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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the fiscal year ended September 30, 1997 Commission File
Number 0-234
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Mobile Gas Service Corporation
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(Exact name of registrant as specified in its charter)
Alabama 63-0142930
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (334) 476-2720
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.01 par value)
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(Title of Class)
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.
---
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
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The aggregate market value of Common Stock, Par Value $.01 per share, held
by non-affiliates (based upon the average of the high and low prices as reported
by NASDAQ on December 4, 1997) was approximately $120,656,624.
As of December 4, 1997, there were 3,239,104 shares of Common Stock, Par
Value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 30, 1998 are incorporated by reference into Part III.
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PART I
Item 1. Business.
GENERAL
Mobile Gas Service Corporation (together with its subsidiaries, the
"Company" or "Registrant", and exclusive of its subsidiaries, "Mobile Gas") was
incorporated under the laws of the State of Alabama in 1933. The Company is
engaged in the purchase, distribution, sale and transportation of natural gas to
over 100,000 residential, commercial and industrial customers in southwest
Alabama, including the City of Mobile and adjacent areas. The Company's service
territory covers approximately 300 square miles. Mobile Gas is also involved in
merchandise sales, specifically sales of natural gas appliances.
MGS Energy Services, Inc. ("MGS Energy"), a wholly-owned subsidiary, was
incorporated in March 1983. Through MGS Energy, the Company provides contract
and consulting work for utilities and industrial customers. MGS Energy owns a
51% interest in Southern Gas Transmission Company ("SGT"), an Alabama general
partnership which was formed in November 1991. SGT was established to provide
transportation services to the facilities of Alabama River Pulp Company, Inc.
During fiscal year 1992, SGT constructed and began operating a 50-mile pipeline
from the facilities of Koch Gateway Pipeline Company ("Koch"), formerly United
Gas Pipe Line Company, near Flomaton, Alabama to the facilities of Alabama River
Pulp Company, Inc. in Claiborne, Alabama.
MGS Storage Services, Inc. ("MGS Storage"), a wholly-owned subsidiary, was
incorporated on December 4, 1991. MGS Storage holds a general partnership
interest of 87 1/2% in Bay Gas Storage Company, Ltd. ("Bay Gas"), an Alabama
limited partnership, and a 12 1/2% limited partnership interest is held by Olin
Corporation. Bay Gas has constructed an underground gas storage cavern which is
used to provide storage and delivery of natural gas for Mobile Gas and other
customers.
MGS Marketing Services, Inc. ("MGS Marketing"), a wholly-owned subsidiary,
was incorporated on March 5, 1993 to assist existing and potential customers in
the purchase of natural gas.
CUSTOMERS
Of the approximately 100,000 customers of the Company, approximately 95%
are residential customers. In the fiscal year ended September 30, 1997,
approximately 64% of the Company's gas revenues was derived from residential
sales, 13% from small commercial and industrial sales, 11% from large commercial
and industrial sales, 10% from transportation services, and 2% from storage and
miscellaneous services. Residential sales in 1997 accounted for approximately
13% of the total volume of gas delivered to the Company's customers, with small
commercial and industrial, large commercial and industrial, and transportation
deliveries accounting for approximately 3%, 5% and 79%, respectively. The ten
largest customers of the Company accounted for approximately 11% of the
Company's gross margin in fiscal 1997, with the largest accounting for
approximately 2%. For further information
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with respect to revenues from and deliveries to the various categories of the
Company's customers, see Item 6, "Selected Financial Data".
In May 1995, the Company entered into a long-term contract with Tuscaloosa
Steel Corporation to transport natural gas to a new iron ore reduction facility
on a site located adjacent to downtown Mobile. In October 1997 the Company made
the first deliveries of gas to Tuscaloosa Steel's facility. When fully
operational in early 1998, that facility is expected to use approximately 40,000
MMBtu of gas per day, making Tuscaloosa Steel the largest volume user of natural
gas on the Company's system. To fulfill its obligations under such contract, the
Company has constructed approximately five miles of new high pressure pipeline
and upgraded certain other segments of its existing facilities.
GAS SUPPLY
The Company is directly connected to two natural gas processing plants in
south Mobile County. Mobile Gas has contracted for a portion of its firm supply
directly with these producers. For the fiscal year ended September 30, 1997, the
Company obtained approximately 90% of its gas supply from sources located in the
Mobile Bay area, with the balance being obtained from interstate sources.
To encourage more competition among natural gas suppliers, the Federal
Energy Regulatory Commission ("FERC") issued Order 636 in 1992. Order 636
required interstate pipelines to unbundle or separate gas sales, transportation
and storage services. With the implementation of Order 636, most pipelines
discontinued their traditional merchant function resulting in each local
distribution company becoming responsible for obtaining all of its gas supply in
the open market. While unbundling of these services allows a local distribution
company, such as Mobile Gas, more flexibility in selecting and managing the type
of services required to provide its customers with the lowest possible priced
gas while maintaining a reliable gas supply, it also places additional
responsibility on a distribution company to obtain its natural gas supply in the
open market on a timely basis to fulfill commitments during peak demand periods.
The Company believes that the Bay Gas storage facility, which had already been
planned by the Company prior to Order 636, has enhanced its ability to respond
to the changes in the industry brought about by Order 636.
The Company has a current peak day firm requirement of 129,870 MMBtus. Firm
supply needs of 80,000 MMBtu/day are expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. The Company also has firm
supply contracts with gas suppliers for 10,000 MMBtu/day until October 31, 2000,
and 13,000 MMBtu/day until June 30, 2000, through the direct connections with
Mobil and Shell's processing plants. Additionally, the Company has contracted
for firm transportation and storage service ("No-Notice Service") for 26,870
MMBtu/day from Koch under agreements extending to April 1, 1999. In conjunction
with the No-Notice Service, the Company has contracted with a gas supplier to
provide firm gas supply through March 31, 1999.
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GAS STORAGE
Construction of the Bay Gas storage facility was completed in 1994. The
cavern is designed to hold up to 3.7 BCF of natural gas. At full capacity,
approximately 1.3 BCF of the gas to be injected into the storage cavern, called
"base gas," will remain in the cavern to provide sufficient pressure to maintain
cavern integrity, and the remainder, approximately 2.4 BCF, represents working
storage capacity. Bay Gas has pipeline interconnects with Florida Gas
Transmission and Koch which provide access to interstate markets.
In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas under
which Bay Gas agreed to provide storage of approximately one-third of the
working storage capacity for an initial period of 20 years. Under the Mobile Gas
storage contract, injection and withdrawal capacity of 15,000 MMBtu/day and
80,000 MMBtu/day, respectively, is committed to Mobile Gas. At September 30,
1997, the storage facility's injection capacity was 35,000 MMBtu/day. In
November 1996, Bay Gas completed the installation of additional dehydration
equipment which increased the withdrawal capacity from 100,000 MMBtu/day to
260,000 MMBtu/day. An additional compressor will be added to increase the
injection capacity if significant contracts are entered into which provide for
firm injection services. There can be no assurance that Bay Gas will enter into
additional contracts.
Under its agreements with Olin, Bay Gas has the right to develop up to 2
additional caverns on the property leased from Olin. Olin has the right, until
Bay Gas makes certain required payments to Olin prior to commencement of the
construction of a second cavern, to increase its ownership interest in Bay Gas
by an additional 12 1/2%, by purchasing from MGS Storage such additional
percentage at a price based on the book equity of MGS Storage in Bay Gas. The
Company is unable to determine at this time whether additional caverns will be
developed at the storage facility, but anticipates that an additional cavern
would be considered with sufficient market demand.
COMPETITION
Gas Distribution Competition. The Company is not in significant direct
competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.
The Company's large commercial and industrial customers with requirements
of 200 MMBtu per day or more contract with the Company to transport
customer-owned gas while other commercial and industrial customers buy natural
gas from the Company. Some industrial customers have the capability to use
either fuel oil, coal, wood chips or natural gas, and choose their fuel
depending upon a number of factors, including the availability and price of such
fuels. In recent years, the Company has had adequate supplies so that
interruptible industrial customers that are capable of using alternative fuels
have not had supplies curtailed, and the price of natural gas has remained at
levels such that, in most cases, these industrial customers have chosen to use
natural gas rather than other fuels. The Company's rate tariffs include a
competitive fuel clause which allows the Company to adjust its rates to certain
large commercial and industrial customers in order to compete with alternative
energy sources. However, there can be no assurance that the current competitive
advantage of natural gas over alternative fuels will continue. See "Rates and
Regulation."
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Due to the close proximity of various pipelines and gas processing plants
to the Company's service area, there exists the possibility that current or
prospective customers could install their own facilities and connect directly to
a supply source and thereby "bypass" the Company's service. The Company believes
that because it has worked closely with major industrial customers to meet those
customers' needs, and because of its ability to provide competitive pricing
under its rate tariffs, none of the Company's customers have bypassed its
facilities to date. Although there can be no assurance as to future
developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.
Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators (who rebundle
services ordered unbundled by Order 636), and natural gas pipelines. Bay Gas
believes that its strategic geographic location and its ability to charge
market-based rates for interstate storage services will enable it to effectively
compete with such competitors. See "Rates and Regulation."
RATES AND REGULATION
The Company's natural gas distribution operations are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant to APSC order,
rates for a limited number of large industrial customers are determined on a
privately negotiated basis. Beginning December 1, 1995, the Company also is
allowed to recover costs associated with the Company's replacement of cast iron
mains. This component of rates is adjusted annually through a filing with the
APSC. The rates for service rendered by the Company are on file with the APSC.
The APSC also approves the issuance of debt and equity securities and has
supervision and regulatory authority over service, equipment, accounting, and
other matters.
On June 10, 1996, the APSC authorized the Company to apply a temperature
rate adjustment to customers' gas bills for the months of November through
April. The temperature rate adjustment helps to level out the effects of
temperature extremes on Company earnings by reducing high gas bills to customers
in colder than normal weather and increasing gas revenues received by the
Company in warmer than normal weather. The temperature rate adjustment was
reflected in customers' gas bills during the months of November 1996 through
April 1997.
The Company's tariffs include a purchased gas adjustment clause which
allows the Company to pass on to certain of its customers increases or decreases
in gas costs from those reflected in its tariff charges. Adjustments under such
clauses require periodic filings with the APSC but do not require a general rate
proceeding. Under the purchased gas adjustment clause, the Company has a
competitive fuel clause which gives it the right to adjust its rates to certain
large customers in order to compete with alternative energy sources. Any margin
lost as a result of competitive fuel clause adjustments is recoverable from its
other customers.
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Gas deliveries to certain industrial customers are subject to regulation by
the APSC through contract approval. The operations of SGT, which consist only of
intrastate transportation of gas, are also regulated by the APSC.
Bay Gas is a regulated utility governed under the jurisdiction of the APSC.
As a regulated utility, Bay Gas' intrastate storage contracts are subject to
APSC approval. Operation of the storage cavern and well-head equipment are
subject to regulation by the Oil and Gas Board of the State of Alabama. Bay Gas
is allowed by FERC order to charge market-based rates for interstate storage
services. Market-based rates allow Bay Gas to respond to market conditions and
minimizes regulatory involvement in the setting of its rates for storage
services.
The Company has been granted nonexclusive franchises to construct, maintain
and operate a natural gas distribution system in the areas in which it operates.
Except for the franchise granted by Mobile County, Alabama, which has no stated
expiration date, the franchises have expiration dates, the earliest of which is
in 2007. The Company has no reason to believe that the franchises will not be
renewed upon expiration.
SEASONAL NATURE OF BUSINESS
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period have historically reflected, in addition to other matters, the impact of
weather, with colder temperatures resulting in increased sales by the Company.
The substantial impact of this sensitivity to seasonal conditions has been
reflected in the Company's results of operations. As discussed above under
"Rates and Regulation Results of Operations" and below under "Management's
Discussion and Analysis of Results of Operations and Financial Condition" the
application of a temperature rate adjustment in customers' bills beginning in
November 1996 will help to level out the effects of temperature extremes on
results of operations.
Due to the seasonality of the Company's business, the generation of working
capital is impaired during the summer months because of reduced gas sales. Cash
needs during this period are met generally through short-term financing
arrangements or the reduction of temporary investments as is common in the
industry.
ENVIRONMENTAL ISSUES
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability
of natural gas, the Company manufactured gas for sale to its customers. In
contrast to some other companies which operated multiple manufactured gas
plants, the Company and its predecessor operated only one such plant, which
discontinued operations in 1933. The process for manufacturing gas produced
by-products and residuals, such as coal tar, and certain remnants of these
residuals are sometimes found at former gas manufacturing sites.
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The Company conducted a preliminary assessment in 1994 of its former gas
plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice of
its environmental consultants, which involves securing and monitoring the site,
and continued testing. Based on the results of tests to date, the Company does
not believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
EMPLOYEES
Mobile Gas employed 270 full-time employees as of September 30, 1997. Of
these, approximately 37% are represented by the Oil, Chemical and Atomic Workers
International Union, Local No. 3-541. As of September 30, 1997 Bay Gas employed
six full-time employees. The Company believes that it enjoys generally good
labor relations.
Item 2. Properties.
The Company's properties consist of distribution, general, transmission,
and storage plant. The distribution plant is located in Mobile County, Alabama
and is used in the distribution of natural gas to the Company's customers. The
distribution plant consists primarily of mains, services, meters and regulating
equipment, all of which are adequate to serve the present customers. The
distribution plant is located on property which the Company is entitled to use
as a result of franchises granted by municipal corporations, or on easements or
rights-of-way.
The general plant consists of land, structures (with aggregate floor space
of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.
The transmission plant consists of a pipeline of approximately 50 miles and
related surface equipment which is used in the transmission of natural gas by
SGT and is located primarily in Monroe County, Alabama. The transmission plant
is located on easements or rights-of-way.
The storage plant, consisting of an underground cavern for the storage of
natural gas and related pipeline and surface facilities, is located primarily in
Washington County, Alabama. The storage plant is constructed on a leasehold
estate with an initial term of 50 years, which will expire in 2040, and which
may be renewed at the Company's option for an additional term of 20 years.
Substantially all of the property of the Company is pledged as collateral
for the long-term debt.
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Item 3. Legal Proceedings.
The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial statements
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1997.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.
Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 1998 Annual Meeting of
Stockholders and is incorporated herein by reference.
The following is a list of names and ages of all of the executive officers
who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 1998. Officers are appointed by the Board of Directors of the Company.
<TABLE>
<CAPTION>
Business Experience
Name, Age, and Position During Past 5 Years
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<S> <C>
W. G. Coffeen, III, 51 Appointed in 1986
Vice President - Marketing; Director/Vice
President - MGS Marketing Services, Inc.;
Vice President - MGS Storage Services, Inc.
Gerald S. Keen, 61 Appointed in December 1989
Vice President - Operations; Director/President -
MGS Energy Services, Inc.; Director/President -
MGS Storage Services, Inc.
Charles P. Huffman, 44 Appointed in January 1995;
Vice President, Chief Financial Officer, Treasurer, Previously: Chief Financial Officer
and Assistant Secretary; Vice (1993-1994); Treasurer (1991-1993)
President/Treasurer - MGS Energy Services,
Inc.; Director/Vice President/Treasurer - MGS
Storage Services, Inc.; Director/Vice President/
Treasurer - MGS Marketing Services, Inc.
</TABLE>
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<TABLE>
<S> <C>
G. Edgar Downing, Jr., 41 Appointed in January 1995;
Vice President, Secretary and General Counsel; Previously: Secretary and General
Director/Vice President/Secretary - MGS Energy Counsel (1993-1994); Assistant
Services, Inc.; Director/Vice President/Secretary - Secretary (1991-1993), General
MGS Storage Services, Inc.; Vice President/ Attorney (1990-1993)*
Secretary - MGS Marketing Services, Inc.
A. H. Tenhundfeld, Jr., 50 Appointed in March 1995; Previously:
Vice President - Administration and Planning Vice President - Finance and
Treasurer, Dravo Corporation
(December 1989-February 1995)
</TABLE>
* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.
PART II
Item 5. Market for the Registrant's Common Stock Equity and Related Stockholder
Matters.
The Registrant's Common Stock, $.01 par value, is traded on the NASDAQ
National Market under the symbol "MBLE". As of December 3, 1997 there were 1,578
holders of record of the Company's Common Stock. Information regarding Common
Stock dividends and the bid price range for Common Stock during the periods
indicated is as follows:
<TABLE>
<CAPTION>
Per Share
Dividends Declared Bid Price Range
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Fiscal Year
Quarter Ended 1997 1996 1997 1996
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High Low High Low
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<S> <C> <C> <C> <C> <C> <C>
December 31 $.28 $.27 $ 29 $ 23 1/2 $ 22 3/4 $ 20 3/4
March 31 .28 .27 29 1/4 26 1/2 23 21 3/4
June 30 .30 .28 28 1/4 26 25 1/4 22 1/2
September 30 .30 .28 37 1/4 27 1/4 25 1/4 21
</TABLE>
Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
While the Board of Directors intends to continue the practice of paying
dividends quarterly, amounts and dates of such dividends as may be declared will
be dependent upon the Registrant's future earnings, financial requirements, and
other factors.
The Registrant's long-term debt instruments contain certain debt to equity
ratio requirements and restrictions on the payment of cash dividends and the
purchase of shares of its capital stock. At September 30, 1997, under the most
limiting of such provisions, retained earnings in the amount of $18,470,000 were
unrestricted.
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Item 6. Selected Financial Data.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Gas Revenues $ 69,622 $ 68,334 $ 56,204 $ 60,470 $ 54,292
Merchandise Sales and Jobbing 3,048 3,044 2,907 2,824 2,525
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Total Operating Revenues $ 72,670 $ 71,378 $ 59,111 $ 63,294 $ 56,817
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Net Income $ 8,126 $ 8,631 $ 4,028 $ 4,893 $ 4,920
Preferred Stock Dividends 5 29
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Earnings Applicable to Common Stock $ 8,126 $ 8,631 $ 4,028 $ 4,888 $ 4,891
--------------------------------------------------------
Earnings Per Share of Common Stock $ 2.50 $ 2.68 $ 1.26 $ 1.78 $ 1.79
Cash Dividends Per Share of Common Stock $ 1.16 $ 1.10 $ 1.06 $ 1.02 $ 0.96
Average Common Shares Outstanding 3,255 3,225 3,208 2,752 2,733
Total Assets $161,867 $150,779 $136,567 $134,529 $116,839
Long-Term Debt Obligations $ 63,580 $ 54,509 $ 57,328 $ 59,047 $ 60,416
STATISTICAL
Gas Revenue (in thousands):
Sales:
Residential $ 44,330 $ 43,929 $ 36,106 $ 40,535 $ 35,204
Commercial and Industrial - Small 8,948 8,348 6,813 7,209 6,170
Commercial and Industrial - Large 7,638 7,914 6,151 6,188 6,403
Transportation 6,886 6,571 6,172 5,881 5,927
Storage (other than intercompany) 1,176 926 245 13
Other 644 646 717 644 588
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Total $ 69,622 $ 68,334 $ 56,204 $ 60,470 $ 54,292
--------------------------------------------------------
Delivery to Customers (in thousand therms):
Gas Sales:
Residential 48,099 59,403 47,992 56,100 50,046
Commercial and Industrial - Small 12,338 14,148 11,669 12,463 11,072
Commercial and Industrial - Large 16,975 23,252 19,536 19,045 23,012
Transportation 284,248 279,798 274,859 253,702 237,499
--------------------------------------------------------
Total 361,660 376,601 354,056 341,310 321,629
--------------------------------------------------------
Customers Billed (peak month):
Residential 95,446 95,338 94,822 94,424 91,936
Commercial and Industrial - Small 5,267 5,257 5,235 5,195 4,812
Commercial and Industrial - Large 101 105 108 106 105
Transportation 30 30 29 31 30
--------------------------------------------------------
Total 100,844 100,730 100,194 99,756 96,883
--------------------------------------------------------
Degree Days (1) 1,487 2,030 1,331 1,837 1,611
NUMBER OF EMPLOYEES (END OF PERIOD) 276 276 275 260 243
</TABLE>
Note: (1) The number of degrees that the daily mean temperature falls below 65
degrees F. The Company's rates were designed assuming annual normal
degree days of 1,640 beginning December, 1, 1995 and an annual normal
of 1,695 for prior periods.
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
THE COMPANY
The consolidated financial statements include the accounts of Mobile Gas
Service Corporation, its wholly-owned subsidiaries, MGS Energy Services, Inc.,
MGS Storage Services, Inc., MGS Marketing Services, Inc., its 87.5% owned
partnership, Bay Gas Storage Company, Ltd., (Bay Gas), and its 51% owned
partnership, Southern Gas Transmission Company (collectively the "Company"). The
Company is engaged principally in the distribution of natural gas to
residential, commercial and industrial customers in Southwest Alabama, which is
subject to regulation by the Alabama Public Service Commission (APSC). The
Company's rate tariffs allow a pass-through to customers of the cost of gas
supplies, certain taxes, and beginning December 1, 1995, incremental costs
associated with the Company's replacement of cast iron mains. These costs,
therefore, ultimately have little impact on the Company's earnings. Other costs,
including a return on investment, have historically been recovered through rates
approved in traditional rate proceedings.
The nature of the Company's distribution business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period historically have reflected, in addition to other matters, the impact of
weather, through either increased or decreased sales volumes. On November 1,
1996, the Company implemented a temperature rate adjustment rider designed to
level out the effects of temperature extremes on Company earnings. This new rate
mechanism is discussed within Results of Operations - Net Income.
Bay Gas, which commenced operations of its natural gas storage facility in
September 1994, is a regulated utility governed under the jurisdiction of the
APSC. Intrastate storage contracts are subject to APSC approval whereas
interstate storage contracts, by Federal Energy Regulatory Commission order, are
permitted to have market-based rates.
RESULTS OF OPERATIONS
NET INCOME
The Company's net income was $8.1 million, or $2.50 per share in 1997, $8.6
million, or $2.68 per share in 1996, and $4.0 million, or $1.26 per share in
1995. Fiscal 1996 earnings reflect the effects of weather which was 24% colder
than normal. The impact of colder weather increased 1996 earnings per share $.45
compared to earnings that would have occurred with normal weather. Earnings for
1997 reflect improvement over 1996 earnings without the weather impact primarily
as a result of decreased operation and maintenance expenses and improved
financial results from natural gas storage operations at Bay Gas.
Even though winter weather during the 1997 fiscal year was 9% warmer than
normal, earnings for 1997 do not reflect the warmer weather impact because of a
temperature rate adjustment rider which was first implemented on November 1,
1996. The rider is designed to level out the effects of temperature extremes on
Company earnings by reducing high gas bills to customers in colder than normal
weather and increasing gas revenues received by
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the Company in warmer than normal weather. The rider was applied to residential
and small commercial customers' gas bills during the months of November 1996
through April 1997, resulting in increased net income of $816,000 and earnings
per share of $.25 during 1997.
A general rate increase which became effective on December 1, 1995
contributed to the 1996 increase in net income as well as the increase in 1997.
