided in this section. 1. Designation. Each series of such Preference Stock shall be so designated, in the manner hereinafter provided, as to distinguish the shares thereof from the shares of all other series and classes. 2. Dividend Rights. Dividends in full shall not be paid or set apart for payment on any series of Preference Stock for any dividend period unless dividends in full have been or are contemporaneously paid or set apart for payment on all outstanding shares of all series of Preference Stock for such dividend period and for all prior dividend periods. When the specified dividends are not paid in full on all series of Preference Stock, the shares of each series of Preference Stock shall share ratably in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on said shares if all dividends were paid in full. So long as any shares of Preference Stock are outstanding, no dividends shall be declared or paid or set apart for, nor any other distribution made in respect of, the shares of Common Stock (other than dividends or distributions payable in shares of Common Stock), nor any sums applied to the purchase, redemption or other retirement of Common Stock (other than in exchange for or from the proceeds of sale of other shares of Common Stock), unless full dividends on all shares of Preference Stock of all issues outstanding, and on all outstanding stock of any class ranking as to dividends prior to the Preference Stock, for all past quarterly dividend periods shall have been paid or declared and a sum sufficient for the payment thereof set apart and the full dividend for the then current quarterly dividend period shall have been or concurrently shall be declared. The amount of any deficiency for past dividend periods may be paid or declared and set apart at any time without reference to any quarterly dividend payment date. Unpaid accrued dividends on the Preference Stock shall not bear interest. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of each series of Preference Stock shall be entitled to receive, for each share thereof, such amount as shall be provided for shares of such series in the manner hereinafter set forth, before any distribution of the assets shall be made to the holders of shares of Common Stock; but the holders of Preference Stock shall be entitled to no further participation in such distribution. A consolidation or merger of the Corporation or the sale, conveyance, exchange or transfer (for cash, 14 15 shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation or any purchase or redemption of stock of the Corporation of any series of Preference Stock (or of any class ranking as to dividends prior to the Preference Stock) shall not be deemed a dissolution, liquidation or winding up of the Corporation within the meaning of this paragraph. 4. Voting Rights. The holders of Preference Stock shall be entitled to vote (i) as provided in subparagraph (a) to paragraph 1 of Division D of this Article FOURTH, (ii) as provided in paragraph 5 of this Division B and (iii) as may from time to time be required by the laws of the State of Delaware. No consent of any of the holders of any series of Preference Stock specified in (ii) of this paragraph 4 shall be required, if provision is made for the redemption of all shares of such series of Preference Stock at the time outstanding, or provision is made that the proposed action shall not be effective unless provision is made for the purchase, redemption or other retirement of all shares of such series of Preference Stock at the time outstanding. 5. Restrictions on Corporate Action. So long as any Preference Stock is outstanding, the Corporation shall not, without the consent (given in writing without a meeting or by vote in person or by proxy at a meeting called for the purpose) of the holders of at least a majority of the aggregate number of shares of all series of Preference Stock entitled to vote thereon, (i) create or authorize any shares of any class of stock ranking as to dividends or assets prior to the Preference Stock, except Preferred Stock, or any obligation or security convertible into stock ranking as to dividends or assets prior to the Preference Stock, except Preferred Stock, or (ii) amend, change or repeal any of the express terms of the Preference Stock outstanding in any manner adverse to the holders thereof, except that if such amendment, change or repeal is adverse to the holders of less than all series of Preference Stock, the consent of only the holders of a majority of the aggregate number of shares of the series thereof entitled to vote thereon and so affected shall be required. 6. Other Rights and Preferences. All shares of Preference Stock shall be identical except that there may be variations between different series of Preference Stock with respect to (1) the rate of dividend; (2) whether shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption; (3) the amount payable upon shares in event of voluntary or involuntary liquidation, dissolution or winding up; (4) sinking or purchase fund provisions, if any, for the redemption or purchase of 15 16 shares; and (5) the terms and conditions, if any, on which shares may be converted. The Board of Directors shall have authority, within the limitations set forth herein and imposed by law, and subject to restrictions contained in this Certificate of Incorporation to fix and determine the relative rights and preferences of the shares of any series established by the Board of Directors to the extent that such relative rights and preferences are not established by this Certificate of Incorporation. 7. Procedure for Establishment of Series of Preference Stock. In order for the Board of Directors to establish a series of Preference Stock they shall adopt a resolution setting forth the designation of the series and fixing and determining the relative rights and preferences thereof to the extent that such relative rights and preference are not established by this Certificate of Incorporation. A. SERIES A PARTICIPATING PREFERENCE STOCK (1) Designation and Amount. The shares of such series shall be designated as "Series A Participating Preference Stock" without par value, and the number of shares constituting such series shall be Two Hundred Thousand (200,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preference Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. (2) Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock of the Corporation and any other stock of the Corporation whereby its terms ranks prior to the Series A Participating Preference Stock, the holders of shares of Series A Participating Preference Stock in preference to the holders of shares of Common Stock, without par value (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth 16 17 day of February, May, August and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Preference Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) One Dollar ($1.00), or (b) subject to the provision for adjustment hereinafter set forth, one hundred (100) times the aggregate per share amount of all cash dividends, and one hundred (100) times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preference Stock. In the event the Corporation shall at any time after March 31, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preference Stock where entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preference Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no 17 18 dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of One Dollar ($1.00) per share on the Series A Participating Preference Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preference Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preference Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preference Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preference Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than thirty (30) days prior to the date fixed for the payment thereof. (3) Voting Rights. In addition to such other voting rights as are set forth in the Certificate of Incorporation of the Corporation and except as otherwise provided by law, each share of Series A Participating Preference Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the shareholders of the Corporation, and the holders of shares of Series A Participating Preference Stock and the holders of shares of Common Stock generally shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. 18 19 (4) Reacquired Shares. Any shares of Series A Participating Preference Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preference Stock and may be reissued as part of a new series of Preference Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. (5) Liquidation, Dissolution or Winding up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of Common Stock or any other shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preference Stock unless, prior thereto, the holders of shares of Series A Participating Preference Stock shall have received per share, the greater of one hundred (100) times Fifty Dollars ($50) or one hundred (100) times the payment made per share of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preference Stock. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preference Stock, if any, then such remaining assets shall be distributed ratably to the holders of all series of Preference Stock. The amount available to be distributed hereunder to the holder of Common Stock shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date 19 20 (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (6) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preference Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provisions for adjustment hereinafter set forth) equal to one hundred (100) times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preference Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. (7) Redemption. The shares of Series A Participating Preference Stock shall not be redeemable. (8) Ranking. The Series A Participating Preference Stock shall rank on a parity with all other series 20 21 of the Corporation's Preference Stock as to the payment of dividends and the distribution of assets. (9) Fractional Shares. Series A Participating Preference Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preference Stock. DIVISION C-COMMON STOCK 1. Dividends. Out of the assets of the Corporation available for dividends remaining after full cumulative dividends on the Preferred Stock and the Preference Stock shall have been paid or declared and sums sufficient for the payment thereof set apart, in accordance with Divisions A and B of this Article FOURTH, and after making such provision, if any, as the Board of Directors may deem necessary for working capital and reserves, then, and not otherwise, dividends may be paid upon the Common Stock to the exclusion of the Preferred Stock and the Preference Stock. 2. Distribution of Assets. In the event of any liquidation, dissolution or winding up of the Corporation, or any reduction of its capital resulting in any distribution of its assets to its stockholders, after there shall have been paid or set aside for the holders of the Preferred Stock and the Preference Stock the full preferential amounts to which they are entitled under the provisions of Divisions A and B of this Article FOURTH, the holders of the Common Stock shall be entitled to receive, pro rata, all of the remaining assets of the Corporation available for distribution to its stockholders. DIVISION D-GENERAL PROVISIONS 1. Voting Power. (a) The holders of the Series Preferred Stock, the Series Preference Stock and Common Stock shall have full voting power for the election of Directors and for all other purposes, one vote per share for the Common Stock, two votes per share for the Series Preferred Stock and one vote per share for the Series Preference Stock, except as herein otherwise provided, and unless otherwise provided by law. 21 22 (b) If and when dividends payable on the Preferred Stock shall be in default in an amount equivalent to or exceeding eight (8) full quarter-yearly dividends on all shares of all series of the Preferred Stock then outstanding, and until all dividends in default shall have been paid or declared and set apart for payment, the holders of all shares of the Preferred Stock, voting separately as one class, shall, unless otherwise provided by law, be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock, voting separately as a class, shall, unless otherwise provided by law, be entitled to elect the remaining directors of the Corporation. The terms of office of all persons who may be directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Preferred Stock, whether or not the holders of the Common Stock shall then have elected the remaining directors of the Corporation. (c) If and when all dividends in default on the shares of Preferred Stock then outstanding shall be paid or declared and set apart for payment, the Preferred Stock shall thereupon be divested of any special right with respect to the election of directors provided in subparagraph (b) of this paragraph 1, the voting power of the holders of shares of Preferred Stock and the holders of shares of Common Stock shall revert to the status existing before the occurrence of such default, but always subject to the same provisions for vesting such special rights in the Preferred Stock in case of further like default or defaults in dividends thereon. Upon the termination of any such special right upon payment or setting apart for payment of all accumulated and defaulted dividends on such Preferred Stock, the terms of office of all persons who may have been elected directors of the Corporation by vote of the holders of the Preferred Stock, as a class, pursuant to such special rights shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors. (d) In case of any vacancy in the office of a director occurring among the directors elected by the holders of Preferred Stock, as a class, pursuant to the foregoing provisions of subparagraph (b) of this paragraph 1, the remaining directors elected by the holders of Preferred Stock may elect, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one may elect, a successor or successors to hold office for the unexpired term of the director or 22 23 directors whose place or places shall be vacant. Likewise in case of any vacancy in the office of a director occurring among the directors elected by the holders of Common Stock pursuant to the foregoing provisions of subparagraph (b) of this paragraph 1, the remaining directors elected by the holders of the Common Stock may elect, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one may elect, a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. (e) Whenever under the provisions of subparagraph (b) of this paragraph 1, the right shall have accrued to the holders of the Preferred Stock to elect directors, the Board of Directors shall within twenty (20) days after delivery to the Corporation at its principal office of a request to such effect signed by any holder of Preferred Stock entitled to vote, call a special meeting of all stockholders to be held within sixty (60) days from the delivery of such request for the purpose of electing directors; provided, however that if the regular annual meeting of the Corporation shall be scheduled to be held under the Company's By-Laws, within ninety (90) days after such right shall have accrued to the holders of the Preferred Stock such special meeting may be held on the date so scheduled for such annual meeting. At all meetings of stockholders held for the purpose of electing directors during such times as the holders of shares of the Preferred Stock shall have the special right, voting separately as one class, to elect directors pursuant to subparagraph (b) of this paragraph 1, the presence in person or by proxy of the holders of a majority of the outstanding shares of the Common Stock shall be required to constitute a quorum of such class for the election of directors, and the presence in person or by proxy of the holders of a majority of the outstanding shares of all series of the Preferred Stock shall be required to constitute a quorum of such class for the election of directors; provided, however, that the absence of a quorum of the holders of stock of either such class shall not prevent the election at any such meeting or adjournment thereof of directors by the other such class if the necessary quorum of the holders of stock of such class is present in person or by proxy at such meeting; and provided further that in the absence of a quorum of the holders of stock of either such class, a majority of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the election of the directors to 23 24 be elected by such class from time to time without notice other than announcement at the meeting until the requisite amount of holders of such class shall be present in person or by proxy, but such adjournment shall not be made to a date beyond the date for the mailing of notice of the next annual meeting of the Corporation or special meeting in lieu thereof. (f) Except when some mandatory provision of law shall be controlling and except as otherwise provided in subdivision (2) of subparagraph (c) and in subparagraph (e) of paragraph 2 of this Division D, whenever shares of two or more series of the Preferred Stock are outstanding, no particular series of the Preferred Stock shall be entitled to vote as a separate series on any matter and all shares of the Preferred Stock of all series shall be deemed to constitute but one class for any purpose for which a vote of the stockholders of the Corporation by classes may now or hereafter be required. 2. Restrictions on Certain Corporate Action. (a) So long as any shares of the Preferred Stock of any series are outstanding, the Corporation shall not (except as otherwise provided in subparagraph (e) of this paragraph 2), without the consent (given in writing or by vote at a meeting called for that purpose in accordance with the provisions of subparagraph (d) of this paragraph 2) of the holders of a majority of the total number of shares of the Preferred Stock of all series then outstanding, increase the total authorized number of shares of Preferred Stock of all series. (b) So long as any shares of the Preferred Stock of any series are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose, in accordance with the provisions of subparagraph (d) of this paragraph 2) of the holders of a majority of the total number of shares of the Preferred Stock of all series present or represented by proxy at such meeting, at which meeting a quorum, as hereinafter provided, shall be present or represented by proxy: (1) Incur, assume, or in any manner become liable in respect of any funded indebtedness if, immediately after giving effect thereto, the aggregate principal amount of all consolidated funded indebtedness of the Corporation and its subsidiaries (including the aggregate principal 24 25 amount of such funded indebtedness, but excluding the aggregate principal amount of any funded indebtedness, being simultaneously retired) shall exceed sixty-five percent (65%) of consolidated total capitalization of the Corporation and its subsidiaries; or (2) Permit any subsidiary to incur, assume, or in any manner become, or be liable in respect of, any funded indebtedness other than (i) funded indebtedness for which any subsidiary is liable as of January 1, 1975 and (ii) any other funded indebtedness if immediately after giving effect thereto the Corporation would be entitled to become liable in respect of at least One Dollar ($1.00) of additional funded indebtedness under clause (1) above; or (3) Merge or consolidate with or into any other corporation or corporations, unless such merger or consolidation, or the issuance and assumption of all securities to be issued or assumed in connection with any such merger or consolidation shall have been ordered, exempted, approved, or permitted by a State or Federal regulatory authority having jurisdiction in the premises. For the purpose hereof, the term "funded indebtedness" of any corporation shall mean all indebtedness which by its terms matures more than one (1) year from the date of creation thereof, and any indebtedness maturing within one (1) year from such date which was renewable or extendable at the option of the obligor or to a date beyond one year from such date, including any indebtedness renewable or extendable (whether or not theretofore renewed or extended) under, or payable from the proceeds of other indebtedness which may be incurred pursuant to the provisions of, any revolving credit agreement or other similar agreement; provided, however, that any indebtedness of a subsidiary for which the Corporation is contingently liable in the manner provided in clauses (2) or (5) of the definition of indebtedness below shall be deemed to be funded indebtedness of the Corporation, whether or not such indebtedness is funded indebtedness of such subsidiary. The term "indebtedness" of any corporation shall mean and include (1) all items which, in accordance with good accounting practice, would be included on the liability side of a balance sheet of such corporation as at the date as of which indebtedness is to be determined excluding capital stock, surplus, capital and earned 25 26 surplus, surplus reserves which in effect were appropriations of surplus or offsets to asset values (other than all reserves in respect of obligations, the amount, applicability or validity of which is at such date being contested in good faith by such corporation) and deferred credits, (2) guarantees, endorsements, and other contingent obligation in respect of, or any obligations to purchase or otherwise acquire, indebtedness of other persons, or to advance or supply funds, (3) indebtedness secured by any mortgage, pledge, security interest, or lien existing on property owned subject to such mortgage, pledge, security interest, or lien whether or not the indebtedness secured thereby shall have been assumed, (4) all proper accruals for Federal and other taxes based on or measured by income or profits, and (5) all indebtedness guaranteed, directly or indirectly, in any manner by such corporation, or in effect guaranteed or supported, directly or indirectly, by such corporation through an agreement, contingent or otherwise, (a) to purchase the indebtedness, or (b) to purchase, sell, transport, or lease (as lessee or lessor) property or to purchase or sell services at prices or in amounts designed to enable the debtor to make payment of the indebtedness or to assure the owner of the indebtedness against loss, or (c) to supply funds to or in any other manner invest in the debtor; provided, however, that such terms shall not mean and include any indebtedness in respect of which moneys sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such indebtedness may be duly called for redemption and payment) shall be deposited with a depositary, agency or trustee in trust for the payment thereof. The term "total capitalization," of any corporation shall mean the sum of the stated capital applicable to the outstanding capital stock of all classes of such corporation, the earned surplus and the capital and paid in surplus of such corporation, whether or not available for the payments of dividends, any premium on capital stock of such corporation and the aggregate principal amount of all outstanding funded indebtedness of such corporation, provided that if at time of computation of total capitalization of such corporation any capital stock of such corporation being concurrently issued or retired or any funded indebtedness is being concurrently incurred, assumed, or retired by such corporation, effect shall be given thereto. The terms "consolidated funded indebtedness" and "consolidated total capitalization" of the Corporation and its subsidiaries shall mean the funded indebtedness or total capitalization, as the case may 26 27 be, of the Corporation and its subsidiaries, all consolidated in accordance with good accounting practice. The term "subsidiary" shall mean any corporation of which more than fifty percent (50%) of the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Corporation, or by one or more of its subsidiaries, or by the Corporation and one or more of its subsidiaries. For the purposes of this subparagraph (b), the presence in person or by proxy of the holders of a majority of the total number of shares of the Preferred Stock of all series then issued and outstanding shall be necessary to constitute a quorum; provided that, if such quorum shall not have been obtained at such meeting or at any adjournment thereof within seven (7) days from the date of such meeting as originally called, the presence in person or by proxy of the holders of one-third (1/3) of the total number of shares of the Preferred Stock of all series then issued and outstanding shall then be sufficient to constitute a quorum; and provided further that in the absence of a quorum, such meeting or any adjournment thereof may be adjourned by the Officer or Officers of the Corporation who shall have called the meeting from time to time (but at intervals of not less than seven (7) days unless all Stockholders present or represented by proxy shall agree to a shorter interval) without notice other than announcement at the meeting until a quorum as above provided shall be present or represented by proxy. (c) So long as any shares of the Preferred Stock of any series are outstanding, the Corporation shall not (except as otherwise provided in subparagraph (e) of this paragraph 2), without the consent (given in writing or by vote at a meeting called for that purpose in accordance with the provisions of subparagraph (d) of this paragraph 2) of the holders of at least two-thirds (2/3) of the total number of shares of the Preferred Stock of all series then outstanding: (1) Create or authorize any kind of stock (other than a series of the Preferred Stock) ranking prior to or on a parity with the Preferred Stock or create 27 28 or authorize any obligation or security convertible into shares of stock of any such kind; or (2) Amend, alter, change or repeal any of the express terms of the Preferred Stock, or of any series of the Preferred Stock then outstanding, in a manner prejudicial to the holders thereof; provided, however, that if any such amendment, alteration, change or repeal would be prejudicial to the holders of shares of one or more, but not all of the series of the Preferred Stock at the time outstanding, such consent shall be required only from the holders of two-thirds (2/3) of the total number of outstanding shares of all series so affected; or (3) Issue any additional shares of any series of the Preferred Stock, unless the net earnings of the Corporation applicable to the payment of dividends on shares of the Preferred Stock (after provision for depreciation and all taxes chargeable as operating expense) determined in accordance with sound accounting practice, for any twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the calendar month within which such additional shares of stock shall be issued, shall, respectively, have been at least two and one half (2 1/2) times the dividend requirements for a twelve (12) month period upon the entire amount of the Preferred Stock to be outstanding immediately after the proposed issue of such additional shares of Preferred Stock; but excluding from the foregoing computation interest charges on all indebtedness which is to be retired through the issue of such additional shares of Preferred Stock. Where such additional shares are to be issued in connection with the acquisition of any property, the earnings of the property to be acquired may be included on a pro forma basis in the foregoing computation; or (4) Issue any additional shares of any series of the Preferred Stock, unless the capital of the Corporation represented by its Common Stock together with its surplus as then stated on its books of account shall in the aggregate be at least equal to the involuntary liquidation value of the Preferred Stock to be outstanding immediately after the proposed issue of such additional shares of Preferred Stock. 28 29 (d) Notice of any meeting of holders of shares of the Preferred Stock of the Corporation, authorized by the provisions of this paragraph 2, setting forth the purpose or purposes of such meeting, shall be mailed by the Corporation, not less than ten (10) days prior to such meeting, to all holders of shares of the Preferred Stock (at their respective addresses appearing on the books of the Corporation) of record as of a date fixed by the Board of Directors of the Corporation, not exceeding forty (40) days in advance of such meeting, for the purpose of determining the stockholders entitled to notice of and to vote at such meeting, unless such notice shall have been waived, either before or after the holding of such meeting, by all stockholders entitled to notice thereof and to vote thereat. Except where some mandatory provision of law shall be controlling, no other, longer or additional notice need be given of any such meeting and all holders of shares of the Preferred Stock of the Corporation, by becoming such, hereby consent to the holding of any such meeting upon notice given as hereinbefore provided and thereby waive, to the full extent permitted by law, any right to require the giving of or to receive any such other, longer or additional notice. (e) Notwithstanding any other provisions of this Division D and unless otherwise provided below, no holder of shares of Preferred Stock of any particular series shall be entitled to vote or consent upon any proposed increase in the number of authorized shares of any existing class of stock or the creation of any new class of stock, if provision is made in the Certificate of Amendment of the Certificate of Incorporation providing therefor that none of the shares thereby authorized may be issued unless provision is made for the purchase, redemption or retirement of all of the outstanding shares of such series of Preferred Stock. Fractional Scrip Certificates. Non-dividend bearing and non-voting scrip (exchangeable in round amounts for full shares) may be issued to represent fractional interests in shares of stock of the Corporation of any class. Such scrip shall be in such form, bearer or registered, in such denominations, expiring after such time, and containing such provisions for the sale, for the account of the holders of such scrip, of the full shares of stock for which such scrip is exchangeable and such other terms and provisions, as the Board of Directors may determine prior to the issue thereof. 29 30 FIFTH The Corporation shall have perpetual existence. SIXTH The private property of the stockholders shall not be subject to the payment of the corporate debts to any extent whatever. SEVENTH 1. The business of the Corporation shall be managed by the Board of Directors, except as otherwise required by law. The Board of Directors may by resolution or resolutions, passed by a majority of the whole Board, designate one or more committees, each committee to consist of two (2) or more of the Directors of the Corporation, which to the extent provided in said resolution or resolutions or in the By-Laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the By-Laws of the Corporation or as may be determined from time to time by resolution adopted by the Board of Directors. 2. The number of Directors of the Corporation, which shall be not less than nine (9) nor more than thirty-one (31) persons, shall be fixed from time to time by the Board of Directors. Upon the adoption of this paragraph 2 of Article SEVENTH, the Directors shall be divided into three classes (A, B and C), as nearly equal in number as possible. The initial term of office for members of Class A shall expire at the annual meeting of stockholders in December 1984; the initial term of office for members of Class B shall expire at the annual meeting of stockholders in December 1985; and the initial term of office for members of Class C shall expire at the annual meeting of stockholders in December 1986. At each annual meeting of stockholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, and shall continue to hold office until their respective successors are elected and qualified. In the event of any increase in the number of Directors fixed by the Board of Directors, the additional Directors shall be so classified that all classes of Directors have as nearly equal numbers of Directors as may be possible. In the event of any 30 31 decrease in the number of Directors of the Corporation, all classes of Directors shall be decreased equally as nearly as may be possible. Notwithstanding the foregoing, the terms of this paragraph 2 of Article SEVENTH shall not apply to the extent inconsistent with the terms of subparagraphs (b) through (f) of paragraph 1 of Division D of Article FOURTH hereof and shall not adversely affect the rights of holders of Preferred Stock. 3. Subject to the rights of the holders of any series of Preferred or Preference Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death resignation, retirement, disqualification, removal from office or other cause shall be filled by the affirmative vote of a majority of the Directors then in office, though less than a quorum, or by the sole remaining Director, or by the stockholders at their next annual meeting or at any special meeting of stockholders called for that purpose. Each Director so chosen shall hold office until the expiration of the term of the Director, if any, whom he has been chosen to succeed or if none, until the expiration of the term of the class assigned to the additional directorship to which he has been elected, or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. Subject to the rights of the holders of any series of Preferred or Preference Stock then outstanding, any Director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock. 4. The stockholders and Directors of the Corporation may hold their meetings and have an office or offices outside of the State of Delaware if the By-Laws so provide. 5. None of the Directors need be a stockholder of the Corporation or a resident of the State of Delaware. 6. (Deleted) 7. The By-Laws or any By-Law may be adopted, amended, or repealed only by the affirmative vote of not less than a majority of the Directors then in office at any regular or special meeting, or by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock, voting as a single class, at any annual meeting or any special meeting called for that purpose. 31 32 8. The Board of Directors shall have power from time to time to set apart out of any funds of the Corporation available for dividends a reserve or reserves for any proper purpose, and to abolish such reserve in the manner in which it was created and to fix and determine and to vary the amount of the working capital of the Corporation, and to direct and determine the use and disposition of the working capital and of any surplus or net profits over and above the capital stock paid in. 9. The stockholders and the Board of Directors shall have power to keep the books, documents and papers of the Corporation outside of the State of Delaware, except as otherwise required by the laws of the State of Delaware. 10. The Board of Directors from time to time shall determine whether and to what extent and at what times and places, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholders shall have any right to inspect any account, book or documents of the Corporation except as conferred by statute or as authorized by resolution of the Board of Directors. 11. In the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated in any way by the fact that any of the Directors of the Corporation are in any way interested in or connected with any other party to such contract or transaction or are themselves parties to such contract or transaction, provided that such interest shall be fully disclosed or otherwise known to the Board of Directors at the meeting of said Board at which such contract or transaction is authorized or confirmed, and provided further that at the meeting of the Board of Directors authorizing or confirming such contract or transaction there shall be present a quorum of Directors not so interested or connected and such contract or transaction shall be approved by a majority of such quorum, and no such interested Director shall vote on any such contract or transaction. Any contract, transaction or act of the Corporation or of the Board of Directors or of any committee thereof which shall be ratified by a majority of a quorum of the stockholders of the Corporation having voting power at any annual meeting, or any special meeting called for such purpose, shall be as valid and as binding as though ratified by every stockholder of the Corporation. Any Director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary corporation without regard to the fact that he is also a Director of such subsidiary corporation. 