Net income for 1996 also increased compared to 1995 due to the effects of
weather which was 53% colder than 1995. Weather during fiscal 1995 was 22%
warmer than normal.
OPERATING REVENUES
Gas revenues were $69.6 million, $68.3 million and $56.2 million in fiscal
years 1997, 1996 and 1995, respectively. The 1997 increase was attributed to
increased gas revenue from temperature-sensitive, transportation and natural gas
storage customers. Revenues from the transportation of natural gas increased due
to increased plant utilization by existing customers while revenues from natural
gas storage operations increased due to new contracts for storage services.
Despite an 18% decrease in gas volumes sold to temperature-sensitive customers
(residential and small commercial) in 1997 compared to 1996 caused by warmer
weather, gas revenues from these customers increased due to the impact of
increased billings pursuant to the Purchased Gas Adjustment (PGA) provision and
the temperature rate adjustment rider within the Company's rate schedules. The
PGA component of customers' rates allows the Company to pass increases or
decreases in the cost of gas to customers. Fluctuations in billings to customers
under the Company's PGA component of rates are offset in full by changes in the
recorded cost of gas, thereby having no effect on recorded margins.
Gas revenues in 1996 compared to 1995 increased primarily due to the
general rate increase and to colder weather. As a result of the colder weather
in fiscal 1996, the volume of gas sold and delivered to temperature-sensitive
customers increased 23% compared to 1995. The Company also recorded increased
gas revenues from the sale of natural gas to large commercial and industrial
customers, the transportation of natural gas, and natural gas storage
operations.
EXPENSES
Cost of gas increased $2.3 million or 12% in 1997 compared to 1996. The
increase in gas costs was attributed primarily to an increase in commodity gas
prices which was passed through to customers under the Company's PGA component
of rates. Cost of gas increased $1.2 million or 7% in 1996 compared to 1995 due
to increased volumes sold during the colder 1996 winter. The 1996 increase in
cost of gas was not as high relative to the percentage increase in gas revenues
for 1996 because of the impact on revenues of the general rate increase and
because the Company was intentionally under-collecting 1996 gas costs through
the PGA component of its rates to customers to refund previously over-collected
gas costs. This under-collection of gas costs had no effect on recorded margins
since revenues were effected by the same amount.
Operations and maintenance expenses decreased $490,000 in 1997 compared to
1996. The most significant factors contributing to this decrease were: lower
utility maintenance costs of $361,000 due to the completion in 1996 of certain
non-routine
11
<PAGE> 13
maintenance projects, stable operations costs due to cost control efforts
throughout the Company, increased capitalized administrative and general costs
resulting from a higher level of construction activity, and lower Bay Gas
expenses of $150,000. Operations and maintenance expenses increased $2.8 million
in 1996 compared to 1995. A variety of factors caused this increase. Bay Gas
operations and maintenance expenses increased $160,000 in conjunction with
serving new storage customers. For Mobile Gas, certain non-routine maintenance
projects totaling $450,000 were initiated and completed in 1996. The cold 1996
winter impacted operations expense in two respects. A $190,000 increase in bad
debt expense was associated primarily with higher customer bills from increased
usage caused by the cold winter. Additionally, the Company incurred over
$100,000 in increased overtime expense responding to customer and system needs
during the extreme weather periods. Expenses in 1996 also rose from increased
advertising and additional personnel hired in late 1995 in order to improve the
responsiveness to customers.
The Company has completed an evaluation of the Company's computer
information systems and has identified the systems which will require program
modifications or new software installations in order to function properly in the
year 2000. The Company expects to incur costs approximating $325,000 to complete
the program modifications and new software installations by October 1998.
Estimated costs of $240,000 to modify existing information systems to be Year
2000 compliant will be expensed as incurred and estimated costs of $85,000
related to new software installation will be capitalized.
Depreciation expense increased $334,000 or 6% in 1997 compared to 1996 and
$351,000 or 7% in 1996 compared to 1995. Increases for both years reflect the
growth in property, plant and equipment.
Taxes, other than income taxes, primarily consist of state and local taxes
which are based on gross revenues and fluctuate accordingly. During fiscal 1997,
the State of Alabama approved the Company's claim for refund of a business
license tax. As a result of this approval, the Company reduced its expense for
taxes, other than income taxes, by $246,000.
Interest expense increased $483,000 in 1997 compared to 1996 due to the
issuance in November 1996 of $12 million in 7.27% First Mortgage Bonds. Interest
expense decreased in 1996 compared to 1995 due to decreased levels of short-term
debt, lower short-term interest rates, and the reduction in long-term debt
principal balances.
The allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs increased $142,000 in 1997 compared to 1996 primarily as a result
of increased construction activity during 1997 to complete a pipeline and
related facilities to service Tuscaloosa Steel, a large industrial customer with
whom Mobile Gas has a long-term contract to transport gas to its facility.
Interest income increased $107,000 in 1997 compared to 1996 and $446,000 in
1996 compared to 1995. Improved cash positions during 1997 and 1996 provided the
Company more opportunities to invest in short-term financial instruments.
12
<PAGE> 14
Income tax expense fluctuated with the changes in income before income
taxes. The Company's effective tax rate in 1997 and 1996 was 36.7% and 36.0% in
1995. Income tax expense is detailed in Note 4 to the Consolidated Financial
Statements.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121) was effective for the Company October 1, 1996. SFAS 121 establishes
accounting standards for the impairment of long-lived assets. The Company does
not believe that it has any assets which currently are impaired under SFAS 121;
therefore, this Statement had no effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was effective for the Company October 1,
1996. SFAS 123 establishes a fair value method of accounting for stock-based
compensation plans. SFAS 123 allows companies to either measure stock-based
compensation using the fair value method or to continue to apply existing
accounting standards and include footnote disclosure of pro forma net income and
earnings per share calculated as if the fair value method had been applied.
Stock options outstanding at September 30, 1997 are not subject to the
requirements of SFAS 123 since the option grant date is prior to the effective
date of pro forma disclosures. The Company expects to continue to apply existing
accounting standards for stock-based compensation and to include disclosures
required by SFAS 123 for stock options granted in the future.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128), is effective for the Company for the quarter ending December 31,
1997. SFAS 128 establishes standards for computing and presenting earnings per
share. The Company does not expect the implementation of SFAS 128 to have a
significant impact on the Company's reported earnings per share.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) is effective for the Company for the fiscal
year beginning October 1, 1998. SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not currently have any
comprehensive income other than items included in net income and, therefore,
does not expect any material changes to its current reporting in response to
SFAS 130.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year beginning ending September 30, 1999. SFAS 131
establishes standards for reporting operating segments by public business
enterprises in interim and annual financial statements. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Interim disclosures are not required in
the year of adoption; therefore, the Company expects to report the required
financial and descriptive information about its operating segments beginning
with its annual financial statements for the fiscal year ending September 30,
1999.
13
<PAGE> 15
EFFECTS OF INFLATION
Inflation impacts the prices the Company must pay for labor and other goods
and services required for operation, maintenance and capital improvements.
Changes in purchased gas costs are passed through to customers in accordance
with the PGA provision of the Company's rate tariffs. Increases in other costs
must be recovered through timely filings for rate relief.
GAS SUPPLY
A primary goal of the Company is to provide gas at the lowest possible cost
while maintaining a reliable long-term supply. To accomplish this goal the
Company has diversified its gas supply by constructing and purchasing pipelines
to access the vast gas reserves in our area, both offshore and onshore. The
Company has also contracted with certain of these sources for firm supply.
Future minimum payments under third-party contracts for firm gas supply, which
expire at various dates through the year 2000, are as follows: 1998 -
$1,560,000; 1999 - $990,000; and 2000 - $277,000. A portion of firm supply
requirements is met through the withdrawal of gas from the storage facility
owned by Bay Gas. Mobile Gas has a gas storage agreement with Bay Gas to receive
storage services for an initial period of 20 years, which began in September
1994 with the commencement of commercial operations of the storage facility. The
Company's PGA provision in rate tariffs filed with the APSC allows the recovery
of demand and commodity costs of purchased gas from customers. Should the
Company's customer base decline due to deregulation or other reasons, resulting
in costs related to firm gas supply in excess of requirements, management
believes it would be able to take one or more of the following actions: secure,
as part of the regulatory decision allowing other suppliers to serve current
customers, the right to allocate firm gas supply costs to the new company
supplying gas, reduce some excess gas supply costs through a negotiated
settlement with suppliers, or flow excess gas supply costs to existing customers
through the PGA component of customers' rates.
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations. See Note 9 to the
Consolidated Financial Statements for a discussion of certain environmental
issues.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs reflect the capital-intensive nature of its
business. The following table briefly describes the capital expenditures in the
periods indicated.
<TABLE>
<CAPTION>
Fiscal years ended September 30, (in thousands) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
System improvement and expansion $11,401 $ 7,856 $ 6,060
Gas storage facility 831 2,284 4,978
------- ------- -------
Total $12,232 $10,140 $11,038
======= ======= =======
</TABLE>
The Company generally relies on cash generated from operations and, on a
temporary basis, short-term borrowings to meet working capital requirements and
to finance normal capital expenditures. Cash provided by operating activities
was $14.9 million, $13.0 million and $8.9 million in 1997, 1996 and 1995,
respectively. The increased cash flow from operating activities for 1997
compared to 1996 is primarily due to the change in operating assets and
liabilities which reflect the timing of cash receipts and payments. The most
significant component of the change in operating assets and liabilities was the
deferred purchased gas adjustment liability which decreased $1.4 million and
$5.3 million in 1997 and 1996, respectively, due to intentionally
under-collecting gas costs through the PGA mechanism in an effort to refund
previously over-collected gas costs. The under or over-collection of gas costs
has no net effect on gross margin since revenues and gas costs are effected by
the same amount. The increase in cash flows from operating activities for 1996
compared to 1995 is attributed to increased net income and increased non-cash
components of net income, the largest of which is deferred income taxes
resulting from a full year of book and tax depreciation for Bay Gas.
Additional funding in 1997 for working capital and capital requirements was
obtained from issuance in November 1996 of $12 million in 7.27% First Mortgage
Bonds. In 1997, the Company reduced its short-term borrowings by $4.3 million,
made principal payments on long-term debt of $2.8 million and paid dividends of
$3.3 million. The Company's remaining cash needs in 1996 and 1995 were obtained
by borrowings under the Company's revolving credit agreement. Of the $13.2
million increase in short-term borrowings for 1996, $11 million is related to
the purchase of short-term investments which are reflected within the balance
sheet as cash equivalents at September 30, 1996. During 1995 the Company used
the remaining invested funds from the $22.5 million Bay Gas Senior Secured Notes
issued in fiscal 1993 to complete certain construction activities at Bay Gas.
Bay Gas will add additional compression at an estimated cost of $3.7
million to increase the gas injection capacity should significant contracts be
entered into which provide for firm injection services. Funding for the
additional compression, if added, will come from internal cash generation and an
equity contribution from the Bay Gas partners. Funds for the equity contribution
by Mobile Gas would be obtained from short-term bank borrowings.
In addition to the potential cash requirements of Bay Gas, the Company
expects fiscal 1998 capital expenditures related to the Company's regular
construction program to be $7.3 million. Funds for the Company's cash needs are
expected to come from cash provided by operations and borrowings under the
Company's revolving credit agreement. Management
15
<PAGE> 17
believes it has adequate financial flexibility to meet its expected cash needs
in the foreseeable future.
FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, but are not
limited to, its ability to successfully achieve internal performance goals,
competition, the effects of state and federal regulation, including rate relief
to recover increased capital and operating costs, general economic conditions,
and specific conditions in the Company's service area.
Item 8. Financial Statements and Supplementary Data.
The financial statements and financial statement schedules and the
Independent Auditors' Report thereon filed as part of this report are listed in
the "Mobile Gas Service Corporation and Subsidiaries Index to Financial
Statements and Schedules" at Page F-1, which follows Part IV hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements on accounting and financial disclosure
with the Company's outside auditors which are required to be disclosed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under the captions "Election of Directors" and "Information
Regarding the Board of Directors" contained in the Company's definitive proxy
statement with respect to its 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
For information with respect to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this Report.
Information under the caption "Reports Under Section 16 of the Securities
and Exchange Act" contained in the Company's definitive proxy statement with
respect to its 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
Item 11. Executive Compensation.
Information under the caption "Executive Compensation" contained in the
Company's definitive proxy statement with respect to its 1998 Annual Meeting of
Stockholders is incorporated herein by reference.
16
<PAGE> 18
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's definitive proxy statement
with respect to its 1998 Annual Meeting of Stockholders is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
There were no transactions required to be disclosed pursuant to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a), (d) Financial Statements and Financial Statement Schedules
See "Mobile Gas Service Corporation and Subsidiaries Index to
Financial Statements and Schedules" at page F-1, which
follows Part IV hereof.
(3) Exhibits - See Exhibit Index on pages E-1 through E-5.
(b) No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 1997.
(c) Exhibits filed with this report are attached hereto.
17
<PAGE> 19
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.
MOBILE GAS SERVICE CORPORATION
------------------------------
Registrant
December 5, 1997 By: /s/ Charles P. Huffman
-------------------------------------
Charles P. Huffman, Vice President,
Chief Financial Officer and Treasurer
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 and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Hearin Director, Chairman December 5, 1997
- -----------------------------
William J. Hearin
/s/ Walter L. Hovell Director, Vice-Chairman December 5, 1997
- -----------------------------
Walter L. Hovell
/s/ John S. Davis Director, President and December 5, 1997
- ----------------------------- Chief Executive Officer
John S. Davis (Principal Executive Officer)
/s/ Charles P. Huffman Vice President, Chief Financial December 5, 1997
- ----------------------------- Officer and Treasurer (Principal
Charles P. Huffman Financial and Accounting
Officer)
/s/ Joseph G. Hollis Director December 5, 1997
- -----------------------------
Joseph G. Hollis
</TABLE>
18
<PAGE> 20
Signatures (Continued)
<TABLE>
<S> <C> <C>
/s/ John C. Hope Director December 5, 1997
- -----------------------------
John C. Hope
/s/ Gaylord C. Lyon Director December 5, 1997
- -----------------------------
Gaylord C. Lyon
/s/ S. Felton Mitchell, Jr. Director December 5, 1997
- -----------------------------
S. Felton Mitchell, Jr.
/s/ G. Montgomery Mitchell Director December 5, 1997
- -----------------------------
G. Montgomery Mitchell
/s/ F. B. Muhlfeld Director December 5, 1997
- -----------------------------
F. B. Muhlfeld
/s/ E. B. Peebles, Jr. Director December 5, 1997
- -----------------------------
E. B. Peebles, Jr.
/s/ Thomas B. Van Antwerp Director December 5, 1997
- -----------------------------
Thomas B. Van Antwerp
</TABLE>
19
<PAGE> 21
MOBILE GAS SERVICE CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Income for the years ended
September 30, 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995 F-4
Consolidated Balance Sheets, September 30, 1997 and 1996 F-5
Consolidated Statements of Common Stockholders' Equity
for the years ended September 30, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules
II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 1997, 1996 and 1995 S-1
</TABLE>
Schedules other than that referred to above are omitted and are not applicable
or not required.
F-1
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Mobile Gas Service Corporation:
We have audited the accompanying consolidated balance sheets of Mobile Gas
Service Corporation and subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of income, common stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997. Our
audits also included the financial statement schedule listed in the Index
referred to in Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Mobile Gas Service Corporation
and its subsidiaries at September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Atlanta, Georgia
November 7, 1997
F-2
<PAGE> 23
CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended September 30, (in thousands, except per share data) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING REVENUES
Gas Revenues $69,622 $68,334 $56,204
Merchandise Sales and Jobbing 3,048 3,044 2,907
------- ------- -------
Total Operating Revenues 72,670 71,378 59,111
------- ------- -------
OPERATING EXPENSES
Cost of Gas 21,895 19,552 18,311
Cost of Merchandise and Jobbing 2,240 2,343 2,148
Operations 18,006 18,093 15,826
Maintenance 1,542 1,945 1,419
Depreciation 5,740 5,406 5,055
Taxes, Other Than Income Taxes 5,269 5,574 4,758
------- ------- -------
Total Operating Expenses 54,692 52,913 47,517
------- ------- -------
OPERATING INCOME 17,978 18,465 11,594
------- ------- -------
OTHER INCOME AND (EXPENSE)
Interest Expense (5,792) (5,309) (5,485)
Allowance for Borrowed Funds Used During Construction 177 35 57
Interest Income 991 884 438
Minority Interest (516) (431) (312)
------- ------- -------
Total Other Income (Expense) (5,140) (4,821) (5,302)
------- ------- -------
INCOME BEFORE INCOME TAXES 12,838 13,644 6,292
Income Taxes 4,712 5,013 2,264
------- ------- -------
NET INCOME $ 8,126 $ 8,631 $ 4,028
------- ------- -------
AVERAGE COMMON SHARES OUTSTANDING 3,255 3,225 3,208
------- ------- -------
EARNINGS PER SHARE OF COMMON STOCK $ 2.50 $ 2.68 $ 1.26
------- ------- -------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 24
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30, (in thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,126 $ 8,631 $ 4,028
Depreciation and Amortization 6,069 5,619 5,261
Provision for Losses on Accounts Receivable 821 441 293
Provision for Deferred Income Taxes 1,691 2,939 494
Provision for Deferred Gas Cost (45) (30) 39
Minority Interest 534 440 176
Changes in Operating Assets and Liabilities (2,267) (5,080) (1,390)
-------- -------- --------
Net Cash Provided by Operating Activities 14,929 12,960 8,901
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (12,232) (10,140) (11,038)
Net Change in Temporary Investments 1,900
-------- -------- --------
Net Cash Used In Investing Activities (12,232) (10,140) (9,138)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt (2,818) (1,719) (1,369)
Proceeds from Issuance of Long-Term Debt 12,000
Changes in Short-Term Borrowings (4,300) 13,200 1,800
Payment of Dividends, Net of Dividend Reinvestment (3,349) (3,294) (3,216)
-------- -------- --------
Net Cash Provided (Used) by Financing Activities 1,533 8,187 (2,785)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,230 11,007 (3,022)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,030 1,023 4,045
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,260 $ 12,030 $ 1,023
-------- -------- --------
CASH PAID DURING THE YEAR FOR:
Interest $ 5,325 $ 5,187 $ 5,294
-------- -------- --------
Income Taxes $ 3,289 $ 2,697 $ 1,938
-------- -------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE> 25
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS
ASSETS
September 30, (in thousands) 1997 1996
---- ----
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT $165,208 $153,000
Less: Accumulated Depreciation and Amortization 40,289 36,099
-------- --------
Property, Plant, and Equipment - Net 124,919 116,901
Construction Work in Progress 946 2,579
-------- --------
Total Property, Plant, and Equipment 125,865 119,480
-------- --------
CURRENT ASSETS
Cash and Cash Equivalents 16,260 12,030
Receivables:
Gas 3,013 3,151
Merchandise 2,715 2,592
Other 609 566
Allowance for Doubtful Accounts (536) (349)
Materials, Supplies, and Merchandise (At Average
Cost) 1,241 1,163
Gas Stored Underground For Current Use (At
Average Cost) 2,152 1,951
Deferred Purchased Gas Adjustment 809
Deferred Gas Costs 231 186
Deferred Income Taxes 818 1,240
Prepayments 1,419 1,331
-------- --------
Total Current Assets 28,731 23,861
-------- --------
REGULATORY ASSETS 1,138 1,367
MERCHANDISE RECEIVABLES DUE AFTER ONE YEAR 4,827 4,608
DEFERRED CHARGES 1,306 1,463
-------- --------
TOTAL $161,867 $150,779
-------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE> 26
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
September 30, (in thousands, except share data) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION
Stockholders' Equity:
Common Stock, $.01 Par Value
(Authorized 8,000,000 Shares; Outstanding
1997 - 3,237,000; 1996 - 3,222,000 Shares) $ 32 $ 32
Capital in Excess of Par Value 17,763 17,364
Retained Earnings 37,382 33,004
- -----------------------------------------------------------------------------------------------
Total Stockholders' Equity 55,177 50,400
Minority Interest 2,985 2,451
Long-Term Debt (Less Current Maturities) 63,580 54,509
- -----------------------------------------------------------------------------------------------
Total Capitalization 121,742 107,360
- -----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current Maturities of Long-Term Debt 2,930 2,818
Notes Payable 10,700 15,000
Accounts Payable 4,080 3,687
Dividends Declared 971 902
Customer Deposits 1,556 1,549
Taxes Accrued 2,827 2,607
Interest Accrued 1,897 1,641
Deferred Purchased Gas Adjustment 638
Other Liabilities 2,168 2,380
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 27,129 31,222
- -----------------------------------------------------------------------------------------------
ACCRUED PENSION COST 1,718 1,778
ACCRUED POSTRETIREMENT BENEFIT COST 1,087 1,312
DEFERRED INCOME TAXES 9,747 8,637
DEFERRED INVESTMENT TAX CREDITS 444 470
COMMITMENTS AND CONTINGENCIES (NOTE 9)
- -----------------------------------------------------------------------------------------------
TOTAL $161,867 $150,779
- -----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 27
CONSOLIDATED
STATEMENTS OF
COMMON STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Capital in
Number of Par Excess of Retained
(in thousands, except per share data) Shares Value Par Value Earnings
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 3,202 $32 $16,934 $27,284
Net income 4,028
Dividend Reinvestment Plan 9 185
Cash Dividends:
Common Stock - $1.06 per share (3,400)
- ---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 3,211 32 17,119 27,912
Net income 8,631
Dividend Reinvestment Plan 11 245
Cash Dividends:
Common Stock - $1.10 per share (3,539)
- ---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 3,222 32 17,364 33,004
Net income 8,126
Dividend Reinvestment Plan 15 399
Cash Dividends:
Common Stock - $1.16 per share (3,748)
- ---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 3,237 $32 $17,763 $37,382
- ---------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mobile Gas Service
Corporation, its wholly-owned subsidiaries, MGS Energy Services, Inc., MGS
Storage Services, Inc., MGS Marketing Services, Inc., its 87.5% owned
partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and its 51% owned
partnership, Southern Gas Transmission Company (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company is engaged principally in the distribution of natural gas to
residential, commercial, and industrial customers in Southwest Alabama, subject
to regulation by the Alabama Public Service Commission (APSC). For the major
portion of the Company's business, the APSC approves rates which are intended to
permit the recovery of the cost of service including a return on investment. Gas
deliveries to certain industrial customers are subject to regulation by the APSC
through contract approval. The intrastate storage contracts of Bay Gas, which
operates a natural gas storage facility, are subject to APSC approval, whereas
interstate storage contracts, by Federal Energy Regulatory Commission order, are
permitted to have market-based rates. The Company is also engaged in various
unregulated activities including the sale and financing of gas appliances,
jobbing work, and contract and consulting work for utilities and industrial
customers.
REVENUES AND GAS COSTS
Revenues from residential and commercial customers are recorded as meters are
read on a cycle basis throughout each month. The commodity cost of purchased gas
applicable to gas delivered to customers but not yet billed under the cycle
billing method is deferred and classified as deferred gas costs within the
Company's Balance Sheet. Increases or decreases in the cost of gas and certain
other costs are passed through to customers in accordance with provisions in the
Company's rate schedules. Any over or under recoveries of these costs are
charged or credited to cost of gas and included in current assets or liabilities
as the Deferred Purchased Gas Adjustment within the Company's Balance Sheet. A
general rate increase designed to increase the Company's operating margins was
approved by the APSC and became effective on December 1, 1995. The APSC
authorized the Company, effective November 1, 1996, to implement a temperature
rate adjustment rider. Such rider is designed to offset the impact of unusually
warm or cold weather on the Company's operating margin. The rider increased net
income approximately $816,000 in 1997.
F-8
<PAGE> 29
PROPERTY, PLANT, AND EQUIPMENT
Substantially all property, plant, and equipment is considered utility plant.
Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $8,424,000 and $8,812,000 at September 30, 1997 and 1996,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.
The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an allowance
for funds used during construction. The cost of depreciable property retired,
plus cost of dismantling, less salvage, is charged to accumulated depreciation.
Estimated interest cost associated with property under construction, based upon
weighted average interest rates for short-term borrowings or the interest rate
on borrowings for specific projects, is capitalized as an allowance for borrowed
funds used during construction. Maintenance, repairs, minor renewals and
betterment of property are charged to operations.
Provisions for depreciation are computed principally on straight-line rates for
financial statement purposes and on accelerated rates for income tax purposes.
Depreciation for financial statement purposes is provided at an annual rate
averaging approximately 4.0% of depreciable property, excluding the gas storage
facility which is depreciated at an annual rate averaging 2.7%.
CASH EQUIVALENTS
The Company records all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
The Company records deferred tax liabilities and assets, as measured by enacted
tax rates, for all temporary differences caused when the tax basis of an asset
or liability differs from that reported in the financial statements. Investment
tax credits realized after 1980 are deferred and amortized over the average life
of the related property in accordance with regulatory treatment.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
shares and common share equivalents outstanding during each period. Common share
equivalents include the dilutive effect of outstanding stock options.
F-9
<PAGE> 30
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company reviews its long-lived assets whenever indications of impairment are
present. If any assets are determined to be impaired, such assets would be
written down to their estimated fair market values. The Company does not believe
it has any assets which are currently impaired.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was effective for the Company October 1, 1996. SFAS
123 establishes a fair value method of accounting for stock-based compensation
plans. SFAS 123 allows companies to either measure stock-based compensation
using the fair value method or to continue to apply existing accounting
standards and include footnote disclosure of pro forma net income and earnings
per share calculated as if the fair value method had been applied. Stock options
outstanding at September 30, 1997 are not subject to the requirements of SFAS
123 since the option grant date is prior to the effective date of pro forma
disclosures. The Company expects to continue to apply existing accounting
standards for stock-based compensation and to include disclosures required by
SFAS 123 for stock options granted in the future.
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), is effective for the Company for the quarter ending December 31, 1997.
SFAS 128 establishes standards for computing and presenting earnings per share.
The Company does not expect the implementation of SFAS 128 to have a significant
impact on the Company's reported earnings per share.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) is effective for the Company for the fiscal year beginning
October 1, 1998. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not currently have any comprehensive
income other than items included in net income and, therefore, does not expect
any material changes to its current reporting in response to SFAS 130.
F-10
<PAGE> 31
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for the
Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with its annual financial
statements for the fiscal year ending September 30, 1999.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the 1997 financial statement presentation.
2. PROPERTY AND REGULATORY ASSETS
The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):
1997 1996
---------- ---------
Distribution plant $ 99,329 $ 89,152
Generation plant 14,526 13,456
Storage plant 38,015 36,908
Transmission plant 3,464 3,464
Acquisition adjustment 9,874 10,020
---------- ---------
Total property, plant, and equipment $ 165,208 $ 153,000
---------- ---------
The components of regulatory assets are as follows at September 30, (in
thousands):
1997 1996
---------- ----------
Income tax (Note 4) $ 1,056 $ 1,215
Postemployment benefits (Note 8) 82 152
---------- ----------
Total regulatory assets $ 1,138 $ 1,367
---------- ----------
F-11
<PAGE> 32
3. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following at September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Mobile Gas Service Corporation
First Mortgage Bonds
10.25% Series, due October 1, 2001 $ 5,000 $ 6,500
8.75% Series, due July 1, 2022 12,000 12,000
7.48% Series, due July 1, 2023 12,000 12,000
7.27% Series, due November 1, 2006 12,000
9% Note, due May 13, 2013 3,716 3,819
Bay Gas Storage Company, Ltd.
8.19% Guaranteed Senior Secured Notes
due December 1, 2014 20,967 21,615
Southern Gas Transmission Company
Revenue Note, Series A, due February 1, 1999
(Interest varies from 7.95% to 8.05%) 827 1,393
---------- ----------
Total 66,510 57,327
Less amounts due within one year 2,930 2,818
---------- ----------
Long-term debt $ 63,580 $ 54,509
========== ==========
</TABLE>
Maturities and sinking fund requirements on long-term debt in each of the five
fiscal years subsequent to September 30, 1997 are as follows: 1998 - $2,930,000;
1999 - $2,100,000; 2000 - $1,962,000; 2001 - $2,045,000; and 2002 - $1,634,000.
Substantially all of the property of the Company is pledged as collateral for
the long-term debt.
At September 30, 1997, the Company had a $20 million revolving credit agreement
with a group of banks which expires in July 1999. Borrowings under the
agreement may be made as needed providing that the Company is in compliance with
certain covenants in the revolving credit agreement and other loan agreements.
The Company currently is in compliance with all such covenants. The Company pays
a fee for its committed lines of credit rather than maintain compensating
balances. The commitment fee is 0.125% of the average daily unborrowed amount
during the annual period of calculation. Unused committed lines of credit at
September 30, 1997 and 1996 were $9.3 million and $5.0 million, respectively.
The weighted average interest rates on short-term debt outstanding at September
30, 1997 and 1996 were 6.7% and 6.5%, respectively.
F-12
<PAGE> 33
4. INCOME TAXES
The components of income tax expense are as follows for the years ended
September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $2,750 $1,897 $1,622
State 286 202 172
------ ------ ------
3,036 2,099 1,794
------ ------ ------
Deferred:
Federal 1,544 2,667 448
State 158 273 46
------ ------ ------
1,702 2,940 494
------ ------ ------
Deferred investment tax credit
amortization (26) (26) (24)
------ ------ ------
Total income tax expense $4,712 $5,013 $2,264
------ ------ ------
</TABLE>
A reconciliation of income tax expense and the amount computed by multiplying
income before income taxes by the statutory federal income tax rate for the
periods indicated is as follows for the years ended September 30, (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income tax expense at federal
statutory rate $4,365 $4,639 $2,139
Excess of book over tax depreciation on
pre-1981 property additions 113 108 109
State income taxes 289 307 144
Other - net (55) (41) (128)
------ ------ ------
Total income tax expense $4,712 $5,013 $2,264
------ ------ ------
Effective tax rate 36.7% 36.7% 36.0%
</TABLE>
The tax effect of differences in book and tax depreciation related to pre-1981
property additions was recognized in income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in accordance with the current ratemaking practices
followed by the APSC. Such future collections included in regulatory assets are
$1,056,000 and $1,215,000 at September 30, 1997 and 1996, respectively.
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance.
F-13
<PAGE> 34
The significant components of the Company's net deferred tax liability as of
September 30, are (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax
basis of property $10,605 $9,296
Prepaid insurance 197 222
Regulatory assets 383 440
Purchased gas adjustment 293 (231)
Other 150 182
------- ------
Total deferred tax liabilities 11,628 9,909
------- ------
Deferred tax assets:
Pension 622 643
Gross receipts taxes 585 571
Unbilled revenue 238 232
Postretirement benefits 247 256
Other 1,007 810
------- ------
Total deferred tax assets 2,699 2,512
------- ------
Net deferred tax liability $ 8,929 $7,397
------- ------
</TABLE>
5. CAPITAL STOCK
On January 31, 1997, the stockholders approved a proposed amendment to the
Restated Articles of Incorporation of the Company to increase the authorized
number of shares of common stock of the Company to eight million and to reduce
the par value of such common stock from $2.50 per share to $.01 per share. The
effect of this change on the Company's financial statements at January 31, 1997
was a reduction in the Common Stock Par Value of $8,037,421 and an increase in
the Capital in Excess of Par Value of the same amount. The change in par value
has been retroactively reflected in the financial statements for all dates
presented.
The Mobile Gas Service Corporation 1992 Stock Option Plan (the "Plan") provides
for the granting of incentive stock options, non-qualified stock options, and
stock appreciation rights to key employees. Under the Plan, an aggregate of
150,000 shares of the Company's authorized but unissued Common Stock have been
reserved for issuance. Stock options become 25% exercisable on the first
anniversary of the grant date and an additional 25% become exercisable each
succeeding year. No option may be exercised after the expiration of ten years
from the grant date. During the year ended September 30, 1995, 105,000 options
were granted at an option price of $21.125, representing the market price on the
date of grant. No stock options were granted, exercised or cancelled during the
years ended September 30, 1997 and 1996. At September 30, 1997, 52,500 stock
options are exercisable and 45,000 are available for options granted in
the future.
At September 30, 1997, 198,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.
F-14
<PAGE> 35
6. RESTRICTIONS ON RETAINED EARNINGS
The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. At September 30, 1997, under the most
restrictive provisions, retained earnings in the amount of $18,470,000 was
unrestricted.
7. RETIREMENT PLANS AND OTHER BENEFITS
The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of amounts
resulting from two different formulas: years of service and average compensation
during the last five years of employment or years of service and compensation
during the term of employment. The "projected unit credit" actuarial method was
used to determine the service cost and actuarial liability. The Company annually
contributes to the plan the amount deductible for federal income tax purposes.
Net periodic pension cost (credit) included the following components for the
years ended September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 574 $ 527 $ 431
Interest cost 1,248 1,258 1,168
Actual return on plan assets (5,661) (1,420) (3,549)
Net amortization and deferral 3,780 (227) 2,082
------- ------- -------
Net pension cost (credit) $ (59) $ 138 $ 132
------- ------- -------
</TABLE>
Assumptions used in the actuarial computations for the years ended September 30,
were:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation 6.1% 6.1% 6.1%
Expected long-term rate of return on
plan assets 7.5% 7.5% 7.5%
</TABLE>
F-15
<PAGE> 36
The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(13,328) $(12,945)
Nonvested benefits (556) (692)
-------- --------
Accumulated benefit obligation (13,884) (13,637)
Effect of projected future compensation (4,125) (3,950)
-------- --------
Projected benefit obligation (18,009) (17,587)
Plan assets at market value, primarily
marketable securities 29,293 24,579
-------- --------
Excess of plan assets over projected
benefit obligations 11,284 6,992
Unrecognized net gain (12,207) (7,831)
Prior service cost not yet recognized 431 471
Remaining unrecognized net asset being
recognized over 16.7 years (1,226) (1,410)
-------- --------
Accrued pension cost $ (1,718) $ (1,778)
-------- --------
</TABLE>
The Company's eligible employees may participate in the Employee Savings Plan or
the Bargaining Unit Employees Savings Plan by investing a percentage of their
compensation in the Plans with the Company matching a part of the employee
investment. The Company's contributions for the years ended September 30, 1997,
1996 and 1995 were $225,000, $199,000, and $177,000, respectively.
8. OTHER POSTEMPLOYMENT BENEFITS
The Company provides certain health care and life insurance benefits for retired
employees. Substantially all employees may become eligible for such benefits if
they retire under the provisions of the Company's retirement plan.
The Company is accruing the costs over the expected service period of the
employees. The "projected unit credit" actuarial method was used to determine
the service cost and actuarial liability.
Net periodic postretirement benefit cost included the following components for
the years ended September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost $ 83 $ 96 $ 78
Interest cost 240 256 216
Actual return on plan assets (118) (169) (150)
Net amortization and deferral (38) 65 48
----- ----- -----
Net periodic postretirement benefit cost $ 167 $ 248 $ 192
----- ----- -----
</TABLE>
F-16
<PAGE> 37
Assumptions used in the actuarial computations:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation 6.1% 6.1% 6.1%
Expected long-term rate of return on assets 7.0% 7.0% 7.0%
</TABLE>
The accumulated postretirement benefit obligation at September 30, 1997 and 1996
was determined using an assumed health care cost trend rate of 9.6% in 1997 and
1996, gradually declining to 5.0% in the year 2004 and thereafter. If the health
care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of September 30, 1997 would be increased by
18.5%. The effect of this change on the sum of the service cost and interest
cost components would be an increase of 20.9%.
The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Portion attributable to retirees $(2,178) $(2,089)
Fully eligible active plan participants (336) (397)
Other active plan participants (912) (1,167)
------- -------
Accumulated postretirement benefit obligation (3,426) (3,653)
Plan assets at market value, primarily marketable
securities 2,366 1,790
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets (1,060) (1,863)
Unrecognized net loss 83 684
Prior service cost not yet recognized (490) (528)
------- -------
Accrued postretirement benefit cost (1,467) (1,707)
Less: current portion 380 395
------- -------
Accrued postretirement benefit cost - long-term
portion $(1,087) $(1,312)
------- -------
</TABLE>
In September 1991, the Company formed two voluntary employees' beneficiary
association (VEBA) trusts to fund postretirement health and life insurance
benefits. The Company's contributions to these trusts in 1997, 1996 and 1995
were $215,000, $200,000 and $218,000, respectively.
Beginning October 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112"). SFAS 112 required the Company to record the cost of providing
postemployment benefits to former or inactive employees, their beneficiaries,
and covered dependents after employment but before retirement. For the year
ended September 30, 1995, the Company recorded a liability for postemployment
benefits of $211,000 with a corresponding charge to a regulatory asset. The
regulatory asset is being amortized to expense and collected from customers over
a three year period beginning December 1, 1995 as approved by the APSC.
F-17
<PAGE> 38
9. COMMITMENTS AND CONTINGENCIES
The Company has third-party contracts, which expire at various dates through the
year 2000, for the purchase, storage and delivery of gas supplies. Minimum
payments under these contracts in the fiscal years subsequent to September 30,
1997 are as follows: 1998 - $1,560,000; 1999 - $990,000; and 2000 - $277,000. A
portion of firm supply requirements is expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. Mobile Gas Service
Corporation has entered into a Gas Storage Agreement under which Bay Gas is to
provide storage services for an initial period of 20 years which began in
September 1994 with the commencement of commercial operations of the storage
facility. The purchased gas adjustment provisions of the Company's rate
schedules permit the recovery of gas costs from customers.
The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In contrast
to some other companies which operated multiple manufactured gas plants, the
Company and its predecessor operated only one such plant, which discontinued
operations in 1933. The process for manufacturing gas produced by-products and
residuals, such as coal tar, and certain remnants of these residuals are
sometimes found at former gas manufacturing sites.
The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.
F-18
<PAGE> 39
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments", and are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amounts for cash and cash equivalents, gas and other receivables,
notes payable, accounts payable and other current liabilities approximate fair
value. The fair value of merchandise receivables is estimated based on market
interest rates for similar receivables at the end of each respective year. The
carrying amount of merchandise receivables, as shown below, is net of the
reserve for uncollectible merchandise receivables. The fair value of long-term
debt is estimated based on interest rates available to the Company at the end of
each respective year for the issuance of debt with similar terms and remaining
maturities.
The carrying amount and the estimated fair value of such financial instruments
are as follows at September 30, (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Merchandise receivables $ 7,138 $ 7,239 $ 6,938 $ 7,142
Long-term debt 66,510 73,669 57,327 61,257
</TABLE>
F-19
<PAGE> 40
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1997 and 1996 is summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
Dec. 31 Mar. 31 Jun. 30 Sep. 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
Total operating revenues $ 17,961 $ 29,336 $ 13,854 $ 11,519
Total operating income $ 4,539 $ 9,093 $ 3,009 $ 1,337
Net income $ 2,038 $ 4,861 $ 1,096 $ 131
Earnings per share of common
stock $ 0.63 $ 1.49 $ 0.34 $ 0.04
1996
Total operating revenues $ 16,816 $ 28,222 $ 15,117 $ 11,223
Total operating income $ 4,115 $ 9,700 $ 3,475 $ 1,175
Net income $ 1,804 $ 5,315 $ 1,391 $ 121
Earnings per share of common
stock $ 0.56 $ 1.65 $ 0.44 $ 0.03
</TABLE>
The pattern of quarterly earnings reflects a seasonal nature because weather
conditions strongly influence operating results.
F-20
<PAGE> 41
12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Years Ended September 30, (in thousands) 1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Operating Revenues, Unaffiliated Customers
Natural gas distribution $ 71,494 $ 70,452 $ 58,866
Natural gas storage 1,176 926 245
-------- -------- --------
Total $ 72,670 $ 71,378 $ 59,111
-------- -------- --------
Intersegment Revenues
Natural gas distribution $ 3 $ 25 $ 760
Natural gas storage 4,146 4,141 4,111
-------- -------- --------
Total, eliminated in consolidation $ 4,149 $ 4,166 $ 4,871
-------- -------- --------
Operating Expenses, Excluding Income Taxes
Natural gas distribution $ 56,985 $ 54,761 $ 50,252
Natural gas storage 1,856 2,318 2,136
Eliminated in consolidation (4,149) (4,166) (4,871)
-------- -------- --------
Total $ 54,692 $ 52,913 $ 47,517
-------- -------- --------
Operating Income Before Income Taxes
Natural gas distribution $ 14,511 $ 15,716 $ 9,374
Natural gas storage 3,467 2,749 2,220
-------- -------- --------
Total $ 17,978 $ 18,465 $ 11,594
-------- -------- --------
Depreciation and Amortization
Natural gas distribution $ 5,102 $ 4,682 $ 4,374
Natural gas storage 967 937 887
-------- -------- --------
Total $ 6,069 $ 5,619 $ 5,261
-------- -------- --------
Capital Expenditures
Natural gas distribution $ 11,401 $ 7,856 $ 6,060
Natural gas storage 831 2,284 4,978
-------- -------- --------
Total $ 12,232 $ 10,140 $ 11,038
-------- -------- --------
Identifiable Assets, at September 30,
Natural gas distribution $122,656 $113,479 $100,590
Natural gas storage 39,211 37,300 35,977
-------- -------- --------
Total $161,867 $150,779 $136,567
-------- -------- --------
</TABLE>
F-21
<PAGE> 42
13. CHANGE IN CORPORATE STRUCTURE
The Company has announced its plan to form a holding company, EnergySouth, Inc.
The change in corporate structure requires, among other things, the approval of
the Company's shareholders and is expected to be voted upon at the at the Annual
Meeting of Shareholders to be held January 30, 1998. If the change in corporate
structure is approved, Mobile Gas, along with its existing subsidiaries, would
become subsidiaries of the new holding company and the shareholders of Mobile
Gas would receive three shares of EnergySouth, Inc. for each two shares of
Mobile Gas.
F-22
<PAGE> 43
SCHEDULE II
MOBILE GAS SERVICE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
---------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES AMOUNT AMOUNT OF YEAR
----------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Reserves deducted
from assets to
which they apply -
Allowance for
doubtful accounts:
September 30, 1997 $349 $821 $634(1) $536
September 30, 1996 $266 $441 $358(1) $349
September 30, 1995 $215 $293 $242(1) $266
</TABLE>
NOTES:
(1) Amounts written off - net of recoveries.
S-1
<PAGE> 44
EXHIBIT INDEX
Exhibit No. Description
3(a)-1 Restated Articles of Incorporation (incorporated by reference
to Exhibit 3(i)-C to Form 8-K Current Report dated January
26, 1996)
3(a)-2 Articles of Amendment dated January 31, 1997 to Restated
Articles of Incorporation of Mobile Gas Service Corporation
(incorporated by reference to Exhibit 3(i)-D to Form 8-K
Current Report dated January 31, 1997)
3(b) By-laws, adopted January 27, 1995 (incorporated by reference
to Exhibit 3(b) to Form 8-K Current Report dated January 27,
1995)
3(b)-1 By-laws, adopted January 26, 1996, as amended December 5,
1997(1)
4(a)-1 Indenture of Mortgage and Deed of Trust of the Company dated
as of December 1, 1941 (incorporated by reference to Exhibit
B-a to Registration Statement No. 2-4887)
<TABLE>
<CAPTION>
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
<S> <C> <C> <C>
4(a)-2 10/1/44 Reg. No. 2-5493 7-6
4(a)-3 7/1/52 Form 10-K for fiscal year ended 4(a)-3
September 30, 1985
4(a)-4 6/1/54 " 4(a)-4
4(a)-5 4/1/57 " 4(a)-5
4(a)-6 7/1/61 " 4(a)-6
4(a)-7 6/1/63 " 4(a)-7
4(a)-8 10/1/64 " 4(a)-8
4(a)-9 7/1/72 " 4(a)-9
4(a)-10 8/1/75 " 4(a)-10
4(a)-11 7/1/79 " 4(a)-11
4(a)-12 7/1/82 " 4(a)-12
4(a)-13 7/1/86 Form 10-K for fiscal year ended 4(a)-13
September 30, 1986
4(a)-14 10/1/88 Form 10-K for fiscal year ended 4(a)-14
September 30, 1989
4(a)-15 7/1/92 Form 10-K for fiscal year 4(a)-15
ended September 30, 1992
4(a)-16 7/1/93 Form 10-K for fiscal year 4(a)-16
ended September 30, 1993
4(a)-17 12/3/93 Form 10-K for fiscal year 4(a)-17
ended September 30, 1993
4(a)-18 11/1/96 Form 10-K for fiscal year 4(a)-18
ended September 30, 1997(1)
</TABLE>
E-1
<PAGE> 45
4(b) Southern Gas Transmission Company Indenture (incorporated by
reference to Exhibit 4(b) to Form 10-K for fiscal year ended
September 30, 1992)
4(c)-1 Bay Gas Indenture dated as of October 1, 1992 (incorporated by
reference to Exhibit 4(c) to Form 10-K for fiscal year ended
September 30, 1992)
4(c)-2 First Supplemental Indenture dated as of October 1, 1994
supplemental to Bay Gas Indenture (incorporated by reference
to Exhibit 4(c)-2 to Form 10-K for fiscal year ended September
30, 1995)
4(d) Promissory Note to the Utilities Board of the Town of
Citronelle dated May 13, 1993 (incorporated by reference to
Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
1993)
10(d)-2 Settlement Agreement with Koch Gateway Pipeline Company dated
September 21, 1993 (incorporated by reference to Exhibit
10(d)-2 to Form 10-K for fiscal year ended September 30, 1993)
10(d)-3 No Notice Service Agreements between Koch Gateway Pipeline
Company and Mobile Gas Service Corporation dated November 1,
1993 (incorporated by reference to Form S-1, Registration
Statement No. 33-82498)
10(d)-4 Gas Supply Agreement between Mobile Gas Service Corporation
and Koch Gas Services Company made as of the 1st day of April,
1994 (incorporated by reference to Form S-1, Registration
Statement No. 33-82498)
10(e)-3 Gas Sale and Purchase Contract between Coral Energy Resources,
L.P. as Seller and Mobile Gas Service Corporation as Buyer
dated as of January 1, 1997(1)(3)
10(e)-4 Gas Supply Agreement between Midcon Gas Services Corp. and
Mobile Gas Service Corporation dated as of April 1, 1997(1)(3)
10(f)-1 Agreement for Sale and Purchase of Gas - Mobile Plant dated
August 10, 1995 between Mobil Natural Gas Inc. and Mobile
Gas(3) Service (incorporated by reference to Exhibit 10(f) to
Form 10-K for fiscal year ended September 30, 1995)(3)
10(f)-2 Letter dated June 26, 1996 with consent dated July 31, 1996 to
assignment of Agreement for Sale and Purchase of Gas - Mobile
Plant to PanEnergy Trading and Market Services, L.L.C.