32 33 No contract or agreement between the Corporation and any other corporation or party which owns a majority of the capital stock of the Corporation or any subsidiary of any such other corporation shall be made or entered into without the affirmative vote of a majority of the whole Board of Directors at a regular meeting of the Board. 12. Notwithstanding anything to the contrary in the foregoing paragraph 11, in the case of contracts, transactions and acts of the Corporation, of the Board of Directors or of committees thereof that require stockholder approval under any provision of this Certificate or of applicable law by a higher proportion of the voting power of the outstanding voting stock than a majority of a quorum of the stockholders, ratification by the stockholders of such contracts, transactions and acts shall require the affirmative vote of such higher proportion of such voting power, and any contract, transaction, act or agreement referred to in such paragraph 11 shall be subject to any such applicable provisions of the Certificate or of applicable law. 13. All salaries and compensation paid by the Corporation to its Directors and executive officers shall be fixed from time to time by the Board of Directors at a regular meeting of the Board to be held as provided by the By-Laws, and any payment of any character to any Director or executive officer of the Corporation or any contract made with such Director or executive officer must be approved by a majority of the whole Board of Directors at a regular meeting of the Board, before such payment is made or contract executed. 14. The affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock shall be required to amend, repeal, or adopt any provision inconsistent with paragraphs 2, 3, 7 or 12 of this Article SEVENTH or this paragraph 14. 15. No director shall be personally liable to the Corporation or its shareholders for monetary damages for any breach of fiduciary duty by such director as a director, except, for liability (i) for breach of the director's duty of loyalty to the Corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this paragraph 15 shall not adversely affect any right to protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. 33 34 The affirmative vote of the holders of at least eighty percent (80%) of the voting power of all stock of the Corporation, voting together as a single class, shall be required to amend, repeal, or adopt any provisions inconsistent with the provisions herewith. EIGHTH Whenever compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 3883 of the Revised Code of 1915 of said State, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 43 of the General Corporation Law of the State of Delaware, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. NINTH No holder of stock of the Corporation of any class shall have any preferential, preemptive or other right to subscribe for or to purchase from the Corporation any stock of the Corporation of any class whether or not now authorized, or to purchase any bonds, certificates of indebtedness, debentures, notes, obligations or other securities which the Corporation may at any time issue, whether or not the same shall be convertible into stock of the Corporation of any class or shall entitle the owner or holder to purchase stock of the Corporation of any class. TENTH 1. Higher Vote for Certain Business Combinations. In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or this Certificate, and except as otherwise expressly provided in 34 35 paragraph 2 of this Article TENTH, a Business Combination (as hereinafter defined) with or upon a proposal by a Related Person (as hereinafter defined) shall require the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock of the Corporation, voting together as a single class. 2. When Higher Vote Is Not Required. The provisions of paragraph 1 of this Article TENTH shall not be applicable to a particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate or the By-laws of the Corporation, if all of the conditions specified in any one of the following subparagraphs (a), (b) or (c) are met: (a) Approval by Directors. The Business Combination has been approved by a vote of a majority of all the Continuing Directors (as hereinafter defined); or (b) Combination with Subsidiary. The Business Combination is solely between the Corporation and a subsidiary of the Corporation and such Business Combination does not have the direct or indirect effect set forth in paragraph 3(b)(5) of this Article TENTH; or (c) Price and Procedural Conditions. All of the following conditions have been met: (1) The aggregate amount of (x) cash and (y) fair market value (as of the date of the consummation of the Business Combination) of consideration other than cash, to be received per share of Common, Preferred or Preference Stock in such Business Combination by holders thereof shall be at least equal to the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers fees) paid by the Related Person for any shares of such class or series of stock acquired by it; provided, that if the highest preferential amount per share of a series of Preferred or Preference Stock to which the holders thereof would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation (regardless of whether the Business Combination to be consummated constitutes such an event) is greater than such aggregate amount, holders of such series of Preferred or Preference Stock shall receive an amount for each such share 35 36 at least equal to the highest preferential amount applicable to such series of Preferred or Preference Stock. (2) The consideration to be received by holders of a particular class or series of outstanding Common, Preferred or Preference Stock shall be in cash or in the same form as the Related Person has previously paid for shares of such class or series of stock. If the Related Person has paid for shares of any class or series of stock with varying forms of consideration, the form of consideration given for such class or series of stock in the Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it. (3) No Extraordinary Event (as hereinafter defined) occurs after the Related Person has become a Related Person and prior to the consummation of the Business Combination. (4) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) is mailed to public stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required pursuant to such Act or subsequent provisions). 3. Certain Definitions. For purposes of this Article TENTH: (a) A "person" shall mean any individual, firm, corporation or other entity, or a group of "persons" acting or agreeing to act together in the manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934, as in effect on January 1, 1984. (b) The term "Business Combination" shall mean any of the following transactions, when entered into by the Corporation or a subsidiary of the Corporation with, or upon a proposal by, a Related Person: (1) The merger or consolidation of the Corporation or any subsidiary of the Corporation; or 36 37 (2) The sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a series of transactions) of any assets of the Corporation or any subsidiary of the Corporation having an aggregate fair market value of Five Million Dollars ($5,000,000) or more; or (3) The issuance or transfer by the Corporation or any subsidiary of the Corporation (in one or a series of transactions) of securities of the Corporation or that subsidiary having an aggregate fair market value of Five Million Dollars ($5,000,000) or more; or (4) The adoption of a plan or proposal for the liquidation or dissolution of the Corporation; or (5) The reclassification of securities (including a reverse stock split), recapitalization, consolidation or any other transaction (whether or not involving a Related Person) which has the direct or indirect effect of increasing the voting power, whether or not then exercisable, of a Related Person in any class or series of capital stock of the Corporation or any subsidiary of the Corporation; or (6) Any agreement, contract or other arrangement providing directly or indirectly for any of the foregoing. (c) The term "Related Person" shall mean any person (other than the Corporation, a subsidiary of the Corporation or any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or a subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as in effect on January 1, 1984) of more than ten percent (10%) of the outstanding capital stock of the Corporation entitled to vote for the election of directors, and any Affiliate or Associate of any such person. (d) The term "Continuing Director" shall mean any member of the Board of Directors who is not affiliated with a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not affiliated with the Related Person and is recommended 37 38 to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board of Directors. (e) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on January 1, 1984. (f) The term "Extraordinary Event" shall mean, as to any Business Combination and Related Person, any of the following events that is not approved by a majority of all Continuing Directors: (1) Any failure to declare and pay at the regular date therefor any full quarterly dividend (whether or not cumulative) on outstanding Preferred or Preference Stock; or (2) Any reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock); or (3) Any failure to increase the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock; or (4) The receipt by the Related Person, after such Related Person has become a Related Person, of a direct or indirect benefit (except proportionately as a shareholder) from any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any subsidiary of the Corporation, whether in anticipation of or in connection with the Business Combination or otherwise. (g) A majority of all Continuing Directors shall have the power to make all determinations with respect to this Article TENTH, including, without limitation, the transactions that are Business Combinations, the persons who are Related Persons, the time at which a Related Person became a Related Person, and the fair market value of any assets, securities or other property, and any such determinations of such directors shall be conclusive and binding. 38 39 4. No Effect on Fiduciary Obligations of Related Persons. Nothing contained in this Article TENTH shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. 5. Amendment, Repeal, etc. The affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock of the Corporation, voting together as a single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this Article TENTH. ELEVENTH 1. Unless otherwise specifically provided in this Certificate, any action required or permitted to be taken by the stockholders of the Corporation must be effected by a vote of the stockholders at a duly called annual meeting or special meeting called for that purpose and may not be effected by any consent in writing of such stockholders. 2. The affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock, voting as a single class, shall be required to amend, repeal, or adopt any provision inconsistent with this Article ELEVENTH. IN WITNESS WHEREOF, said ONEOK Inc. has caused this Certificate to be signed by J. D. Scott its Chairman of the Board of Directors and President, and attested by Lavon W. Neal, its Secretary, this 10th day of November, 1992. J. D. SCOTT Chairman of the Board and President ATTEST: _______________________ Lavon W. Neal Secretary of ONEOK Inc. SEAL 39 40 STATE OF OKLAHOMA ) ) ss. COUNTY OF TULSA ) Before me, the undersigned, a Notary Public in and for said County and State, on this 10th day of November, 1992, personally appeared J. D. Scott, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as its Chairman of the Board of Directors and President, and acknowledged to me that he executed the same as his free and voluntary act and deed, and as the free and voluntary act and deed of such corporation, for the uses and purposes therein set forth, and that the facts therein stated are true. Given under my hand and seal the day and year noted above. ________________________________ Notary Public My Commission Expires: ______________________ (NOTARIAL SEAL) Latest Revision Date: October 13, 1994 40 EX-3.B 3 BY-LAWS AS AMENDED 1 Exhibit (3)(b) BY-LAWS of ONEOK Inc. (A Delaware Corporation) ARTICLE I - OFFICES Section 1.01 Principal Office. The principal office for the transaction of the business of the Corporation shall be at 100 West Fifth Street, Tulsa, Oklahoma 74103. The Board of Directors (hereinafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another. Section 1.02 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS Section 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date, and place as the Board shall determine by resolution. Section 2.02 Special Meetings. Special meetings of the stockholders of the Corporation may be called at any time by a majority of the whole Board. Stockholders may not call special meetings. At any special meeting of the stockholders, no business shall be transacted and no corporate action shall be taken other than as stated in the notice of meeting. Section 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. Section 2.04 Notice of Meetings. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. (b) Unless otherwise provided by law or the Certificate of Incorporation, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2 2 (c) Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (d) Notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, except when the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.05 Quorum. Except when the holder of a larger voting interest is required by law or by the Certificate of Incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 2.06 Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person, or by proxy, each share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by such stockholder and registered in such stockholder's name on the books of the Corporation: (i) on the date fixed pursuant to Section 2.07 of the By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of Directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless the transfer by the pledgor on the books of the 3 3 Corporation shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or the pledgee's proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by the stockholder's proxy appointed by an instrument in writing, subscribed by such stockholder, or by such stockholder's attorney thereunto authorized, and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting by a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless the stockholder shall in writing so notify the secretary of the meeting prior to the voting of a proxy. (d) At any meeting of the stockholders, all matters, except as otherwise provided in the Certificate of Incorporation, in the By-laws or by law, shall be decided by the vote of a majority in the voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by written ballot, except election of Directors, unless so directed by the Chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by the stockholder's proxy, if there be such proxy, and it shall state the number of shares voted. Section 2.07 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of, or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing with respect to the Preferred Stockholders, or entitled to receive payment of any dividend or other distribution, or allotment of any rights, or entitled to exercise any rights in respect of any other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action, unless otherwise provided by the Certificate of Incorporation. If, in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. 4 4 Section 2.08 List of Stockholders. The Secretary of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at the place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present for any purpose germane to the meeting. Section 2.09 Chairman and Secretary of Meeting. Meetings of the stockholders shall be presided over by one of the following officers in order of seniority and if present and acting - The Chairman of the Board, the Vice Chairman of the Board, if any, President, Executive Vice President, if any, a Senior Vice President, if any, a Vice President, or if none of the foregoing officers are present and acting, by a Chairman to be chosen by the stockholders. The Secretary of the Corporation, or in such officer's absence, an Assistant Secretary, shall act as Secretary of the Meeting, but if none are present, the Chairman of the meeting shall appoint a Secretary of the meeting. Section 2.10 Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the Chairman of the meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of such judge's ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and when the voting is completed shall ascertain and report the number of shares voted respectively for and against the question. Reports of the judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which such officer shall have a material interest. Section 2.11 Memorandum of Action. Unless otherwise specifically provided in the Certificate of Incorporation, any action required or permitted to be taken by the stockholders of the Corporation may be effected by a vote of the stockholders at a duly called annual meeting or special meeting called for that purpose or may be effected by consent in writing of such stockholders. Section 2.12 Conduct of Meetings. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement 5 5 thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) in the case of an annual meeting of stockholders, otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the date of the annual meeting; provided, however, that in the event that less than 70 days, notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 1Oth day following the earlier of (i) the date on which such notice of the date of the annual meeting was mailed or (ii) the date on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.12. The presiding officer of a meeting of stockholders shall, if the facts warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section 2.12, and if the presiding officer should so determine, the presiding officer shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE III - BOARD OF DIRECTORS Section 3.01 General Powers. The property, business, and affairs of the Corporation shall be managed by and under the direction of the Board. Section 3.02 Number. The number of Directors of the Corporation, which shall not be less than nine nor more than thirty-one persons shall be fixed from time to time by resolution of the Board. Section 3.03 Election of Directors. (a) The Directors shall be divided into three classes (A, B, and C), as nearly equal in number as possible. The initial term of office for members of Class A shall expire at the annual meeting of stockholders in December 1984; the initial term of office for members of Class B shall expire at the annual meeting of stockholders in January 1986; and the initial term of office for members of Class C shall expire at the annual meeting of stockholders in January 1987. At each annual meeting of stockholders following such initial classification and election, 6 6 Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, and shall continue to hold office until their respective successors are elected and qualified. (b) In the event of any increase in the number of Directors fixed by the Board of Directors, the additional Directors shall be so classified that all classes of Directors have as nearly equal number of Directors as may be possible. In the event of any decrease in the number of Directors of the Corporation, all classes of Directors shall be decreased equally as nearly as may be possible. Notwithstanding the foregoing, the terms of this paragraph shall not apply to the extent inconsistent with the terms of Subparagraphs (B) through (F) of Paragraph 1 of Division D of Article FOURTH of the Certificate of Incorporation and shall not adversely affect the rights of holders of Preferred Stock. (c) A person shall not be elected or reelected to the Board to fill a vacancy on the Board after such person's 70th birthday. (d) Only persons nominated in accordance with the procedures set forth in this Section shall be eligible for election as Directors. Subject to the rights of holders of any class or series of Preferred or Preference Stock of this Corporation, nominations of persons for election to the Board may be made at a meeting of stockholders (i) by or at the direction of the Board or a Committee thereof, or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at such meeting who complies with the notice procedures set forth in this subsection (d). Such nominations, other than those made by or at the direction of the Board or a Committee thereof, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the date of a meeting; provided, however, that if fewer than 70 days, notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election as a Director: (a) the name, age, business address, and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder's notice, and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving the notice: (a) the name and address, as they appear on the Corporation's books, of such stockholder and 7 7 any other stockholders known by such stockholder to be supporting such nominees, and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder's notice. No person shall be eligible as a Director of the Corporation unless nominated in accordance with the procedures set forth in this subsection (d). The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-laws, and if the presiding officer should so determine, the presiding officer shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.04 Resignations, Retirement, and Chairman of the Board Emeritus. (a) Any Director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. (b) The Board of Directors of the Corporation may from time to time designate a person as Chairman of the Board Emeritus in recognition of such person's long and faithful service to the Corporation and its Board of Directors. The Chairman of the Board Emeritus shall be an honorary officer of the Board, shall perform such duties as the Board may from time to time prescribe, and shall serve at the pleasure of the Board of Directors. Section 3.05 Vacancies and Removal. (a) Subject to the rights of the holders of any series of Preferred or Preference Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by the affirmative vote of a majority of the Directors then in office, though less than a quorum, or by the sole remaining Director, or by the stockholders at their next annual meeting, or at any special meeting of stockholders called for that purpose. Each Director so chosen shall hold office until the expiration of such term of the Director, if any, whom such person has been chosen to succeed, or, if none, until the expiration of the term of the class assigned to the additional directorship to which such person has been elected, or until such person's earlier death, resignation, retirement, or removal. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director. (b) Subject to the rights of the holders of any series of Preferred or Preference Stock then outstanding, any Director or the entire Board may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least eighty percent (80%) of the voting interest of all outstanding voting stock. Section 3.06 Place of Meeting, etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be 8 8 designated by the person or persons calling the meeting. Directors may participate in any regular or special meeting of the Board or any meeting of a committee designated by such Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in such meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07 First Meeting. The Board shall meet as soon as practicable after each annual election of Directors and notice of such first meeting shall not be required. Section 3.08 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.09 Special Meetings. (a) Special meetings of the Board may be called at any time by the Chairman of the Board or the President, or by any three Directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Unless otherwise indicated in the notice thereof, any and all business, other than approval of contracts with another corporation or party (or subsidiary thereof) owning a majority of the stock of the Corporation and actions taken with respect to salaries, compensation, and other payments to be paid to, or contracts made with, a Director or executive officer, may be transacted at any special meeting. At any meeting at which all Directors shall be present, even though without any notice, any business may be transacted. (b) Notice of all special meetings of the Board shall be given to each Director by mailing a copy thereof at least four days before the meeting or by two days' service of the same by telegram, cable, or wireless, or personally. If the Chairman, or the President, or three of the Directors determine that a special meeting of the Board on short notice is necessary, then notice may be given by telephone or telegraph not less than four hours in advance of the time when a meeting shall be held. Such notice may be waived by any Director and any meeting shall be a legal meeting without notice having been given if all the Directors shall be present thereat or if those not present shall, either before or after the meeting sign a written waiver of notice of, or a consent to, such meeting or shall, after the meeting, sign the approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or be made a part of the minutes of the meeting. Section 3.10 Quorum and Manner of Acting. Except as otherwise provided in the Certificate of Incorporation, the By-laws, or by law, the presence of five (5) or one-third, whichever is greater, of the authorized number of Directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority 9 9 of the Directors present. In the absence of a quorum, a majority of Directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The Directors shall act only as a Board, and the individual Directors shall have no power as such. Section 3.11 Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Section 3.12 Compensation. All salaries and compensation paid by the Corporation to its Directors shall be fixed from time to time by the Board of Directors at a regular meeting of the Board to be held as provided by the By-laws, and any payment of any character to any Director of the Corporation or any contract made with such Director or executive officer must be approved by a majority of the whole Board of Directors at a regular meeting of the Board, before such payment is made or contract executed. Section 3.13 Committees. (a) The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the Directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have any power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all, or substantially all, of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of the dissolution, or amending the By-laws of the Corporation; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. (b) Except as may otherwise be ordered by the Board of Directors, the Chairman of the Board shall appoint the members of all special or other committees of the Board. The Chairman of the Board shall be an ex-officio member of all standing committees. (c) In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at a meeting in the place of any such absent or disqualified member. Section 3.14 Officers of the Board. The Chairman of the Board, or in the Chairman of the Board's absence, the President, or in the President's 10 10 absence, any other officer of the Corporation who is a Director, shall preside at all meetings of the Board, or in the absence of any such officers, a temporary chairman elected by the Directors present at the meeting. Section 3.15 Interested Directors. (a) No Director shall vote on a question in which such Director is interested, except the election of the Chairman of the Board of Directors, a President, or other officer or members of any Committee of the Board, but in the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated in any way by the fact that any of the Directors of the Corporation are in anywise interested in or connected with any other party to such contract or transaction, or are themselves parties to such contract or transaction, provided that such interest or connection shall be fully disclosed or otherwise known to the Board of Directors at the meeting of said Board at which such contract or transaction is authorized or confirmed, and that the contract or transaction is fair as to the Corporation at the time authorized or confirmed by the Board, and that at the meeting of the Board authorizing or confirming such contract or transaction there shall be present a quorum of Directors not so interested or connected, and such contract or transaction shall be approved by a majority of such quorum and no such interested Director shall vote on any such contract or transaction. The mere ownership of stock in another corporation by a Director shall not disqualify such Director to vote in respect of any transaction between the Corporation and such other corporation, provided the other provisions of this Section are complied with. (b) No contract or other transaction between the Corporation and any other corporation shall be affected by the fact that any of the Directors of the Corporation are interested in or are directors or officers of such other corporation, if such contract or transaction be made, authorized, or confirmed by the Board in the manner provided in the preceding paragraph, or by any committee of the Corporation having the requisite authority, by vote of a majority of the members of such committee not so interested; and any Director individually may be a party to or may be interested in any contract or transaction of the Corporation, provided that such contract or transaction shall be approved or ratified by the Board or by any Committee of the Corporation having the requisite authority, in the manner herein set forth. (c) The Board of Directors, in its discretion, may submit any contract or act of the Corporation or of the Board for approval or ratification at any annual meeting of the stockholders, or at any special meeting of stockholders, the notice of which shall state that it is called for the purpose, or in part for the purpose, of considering any such act or contract, and any such contract or act that shall be approved or be ratified by the vote of the holders of a majority in voting interest of the shares of stock of the Corporation entitled to vote thereat, shall be as valid and as binding upon the Corporation and upon all the stockholders as though it had been approved and ratified by every stockholder of the Corporation. (d) Any Director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary corporation without regard to the fact that such person is also a Director of such subsidiary corporation. 11 11 (e) No contract or agreement between the Corporation and any other corporation or party which owns a majority of the capital stock of the Corporation or any subsidiary of any such other corporation shall be made or entered into without the affirmative vote of a majority of the whole Board at a regular meeting of the Board. (f) Notwithstanding anything to the contrary in the foregoing paragraphs of this Section, in the case of contracts, transactions, and acts of the Corporation, of the Board of Directors, or of committees thereof that require stockholder and/or Director approval under any provision of the Certificate of Incorporation or of applicable law by a higher proportion of the voting power of the outstanding voting stock than a majority of a quorum of the stockholders or approval by the Continuing Directors as defined and required by the Certificate of Incorporation, ratification by the stockholders and/or approval by the Continuing Directors of such contracts, transactions, and acts shall require the affirmative vote of such higher proportion of such voting power and/or approval by the Continuing Directors, and any contract, transaction, act, or agreement referred to in the foregoing paragraphs shall be subject to any such applicable provisions of the Certificate or of applicable law. ARTICLE IV - OFFICERS Section 4.01 Officers. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, such other officers as may be elected, from time to time, by the Board, and such other officers as may be appointed by the Board pursuant to Section 4.03 of the By-laws. One of the officers of the Corporation shall be designated by the Board of Directors as the Chief Executive Officer of the Corporation. Officers shall have such powers and duties as are permitted or required by law and as may be specified by or in accordance with resolutions of the Board. In the absence of any contrary determination by the Board, the Chief Executive Officer shall, subject to the power and authority of the Board, have general supervision, direction, and control of the officers (except the Chairman of the Board), employees, business, and affairs of the Corporation. One person may hold two or more offices, except that the Secretary may not also hold the office of President. Except where otherwise expressly provided in a written contract duly authorized by the Board, all officers, agents, and employees shall be subject to removal at any time by the affirmative vote of a majority of the Directors, and all officers, agents, and employees other than officers elected or appointed by the Board shall also be subject to removal at any time by the officer appointing them. Section 4.02 Election. The officers of the Corporation, except such officers as may be appointed pursuant to Section 4.03 or Section 4.05 of the By-laws, shall be chosen annually by the Board, and each person shall hold office until such person shall resign or be removed or otherwise disqualified to serve, or such person's successor shall be elected and qualified. Section 4.03 Subordinate Officers, etc. The Board may appoint such other officers as the business of the Corporation may require, each of whom 12 12 shall have such authority and perform such duties as are provided in the By-laws or as the Board may from time to time specify, and shall hold office until such person shall resign or shall be removed or otherwise disqualified to serve. Section 4.04 Removal and Resignation. (a) Any officer may be removed, either with or without cause, by a majority of the Directors at the time in office, at any regular or special meeting of the Board, or except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. (b) Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.05 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause, shall be filled in the manner prescribed in the By-laws for the regular appointments to such office. Section 4.06 Voting Stock in Other Corporations. Unless otherwise ordered by the Board, the Chief Executive Officer, or in such officer's absence, or with such officer's consent, the next ranking officer of the Corporation, shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meetings of stockholders of any corporation in which the Corporation may hold stock, and at any such meetings shall possess and may exercise, in person or by proxy, any and all rights, powers, and privileges incident to the ownership of such stock. The Board may, by resolution, from time to time, confer like powers upon any other person or persons. Section 4.07 Compensation of Executive Officers. All salaries and compensation paid by the Corporation to executive officers shall be fixed from time to time by the Board of Directors at a regular meeting of the Board to be held as provided by the By-laws, and any payment of any character to any executive officer of the Corporation or any contract made with such executive officer must be approved by a majority of the whole Board of Directors at a regular meeting of the Board, before such payment is made or contract executed. ARTICLE V - OPERATING DIVISIONS OF THE CORPORATION Section 5.01 Division Boards. The Board may appoint individuals who may, but need not be, Directors, officers, or employees of the Corporation to serve as members of a Division Board of Directors (the "Division Board") of one or more Divisions of the Company and may fix fees or compensation for attendance at meetings of any such Division Board. The members of any such Division Board may adopt and from time to time may amend By-laws or other 13 13 rules and regulations for the conduct of their affairs and shall keep minutes of their meetings. The term of office of any member of a Division Board shall be at the pleasure of the Board and shall expire as provided for in the By-laws of the Division. The function of any such Division Board shall be to manage and control the ordinary business and affairs and to advise the Board with respect to the affairs of their respective Division. Section 5.02 Titles. The Division Board may, from time to time, confer on the employees of their Division or discontinue, the title of President, Executive Vice President, Senior Vice President, Vice President, and any other titles deemed appropriate. The designation of any such official titles for employees assigned to the Divisions of the Corporation shall not be permitted to conflict in any way with any executive or administrative authority established from time to time by the Corporation. Any employee so designated as an officer of a Division shall have authority, responsibilities, and duties with respect to such employee's Division, corresponding to those normally vested in the comparable officer of the Corporation, subject to such limitations as may be imposed by the Board. ARTICLE VI - CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 6.01 Execution of Contracts. The Board, except as in the By-laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by the By-laws, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 6.02 Checks, Drafts, etc. All checks, drafts, or other orders for payment of money, notes, or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. Section 6.03 Deposit. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman of the Board, the President, or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign, and deliver checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation. 14 14 Section 6.04 General and Special Bank Accounts. (a) The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies, or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of the By-laws, as it may deem expedient. (b) In addition to such bank accounts as may be authorized in the usual manner by resolution of the Board, the Treasurer of the Corporation with the approval of the Chief Executive Officer may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as the Treasurer may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the checks of the Corporation which may be signed jointly or singly by either the manual or facsimile signature or signatures of such officer or officers of the Corporation as shall be specified in the written instructions of the Treasurer of the Corporation with the approval of the Chief Executive Officer. ARTICLE VII - SHARES AND THEIR TRANSFER Section 7.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by such stockholder. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, or the President and by the Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent, or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent, or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms, or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in the case of cancellation the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 7.04 of the By-laws. Section 7.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by the registered holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or 15 15 with a transfer clerk or a transfer agent as provided in Section 7.03 of the By-laws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 7.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the By-laws, concerning the issue, transfer, and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 7.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. ARTICLE VIII - INDEMNIFICATION Section 8.01 Actions, Suits, or Proceedings Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a Director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that the person's 16 16 conduct was unlawful. Section 8.02 Actions, Suits, or Proceedings by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a Director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 8.03 Indemnity if Successful. Notwithstanding the other provisions of this Article, to the extent that a Director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 8.01 and 8.02, or in defense of any claim, issue, or matter therein, the person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 8.04 Determination of Right of Indemnification. Any indemnification under Section 8.01 or Section 8.02 of the By-laws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee, or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 8.01 and 8.02 of the By-laws. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of Directors who were not parties to such action, suit, or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 8.05 Advance of Expenses. Expenses incurred by an officer or Director in defending a civil or criminal action, suit, or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation as authorized in this Article. 17 17 Section 8.06 Provisions of By-laws not Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to such person's official capacity and as to action in another capacity while holding such office. Section 8.07 Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise or as a member of any committee or similar body against any liability asserted against the person and incurred by the person in any such capacity, or arising out of the person's status as such, whether or not the Corporation would have the power to indemnify the person against such liability under the provisions of this Article. Section 8.08 Constituent Corporations. For the purposes of this Article, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its Directors, officers, and employees, or agents, so that any person who is or was a Director, officer, employee, or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a Director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its existence had continued. Section 8.09 Certain Definitions. For purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a Director, officer, employee, or agent of the Corporation which imposes duties on, or involves services by, such Director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section. Section 8.10 Continuation of Rights Provided by this Article. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and 18 18 administrators of such a person. Section 8.11 Miscellaneous. In furtherance and not in limitation of the foregoing provisions of this Article VIII, the Corporation shall indemnify the persons referred to hereinabove to the fullest extent permitted by Delaware General Corporate Law, as the same may be amended from time to time. ARTICLE IX - MISCELLANEOUS Section 9.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. Section 9.02 Waiver of Notices. Whenever notice is required to be given by the By-laws or the Certificate of Incorporation, or by law, the person entitled to such notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 9.03 Fiscal Year. The fiscal year of the Corporation shall end on the 31st day of August of each year. Section 9.04 Inspection of Corporate Books and Records. The Board from time to time shall determine whether and to what extent and at what times and places, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account, book, or documents of the Corporation except as conferred by statute or as authorized by resolution of the Board. Section 9.05 Certificate of Incorporation. As used herein, the term "Certificate of Incorporation" shall mean the Second Restated Certificate of Incorporation of the Corporation, as the same may be amended or restated from time to time. Section 9.06 Amendments. The By-laws, or any of them, may be rescinded, altered, amended, or repealed, and new By-laws may be made, (i) by the Board, by vote of a majority of the number of Directors then in office as Directors, acting at any meeting of the Board, or (ii) by the vote of the holders of not less than 80% of the total voting power of all outstanding shares of voting stock of the Corporation, at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal, or adoption is given in the notice of special meeting. Any By-laws made or altered by the stockholders may be altered or repealed by the Board or may be altered or repealed by the stockholders. EX-10.K 4 CREDIT AGREEMENT DATED 8/20/94 1 Exhibit (10)(k) ================================================================================ ________________________________________________________________________________ CREDIT AGREEMENT among ONEOK, INC., THE BANKS PARTY HERETO, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Dated as of August 20, 1993 ________________________________________________________________________________ ================================================================================ 2 TABLE OF CONTENTS Section 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2. THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.1 The Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.2 Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.3 Procedure for Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . . . . . . . . 17 2.5 Limitation on Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.6 Reductions of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.7 Interest on the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.8 Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.9 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.10 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (a) Arrangement Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (b) Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (c) Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.11 Computation of Fees and Interest . . . . . . . . . . . . . . . . . . . . . . . . 20 2.12 Use of Proceeds of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.13 Extension of Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 3. PAYMENTS IN GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.2 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.3 Payments on Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.4 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.5 Increased Costs and Reduction of Return . . . . . . . . . . . . . . . . . . . . . 25 3.6 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.7 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.8 Payments by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4. CONDITIONS TO EFFECTIVENESS OF AGREEMENT AND EXTENSIONS OF CREDIT. . . . . . . . 27 4.1 Conditions of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.2 Condition to Initial Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3 Conditions to all Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . 30 5.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.6 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
- i - 3 5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . 31 5.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.13 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.14 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.16 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.4 Preservation of Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . 36 6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.7 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.9 Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . 37 Section 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.2 Merger and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.3 Acquisitions, Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . 41 7.4 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.6 Limitation on Senior Funded Indebtedness . . . . . . . . . . . . . . . . . . . . 42 7.7 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 8.3 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.1 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.3 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 9.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9.8 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 10.1 Amendments and Waivers; Extension of Availability Period . . . . . . . . . . . . 49 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
- ii - 4 10.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.6 Assignments, Participations etc. . . . . . . . . . . . . . . . . . . . . . . . . 51 10.7 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.8 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.9 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 (a) General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 (b) Survival; Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.10 Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.11 Notification of Addresses, Lending Offices, Etc. . . . . . . . . . . . . . . . . 55 10.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 10.14 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 56 10.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 10.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 10.17 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
EXHIBITS A Form of Notice of Borrowing B Form of Notice of Conversion/Continuation C Form of Notice of Assignment and Acceptance SCHEDULES 1.1 Commitments 3 Addresses for Domestic and Offshore Lending Offices and Notices 5.7 ERISA Plans 5.11 Contingent Obligations 5.16 Subsidiaries - iii - 5 ONEOK, Inc. CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") is dated as of August 20, 1993 and is entered into by and among ONEOK, INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (individually referred to herein as a "Bank" and collectively as the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as the agent for the Banks (the "Agent"). WHEREAS, the Banks have agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: Section 1. DEFINITIONS. 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. Without limitation, any director, executive officer or beneficial owner of 10% or more of the equity of a Person shall for the purposes of this Agreement, be deemed to control such Person. "Agent" means Bank of America National Trust and Savings Association in its capacity as agent for the Banks hereunder, and any successor agent. "Agent-Related Persons" has the meaning specified in Section 9.3. - 1 - 6 "Aggregate Commitment" means the combined Commitments of the Banks. "Agreement" means this Credit Agreement, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Assignee" has the meaning specified in Section 10.6. "Availability Period" means the period from the Closing Date to but excluding the Maturity Date. "Bank" has the meaning assigned to that term in the introduction to this Agreement. "Bank of America" means Bank of America National Trust and Savings Association in its capacity as a Bank. "Base Rate" means a fluctuating rate per annum which is the higher of (a) the Federal Funds Rate plus one-half of one percent (1/2%) per annum and (b) the Reference Rate. "Base Rate Loans" means Loans made by the Banks bearing interest at rates determined by reference to the Base Rate. "Borrowing" means a borrowing hereunder consisting of Loans made to the Company on the same day by the Banks pursuant to Section 2. "Borrowing Date" means the date a Borrowing is made. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the London interbank market. "CERCLA" has the meaning specified in the definition of "Environmental Laws." "Closing Date" means the date on which this Agreement becomes effective and all the conditions in Section 4.1 are satisfied or waived. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" means the commitment of each Bank to make Loans pursuant to Section 2.1 in the amount set forth opposite - 2 - 7 the Bank's name in Schedule 1.1 under the heading "Commitment" (such amount as the same may be reduced pursuant to Section 2.6, other appropriate provisions herein or as a result of one or more assignments pursuant to Section 9.6). "Company" means ONEOK, Inc., a Delaware corporation. "Consolidated Capitalization" of the Company and its Subsidiaries means the aggregate of: (i) Funded Indebtedness, (ii) capital stock, (iii) retained earnings, and (iv) premium on capital stock and other capital surplus all as shown by a consolidated balance sheet. For purposes of this definition, in determining retained earnings there shall be deducted any amounts included in the accounts of the Company and its Subsidiaries for goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles. "Consolidated Net Tangible Assets" means (i) the total amount of assets (less applicable reserves and other properly deductible items) which under GAAP would be included on a consolidated balance sheet of the Company and its Subsidiaries after deducting therefrom (a) all current liabilities, provided, however, that there shall not be deducted billings recorded as revenues deferred pending the outcome of rate proceedings (less applicable income taxes thereon), if and to the extent the obligation to refund the same shall not have been finally determined, (b) appropriate allowance for minority interests in common stocks of Subsidiaries and (c) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under GAAP would be included on such consolidated balance sheet, less (ii) the amount which would be so included on such consolidated balance sheet for investments (less applicable reserves) made in Subsidiaries. "Consolidated Senior Funded Indebtedness" means the Senior Funded Indebtedness appearing on a consolidated balance sheet of the Company and its Subsidiaries. "Consolidated Subsidiaries" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements if such financial statements were prepared as of such date. - 3 - 8 "Contractual Obligation", as applied to any Person, means any provision of any security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Controlled Group" means the Company and all Persons (whether or not incorporated) under common control or treated as a single employer with the Company or any of its Subsidiaries pursuant to Section 414(b), (c), (m) or (o) of the Code. "Conversion Date" means any date on which the Company elects to convert a Base Rate Loan to a Offshore Rate Loan or a Offshore Rate Loan to a Base Rate Loan. "Default" means any event which, with the giving of notice, the lapse of time, or both, would constitute an Event of Default. "Dollars" means lawful money of the United States of America. "Domestic Lending Office" means, with respect to each Bank, the office of that Bank designated as such on Schedule 3 hereto or such other office of the Bank as it may from time to time specify to the Company and the Agent. "Eligible Assignee" means a commercial bank. "Environmental Claim" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in or from property, whether or not owned by the Company, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. - 4 - 9 "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act. "ERISA" means the Employee Retirement Income Security Act of 1974 and any regulation promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company or any Subsidiary of the Company within the meaning of Section 414(b), 414(c) or 414(m) of the Code. "ERISA Event" means (a) a Reportable Event with respect to a Qualified Plan or a Multiemployer Plan; (b) a withdrawal by any member of the Controlled Group from a Qualified Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA); (c) a complete or partial withdrawal by any member of the Controlled Group from a Multiemployer Plan; (d) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure to make required contributions to a Qualified Plan or Multiemployer Plan; (f) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any member of the Controlled Group; (h) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Qualified Plan; (i) any member of the Controlled Group engages in or otherwise becomes liable for a non-exempt prohibited transaction; or (j) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary with respect to any Qualified Plan for which the Company or any of its Subsidiaries may be directly or indirectly liable. - 5 - 10 "Event of Default" means any of the events set forth in Section 8. "Exchange Act" means, at any time, the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Federal Funds Rate" means the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day of determination (or if such day of determination is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transaction received by the Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereof. "Funded Indebtedness" means all recourse Indebtedness which by its terms matures more than one year from the date of determination thereof, and any Indebtedness maturing within one year from such date which is renewable or extendible at the option of the obligor to a date beyond one year from such date, including any Indebtedness renewable or extendible (whether or not theretofore renewed or extended) under, or payable from the proceeds of other Indebtedness which may be incurred pursuant to the provisions of, any revolving credit agreement or other similar agreement; provided, however, that any Indebtedness of a Subsidiary for which the Company is contingently liable in the manner provided in the definition of Indebtedness shall be deemed to be Funded Indebtedness of the Company, whether or not such indebtedness is Funded Indebtedness of such Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to - 6 - 11 government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Indebtedness" means and includes (i) all items which, in accordance with GAAP, would be included on the liability side of a balance sheet as at the date as of which Indebtedness is to be determined, excluding capital stock, surplus, capital and earned surplus, surplus reserves which in effect were appropriations of surplus or offsets to asset values (other than all reserves in respect of obligations, the amount, applicability or validity of which is at such date being contested in good faith) and deferred credits, (ii) guarantees, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of other Persons, or to advance or supply funds for the purchase of payment of, or otherwise to insure payment of, such Indebtedness, (iii) Indebtedness secured by any Lien existing on property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed, (iv) all proper accruals for federal and other taxes based on or measured by income or profits, and (v) all Indebtedness guaranteed, directly or indirectly, in any manner, or in effect guaranteed or supported, directly or indirectly, through an agreement, contingent or otherwise, (a) to purchase the Indebtedness, or (b) to purchase, sell, transport, or lease (as lessee or lessor) property or to purchase or sell services at prices or in amounts designed to enable the debtor to make payments of the Indebtedness or to assure the owner of the Indebtedness against loss, or (c) to supply funds to or in any other manner invest in the debtor; provided, however, that such term shall not mean and include any Indebtedness in respect of which moneys sufficient to pay and discharge the same in full (either on the express date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee in trust for the payment thereof. "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors or other, similar arrangement; in each case (a) and (b) under U.S. Federal, State or foreign law. "Interest Payment Date" means, with respect to any Offshore Rate Loan, the last Business Day of each Interest Period applicable to such Loan; with respect to any Base Rate Loan, the - 7 - 12 last Business Day of each calendar quarter and each date a Base Rate Loan is converted into a Offshore Rate Loan; with respect to all Loans, the Maturity Date; provided, however, that if any Interest Period for a Offshore Rate Loan exceeds three months, interest shall also be paid on the date which falls three, six and nine months after the beginning of such Interest Period. "Interest Period" means, with respect to any Offshore Rate Loan, the period commencing on the Business Day the Offshore Rate Loan is disbursed or continued or on the date on which a Loan is converted into a Offshore Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/ Continuation; provided that: (i) if any Interest Period pertaining to an Offshore Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period applicable to any Loan or portion thereof shall extend beyond the Maturity Date. "Lending Office" means, with respect to any Bank, the office or offices of the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office," as the case may be, under its name on Schedule 3 hereto, or such other office or offices of the Bank as it may from time to time specify to the Company and the Agent. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any kind of security interest). "Loan" means a Base Rate Loan or an Offshore Rate Loan (collectively, the "Loans"). - 8 - 13 "Loan Documents" means this Agreement and all documents and instruments delivered from time to time in connection therewith. "Margin Stock" has the meaning assigned to the term "Margin Stock" in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, business prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of the Company to perform the Obligations or of the Banks to enforce the Obligations. "Maturity Date" means August 18, 1994, unless extended pursuant to Section 2.13. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "Notice of Borrowing" means a notice substantially in the form of Exhibit A annexed hereto with respect to a proposed Borrowing. "Notice of Conversion/Continuation" means a notice given by the Company to the Agent pursuant to Section 2.4, in substantially the form of Exhibit B annexed hereto. "Notice of Lien" means any "notice of lien" or similar document intended to be filed or recorded with any court, registry, recorder's office, central filing office or Governmental Authority for the purpose of evidencing, creating, perfecting or preserving the priority of a Lien securing obligations owing to a Governmental Authority. "Obligations" means all obligations of every nature of the Company from time to time owed to the Agent or the Banks or any of them under any Loan Document. "Offshore Applicable Margin" means, with respect to Offshore Rate Loans (a) 0.375% per annum during any period when the aggregate principal amount of Loans outstanding is less than $75,000,000, and (b) .50% per annum at all other times. Any change in the Offshore Applicable Margin shall become effective on the day when the aggregate outstanding principal amount of Loans becomes more or less than $75,000,000. - 9 - 14 "Offshore Lending Office" means with respect to each Bank, the office of such Bank designated as such on Schedule 3 hereto or such other office of such Bank as such Bank may from time to time specify to the Company and the Agent. "Offshore Rate" means, for each Interest Period for any Offshore Rate Loan, an interest rate per annum (rounded upward, if necessary, to the nearest 1/100 of one percent determined pursuant to the following formula: Offshore Rate = IBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means the maximum reserve percentage (expressed as a decimal, rounded upward, if necessary, to the next 1/100 of one percent) in effect on the date IBOR for such Interest Period is determined (whether or not applicable to any Bank) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency Liabilities") having a term equal to such Interest Period; and "IBOR" means the rate of interest per annum determined by the Agent to be the arithmetic mean (rounded upward, if necessary, to the nearest 1/100 of one percent) of the rates of interest per annum notified to the Agent by Bank of America as the rate of interest at which dollar deposits in an amount approximately equal to the amount of the Borrowing to be made or continued as, or converted into, a Offshore Rate Loan by Bank of America and having a maturity equal to such Interest Period would be offered to major banks in the offshore dollar market at its request at or about 10:00 a.m. (New York City Time) on the second Business Day before the commencement of such Interest Period. "Offshore Rate Loans" means Loans bearing interest at rates determined by reference to the Offshore Rate. "Operating Lease" means, as applied to any Person, any lease of property (whether real, personal or mixed) which is not a lease that would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person and excluding, in the case of the Company or any of its - 10 - 15 Subsidiaries, any such lease under which the Company or that Subsidiary is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Participant" has the meaning specified in Section 10.6(d). "Permitted Liens" has the meaning specified in Section 7.1. "Person" means any individual, partnership, limited liability company, corporation (including a business trust), joint stock company, joint venture, trust, bank, trust company, unincorporated association or other entity or a government or any agency or political subdivision thereof. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company or any member of the Controlled Group sponsors or maintains or to which the Company or member of the Controlled Group makes or is obligated to make contributions, and includes any Multiemployer Plan or Qualified Plan. "Pro Rata Share" means with respect to each Bank the percentage set forth opposite such Bank's name on Schedule 1.1 hereto. "Qualified Plan" means a pension plan (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the Code and which any member of the Controlled Group sponsors, maintains, or to which it makes or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering at least five (5) plan years, but excluding any Multiemployer Plan. "Reference Rate" means the rate of interest publicly announced from time to time by Bank of America in San Francisco as its reference rate, as in effect on such date of determination. The reference rate is set by Bank of America based on various factors including Bank of America's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank of America may make loans at, above or below the rate announced by it as its reference rate. - 11 - 16 "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA. "Requisite Banks" means, as at any date of determination, (a) prior to the termination of all Commitments, Banks having at least 66-2/3% of the Commitments and (b) otherwise, Banks holding at least 66-2/3% of the aggregate principal amount of Loans outstanding. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the Chief Financial Officer, the Chief Accounting Officer, any Vice President, the Treasurer or any Assistant Treasurer of the Company. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Senior Funded Indebtedness" means Funded Indebtedness other than Subordinated Indebtedness. "Significant Subsidiary" means a Subsidiary which meets any of the following conditions: (i) The Company's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recent fiscal year; (ii) The Company's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (iii) The Company's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year. - 12 - 17 "Subordinated Indebtedness" means unsecured Indebtedness of the Company for borrowed money which by its terms matures more than one year from the date of creation thereof and is issued under an instrument or instruments which contains substantially the following provisions with respect to the subordination of such indebtedness (hereinafter in this paragraph called "Subordinated Indebtedness") to the Obligations (and to other Indebtedness for money borrowed by the Company, if so provided) and such other indebtedness for borrowed money, if any, being hereinafter in this definition called "Superior Indebtedness": (i) The Subordinated Indebtedness shall be subordinated and junior in right of payment, to the extent and in the manner hereinafter set forth, to the Superior Indebtedness: (a) In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its creditors, as such, or to its property, or in the event of any proceeding for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, then the holders of Superior Indebtedness (including interest accruing after the date of commencement of any such proceedings at the rate applicable to such Superior Indebtedness, whether or not such interest is an allowable claim in any such proceeding) before the holders of Subordinated Indebtedness shall be entitled to receive any payment on account of principal, premium or interest on Subordinated Indebtedness, and to that end (but subject to the power of a court of competent jurisdiction to make other equitable provisions reflecting the rights conferred by these provisions upon Superior Indebtedness and the holders thereof with respect to Subordinated Indebtedness under applicable bankruptcy law) the holders of Superior Indebtedness shall be entitled to receive for application in payment thereof (including interest accruing after the date of commencement of any such proceedings at the rate applicable to such Superior Indebtedness, whether or not such interest is an allowable claim in any such proceeding) and payment or distribution of any kind or character, whether in cash or property or securities or by set-off or otherwise, which may be payable or deliverable in any such proceedings in respect of Subordinated Indebtedness (including any such payment or distribution which may be payable or deliverable by reason of the provisions of any indebtedness of the Company which is subordinate and junior in right of payment to the Subordinated Indebtedness), - 13 - 18 except securities which are subordinate and junior in right of payment to the payment of Superior Indebtedness; and (b) In the event that any Subordinated Indebtedness is declared due and payable before its expressed maturity because of the occurrence of a default thereunder (under circumstances when the provisions of the foregoing clause (a) shall not be applicable), the holders of Superior Indebtedness outstanding, at the time such Subordinated Indebtedness so becomes due and payable because of such occurrence of a default thereunder, shall be entitled to receive payment in full of all principal of, and interest and premium, if any, on all Superior Indebtedness before the holders of Subordinated Indebtedness are entitled to receive any payment on account of the principal of, and interest and premium, if any, on, the Subordinated Indebtedness. (ii) No Payment or prepayment, directly or indirectly, on account of the principal of, or interest and premium, if any, on, the Subordinated Indebtedness shall be made (in cash or property or securities, or by set-off or otherwise), and no holder of Subordinated Indebtedness shall be entitled to demand or receive any such payment or prepayment (a) unless all amounts then due for principal, interest and premium, if any, on all Superior Indebtedness have been paid in full in cash, or (b) if, at the time of such payment or prepayment or immediately after giving effect thereto, there shall have occurred any event of default under any Superior Indebtedness or under any agreement pursuant to which any Superior Indebtedness is issued. (iii) Subject to the payment in full of Superior Indebtedness, holders of the Subordinated Indebtedness shall be subrogated to the rights of the holders of Superior Indebtedness to receive payments or distributions of assets of the Company applicable to the Superior Indebtedness until the Subordinated Indebtedness shall be paid in full and no payments or distributions to the holders of the Superior Indebtedness by or on behalf of the Company from the proceeds that would otherwise be payable to the holders of the Subordinated Indebtedness or by or on behalf of the holders of the Subordinated Indebtedness shall, as between the Company and the holders of Subordinated Indebtedness, be deemed to be a payment by the Company to or on account of the Superior Indebtedness. (iv) These provisions with respect to subordination cannot be amended, modified or waived without the prior written consent of the holder or holders of all Superior Indebtedness at the time outstanding, and the subordination effected hereby shall not be affected by any amendment or modification of, or addition - 14 - 19 or supplement to, any Superior Indebtedness or any instrument or agreement relating thereto, without the prior written consent of the holder or holders of all Superior Indebtedness at the time outstanding. (v) No present or future holder of Superior Indebtedness shall be prejudiced in his right to enforce subordination of Subordinated Indebtedness by any act or failure to act on the part of the Company. The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of Superior Indebtedness, on the one hand, and the holders of Subordinated Indebtedness, on the other hand, and none of such provisions shall impair, as between the Company and any holders of Subordinated Indebtedness, the obligation of the Company, which is unconditional and absolute, to pay to the holders of Subordinated Indebtedness the principal thereof, and the interest and premium, if any, thereon in accordance with its terms, nor shall any such provisions prevent any holder of Subordinated Indebtedness from exercising all remedies otherwise permitted by applicable law or under the terms of such Subordinated Indebtedness upon default thereunder, subject tot he rights under the foregoing provisions of holders of Superior Indebtedness to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, or by set-off or otherwise, which may be payable or deliverable to the holders of Subordinated Indebtedness. (vi) The Company agrees, for the benefit of the holders of Superior Indebtedness, that in the event any Subordinated Indebtedness is declared due and payable before its expressed maturity because of the occurrence of any event of default thereunder or otherwise, (a) the Company will give prompt notice in writing of such happening to the holders of Superior Indebtedness, and (b) all Superior Indebtedness shall forthwith become immediately due and payable upon demand, regardless of the expressed maturity thereof. "Subsidiary" means any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Transferee" has the meaning specified in Section 10.6(d). - 15 - 20 1.2 Other Definitional Provisions References to "Sections" shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. Section 2. THE LOANS. 2.1 The Commitment. Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make loans under its Commitment to the Company (each such loan, a "Loan") from time to time on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time its Commitment; provided, however, that, after giving effect to any Borrowing of Loans, (i) the aggregate principal amount of each Bank's outstanding Loans shall not exceed such Bank's Commitment and (ii) the aggregate principal amount of all outstanding Loans shall not exceed the Aggregate Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.1, prepay pursuant to Section 2.9 and reborrow pursuant to this Section 2.1. 2.2 Loan Accounts. The Loans made by each Bank shall be evidenced by one or more loan accounts maintained by such Bank in the ordinary course of business. The loan accounts maintained by each Bank shall be conclusive absent error of the amount of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. 2.3 Procedure for Borrowings. (a) Each Borrowing shall be made upon irrevocable telephonic notice by the Company followed immediately by written notice in the form of a Notice of Borrowing (which telephonic notice must be received by the Agent (i) prior to 8:30 a.m. (San Francisco time) two Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) prior to 8:30 a.m. (San Francisco time) on the requested Borrowing Date, in the case of Base Rate Loans), specifying: (i) the amount of the Borrowing, which shall be in an aggregate minimum principal amount of $5,000,000 and any multiple of $1,000,000 in excess thereof; (ii) the requested Borrowing Date, which shall be a Business Day; (iii) whether the Borrowing is to be comprised of Offshore Rate Loans or Base Rate Loans; and (iv) - 16 - 21 the duration of the Interest Period applicable to Offshore Rate Loans included in such notice. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be one month (but not beyond the Maturity Date). (b) Promptly after receipt of a Notice of Borrowing, the Agent shall notify each Bank of the proposed Borrowing. Each Bank shall make available to the Agent its Pro Rata Share of the amount (if any) by which the principal amount of the proposed Borrowing exceeds the principal amount of the Loans (if any) maturing on the Borrowing Date, in same day funds, by remitting such funds to: Bank of America National Trust and Savings Association, ABA No. 121-000-358, Attn: Global Agency No. 5596 For credit to: BANCONTROL Account No. 12331-15429, Reference: ONEOK, Inc. at the office of the Agent located at 1850 Gateway Boulevard, Concord, California 94520, no later than 11:00 a.m. (San Francisco time) on the Borrowing Date. Upon satisfaction of the conditions set forth in Section 4.2, the Agent shall make available to the Company on such Borrowing Date the aggregate of the amounts (if any) so made available by the Banks by causing an amount of same day funds equal to such aggregate amount (if any) received by the Agent to be credited to the account of the Company at such office of the Agent. (c) Section 2.3(a) notwithstanding, if the Company shall not have given a timely Notice of a Borrowing to be made on the last day of any Interest Period for outstanding Loans, then unless the Agent shall have received notice that the Company elects not to make a Borrowing on such day (such notice to have been received at least two Business Days prior to such day) the Agent shall be deemed to have received a Notice of Borrowing from the Company requesting Base Rate Loans to be made on such day in an amount equal to the amount of such outstanding Loans. 2.4 Conversion and Continuation Elections. (a) The Company may (i) elect to convert on any Business Day, any Base Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof) into Offshore Rate Loans; (ii) elect to convert on the last day of the Interest Period therefor, any Offshore Rate Loans (or any part thereof in an amount not less than $5,000,000) or an integral multiple of $1,000,000 in excess thereof) into Base Rate Loans; or (iii) elect to continue, on the last day of the Interest Period therefor, any Offshore Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof); provided, that if the aggregate amount of Offshore Rate Loans shall have been reduced, by payment, prepayment, or - 17 - 22 conversion of part thereof to be less than $5,000,000, Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as Offshore Rate Loans shall terminate. (b) Each conversion or continuation shall be made upon irrevocable telephonic notice by the Company followed immediately by written notice in the form of a Notice of Conversion/ Continuation (which telephonic notice must be received by the Agent prior to 9:00 a.m. (San Francisco time) at least (i) two Business Days in advance of the conversion or continuation date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) one Business Day in advance of the conversion or continuation date, if the Loans are to be converted into Base Rate Loans), specifying: (A) the proposed conversion or continuation date; (B) the aggregate amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and (D) the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select a new Interest Period to be applicable thereto, or if any Event of Default shall then exist, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. (d) Upon receipt of a Notice of Conversion/ Continuation, the Agent will promptly notify each Bank thereof, or, if no timely notice is provided, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. 2.5 Limitation on Interest Periods. Notwithstanding any other provision contained in this Agreement, after giving effect to any Borrowing or conversion or continuation of any Loans, there shall not be more than six different Interest Periods for Offshore Rate Loans in effect. 2.6 Reductions of Commitments. The Company shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part, without premium or penalty, the Commitments; provided, that the Aggregate Commitment, as reduced, shall at all times be equal to or exceed the sum of the outstanding principal amount of all Loans. The Company shall give not less than five Business Days' prior written notice to the Agent designating the date (which shall be a Business Day) of - 18 - 23 such termination or reduction and the amount of any partial reduction. Promptly after receipt of a notice of such termination or partial reduction, the Agent shall notify each Bank of the proposed termination or reduction. Such termination or partial reduction of the Commitments shall be effective on the date specified in the Company's notice and shall terminate or reduce each Bank's Pro Rata share of the Aggregate Commitment so reduced. Any partial reduction shall be in an aggregate minimum amount of $5,000,000. 2.7 Interest on the Loans. (a) Subject to Section 2.7(c), the Loans shall bear interest on the unpaid principal amount thereof from the Borrowing Date to maturity (whether by acceleration or otherwise) at a rate per annum equal to either the Offshore Rate plus the Offshore Applicable Margin, as the same may be adjusted pursuant to the definition of Offshore Applicable Margin, or the Base Rate. (b) Interest shall be payable in arrears on the Loans on each Interest Payment Date applicable to that Loan. (c) Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is equal to the Base Rate plus 2% per annum. 2.8 Maturity of Loans. Each Loan shall mature and the Company shall repay the unpaid principal amount of each Loan on the Maturity Date. 2.9 Voluntary Prepayments. The Company may, upon not less than one Business Days' prior written or telephonic notice confirmed in writing to the Agent (in the case of a prepayment of a Base Rate Loan) or three Business Days' prior written or telephonic notice confirmed in writing to the Agent (in the case of a prepayment of a Offshore Rate Loan) (which notice the Agent will promptly transmit to each Bank), at any time and from time to time prepay any Loans in whole or in part in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount; provided that in the event of any such prepayment of any Offshore Rate Loans, the Company shall be obligated to reimburse the Banks in respect thereof pursuant to Section 3.6. If such notice of prepayment does not specify how such prepayment shall be applied, it shall be applied first to Base Rate Loans to the full extent thereof before application to Offshore Rate Loans, as determined by the Agent. All prepayments - 19 - 24 shall be applied to the payment of any interest that is due and payable at the time of such prepayment before application to principal. 2.10 Fees. (a) Arrangement Fee. The Company shall pay to Bank of America for Bank of America's own account an arrangement fee in an amount and at the times set forth in a letter agreement between the Company and Bank of America dated the Closing Date. (b) Commitment Fees. The Company shall pay to the Agent for the account of each Bank a commitment fee on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that calendar quarter as calculated by the Agent, equal to 15 basis points. Such commitment fee shall accrue from the Closing Date to the Maturity Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter and on the Maturity Date; provided that, in connection with any reduction or termination of Commitments pursuant to Section 2.6, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the next succeeding quarterly payment being calculated on the basis of the period from the reduction or termination date to such quarterly payment date. The commitment fees provided in this Section shall accrue at all times after the Closing Date, including at any time during which one or more conditions in Section 4 are not met. (c) Agency Fee. The Company shall pay to the Agent for the Agent's own account an agency fee in the amount and at the times set forth in a letter agreement between the Company and the Agent dated the Closing Date. 2.11 Computation of Fees and Interest. All computations of interest payable in respect of Base Rate Loans and all fees shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All computations of interest payable in respect of Offshore Rate Loans shall be made on the basis of a 360 day year and actual days elapsed, which results in more interest being paid than if computed on the basis of a 365-day year. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 2.12 Use of Proceeds of Loans. The Company shall use the proceeds of Loans for general corporate purposes. - 20 - 25 2.13 Extension of Maturity Date. The Company may request that the Banks extend the Maturity Date for successive 364 day periods by notifying the Banks in writing through the Agent not more than 45 days nor less than 30 days prior to the Maturity Date, then in effect. The Agent shall promptly notify each Bank of such an extension request. Thereupon, the parties hereto shall commence good faith negotiations as to the terms and conditions of the proposed extension which shall include a full credit assessment of the Company by the Banks. Each Bank shall have the right to consent to or reject such extension request in the exercise of its sole and absolute discretion and shall notify the Agent of its decision not more than 20 days after receipt of such extension request from the Agent. Failure by any Bank to notify the Agent of its decision shall be deemed to be a rejection by such Bank of the extension request. If all Banks consent to such extension, the Maturity Date shall be extended for 364 days from the then current Maturity Date. Section 3. PAYMENTS IN GENERAL. 3.1 Taxes. (a) Subject to Section 3.1(g), any and all payments by the Company to each Bank or the Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income by the jurisdiction under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). (c) Subject to Section 3.1(g), the Company shall indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.1) paid by the Bank or the Agent and any liability (including penalties, interest, additions to tax - 21 - 26 and expenses to the extent not resulting from the gross negligence or wilful misconduct of a Bank or the Agent) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date the Bank or the Agent makes written demand therefor. (d) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then, subject to Section 3.1(g): (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.1) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Company shall make such deductions, and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish to the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (f) Each Bank which is a foreign Person (i.e., a Person other than a United States Person for United States Federal income tax purposes) agrees that: (i) it shall, no later than the Closing Date (or, in the case of a Bank which becomes a party hereto pursuant to Section 10.6 after the Closing Date, the date upon which the Bank becomes a party hereto) deliver to the Company through the Agent: (A) if any Lending Office is located in the United States, two accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), and (B) if any Lending Office is located outside the United States, two accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"), in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such Lending Office or Offices under this Agreement free from withholding of United States Federal income tax; (ii) if at any time the Bank changes its Lending Office or Offices or selects an additional Lending Office as herein provided, it shall with reasonable promptness deliver to the Company through the Agent in replacement for, or in addition to, the forms previously delivered by it hereunder: (A) if such changed or additional Lending Office is located in the United States, two accurate and complete signed originals of Form 4224; or (B) otherwise, two - 22 - 27 accurate and complete signed originals of Form 1001, in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such changed or additional Lending Office under this Agreement free from withholding of United States Federal income tax; (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Bank and if the delivery of the same be lawful, deliver to the Company through the Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by the Bank; and (iv) it shall, promptly upon the Company's reasonable request to that effect, deliver to the Company such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Bank's tax status for withholding purposes. (g) The Company will not be required to pay any additional amounts in respect of United States Federal income tax pursuant to Section 3.1(d) to any Bank for the account of any Lending Office of such Bank: (i) if the obligation to pay such additional amounts would not have arisen but for a failure by such Bank to comply with its obligations under Section 3.1(f) in respect of such Lending Office; (ii) if such Bank shall have delivered to the Company a Form 4224 in respect of such Lending Office pursuant to Section 3.1(f)(i)(A), and such Bank shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office after the date of delivery of such Form 4224; or (iii) if the Bank shall have delivered to the Company a Form 1001 in respect of such Lending Office pursuant to Section 3.1(f)(i)(B), and such Bank shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office after the date of delivery of such Form 1001. (h) If, at any time, the Company requests any Bank to deliver any forms or other documentation pursuant to Section 3.1(f)(iv), then the Company shall, on demand of such Bank through the Agent, reimburse such Bank for any costs and expenses (including expenses of outside legal counsel and the allocated costs of in-house counsel) reasonably incurred by such Bank in the preparation or delivery of such forms or other documentation. (i) If the Company is required to pay additional amounts to any Bank or the Agent pursuant to Section 3.1(d), then such Bank shall use its reasonable best efforts (consistent with - 23 - 28 legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue if such change in the judgment of such Bank is not otherwise disadvantageous to such Bank. (j) The agreements and obligations of the Company contained in this Section 3.1 shall survive the payment in full of all other Obligations. 3.2 Payments by the Company. All payments of principal, interest and fees hereunder shall be in the same day funds and delivered to the Agent for credit to: Bank of America National Trust and Savings Association ABA No. 121-000-358 Bancontrol Account No. 12331-15429 Reference: ONEOK, Inc. 1850 Gateway Boulevard Concord, California 94520 for the account of the Banks not later than 10:00 A.M. (San Francisco time) on the date due; funds received by the Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day. 3.3 Payments on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of the interest hereunder; provided that, in the event that the day on which payment relating to a Offshore Rate Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day and such shortening of time shall be excluded in the computation of the payment of the interest hereunder. 3.4 Illegality. (a) If any Bank shall determine that the introduction of any Requirement of Law or any change in or in the interpretation or administration thereof has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, the obligation of the Bank to make Offshore Rate Loans shall be suspended until the Bank shall - 24 - 29 have notified the Agent and the Company that the circumstances giving rise to such determination no longer exists. (b) If a Bank shall determine that it is unlawful to maintain any Offshore Rate Loan, the Company shall prepay in full all Offshore Rate Loans of the Bank then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or promptly, if the Bank may not lawfully continue to maintain such Offshore Rate Loans, together with any amounts required to be paid in connection therewith pursuant to Section 3.6. (c) If the Company is required to prepay any Offshore Rate Loans immediately as provided in Section 3.4(b), then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. (d) Before giving any notice to the Agent pursuant to this Section 3.4, the affected Bank shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 3.5 Increased Costs and Reduction of Return. (a) If any Bank shall determine that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand therefor by such Bank (with a copy of such demand to the Agent), pay to such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that the introduction of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or compliance by the Bank (or its Lending Office) or any corporation controlling the Bank, with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other authority, affects or would affect the amount of capital required or expected to be maintained by the - 25 - 30 Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its obligation under this Agreement, then, upon demand of such Bank, the Company shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.6 Funding Losses. The Company agrees to reimburse each Bank and to hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make any payment or prepayment of principal of any Offshore Rate Loan (including payments made after any acceleration thereof); (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment after the Company has given a notice in accordance with Section 2.9; or (d) the prepayment of a Offshore Rate Loan on a day which is not the last day of the Interest Period with respect thereto; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. This covenant shall survive the payment in full of all other Obligations. 3.7 Inability to Determine Rates. If Bank of America advises the Agent that it shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or if the Requisite Banks advise the Agent that the Offshore Rate applicable for any requested Interest Period does not adequately and fairly reflect the cost to such Banks of funding an Offshore Rate Loan, the Agent shall forthwith give notice of such determination to the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans, as the case may be, hereunder shall be suspended until the Agent upon the instruction of the Requisite Banks revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/ Continuation then submitted by it. If the Company does not revoke such notice with respect to Loans, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. - 26 - 31 3.8 Payments by Banks. Unless the Agent shall have received notice from a Bank at least one Business Day prior to the date of any proposed Borrowing (or, with respect to Borrowings comprised of Base Rate Loans, prior to the Agent funding such Borrowing on such Borrowing Date) that such Bank will not make available to the Agent for the account of the Company the amount of that Bank's Loan, the Agent may assume that each Bank has made such amount available to the Agent on the Borrowing date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent and the Agent in such circumstances has made available to the Company such amount, that Bank shall within two Business Days following the date of such Borrowing make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A certificate of the Agent submitted to any Bank with respect to amounts owing under this Section 3.8 shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent within two Business Days following the date of such Borrowing, the Agent shall notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to such Loan. Section 4. CONDITIONS TO EFFECTIVENESS OF AGREEMENT AND EXTENSIONS OF CREDIT. 4.1 Conditions of Closing. The obligation of each Bank to make its first Loan hereunder is subject to condition that the Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and its counsel and in sufficient copies for each Bank: (a) Credit Agreement. This Agreement executed by the Company and each of the Banks. (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company approving and authorizing the execution, delivery and performance by the Company of this Agreement, the other Loan Documents to be delivered hereunder and authorizing the borrowing of the Loans, - 27 - 32 certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company, certifying the names and true signatures of the officers of the Company authorized to execute and deliver, as applicable, this Agreement, and all other Loan Documents to be delivered hereunder. (c) Articles of Incorporation; By-laws and Good Standing. Each of the following documents: (i) the articles or certificate of incorporation of the Company as in effect on the Closing Date, certified by the Secretary of State of the State of incorporation of the Company as of a recent date and by the Secretary or Assistant Secretary of the Company as of the Closing Date and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date. (d) Legal Opinion. An opinion of Huffman, Arrington, Kihle, Gaberino & Dunn, addressed to the Agent and the Banks. (e) Payment of Fees. The Company shall have duly executed and delivered the fee letters referred to in Sections 2.10(a) and (c) and shall have paid all fees due and payable on the Closing Date arising under Section 2.10. (f) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Section 5 are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists on the Closing Date; and (iii) there has occurred since August 31, 1992, no Material Adverse Effect. (g) Other Documents. Such other approvals, opinions or documents as any Bank may reasonably request. 4.2 Condition to Initial Borrowing. The obligation of each Bank to make its initial Loan hereunder is also subject to Agent's receipt of evidence, in form and substance satisfactory to the Agent, that all extensions of credit under the Credit Agreement dated as of September 29, 1989, as amended, among the - 28 - 33 Company, the banks parties thereto and Bank of America National Trust and Savings Association, as agent for such banks, have been fully and finally repaid along with all fees and similar obligations with no further commitments to extend credit or other obligations on the part of the banks thereunder. 4.3 Conditions to all Borrowings. The obligation of each Bank to make, continue or convert any Loan hereunder (including its initial Loan) is subject to the satisfaction of the following conditions precedent on the relevant date: (a) Notice of Borrowing. With respect to borrowings of Loans, the Agent shall have received a Notice of Borrowing. (b) Notice of Conversion/Continuation. With respect to conversions or continuations of Loans, the Agent shall have received a Notice of Conversion/Continuation. (c) Continuation of Representations and Warranties. The representations and warranties made by the Company contained in Section 5 shall be true and correct on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date. (d) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing. Each Borrowing by the Company hereunder shall constitute a representation and warranty by the Company hereunder as of the date of each such Borrowing that the conditions in this Section 4.3 have been satisfied. Section 5. REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Bank that: 5.1 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification; and (d) is in material compliance with all Requirements of Law. - 29 - 34 5.2 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and any other Loan Document have been duly authorized by all necessary corporate action and do not and will not: (a) contravene the terms of the Company's certificate of incorporation, bylaws or other organization document; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any indenture, agreement, lease, instrument, Contractual Obligation, injunction, order, decree or undertaking to which the Company is a party; or (c) violate any material Requirement of Law. 5.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery, performance or enforcement against the Company of the Agreement or any other Loan Document or any other instrument or agreement required hereunder to be made by the Company. 5.4 Binding Effect. This Agreement and each other Loan Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.5 Litigation. Except as disclosed in the Company's Annual Report on Form 10-K for the year ending August 31, 1992 and in the Company's Quarterly Reports on Form 10-Q for the quarters ending November 30, 1992, February 28, 1993 and May 31, 1993, as filed with the Securities and Exchange Commission, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement, or any Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company, or its Subsidiaries, might have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery and performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. - 30 - 35 5.6 No Default. No Default or Event of Default exists or would result from the incurring of obligations by the Company under this Agreement or any other Loan Document. Neither the Company, nor any of its Subsidiaries, is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could have a reasonable likelihood of having a Material Adverse Effect. 5.7 ERISA Compliance. Each of the Company and the ERISA Affiliates has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance with all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan. 5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans shall be used solely for the purposes set forth in Sections 2.12. No portion of the Loans will be used, directly or indirectly, (i) to purchase or carry Margin Stock or (ii) to repay or otherwise refinance Indebtedness of the Company or others incurred to purchase or carry Margin Stock, or (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock. No proceeds of any Loans will be used to acquire any security in any transaction which is subject to Section 13 or 14 of the Exchange Act. 5.9 Title to Properties. The Company and each of its Subsidiaries has good record and marketable title in fee simple to or valid leasehold interests in all its property, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. The property is free and clear of all Liens or rights of others, except Permitted Liens. 5.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and no Notice of Lien has been filed or recorded. There is no proposed tax assessment against the Company or any of its Subsidiaries which would, if the assessment were made, have a Material Adverse Effect. 5.11 Financial Condition. - 31 - 36 (a) The audited consolidated financial statements of financial condition of the Company and its Subsidiaries dated August 31, 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal year ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) are complete, accurate and fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) show all material Indebtedness and other liabilities of the Company and its consolidated Subsidiaries as of the date thereof (including liabilities for taxes and material commitments). (b) Since August 31, 1992, there has been no Material Adverse Effect. (c) Schedule 5.11 sets forth all material contingent obligations of the Company as of the Closing Date. 5.12 Environmental Matters. The operations of the Company and each of its Subsidiaries comply in all material respects with all Environmental Laws. The Company and each of its Subsidiaries has obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") necessary for its operations, and all such Environmental Permits are in good standing, and the Company and each of its Subsidiaries is in compliance with all terms and conditions of such Environmental Permits. There are no conditions or circumstances which may give rise to any Environmental Claim arising from the operations of the Company or its Subsidiaries, including Environmental Claims associated with any operations of the Company or its Subsidiaries with a potential liability in excess of $10,000,000 in the aggregate. Without limiting the generality of the foregoing, the Company and its Subsidiaries have notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA or any other Environmental Law. 5.13 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiaries of the Company, is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. - 32 - 37 5.14 No Burdensome Restrictions. Neither the Company, nor any of its Subsidiaries is a party to or bound by any Contractual Obligation or subject to any charter or corporate restriction or any Requirement of Law which could reasonably be expected to have a Material Adverse Effect. 5.15 Insurance. The properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies or self-insured, in such amounts, with such deductibles and covering such risks as is customarily carried on by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 5.16 Full Disclosure. None of the representations or warranties made by the Company or any of its Subsidiaries in the Loan Documents as of the date of such representations and warranties, and none of the statements contained in each exhibit, report, statement or certificate furnished by or on behalf of the Company or any of its Subsidiaries in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading. Section 6. AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any Bank shall have any Commitment hereunder, or any Loan or other amount shall remain unpaid, unless the Requisite Banks waive compliance in writing: 6.1 Financial Statements. The Company shall deliver to the Agent in form and detail satisfactory to the Agent, with copies for each Bank: (a) as soon as available, but not later than 120 days after the end of each fiscal year of the Company, a copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission, together with the Company's annual stockholders' report; and (b) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each year a copy of the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission, together with the Company's interim stockholders' report. - 33 - 38 6.2 Certificates; Other Information. The Company shall furnish to the Agent with sufficient copies for each Bank: (a) concurrently with the delivery of the financial statements referred to in Sections 6.1(a) and (b) above, a certificate of a Responsible Officer (i) stating that, to the best of such officer's knowledge, the Company, during such period, has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (ii) showing in detail the calculations supporting such statement in respect of Sections 7.5 and 7.6; (b) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall have filed with the Securities and Exchange Commission; and (c) from time to time such additional information regarding the financial position or business of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as the Agent, at the request of any Bank, may reasonably request. 6.3 Notices. The Company shall promptly notify the Agent and each Bank: (a) of the occurrence of any Default or Event of Default and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default and the action which the Company is taking or proposes to take with respect thereto; (b) of any (i) breach or non-performance of, or any default under any Contractual Obligation of the Company or any of its Subsidiaries which could result in a Material Adverse Effect; or (ii) dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority which could result in a Material Adverse Effect; (c) of the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary (i) in which the amount of damages claimed is $10,000,000 (or its equivalent in another currency or - 34 - 39 currencies) or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, could have a Material Adverse Effect, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement or any Loan Document or the operations of the Company or any of its Subsidiaries; (d) upon, but in no event later than ten days after, becoming aware of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company or any Subsidiary or any of their properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Company or any Subsidiary that could reasonably be anticipated to cause such property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws which, in the case of each of clauses (i), (ii) and (iii) could have a Material Adverse Effect; (e) as soon as possible, and in any event within ten days after the Company knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan have occurred or exist, a statement signed by a senior financial officer of the Company setting forth details respecting such event or condition and the action, if any, which the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice - 35 - 40 from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days, or an action is taken by any such fiduciary under Section 4219(c)(5) of ERISA; and (f) promptly upon becoming aware of any Material Adverse Effect, notice thereof. Each notice pursuant to this Section shall be accompanied by a written statement by a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 6.4 Preservation of Corporate Existence, Etc. The Company shall and cause each of its Subsidiaries to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its State or jurisdiction of incorporation (except for mergers permitted by Section 7.2); (b) preserve and maintain in full force and effect all rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business (measured on a consolidated basis) except in connection with transactions permitted by Section 7.2; (c) use its reasonable efforts, in the ordinary course and consistent with past practice, to preserve its business organization and preserve the goodwill and business of the customers, suppliers and others having business relations with it; and (d) preserve or renew all of its registered trademarks, trade names and service marks, the non-preservation of which could have a Material Adverse Effect. 