(incorporated by reference to Exhibit 10(f)-2 to Form 10-K for
fiscal year ended September 30, 1996)
10(g) Deferred Compensation Agreement with John S. Davis dated
January 26, 1996 (incorporated by reference to Exhibit 10(g)
to Form 8-K Current Report dated February 7, 1996)
E-2
<PAGE> 46
10(i) Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd.
Gas Storage Agreement dated February 26, 1992 (incorporated by
reference to Exhibit 10(i) to Form 10-K for fiscal year ended
September 30, 1992)
10(j) Directors/Officers Indemnification Agreement (incorporated by
reference to Exhibit 10(j) to Form 10-K for fiscal year ended
September 30, 1992)
10(k)-1 Amended and Restated Supplemental Deferred Compensation
Agreement with Walter L. Hovell, dated December 11, 1992
(incorporated by reference to Exhibit 10(k) to Form 10-K for
fiscal year ended September 30, 1992)(2)
10(k)-2 Amendment to Amended and Restated Supplemental Deferred
Compensation Agreement dated January 27, 1995 between the
Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(k)-2 to Form 8-K Current Report dated January 27,
1995)(2)
10(l)-1 Bay Gas Agreement by and among Mobile Gas Service Corporation,
MGS Storage Services, Inc., MGS Energy Services, Inc. and Olin
Corporation, dated December 5, 1991 (incorporated by reference
to Exhibit 10(l) to Form 10-K for fiscal year ended September
30, 1992)
10(m)-1 Limited Partnership Agreement between MGS Storage Services,
Inc., as General Partner, and MGS Energy Services, Inc., as
Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
December 5, 1991 (incorporated by reference to Exhibit 10(m)
to Form 10-K for fiscal year ended September 30, 1992)
10(m)-2 First Amendment to Limited Partnership Agreement dated as of
April 6, 1992 and Second Amendment to Limited Partnership
Agreement dated as of September 12, 1994 (incorporated by
reference to Exhibit 10(m)-2 to Form 10-K for fiscal year
ended September 30, 1994)
10(n) Cavity Development and Storage Agreement between Olin
Corporation and Bay Gas Storage Company, Ltd., dated January
14, 1992 (incorporated by reference to Exhibit 10(n) to Form
10-K for fiscal year ended September 30, 1992)
10(o)-1 Transportation Agreement between Mobile Gas Service
Corporation and Tuscaloosa Steel Corporation dated as of May
15, 1995 (incorporated by reference to Exhibit 10(o) to Form
10-K for fiscal year ended September 30, 1995)(3)
10(o)-2 Amendment dated August 23, 1996 to Transportation Agreement
between Mobile Gas Service Corporation and Tuscaloosa Steel
Corporation(3)
E-3
<PAGE> 47
10(p) Note Guaranty Agreement between Mobile Gas Service Corporation
and AmSouth Bank of Alabama, Trustee, dated as of January 1,
1992, relating to Indenture of Southern Gas Transmission
Company (incorporated by reference to Exhibit 10(p) to Form
10-K for fiscal year ended September 30, 1992)
10(q) Guaranty Agreement by Mobile Gas Service Corporation, dated as
of October 1, 1992, relating to Indenture of Bay Gas Storage
Company, Ltd. (incorporated by reference to Exhibit 10(q) to
Form 10-K for fiscal year ended September 30, 1992)
10(r) Mobile Gas Service Corporation 1992 Stock Option Plan
(incorporated by reference to Exhibit A to definitive proxy
statement dated December 21, 1992)(2)
10(s) Mobile Gas Service Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit B to definitive proxy
statement dated December 21, 1992)(2)
10(t) Agreement for Purchase and Sale of Assets by and between The
Utilities Board of the Town of Citronelle and Mobile Gas
Service Corporation dated January 28, 1993 (incorporated by
reference to Exhibit 10(t) to Form 10-K for fiscal year ended
September 30, 1993)
10(u)-1 Revolving Credit Agreement dated July 17, 1995 by and among
Mobile Gas Service Corporation as Borrower, AmSouth Bank of
Alabama as Agent, and AmSouth Bank of Alabama, First Alabama
Bank, Whitney Bank of Alabama, Bank of Mobile, SouthTrust Bank
of Alabama, N.A., and Commonwealth National Bank as Lenders
(incorporated by reference to Exhibit 10(u) to Form 10-K for
fiscal year ended September 30, 1995)
10(u)-2 Amendment dated July 15, 1996 to Revolving Credit Agreement by
and among Mobile Gas Service Corporation as Borrower, AmSouth
Bank of Alabama as Agent, and AmSouth Bank of Alabama, First
Alabama Bank, Whitney Bank of Alabama, Bank of Mobile,
SouthTrust Bank of Alabama, N.A., and Commonwealth National
Bank as Lenders (incorporated by reference to Exhibit 10(u)-2
to Form 10-K for fiscal year ended September 30, 1996)
10(u)-3 Amendment dated July 15, 1997 to Revolving Credit Agreement by
and among Mobile Gas Service Corporation as Borrower, AmSouth
Bank of Alabama as Agent, and AmSouth Bank of Alabama, First
Alabama Bank, Whitney Bank of Alabama, Bank of Mobile,
SouthTrust Bank of Alabama, N.A., and Commonwealth National
Bank as Lenders(1)
10(x) Letter dated October 7, 1994 from Mobile Gas Service
Corporation to John S. Davis confirming terms of employment
(incorporated by reference to Exhibit A to Form 8-K current
report filed November 2, 1994)(2)
E-4
<PAGE> 48
10(y) Consulting Agreement dated January 27, 1995 between the
Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(y) to Form 8-K Current Report dated January 27,
1995)(2)
10(z) Mobile Gas Service Corporation Non-Employee Directors Deferred
Fee Plan (incorporated by reference to Exhibit 10(z) to Form
8-K Current Report dated January 27, 1995)(2)
10(aa) Mobile Gas Service Corporation Transportation Agreement
between the Company and Methanol One of Alabama, L.L.C. dated
September 26, 1997(1)(3)
11 Statement Re Computation of Per Share Earnings(1)
21 Subsidiaries of Registrant and Partnerships in which
Registrant Owns an Interest(1)
23 Consent of Deloitte & Touche LLP(1)
27 Financial Data Schedule(1)
(1) Filed herewith
(2) Management contract or compensatory plan or arrangement
(3) Confidential portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment made in accordance with Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.
E-5
<PAGE> 1
EXHIBIT 3(b)-1
BYLAWS
MOBILE GAS SERVICE CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The Corporation shall hold annually a
regular meeting of its Stockholders for the election of Directors and for the
transaction of General business at the principal office of the Corporation in
Mobile, Alabama, except in cases in which the calls therefor designate some
other place either within or without the State of Alabama, at ten o'clock A.M.
on the last Friday in January in each year, if not a legal holiday, and if a
legal holiday, then on the first day following which is not a legal holiday or
on such other time and date as may be set by the Board of Directors. Such
annual meetings shall be general meetings, that is to say, open for the
transaction of any business within the powers of the Corporation without
special notice of such business, except in cases in which special notice is
required by law, by the Restated Articles of Incorporation or by these Bylaws.
SECTION 2. SPECIAL MEETINGS. At any time in the interval between
annual meetings, meetings of the Stockholders may be called by the President
and Chief Executive Officer, the Chairman of the Board, the Vice Chairman of
the Board, or by a majority of the Board of Directors by vote at a special
meeting or in writing with or without a meeting. Special meetings of the
Stockholders shall be held at the principal office of the Corporation in
Mobile, Alabama, except in cases in which the calls therefor designate some
other place either within or without the State of Alabama.
SECTION 3. NOTICE OF MEETINGS. Written or printed notice of every
annual meeting or special meeting of the Stockholders shall be given to each
Stockholder entitled to vote at such meeting, by leaving the same with him, or
by mailing it, postage prepaid, and addressed to him at his address as it
appears upon the books of the Corporation, at least ten days before such
meeting, except as otherwise provided by law. Notice of every special meeting
shall state the place, day and hour of such meeting and the general nature of
the business proposed to be transacted thereat. Failure to give notice of any
annual meeting or any irregularity in such notice, shall not affect the
validity of such annual meeting or of any proceedings at such meeting (other
than proceedings of which special notice is required by law,
<PAGE> 2
by the Restated Articles of Incorporation or by the Bylaws). It shall not be
requisite to the validity of any meeting of Stockholders that notice thereof
whether prescribed by law, by the Restated Articles of Incorporation or by
these Bylaws, shall have been given to any Stockholder who attends in person or
by proxy, or to any Stockholder who in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Except as otherwise provided by law, no notice other than by verbal
announcement need by given of any adjourned meetings of Stockholders.
SECTION 4. QUORUM. At all meetings of Stockholders, the Stockholders
entitled to cast a majority in number of votes, present in person or by proxy,
shall constitute a quorum for the transaction of business; but in the absence
of a quorum the Stockholders present in person or by proxy by majority vote may
adjourn the meeting from time to time without notice other than by verbal
announcement at the meeting, until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting.
SECTION 5. PROXY AND VOTING. The voting power of the capital stock
of the Corporation shall be as provided in the Restated Articles of
Incorporation. Stockholders of record entitled to vote may vote at any meeting
either in person or by signed proxy, and dated, but need not be sealed,
witnessed or acknowledged, which shall be filed with the Secretary before being
voted. Such proxies shall entitle the holders thereof to vote at any
adjournment of such meeting but shall not be valid after the final adjournment
thereof. Each Stockholder shall be entitled to one vote for each share of
stock held by him.
SECTION 6. LIST OF STOCKHOLDERS. A complete list of the Stockholders
entitled to vote at the ensuing meeting arranged in alphabetical order with the
mailing address of each according to the records of the Corporation and the
number of voting shares held by each shall be prepared, certified and filed
with the Secretary within the time required by law.
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<PAGE> 3
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. ELECTION AND POWERS. Except such as are by law, by the
Restated Articles of Incorporation or by these Bylaws, conferred upon or
reserved to the Stockholder, all corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation managed
under the direction of, a Board of Directors, which shall consist of not less
than nine nor more than twelve persons. The exact number of Directors within
the minimum and maximum limitation specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors. Until otherwise
changed in accordance with these Bylaws and Article 6 of the Restated Articles
of Incorporation, the number of Directors shall be eleven. At the annual
meeting of shareholders of the Corporation held in 1996, the Directors shall be
divided and classified into three classes, as nearly equal in number as
possible, with the term of office of the first class of Directors to expire at
the annual meeting of shareholders of the Corporation to be held in 1997, the
term of office of the second class of Directors to expire at the annual meeting
of shareholders of the Corporation to be held in 1998, and the term of office
of the third class of Directors to expire at the annual meeting of shareholders
of the Corporation to be held in 1999. At each annual meeting of shareholders
of the Corporation following such initial classification and election, except
as provided herein and in Article 6 of the Restated Articles of Incorporation
in the case of electing a successor to a Director elected by the Board of
Directors to fill a vacancy occurring in the membership of the Board of
Directors, Directors elected to succeed those Directors whose terms expire at
such annual meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of shareholders of the Corporation after their
election. A nominee for election as a member of the Board of Directors shall
be elected by a majority of the votes cast at a meeting of Stockholders, except
as may be otherwise provided in the Restated Articles of Incorporation. Each
Director shall hold office until the annual meeting specified above and until
his successor shall have been duly chosen and qualified, or until he shall have
resigned or been removed in the manner provided in Section 6 of this Article
II. Other than persons in office as directors on such date, after January 27,
1995 no person who would be less than twenty-one (21) years of age or more
than seventy-two (72) years of age on the date of taking office shall be
elected as director.
-3-
<PAGE> 4
SECTION 2. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The
Board of Directors may, in its discretion, elect from its members a Chairman of
the Board of Directors. Such Chairman, when present, shall preside at all
meetings of the Board of Directors, and in the absence of the President and
Chief Executive Officer he shall call to order and preside at meetings of the
Stockholders of the Corporation, and shall have such other powers and duties as
the Board of Directors may from time to time prescribe. The Board of Directors
may also, in its discretion, elect from its members a Vice Chairman of the
Board of Directors. Such Vice Chairman shall, in the absence of the Chairman
of the Board of Directors, have the powers of the Chairman of the Board of
Directors and shall have such other powers and duties as the Board of Directors
may from time to time prescribe.
SECTION 3. MEETINGS OF DIRECTORS. Regular meetings of the Board of
Directors shall be held at such places within or without the State of Alabama
and at such times as the Board by vote may determine from time to time and if
so determined, no notice thereof need be given. Special Meetings of the Board
of Directors may be held at any time or place, either within or without the
State of Alabama, whenever called by the Chairman of the Board of Directors,
the Vice Chairman of the Board of Directors, the President and Chief Executive
Officer, or by a majority of the Directors, notice thereof being given to each
Director by the Secretary or an Assistant Secretary or officer calling the
meeting, or at any time without formal notice provided all the Directors are
present or those not present shall at any time waive or have waived notice
thereof. Notice of Special Meetings, stating the time and place thereof, shall
be given by mailing the same to each Director at his residence or business
address at least two days before the meeting or by delivering the same to him
personally or by telephoning or by facsimile transmission of the same to him at
his residence or business address not later than the day before the day on
which the meeting is to be held, unless, in case of exigency, the Chairman of
the Board of Directors or the President and Chief Executive Officer shall
prescribe a shorter notice to be given personally or by telephoning or by
facsimile transmission to each Director at his residence or business address.
Such Special Meetings shall be held at such times and places as the notice
thereof shall specify. No notice of adjourned meetings of the Board of
Directors need be given. All regular and special meetings of the Board of
Directors shall be general meetings, that is to say, open for the transaction
of any business within the powers of the Corporation without special notice of
such business, except in cases in which special notice is required by law, by
the Restated Articles of Incorporation, by these Bylaws or by the call of such
meeting.
-4-
<PAGE> 5
SECTION 4. QUORUM. At all meetings of the Board of Directors, a
majority of the total number of the Directors in office (but not less than a
third of the number fixed by these Bylaws) shall constitute a quorum for the
transaction of business. Except in cases in which it is by law, by the
Restated Articles of Incorporation, or by the Bylaws otherwise provided, a
majority of such quorum shall decide any questions that may come before the
meeting. In the absence of a quorum, the Directors present by majority vote
may adjourn the meeting from time to time without notice other than by verbal
announcement at the meeting until a quorum shall attend. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified, and at
any such adjourned meeting at which a quorum shall not be present, business may
be transacted to the extent allowed by law.
SECTION 5. VACANCIES. Any vacancy occurring in the Board of
Directors, including by reason of an increase in the number of Directors, may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director so elected to
fill a vacancy shall be elected to serve until the next annual meeting of
shareholders, at which time a Director shall be elected to fill the unexpired
portion of the term of office of the Director whose successor was elected by
the remaining Directors. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
SECTION 6. COMPENSATION. Directors who are not employees of the
Corporation or its subsidiaries shall receive such compensation as members of
the Board of Directors or committees thereof as may be fixed from time to time
by resolution of the Board of Directors.
SECTION 7. REMOVAL. Directors may be removed from office at any
time, without cause, but only by the affirmative vote of at least sixty-six and
two-thirds percent (66 2/3%) of the total number of votes entitled to be cast
by the holders of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of Directors. The holder of each
share of capital stock entitled to vote thereon shall be entitled to cast the
same number of votes as the holder of such shares is entitled to cast generally
in the election of each Director. Directors may be removed from office at any
time, with cause, in the manner provided by law.
-5-
<PAGE> 6
ARTICLE III
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the whole Board of Directors, may designate
an Executive Committee of three or more Directors, one of whom shall be the
President and Chief Executive Officer of the Corporation, one of whom shall be
the Chairman of the Board of Directors, and one of whom shall be the Vice
Chairman of the Board of Directors. The President and Chief Executive Officer
shall be ex officio Chairman of the Committee. Except as otherwise provided by
law, during the intervals between the meetings of the Board of Directors, the
Executive Committee shall have and may exercise all of the powers of the Board
of Directors in the management of the business and affairs of the Corporation.
All action by the Executive Committee shall be reported to the Board of
Directors at its meeting next succeeding such action. Vacancies in the
Executive Committee shall be filled by the Board of Directors.
SECTION 2. MEETINGS OF THE EXECUTIVE COMMITTEE. The Executive
Committee may fix its own rules of procedure and shall meet at the call of the
Chairman or any two (2) members of the Committee or by resolution of the Board
of Directors. A majority of such Committee shall be necessary to constitute a
quorum and such majority shall decide any questions that may come before the
meeting.
SECTION 3. OTHER COMMITTEES. The Board of Directors may by
resolution designate such other standing or special committees as it deems
desirable and discontinue the same at pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with the law, as may be
assigned to it by the Board of Directors.
-6-
<PAGE> 7
ARTICLE IV
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The Executive officers of the
Corporation shall be a President and Chief Executive Officer, one or more vice
presidents, a Secretary, a Treasurer, and such other Executive Officers as may
be elected pursuant to Section 6 of this Article IV. The officers shall be
elected annually by the Board of Directors at its first meeting following the
annual meeting of Stockholders, and each such officer shall hold office until
the corresponding meeting in the next year and until his successor shall have
been duly chosen and qualified, or until he shall have resigned or have been
removed, in any manner provided in Section 10 of this Article IV. Any vacancy
in any of the above offices shall be filled for the unexpired portion of the
term by the Board of Directors, at any regular or special meeting.
SECTION 2. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and
Chief Executive Officer shall be the chief executive officer of the
Corporation. He shall, when present, preside at all meetings of the
Stockholders; he shall have general charge and supervision of the business of
the Corporation; he may sign with the Treasurer or an Assistant Treasurer, or
with the Secretary or an Assistant Secretary, certificates of stock of the
Corporation; he may sign and execute in the name of the Corporation all
authorized deeds, mortgages, bonds, contracts or other instruments; and, in
general, the President and Chief Executive Officer shall perform all duties
incident to the office of a president and chief executive officer of a
corporation, and such other duties as, from time to time, may be assigned to
him by the Board of Directors.
SECTION 3. VICE PRESIDENTS. Each Vice President shall have the power
to sign all certificates of stock, bonds, deeds and contracts of the
Corporation. Each Vice President shall perform such other duties and have such
powers as the Board of Directors shall designate from time to time.
SECTION 4. SECRETARY. The Secretary shall record the proceedings of
the meetings of the Stockholders, of the Board of Directors, and if so
appointed, of the Executive Committee, in books provided for that purpose; he
shall see that all notices are duly given in accordance with the provisions of
these Bylaws, or as required by law; he shall be custodian of, and responsible
for authenticating, the records and shall be custodian of the corporate seal or
seals of the Corporation; he shall see that the corporate seal is affixed to
all documents, the execution of which, on behalf of the Corporation, under its
seal, is duly authorized, and when so affixed may attest the same; he may sign,
with the President and Chief Executive Officer or Vice President, certificates
of stock of the Corporation; and in general, he shall perform all duties
incident to the office of a secretary of a corporation, and such other duties
as from time to time may be assigned to him by the Board of Directors.
-7-
<PAGE> 8
SECTION 5. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board of Directors; he shall render to the President and Chief Executive
Officer and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; he may sign, with the President and
Chief Executive Officer or a Vice President, certificates of stock of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as may be
assigned to him by the Board of Directors.
SECTION 6. ADDITIONAL EXECUTIVE OFFICERS. The Board of Directors
may, in its discretion, from time to time elect such additional executive
officers as it may deem appropriate, including, but not limited to, one or more
Executive Vice Presidents, and one or more Senior Vice Presidents. Any
additional executive officers elected by the Board of Directors shall have such
powers and duties as may be assigned by the Board of Directors.
SECTION 7. OTHER OFFICERS. The Board of Directors may elect one or
more Assistant officers or other officers. Each Assistant officer or other
officer, if any, shall hold office for such period and shall have such
authority and perform such duties as the Board of Directors may prescribe.
SECTION 8. PRESIDENT AND CHIEF EXECUTIVE OFFICER NOT TO HOLD CERTAIN
OFFICES. The President and Chief Executive Officer shall not hold the office
of Secretary or Treasurer of the Corporation.
SECTION 9. COMPENSATION. The Board of Directors shall have power to
fix the compensation of all officers of the Corporation.
SECTION 10. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by vote of the Board of Directors or by an Executive
Officer upon whom such power of removal may have been conferred by the Board of
Directors.
-8-
<PAGE> 9
ARTICLE V
STOCK
SECTION 1. CERTIFICATES. Each Stockholder shall be entitled to a
certificate or certificates certifying the number and kind of shares owned by
him, signed (either manually or in facsimile) in the name of and for and on
behalf of the Corporation by the President and Chief Executive Officer or a
Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, and sealed with the seal of the Corporation or its
facsimile. In case an officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers. Stock certificates shall be in such form, not
inconsistent with law or with the Restated Articles of Incorporation, as shall
be approved by the Board of Directors.
SECTION 2. TRANSFER OF SHARES. The Board of Directors shall have
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock.
SECTION 3. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a transfer agent, if
the Corporation has a Transfer Agent, or until registered by a Registrar, if
the Corporation has a Registrar. The duties of Transfer Agent and Registrar
may be combined.
SECTION 4. RECORD DATES. The Board of Directors shall have the
authority to fix in advance a date, not exceeding seventy (70) days preceding
(1) the date of any meeting of stockholders, (2) the date for the payment of
any dividend, (3) the date for the allotment of rights, or (4) the date when
any change or conversion of exchange of capital stock shall go into effect, as
a record date for the determination of the Stockholders entitled, to notice of,
or to vote at, any such meeting or entitled to receive payment of any such
dividend or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, and in
such case such Stockholders and only such Stockholders, as shall be
Stockholders of record on the date so fixed, shall
-9-
<PAGE> 10
be entitled to such notice of, and to vote at such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, as the case may be notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
SECTION 5. LOSS OF CERTIFICATES. In case of the loss, mutilation or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the Board of Directors shall prescribe.