6.5 Maintenance of Property. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted. The Company shall use the standard of care typical in the industry in the operation of its facilities. - 36 - 41 6.6 Insurance. The Company shall self-insure or maintain, and shall cause each Subsidiary to self-insure or to maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including workers' compensation insurance, public liability and property and casualty insurance. 6.7 Payment of Obligations. The Company shall, and shall cause its Subsidiaries to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims which, if unpaid, might by law become a Lien upon its property; and (c) all Indebtedness as and when due and payable. 6.8 Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.9 Inspection of Property and Books and Records. The Company shall maintain and shall cause each of its Subsidiaries to maintain, proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiaries. The Company will permit, and will cause each of its subsidiaries to permit, representatives of the Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers employees and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Agent or any Bank may visit and inspect at the expense of the - 37 - 42 Company such properties at any time during business hours and without advance notice. Section 7. NEGATIVE COVENANTS The Company hereby covenants and agrees that, so long as any Bank shall have any Commitment hereunder, or any Loan or other amount payable hereunder shall remain unpaid, unless the Requisite Banks waive compliance in writing: 7.1 Limitation on Liens. The Company shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property or assets, whether now owned or hereafter acquired, or offer or agree to do so, other than the following ("Permitted Liens"): (a) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings; (b) Liens (other than any Lien imposed by ERISA) on the property of the Company or any of its Subsidiaries incurred, or pledges or deposits required, in connection with workmen's compensation, unemployment insurance and other social security legislation; (c) Liens on assets acquired after the date of this Agreement, provided, however, that such Liens existed at the time such assets were acquired and were not created in anticipation thereof; (d) Liens securing taxes that remain payable without penalty or which are being contested in good faith by appropriate proceedings where collection thereof is stayed; provided that the Company has set aside on its books reserves with respect to such taxes (segregated to the extent required by GAAP) deemed by it to be adequate; (e) Purchase money security interests on any property acquired or held by the Company in the ordinary course of business securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided that any such Lien attaches to such property concurrently with or within 90 days after the acquisition thereof and provided that the principal amount of the Indebtedness secured by any such purchase money security - 38 - 43 interests shall not in the aggregate exceed 5% of the Consolidated Capitalization of the Company and its Subsidiaries; (f) Any right which any municipal or governmental body or agency may have by virtue of any franchise, license, contract or status to purchase or designate a purchaser of, or order the sale of, any property of the Company upon payment of reasonable compensation therefor or to terminate any franchise, license or other rights or to regulate the property and business of the Company; (g) Any liens, neither assumed by the Company nor on which it customarily pays interest, existing upon real estate or rights in or relating to real estate acquired by the Company for sub-station, measuring station, regulating station, gas purification station, compressor station, transmission line, distribution line or right-of-way purposes; (h) Easements or reservations in any property of the Company for the purpose of roads, pipe lines, gas transmission and distribution lines, electric light and power transmission and distribution lines, water mains and other like purposes, and zoning ordinances, regulations and restrictions which do not impair the use of such property in the operation of the business of the Company; (i) Liens securing Indebtedness that the Company or a Subsidiary has not assumed or become obligated to repay directly or contingently; and (j) Liens not otherwise permitted by this Section 7.1 if at the time of, and after giving effect to, the creation or assumption of any such Lien, the aggregate of all obligations of the Company secured by any Liens not otherwise permitted hereby does not exceed 5% of the Consolidated Capitalization of the Company and its Subsidiaries. 7.2 Merger and Sale of Assets. The Company shall not, nor shall it permit any of its Subsidiaries to, consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety (measured on a consolidated basis) to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety (measured on a consolidated basis) to the Company, unless: (a) in case the Company shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, - 39 - 44 the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume in writing the due and punctual payment of all Obligations and the performance of every covenant of this Agreement on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default or Default shall have happened and be continuing; (c) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a Lien, which would not be permitted by this Agreement, the Company or such successor corporation or Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Obligations equally and ratably with all Indebtedness secured thereby; and (d) the Company has delivered to the Agent a certificate signed by a Responsible Officer and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease complies with this Section 7.2 and that all conditions precedent herein provided for relating to such transaction have been complied with, and such certificate shall additionally state that, in the opinion of the board of directors of the Company, the transaction is in the interest of the Company and not disadvantageous to the Agent and the Banks. provided, however, that the Company shall not convey or transfer any assets to a Subsidiary for the purpose of improving the credit position of such Subsidiary in order to enable it to borrow money. Upon any consolidation by the Company with or merger by the Company into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with this Section 7.2, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement with the same effect as if such - 40 - 45 successor corporation had been named as the Company herein, and thereafter, except in the case of a lease to another Person, the predecessor corporation shall be relieved of all obligations and covenants under this Agreement. 7.3 Acquisitions, Loans and Investments. The Company shall not, directly or indirectly, purchase or acquire, or permit any of its Subsidiaries to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, assets, obligations or other securities of or any interest in, any Person, or make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including, without limitation, any Affiliates of the Company, except for: (a) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (b) extensions of credit by the Company to any of its wholly-owned Subsidiaries or by any of its wholly-owned Subsidiaries to another of its wholly-owned Subsidiaries of the Company in the ordinary course of business; (c) additional purchases of, or investments in, the stock of Subsidiaries, joint ventures or the capital stock, assets, obligations or other securities of, or interest in, other Persons which are engaged in the business of the purchasing, gathering, compression, transportation, distribution, marketing, or storage of natural gas and compressed natural gas, the exploration or production of natural gas or oil or the processing of natural gas liquids or other natural gas-related businesses; provided that such purchases or investments are not opposed by such Person; and (d) Transactions not otherwise permitted by this Section 7.3 if at the time of, and after giving effect to, such extensions of credit and investments, the aggregate book value of all such extensions of credit and investments not otherwise permitted hereby does not exceed $5,000,000 in the aggregate. 7.4 Compliance with ERISA. The Company shall not directly or indirectly and shall not permit any ERISA Affiliate directly or indirectly (i) to terminate, any Plan subject to Title IV of ERISA so as to result in any material (in the opinion of the Requisite Banks) liability to the Company or any ERISA Affiliate, (ii) to permit to exist any ERISA Event or any other event or condition, which presents the risk of a material (in the opinion of the Requisite Banks) liability of the Company or any ERISA Affiliate, or (iii) to make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any - 41 - 46 Multiemployer Plan so as to result in any material (in the opinion of the Requisite Banks) liability to the Company or any ERISA Affiliate, (iv) to enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder except in the ordinary course of business consistent with past practice which could result in any material (in the opinion of the Requisite Banks) liability to the Company or any ERISA Affiliate, or (v) permit the present value of all nonforfeitable accrued benefits under each Plan (using the actuarial assumptions utilized by the PBGC upon termination of a Plan) materially (in the opinion of the Requisite Banks) to exceed the fair market value of Plan assets allocable to such benefits, all determined as of the most recent valuation date for each such Plan. 7.5 Restricted Payments. The Company covenants that it will not (a) declare or pay any dividend (other than dividends payable in common stock of the Company) or make any other distribution on any shares of capital stock of the Company of any class or (b) purchase, redeem or otherwise acquire or retire for value, either directly or indirectly (other than in exchange for or from the proceeds of other shares of capital stock of the Company), any shares of capital stock of the Company of any class, if the aggregate amount so declared, paid, distributed or expended after August 31, 1991 would exceed the aggregate amount of the consolidated net income of the Company and its Subsidiaries accumulated after August 31, 1991 plus $125,000,000; provided, however, that the Company may declare or pay dividends or make other distributions on any class or series of preferred stock of the Company and may purchase or retire for a consideration any shares thereof to the extent required to comply with any sinking or purchase fund established therefor, but all amounts so declared, paid, distributed or expended shall be included in all subsequent computations pursuant to this Section 7.5. The term "stock" as used in this Section 7.5 shall include warrants, rights and options to purchase stock. 7.6 Limitation on Senior Funded Indebtedness. The Company shall not create, make, incur, assume, issue or guarantee, directly or indirectly, any Senior Funded Indebtedness unless the Consolidated Net Tangible Assets of the Company shall be at least equal to 150% of Consolidated Senior Funded Indebtedness, after giving effect to the receipt and application of the proceeds of any such Senior Funded Indebtedness proposed to be created, made, incurred, assumed, issued or guaranteed, all as shown by the consolidated balance sheet of the Company and its Subsidiaries as of a date not more than 90 days prior to the proposed transaction (but giving effect thereto), prepared as hereinafter provided. Said balance sheet shall be prepared by the Company on the basis of the latest available consolidated balance sheet of the Company and its Subsidiaries on which a - 42 - 47 report has been issued by a firm of certified or public accountants of recognized national standing (which balance sheet as to which such a report has been issued shall be as of a date not more than twelve months prior to the date of such consolidated balance sheet), adjusted to reflect the proposed transaction on a pro forma basis as well as to reflect transactions which shall have occurred between the date of said balance sheet. 7.7 Change in Business. The Company shall not, and shall not permit any of its Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it on the date hereof. Section 8. EVENTS OF DEFAULT 8.1 Events of Default. Any of the following events shall constitute an "Event of Default": (a) The Company fails to pay any amount of principal of any Loan when due, or fails to pay any other interest, fees or any other amount payable hereunder or pursuant to any other Loan Document within five days of when due; or (b) Any representation or warranty by the Company or any of its Subsidiaries herein, in any Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under this Agreement, or in or under any Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company fails to perform or observe any term, covenant or agreement contained in Section 6.3(a), 6.3(f), 6.9, or 7; or (d) The Company fails to perform or observe any other term or covenant contained in this Agreement or in any Loan Document (other than those covered by Section 8.1(a) or 8.1(c) above) for 10 days after written notice thereof has been given to the Company by the Agent at the request of any Bank; or (e) The Company or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any - 43 - 48 agreement or instrument relating to any such Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or any contingent obligation to become payable or cash collateral in respect thereof to be demanded; or (f) The Company or any of its Subsidiaries (i) becomes insolvent or generally fail to pay, or admit in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course substantially as it is conducted on the Closing Date; (iii) commences any Insolvency Proceeding or files any petition or answer in any Insolvency Proceeding; (iv) acquiesces in the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business or effects a plan or other arrangement with its creditors; (v) admits the material allegations of a petition filed against it in any Insolvency Proceeding, or (vi) takes any action to effectuate any of the foregoing; or (g) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any of its Subsidiaries' assets and any such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; or (h) An event or condition specified in Section 7.4 shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of the Requisite Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing) which is in the determination of the Requisite Banks, material in relation to the consolidated financial position of the Company and the Consolidated Subsidiaries; or (i) A judgment or order for the payment of money in excess of $10,000,000 shall be rendered against the Company or - 44 - 49 any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 10 days; or any non-monetary judgment, order or decree shall be rendered against the Company or any of its Subsidiaries which does or could be expected to have a Material Adverse Effect, and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (j) A Material Adverse Effect shall occur. 8.2 Remedies. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Requisite Banks, (a) declare the Commitment of each Bank to make Loans to be terminated, whereupon such Commitments shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon and all other amounts payable hereunder to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; (c) exercise all rights and remedies available to it under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in Section 8.1(f) or 8.1(g) above (in the case of such clause (g) upon the expiration of the 60 day period mentioned therein), the obligation of each Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.3 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement. Section 9. THE AGENT 9.1 Appointment and Authorization. Each Bank hereby irrevocably appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement - 45 - 50 or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 9.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 Liability of Agent. None of the Agent, its Affiliates, or any of their respective officers, directors, employees, agents, or attorneys-in-fact (collectively, the "Agent-Related Persons") shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement (except for its own gross negligence or willful misconduct) or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary of the Company or any officer thereof contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of its Subsidiaries. 9.4 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telecopy, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or - 46 - 51 refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Requisite Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Requisite Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Sections 4.1 and 4.2, each Bank shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from the Bank prior to the initial Borrowing specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect or the Bank shall not have made available to the Agent the Bank's ratable portion of such Borrowing. 9.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees payable to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Requisite Banks; provided, however, that unless and until the Agent shall have received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 9.6 Credit Decision. Each Bank expressly acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank - 47 - 52 represents to the Agent that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries and made its own decision to enter into this Agreement and extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.7 Indemnification. The Banks agree to indemnify the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their outstanding Loans, or, if no Loans are outstanding, their Commitment, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Loans) be imposed on, incurred by or asserted against any such person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such person under or in connection with any of the foregoing; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent promptly upon demand for its ratable share of any costs or out-of-pocket expenses (including fees and expenses of counsel and the allocated cost of in-house counsel) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether - 48 - 53 through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. 9.8 Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from and generally engage in any kind of business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Agent hereunder and without notice to the Banks. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include Bank of America in its individual capacity. 9.9 Successor Agent. The Agent may, and at the request of the Requisite Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent shall resign as Agent under this Agreement, the Requisite Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company. If no successor Agent is appointed prior to the effective date of the resignation of the Agent, the Agent may, but shall not be obligated to, appoint after consulting with the Banks and the Company, a successor agent from among the Banks. At end of such 30 days' notice period any successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's rights, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 and Sections 10.4 and 10.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Concurrently with giving a notice of resignation, the Agent may, in its sole discretion, require that all payments to be made between the Company and the Banks that were previously made to the Agent on behalf of the Company or the Banks, as applicable, shall thereafter be made directly between the Company and the Banks. Section 10. MISCELLANEOUS 10.1 Amendments and Waivers; Extension of Availability Period. (a) No amendment or waiver of any provision of this Agreement or any other Loan Document and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Requisite Banks, and then such waiver shall be effective only in the - 49 - 54 specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks do any of the following: (a) increase the Commitment of any Bank or subject any Bank to any additional obligations; (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due hereunder or under any Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or of any fees or other amounts payable hereunder or under any Loan Document; (d) change the Pro Rata Share of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for the Banks or any of them to take any action hereunder; (e) amend this Section 10.1; provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Requisite Banks, affect the rights or duties of the Agent under this Agreement. 10.2 Notices. Except for telephonic notices expressly required or permitted by Sections 2.3 and 2.4, all notices, requests and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted or delivered, if to the Company to its address specified on Schedule 3 hereto; if to any Bank, to its Domestic Lending Office specified on Schedule 3 hereto; and if to the Agent, to its address specified on Schedule 3 hereto; or, as to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as to each other party at such other address as shall be designated by such party in a written notice to the Company and the Agent. All such notices and communications shall be effective when delivered for overnight delivery, delivered to the telegraph company, transmitted by telecopier and confirmed by telephone, transmitted by telex and confirmed by telex answerback or delivered to the cable company, as applicable, or if delivered, upon delivery, except that written and telephonic notices pursuant to Section 2 or 3 shall not be effective until received by the Agent. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent, any Bank or the Company, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. - 50 - 55 10.4 Costs and Expenses. The Company shall, whether or not the transactions contemplated hereby shall be consummated: (a) pay or reimburse the Agent on demand for all reasonable costs and expenses incurred in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to, this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the reasonable costs and expenses of counsel to the Agent (and the reasonable allocated cost of internal counsel) with respect thereto; (b) pay or reimburse each Bank and the Agent on demand for all reasonable costs and expenses incurred by them in connection with the enforcement or preservation of any rights (including in connection with any "workout" or restructuring regarding the Loans) under this Agreement, any Loan Document, and any such other documents, including reasonable fees and out-of-pocket expenses of counsel (and the reasonable allocated cost of internal counsel) to the Agent and to each of the Banks; and (c) pay or reimburse the Agent on demand for all reasonable appraisal, audit, search and filing fees, incurred or sustained by the Agent in connection with the matters referred to under paragraphs (a) and (b) above. 10.5 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. 10.6 Assignments, Participations etc. (a) Any Bank may, with the written consent of the Agent and the Company, which consent shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees and, with notice to the Agent, but without the consent of the Agent, may assign to any of its wholly-owned bank Affiliates (each an "Assignee") all or any part of the Loans or the Commitment or any other rights or obligations of such Bank hereunder in a minimum amount equal to the lesser of (i) such Bank's Commitment and (ii) $10,000,000; provided, however, that the Commitment of any Bank after giving effect to any assignment shall not be less than $10,000,000; provided, further, that the Company and the Agent may continue to deal solely and directly - 51 - 56 with such Bank in connection with the interests so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee and (ii) such Bank and its Assignee shall have delivered to the Company and the Agent a Notice of Commitment Assignment Notice and Acceptance substantially in the form of Exhibit C ("Notice of Assignment and Acceptance"); and (iii) the processing fees of $5,000 shall have been paid to the Agent. Any Bank may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (b) From and after the date that the Agent notifies the assignor Bank and the Assignee that it has received the Notice of Assignment and Acceptance, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Notice of Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. The Commitment allocated to each Assignee shall reduce the Commitment of the assigning Bank pro tanto. (c) Any Bank may at any time sell to one or more banks or other entities (a "Participant"), participating interests in any Loans, the Commitment of that Bank or any other interest of that Bank hereunder; provided, however, that (i) the Bank's obligations under this Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible for the performance of such obligations, (iii) the Company and the Agent shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement, and (iv) no Bank shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent as described in the first proviso to Section 10.1. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation, except that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of - 52 - 57 set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (d) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to it by the Company or any Subsidiary of the Company or by the Agent on such Company's or Subsidiary's behalf in connection with this Agreement and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, further, however, that any Bank may disclose such information (A) at the request of any Bank regulatory authority or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable law; (D) at the express direction of any other agency of any State of the United States of America or of any other jurisdiction in which such Bank conducts its business; and (E) to such Bank's independent auditors and other professional advisors who have agreed to keep such information confidential. Notwithstanding the foregoing, the Company authorizes each Bank to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee such financial and other information in such Bank's possession concerning the Company or its Subsidiaries which has been delivered to the Banks pursuant to this Agreement or which has been delivered to the Banks by the Company in connection with the Banks' credit evaluation of the Company prior to entering into this Agreement; provided that such Transferee agrees in writing to such Bank to keep such information confidential to the same extent required of the Banks hereunder. 10.7 Set-off. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Company against any and all obligations of the Company now or hereafter existing under this Agreement or any other Loan - 53 - 58 Document and any Loan held by such Bank irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 10.7 are in addition to the other rights and remedies (including without limitation, other rights of set-off) which the Bank may have. 10.8 Sharing of Payments, Etc. If, other than as provided in Section 3.1, 3.5 or 3.6, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) (a) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Banks, such Bank shall forthwith (i) notify the Agent of such fact (and the Agent will promptly notify the other Banks), and (ii) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid thereto together with an amount equal to such paying Bank's ratable share (according to the proportion of (A) the amount of such paying Bank's required repayment to (B) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 10.8 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.7) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent shall keep records (which shall be conclusive and binding in the absence of manifest error), of participations purchased pursuant to this Section 10.8 and shall in each case notify the Banks following any such purchases. 10.9 Indemnity. Whether or not the transactions contemplated hereby shall be consummated: (a) General Indemnity. The Company shall pay, indemnify, and hold each Bank, the Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, - 54 - 59 damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever in connection with or arising out of or as a result of this Agreement or any other Loan Document or the Borrower's use of any Loan, or any investigation, litigation or proceeding related thereto, whether or not the Agent or such Lender is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. (b) Survival; Defense. The obligations in this Section 10.9 shall survive payment of all other Obligations. At the election of any Indemnified Person, the Company shall defend such Indemnified Person using legal counsel reasonably satisfactory to such Indemnified Person in such Person's sole discretion, at the sole cost and expense of the Company, and the Banks and the Agent shall cooperate with the reasonable requests of such counsel. All amounts owing under this Section 10.9 shall be paid within 30 days after demand. 10.10 Marshalling; Payments Set Aside. Neither the Agent nor the Banks shall be under any obligation to marshall any assets in favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment or payments to the Agent or the Banks, or the Agent or the Banks enforce their Liens or exercise their rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party in connection with any Insolvency Proceeding, or otherwise, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred. 10.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of its Offshore Lending Office and its Domestic Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 10.12 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts, each of which, when so executed, shall be - 55 - 60 deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Agent. 10.13 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.14 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 10.15 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. - 56 - 61 10.16 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire Agreement and understanding among the Company, the Banks and the Agent and supersedes all prior or contemporaneous Agreements and understandings of such persons, verbal or written, relating to the subject matter hereof and thereof except for the fee letter referred in Section 2.11 and any prior arrangements made with respect to the payment by the Company of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Agent or the Banks. 10.17 Interpretation. This Agreement is the result of negotiations between and has been reviewed by counsel to the Agent, the Company and other parties, and is the product of all parties hereto. Accordingly, this Agreement and the other Loan Documents shall not be construed against the Banks, the Agent or the Company merely because of the Agent's, the Banks' or the Company's involvement in the preparation of such documents and agreements. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ONEOK, INC. By: J. D. NEAL Title: VICE PRESIDENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ALICE ZANE Title: VICE PRESIDENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: MARK F. MILNER Title: VICE PRESIDENT - 57 - 62 TEXAS COMMERCE BANK, N.A. By: TIMOTHY E. PERRY Title: VICE PRESIDENT THE BANK OF NOVA SCOTIA By: F.C.H. ASHBY Title: SENIOR ASSISTANT AGENT MELLON BANK, N.A. By: A. GARY CHACE Title: SENIOR VICE PRESIDENT BANK OF OKLAHOMA, N.A. By: JANE P. FAULKENBERRY Title: VICE PRESIDENT BANK IV OKLAHOMA N.A. By: MIKE EARL Title: SENIOR VICE PRESIDENT BOATMEN'S FIRST NATIONAL BANK OF OKLAHOMA By: E. M. BEHNKEN Title: VICE PRESIDENT LIBERTY BANK & TRUST COMPANY OF OKLAHOMA CITY, N.A. By: LAURA CHRISTOFFERSON Title: VICE PRESIDENT - 58 - 63 LIBERTY BANK & TRUST CO. OF TULSA, N.A. By: ROBERT D. MATTAX Title: VICE PRESIDENT - 59 - 64 SCHEDULE 1.1 COMMITMENTS AND PRO RATA SHARES
Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 35,000,000 23.33% Texas Commerce Bank, N.A. 25,000,000 16.67% The Bank of Nova Scotia 20,000,000 13.33% Mellon Bank, N.A. 20,000,000 13.33% Bank of Oklahoma, N.A. 15,000,000 10.00% Bank IV Oklahoma, N.A. 10,000,000 6.67% Boatmen's First National Bank of Oklahoma 10,000,000 6.67% Liberty Bank & Trust Company of Oklahoma City, N.A. 8,500,000 5.67% Liberty Bank & Trust Co. of Tulsa, N.A. 6,500,000 4.33% ------------ ------ TOTAL $150,000,000 100.00%