ARTICLE VI
DIVIDENDS AND FINANCE
SECTION 1. DIVIDENDS. Subject to the provisions of the Restated
Articles of Incorporation, the Board of Directors may, in its discretion,
declare what, if any, dividends shall be paid upon the stock of the
Corporation, or upon any class of such stock. Except as otherwise provided by
the Restated Articles of Incorporation, dividends shall be payable upon such
dates as the Board of Directors may designate. Before payment of any dividend
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors, from time to time, in their
absolute discretion, think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive
to the interests of the Corporation, and the directors may abolish any such
reserve in the manner in which it was created.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
October 1 through September 30, unless otherwise provided by the Board of
Directors.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 1. SEAL. The Corporate Seal of the Corporation shall bear
the name of the Corporation and the words "CORPORATE SEAL - 1933 - ALABAMA".
If deemed advisable by the Board of Directors, a duplicate seal or duplicate
seals may be provided and kept for the necessary purposes of the Corporation.
-10-
<PAGE> 11
SECTION 2. BOOKS AND RECORDS. The Board of Directors may determine
from time to time whether and if allowed, when and under what conditions and
regulations, the books and records of the Corporation, or any of them, shall be
open to the inspection of Stockholders, and the rights of Stockholders in this
respect are and shall be limited accordingly, except as otherwise provided by
law.
SECTION 3. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 4. VOTING UPON STOCK IN OTHER CORPORATIONS. Any stock in
other corporations, which may from time to time be held by the Corporation, may
be represented and voted at any meeting of Stockholders of such other
corporations by the President and Chief Executive Officer or a Vice President
of the Corporation or by proxy executed in the name of the Corporation by its
President and Chief Executive Officer or a Vice President.
SECTION 5. AMENDMENTS. These Bylaws may be altered, amended or
repealed, or new Bylaws may be adopted, by the Board of Directors, provided
that: (a) the Board of Directors may not alter, amend or repeal any Bylaw
establishing what constitutes a quorum at Stockholders' meetings, and (b) no
Bylaw shall be altered, amended or repealed in a manner inconsistent with the
provisions of Article 6 of the Restated Articles of Incorporation.
SECTION 6. PRONOUNS. The masculine pronoun, as used in the Bylaws,
means the masculine and feminine wherever applicable.
-11-
<PAGE> 12
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
Each person who is or was a director or officer of the Corporation and
who was or is a party or was or is threatened to be made a party to any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative, including appeals, by reason
of the fact that he is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall be indemnified by the
Corporation as a matter of right against any and all expenses (including
attorneys' fees) actually and reasonably incurred by him and against any and
all claims, judgments , fines, penalties, liabilities and amounts paid in
settlement actually incurred by him in defense of such claim, action, suit or
proceeding, including appeals, to the full extent permitted by applicable law.
The indemnification provided by this Section shall inure to the benefit of the
heirs, executors and administrators of such person.
Expenses (including attorneys' fees) incurred by a director or officer
of the Corporation with respect to the defense of any such claim, action, suit
or proceeding may be advanced by the Corporation prior to the final disposition
of such claim, action suit or proceeding, as authorized by the Board of
Directors in the specific case, upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if and to the extent it shall
be ultimately determined that he is not entitled to be indemnified by the
Corporation as authorized under this Article or applicable law; provided,
however, that the advancement of such expenses shall not be deemed to be
indemnification unless and until it shall ultimately be determined that such
person is entitled to be indemnified by the Corporation.
The Corporation shall make such reports to its Stockholders regarding
indemnification or advancement of expenses as may be required by law.
The Corporation may purchase and maintain insurance at the expense of
the Corporation on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or any person who is or was serving at the
request of the Corporation as a director (or the equivalent), officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability or
expense (including attorneys' fees) asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability or
expense under this Section or otherwise.
The foregoing rights shall not be exclusive of any other rights to
which such director or officer may otherwise be entitled and shall be available
-12-
<PAGE> 13
whether or not the director or officer continues to be a director or officer at
the time of incurring any such expenses and liabilities.
If any word, clause or provision of the Bylaws or any indemnification
made under Article VIII hereof shall for any reason be determined to be
invalid, the provisions of the Bylaws shall not otherwise be affected thereby
but shall remain in full force and effect.
Revised December 5, 1997
-13-
<PAGE> 1
EXHIBIT 4(a)-18
================================================================================
MOBILE GAS SERVICE CORPORATION
to
AMSOUTH BANK OF ALABAMA,
Trustee.
-----------------------------------------
SEVENTEENTH SUPPLEMENTAL INDENTURE
Dated as of November 1, 1996
-----------------------------------------
SUPPLEMENTAL
to
INDENTURE OF MORTGAGE
Dated as of December 1, 1941
-----------------------------------------
THIS IS A MORTGAGE OF PERSONAL PROPERTY AS WELL AS A MORTGAGE
UPON REAL ESTATE AND OTHER PROPERTY.
================================================================================
This instrument was prepared by E. B. Peebles III, Esq., Armbrecht, Jackson,
DeMouy, Crowe, Holmes & Reeves, L.L.C., 1300 AmSouth Center, Mobile,
Alabama 36602.
<PAGE> 2
THIS SEVENTEENTH SUPPLEMENTAL INDENTURE, dated for convenience and to be
effective as of November 1, 1996, although executed and delivered at a later
date, between MOBILE GAS SERVICE CORPORATION, a corporation duly organized and
existing under the laws of the State of Alabama (hereinafter sometimes called
the "Company"), having its principal place of business at 2828 Dauphin Street,
Mobile, Alabama 36606, party of the first part, and AMSOUTH BANK OF ALABAMA
(successor to The First National Bank of Mobile), an Alabama banking
corporation duly organized and existing under the laws of the State of Alabama,
and having its principal place of business at 1901 Sixth Avenue North,
Birmingham, Alabama 35203, as Trustee (hereinafter sometimes called the
"Trustee"), party of the second part.
WHEREAS, the Company heretofore made and executed its Indenture of
Mortgage dated as of December 1, 1941 (hereinafter sometimes called the
"Original Indenture") to said The First National Bank of Mobile, as Trustee,
which by reference is hereby made a part hereof, and in and by the Original
Indenture the Company conveyed and mortgaged to said Trustee certain property
therein described to secure the payment of its bonds, to be known generally as
its "First Mortgage Bonds" (hereinafter sometimes called the "Bonds") and to be
issued under the Original Indenture in one or more series, as therein provided;
and
WHEREAS, the Company has executed and delivered to the Trustee sixteen
indentures supplemental to the Original Indenture (collectively, the
"Supplemental Indentures"), as follows: a First Supplemental Indenture dated as
of October 1, 1944 supplementing and modifying the Original Indenture
(hereinafter sometimes called the "First Supplemental Indenture"), a Second
Supplemental Indenture dated as of July 1, 1952 supplementing the Original
Indenture (hereinafter sometimes called the "Second Supplemental Indenture"), a
Third Supplemental Indenture dated as of June 1, 1954 supplementing the Original
Indenture (hereinafter sometimes called the "Third Supplemental Indenture"), a
Fourth Supplemental Indenture dated as of April 1, 1957 supplementing the
Original Indenture (hereinafter sometimes called the "Fourth Supplemental
Indenture"), a Fifth Supplemental Indenture dated as of July 1, 1961
supplementing the Original Indenture (hereinafter sometimes called the "Fifth
Supplemental Indenture"), a Sixth Supplemental Indenture dated as of June 1,
1963 supplementing the Original Indenture (hereinafter sometimes called the
"Sixth Supplemental Indenture"), a Seventh Supplemental Indenture dated as of
October 1, 1964 supplementing the Original Indenture (hereinafter sometimes
called the "Seventh Supplemental Indenture"), an Eighth Supplemental Indenture
dated as of July 1, 1972 supplementing the Original Indenture (hereinafter
sometimes called the "Eighth Supplemental Indenture"), a Ninth Supplemental
Indenture dated as of August 1, 1975 supplementing and modifying the Original
Indenture (hereinafter sometimes called the "Ninth Supplemental Indenture"), a
Tenth Supplemental Indenture dated as of July 1, 1979 supplementing and
modifying the Original Indenture (hereinafter sometimes called the "Tenth
Supplemental Indenture"), an Eleventh Supplemental Indenture dated as of July 1,
1982 supplementing the Original Indenture (hereinafter sometimes called the
"Eleventh Supplemental Indenture"), a Twelfth Supplemental Indenture dated as of
July 1, 1986 supplementing the Original Indenture (hereinafter sometimes called
the "Twelfth Supplemental Indenture"), a Thirteenth Supplemental Indenture dated
as of October 1, 1988 supplementing the Original Indenture (hereinafter
sometimes called the "Thirteenth Supplemental Indenture"), a Fourteenth
Supplemental Indenture dated as of July 1, 1992 supplementing the Original
Indenture
<PAGE> 3
(hereinafter sometimes called the "Fourteenth Supplemental Indenture"), a
Fifteenth Supplemental Indenture dated as of July 1, 1993 supplementing the
Original Indenture (hereinafter sometimes called the "Fifteenth Supplemental
Indenture"), and a Sixteenth Supplemental Indenture dated as of December 3,
1993 supplementing and modifying the Original Indenture (hereinafter sometimes
called the "Sixteenth Supplemental Indenture"), each of which Supplemental
Indentures, with the exception of the Tenth Supplemental Indenture and the
Sixteenth Supplemental Indenture, among other things, provided for the creation
of a new series of Bonds; and
WHEREAS, pursuant to the Original Indenture, as so supplemented and
modified, there have been executed, authenticated, delivered and issued and
there are outstanding at the actual date of execution of this Seventeenth
Supplemental Indenture Bonds of series and in principal amounts as follows:
<TABLE>
<CAPTION>
Title Issued Outstanding
----- ------ -----------
<S> <C> <C>
10.25% Series due 2003 $ 10,000,000 $ 5,000,000
8.75% Series due 2022 12,000,000 12,000,000
7.48% Series due 2023 12,000,000 12,000,000
</TABLE>
and
WHEREAS, original counterparts of the Original Indenture and the First,
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh,
Twelfth, Thirteenth, Fourteenth, Fifteenth and Sixteenth Supplemental Indentures
are duly filed and recorded in Alabama in the Offices of the Probate Judges of
Mobile County and of Baldwin County, Alabama; and
WHEREAS, the Board of Directors of the Company has established under the
Original Indenture, as supplemented and modified, a new series of Bonds to be
designated First Mortgage Bonds, 7.27% Series due 2006 (hereinafter sometimes
referred to as "Bonds of the 2006 Series") in the principal amount of Twelve
Million Dollars ($12,000,000) and has authorized the issue of the Bonds of the
2006 Series pursuant to the provisions of Article 3 of the Original Indenture
to obtain funds for its corporate purposes; and
WHEREAS, it is provided in the Original Indenture that in the event of
the establishment of any new series of Bonds there shall be executed by the
Company and delivered to the Trustee a supplemental indenture prescribing the
form or forms of Bonds of the new series and other provisions made in respect
thereof; and
WHEREAS, Section 16.01 of the Original Indenture provides, among other
things, that the Company may execute and file with the Trustee and the Trustee
at the request of the Company shall join in indentures supplemental to the
Original Indenture and which thereafter shall form a
2
<PAGE> 4
part thereof, for the purposes, among others, of subjecting to the lien of the
Original Indenture, or perfecting the lien thereof upon, any additional
properties of any character; and
WHEREAS, the Company desires to execute this Seventeenth Supplemental
Indenture and hereby requests the Trustee to join in this Seventeenth
Supplemental Indenture for the purpose of prescribing the forms of the Bonds of
the 2006 Series and confirming the lien and security interest of the Original
Indenture, as supplemented and modified (the Original Indenture, as
supplemented and modified by the First, Ninth, Tenth and Sixteenth Supplemental
Indentures, and as supplemented by the Second, Third, Fourth, Fifth, Sixth,
Seventh, Eighth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, and this
Seventeenth Supplemental Indenture, being herein sometimes called the
"Indenture"); and
WHEREAS, all acts and proceedings required by law and by the charter and
bylaws of the Company necessary to make the Bonds of the 2006 Series, when
executed by the Company, authenticated and delivered by the Trustee and duly
issued, the valid, binding and legal obligations of the Company, and to
constitute the Indenture a valid and binding mortgage and security interest for
the security of the Bonds, in accordance with the terms of the Indenture and
the terms of the Bonds, have been done and performed; and the execution and
delivery of this Seventeenth Supplemental Indenture and the issue of the Bonds
of the 2006 Series have been in all respects duly authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the
payment of the principal of and interest on all Bonds at any time issued and
outstanding under the Indenture, according to their tenor, purport and effect,
and to secure the performance and observance of all the covenants and
conditions in said Bonds and in the Indenture contained and for and in
consideration of the premises and of the mutual covenants in the Indenture
contained and of the purchase and acceptance of the Bonds of the 2006 Series by
the holders or registered owners thereof, and of the sum of One Dollar ($1.00)
lawful money of the United States of America duly paid to the Company by the
Trustee at or before the ensealing and delivery hereof, and for other valuable
consideration, the receipt whereof is hereby acknowledged, MOBILE GAS SERVICE
CORPORATION has executed and delivered this Seventeenth Supplemental Indenture
and does hereby confirm the granting of a security interest to the Trustee and
its successors and assigns in all properties, rights and privileges hereafter
in Parts I, II and III hereof described, together with all property of the
nature set forth in Clauses II through VII of the granting clauses of the
Original Indenture, heretofore or hereafter acquired or constructed in which a
security interest can be created under the Alabama Uniform Commercial Code,
subject to the exceptions and reservations hereafter provided, and has granted,
bargained, sold, aliened, remised, released, conveyed, assigned, transferred,
mortgaged, pledged, granted a security interest in, set over and confirmed, and
by these presents does grant, bargain, sell, alien, remise, release, convey,
assign, transfer, mortgage, pledge, grant a security interest in, set over and
confirm unto AmSouth Bank of Alabama, as Trustee, and to its successors in the
trust, and to its assigns forever:
3
<PAGE> 5
I
All the property, real, personal and mixed, described or referred to in
the Original Indenture, the First Supplemental Indenture, the Second
Supplemental Indenture, the Third Supplemental Indenture, the Fourth
Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental
Indenture, the Seventh Supplemental Indenture, the Eighth Supplemental
Indenture, the Ninth Supplemental Indenture, the Tenth Supplemental Indenture,
the Eleventh Supplemental Indenture, the Twelfth Supplemental Indenture, the
Thirteenth Supplemental Indenture, the Fourteenth Supplemental Indenture, the
Fifteenth Supplemental Indenture and the Sixteenth Supplemental Indenture and
thereby conveyed or mortgaged or intended so to be, including all such property
acquired, made or constructed by the Company or to which the Company in any
manner has become entitled in law or in equity, since the execution and delivery
of said Original Indenture which by the terms of said Original Indenture, the
First Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth
Supplemental Indenture, the Sixth Supplemental Indenture, the Seventh
Supplemental Indenture, the Eighth Supplemental Indenture, the Ninth
Supplemental Indenture, the Tenth Supplemental Indenture, the Eleventh
Supplemental Indenture, the Twelfth Supplemental Indenture, the Thirteenth
Supplemental Indenture, the Fourteenth Supplemental Indenture, the Fifteenth
Supplemental Indenture, the Sixteenth Supplemental Indenture, and this
Seventeenth Supplemental Indenture is subjected, or is intended to be subjected,
to the lien and security interest of the Indenture.
II
Together with all and singular the tenements, hereditaments and
appurtenances belonging or in anywise appertaining to the aforesaid properties
or any part thereof, with the reversion and reversions, remainder and
remainders, tolls, rents, revenues, issues, income, product and profits
thereof, and all the estate, right, title, interest and claim whatsoever, at
law as well as in equity, which the Company has acquired in and to the
aforesaid properties and every part and parcel thereof.
III
EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, from this Seventeenth
Supplemental Indenture and from the lien, security interest and operation of
the Indenture:
(A) All property excepted or excluded from the lien of the
Original Indenture under Part VIII of the granting clauses thereof and all
property excepted in the descriptions contained in the granting clauses of the
Supplemental Indentures.
(B) All property released or otherwise disposed of pursuant to the
provisions of Article 6 of the Indenture.
4
<PAGE> 6
TO HAVE AND TO HOLD all said properties, real, personal and mixed,
mortgaged, pledged or conveyed, or in which a security interest is granted, by
the Company as aforesaid, or intended so to be, unto the Trustee, and its
successors in the trust and its assigns forever.
SUBJECT, HOWEVER, to (a) the specific liens and encumbrances,
reservations, restrictions, conditions, limitations, covenants, interests and
exceptions, if any, set forth or referred to in the descriptions contained in
Part I of the granting clauses of the Original Indenture or any Supplemental
Indenture; (b) any permitted liens as defined in Section 1.05(a) of the
Original Indenture; and (c) liens existing on any property hereafter acquired
by the Company at the time of such acquisition or permitted by Section 5.04 of
said Original Indenture.
IN TRUST, NEVERTHELESS, upon the terms and trusts in the Indenture set
forth, for the equal and proportionate benefit and security of all present and
future holders of the Bonds and coupons issued and to be issued under the
Indenture, without preference or priority of any of said Bonds or coupons over
any others thereof, or of the Bonds and coupons of any particular series over
the Bonds and coupons of any other series, by reason of priority in the time of
issue, sale or negotiation thereof or by reason of the purpose of issue or
otherwise howsoever, except as otherwise provided in Section 9.29 of the
Original Indenture.
AND THIS INDENTURE FURTHER WITNESSETH, that the Company for itself and
its successors, does hereby covenant and agree to and with the Trustee and its
successors in said trust, for the benefit of those who
shall hold the Bonds, as follows:
ARTICLE 1.
BONDS OF THE 2006 SERIES
SECTION 1.01. ESTABLISHMENT OF BONDS OF THE 2006 SERIES. There shall
be: and is hereby established and created, a new series of Bonds, known as and
entitled "First Mortgage Bonds, 7.27% Series due 2006" (hereinabove defined as
"Bonds of the 2006 Series") and the form thereof shall be substantially as
hereinafter set forth.
The Bonds of the 2006 Series shall be limited to Twelve Million Dollars
($12,000,000) aggregate principal amount, except for Bonds of said series
issued as provided in Section 2.06 and Section 2.11 of the Original Indenture
or in Section 1.02 hereof.
SECTION 1.02. TERMS OF BONDS OF THE 2006 SERIES. The Bonds of the
2006 Series shall be issued only as registered Bonds, without coupons, of the
denominations of $1,000 or any multiple thereof, numbered RN-1 consecutively
upward without regard to denomination.
All Bonds of the 2006 Series shall mature November 1, 2006, and shall
bear interest at the rate of seven and twenty-seven one-hundredths per centum
(7.27%) per annum until payment of the principal thereof, such interest to be
payable semiannually in arrears, on May 1 and
5
<PAGE> 7
November 1 in each year, except that the first interest payment shall be made
on May 1, 1997 and shall include interest from the date of authentication upon
original issue. If any interest payment date falls on a date other than a
Business Day, the payment date shall be deemed to be the next Business Day. As
used herein the term "Business Day" shall mean any day other than a Saturday or
a Sunday or a day on which commercial banks are required or authorized by law
to close in the city from where the payment is to be made on the Bonds of the
2006 Series. Except as provided hereinafter in this Section 1.02, every Bond
of the 2006 Series shall be dated as of the day of authentication, as provided
in Section 2.08 of the Original Indenture. However, so long as there is no
existing default in the payment of interest on the Bonds of the 2006 Series,
all Bonds of the 2006 Series authenticated by the Trustee between the record
date (as hereinafter defined) for any interest payment date and such interest
payment date shall be dated such interest payment date and shall bear interest
from such interest payment date; provided, however, that if the Company shall
default in the interest due on such interest payment date, then any such Bond
of the 2006 Series shall bear interest from the May 1 or November 1, as the
case may be, to which interest has been paid, unless such interest payment date
is prior to the payment of any interest on Bonds of the 2006 Series, in which
case from the date the Bonds of the 2006 Series were authenticated upon
original issue.
The principal of, premium, if any, and interest on, the Bonds of the
2006 Series shall be paid in lawful money of the United States of America, at
the office of AmSouth Bank of Alabama, in the City of Birmingham, Alabama, or
of its successor in trust; provided, however, that (i) interest on the Bonds of
the 2006 Series may be paid by checks payable to the order of the respective
holders entitled thereto and mailed by the Trustee by first class mail, postage
prepaid, to such holders at their respective registered addresses as shown on
the Bond register for the Bonds of the 2006 Series, and (ii) the foregoing
provisions of this paragraph may be modified pursuant to an agreement of the
type described in Section 2.01 of this Seventeenth Supplemental Indenture.
The person in whose name any Bond of the 2006 Series is registered at
the close of business on any record date (as hereinafter defined) with respect
to any interest payment date shall be entitled to receive the interest payable
on such interest payment date notwithstanding the cancellation of such Bond of
the 2006 Series upon any transfer or exchange thereof (including any exchange
effected as an incident to a partial redemption thereof) subsequent to the
record date and prior to such interest payment date, except that, if and to the
extent that the Company shall default in the payment of the interest due on
such interest payment date, then the registered holders of Bonds of the 2006
Series on such record date shall have no further right to or claim in respect
of such defaulted interest as such registered holders on such record date, and
the persons entitled to receive payment of any defaulted interest thereafter
payable or paid on any Bonds of the 2006 Series shall be the registered holders
of such Bonds of the 2006 Series on the record date for payment of such
defaulted interest. The term "record date" as used in this Section 1.02, and
in the form of the Bonds of the 2006 Series, with respect to any interest
payment date applicable to the Bonds of the 2006 Series, shall mean the April
15 next preceding a May 1 interest payment date or the October 15 next
preceding a November 1 interest payment date, as the case may be, or such
record date established for defaulted interest as hereinafter provided.
6
<PAGE> 8
In case of failure by the Company to pay any interest when due, the
claim for such interest shall be deemed to have been transferred by transfer of
any Bonds of the 2006 Series registered on the Bond register for the Bonds of
the 2006 Series and the Company, by not less than ten (10) days written notice
to bondholders, may fix a subsequent record date, not more than fifteen (15)
days prior to the date fixed for the payment of such interest, for
determination of holders entitled to payment of such interest. Such provision
for establishment of a subsequent record date, however, shall in no way affect
the rights of bondholders or of the Trustee consequent on any default.
Any notice affecting or relating to the Bonds of the 2006 Series
required or permitted to be given under the Indenture may be given by first
class mail, postage prepaid, to the holders of record at their respective
addresses as shown on the Bond register for the Bonds of the 2006 Series at the
date of mailing. The certificate of the Trustee that such mailing has been
effected shall be conclusive evidence of compliance with the requirements of
this Section 1.02 and of Section 4.02 and Section 16.07 of the Original
Indenture, whether or not any holder receives such notice.
As permitted by the provisions of Section 2.06 of the Original
Indenture and upon payment at the option of the Company of a sum sufficient to
reimburse it for any tax or other governmental charge required to be paid by
the Company or the Trustee as provided therein, Bonds of the 2006 Series may be
exchanged for other Bonds of the 2006 Series of different authorized
denominations of like aggregate principal amount. Notwithstanding the
provisions of said Section 2.06, no further sum, other than a sum sufficient to
reimburse the Company for such taxes or other governmental charges, shall be
required to be paid upon any exchange of Bonds of the 2006 Series or upon any
transfer thereof.