- 1 - 65 SCHEDULE 3 OFFSHORE AND DOMESTIC LENDING OFFICES, ADDRESSES FOR NOTICES ONEOK, INC. 1000 West Fifth Street Tulsa, OK 74102-0871 Attention: Jim Kneale Telephone: (918) 588-7922 Facsimile: (918) 588-7273 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Bank of America National Trust and Savings Association Global Agency #5596 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Alice Zane Vice President Telephone: (415) 622-4469 Facsimile: (415) 622-4894 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank Domestic and Offshore Lending Office: 275 South Valencia Ave. Brea, CA 92621 Attention: Michael Diekmann Telephone: (714) 961-7286 Facsimile: (714) 961-2501 TEXAS COMMERCE BANK, N.A. Domestic and Offshore Rate Office: 5th Floor 2200 Ross Avenue Dallas, TX 75201-2733 Attention: Cindy White Telephone: (214) 922-2379 Facsimile: (214) 922-2783 - 1 - 66 THE BANK OF NOVA SCOTIA Domestic and Offshore Rate Office: 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Attention: Shannon Law Telephone: (404) 877-1500 Facsimile: (404) 888-8998 MELLON BANK, N.A. Domestic and Offshore Rate Office: 3 Mellon Bank Center Room 2303 Pittsburg, PA 15259 Attention: Rose Covel Loan Administration Telephone: (412) 234-4748 Facsimile: (412) 236-2027 BANK OF OKLAHOMA, N.A. Domestic and Offshore Rate Office: One Williams Center 8th Floor Tulsa, OK 74l92 Attention: Jane Faulkenberry Telephone: (918) 588-6272 Facsimile: (918) 588-6880 BANK IV OKLAHOMA, N.A. Domestic and Offshore Rate Office: 51 South Boulder Street Tulsa, OK 74103 Attention: Michael D. Earl Senior Vice President Telephone: (918) 591-8310 Facsimile: (918) 591-8402 - 2 - 67 Copy to: 51 South Boulder Street Tulsa, OK 74103 Attention: Vicky Allen Telephone: (918) 591-8355 Facsimile: (918) 591-8402 BOATMEN'S FIRST NATIONAL BANK OF OKLAHOMA Domestic and Offshore Rate Office: 10802 East 31st Street Tulsa, OK 74147 Attention: Ed Behnken Telephone: (918) 664-1300 ex. 221 Facsimile: (918) 665-0756 LIBERTY BANK & TRUST COMPANY OF OKLAHOMA CITY, N.A. Domestic and Offshore Rate Office: 100 North Broadway Oklahoma City, OK 73102 Attention: Laura Christoferson Telephone: (405) 231-6853 Facsimile: (405) 231-6788 LIBERTY BANK & TRUST CO. OF TULSA, N.A. Domestic and Offshore Rate Office: 4th Floor 15 East Fifth Street Tulsa, OK 74103 Attention: Bob Mattax Telephone: (918) 586-5179 Facsimile: (918) 586-5952 - 3 - 68 Notices (other than Borrowing notices and Notices of Conversion/Continuation): BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Bank of America National Trust and Savings Association 555 Flower Street, 10th Floor Los Angeles, California 90071 Attention: Mark F. Milner Telephone: (213) 228-6298 Facsimile: (213) 228-2641 TEXAS COMMERCE BANK, N.A. 5th Floor 2200 Ross Avenue Dallas, TX 75201-2733 Attention: Timothy E. Perry Telephone: (214) 922-2536 Facsimile: (214) 922-2783 THE BANK OF NOVA SCOTIA 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Attention: Shannon Law Telephone: (404) 877-1500 Facsimile: (404) 888-8998 Copy to: Bank of Nova Scotia 1100 Louisiana Suite 3000 Houston, TX 77002 Attention: Cindy Deere Telephone: (713) 752-0900 Facsimile: (713) 752-2425 - 4 - 69 MELLON BANK, N.A. One Mellon Bank Center Room 4425 Pittsburg, PA 15258-0001 Attention: A. J. Sabatelle Energy and Utilities Group Telephone: (412) 236-2784 Facsimile: (412) 234-6375 BANK OF OKLAHOMA, N.A. One Williams Center 8th Floor Tulsa, OK 94l92 Attention: Jane Faulkenberry Telephone: (918) 588-6272 Facsimile: (918) 588-6880 BANK IV OKLAHOMA, N.A. 51 South Boulder Street Tulsa, OK 74103 Attention: Michael D. Earl Senior Vice President Telephone: (918) 591-8310 Facsimile: (918) 591-8402 Copy to: 51 South Boulder Street Tulsa, OK 74103 Attention: Vicky Allen Telephone: (918) 591-8355 Facsimile: (918) 591-8402 BOATMEN'S FIRST NATIONAL BANK OF OKLAHOMA 10802 East 31st Street Tulsa, OK 74147 Attention: Ed Behnken Telephone: (918) 664-1300 ex. 221 Facsimile: (918) 665-0756 - 5 - 70 LIBERTY BANK & TRUST COMPANY OF OKLAHOMA CITY, N.A. 100 North Broadway Oklahoma City, OK 73102 Attention: Laura Christoferson Telephone: (405) 231-6853 Facsimile: (405) 231-6788 LIBERTY BANK & TRUST CO. OF TULSA, N.A. 4th Floor 15 East Fifth Street Tulsa, OK 74103 Attention: Bob Mattax Telephone: (918) 586-5179 Facsimile: (918) 586-5952 - 6 - 71 SCHEDULE 5.11 MATERIAL CONTINGENT OBLIGATIONS OF THE COMPANY AS OF THE DATE OF CLOSING NONE -8- 72 SCHEDULE 5.16 SUBSIDIARIES Caney River Transmission Company ONG Red Oak Transmission Company ONG Sayre Storage Company ONG Western, Inc. TransTex Pipeline Company OkTex Pipeline Company ONEOK Services, Inc. ONEOK Drilling Company ONEOK Exploration Company ONEOK Products Company ONEOK Resources Company ONEOK Leasing Company ONEOK Parking Company ONEOK Technology Company ONEOK Gas Marketing Company 73 EXHIBIT A FORM OF NOTICE OF COMMITTED BORROWING TO: Bank of America National Trust and Savings Association, as Agent 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Alice Zane Vice President Telephone: (415) 622-4469 Facsimile: (415) 622-4894 Pursuant to Section 2.3 of that certain Credit Agreement dated as of August __, 1993 (as from time to time amended, extended, restated, modified or supplemented, the "Credit Agreement;" capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement), among ONEOK, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent"), this represents the Company's request to borrow on _______________ from the Banks, according to their respective Pro Rata Share, $_______ as (Base Rate) (Offshore Rate) Loans. (The initial Interest period for such Offshore Rate is requested to be a ________-month period). The proceeds of such Committed Loans are to be deposited in the Company's account at the Agent. The undersigned Responsible Officer hereby certifies that: (a) the representations and warranties of the Company contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof; and (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement or will result from the proposed borrowing. DATED: ______________________ ONEOK, INC. By ___________________________ Title ________________________ - 1 - 74 EXHIBIT B FORM OF NOTICE OF CONVERSION/CONTINUATION TO: Bank of America National Trust and Savings Association, as Agent 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Alice Zane Vice President Telephone: (415) 622-4469 Facsimile: (415) 622-4894 1. Conversion Selection. Pursuant to Section 2.4 of that certain Credit Agreement dated as of August __, 1993 (as from time to time amended, extended, restated, modified or supplemented, the "Credit Agreement;" capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement), among ONEOK, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent"), this represents the Company's request to convert $________of existing (Base Rate) (Offshore Rate) Loans, the final day of the current Interest Period (if applicable) of which is __________, 19__, to (Offshore Rate) (Base Rate) Loans, as follows: Interest Period (Offshore Dollar Amount Rate loans) ------------- --------------- $____________ ________days Maturing on ____, 19__ 2. Continuation Selection (Offshore Rate Loans). Pursuant to Section 2.4 of the Agreement, please continue $_______of existing Offshore Rate Loans, the final day of the current Interest Period of which is __________, 19____, as follows: Requested Dollar Amount Interest Period ------------- --------------- $___________ _______ days Maturing on ____, 19__ The undersigned Responsible Officer hereby certifies that: (a) the representations and warranties of the Company contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof; and - 1 - 75 (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement or will result from the proposed conversion or continuation. Unless otherwise defined herein, capitalized terms used herein have the meanings assigned to them in the Agreement. ONEOK, INC. By: ___________________ Name: _________________ Title: ________________ - 2 - 76 EXHIBIT C FORM OF COMMITMENT ASSIGNMENT NOTICE AND ACCEPTANCE ____________, ____ TO: Bank of America National Trust and Savings Association, as Agent 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Alice Zane Vice President Telephone: (415) 622-4469 Facsimile: (415) 622-4894 Reference is made to the Credit Agreement dated as of August _, 1993 (as from time to time amended, extended, restated, modified or supplemented, the "Credit Agreement;" capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement) among ONEOK, Inc., certain Banks party thereto and Bank of America National Trust and Savings Association, as Agent (the "Agent") for said Banks. 1. We hereby give you notice of, and request your consent to, the assignment by ________ _____ (the "Assignor") to ________________ (the "Assignee") of ____% of the right, title and interest of the Assignor in and to the Credit Agreement (including without limitation the right, title and interest of the Assignor in and to the Commitment of the Assignor and all outstanding Loans made by the Assignor). Before giving effect to such assignment: the amount of the Assignor's Commitment is $_________ and the aggregate principal amount of its outstanding Loans is $__________. 2. The Assignee hereby represents and warrants that it has complied with the requirements of Section 10.6(a) of the Credit Agreement in connection with this assignment. 3. The Assignee agrees that, upon receiving your consent to such assignment and from and after ______________, the Assignee will be bound by the terms of the Credit Agreement, with respect to the interest in the Credit Agreement and the Guaranties assigned to it as specified above, as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. - 1 - 77 5. The following administrative details apply to the Assignee: (A) Offshore Lending Office: Assignee name: ____________________ Address: __________________________ Attention: _______________________ Telephone: (__) __________________ Telecopier: (__) _________________ Telex (Answerback): _______________ (B) Domestic Lending Office: Assignee name: ____________________ Address: __________________________ __________________________ __________________________ Attention: _______________________ Telephone: (__) __________________ Telecopier: (__) _________________ Telex (Answerback): _______________ (C) Notice Address: Assignee name: ____________________ Address: __________________________ __________________________ __________________________ Attention: _______________________ Telephone: (__) __________________ Telecopier: (__) _________________ Telex (Answerback): _______________ (D) Payment Instructions: Account No.: _____________________ At: __________________________ __________________________ __________________________ Ref.: _____________________ Attention: _____________________ IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Commitment Assignment Notice and Acceptance to be - 2 - 78 executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, (Name of Assignor) By:______________________ Title: (Name of Assignee) By:______________________ Title: We hereby consent to the foregoing assignment. ONEOK, INC. By:___________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By:___________________________ Title: - 3 - EX-10.L 5 FIRST AMENDMENT TO CREDIT AGREEMENT DATED 8/18/94 1 Exhibit (10)(l) FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT is made and dated as of August 18, 1994 (the "AMENDMENT") among ONEOK, INC., a Delaware corporation (the "COMPANY"), the financial institutions (the "BANKS") party to the Credit Agreement referred to below, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent (the "AGENT"), and amends that certain Credit Agreement dated as of August 20, 1993, among the Company, the Banks and the Agent (as so amended or modified from time to time, the "CREDIT AGREEMENT"). RECITALS WHEREAS, the Company has requested that the Banks and the Agent amend certain provisions of the Credit Agreement to extend the Maturity Date, reduce the pricing of Offshore Rate Loans, reduce the commitment fee, adjust the Commitments of certain Banks, and to make certain other amendments and modifications to the Credit Agreement, and the Banks and the Agent are willing to do so on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Terms. All terms used herein shall have the same meanings as in the Credit Agreement unless otherwise defined herein. All references to the Credit Agreement shall mean the Credit Agreement as hereby amended. 2. Amendments to Credit Agreement. 2.1 The definition of "Maturity Date" in Section 1.1 of the Credit Agreement is hereby amended by deleting "August 18, 1994" and inserting "August 17, 1995" in lieu thereof. 2.2 The definition of "Offshore Applicable Margin" in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety as follows: "Offshore Applicable Margin" means, with respect to Offshore Rate Loans, 0.35% per annum." 2.3 The definition of "Requisite Banks" in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety as follows: 1 2 "Requisite Banks" means, as at any date of determination, (a) prior to the termination of all Commitments, Banks having at least 51% of the Commitments, and (b) otherwise, Banks holding at least 51% of the aggregate principal amount of Loans outstanding." 2.4 Section 2.10(b) shall be amended by amending and restating the first sentence thereof in its entirety as follows: "The Company shall pay to the Agent for the account of each Bank a commitment fee on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that calendar quarter as calculated by the Agent, equal to 0.125% per annum." 2.5 The first sentence of Section 2.13 shall be amended and restated in its entirety as follows: "The Company may request that the Banks extend the Maturity Date for successive 364 day periods by notifying the Banks in writing through the Agent not more than 60 days nor less than 30 days prior to the Maturity Date, then in effect." 2.6 Section 5.5 shall be amended by deleting "August 31, 1992" and inserting "August 31, 1993" in lieu thereof, and by deleting "November 30, 1992, February 28, 1993, and May 31, 1993" and inserting "November 30, 1993, February 28, 1994, and May 31, 1994" in lieu thereof. 2.7 Section 5.11(b) shall be amended by deleting "August 31, 1992" and inserting in lieu thereof "August 31, 1993", 2.8 Section 7.1(j) is hereby amended by deleting "5%" and inserting "10%" in lieu thereof. 2.9 Section 7.2 is hereby amended by amending and restating the proviso in the first paragraph thereof as follows: "provided, however, the foregoing shall not be deemed to restrict or preclude the merger or consolidation of any Subsidiary with or into the Company or any other Subsidiary, or the conveyance, transfer or lease of the properties and assets of any Subsidiary substantially as an entirety (measured on a consolidated basis) to any other Subsidiary, if the requirements of subsection 7.2(a), (b), and (c) shall have been met, and a certificate signed by a Responsible Officer and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease complies with this Section 7.2 and that all conditions precedent herein 2 3 provided for relating to such transaction have been complied with, shall have been delivered, provided, further, that the Company shall not convey or transfer any assets to a Subsidiary for the purpose of improving the credit position of such Subsidiary in order to enable it to borrow money." 2.10 Schedule 1.1 to the Credit Agreement shall be deleted in its entirety, and a new Schedule 1.1, in the form of Schedule 1.1 to this Amendment, shall be inserted in lieu thereof. Schedule 5.16 to the Credit Agreement shall be deleted in its entirety. 3. Representations and Warranties. Company represents and warrants to Banks and Agent that, on and as of the date hereof, and after giving effect to this Amendment: 3.1 Authorization. The execution, delivery and performance of this Amendment have been duly authorized by all necessary corporate action by the Company and this Amendment has been duly executed and delivered by the Company. 3.2 Binding Obligation. This Amendment is the legal, valid and binding obligation of Company, enforceable against the Company in accordance with its terms. 3.3 No Legal Obstacle to Credit Agreement. The execution, delivery and performance of this Amendment will not (a) contravene the terms of the Company's certificate of incorporation, by-laws or other organization document; (b) conflict with or result in any breach or contravention of the provisions of any contract to which the Company is a party, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to Company, or result in the creation under any agreement or instrument of any security interest, lien, charge, or encumbrance upon any of the assets of the Company. No approval or authorization of any governmental authority is required to permit the execution, delivery or performance by the Company of this Amendment, or the transactions contemplated hereby. 3.4 Incorporation of Certain Representations. The representations and warranties of the Company set forth in Section 5 of the Credit Agreement are true and correct in all respects on and as of the date hereof as though made on and as of the date hereof. 3.5 Default. No Default or Event of Default under the Credit Agreement has occurred and is continuing. 4. Conditions, Effectiveness. The effectiveness of this Amendment shall be subject to the compliance by the Company with its agreements herein contained, and to the delivery of the following to the Agent in form and substance satisfactory to the Agent and the Banks: 4.1 Authorized Signatories. A certificate, signed by the Secretary or an Assistant Secretary of Company and dated the date of this Amendment, as to the incumbency 3 4 of the person or persons authorized to execute and deliver this Amendment and any instrument or agreement required hereunder on behalf of Company. 4.2 Other Evidence. Such other evidence with respect to the Company or any other person as the Agent or any Bank may reasonably request in connection with this Amendment and the compliance with the conditions set forth herein. 5. Miscellaneous. 5.1 Effectiveness of the Credit Agreement and the Loan Documents. Except as hereby expressly amended, the Credit Agreement and each other Loan Document shall each remain in full force and effect, and are hereby ratified and confirmed in all respects on and as of the date hereof. 5.2 Waivers. This Amendment is limited solely to the matters expressly set forth herein and is specific in time an in intent and does not constitute, nor should it be construed as, a waiver or amendment of any other term or condition, right, power or privilege under the Credit Agreement, the Loan Documents, or under any agreement, contract, indenture, document or instrument mentioned therein; nor doe it preclude or prejudice any rights of the Agent or the Banks thereunder, or any exercise thereof or the exercise of any other right, power or privilege, no shall it require the Requisite Banks to agree to an amendment, waiver or consent for a similar transaction or on a future occasion, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Credit Agreement, constitute a waiver or any other default of the same or of any other term or provision. 5.3 Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment shall not become effective until the Company, the Banks and the Agent shall have signed a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Agent. 5.4 Jurisdiction. This Amendment shall be governed by and construed under the laws of the State of California. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. ONEOK Inc. By: J. D. NEAL Name: J. D. Neal Title: Vice President, Treasurer, Chief Financial Officer, and Chief Accounting Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: LEO CHENEVERT Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: MARK F. MILNER Vice President TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: TIMOTHY E. PERRY Title: Vice President THE BANK OF NOVA SCOTIA By: F.C.H. ASHBY Name: F.C.H. Ashby Title: Senior Manager Loan Operations 5 6 MELLON BANK, N.A. By: A. J. SABATELLE Title: Vice President BANK OF OKLAHOMA, N.A. By: JANE FAULKENBERRY Title: Vice President BANK IV OKLAHOMA N.A. By: GLENN ELROD Title: Sr. V. P. BOATMEN'S FIRST NATIONAL BANK OF OKLAHOMA By: E. M. BEHNKEN Title: Vice President LIBERTY BANK & TRUST COMPANY OF OKLAHOMA CITY, N.A. By: LAURA CHRISTOFFERSON Title: Vice President LIBERTY BANK & TRUST CO. OF TULSA, N.A. By: ROBERT D. MATTAX Title: Vice President-Regional Banking 6 7 SCHEDULE 1.1 COMMITMENTS AND PRO RATA SHARES
Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 35,000,000 23.33% Texas Commerce Bank National Association 25,000,000 16.67% The Bank of Nova Scotia 20,000,000 13.33% Mellon Bank, N.A. 10,000,000 6.67% Bank of Oklahoma, N.A. 15,000,000 10.00% Bank IV Oklahoma, N.A. 15,000,000 10.00% Boatmen's First National Bank of Oklahoma 15,000,000 10.00% Liberty Bank & Trust Company of Oklahoma City, N.A. 8,500,000 5.67% Liberty Bank & Trust Co. of Tulsa, N.A. 6,500,000 4.33% ----------- ------- TOTAL: $150,000,000 100.00%
1 EX-13 6 PAGES FROM 1994 ANNUAL REPORT 1 EXHIBIT (13) MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of ONEOK Inc. is responsible for all information included in the Annual Report, whether audited or unaudited. The financial statements have been prepared in accordance with generally accepted accounting principles, applied in a consistent manner, and necessarily include some amounts that are based on the best estimates and judgments of management. Management maintains a system of internal accounting policies, procedures, and controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that the financial records are reliable for preparing financial statements. ONEOK Inc. maintains an internal auditing staff responsible for evaluating the adequacy and application of financial and operating controls and for testing compliance with management's policies and procedures. The accompanying consolidated financial statements of ONEOK Inc. and subsidiaries as of August 31, 1994 and 1993, and for the years ended August 31, 1994, 1993, and 1992, have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Their audits include reviews of the system of internal controls to the extent considered necessary to determine the audit procedures required to support their opinion on the consolidated financial statements. The Independent Auditors' Report appears herein. The Board of Directors performs its oversight role for reviewing the accounting and auditing procedures and financial reporting of ONEOK Inc. through its Audit Committee. Both KPMG Peat Marwick LLP and our internal auditors have free access to the Committee, without the presence of management, to discuss accounting, auditing, and financial reporting matters. J. D. NEAL J. D. Neal Vice President, Chief Financial Officer and Treasurer INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders ONEOK Inc.: We have audited the accompanying consolidated balance sheets of ONEOK Inc. and subsidiaries as of August 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended August 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ONEOK Inc. and subsidiaries at August 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 1994, in conformity with generally accepted accounting principles. As discussed in notes A and G to the consolidated financial statements, the Company changed its method of accounting for certain postemployment and postretirement benefit obligations by adopting the provisions of Statements of Financial Accounting Standards Nos. 112 and 106 in 1994. KPMG Peat Marwick LLP Tulsa, Oklahoma October 14, 1994 28 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION ONEOK Inc. and its subsidiaries, hereinafter referred to as the Company, engage in natural gas distribution, transmission, and storage operations. It also is involved in oil and gas energy operations. Oklahoma Natural Gas Company purchases, distributes, and sells natural gas and leases pipeline capacity. ONG Transmission Company gathers, compresses, transports, and stores natural gas for intrastate distribution and into interstate commerce; and leases pipeline capacity. In addition, two subsidiaries own interests in partnerships that operate natural gas transmission systems. Energy Companies of ONEOK explores for and produces natural gas and oil, extracts and sells natural gas liquids, and buys and sells natural gas. A subsidiary owns an interest in a partnership that markets natural gas. RESULTS OF OPERATIONS The Company reported consolidated net income of $36.2 million, or $1.34 per share of common stock, for its fiscal year ended August 31, 1994. This compares with net income of $38.4 million or $1.43 per share for the previous year. Distribution and transmission operations reported an 8 percent increase in net income. Major contributing factors were reductions in gas required for system operations, the addition of more than 8,700 new customers and increased margins on gas deliveries due to lower spot market gas prices. Net income for the gas processing business, which separates such hydrocarbon products as propane, ethane, and butane out of the gas stream to be sold in other markets, declined because of continued depressed product prices. Exploration and production showed a net loss in 1994 due primarily to lower oil and gas prices. The consolidated effective income tax rate was 36.8 percent for 1994, 35.1 percent for 1993, and 36.7 percent for 1992. The effective tax rate in 1994 and 1993 includes the effect of a one percent federal tax rate increase, however, adjustments made to revise prior income tax estimates partially offset the effect of the tax rate increase in both years. Consolidated net interest expense increased in 1993 due to additional long-term debt outstanding as a result of capital expenditures, including acquisitions, and working capital requirements. In addition, the early call premiums on the refunding of certain long-term debt in April 1993 increased the 1993 interest expense. The refunding resulted in a reduction in 1994 interest cost and eliminated some of the Company's most restrictive borrowing covenants. ONEOK Drilling Company was sold effective May 1, 1994, at approximately book value. Following is a summary of consolidated earnings:
- - --------------------------------------------------------------------------------------- NET INCOME (LOSS) 1994 1993 1992 - - --------------------------------------------------------------------------------------- (Thousands of $) Distribution and transmission $ 35,696 $ 32,982 $ 28,440 Exploration and production (405) 574 (3,247) Gas processing 3,657 6,199 10,116 Contract drilling (1,466) (1,448) (1,428) Other operations (1,301) 117 (1,302) - - ---------------------------------------------------------------------------------------- Consolidated $ 36,181 $ 38,424 $ 32,579 ========================================================================================
EARNINGS (LOSS ) PER COMMON SHARE 1994 1993 1992 - - ---------------------------------------------------------------------------------------- Distribution and transmission $ 1.32 $ 1.23 $ 1.05 Exploration and production (.01) .02 (.12) Gas processing .14 .23 .38 Contract drilling (.06) (.05) (.05) Other operations (.05) - (.05) - - ---------------------------------------------------------------------------------------- Consolidated $ 1.34 $ 1.43 $ 1.21 ========================================================================================
Following are summaries of financial results and operating information for the various segments of the Company for the 1994, 1993, and 1992 fiscal years.
DISTRIBUTION AND TRANSMISSION 1994 1993 1992 - - ---------------------------------------------------------------------------------------- (Thousands of $, except per share amounts) Revenues: From unaffiliated customers $617,487 $ 626,951 $ 529,616 Intersegment sales 1,679 1,725 1,698 - - ---------------------------------------------------------------------------------------- Total revenues 619,166 628,676 531,314 Less gas purchased expense 358,278 375,649 297,825 - - ---------------------------------------------------------------------------------------- Net revenues/gross margins 260,888 253,027 233,489 Operating expenses 173,038 168,222 159,265 - - ---------------------------------------------------------------------------------------- Operating income before income taxes 87,850 84,805 74,224 Income taxes 20,865 18,024 16,753 Net interest expense 31,289 33,799 29,031 - - ---------------------------------------------------------------------------------------- Net income $ 35,696 $ 32,982 $ 28,440 ======================================================================================== Earnings per share $ 1.32 $ 1.23 $ 1.05 ======================================================================================== Gas sales: Residential and commercial $409,530 $ 413,053 $ 351,169 Industrial 27,101 34,100 29,624 Wholesale 2,628 4,171 5,165 PCL/SISP gas sales 85,702 87,555 44,508 - - ---------------------------------------------------------------------------------------- Total gas sales 524,961 538,879 430,466 Less gas purchased expense 358,278 375,649 297,825 - - ---------------------------------------------------------------------------------------- Gas sales margins 166,683 163,230 132,641 PCL/SISP margins 21,504 21,733 16,624 Pipeline capacity lease margins 54,667 47,763 60,349 Other revenues 18,034 20,301 23,875 - - ---------------------------------------------------------------------------------------- Net revenues $260,888 $ 253,027 $ 233,489 ========================================================================================
29 3
DISTRIBUTION AND TRANSMISSION (continued) 1994 1993 1992 - - ---------------------------------------------------------------------------------------- Volumes (MMcf): Gas sales: Residential and commercial 84,470 87,176 74,739 Industrial 8,624 11,268 11,067 Wholesale 829 1,337 2,067 - - ---------------------------------------------------------------------------------------- Total gas sales 93,923 99,781 87,873 PCL/SISP 42,789 46,125 30,058 Pipeline capacity leases 120,619 108,984 125,605 - - ---------------------------------------------------------------------------------------- Total volumes 257,331 254,890 243,536 ======================================================================================== Average cost of gas purchased (per Mcf): General system $ 2.92 $ 2.77 $ 2.64 SISP $ 1.98 $ 1.88 $ 1.44 PCL margins (per MMBtu) $ .46 $ .44 $ .49 Degree days: Actual 3,874 3,953 3,085 Normal 3,616 3,596 3,595 Number of customers at end of periods 715,057 706,309 698,322 - - ----------------------------------------------------------------------------------------
For the 1994 fiscal year, residential and commercial sales were less, even though the number of customers increased, because of weather which was 2 percent warmer than the previous year. For 1993, additional customers, colder than normal weather, and an $18.2 million annual interim rate increase (subject to refund) granted in March 1992 were the primary causes of increased residential and commercial gas sales revenues. The market to service industrial customers remains extremely competitive. The Company offers its pipeline capacity lease program (PCL) and payment-in-kind program (PIK) to certain of these customers as a response to competitive pressure. Under its PIK program, the Company accepts gas in lieu of cash for PCL payments and for payment for exchanges of gas between intrastate pipelines. PIK gas is priced to general system gas distribution operations at the weighted average cost of gas (WACOG). Some of the PCLcontracts include price caps, which reduce the volume of gas delivered to the Company as the price of gas purchased by the customer escalates. PCL customers with contracts containing price caps represent approximately 76 percent of 1994 PCL volumes and 72 percent of 1993 PCL volumes. Average spot market prices increased significantly in 1993 and continued to increase for part of 1994, triggering price caps and reducing the volume of PIK gas delivered to the Company. In May 1994, spot market prices began declining to levels under those which triggered the price caps, improving PCLmargins. During 1994, overall PCL margins improved by approximately $6.7 million or 10 percent over 1993, compared with a decline in 1993 of approximately $7.5 million from 1992. Approximately 60 percent of that increase in 1994 is attributable to improved margins as a result of decreased spot market prices. The remaining 40 percent of the increase is due to additional volumes delivered. Gas sales revenue from industrial customers was lower in 1994 and 1992 because industrial customers were able to purchase gas on the spot market at prices below those offered by the Company. Gas purchased expense decreased in fiscal 1994 due primarily to decreased sales caused by warmer weather during the heating season and decreased industrial sales. Gas purchased expense increased in 1993 because of higher gas costs, increased sales volumes because of colder weather, and increased sales to industrial customers. Operating expenses increased in 1993 primarily due to higher labor costs and increased depreciation expense because of additional gas property in service. Operating expenses increased in 1994 primarily due to increased depreciation and regulatory assessment fees, partially offset by reductions in gas required for system operations. The regulatory assessment fees are recoverable from customers. The Company's last full rate order was issued in fiscal year 1988. The Company filed for new rates in 1991, and in March 1992 was granted an interim rate increase of $18.2 million, subject to refund. Since no final order has been issued, the Company continues to experience the adverse effects of regulatory lag. In the pending rate case, the Oklahoma Corporation Commission (OCC) has proposed a return of 10.323 percent (imbedded return on equity of 12.12 percent) on a rate base of approximately $542.6 million. The Company has earned less than its authorized rate of return in recent years.
EXPLORATION AND PRODUCTION 1994 1993 1992 - - ---------------------------------------------------------------------------------------- (Thousands of $, except per share amounts) Revenues: From unaffiliated customers $ 23,023 $ 24,092 $ 18,354 Intersegment sales 1,457 1,040 176 - - ---------------------------------------------------------------------------------------- Total revenues 24,480 25,132 18,530 - - ---------------------------------------------------------------------------------------- Operating expenses 23,745 22,678 22,936 - - ---------------------------------------------------------------------------------------- Operating income (loss) before income taxes 735 2,454 (4,406) Income taxes (528) 372 (2,353) Net interest expense 1,668 1,508 1,194 - - ---------------------------------------------------------------------------------------- Net income (loss) $ (405) $ 574 $ (3,247) ======================================================================================== Earnings (loss) per share $ (.01) $ .02 $ (.12) ======================================================================================== Oil production sales: Revenue (thousands of $) $ 8,114 $ 8,192 $ 7,535 Volumes (Bbls.) 572,113 442,931 375,506 Average price (per bbl.) $ 14.18 $ 18.50 $ 20.07 Gas production sales: Revenue (thousands of $) $ 16,036 $ 16,905 $ 10,793 Volumes (MMcf) 8,043 8,401 7,349 Average price (per Mcf) $ 1.99 $ 2.01 $ 1.47 - - ----------------------------------------------------------------------------------------
30 4 Increased sales volumes in 1993 and 1994, primarily due to production from the North Frisco City Field in Monroe County, Alabama, which the Company acquired in April 1993, increased revenues from oil production for both years, however, substantially lower prices kept 1994 revenues relatively flat. Revenue from the production of natural gas for 1994 decreased because of lower volumes and prices. Volumes decreased because of declining deliverability of wells and the inability to replace existing reserves. Revenues for 1993 increased due to higher prices for natural gas and increased volumes. Volumes increased for 1993 partially due to production on natural gas wells which had been curtailed in 1992. Depreciation and depletion increased in 1994 as a result of increased oil production but decreased slightly for 1993 in spite of increased production because of fewer write-offs of plugged and abandoned wells. On October 4, 1994, the Company acquired additional producing properties in Louisiana at a cost of approximately $18.3 million, which are expected to increase daily gas production by more than 35 percent. In addition, the Company is entering into private short-term "collar" contracts (containing both a price floor and a ceiling). The collars are intended to reduce the volatility of natural gas and oil production revenues. Open contracts at August 31, 1994, were not significant.
GAS PROCESSING 1994 1993 1992 - - ---------------------------------------------------------------------------------------- (Thousands of $, except per share amounts) Revenues: From unaffiliated customers $106,589 $ 125,435 $ 118,823 Intersegment sales 667 32,974 24,651 - - ---------------------------------------------------------------------------------------- Total revenues 107,256 158,409 143,474 Operating expenses 100,692 147,527 126,217 - - ---------------------------------------------------------------------------------------- Operating income before income taxes 6,564 10,882 17,257 Income taxes 2,077 3,942 6,133 Net interest expense 830 741 1,008 - - ---------------------------------------------------------------------------------------- Net income $ 3,657 $ 6,199 $ 10,116 ======================================================================================== Earnings per share $ .14 $ .23 $ .38 ======================================================================================== Natural gas liquids sales: Revenue (thousands of $) $ 48,838 $ 59,569 $ 52,080 Volumes (Mgals.) 194,378 195,067 180,956 Average price (per gal.) $ .25 $ .31 $ .29 Margin (per gal.) $ .01 $ .05 $ .07 Other gas sales: Revenue (thousands of $) $ 41,853 $ 83,578 $ 77,610 Volumes (MMcf) 18,551 40,436 48,311 Average price (per Mcf) $ 2.26 $ 2.07 $ 1.61 Margin (per Mcf) $ .17 $ .05 $ .10 - - ----------------------------------------------------------------------------------------
Revenue for sales of natural gas liquids declined in 1994 because of reduced volumes and prices. Volumes decreased primarily as a result of reduced recovery of ethane during part of the year due to significantly lower market prices. Margins were reduced because of lower prices. In 1993, higher prices and increased volumes due to higher total throughput increased revenues. A more aggressive approach to contracting gas supplies and an additional plant being placed in service in June 1993 resulted in the increased throughput for 1993. Increased operating expenses, primarily shrinkage and fuel costs, reduced margins on natural gas liquids sales for 1993. The Company recently began hedging shrinkage costs by buying natural gas futures contracts on the NYMEX. This strategy is intended to result in more predictable and stable margins on natural gas liquids sales. Margins on other gas sales increased in 1994 because of lower-cost supplies of gas. Volumes declined because some supply contracts were assigned to ONEOK Gas Marketing Company. Because of colder weather during the 1993 fiscal year, less gas was available to the gas processing segment's marketing operations, and increased competition, along with higher natural gas prices, resulted in decreased margins for 1993. Also included in 1994 revenues is a gain of $2.1 million on the sale of a gas gathering system.