Neither the Company nor the Trustee shall be required to make transfers
or exchanges of Bonds of the 2006 Series for a period of ten (10) days next
preceding any designation of Bonds of the 2006 Series to be redeemed and neither
the Company nor the Trustee shall be required to make transfers or exchanges of
any Bonds designated in whole for redemption or that part of any Bond of the
2006 Series designated in part for redemption.
The Trustee hereunder shall, by virtue of its office as such Trustee, be
the Registrar and Transfer Agent of the Company for the purpose of registering
and transferring Bonds of the 2006 Series.
SECTION 1.03. REDEMPTION PROVISIONS FOR BONDS OF THE 2006 SERIES. The Bonds of
the 2006 Series shall be subject to redemption prior to maturity,
(a) as a whole at any time or in part from time to time, either,
(i) at the option of the Company upon payment of 100% of
the principal amount of the Bonds being redeemed, together with the
Yield Maintenance Premium (as defined below), if any, with respect to
such Bonds; or
7
<PAGE> 9
(ii) upon payment of the principal amount thereof, through the
application of the proceeds of any sale referred to in clause (b) of
the first paragraph of Section 7.02 of the Indenture, if such
application is made pursuant to the provisions of Subdivision (IV) of
said Section 7.02; and
(b) in part from time to time upon payment of the principal amount
thereof, either:
(i) through the application of cash deposited with the
Trustee (including cash deposited with respect to an optional sinking
fund payment) for the sinking fund for the Bonds of the 2006 Series
provided for in Section 1 .04 hereof; or
(ii) subject to the last sentence of Section 1.05 hereof,
through the application of cash deposited with the Trustee for the
Renewal and Replacement Fund provided for in Section 5.1 3(b) of the
Original Indenture, as modified by Section 2.05 of the First
Supplemental Indenture and Section 1.01 of the Tenth Supplemental
Indenture, and in Section 1.05 hereof,
together in any case with interest accrued thereon to the date of redemption,
upon prior notice given by first class mail, postage prepaid, to the respective
registered holders of such Bonds not less than thirty (30) days nor more than
ninety (90) days prior to the redemption date, and otherwise as provided in
Section 1.02 hereof, notwithstanding the provisions of Section 4.02 and Section
16.07 of the Original Indenture, provided, however, that any such notice may be
given or waived as provided in Article 4 and Section 16.07 of the Original
Indenture and, in addition, in the case of any redemption pursuant to clause
(i) of subparagraph (a) of this Section 1.03 written notice from the Company to
such registered holders and the Trustee (by telecopy or other same-day written
communication confirmed by the recipient thereof on a date at least two (2)
Business Days prior to the date fixed for redemption of such Bonds) of the
amounts and calculation of the Yield Maintenance Premium.
"Yield Maintenance Premium" shall mean, in connection with any
redemption pursuant to Section 1.03(a)(i) hereof, the excess, if any, of (i)
the aggregate present value as of the date of such redemption of each dollar of
principal being redeemed (taking into account the application of such
redemption required herein) and the amount of interest (exclusive of interest
accrued to the date of redemption) that would have been payable in respect of
such dollar if such redemption had not been made, determined by discounting
such amounts at the Reinvestment Rate from the respective dates on which they
would have been payable, over (ii) 100% of the principal amount of the
outstanding Bonds of the 2006 Series being redeemed. If the Reinvestment Rate
is equal to or higher than 7.27%, the Yield Maintenance Premium shall be zero.
8
<PAGE> 10
"Reinvestment Rate" shall mean the sum of (i) 0.50% plus (ii) the
arithmetic mean of the yields for the two columns under the heading "Week
Ending" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the principal being
redeemed (taking into account the application of such redemption required by
Section 1.04 hereof). If no maturity exactly corresponds to such Weighted
Average Life to Maturity, yields for the two published maturities most closely
corresponding to such Weighted Average Life to Maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate shall
be interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the premium hereunder
shall be used. The date of determination shall be five (5) Business Days prior
to the date fixed for the redemption of such bonds.
"Statistical Release" shall mean the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded U.S.
Government Securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder, then such
other reasonably comparable index which shall be designated by the holders of
sixty- six and two-thirds per cent (66 2/3%) in aggregate principal amount of
the outstanding Bonds of the 2006 Series.
"Weighted Average Life to Maturity" of the principal amount of the
Bonds of the 2006 Series being redeemed shall mean, as of the time of any
determination thereof, the number of years obtained by dividing the then
Remaining Dollar-Years of such principal being redeemed by the aggregate amount
of such principal. The term "Remaining Dollar- Years" of any principal being
redeemed shall mean the amount obtained by (i) multiplying (1) the amount by
which each required repayment (including sinking fund redemptions and repayment
at maturity) shall be reduced as a result of the redemption of such principal
being redeemed (which redemption shall be applied as required by Section 1.04
hereof) by (2) the number of years (calculated to the nearest one-twelfth)
which will elapse between the date of termination and the date of that required
repayment and (ii) totalling the products obtained in (i).
Subject to the provisions of Section 1.04 hereof, whenever less than
all of the outstanding Bonds of the 2006 Series are to be redeemed, the
principal amount of Bonds of the 2006 Series to be redeemed shall be prorated
among the holders of the Bonds of the 2006 Series in the proportion, as nearly
as may be, that their respective holdings bear to the aggregate principal
amount of Bonds of the 2006 Series outstanding on the date of selection. The
principal amount of Bonds of the 2006 Series registered in the name of any
holder which is to be redeemed on any partial redemption shall be $1,000 or a
multiple thereof, and such allocations as may be requisite for this purpose
shall be made by the Trustee in its uncontrolled discretion. Bonds of the 2006
Series, if any, held by the Company, to the knowledge of the Trustee, shall not
be deemed to be outstanding for the purpose of any proration of Bonds to be
redeemed pursuant to subparagraph (a) or clause (ii) of subparagraph (b) of
this Section 1.03.
9
<PAGE> 11
At least forty-five (45) days prior to any date fixed, or which the
Trustee shall advise the Company is to be fixed, for the redemption of any
Bonds of the 2006 Series pursuant to subparagraph (a) or clause (ii) of
subparagraph (b) of this Section 1.03, or by such later date as the Trustee
may consent to, the Company shall furnish the Trustee with a statement of the
Company, dated not more than five (5) days prior to the date on which such
statement is furnished to the Trustee, setting forth the aggregate principal
amount of all Bonds of the 2006 Series which the Company has at any time prior
to the date of such statement reacquired and which it holds on the date of such
statement. If at any time between the date of such statement of the Company
and the date fixed or to be fixed for redemption as set forth in the preceding
sentence, the Company shall reacquire any Bonds of the 2006 Series, it shall
promptly thereafter furnish to the Trustee a statement of the Company setting
forth the principal amount of Bonds of the 2006 Series so reacquired. Any
statement of the Company pursuant to this paragraph shall identify, by number
and by name and address of the registered holder, all Bonds of the 2006 Series
referred to therein.
SECTION 1.04. SINKING FUND FOR BONDS OF THE 2006 SERIES; OPTIONAL
SINKING FUND PAYMENTS. As a sinking fund for the retirement of Bonds of the
2006 Series, the Company covenants that so long as any of the Bonds of the 2006
Series shall remain outstanding, it will, subject to the provisions in this
Section 1.04 hereinafter set forth, on or before November 1 in each year,
beginning November 1, 2000 and continuing to and including November 1, 2006,
pay to the Trustee a sum sufficient to redeem at the principal amount thereof,
exclusive of accrued interest, on such date, the principal amount of Bonds of
the 2006 Series as set forth below:
Principal Amount of
Date Bonds to be Redeemed
---- --------------------
November 1, 2000 1,750,000
November 1, 2001 1,700,000
November 1, 2002 1,700,000
November 1, 2003 1,700,000
November 1, 2004 1,700,000
November 1, 2005 1,700,000
The payments and the dates upon which payments are required for the
sinking fund as above provided are in this Section 1.04 referred to as "sinking
fund payments" and "sinking fund payment dates", respectively, and an optional
payment as in the next succeeding paragraph provided is in this Section 1.04
referred to as an "optional sinking fund payment". Any optional redemption of
principal made pursuant to either Section 1.03(a) (i) or the next succeeding
paragraph shall be applied first to principal due at maturity and thereafter to
the required sinking fund payments in the inverse order of their respective
sinking fund payment dates.
10
<PAGE> 12
The Company may on any sinking fund payment date, in addition to the
required sinking fund payment, make an optional sinking fund payment to the
Trustee for the redemption of Bonds in an amount up to such required sinking
fund payment together with accrued interest on the Bonds to be redeemed through
application of such optional sinking fund payment; PROVIDED, that any such
optional sinking fund payment may only be made if the Company shall deliver
prior written notice thereof to the Trustee in sufficient time to permit the
Trustee to comply with the requirements of the next succeeding paragraph. The
Company may make such optional sinking fund payment only so long as the
principal amount of Bonds to be redeemed by the optional sinking fund payment
on any sinking fund payment date, when aggregated with the principal amount of
Bonds previously redeemed by such optional sinking fund payments, does not
exceed $3,000,000. To the extent the Company does not exercise its right to
make such an optional sinking fund payment on any sinking fund payment date,
such right will expire and may not be carried over to successive years.
Forthwith after the September 15 preceding each sinking fund payment
date, the Trustee shall proceed to select for redemption, in the manner
provided in Section 1.03 hereof, a principal amount of Bonds of the 2006 Series
equal to the aggregate principal amount of such Bonds to be redeemed pursuant
to the preceding provisions of this Section 1.04 and in the name and on behalf
of the Company or in its own name as Trustee, shall give notice as required by
the provisions of Section Section 1.02 and 1.03 hereof and/or Article 4 of
the Original Indenture of the redemption for the sinking fund and for any
optional sinking fund payment on the then next ensuing November 1 of the Bonds
of the 2006 Series so selected. On or before such sinking fund payment date,
the Company shall pay to the Trustee in cash the sum required to redeem the
Bonds so called, which sum shall be applied by the Trustee to the redemption of
such Bonds.
For the purposes of Clause (b) of Section 9.01 of the Indenture, the
principal amount of the Bonds of the 2006 Series required to be redeemed on any
sinking fund payment date pursuant to the first paragraph of this Section 1.04
shall become due and payable on such date, whether or not any action is taken
by the Company or the Trustee to call such Bonds for redemption, to give any
notice of such redemption, or otherwise.
All Bonds of the 2006 Series redeemed by operation of the sinking fund
for the Bonds of the 2006 Series shall be cancelled, and so long as any of the
Bonds of the 2006 Series are outstanding, shall be deemed to be funded.
The Company, from time to time, otherwise than out of sinking fund
moneys, will pay to the Trustee the amount of all interest accrued on Bonds
redeemed by operation of the sinking fund for the Bonds of the 2006 Series and
upon request of the Trustee from time to time, an amount equal to the cost of
giving notice of redemption of Bonds for such fund and any other expense of
operation of such fund, the intention being that such fund shall not be charged
for such accrued interest or expenses.
11
<PAGE> 13
SECTION 1.05. RENEWAL AND REPLACEMENT FUND FOR BONDS OF THE 2006
SERIES. The Company hereby covenants that the covenants made by the Company in
Section 5.13(b) of the Original Indenture, as modified by Section 2.05 of the
First Supplemental Indenture and Section 1.01 of the Tenth Supplemental
Indenture, shall continue in full force and effect so long as any of the Bonds
of the 2006 Series shall remain outstanding. Notwithstanding anything to the
contrary contained in Section 5.13(b) of the Indenture, no cash deposited with
the Trustee for the Renewal and Replacement Fund may be applied to the
redemption of Bonds of the 2006 Series before November 1, 2003.
SECTION 1.06. RESTRICTION ON PAYMENT OF DIVIDENDS ON COMMON STOCK AND
ACQUISITION OF CAPITAL STOCK. So long as any of the Bonds of the 2006 Series
remain outstanding, the Company 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 its Common Stock or (b) make any expenditures for
the purchase, redemption or other retirement of any shares of capital stock of
the Company of any class (other than in exchange for, or from the proceeds of,
other and new shares of capital stock of the Company and other than any shares
of any class of stock required to be purchased, redeemed or otherwise retired
for any sinking fund or purchase fund for such class of stock), if the
aggregate amount of all such dividends, distributions and expenditures made
after September 30, 1995 would exceed the aggregate amount of the net income of
the Company available for dividends on its Common Stock accumulated after
September 30, 1995 plus the sum of $9,000,000.
Net income of the Company available for dividends on its Common Stock
shall mean the sum of (a) the total operating revenues of the Company, less all
proper deductions for operating expenses, including (i) all taxes (including,
without limitation, income, excess profits and other taxes imposed on or
measured by income or undistributed earnings or income), (ii) rentals,
insurance, current repairs and maintenance, (iii) provision for depreciation or
retirements, in an amount not less than the appropriation for renewals and
replacements provided for in Section 5.13(b) of the Original Indenture, as
amended by Section 2.05 of the First Supplemental Indenture and Section 1.01
of the Tenth Supplemental Indenture, (iv) all charges on account of interest on
indebtedness and all charges or credits on account of debt discount, premium
and expense, (v) provisions for all dividends accrued on any outstanding stock
of the Company having preference over the Common Stock as to dividends and (vi)
all other appropriate items and (b) any net non-operating income or loss of the
Company, all determined in accordance with generally accepted accounting
practice. In determining the net income of the Company available for dividends
on its Common Stock, no deduction or adjustment shall be made for or in respect
of any charges which under generally accepted accounting practice are not
appropriate deductions or adjustments in determining such net income and,
without limiting the generality of the foregoing, no deduction or adjustment
shall be made for or in respect of (a) expenses in connection with the issuance
of stock of the Company and expenses in connection with the redemption or
retirement of any securities issued by the Company, including any amount paid
in excess of the principal amount or par or stated value of securities redeemed
or retired, or, in the event that such redemption or retirement is effected
with the proceeds of sale of other securities of the Company, any interest or
dividends on the securities redeemed or retired from the date on which
the funds required for
12
<PAGE> 14
such redemption or retirement are deposited in trust for such purpose to the
date of redemption or retirement; (b) profits or losses from the sale,
abandonment, amortization, retirement or other disposition of property or other
capital assets or from the reacquisition of any securities of the Company, or
taxes on or in respect of such profits; (c) any change in or adjustment of the
book value of any assets owned by the Company arising from a revaluation
thereof; (d) any adjustment (including tax adjustments) applicable to any
period prior to September 30, 1995; or (e) amortization or elimination of
utility plant adjustment accounts or other intangibles.
SECTION 1.07. FORM OF BONDS OF THE 2006 SERIES. The Bonds of the 2006
Series and the Trustee's authentication certificate on all Bonds of said series
are to be substantially in the forms following, respectively:
13
<PAGE> 15
[FORM OF BOND OF THE 2006 SERIES]
No. RN-____________________ $_________________
MOBILE GAS SERVICE CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF ALABAMA
FIRST MORTGAGE BOND, 7.27% SERIES
DUE NOVEMBER 1, 2006
MOBILE GAS SERVICE CORPORATION, an Alabama corporation (hereinafter
sometimes called the "Company", which term shall include any successor
corporation as defined in the Indenture hereinafter mentioned), for value
received, hereby promises to pay to______________________________________
______________________________ or registered assigns,______________________
_______________________ Dollars ($___________ ) on November 1, 2006, and to
pay to the registered owner hereof interest on the unpaid portion of the
principal hereof from the date of authentication upon original issue hereof, or
from the interest payment date next preceding the date of this bond to which
interest has been paid, or from the date of this bond if it be an interest
payment date to which interest has been paid, whichever interest payment date
is the later, at the rate of seven and twenty-seven one-hundredths per centum
(7.27%) per annum (computed on the basis of a 360-day year consisting of twelve
30-day months), semiannually on the first day of May and on the first day of
November in each year until payment of the principal hereof and at the rate of
seven and twenty-seven one-hundredths per centum (7.27%) per annum on any
overdue installment of interest (to the extent legally permitted under
applicable law); provided that the first interest payment shall be made on May
1, 1997 and shall include interest from the date of authentication upon
original issue hereof.
The principal of, premium, if any, and interest on, this bond will be
paid in lawful money of the United States of America at the office of AmSouth
Bank of Alabama in the City of Birmingham, Alabama, or of its successor in
trust (hereinafter sometimes called the "Trustee") provided, however, that
interest on this bond may be paid by check payable to the order of the
registered holder entitled thereto and mailed by the Trustee by first class
mail, postage prepaid, to such holder at his address as shown on the bond
register for the bonds of this series or sent by wire transfer pursuant to a
written agreement permitted by the within-mentioned Indenture.
14
<PAGE> 16
This bond is one of the bonds, of a series designated as 7.27% Series
due 2006, of an authorized issue of bonds of the Company, known as First
Mortgage Bonds, all issued or issuable in one or more series (which several
series may be of different denominations, dates and tenor) under and equally
secured (except insofar as any sinking fund, improvement fund or other fund
established in accordance with the provisions of said Indenture may afford
additional security for the bonds of any specific series) by an Indenture of
Mortgage dated as of December 1, 1941, duly executed and delivered by the
Company to The First National Bank of Mobile, as Trustee, as supplemented and
modified by the First Supplemental Indenture dated as of October 1, 1944, and
all other indentures supplemental thereto, including a Seventeenth Supplemental
Indenture dated as of November 1, 1996, executed by the Company and delivered
to AmSouth Bank of Alabama, as successor trustee to said Trustee (said
Indenture of Mortgage as so supplemented and modified being herein sometimes
called "said Indenture"), reference to which Indenture and indentures
supplemental thereto is hereby made for a description of the property mortgaged
and pledged as security for said bonds, the rights and remedies of the
registered owner of this bond in regard thereto, the terms and conditions upon
which said bonds are secured thereby, the terms and conditions upon which said
bonds may be issued thereunder and the rights, immunities and obligations of
the Trustee under said Indenture.
The bonds of this series are subject to redemption prior to maturity
(a) as a whole at any time or in part from time to time, either (i) at the
option of the Company, upon payment of 100% of the principal amount of the
bonds being redeemed, together with the Yield Maintenance Premium (as defined
in the Seventeenth Supplemental Indenture), if any, with respect to such bonds,
or (ii) upon payment of the principal amount thereof through the application of
certain moneys received by the Trustee upon the (x) taking by the exercise of
the power of eminent domain or (y) sale through the exercise by any
governmental body or agency of any right it may have to purchase or designate a
purchaser of or order the sale of all or substantially all of the properties of
the Company; and (b) in part from time to time, upon payment of the principal
amount thereof, for the sinking fund (including an optional sinking fund
payment) for the bonds of this series, and, on or after November 1, 2003, for
the Renewal and Replacement Fund provided in said Indenture; together in any
case with interest accrued thereon to the date of redemption; upon prior notice
(unless waived as provided in said Indenture) given by first class mail,
postage prepaid, to the respective registered holders of such bonds not less
than thirty (30) days nor more than ninety (90) days prior to the redemption
date, and otherwise as more fully provided in said Indenture. If this bond or
any portion thereof ($1000 or a multiple thereof) is called for redemption and
payment duly provided for as specified in said Indenture, this bond or such
portion thereof shall cease to be entitled to the lien and security interest of
said Indenture from and after the date payment is so provided and shall cease
to bear interest from and after the date fixed for redemption.
The bonds of this series are entitled to the benefit of the sinking fund as
provided for in said Seventeenth Supplemental Indenture.
15
<PAGE> 17
To the extent permitted and as provided in said Indenture,
modifications or alterations of said Indenture, or of any indenture supplemental
thereto, and of the bonds issued thereunder, and of the rights and obligations
of the Company and the rights of the bearers or registered owners of the bonds
and coupons, may be made with the consent of the Company and with the written
approvals or consents of the bearers or registered owners of not less than
seventy-five per centum (75%) in principal amount of all bonds outstanding,
including, if more than one series of bonds shall be at the time outstanding, no
less than sixty per centum (60%) in principal amount of each series, provided,
however, that no such modification or alteration shall, without the written
approval or consent of the bearer or registered owner of any bond affected
thereby, (a) impair or affect the right of such bearer or registered owner to
receive payment of the principal of and interest on any bond, on or after the
respective due dates expressed in any bond, or to institute suit for the
enforcement of any such payment on or after such respective dates, (b) permit
the creation of any lien prior to or on a parity with the lien of said
Indenture, or (c) reduce the percentage of the principal amount of the bonds
upon the approval or consent of the bearers or registered owners of which
modifications or alterations may be effected as aforesaid.
This bond is transferable by the registered owner hereof in person or
by his duly authorized attorney, at said office of the Trustee, upon surrender
of this bond for cancellation, duly endorsed with signature guaranteed, and
upon payment of any tax or other governmental charge payable in connection with
such transfer, and thereupon a new registered bond or bonds of like aggregate
principal amount of other authorized denominations will be issued to the
transferee in exchange herefor, and the registered owner of this bond at his
option may surrender the same for cancellation at said office and receive in
exchange herefor the same aggregate principal amount of registered bonds of the
same series but of other authorized denominations, upon payment of any tax or
other governmental charge payable in connection with such exchange. No
transfers of bonds of this series shall be required to be made during the ten
(10) days next preceding each interest date for bonds of this series.
Neither the Company nor the Trustee shall be required to make
transfers or exchanges of bonds of this series for a period of ten (10) days
next preceding any designation of bonds of said series to be redeemed, and
neither the Company nor the Trustee shall be required to make transfers or
exchanges of any bonds designated in whole for redemption or that part of any
bond designated in part for redemption. Subject to the provisions of the
Seventeenth Supplemental Indenture, if this bond is surrendered for any
transfer or exchange between the record date for any regular interest payment
date and such interest payment date, the new bond will be dated such interest
payment date. If this bond is surrendered for any transfer or exchange between
such record date and such interest payment date, the Seventeenth Supplemental
Indenture provides that in the event of any default in payment of the interest
due on such payment date, such interest shall not be payable to the holder of
the bond on the original record date but shall be paid to the registered holder
of such bond on the subsequent record date established for payment of such
defaulted interest.
16
<PAGE> 18
In case a default as defined in said Indenture shall occur, the principal of
this bond may become or be declared due and payable before maturity in the
manner and with the effect provided in said Indenture. The holders, however,
of certain specified percentages of the bonds at the time outstanding,
including in certain cases specified percentages of bonds of particular series,
may in the cases, to the extent and under the conditions provided in said
Indenture, waive defaults thereunder and the consequences of such defaults.
It is part of the contract herein contained that each registered owner
hereof by the acceptance hereof waives all right of recourse to any personal
liability of any incorporator, stockholder, officer or director, past, present
or future, of the Company, as such, or of any predecessor or successor
corporation, howsoever arising, for the collection of any indebtedness
hereunder; and as part of the consideration for the issue hereof releases from
all such liability each such incorporator, stockholder, officer or director,
all as provided in said Indenture.
This bond shall not become or be valid or obligatory for any purpose
until the authentication certificate hereon shall have been signed by the
Trustee.
IN WITNESS WHEREOF, MOBILE GAS SERVICE CORPORATION has caused these
presents to be executed in its corporate name and behalf by its President or a
Vice President and its corporate seal to be hereunto affixed and attested by
its Secretary or an Assistant Secretary, all as of
____________________________, 1996.
MOBILE GAS SERVICE CORPORATION
By:
---------------------------
Attest: President
- ----------------------------
Secretary
17
<PAGE> 19
[FORM OF AUTHENTICATION CERTIFICATE FOR ALL BONDS
OF 2006 SERIES]
This bond is one of the bonds of the series designated therein, referred to in
the within-mentioned Indenture.
AMSOUTH BANK OF ALABAMA, TRUSTEE,
BY
-------------------------------
AUTHORIZED OFFICER
18
<PAGE> 20
ARTICLE 2.
SUNDRY PROVISIONS
SECTION 2.01. The Company may enter into an agreement with the holder
of any registered Bond, without coupons, of any series providing for the
payment to such holder of the principal of and the premium, if any, and
interest on such Bond or any part thereof at a place other than the offices or
agencies specified in the Indenture and such Bond, including by wire transfer,
without presentation of such Bond, and for the making of notation of any such
payment by such holder or by an agent of the Company or of the Trustee. The
Trustee is authorized to approve any such agreement, and shall not be liable
for any act or omission to act on the part of the Company, any such holder or
any agent of the Company in connection with any such agreement.
SECTION 2.02. This Seventeenth Supplemental Indenture is executed and
shall be construed as an indenture supplemental to the Original Indenture, as
heretofore supplemented and modified, and shall form a part thereof, and the
Original Indenture, as heretofore supplemented and modified, is hereby
ratified, approved and confirmed.
SECTION 2.03. The recitals contained in this Seventeenth Supplemental
Indenture are made by the Company and not by the Trustee; and all of the
provisions contained in the Original Indenture, as heretofore supplemented and
modified, in respect of the rights, privileges, immunities, powers and duties
of the Trustee shall be applicable in respect hereof as fully and with like
effect as if set forth herein in full.
SECTION 2.04. Nothing in this Seventeenth Supplemental Indenture
expressed or implied is intended or shall be construed to give to any person
other than the Company, the Trustee, and the holders of the Bonds issued
hereunder, any legal or equitable right, remedy or claim under or in respect of
the Original Indenture or any indenture supplemental thereto or any covenant,
condition or provision therein or herein or in the Bonds contained; and all
such covenants, conditions and provisions are and shall be held to be for the
sole and exclusive benefit of the Company, the Trustee and the holders of the
Bonds issued hereunder.
SECTION 2.05. The titles of Articles, section headings and any wording
on the cover of this Seventeenth Supplemental Indenture are inserted for
convenience only and are not a part hereof.
SECTION 2.06. All the covenants, stipulations, promises and agreements
in this Seventeenth Supplemental Indenture contained made by or on behalf of
the Company or of the Trustee shall inure to and bind their respective
successors and assigns.
SECTION 2.07. Although this Seventeenth Supplemental Indenture is
dated for convenience and for the purpose of reference as of November 1, 1996,
the actual date or dates of execution by the Company and by the Trustee are as
indicated by their respective acknowledgments hereto annexed.
19
<PAGE> 21
SECTION 2.08. In order to facilitate the recording or filing of this
Seventeenth Supplemental Indenture, the same may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, MOBILE GAS SERVICE CORPORATION has caused this
Seventeenth Supplemental Indenture to be signed in its corporate name and
behalf by its President or one of its Vice Presidents and its corporate seal to
be hereunto affixed and attested by its Secretary or one of its Assistant
Secretaries; and AMSOUTH BANK OF ALABAMA has caused this Seventeenth
Supplemental Indenture to be signed in its corporate name and behalf by one of
its Vice Presidents and its corporate seal to be hereunto affixed and attested
by one of its Trust Officers; all as of the day and year first above written.
Executed on the 26th day of November, 1996.
MOBILE GAS SERVICE CORPORATION
(CORPORATE SEAL)
By /s/ John S. Davis
------------------------------
President
Attest:
/s/ G. Edgar Downing, Jr.
- -------------------------
Secretary
AMSOUTH BANK OF ALABAMA,
as Trustee
(CORPORATE SEAL)
BY /s/ Kara Lee Partin
-------------------------------
Assistant Vice President
and
Corporate Trust Officer
20
<PAGE> 22
Attest:
/s/ Charles S. Northen, IV
- --------------------------
Vice President
and
Corporate Trust Officer
STATE OF ALABAMA, )
) ss.:
COUNTY OF MOBILE, )
1, Martha E. O'Hara , a Notary Public in and or said county in
said state, hereby certify that JOHN S. DAVIS, and G. EDGAR DOWNING, JR.,
whose names as President and Secretary, respectively, of MOBILE GAS SERVICE
CORPORATION, a Corporation, are signed to the foregoing indenture, and who are
known to me, acknowledged before me on this day that, being informed of the
contents of said indenture, they, as such officers and with full authority,
executed the same voluntarily for and as the act of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this 26th
day of November, 1996,
/S/ Martha E. O'Hara
--------------------
Notary Public
Mobile County, Ala.
My Commission Expires 3/22/97
-------
(NOTARIAL SEAL)
21
<PAGE> 23
STATE OF ALABAMA, )
) ss.:
COUNTY OF MOBILE, )
1, Martha E. O'Hara , a Notary Public in and for said county in said
state, hereby certify that KARA LEE PARTIN and CHARLES S. NORTHEN, IV, whose
names as Assistant Vice President and Corporate Trust Officer and Vice President
and Corporate Trust Officer, respectively, of AMSOUTH BANK OF ALABAMA, a
national banking association, as trustee are signed to the foregoing indenture,
and who are known to me, acknowledged before me on this day that, being informed
of the contents of said indenture, they, as such officers and with full
authority, executed the same voluntarily for and as the act of said AMSOUTH BANK
OF ALABAMA, acting in its capacity as trustee as aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this 26th day
of November, 1996.
/S/ Martha E. O'Hara
--------------------
Notary Public
Mobile County, Ala.
My Commission Expires 3/22/97
-------
(NOTARIAL SEAL)
Grantor's Address:
- ------------------
Mobile Gas Service Corporation
Post Office Box 2248
Mobile, Alabama 36652
Grantee's Address:
- ------------------
AmSouth Bank of Alabama, as Trustee
Suite 730
1901 6th Avenue North
Birmingham, Alabama 35203
# 34191-1
This instrument is recorded in Mobile and Baldwin Counties, Alabama, as follows:
Mobile County, Alabama
- ----------------------
Real Property Book 4417, Pages 0916-0940
Baldwin County, Alabama
- -----------------------
Real Property Book 722, Pages 1 897-1921
22
<PAGE> 1
Exhibit 10(e)-3
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
GAS SALE AND PURCHASE CONTRACT BETWEEN
CORAL ENERGY RESOURCES, L.P.
AS SELLER
AND
MOBILE GAS SERVICE CORPORATION
AS BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
ARTICLE II.
SOURCES OF GAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------
ARTICLE III.
RESERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------
ARTICLE IV.
QUANTITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------
ARTICLE V.
PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------
ARTICLE VI.
DELIVERY POINTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------
ARTICLE VII.
DELIVERY CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------
ARTICLE VIII.
FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
ARTICLE IX.
ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------
ARTICLE X.
TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----
ARTICLE XI.
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------
ARTICLE XII.
WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------
ARTICLE XIII.
ADDRESSES AND NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------
ARTICLE XIV.
SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
----------------------
ARTICLE XV.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------
ARTICLE XVI.
CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------
</TABLE>
<PAGE> 3
GAS SALE AND PURCHASE CONTRACT
THIS CONTRACT, entered into as of January 1, 1997, by and between
CORAL ENERGY RESOURCES, L.P. ("Seller") and MOBILE GAS SERVICE CORPORATION
("Buyer").
WITNESSETH:
WHEREAS, Seller desires to sell and deliver natural gas to Buyer and
Buyer desires to purchase and receive natural gas from Seller upon the terms
and conditions set out herein;
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, Seller and Buyer agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. Except where the context otherwise indicates
another or different meaning or intent, the following words and terms as used
herein shall be construed to have the meanings indicated:
(a) "Btu" means British Thermal Unit and, if appropriate,
also means the plural thereof.
(b) "Commodity Price" means the base price per MMBtu as
determined pursuant to Sections 5.2, 5.3, 5.4, and 5.5 hereof.
(c) "Daily Contract Entitlement" or "DCE" means the daily
quantity of gas to be made available to Buyer for nomination pursuant
to Section 4.1 hereof.
(d) The word "day" means a period beginning at 8:00 a.m.
(Central time) on a calendar day and ending at 8:00 a.m. (Central
time) on the next succeeding calendar day. The date of a day shall be
that of its beginning.
<PAGE> 4
(e) "FERC" means the Federal Energy Regulatory Commission
and any successor thereto.
(f) The word "gas" means natural gas, whether produced
with oil or from gas or gas-condensate wells.
(g) "MMBtu" means 1,000,000 Btu.
(h) The word "month" means a period beginning at 8:00
a.m. (Central time) on the first day of a calendar month and ending at
8:00 a.m. (Central time) on the first day of the next succeeding
calendar month.
(i) "Nominated Quantity" means the quantity of gas, in
MMBtu per day, nominated by Buyer for a given month pursuant to
Section 4.3 hereof.
(j) "Reservation Charge" means the fee paid Seller to
make available for Buyer's nomination a quantity of gas equal to the
DCE for the term of this Contract. Such fee shall be calculated
pursuant to the provisions of Section 5.1 hereof.
(k) "Transporter" means the pipeline used by Buyer to
transport gas delivered hereunder.
(l) The word "year" means a period of 365 consecutive
days from the first day of the month following the month in which the
initial nomination is made hereunder, commencing and ending at 8:00
a.m. (Central time), provided that any year which contains the date
February 29 shall consist of 366 days.
(m) "Yellowhammer Plant" means the Yellowhammer Treating
Plant located approximately fifteen miles south of Interstate 10 or
state road 193 near Mobile, Alabama.
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<PAGE> 5
ARTICLE II.
SOURCES OF GAS
2.1 Pool Composition. The gas delivered hereunder will be provided
from any or all of Seller's sources of gas (the "Pool"). Buyer understands and
agrees that Seller may, at any time and from time to time, add to or subtract
from the sources comprising the Pool, at Seller' s sole discretion and for any
reason. Buyer shall have no rights whatsoever with respect to any particular
source of gas in the Pool at any time.
2.2 Supply Shortage Mitigation. Notwithstanding the provisions of
Section 2.1, the parties intend that deliveries hereunder will be made at the
Yellowhammer Plant. Each party agrees to work to mitigate the effect of any
reduction in deliveries at the Yellowhammer Plant resulting from force majeure
events by seeking alternate supplies and by seeking to arrange for deliveries
at other locations on Buyer's pipeline system. Seller may, but shall not be
obligated, to deliver gas at any other delivery locations.
2.3 Remedy. Anything in this Contract to the contrary
notwithstanding, Buyer's sole and exclusive remedy, whether at law or in
equity, against Seller for Seller's failure to tender gas for delivery under
this Contract shall be for the remedies set forth in Section 4.4 hereof.
ARTICLE III.
RESERVATIONS
3.1 Rights. With respect to any lands from which gas in the Pool
is produced, Seller expressly reserves to itself, its successors and assigns,
and to each of its gas suppliers, the following rights and such quantities of
gas sufficient to satisfy such rights:
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<PAGE> 6
(a) The right to operate such lands free from any control by
Buyer, including, without limitation, the fight (but never the obligation) to
drill new wells, to repair and rework old wells, to abandon any well and to
renew, surrender, release or terminate any lease (in whole or in part),
covering such lands,
(b) The right to deliver gas to lessors of leases on such lands in
quantities sufficient to fulfill lease obligations from time to time,
(c) The right to use gas for development and operation of such
lands, including (but not limited to) the use of gas for fuel, drilling
(including gas drilling), deepening, reworking, compressing, gas lifting,
processing, treating, cycling, repressuring or other supplemental recovery
operations,
(d) The fight to form or participate in the formation of any unit
or units, including (but not limited to) any fieldwide unit or units, and
thereafter to increase or decrease the size of any unit so formed and to
dissolve any unit or units so formed.
(e) The fight to process gas prior to delivery and to extract
components other than methane.
ARTICLE IV.
QUANTITY
4.1 Daily Contract Entitlement. Seller agrees that it shall have
available for nomination by Buyer each month a Daily Contract Entitlement of
*** MMBtu's per day. Seller' s obligation to deliver gas shall not exceed, on
any day, the Nominated Quantity.
4.2 Minimum Quantity. Subject to the provisions of Sections 4.3,
4.4, and 4.5, Buyer shall, on each day during the term hereof, take the
Nominated Quantity.
-4-
<PAGE> 7
4.3 Nomination. Buyer shall notify Seller, at least six work days
prior to the beginning of each month in which deliveries are to occur, of the
quantity of gas in MMBtu per day Buyer desires to take delivery of during the
succeeding month ("Nominated Quantity"). During a month of deliveries, Buyer
may, at its sole option and on 24 hours' notice to Seller, request a variance
up or down ("swing") in the Nominated Quantity of up to *** MMBtu per day,
provided that the sum of the Nominated Quantity and any swing quantities shall
not exceed ***. If the number of requested swings during a month results in 6
or more changes in pipeline nominations, Buyer agrees to pay an additional
service fee as set forth in Section 5.1.
4.4 Failure to Deliver. If Seller fails to tender for delivery all
or part of the Nominated Quantity and if such failure is not the result of
force majeure, then the parties shall remedy the failure to tender for delivery
solely and exclusively through the actions set out below:
(a) Buyer may charge Seller, and Seller shall pay after billing
thereof, the difference between the Commodity Price or the Alternate Commodity
Price, as applicable, which would have been paid hereunder for the undelivered
gas and such higher price, if any, which Buyer reasonably paid to obtain gas
supplies to replace the undelivered gas from third party suppliers.
(b) If Buyer elects not to take deliveries from the *** or to
attempt to secure alternative gas supplies within 15 working days of any
failure of Seller to deliver, then Seller is relieved of all obligation under
this Section 4.4.
4.5 Failure to Take. If Buyer fails to take delivery, when
available, of the Nominated Quantity and if such failure is not the result of
force majeure, then:
-5-
<PAGE> 8
(a) as to any *** during any month *** of the Nominated
Quantity, *** shall *** to ***, in addition to the *** set forth in
Article V and subject to the provisions of Section 4.5(b), *** of the
Nominated Quantity and the quantities actually delivered *** of the
Commodity Price or Alternate Commodity Price, whichever is applicable;
(b) as to any Nominated Quantities not taken by Buyer
which Seller, at its sole option, sells to third parties, Buyer shall
pay the difference between (i) *** of the Nominated Quantity and the
quantities actually delivered multiplied by the difference between the
Commodity Price or Alternate Commodity Price, whichever is applicable,
and (ii) the price actually received from third parties multiplied by
the number of days Buyer fails to take the Nominated Quantity; and
(c) as to failures to nominate the maximum DCE and
failures to take the Nominated Quantity, any and all such gas shall be
deemed released for the month or the remainder thereof by Buyer for
Seller to dispose of as Seller sees fit.
4.6 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE
CONTRARY, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS
INTERRUPTION DAMAGES, IN TORT OR CONTRACT.
4.7 Standby Service. Subject to the provisions of Article VIII,
Seller agrees to tender for delivery an additional quantity of up to ***
MMBtu's per day above the Nominated Quantity ("Standby Service") within ***
hours of notice from Buyer that an emergency shut down has
-6-
<PAGE> 9
occurred at the *** and that Buyer desires Standby Service in designated
quantities. Buyer agrees to pay Seller, for each MMBtu delivered pursuant to
the provision of this Section 4.6, a *** which shall equal the *** utilizing
the *** in the *** as published by *** for the respective date of delivery
adjusted in accordance with the provisions of Section 5.4 hereof.
ARTICLE V.
PRICES
5.1 Reservation Charge. Buyer shall pay Seller each month a
Reservation Charge calculated as $*** multiplied by the DCE multiplied by the
number of days in the month. In addition, the service fee for nomination
changes requested during a month pursuant to Section 4.3 shall be $*** per
MMBtu for the *** and for each change up to and including *** and $*** per
MMBtu for ***. The applicable *** shall be multiplied by the DCE and the number
of days in the month.
5.2 Commodity. Price. Subject to the further provisions hereof,
for each MMBtu of gas delivered or for which payment is due hereunder, Buyer
shall pay Seller a price to be agreed upon between the parties on or before the
sixth working day prior to the end of a month preceding deliveries ("Commodity
Price"), provided that if the parties fail to reach agreement as to a Commodity
Price, such price shall be determined in accordance with Section 5.3.
5.3 Alternate Commodity Price. If the parties fail to agree on a
Commodity Price pursuant to Section 5.2, Buyer and Seller agree to use an
alternate price ("Alternate Commodity Price") to be determined monthly which
shall be based on the ***
-7-
<PAGE> 10
as published by *** in the first issue of each month of deliveries, adjusted in
accordance with the provisions of Section 5.4 hereof.
5.4 Adjustments of price. For billing purposes, the Commodity
Price and the Alternate Commodity Price shall be determined at the tailgate of
***, and the Alternate Commodity Price shall be adjusted for deliveries by ***
to move gas on the facilities of *** from ***. In the event, at any time during
the term of this Contract, the *** is less than or equal to $*** per MMBtu or
greater than or equal to $*** per MMBtu, either party shall have the right to
demand renegotiation of the Adjustments of Price as described in Section 5.8 of
this Agreement.
5.5 Redetermination of Alternate Commodity Price. If at any time
and from time to time *** ceases publication or materially changes the index of
prices on which the Alternate Commodity Price is based, then either Buyer or
Seller may propose, in written notice to the other party, a new mechanism for
determining the Alternate Commodity Price. Until such time as the parties agree
to a new mechanism, the interim price for gas shall be based on the index of
*** as published by *** in the first publication of each month, adjusted in
accordance with the provisions of Section 5.4 hereof.
-8-
<PAGE> 11
5.6 Buyer's Price Option. If, at any time and from time to time,
any regulatory agency having jurisdiction over Buyer specifically disallows the
inclusion in Buyer's resale rates of an amount per MMBtu paid for gas
hereunder, then Buyer may elect to terminate this Contract effective upon a
date at least 30 days after written notice to Seller. If Buyer's election to
terminate falls between November 1 and the next succeeding April 1, the parties
agree to continue performance of this Contract until April 1, or such earlier
date as is set forth in notice from Buyer to Seller. In no event, however,
shall Seller be required to reduce any price, to refund any amount paid, or to
bear any interest or other cost as a result of any such disallowance.
5.7 Seller's Price Option. If, at any time, Seller is not
permitted by applicable law, order or rule to collect any part of a price
effective hereunder or any part of such price is subject to a possible refund
obligation, then Seller may reduce such price, or part thereof, to that which
is collectible without refund or Seller may terminate this Contract by giving
30 days' prior written notice to Buyer. If Seller's election to terminate falls
between November 1 of a year and April 1 of the next succeeding year, the
parties agree to continue performance of this Contract until April 1, provided,
however, if the applicable law, order or rule is from an Alabama regulatory or
legislative body, this Contract shall be terminable, on Seller's notice,
effective as of the date of such law, order or rule.
5.8 Transportation Reopener. Either party shall have the right to
demand renegotiation of Section 5.4 with 15 days' written notice should ***
file and implement published firm or interruptible transportation rates which
materially alter the Alternate Commodity Price. Within 30 days of the date of
such written notice, the party requesting the renegotiation shall propose
amendments to address the specific change(s) in the tariff. During the
renegotiation period, the then
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<PAGE> 12
current terms and conditions shall remain in effect unless otherwise agreed to
by both parties. If the parties fail to agree upon new terms and conditions
within 60 days of the written notice, Seller shall continue to supply using its
proposed amendments and Buyer may, at its option, terminate the Contract with
an additional 30 days' written notice.
ARTICLE VI.
DELIVERY POINTS
6.1 Delivery. Points. Gas shall be delivered at the
interconnection of the facilities of Transporter and Shell's Yellowhammer Plant
or at such other points as are agreed (each of which shall be a "Delivery
Point").
6.2 Title. Title to the gas delivered, sold, and purchased
hereunder shall pass from Seller to Buyer at the Delivery Point.
ARTICLE VII.
DELIVERY CONDITIONS
7.1 Facilities. Neither Seller nor Buyer shall be required to
construct additional facilities at the Delivery Point.
7.2 Conditions of Delivery. Gas delivered hereunder shall meet the
applicable conditions of quality as defined in *** pipeline tariff and pressure
as required from time to time by the operator of the facilities at the Delivery
Point. Neither Party has the obligation to compress gas for delivery or receipt
hereunder. EXCEPT FOR THE FOREGOING EXPRESS QUALITY SPECIFICATIONS OF THIS
SECTION BUYER ACCEPTS THE GAS "AS-IS" AND "WITH ALL FAULTS" AND SELLER
EXPRESSLY NEGATES ALL OTHER WARRANTIES,
-10-
<PAGE> 13
INCLUDING MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, EXPRESS OR
IMPLIED WITH RESPECT TO THE GAS."
7.3 Metering. Gas delivered hereunder shall be measured in
accordance with the standards used by the operator of the facilities at the
Delivery Point.
7.4 Btu Content. The Btu content of the gas delivered hereunder
shall be determined at the Delivery Point each month based upon the average Btu
content per cubic foot of all gas delivered during such month. The results of
tests for Btu content per cubic foot of gas shall be adjusted to reflect actual
conditions of gas at the Delivery Point. The parties agree to rely upon the
results of tests conducted by Transporter.
ARTICLE VIII.
FORCE MAJEURE
8.1 Definition. The term "force majeure" means acts of God,
strikes, lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, (and evacuations of platforms due to threats of
hurricanes) storms, floods, washouts, civil disturbances, explosions, breakage,
accidents to machinery or lines of pipe, freezing of wells or lines of pipe,
delay in obtaining or failure to obtain materials, equipment, easements,
franchises, or permits, failure or refusal of any person to transport gas
delivered or to be delivered hereunder, and any other causes, (except
financial), whether of a kind herein enumerated or otherwise, not reasonably
within the control of the party claiming suspension by reason of force majeure
and which, by exercise of due diligence, such party is unable to prevent or
overcome. The term "force majeure" also means actions of any governmental
authority having jurisdiction over Buyer or Seller (or over a person
transporting gas for or selling gas to either
-11-
<PAGE> 14
of them) which result in conditions, limitations, rules, or regulations that
materially impair either Buyer's or Seller's ability to perform, including, but
not limited to, actions effecting the emergency diversion of gas or limiting
uses of gas, but such term does not include actions of any governmental
authority affecting the price or prices paid or payable hereunder.