OTHER 1994 1993 1992 - - ---------------------------------------------------------------------------------------- (Thousands of $, except per share amounts) Revenues: From unaffiliated customers $ 39,893 $ 5,171 $ 3,134 Intersegment sales 97,823 14,324 6,461 - - ---------------------------------------------------------------------------------------- Total revenues 137,716 19,495 9,595 Gas purchased expense 126,990 8,102 - Operating expenses 11,497 11,016 10,793 - - ---------------------------------------------------------------------------------------- Operating income (loss) before income taxes (771) 377 (1,198) Income taxes (291) (714) (789) Net interest expense 821 974 893 - - ---------------------------------------------------------------------------------------- Net income (loss) $ (1,301) $ 117 $ (1,302) ======================================================================================== Earnings (loss) per share $ (.05) $ - $ (.05) ======================================================================================== Buildings operations (thousands of $): Revenue $ 9,047 $ 9,549 $ 8,977 Earnings per share $ (.06) $ (.02) $ (.05) Corporate operations (thousands of $): Revenue $ 347 $ 616 $ 618 Earnings per share $ - $ - $ - Gas marketing operations (thousands of $): Revenue $128,322 $ 9,330 $ - Less gas purchased expense 126,990 8,102 - Net revenue $ 1,332 $ 1,228 $ - Earnings per share $ .01 $ .02 $ - - - ----------------------------------------------------------------------------------------
31 5 Other operations include corporate operations, ONEOK Gas Marketing Company, ONEOK Leasing Company, and ONEOK Parking Company. ONEOK Gas Marketing Company began partnership operations with Ward Gas Services in October 1992 and began marketing gas in March 1993. ONEOK Gas Marketing Company supplies natural gas to the partnership and to other affiliates at cost. In 1993, increased earnings attributable to buildings operations were the result of decreased income tax expense due to adjustments made as a result of implementing Statement of Financial Accounting Standards (SFAS)No. 109, Accounting for Income Taxes. LIQUIDITY AND CAPITAL RESOURCES The Company funds its operations with cash generated internally by its operations supplemented with borrowings under a short-term credit agreement, long-term debt, and on occasion, the strategic sale of property. Following are the sources of funds for the periods indicated:
1995 SOURCES OF FUNDS (Est.) 1994 1993 1992 - - ----------------------------------------------------------------------------------------------------- (Millions of $) Proceeds from: Issuance of short-term debt $ 49.3 $ 28.0 $ 17.0 $ - Issuance of long-term debt - - 77.0 115.0 Sale of property - 8.0 - - Cash provided by operating activities 85.7 80.3 104.3 68.2 Proceeds from refund of take-or-pay deposit, net of taxes - - 13.9 - - - ----------------------------------------------------------------------------------------------------- Total $ 135.0 $ 116.3 $ 212.2 $ 183.2 =====================================================================================================
SHORT-TERM DEBT. The Company uses short-term debt to help meet its need for operating funds, which fluctuates with seasonal demand for gas purchases and other factors. The Company has a short-term unsecured credit agreement with several banks pursuant to which the banks have agreed to make loans to the Company from time to time in an aggregate amount not to exceed $150 million at any one time for general corporate purposes. The short-term credit agreement provides a back-up line of credit for short-term debt from other sources in addition to providing short-term funds. The maximum amount of all short-term debt authorized by the board of directors is currently $150 million. The aggregate amount of short-term debt outstanding at October 14, 1994, was $85 million; $50 million was outstanding at August 31, 1994. During fiscal year 1994, the maximum amount of short-term debt outstanding was $65 million. LONG-TERM DEBT. The Company uses long-term debt for general corporate purposes, including the repayment of outstanding short-term debt. As of October 14, 1994, the Company could have issued approximately $248.1 million of additional long-term debt under the most restrictive of the provisions contained in the Company's various lending agreements. STOCK AND DIVIDENDS. As of October 14, 1994, the Company could have issued approximately 33 million shares of common stock, 160,000 shares of preferred stock, and three million shares of preference stock. Common dividends were $1.11 per share for 1994, $1.06 per share for 1993, and 96 cents per share for 1992. Preferred dividends were $2.375 per share for all three years. SHORT-TERM INVESTMENTS. The Company invests funds available from time to time on a short-term basis. During the 1994 fiscal year, the maximum amount of short-term investments was $47.8 million. There were no short-term investments on October 14, 1994, or August 31, 1994. FUNDS GENERATED FROM OPERATIONS. Rates charged for gas services (including distribution, transmission, and storage) are established by the OCC and include a purchased gas adjustment (PGA) clause that allows changes in gas purchase costs to be passed on to various classes of customers. Other increased costs must be recovered through periodic rate adjustments approved by the OCC. Lease rentals charged under PCL contracts, pursuant to which gas is transported for certain customers, are currently established by contract. For changes stipulated and agreed to as part of the pending rate proceedings and a challenge to the validity of long-term PCL contracts, see "INDUSTRIAL LOAD" on page 33. In certain circumstances, the Company accepts gas in lieu of cash for PCL payments and for payment for exchanges of gas between intrastate pipelines. PIK gas is priced to general system gas distribution operations at WACOG. Some of the contracts include price caps, which reduce the volume of gas delivered to the Company as the price of gas purchased by the customer escalates. Elimination of the PIK program or any substantial reductions in volumes as a result of price caps, without an increase in rates sufficient to offset the amount attributable to the reduction in volumes, could have a materially adverse effect on the Company's earnings. The amount of the effect is not presently determinable. Maximum rates chargeable for interstate transportation service are established by the Federal Energy Regulatory Commission (FERC). Actual rates charged are determined by contract and/or market conditions and are generally lower than such maximum rates. Natural gas liquids volumes resulting from gas processing operations are sold under contracts of various duration, generally at current market prices. From time to time, a portion of such liquids is withheld from the market and placed in storage for later sale at anticipated higher prices. 32 6 Oil production is generally sold directly to purchasers at current market prices. Natural gas production is generally sold directly to purchasers at spot market prices. Parking garage rates are based on current market conditions. Leases for office space to others are for terms ranging from three to 10 years at competitive rates and generally include provisions for recovery of increased operating expenses. RATE REGULATION. The Company currently has a rate proceeding pending before the OCC in which it has requested an annual increase of $50.5 million, excluding recovery of the remaining balance of its take-or-pay and other settlement costs. The OCC granted an interim rate increase of $18.2 million on an annualized basis, which became effective for March 1992 billings, subject to refund with interest. Decisions reached by the Commissioners during deliberations indicate a rate increase of approximately $5.5 million in addition to the interim annual rate increase. The OCC has authorized an annual recovery of $6.7 million for take-or-pay and other settlement costs by a combination of a surcharge from customers and revenue from transportation under Section 311 (a) of the Natural Gas Policy Act of 1978 (NGPA) and other intrastate transportation revenues. The OCC combined with the rate case another proceeding relating to the acquisition of the Oklahoma properties of Lone Star Gas Company in which the Company asked that the full purchase price be included in rate base. During deliberations, the OCC voted to allow the Company to amortize the acquisition premium over a five-year period but earn no return on the outstanding balance. The expense for amortizing the premium and previously deferred pension costs will be approximately $4.5 million per year. In addition the Company will begin recognizing in current operations its annual net periodic pension cost. (For more information about deferred pension costs, see (A) SIGNIFICANT ACCOUNTING POLICIES, Employee Benefit Plans, on page 41 and (G) EMPLOYEE BENEFIT PLANS, Retirement Plan, on pages 43 and 44.) When the rate order becomes effective, customers will begin paying a monthly customer charge. This base charge should help reduce the weather-related variability of earnings. A final written order is pending. INDUSTRIAL LOAD. A substantial portion of the gas delivered through the Company's pipeline system goes to industrial customers, in particular, several large fertilizer plants which use the gas as feedstock. Currently, most industrial customers purchase gas in the spot market. The Company developed its PCL program to allow the delivery and redelivery of this gas purchased by the customers to their facilities. The Company developed and received approval for a Special Industrial Sales Program (SISP) which allocated lower cost supplies to these customers. Under a joint stipulation approved by the Commissioners during deliberations in the pending rate proceeding, minimum volumes qualifying for a PCL agreement will be reduced to 30,000 Mcf per year from 75,000 Mcf per year, and a tariff will be established setting forth maximum rates and a standard form of PCL agreement, subject to such changes in the agreement as may be negotiated by the Company and the customer. Currently, the fertilizer plants and other large gas users utilize the PCL program to transport their gas, part of which is purchased from the Company under the SISP program and part of which is purchased from other suppliers of natural gas. They are also eligible for the PIK program under which the Company accepts a portion of the gas in lieu of cash payment for transportation charges. In order to meet competitive pressures, the Company has provided service at discounted rates substantially below the Company's mark-up on its industrial tariff rates. The Company's largest industrial customer, Agricultural Minerals, Limited Partnership (AMLP), a fertilizer manufacturer, has instituted an antitrust proceeding in state District Court challenging the validity of its 15-year PCL contract with the Company entered into in 1989, contending that the Company's practice of charging negotiated rather than uniform PCL rates is discriminatory and illegal. The Company has responded by filing an OCC proceeding seeking a determination that the terms and conditions of its contract with AMLP are just and reasonable. Management believes that AMLP's contentions are unfounded and will be rejected in both the judicial and administrative proceedings. Nevertheless, unfavorable results in such proceedings, unless the Company could offset or recover any resulting damages or earnings reduction by increased revenue from customers, could have a materially adverse effect on the Company's earnings. The amount of such effect is not presently determinable. In recent years, certain interstate and intrastate pipeline companies have been very aggressive in attempting to capture industrial load within the Company's service area, a phenomenon generally referred to as "bypass" in the gas industry. The Company has moved to protect its load through its PCL and other special sales programs. The Company remains committed to serving the industrial plants in its service area. If the Company were to lose a substantial portion of its present industrial load, or if the Company were forced to make additional substantial discounts, or if the OCC were to terminate the PCL, PIK, or SISP programs, the Company would require significant increases in rates. If the OCC were not to approve such rate increases, liquidity problems could occur, which would have a materially adverse effect on the Company's financial condition. The amount of such effect is not presently determinable. 33 7 CAPITAL EXPENDITURES. The Company makes capital expenditures to provide reliable service to its customers and for its energy-related operations. Capital expenditures budgeted for the 1995 fiscal year compared with actual expenditures for the 1994, 1993, and 1992 fiscal years are as follows:
1995 CAPITAL EXPENDITURES (Est.) 1994 1993 1992 - - ----------------------------------------------------------------------------------------------------- (Millions of $) Distribution $ 44.0 $ 46.7 $ 45.8 $ 41.8 Transmission 15.0 15.5 13.0 14.9 Exploration and production 27.0(1) 8.3 24.9(2) 10.6 Gas processing 3.5 2.7 1.7 1.7 Other operations .1 .7 .8 .7 - - ----------------------------------------------------------------------------------------------------- Total $ 89.6 $ 73.9 $ 86.2 $ 69.7 =====================================================================================================
(1) Includes October 1994 acquisition of oil and gas properties in Louisiana at a cost of approximately $18.3 million. (2) Includes April 1993 acquisition of the North Frisco City Field in Monroe County, Alabama, at a cost of approximately $16.7 million. OTHER. Through subsidiaries, the Company is a 25 percent partner in two natural gas transmission systems, Ozark Gas Transmission System (Ozark) and Red River Pipeline (Red River). Ozark operates in Oklahoma and Arkansas. Red River operates in Texas. Through a subsidiary financing corporation, Ozark issued certain long-term notes for the financing of the system's gas transmission facilities. There is no recourse to the partners under the notes. One of the two shippers, Columbia Gas Transmission Corporation (Columbia), previously commenced a voluntary case under the Federal Bankruptcy laws which constituted an event of default under the applicable note agreements. The holders of the notes have the right, but have not elected, to accelerate payment of the principal of the notes. Ozark has negotiated an agreement in principle with Columbia and Tennessee Ozark Gas Company, the other firm shipper, for their contract exit fees, subject to FERC approval, and is pursuing other options, including sale of the pipeline. If the attempt to sell the pipeline is unsuccessful, or if Ozark is unable to generate sufficient revenues, a liquidity problem for Ozark could result. Such an occurrence could affect the Company's ability to recover its investment. The amount of such effect is not presently determinable. Through its subsidiary, TransTex Pipeline Company (TransTex), the Company has agreed to advance cash to Red River, limited to its proportionate share, for operating expenses and for debt sinking fund payments, when cash deficiencies occur. The Company has made such cash advances in each of the last three years. During 1993, long-term debt was refinanced, the system was modified to allow bidirectional flow, and the method of allocating transportation revenue was changed to credit revenues to the partner responsible for the throughput. Subsequently, TransTex has entered into a one-year limited agency agreement with a third party for shipping gas on Red River, which will generate additional revenue for TransTex. If the system does not improve cash flow as a result of these or other changes, the Company may not be able to fully recover its investment. The amount of such effect is not presently determinable. 34 8 CONSOLIDATED STATEMENTS OF EARNINGS ONEOK INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------------------------------------------- Year Ended August 31, - - ------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars, Except Per Share Amounts) 1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES: Distribution and transmission $617,487 $626,951 $529,616 Exploration and production 23,023 24,092 18,354 Gas processing 106,589 125,435 118,824 Other 45,284 12,631 10,344 - - ------------------------------------------------------------------------------------------------------------------- Total operating revenues 792,383 789,109 677,138 - - ------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Gas purchased expense 432,371 426,675 353,537 Operations 191,589 192,145 168,252 Maintenance 6,452 7,021 6,631 Depreciation, depletion, and amortization 50,858 48,026 46,817 Income taxes 21,096 20,806 18,877 Other taxes 19,083 18,732 18,050 - - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 721,449 713,405 612,164 - - ------------------------------------------------------------------------------------------------------------------- Operating income 70,934 75,704 64,974 - - ------------------------------------------------------------------------------------------------------------------- INTEREST: Interest on long-term debt 32,979 35,250 32,445 Other interest 1,855 1,120 3,110 Amortization of debt expense 525 2,117 526 Interest income on cash deposit - (668) (3,204) Allowance for funds used during construction (606) (539) (482) - - ------------------------------------------------------------------------------------------------------------------- Net interest 34,753 37,280 32,395 - - ------------------------------------------------------------------------------------------------------------------- NET INCOME 36,181 38,424 32,579 Preferred stock dividend requirement 428 428 428 - - ------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 35,753 $ 37,996 $ 32,151 =================================================================================================================== Earnings per common share $ 1.34 $ 1.43 $ 1.21 =================================================================================================================== Weighted average common shares outstanding (thousands) 26,674 26,632 26,608 ===================================================================================================================
See accompanying notes to consolidated financial statements. 35 9 CONSOLIDATED BALANCE SHEETS ONEOK INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------------------------------------------- August 31, - - ------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 - - ------------------------------------------------------------------------------------------------------------------- ASSETS PROPERTY AND EQUIPMENT: Distribution system $ 549,655 $ 515,923 Transmission system 332,109 316,423 Gas storage 45,944 43,010 Exploration and production 101,997 96,773 Gas processing 69,954 68,507 Drilling - 33,249 Other 118,080 122,548 - - ------------------------------------------------------------------------------------------------------------------- Total property and equipment 1,217,739 1,196,433 Less accumulated depreciation, depletion, and amortization 480,288 474,685 - - ------------------------------------------------------------------------------------------------------------------- Net property and equipment 737,451 721,748 - - ------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents 4,545 9,667 Trade accounts and notes receivable 49,079 51,545 Income taxes receivable 1,950 - Materials and supplies 4,950 5,019 Gas in storage 89,504 87,888 Advance payments for gas 1,958 1,821 Purchased gas cost adjustment 11,809 - Deferred income taxes - 5,132 Other 5,458 4,438 - - ------------------------------------------------------------------------------------------------------------------- Total current assets 169,253 165,510 - - ------------------------------------------------------------------------------------------------------------------- DEFERRED DEBITS AND OTHER ASSETS: Advance payments for gas -- noncurrent 8,870 10,661 Investments 34,015 33,146 Take-or-pay 107,491 109,682 Other 79,920 63,721 - - ------------------------------------------------------------------------------------------------------------------- Total deferred debits and other assets 230,296 217,210 - - ------------------------------------------------------------------------------------------------------------------- Total assets $ 1,137,000 $ 1,104,468 ===================================================================================================================
See accompanying notes to consolidated financial statements. 36 10
- - -------------------------------------------------------------------------------------------------------------------------- August 31, - - -------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY COMMON SHAREHOLDERS' EQUITY: Common stock without par value: authorized 60,000,000 shares; issued and outstanding 26,690,004 and 26,634,058 shares in 1994 and 1993 $ 195,568 $ 194,365 Retained earnings 174,926 168,784 - - -------------------------------------------------------------------------------------------------------------------------- Total common shareholders' equity 370,494 363,149 PREFERRED STOCK: $50 par and involuntary liquidation value; $53 voluntary liquidation value; Series A and B, 4 3/4% (cumulative); authorized 340,000 shares; issued 180,000 shares of Series A in 1994 and 1993 9,000 9,000 - - -------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 379,494 372,149 - - -------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, excluding current maturities 362,897 375,897 CURRENT LIABILITIES: Current maturities of long-term debt 14,050 16,050 Notes payable 50,000 22,000 Accounts payable 44,238 38,782 Accrued general taxes 9,845 9,640 Accrued interest 8,711 8,571 Purchased gas cost adjustment - 8,849 Other accrued liabilities 11,429 15,700 Customers' deposits 6,413 6,091 Deferred income taxes 3,822 - - - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 148,508 125,683 - - -------------------------------------------------------------------------------------------------------------------------- DEFERRED CREDITS: Deferred income taxes 197,156 195,882 Customers' advances for construction and other deferred credits 48,945 34,857 - - -------------------------------------------------------------------------------------------------------------------------- Total deferred credits 246,101 230,739 - - -------------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES - - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,137,000 $ 1,104,468 ==========================================================================================================================
37 11 CONSOLIDATED STATEMENTS OF CASH FLOWS ONEOK INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------------------------------------------------------------- Year Ended August 31, - - -------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 36,181 $ 38,424 $ 32,579 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 50,858 48,026 46,817 Amortization of take-or-pay deferrals 2,567 - - Nonproductive well drilling expense 1,268 1,344 1,315 Net losses of equity investees 1,455 1,208 1,922 Net gain on sale of property (1,796) - - Deferred income taxes 10,021 (1,999) 3,121 Change in assets and liabilities: (Increase) decrease in income taxes receivable (1,950) - 2,921 (Increase) decrease in trade accounts and notes receivable 2,466 (586) 4,101 (Increase) decrease in inventories (1,547) 342 (7,293) (Increase) decrease in other assets (16,096) (4,442) 1,189 (Increase) decrease in take-or-pay deferrals (376) 12,976 (8,838) Increase (decrease) in accounts payable and accrued liabilities 2,733 23,696 (12,458) Change in purchased gas cost adjustment (20,658) (770) 7,362 Increase (decrease) in other liabilities and deferred credits 15,148 (11) (4,490) - - -------------------------------------------------------------------------------------------------------------------------- Total adjustments 44,093 79,784 35,669 - - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 80,274 118,208 68,248 - - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Contributions and advances to equity investees (1,612) (4,128) (1,640) Increase in other investments (712) (1,903) (104) Capital expenditures (73,928) (86,223) (69,658) Proceeds from sale of property 7,966 - - Proceeds from salvage, net of removal cost (71) (548) (18) - - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (68,357) (92,802) (71,420) - - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (15,000) (82,925) (8,316) Proceeds from issuance of long-term debt - 77,000 115,000 Proceeds from issuance of notes payable 315,000 92,000 542,000 Payments of notes payable (287,000) (75,000) (623,000) Net change in common stock - (194) 136 Dividends paid (30,039) (28,657) (25,974) - - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (17,039) (17,776) (154) - - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (5,122) 7,630 (3,326) Cash and cash equivalents at beginning of year 9,667 2,037 5,363 - - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 4,545 $ 9,667 $ 2,037 ========================================================================================================================== CASH PAID DURING THE YEAR FOR: Interest (including amount capitalized) $ 34,694 $ 37,056 $ 33,671 Income taxes $ 14,948 $ 22,433 $ 12,749 NONCASH TRANSACTIONS: Gas received as payment-in-kind $ 74,584 $ 77,663 $ 64,645 Decrease in take-or-pay deferrals reflected by decrease in take-or-pay liabilities $ - $ 20,000 $ 8,000 Stock Performance Plan $ 1,203 $ - $ - ==========================================================================================================================
See accompanying notes to consolidated financial statements. 38 12 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ONEOK INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------------------------------------------------------- Common Shareholders' Equity --------------------------- Common Retained Preferred (Thousands of Dollars, Except Per Share Amounts) Stock Earnings Total Stock - - ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 1992: Balance at September 1, 1991 $ 194,423 $ 152,412 $ 346,835 $ 9,000 Net income - 32,579 32,579 - Purchase of treasury stock (917) - (917) - Reissuance of treasury stock 917 - 917 - Issuance of common stock 136 - 136 - Preferred stock dividends - $2.375 per share - (428) (428) - Common stock dividends - $.96 per share - (25,546) (25,546) - - - ------------------------------------------------------------------------------------------------------------------------------ Balance at August 31, 1992 $ 194,559 $ 159,017 $ 353,576 $ 9,000 ============================================================================================================================== YEAR ENDED AUGUST 31, 1993: Balance at September 1, 1992 $ 194,559 $ 159,017 $ 353,576 $ 9,000 Net income - 38,424 38,424 - Net change in common stock (194) - (194) - Preferred stock dividends - $2.375 per share - (428) (428) - Common stock dividends - $1.06 per share - (28,229) (28,229) - - - ------------------------------------------------------------------------------------------------------------------------------ Balance at August 31, 1993 $ 194,365 $ 168,784 $ 363,149 $ 9,000 ============================================================================================================================== YEAR ENDED AUGUST 31, 1994: Balance at September 1, 1993 $ 194,365 $ 168,784 $ 363,149 $ 9,000 Net income - 36,181 36,181 - Issuance of common stock 1,203 - 1,203 - Preferred stock dividends - $2.375 per share - (428) (428) - Common stock dividends - $1.11 per share - (29,611) (29,611) - - - ------------------------------------------------------------------------------------------------------------------------------ Balance at August 31, 1994 $ 195,568 $ 174,926 $ 370,494 $ 9,000 ==============================================================================================================================
See accompanying notes to consolidated financial statements. 39 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ONEOK Inc. AND SUBSIDIARIES (A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of ONEOK Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. REGULATIONS AND OPERATIONS. The distribution and transmission operations of the Company are subject to the rate regulation and accounting requirements of the Oklahoma Corporation Commission (OCC). Certain activities of the Company are subject to regulation by the Federal Energy Regulatory Commission (FERC). The Company sells and transports natural gas, leases pipeline capacity, and sells other products and services under customary credit terms to residential, commercial, and industrial customers located primarily in Oklahoma. PROPERTY AND EQUIPMENT. Gas property is stated at cost. Such cost includes personnel costs, general and administrative costs, and an allowance for funds used during construction. The allowance for funds used during construction represents the capitalization of estimated average cost of borrowed funds (8.21 percent, 9.18 percent, and 8.74 percent, in 1994, 1993, and 1992, respectively) used during the construction of major projects and is recorded as a credit to earnings. The Company uses the successful-efforts method to account for costs incurred in the acquisition, exploration, and development of oil and natural gas reserves. Costs to acquire mineral interests in oil and gas properties, to drill exploratory wells which find proved reserves, and to drill and equip development wells are capitalized. Geological and geophysical costs and costs to drill exploratory wells which do not find proved reserves are expensed. Unproved oil and gas properties which are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. The remaining unproved oil and gas properties are aggregated, and an overall impairment allowance is provided based on the Company's experience. Maintenance and repairs are charged directly to expense. The cost of gas property retired or sold, plus removal costs, less salvage, is charged to accumulated depreciation. Gains and losses from retirements or sales of other property and equipment are recognized in income. DEPRECIATION, DEPLETION, AND AMORTIZATION. Gas property is depreciated using the straight-line method based upon rates prescribed for ratemaking purposes. The average depreciation rate approximated 3.8 percent in 1994, 3.7 percent in 1993, and 3.6 percent in 1992. Exploration and production properties are depreciated and depleted using the unit-of-production method based upon periodic estimates of oil and gas reserves. Undeveloped properties are amortized based upon remaining lease terms and exploratory and developmental drilling experience. Gas processing plants are depreciated using various rates based on estimated lives of available gas reserves. All other property and equipment is depreciated using the straight-line method over its estimated useful life. CASH AND CASH EQUIVALENTS. Items classified as cash equivalents for the purpose of the Consolidated Statements of Cash Flows include highly liquid temporary investments, with original maturities of three months or less, in "money market" or "pooled" investment accounts backed by government securities, bank certificates of deposit, or bank lines of credit. INVENTORIES. Materials and supplies are priced at average cost. Long-term gas in storage is classified as property and equipment and is priced at cost. Current gas in storage is classified as a current asset and is valued using the last-in, first-out method. The estimated replacement cost of current gas in storage was $114.8 million at August 31, 1994, and $91.6 million at August 31, 1993. INVESTMENTS. Investments in joint ventures are stated at cost adjusted for the Company's share of undistributed earnings or losses. INCOME TAXES. The Company accounts for income taxes using the "asset and liability" method required by Statement of Financial Accounting Standards (SFAS) No. 109. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is deferred and amortized for the OCC regulated operations and is recognized in income in the period that includes the enactment date for nonregulated operations. In 1986, the federal government repealed investment tax credits. The Company continues to amortize previously deferred investment tax credits on gas distribution properties over the period prescribed by the OCC for ratemaking purposes. REVENUE RECOGNITION. The Company recognizes revenue when services are rendered or product is delivered. Major industrial and commercial gas distribution customers are invoiced as of the end of each month. Certain gas distribution customers (primarily residential and some commercial) are invoiced on a cycle basis throughout each month, and the Company accrues unbilled revenues at the end of each month. Revenues from oil and gas production are recognized on the sales method. HEDGING. In 1994, the Company began trading NYMEX natural gas futures contracts to hedge shrinkage and fuel requirements in its gas processing operations. At August 31, 1994, the Company had contracts outstanding to purchase 5,400,000 MMBtu. At August 31, 1994, the deferred loss on these contracts was approximately $800,000. The contracts are for the period October 1994 through March 1995. 40 14 ENVIRONMENTAL LIABILITIES. The Company accrues environmental liabilities as they are determined to exist and become estimable. At August 31, 1994 and 1993, there were no environmental liabilities accrued. IMPAIRMENT OF LONG-LIVED ASSETS. The Company recognizes an impairment of the carrying value of long-lived assets and identifiable intangible assets when management's best estimate of undiscounted future cash flows is less than the carrying amount of an asset or group of assets. EMPLOYEE BENEFIT PLANS. The Company accounts for pension costs in accordance with SFAS No. 87, "Employers' Accounting for Pensions," and as prescribed by the OCC. Since 1989, the Company has deferred pension costs related to its regulated operations in compliance with OCC instructions. The Company expects the OCC to authorize recovery of the deferred costs through rates over a 10-year period as part of the pending rate order. (See Note I). The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective September 1, 1993. The Company defers the excess of the net periodic postretirement benefit cost related to its regulated operations over benefits actually paid in accordance with OCC staff guidance. (See Note G). The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective September 1, 1993. The Company deferred the portion of the cumulative effect of the change in accounting related to its regulated operations. (See Note G). EARNINGS PER COMMON SHARE. Earnings per share computations are based upon the weighted average number of common shares outstanding during each year. Weighted average shares outstanding were 26,674,000 during 1994; 26,632,000 during 1993; and 26,608,000 during 1992. RECLASSIFICATION. Certain amounts in the 1993 and 1992 consolidated financial statements have been reclassified to conform with the 1994 presentation. (B) INVESTMENTS INVESTMENTS. The Company invests funds available from time to time on a short-term basis. During the 1994 fiscal year, the maximum amount of short-term investments was $47.8 million. There were no short-term investments on October 14, 1994, or August 31, 1994. Through subsidiaries, the Company is a 25 percent partner in two natural gas transmission systems, Ozark Gas Transmission System (Ozark) and Red River Pipeline (Red River). Ozark operates in Oklahoma and Arkansas. Red River operates in Texas. Summarized unaudited financial information for each venture is presented below:
- - ---------------------------------------------------------------------------------------------------- Ozark Red River (Thousands of Dollars) 1994 1993 1994 1993 - - ---------------------------------------------------------------------------------------------------- Current assets $ 15,146 $ 12,302 $ 1,304 $ 1,099 Current liabilities 24,319 30,596 4,088 4,569 - - ---------------------------------------------------------------------------------------------------- Working capital $ (9,173) $ (18,294) $ (2,784) $ (3,470) ==================================================================================================== Property and equipment, net $ 53,415 $ 60,898 $ 68,385 $ 73,343 ==================================================================================================== Long-term debt $ - $ - $ 9,808 $ 13,077 ==================================================================================================== Partners' capital $ 40,679 $ 38,676 $ 55,927 $ 56,966 ==================================================================================================== ONEOK's investment $ 10,229(1) $ 11,119 $ 13,832 $ 14,230 ==================================================================================================== Gross revenue $ 20,106 $ 19,702 $ 1,741 $ 704 ==================================================================================================== Earnings (loss) before income taxes $ 2,291 $ 531 $ (6,123) $ (8,516) ==================================================================================================== ONEOK's portion of earnings (loss) before income taxes $ 618 $ 133 $ (1,500) $ (2,129) ====================================================================================================
(1) In August 1994, the Company reduced its investment in Ozark by $1.5 million for its share of a regulatory liability not expected to be recouped. For more information about investments see (I) COMMITMENTS AND CONTINGENICES, Investments, on pages 46 and 47. (C) LINES OF CREDIT AND NOTES PAYABLE At August 31, 1994, the Company had a short-term unsecured credit agreement with several banks pursuant to which the banks have agreed to make loans to the Company from time to time in an aggregate amount not to exceed $150 million at any one time for general corporate purposes. The short-term credit agreement provides a back-up line of credit for short-term debt from other sources in addition to providing short-term funds. The commitment fee requirement for this line of credit is .125 percent applied annually to the unused portion of the line of credit. No compensating balance requirements existed at August 31, 1994. Notes payable totaling $50 million and $22 million were outstanding at August 31, 1994 and 1993, respectively. The notes carried average interest rates of 5.23 percent and 3.54 percent, respectively. 41 15 (D) LONG-TERM DEBT A summary of long-term debt at August 31 follows:
- - --------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 - - --------------------------------------------------------------------- Notes payable: 4.30% due 1994 $ - $ 15,000 4.50% due 1995 13,000 13,000 5.00% due 1996 12,000 12,000 5.57% due 1997 14,000 14,000 5.90% due 1998 10,000 10,000 6.20% due 1999 8,000 8,000 6.43% due 2000 5,000 5,000 8.32% due 2007 40,000 40,000 8.44% due 2004 40,000 40,000 8.70% due 2021 34,947 34,947 9.70% due 2019 125,000 125,000 9.75% due 2020 75,000 75,000 - - --------------------------------------------------------------------- 376,947 391,947 Less current maturities of long-term debt 14,050 16,050 - - --------------------------------------------------------------------- $ 362,897 $ 375,897 =====================================================================
All long-term notes payable at August 31, 1994, were unsecured. The aggregate current maturities of long-term debt for each of the five years ending August 31, 1999, are $14.1 million; $13.1 million; $15.1 million; $15.1 million; and $13.1 million, respectively, including $1.1 million each year callable at the option of the holder. Under the most restrictive covenants of the Company's loan agreements, $147.5 million (84 percent) of retained earnings at August 31, 1994, was available for payment of dividends. The estimated fair value of the Company's long-term debt at August 31, 1994, was $391.4 million. That amount is based on the expected current rates which would have been offered to the Company for debt with the same terms and maturities. (E) CAPITAL STOCK The holders of Series A preferred stock have full voting rights (two votes per share). The Company may redeem those shares in whole or in part at any time at its option. Holders are entitled to $53 per share, plus all dividends accrued or in arrears thereon, upon voluntary redemption or liquidation and $50 per share upon involuntary liquidation. No dividends were in arrears at August 31, 1994. The Company has authorized three million shares of preference stock. No preference stock was outstanding at August 31, 1994. During 1993 and 1992, the Company issued common stock through two stock option plans which provided certain officers and key employees options to purchase common stock at a price not less than fair market value at date of grant. All options for both of these plans have been exercised. Information regarding the plans follows:
- - -------------------------------------------------------------------------------------- Year Ended August 31, - - -------------------------------------------------------------------------------------- 1994 1993 1992 - - -------------------------------------------------------------------------------------- Beginning shares under option - 26,512 76,406 Option shares exercised - (26,512) (49,894) - - -------------------------------------------------------------------------------------- Ending shares under option (all of which are exercisable) - - 26,512 - - -------------------------------------------------------------------------------------- Option prices per share at year end - N/A $13 to $16 - - -------------------------------------------------------------------------------------- Price at which options were exercised - $14 to $16 $16 to $18 - - --------------------------------------------------------------------------------------
The Company has a five-year Stock Performance Plan effective through 1996, which provides for compensation of certain officers and key employees with common stock and cash. During 1993, $2.0 million was expensed, and 55,946 shares of common stock were issued pursuant to the plan. No amounts were expensed in fiscal 1994 or 1992. (F) INCOME TAXES The provisions for income taxes are as follows for the years ended August 31, 1994, 1993, and 1992:
- - ------------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - ------------------------------------------------------------------------------------- Current: Federal $ 9,874 $ 19,575 $ 13,437 State 1,201 3,230 2,319 - - ------------------------------------------------------------------------------------- Total current income taxes $ 11,075 $ 22,805 $ 15,756 ===================================================================================== Deferred: Federal $ 8,555 $ (1,391) $ 2,691 State 1,466 (608) 430 - - ------------------------------------------------------------------------------------- Total deferred income taxes $ 10,021 $ (1,999) $ 3,121 =====================================================================================
A reconciliation of the provision for income taxes follows:
(Thousands of Dollars) 1994 1993 1992 - - -------------------------------------------------------------------------------------- Pretax income $ 57,277 $ 59,230 $ 51,456 Federal statutory income tax rate 35.00% 34.63% 34.00% - - -------------------------------------------------------------------------------------- Provision for federal income taxes 20,047 20,511 17,495 Amortization of distribution property investment tax credits (739) (739) (739) Additional taxes provided from property basis adjustments and revisions of prior estimates (447) (364) 257 Percentage depletion on oil and gas properties (135) (260) (178) State income taxes, net of credits and federal tax benefit 1,549 1,793 1,661 Nonregulated deferred tax rate increase - 567 - Income tax credits - (17) (39) Other, net 821 (685) 420 - - -------------------------------------------------------------------------------------- Actual income tax expense $ 21,096 $ 20,806 $ 18,877 ======================================================================================
42 16 At August 31, 1994, the Company had $3.6 million in deferred investment tax credits recorded in other deferred credits which will be amortized over the next seven years. The effect on the net deferred tax liability for the enacted increase in the federal tax rate was $7.2 million at August 31, 1993, of which $600,000, attributable to the nonregulated operations of the Company, was recorded as a reduction to the deferred income tax benefit and $6.6 million was deferred for ratemaking purposes. In 1993, the Company also revised its estimate of the effect of a prior state tax rate change by increasing its net deferred tax liability by $1.3 million. Such amount will be amortized over 18 years for ratemaking purposes. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at August 31, 1994 and 1993, are as follows:
- - --------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 - - --------------------------------------------------------------------------------- Deferred tax assets: Land investment write-down $ 1,325 $ 1,071 Additional taxes due for property basis adjustments and revisions of prior estimates 685 971 Accrued liabilities not deductible until paid 562 1,513 Net operating loss carryforwards 810 1,196 Regulatory items: Unrecovered purchased gas cost - 3,452 Customer advances for construction 2,252 2,704 Investment tax credits 1,375 1,661 Other 1,878 1,590 - - --------------------------------------------------------------------------------- 8,887 14,158 Less valuation allowance for net operating loss carry forwards expected to expire prior to utilization 810 1,196 - - --------------------------------------------------------------------------------- Net deferred tax assets 8,077 12,962 - - --------------------------------------------------------------------------------- Deferred tax liabilities: Excess of tax over book depreciation and depletion 129,759 127,782 Investment in joint ventures 10,569 12,152 Regulatory items: Gas in storage 1,341 2,230 Take-or-pay and other settlement costs 45,808 42,425 Pension costs 15,971 13,497 Adjustments for enacted tax rate changes 3,643 3,848 Other 1,964 1,778 - - --------------------------------------------------------------------------------- Gross deferred tax liabilities 209,055 203,712 - - --------------------------------------------------------------------------------- Net deferred tax liabilities $ 200,978 $ 190,750 =================================================================================
At August 31, 1994, the Company had remaining net operating loss carry-forwards for state income tax purposes of approximately $14.3 million. (G) EMPLOYEE BENEFIT PLANS RETIREMENT PLAN. The Company has a defined benefit retirement plan covering substantially all employees. Company officers and certain key employees are also eligible to participate in a supplemental retirement plan. Net pension costs, as determined by an independent actuary, for the years ended August 31, 1994, 1993, and 1992, included the following:
- - --------------------------------------------------------------------------- August 31, (Thousands of Dollars) 1994 1993 1992 - - --------------------------------------------------------------------------- Service cost $ 6,518 $ 5,760 $ 4,961 Interest cost 20,599 20,409 19,671 Actual return on assets (12,404) (31,286) (12,211) Net amortization and deferral (6,761) 13,154 (5,801) - - --------------------------------------------------------------------------- Net pension costs computed in accordance with SFAS No. 87. $ 7,952 $ 8,037 $ 6,620 - - --------------------------------------------------------------------------- Net pension costs charged to operations in accordance with OCC requirements $ 602 $ 612 $ 492 ===========================================================================
The Company generally funds pension costs at a level at least equal to the minimum amount required under the Employee Retirement Income Security Act of 1974. The following table sets forth the funded status of the Company's plans, as determined by the independent actuary, at August 31, 1994 and 1993.
- - --------------------------------------------------------------------------- August 31, (Thousands of Dollars) 1994 1993 - - --------------------------------------------------------------------------- Actuarial present value of vested benefit obligation $ 237,548 $ 226,020 - - --------------------------------------------------------------------------- Accumulated benefit obligation $ 249,815 $ 238,791 - - --------------------------------------------------------------------------- Projected benefit obligation $ 299,012 $ 291,063 Plan assets at fair value, principally equity securities and an IPG fund 250,398 246,770 - - --------------------------------------------------------------------------- Plan assets less than projected benefit obligation 48,614 44,293 Unrecognized net loss (67,701) (60,697) Unrecognized prior service cost (821) (859) Unrecognized net asset 4,673 5,140 - - --------------------------------------------------------------------------- Pension asset recognized in accordance with SFAS No. 87 15,235 12,123 Additional amount deferred in accordance with OCC requirements 28,050 21,521 - - --------------------------------------------------------------------------- Pension asset included in other deferred debits $ 43,285 $ 33,644 ===========================================================================
43 17 The projected benefit obligation for 1994 and 1993 was determined using an annual discount rate of 7.75 percent and 7.25 percent, respectively; a long-term rate of return on plan assets of 9 percent; and an average assumed long-term annual rate of salary increase of 5 percent. OTHER POSTRETIREMENT BENEFIT PLANS. In addition to the retirement plan, the Company sponsors a defined benefit health care plan that provides postretirement medical benefits and life and accidental death and dismemberment benefits to substantially all employees who reach normal retirement age while working for the Company. The plan is contributory, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. The Company funds the cost of benefits as claims or premiums are paid. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on September 1, 1993, and elected to delay recognition of the initial accumulated postretirement benefit obligation (APBO) as a component of net periodic postretirement benefit cost. The OCC has advised the Company to defer the excess of the net periodic postretirement benefit cost over benefits actually paid for the regulated operations, until a formal rate review is requested. Accordingly, the Company has expensed that amount of the net periodic postretirement benefit cost represented by actual payments for its regulated operations. The following table presents the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheet at August 31, 1994:
- - --------------------------------------------------------------- August 31, - - --------------------------------------------------------------- (Thousands of Dollars) 1994 - - --------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 41,129 Fully eligible active plan participants 327 Other active plan participants 28,392 - - --------------------------------------------------------------- 69,848 Unrecognized transition obligation (68,557) Unrecognized net gain 6,999 - - --------------------------------------------------------------- Accrued postretirement benefit cost included in deferred credits $ 8,290 =============================================================== Amount deferred in accordance with OCC instructions $ 7,971 ===============================================================
Net periodic postretirement benefit cost for the year ended August 31, 1994, includes the following components:
- - --------------------------------------------------------------------------------- August 31, - - --------------------------------------------------------------------------------- (Thousands of Dollars) 1994 - - --------------------------------------------------------------------------------- Service cost $ 1,942 Interest cost 5,114 Net amortization and deferral 3,608 - - --------------------------------------------------------------------------------- Net periodic postretirement benefit cost computed in accordance with SFAS No. 106 10,664 Net periodic postretirement benefit cost deferred in accordance with OCC instructions 7,971 - - --------------------------------------------------------------------------------- Net periodic postretirement benefit cost charged to operations $ 2,693 =================================================================================
For measurement purposes, a 9.40 percent annual rate of increase in the per capita cost of covered medical benefits (i.e., medical cost trend rate) was assumed for 1994, the rate was assumed to decrease gradually to 5.0 percent by the year 2003 and remain at that level thereafter. The medical cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed medical cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of August 31, 1994, by $6.4 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended August 31, 1994, by $800,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.75 percent at August 31, 1994. EMPLOYEE THRIFT PLAN. The Company has a Thrift Plan covering all employees. Employee contributions are discretionary. Subject to certain limits, employee contributions are matched by the Company. The annual cost of this plan was $3.7 million in 1994; $3.8 million in 1993; and $3.4 million in 1992. POSTEMPLOYMENT BENEFITS. In 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits Other Than Pensions," which requires the accrual of postemployment benefits payable to former or inactive employees after employment but before retirement. The cumulative effect of the adoption as of September 1, 1993, was a charge of $3.1 million. The Company has deferred $3.0 million (the portion related to its regulated operations) in anticipation of future recovery through rates. (H) SEGMENT INFORMATION The Company conducts its business through four reporting segments: (1) Oklahoma Natural Gas Company and ONG Transmission Company (reported together as "Distribution and Transmission"); (2) ONEOK Exploration Company and ONEOK Resources Company (reported together as "Exploration and Production"); (3) ONEOK Products Company (reported as "Gas Processing"); and (4) corporate operations, ONEOK Leasing 44 18 Company, ONEOK Parking Company, and ONEOK Gas Marketing Company (reported together as "Other"). The Company's distribution and transmission operations include gathering, transmission, storage, and distribution of natural gas; transportation of gas for others; and leasing pipeline capacity to others for their use in transporting gas. "Exploration and Production" is engaged in exploration and production and sale of oil and gas; "Gas Processing" is engaged in extraction and sale of natural gas liquids; and "Other" is engaged in gas marketing, operating and leasing the Company's headquarters building, and owning and operating a related parking facility. ONEOK Drilling Company, the Company's former contract drilling segment was sold effective May 1, 1994. The following sets forth information for the years ended August 31, 1994, 1993, and 1992, relative to the Company's operations in different segments.
Distribution Exploration (Millions of Dollars Except and and Gas Contract Per Share Amounts) Transmission Production Processing Drilling Other Total - - ------------------------------------------------------------------------------------------------------- 1994 Sales to Unaffiliated Customers $ 617.5 $ 23.0 $ 106.6 $ 5.4 $ 39.9 $ 792.4 Intersegment Sales 1.7 1.5 .6 - 97.8 101.6 - - ------------------------------------------------------------------------------------------------------- Total revenues $ 619.2 $ 24.5 $ 107.2 $ 5.4 $ 137.7 $ 894.0 ======================================================================================================= Operating income (loss) before income taxes $ 87.9 $ .7 $ 6.6 $ (2.4) $ (0.8) $ 92.0 Income tax expense 20.9 (.5) 2.0 (1.0) (0.3) 21.1 Interest expense 31.3 1.6 .9 .1 .8 34.7 - - ------------------------------------------------------------------------------------------------------- Net income (loss) $ 35.7 $ (.4) $ 3.7 $ (1.5) $ (1.3) $ 36.2 ======================================================================================================= Earnings (loss) per share $ 1.32 $ (.01) $ .14 $ (.06) $ (0.05) $ 1.34 ======================================================================================================= Identifiable assets $ 1,011.0 $ 42.7 $ 28.8 $ - $ 54.5 $1,137.0 ======================================================================================================= Depreciation, depletion, and amortization $ 35.9 $ 12.2 $ 1.9 $ .6 $ .3 $ 50.9 ======================================================================================================= Capital expenditures $ 62.2 $ 8.3 $ 2.7 $ .7 $ - $ 73.9 ======================================================================================================= 1993 Sales to Unaffiliated Customers $ 626.9 $ 24.1 $ 125.4 $ 7.5 $ 5.2 $ 789.1 Intersegment Sales 1.7 1.0 33.0 - 14.2 49.9 - - ------------------------------------------------------------------------------------------------------- Total revenues $ 628.6 $ 25.1 $ 158.4 $ 7.5 $ 19.4 $ 839.0 ======================================================================================================= Operating income (loss) before income taxes $ 84.8 $ 2.5 $ 10.9 $ (2.0) $ .3 $ 96.5 Income tax expense 18.0 .4 3.9 (.8) (.7) 20.8 Interest expense 33.8 1.5 .8 .3 .9 37.3 - - ------------------------------------------------------------------------------------------------------- Net income (loss) $ 33.0 $ .6 $ 6.2 $(1.5) $ .1 $ 38.4 ======================================================================================================= Earnings (loss) per share $ 1.23 $ .02 $ .23 $ (.05) $ - $ 1.43 ======================================================================================================= Identifiable assets $ 975.0 $ 49.3 $ 26.5 $ 7.7 $ 46.0 $1,104.5 ======================================================================================================= Depreciation, depletion, and amortization $ 33.1 $ 10.9 $ 2.8 $ .9 $ .3 $ 48.0 ======================================================================================================= Capital expenditures $ 58.8 $ 24.9 $ 1.7 $ .7 $ .1 $ 86.2 ======================================================================================================= 1992 Sales to Unaffiliated Customers $ 529.6 $ 18.3 $ 118.9 $ 7.2 $ 3.1 $ 677.1 Intersegment Sales 1.7 .2 24.6 - 6.5 33.0 - - ------------------------------------------------------------------------------------------------------- Total revenues $ 531.3 $ 18.5 $ 143.5 $ 7.2 $ 9.6 $ 710.1 ======================================================================================================= Operating income (loss) before income taxes $ 74.3 $ (4.4) $ 17.2 $ (2.0) $ (1.2) $ 83.9 Income tax expense 16.8 (2.4) 6.2 ( .9) (.8) 18.9 Interest expense 29.1 1.2 1.0 .3 .8 32.4 - - ------------------------------------------------------------------------------------------------------- Net income (loss) $ 28.4 $ (3.2) $ 10.0 $ (1.4) $ (1.2) $ 32.6 ======================================================================================================= Earnings (loss) per share $ 1.05 $ (.12) $ .38 $ (.05) $ (.05) $ 1.21 ======================================================================================================= Identifiable assets $ 969.5 $ 39.2 $ 30.1 $ 8.3 $ 22.8 $1,069.9 ======================================================================================================= Depreciation, depletion, and amortization $ 30.5 $ 12.2 $ 2.9 $ .9 $ .3 $ 46.8 ======================================================================================================= Capital expenditures $ 56.7 $ 10.6 $ 1.7 $ .7 $ - $ 69.7 =======================================================================================================
45 19 (I) COMMITMENTS AND CONTINGENCIES RATE REGULATION. The Company currently has a rate proceeding pending before the OCC in which it has requested an annual increase of $50.5 million, excluding recovery of the remaining balance of its take-or-pay and other settlement costs. The OCC granted an interim rate increase of $18.2 million on an annualized basis, which became effective for March 1992 billings, subject to refund with interest. Decisions reached by the Commissioners during deliberations indicate a rate increase of approximately $5.5 million in addition to the interim annual rate increase. The OCC also has authorized an annual recovery of $6.7 million for take-or-pay and other settlement costs by a combination of a surcharge from customers and revenue from transportation under Section 311 (a) of the Natural Gas Policy Act of 1978 (NGPA) and other intrastate transportation revenues. The OCC combined with the rate case another proceeding relating to the acquisition of the Oklahoma properties of Lone Star Gas Company in which the Company asked that the full purchase price be included in rate base. During deliberations, the OCC voted to allow the Company to amortize the acquisition premium over a five-year period but earn no return on the outstanding balance. The expense for amortizing the premium and previously deferred pension costs, will be approximately $4.5 million per year. In addition the Company will begin recognizing in current operations its annual net periodic pension cost. (For more information about deferred pension costs, see (A) SIGNIFICANT ACCOUNTING POLICIES, Employee Benefit Plans, on page 41 and (G) EMPLOYEE BENEFIT PLANS, Retirement Plan, on pages 43 and 44.) A final written order is pending. LEASES. The initial lease term on the Company's headquarters building, ONEOK Plaza, is for 25 years, expiring in 2009, with six five-year renewal options. At the end of the initial term or any renewal period, the Company can purchase the property at its fair market value. Rent for the lease accrues annually at $6.8 million a year until 2009. Rent payments were $5.8 million for 1994 and 1993. Estimated future minimum rental payments for the lease are $5.8 million for each of the years ended August 31, 1995 through 1999. The Company has the right to sublet excess office space in ONEOK Plaza. The Company received $2.1 million in rental revenue during 1994 for various subleases. Estimated minimum future rental payments to be received under existing contracts for subleases are: $2.1 million in 1995; $2.0 million in 1996; $1.8 million in 1997; $1.2 million in 1998, $.9 million in 1999; and $.3 million in 2000 and thereafter. OTHER. In fiscal 1994, a settlement agreement was approved by U.S. District Court specifying the terms under which a class action shareholder lawsuit against the Company and others, alleging failure to disclose the potential effect of take-or-pay claims, was resolved. The agreement provided for the payment of approximately $5.5 million, which was substantially covered by insurance. The Company's largest industrial customer, Agricultural Minerals, Limited Partnership (AMLP), a fertilizer manufacturer, has instituted an antitrust proceeding in state District Court challenging the validity of its 15-year PCL contract with the Company entered into in 1989, contending that the Company's practice of charging negotiated rather than uniform PCL rates is discriminatory and illegal. The Company has responded by filing an OCC proceeding seeking a determination that the terms and conditions of its contract with AMLP are just and reasonable. Management believes that AMLP's contentions are unfounded and will be rejected in both the judicial and administrative proceedings. Nevertheless, unfavorable results in such proceedings, unless the Company could offset or recover any resulting damages or earnings reduction by increased revenue from customers, could have a materially adverse effect on the Company's earnings. The amount of such effect is not presently determinable. The Company is involved in claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a materially adverse effect on the Company's financial condition. INVESTMENTS. Through subsidiaries, the Company is a 25 percent partner in two natural gas transmission systems, Ozark Gas Transmission System (Ozark) and Red River Pipeline (Red River). Ozark operates in Oklahoma and Arkansas. Red River operates in Texas. Through a subsidiary financing corporation, Ozark issued certain long-term notes for the financing of the system's gas transmission facilities. There is no recourse to the partners under the notes. One of the two firm shippers, Columbia Gas Transmission Corporation (Columbia), previously commenced a voluntary case under the Federal Bankruptcy laws which constituted an event of default under the applicable note agreements. The holders of the notes have the right, but have not elected, to accelerate payment of the principal of the notes. Ozark has negotiated an agreement in principle with Columbia and Tennessee Ozark Gas Company, the other firm shipper, for their contract exit fees, subject to FERC approval and is pursuing other options, including sale of the pipeline. If the attempt to sell the pipeline is unsuccessful, or if Ozark is unable to generate sufficient revenues, a liquidity problem for Ozark could result. Such an occurrence could affect the Company's ability to recover its investment. The amount of such effect is not presently determinable. Through its subsidiary, TransTex Pipeline Company (TransTex), the Company has agreed to advance cash to Red River, limited to its proportionate share, for operating expenses and for debt sinking fund payments, when cash deficiencies occur. The Company has made such cash advances in each of the last three years. During 1993, long-term debt was refinanced, the system was modified to allow bidirectional flow, and the method of allocating transportation revenue was changed to credit revenues to the partner responsible for the throughput. Subsequently, 46 20 TransTex has entered into a one-year limited agency agreement with a third party for shipping gas on Red River, which will generate additional revenue for TransTex. If the system does not improve cash flow as a result of these or other changes, the Company may not be able to fully recover its investment. The amount of such effect is not presently determinable. (J) OIL AND GAS PRODUCING ACTIVITIES The following is historical revenue and cost information relating to the Company's exploration and production operations:
- - ------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - ------------------------------------------------------------------------------- Capitalized costs at end of year: Unproved properties $ 6,363 $ 8,216 $ 7,192 Proved properties 94,507 87,315 68,423 - - ------------------------------------------------------------------------------- 100,870 95,531 75,615 Accumulated depreciation, depletion, and amortization 61,052 51,016 43,582 - - ------------------------------------------------------------------------------- $ 39,818 $ 44,515 $ 32,033 =============================================================================== Costs incurred during the year: Property acquisition costs (all unproved) $ 1,021 $ 1,938 $ 1,644 Exploration costs $ 2,731 $ 1,977 $ 2,568 Development costs $ 4,729 $ 4,379 $ 6,849 Purchase of minerals in place $ 101 $ 17,136 $ 35 ===============================================================================
The following schedule includes only the revenues from the production and sale of oil and gas. The income tax expense is calculated by applying the statutory tax rates to the revenues after deducting costs. The costs include depreciation, depletion, and lease amortization allowances after giving effect to permanent differences and tax credits. The results of operations exclude general office overhead and interest expense attributable to oil and gas production. Results of operations for oil and gas producing activities are as follows:
- - ------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - ------------------------------------------------------------------------------- Net revenues from production: Sales to unaffiliated customers $ 22,693 $ 24,058 $ 18,152 Gas sold to affiliates 1,457 1,040 175 - - ------------------------------------------------------------------------------- 24,150 25,098 18,327 - - ------------------------------------------------------------------------------- Production costs 4,912 4,883 3,938 Exploration expenses 1,419 1,946 1,862 Depreciation, depletion, and amortization 12,048 10,779 12,139 - - ------------------------------------------------------------------------------- 18,379 17,608 17,939 - - ------------------------------------------------------------------------------- Operating income 5,771 7,490 388 - - ------------------------------------------------------------------------------- Income tax expense 2,097 2,718 7 - - ------------------------------------------------------------------------------- Results of operations from producing activities $ 3,674 $ 4,772 $ 381 ===============================================================================
(K) OIL AND GAS RESERVES (UNAUDITED) The following table sets forth the estimates of the Company's proved oil and gas reserves net of royalty interests and changes therein for the years 1992 through 1994:
- - --------------------------------------------------------------------------------- Oil Gas (Mbbls) (MMcf) - - --------------------------------------------------------------------------------- Proved Reserves: August 31, 1991 1,611 51,627 Revisions of prior estimates (337) (8,799) Extensions, discoveries, and other additions 560 5,798 Purchases of minerals in place - 115 Sales of minerals in place - (2) Production (375) (7,349) - - --------------------------------------------------------------------------------- August 31, 1992 1,459 41,390 Revisions of prior estimates (567) (541) Extensions, discoveries, and other additions 589 4,541 Purchases of minerals in place 1,801 1,827 Sales of minerals in place (7) (26) Production (443) (8,401) - - --------------------------------------------------------------------------------- August 31, 1993 2,832 38,790 Revisions of prior estimates (201) (756) Extensions, discoveries, and other additions 224 2,264 Purchases of minerals in place 1 115 Production (572) (8,043) - - --------------------------------------------------------------------------------- August 31, 1994 2,284 32,370 ================================================================================= Proved Developed Reserves: August 31, 1992 1,275 38,127 August 31, 1993 2,352 34,792 August 31, 1994 1,943 29,193 =================================================================================
The Company emphasizes that the volumes of reserves shown above are estimates, which, by their nature, are subject to later revision. The estimates are made by the Company's petroleum engineers and geologists utilizing all available geological and reservoir data as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data. 47 21 (L) DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) Estimates of future cash flows from proved reserves of oil and natural gas shown in the following table are based on prices at the end of the year. Gas prices are escalated only for fixed and determinable amounts under provisions of applicable regulations in some contracts. These estimated future cash flows are reduced by estimated future development and production costs based on year-end cost levels, assuming continuation of existing economic conditions, and by estimated future income tax expense. This tax expense is calculated by applying the current year-end statutory tax rates to pretax net cash flows (net of tax depreciation, depletion, and lease amortization allowances) applicable to oil and gas production. The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is as follows:
- - ----------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - ----------------------------------------------------------------------------------- Future cash inflows $98,270 $121,107 $90,808 Future production and development costs 26,103 30,346 24,862 Future income tax expense 16,278 21,372 16,197 - - ----------------------------------------------------------------------------------- Future net cash flows 55,889 69,389 49,749 10% annual discount for estimated timing of cash flows 15,660 20,761 13,870 - - ----------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows relating to oil and gas reserves $40,229 $ 48,628 $35,879 ===================================================================================
The changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves are as follows:
- - -------------------------------------------------------------------------------- (Thousands of Dollars) 1994 1993 1992 - - -------------------------------------------------------------------------------- Beginning of year $ 48,628 $ 35,879 $ 42,585 Changes resulting from: Sales of oil and gas produced, net of production costs (19,238) (20,215) (14,389) Net changes in price, development, and production costs (3,839) 7,327 (2,376) Extensions, discoveries, additions, and improved recovery, less related costs 5,112 11,625 12,225 Purchases of minerals in place 126 20,365 34 Sales of minerals in place - (87) - Revisions of previous quantity estimates (2,379) (5,589) (10,593) Accretion of discount 6,360 4,747 5,648 Net change in income taxes 3,260 (3,296) 2,219 Other, net 2,199 (2,128) 526 - - -------------------------------------------------------------------------------- End of year $ 40,229 $ 48,628 $ 35,879 ================================================================================
48 22 (M) QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of the unaudited quarterly results of operations for 1994 and 1993 follows:
- - ----------------------------------------------------------------------------------------- (Thousands of Dollars, Except Per Share Amounts) Quarter(1) - - ----------------------------------------------------------------------------------------- 1994 First Second Third Fourth - - ----------------------------------------------------------------------------------------- Total operating revenues $177,191 $295,444 $190,480 $129,268 ========================================================================================= Operating income $16,592 $35,382 $14,150 $4,810 ========================================================================================= Net income (loss) $7,812 $26,387 $5,692 $(3,710) ========================================================================================= Earnings (loss) per common share $.29 $.98 $.21 $(.14) ========================================================================================= Dividends per common share $.27 $.28 $.28 $.28 ========================================================================================= Weighted average shares outstanding (thousands) 26,634 26,681 26,690 26,690 ========================================================================================= Common stock prices: High $22 5/8 $20 1/2 $18 1/2 $19 3/4 Low $19 5/8 $17 5/8 $15 3/4 $15 3/4 ========================================================================================= 1993 First Second Third Fourth - - ----------------------------------------------------------------------------------------- Total operating revenues $159,450 $313,884 $187,538 $128,237 ========================================================================================= Operating income $14,946 $40,661 $13,198 $6,899 ========================================================================================= Net income (loss) $5,997 $31,230 $2,750 $(1,553) ========================================================================================= Earnings (loss) per common share $.22 $1.17 $.10 $ (.06) ========================================================================================= Dividends per common share $.25 $.27 $.27 $.27 ========================================================================================= Weighted average shares outstanding (thousands) 26,629 26,630 26,634 26,634 ========================================================================================= Common stock prices: High $18 3/8 $20 5/8 $24 7/8 $26 1/4 Low $16 1/4 $16 7/8 $20 $20 3/8 =========================================================================================
(1) Among the quarters, total operating revenues are consistently greater from November through May due to the large volume of natural gas sold to customers to heat their homes. 49 EX-24 7 INDEPENDENT AUDITOR'S CONSENT 1 Exhibit (24) INDEPENDENT AUDITORS' CONSENT The Board of Directors ONEOK Inc.: We consent to incorporation by reference in the Registration Statement Nos. 33-338059, 33-52733, and 33-69062 on Form S-8 of ONEOK Inc. of our reports dated October 14, 1994, relating to the consolidated balance sheets of ONEOK Inc. and subsidiaries as of August 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows, and related financial statement schedules for each of the years in the three-year period ended August 31, 1994, which reports appear, or are incorporated by reference, in the August 31, 1994, Annual Report on Form 10-K of ONEOK Inc. Our reports refer to a change in the method of accounting for certain postemployment and postretirement benefit obligations. KPMG PEAT MARWICK LLP Tulsa, Oklahoma October 25, 1994 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNING FOR THE FISCAL YEAR ENDED AUGUST 31, 1994, AND THE CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1994, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR AUG-31-1994 SEP-01-1993 AUG-31-1994 4,525 0 49,079 0 94,454 169,253 1,217,739 480,288 1,137,000 148,508 0 195,568 0 9,000 0 1,137,000 0 792,383 0 700,353 0 0 34,753 57,277 21,096 36,181 0 0 0 36,181 1.34 1.34
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