8.2 Effect. If either party is rendered unable, wholly or in part,
by force majeure to carry out its obligations (other than financial
obligations) under this Contract, it is agreed that, on such party's giving
notice and reasonably full particulars of such force majeure in writing or by
telegram or telecopy to the other party within a reasonable time after the
occurrence of the cause relied upon, the obligations of both parties, insofar
as they are affected by such force majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period, and such
cause shall so far as possible be remedied with all reasonable dispatch. When
Seller gives notice of force majeure, the obligation of Buyer to pay a portion
of the Reservation Charge under Section 5.1 shall be waived in an amount equal
to the Reservation Charge multiplied by the Nominated Quantity which was
scheduled but not delivered.
8.3 Strikes and Lockouts. The settlement of strikes, lockouts, or
industrial disputes or disturbances shall be entirely within the discretion of
the party having the difficulty, and the above requirement that any force
majeure shall be remedied with all reasonable dispatch shall not require the
settlement of strikes, lockouts, or industrial disturbances by acceding to the
demands of any opposing party therein when that course is deemed inadvisable in
the sole discretion of the party having the difficulty.
-12-
<PAGE> 15
ARTICLE IX.
ACCOUNTING
9.1 Payments for Gas. Seller shall furnish or cause to be
furnished, by the 15th day of the month next following the month in which a
charge is incurred, a bill setting forth the Reservation Charge, the quantity
of gas nominated and the amount due therefor, and any other charges or fees
owed by Buyer. Not later than the 25th day of the month in which Seller has so
billed Buyer, Buyer shall pay Seller by wire transfer all undisputed amounts;
provided, if Seller's bill is delayed beyond the 15th day of such month, Buyer'
s payment of such bill shall not be due until ten days after receipt of such
bill. All disputed amounts shall be resolved and paid or credited as soon as
possible.
9.2 Auditing. Each party shall have the right at reasonable hours
to examine the books, records, and charts of the other party to the extent
necessary to verify the accuracy of any statement, payment, calculation or
determination made pursuant to the provisions of this Contract provided that
neither party shall be required to reveal documents or information which it
deems confidential. If any such examination shall reveal, or if either party
shall discover, any error or inaccuracy in its own or the other party's
statement, payment, calculation or determination, then proper adjustment and
correction thereof shall be made as promptly as practicable after notice
thereof, except that no adjustment or correction shall be made unless notice of
any such error or inaccuracy is given within twelve months of the end of the
year during which such error or inaccuracy occurred.
9.3 Failure to Pay. Unless based on a good faith dispute, if
either party fails to pay the full amount payable to the other party hereunder
when due, interest on undisputed amounts shall accrue and be payable from the
date on which payment was due until the date payment is made. The rate of such
interest shall be two percent above the prime rate quoted from time to time by
the Chase
-13-
<PAGE> 16
Manhattan Bank, N.A., or successor thereto, provided that the interest rate
hereunder shall never exceed the highest rate of interest permitted by
applicable law. If any such failure to pay continues for 30 days after written
protest by the party entitled to such payment, such party may suspend its
deliveries or receipts of gas hereunder, as the case may be, and may terminate
this Contract with prior written notice to the non-paying party, provided that
such termination shall not be effective prior to the date of suspension of
deliveries or receipts of gas. Subject to Article II Section 2.3, the exercise
of any such fight shall be in addition to any and all remedies available to the
party to which payment is due.
ARTICLE X.
TERM
10.1 Contract Term. This Contract shall be effective on January 1,
1997, and shall extend through ***.
10.2 Termination Rights. If, at any time, either party or its
parent or affiliate is materially affected by any law, order or rule in a
manner which such affected party, in its sole discretion, finds unacceptable,
then the party so affected may suspend performance under this Contract for the
duration of such law, order, or rule by written notice to the other party. The
party receiving notice of suspended performance shall have the fight, on thirty
days' prior written notice, to cancel this Contract.
10.3 Notices of Cancellation. Notwithstanding any provision to the
contrary, any notice of cancellation by either party hereto shall be effective
on the first day of the month following the end of any specified notice period.
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<PAGE> 17
ARTICLE XI.
INDEMNIFICATION
11.1 Indemnification. As between the. parties hereto, Seller shall
be in control and possession of gas and responsible for any injuries, claims,
liabilities or damages caused thereby until the gas has been delivered to Buyer
at the Delivery Point, and, after such delivery, Buyer shall be in control and
possession of the gas and responsible for any injuries, claims, liabilities or
damages caused thereby. The party so in possession and control of the gas shall
indemnify the other party in respect to any injuries, claims, liabilities or
damages occurring while the gas is in the former party' s possession and
control.
ARTICLE XII.
WARRANTY
12.1 Warranty. Seller warrants title to the gas delivered
hereunder, the right to sell the same, and that it is free from all liens and
adverse claims.
ARTICLE XIII.
ADDRESSES AND NOTICES
13.1 Addresses. All notices to be given hereunder shall be in
writing via mail or fax and shall be addressed to the respective parties at the
addresses stated below or to such other addresses as they shall respectively
designate hereafter in writing from time to time:
To Seller: Coral Energy Resources, L.P.
909 Fannin, Suite 700
Houston, Texas, 77010
Attention: Trading Administration & Analysis
Facsimile: (713) 767-5644
To Buyer: Mobile Gas Service Corporation
ATTN. Mr. J. Harris Oswalt
P.O. Box 2248
Mobile, AL 36652 Facsimile: (334) 476-8292
-15-
<PAGE> 18
For the purpose of payments as described in Section 9.1:
To Seller: Coral Energy Resources, L.P.
by wire transfer: NationsBank Dallas, TX
ABA Number 111000012
Account No. 3750770027
To Buyer: Mobile Gas Service Corporation
P.O. Box 2248
Mobile, AL 36652
13.2 Notices. All notices required or permitted to be given under
this Contract shall be in writing and addressed as set forth above or to such
other address as either party may designate by like notice and shall be given
by personal delivery or transmitted by telex, or other electronic medium, or by
mail, postage prepaid, to the addresses of the parties shown above. Notice by
personal delivery or electronic medium shall be effective when received, and
notice by mail shall be effective when deposited, postage prepaid, with the
United States Postal Service.
ARTICLE XIV.
SUCCESSORS AND ASSIGNS
14.1 Binding of Terms. All the terms and conditions of this
Contract shall extend to and be binding upon the respective successors and
assigns of the parties hereto.
14.2 Assignments. The rights and obligations of either party
hereunder shall not be assigned without the prior written consent of the other
party, which consent shall not be unreasonably withheld.
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<PAGE> 19
ARTICLE XV.
MISCELLANEOUS
15.1 Waiver. No waiver by Buyer or Seller of any default of the
other party under this Contract shall operate as a waiver of any subsequent
default, whether of a like or a different character.
15.2 Performance. Any provision herein which requires action by
either party where a performance date is not specified shall require
performance of such action within a reasonable time.
15.3 Drafting. As between the parties hereto, it shall be
conclusively presumed that each and every provision of this Contract was
drafted jointly by Seller and Buyer.
15.4 Parties' Agents. The parties recognize that persons other than
Seller or Buyer may perform some of the obligations imposed upon Seller or
Buyer in this Contract. Any reference to either Buyer or Seller herein shall be
deemed to include such other persons, but each party hereto shall remain at all
times responsible to the other for the performance of all obligations.
Notwithstanding the above, in the event that Buyer should at any time during
the term of the Contract allow a third party, whether an affiliate or
otherwise, to manage the Contract on Buyer' s behalf, then Seller at its sole
option, may demand a redetermination of the Reservation Charge upon prior
written notice to Buyer. The parties agree to negotiate in good faith to
arrive at a mutually agreeable redetermined Reservation Charge within thirty
(30) days of Seller's demand.
15.5 Merger. This Contract sets forth all understandings between
the parties respecting the subject matter of this transaction, and all prior
agreements, understandings, and representations, whether oral or written,
representing this subject matter are merged into and superseded by this
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<PAGE> 20
Contract. No modifications or amendment of this Contract shall be binding on
either party unless in writing and signed by the party to be bound.
ARTICLE XVI.
CONFIDENTIALITY
16.1 Confidentiality. Each Party agrees that it will maintain this
Contract and all parts and contents thereof in strictest confidence and that it
will not cause or permit disclosure to any third party of this Contract or of
the contents thereof, except for such information as may be necessary to
arrange for transportation, without the prior express written consent of the
other party; provided, however, that such third party restriction does not
apply to an affiliated company of either party. Disclosure to a third party is
restricted by and permitted only to the extent to which either party is
required to disclose all or part of this specific Contract by a statute or by a
court, or agency, or other governmental body exercising jurisdiction over the
subject matter hereof, by order, or by regulation or other compulsory process
(including, but not limited to, deposition, subpoena, interrogatory, or request
for production of documents). Each party expressly understands that unless the
current laws and regulations change and require otherwise, this Contract shall
not be filed by such party with its Form 10-K with the Security and Exchange
Commission of the United States of America.
16.2 Notice. If either party is or becomes aware of a statute,
regulation, order, other compulsory process, or a judicial or governmental
proceeding that has resulted or may result in such compulsory disclosure, it
shall so notify the other party immediately and shall provide a copy of the
order, regulation or compulsory process as soon as it is available. Each party
further agrees to cooperate to the fullest extent in seeking confidential
status to protect any material so disclosed.
-18-
<PAGE> 21
16.3 Counsel. The parties hereto acknowledge that independent legal
counsel may, from time to time, be provided with a copy of the Contract and
agree that such disclosure does not require express written consent, provided
that such counsel affirms in writing to its client that it agrees to abide by
the terms and conditions of this Article XVI.
16.4 This Agreement is subject to approval by the Alabama Public
Service Commission ("APSC"). Buyer shall notify Seller of such APSC approval or
disapproval with ten (10) days of Buyer's notification. Seller and Buyer shall
each have the opportunity for (thirty) 30 days after receipt of Buyer's notice
to offer to the other changes to the Contract to remedy the reasons for the
disapproval. If no mutual agreement is reached within such thirty (30) days,
then this Contract shall terminate on the last day of the month following one
month after receipt of such notification from Buyer. Buyer shall remain liable
to seller in accordance with all provisions of the Contract prior to such
termination.
IN WITNESS WHEREOF, this Contract is executed as of the date first
above written.
CORAL ENERGY RESOURCES L.P.
By: /s/ Wes Blankenship
------------------------------------
Senior Vice President
MOBILE GAS SERVICE CORPORATION
By: /s/ Gerald S. Keen
------------------------------------
Vice President, Operations
Signature page to Gas Sale and Purchase Contract dated January 1, 1997.
-19-
<PAGE> 1
EXHIBIT 10(e)-4
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
Seller's Contract No. 50884
MIDCON GAS SERVICES CORP.
FIRM SALES CONTRACT
Dated April 1, 1997
A. BUYER: MOBILE GAS SERVICE CORP. Buyer is an LDC.
B. SERVICE: Buyer shall request, Properly Nominate, purchase and receive from
Seller the Daily Purchase Volume during each day of the Contract term, and
Seller shall sell and tender (or cause to be tendered) to Buyer on a "FIRM"
basis (as defined in Appendix A) the volume of gas requested by Buyer on such
day, at the Delivery Point(s), subject to the terms, conditions and limitations
in this Contract. Volumes delivered and purchased within the operational
tolerances of the transporter or distributor immediately upstream (or if there
is none, immediately downstream) of the Delivery Point(s) for the Daily
Purchase Volume shall satisfy the obligations to deliver and purchase gas under
this Contract. On any one day, Buyer may request to purchase a volume in excess
of the Daily Purchase Volume. Upon receipt of Buyer's request, Seller will
determine in its sole discretion whether to sell Buyer on a fully interruptible
(not firm) basis under this Contract all or a portion of the additional volumes
requested.
C. DAILY PURCHASE VOLUME: For the months April through September, the Daily
Purchase Volume shall be the volume Properly Nominated by Buyer, not to exceed
*** MMBtu/d delivered. For the months October through March, the Daily Purchase
Volume shall be the volume Properly Nominated by Buyer, not to exceed ***
MMBtu/d delivered.
E. DELIVERY POINT{S): The Primary Delivery Point(s) shall be the
following, or such other mutually agreed upon Delivery Point(s):
(1) KGPC/NGPL Erath
(2) KGPC/Sea Robin Erath
(3) KGPC/Mobile Bay Pipeline Outlet
(4) KGPC/Hatters Pond Gas Plant
F. TERM: From April 1, 1997 through March 31, 1999.
G. PURCHASE PRICE:
(1) Buyer shall pay for each MMBtu of Daily Purchase Volume during the
month, a price equal to the Index Price in the first publication of
each month of the Inside FERC Gas Market Report for ***. (Purchase
Price).
(2) In the event that Buyer changes the Daily Purchase Volume on any
day during a month from that Properly Nominated for the first of the
month, Buyer shall pay the following charges:
<PAGE> 2
(a) For each MMBtu of increase in the Daily Purchase Volume
from that for the first of the month, Buyer" shall pay a price
equal to the Gas Daily "Daily Price Survey" midpoint for ***.
(b) For each MMBtu of decrease in the Daily Purchase Volume
from that for the first of the month, Buyer shall;
(i) If daily prices fall below the Purchase Price, then Buyer
shall pay Seller the difference between the Purchase Price and
the Gas Daily "Daily Price Survey" midpoint for ***; or
(ii) If daily prices remain flat or rise above the Purchase
Price, then Buyer will release such volumes back to Seller and
Buyer will incur no costs for such volumes.
H. PERFORMANCE OBLIGATION (used in Appendix A): Cover Standard.
I. AGENCY AGREEMENT: This Contract is subject to the definitive terms and
conditions of the Agency Agreement dated April 1, 1997 between the two parties
whereby Buyer desires to retain Seller to perform certain nomination services
and Seller desires to provide such nomination services for Buyer.
J. The attached Appendix A and the attached General Terms and Conditions are
incorporated by reference and are part of this Contract. This Contract states
the entire agreement of the parties as to matters covered by the Contract and
no agreement, representation, statement or promise not contained in this
Contract shall be binding or valid. Any further agreement, representation or
promise must be in writing to be binding.
AGREED TO BY:
SELLER: MIDCON GAS SERVICES CORP. BUYER: MOBILE GAS SERVICE CORP.
BY: /s/ Stephen W. Green BY: /s/ Gerald S. Keen
------------------------------ -----------------------------
NAME: Stephen W. Green NAME: Gerald S. Keen
---------------------------- ---------------------------
TITLE: Attorney-in-Fact TITLE: Vice-President
--------------------------- --------------------------
DATE SIGNED: 5-16-97 DATE SIGNED: 5-7-97
--------------------- --------------------
<PAGE> 3
APPENDIX A
Additional Terms and Conditions
for Firm Sales Contract
I. "FIRM" Definition: Subject to the terms, conditions and limitations of this
Contract, the term "FIRM" as used in this Contract shall mean that either party
may interrupt its performance without liability only to the extent that such
performance is prevented for reasons of Force Majeure; provided, however, that
during Force Majeure interruptions, the party invoking Force Majeure may be
responsible for any Imbalance Charges as set forth in Section 5 related to its
interruption after the nomination is made to the Transporter and until the
change in deliveries and/or receipt is confirmed by the Transporter.
II. "Transporter(s)" Definition: "Transporter(s)" shall mean all gas gathering
or pipeline companies, or local distribution companies, acting in the capacity
of a transporter, transporting gas for Seller or Buyer upstream or downstream,
respectively, of the Delivery Point pursuant to this Contract.
III. "Cover Standard" Definition: "Cover Standard", if applicable, shall mean
that if there is an unexcused failure to take or deliver any quantity of gas
pursuant to this Contract, then the non-defaulting party shall use commercially
reasonable efforts to obtain gas or alternate fuels, or sell gas, at a price
reasonable for the delivery or production area, as applicable, consistent with:
the amount of notice provided by the defaulting party; the immediacy of the
Buyer's gas consumption needs or Seller's gas sales requirements, as
applicable; the quantities involved; and the anticipated length of failure by
the defaulting party.
IV. "Imbalance Charges" Definition: "Imbalance Charges" shall mean any fees,
penalties, costs or charges (in cash or in kind) assessed by a Transporter for
failure to satisfy the Transporter's balance and/or nomination requirements.
V. "Spot Price" Definition: "Spot Price" as referred in Section VI shall mean
the midpoint price listed in Gas Daily, for *** for the relevant Day; provided,
if there is no single price published for such location for such Day, but there
is published a range of prices, then the Spot Price shall be the average of
such high and low prices. If no price or range of prices is published for such
Day, then the Spot Price shall be the average of the following: (i) the price
(determined as stated above) for the first Day for which a price or range of
prices is published that next precedes the' relevant Day; and (ii) the price
(determined as stated above) for the first Day for which a price or range of
prices is published that next follows the relevant Day.
VI. Performance Obligation: In addition to any liability for Imbalance
Charges, which shall not be recovered twice by the following remedy, the
exclusive and sole remedy of the parties in the event of a breach of a Firm
obligation shall be recovery of the following: (i) in the event of a breach by
Seller on any Day (s), payment by Seller to Buyer in an amount equal to the
positive difference, if any, between the purchase price paid by Buyer utilizing
the Cover Standard for replacement gas or alternative fuels and the Purchase
Price, adjusted for commercially reasonable differences in transportation costs
to or from the Delivery Point(s), multiplied by the difference between the
Daily Purchase Volume and the quantity actually delivered by Seller for such
Day(s); or (ii) in the event of a breach by Buyer on any Day(s)," payment by
Buyer to Seller in an
<PAGE> 4
amount equal to the positive difference, if any, between the Purchase Price and
the price received by Seller utilizing the Cover Standard for the resale of
such gas, adjusted for commercially reasonable differences in transportation
costs to or from the Delivery Point(s), multiplied by the difference between
the Daily Purchase Volume and the quantity actually taken by Buyer for such
Day(s); or (iii) in the event that Buyer has used commercially reasonable
efforts to replace the gas or Seller has used commercially reasonable efforts
to sell the gas to a third party, and no such replacement or sale is available,
then the exclusive and sole remedy of the non-breaching party shall be any
unfavorable difference between the Purchase Price and the Spot Price, adjusted
for such transportation to the applicable Delivery Point, multiplied by the
difference between the Daily Purchase Volume and the quantity actually
delivered by Seller and received by Buyer for such Day(s).
VII. Gas Supply: As of the date of this Contract, Seller has not dedicated any
specific gas reserves, gas purchase contracts, or other gas supplies to the
performance of Seller's delivery obligations under this Contract. Seller
intends to augment its existing supply of gas by additional purchases to
satisfy its obligations under this Contract.
VIII. "Business Day" Definition: "Business Day" shall mean any day except
Saturday, Sunday or Federal Reserve Bank holidays.
<PAGE> 5
GENERAL TERMS AND CONDITIONS
1. BILLINGS AND PAYMENTS:
1.1 Seller shall invoice Buyer for Gas delivered and received in the preceding
month and for any other applicable charges, providing supporting documentation
acceptable in industry practice to support the amount charged. If the actual
quantity delivered is not known by the billing date, billing will be prepared
based estimates. The invoiced quantity will then be adjusted to the actual
quantity on the following Month's billing or as soon thereafter as actual
delivery information is available.
1.2 Buyer shall remit the amount due by electronic funds transfer (EFT), which
includes either payment by wire transfer or by Automated Clearinghouse (ACH),
on or before the later of the 25th or 10 days after receipt of the invoice by
Buyer; provided that if the 25th is not a Business Day, payment is due on the
next Business Day following that date. If Buyer fails to remit the full amount
payable by it when due, interest on the unpaid portion shall accrue at a rate
equal to the lower of (i) the then-effective prime rate of interest published
under "Money Rates" by The Wall Street Journal, plus two percent per annum from
the date due until the date of payment; or (ii) the maximum applicable lawful
interest rate. If Buyer, in good faith, disputes the amount of any such
statement or any part thereof, Buyer will pay to Seller such amount as it
concedes to be correct; provided, however, if Buyer disputes the amount due,
Buyer must provide supporting documentation acceptable in industry practice to
support the amount paid or disputed.
1.3 In the event any payments are due Buyer hereunder, payment to Buyer shall
be made in accordance with Section 1.2 above.
1.4 A party shall have the right, at its own expense, upon reasonable notice
and at reasonable times, to examine the books and records of the other party
only to the extent reasonably necessary to verify the accuracy of any
statement, charge, payment, or computation made under the Contract. This
examination right shall not be available with respect to proprietary
information not directly relevant to transactions under this Contract. All
invoices and billings shall be conclusively presumed final and accurate unless
objected to in writing, with adequate explanation and/or documentation, within
two years after the Month of gas delivery. All retroactive adjustments under
Section 1.1 shall be paid in full by the party owing payment within 30 days of
notice and substantiation of such inaccuracy.
2. PURCHASE PRICE: Buyer shall pay Seller the Purchase Price per MMBtu (as
measured on a dry basis) delivered to Buyer (or which Buyer is obligated to pay
for). If gas is priced by an index or publication, and such index or
publication stops publishing the relevant data, the alternate pricing mechanism
which best reflects past pricing under the original index or publication shall
be used thereafter. If the parties cannot agree in good faith on which
alternate mechanism best reflects such past pricing within fifteen (15)
business days after the first alternate mechanism is proposed by a party, then
either party may terminate this Contract immediately thereafter.
3. TAXES: Seller shall pay or cause to be paid all taxes, fees, levies,
penalties, licenses or charges imposed by any government authority ("Taxes") on
or with respect to the gas prior to the Delivery Point(s). Buyer shall pay or
<PAGE> 6
cause to be paid all Taxes on or with respect to the gas at the Delivery
Point(s) and all Taxes after the Delivery Point(s). If a party is required to
remit or pay Taxes that are the other party's responsibility hereunder, the
party responsible for such Taxes shall promptly reimburse the other party for
such Taxes. Any party entitled to an exemption from any such Taxes or charges
shall furnish the other party any necessary documentation thereof.
4. "PROPERLY NOMINATED" GAS: Buyer must Properly Nominate any gas for which
Buyer requests delivery. "Properly Nominate" means that Buyer's dispatcher
shall give Seller's dispatcher timely prior notice, sufficient to meet the
requirements of all pipelines, gatherers or distributors involved in the gas
delivery to Buyer, of the volumes of gas Buyer desires to purchase and take on
each day. Such notice shall be at least twenty-four hours prior to the earliest
regularly scheduled nomination deadline of the pipelines/distributors receiving
or delivering gas at the Delivery Point(s) for gas to be delivered commencing
on the first day of a month, and one hour earlier than such deadline for any
subsequent nomination. All gas taken hereunder shall be taken in as nearly
equal daily and hourly quantities as operating conditions permit. Buyer shall
not make intraday or late nominations of gas hereunder, unless Seller otherwise
agrees.
5. TRANSPORTER PENALTIES OR CHARGES: The parties shall use commercially
reasonable efforts to avoid imposition of any Imbalance Charges. If Buyer or
Seller receives an invoice from a Transporter that includes Imbalance Charges,
the parties shall determine the validity as well as the cause of such Imbalance
Charges. If the Imbalance Charges were incurred as a result of Buyer's actions
or inactions (which shall include, but shall not be limited to, Buyer's failure
to accept quantities of Gas equal to the Properly Nominated Gas), then Buyer
shall pay for such Imbalance Charges, or reimburse Seller for such Imbalance
Charges paid by Seller to the Transporter. If the Imbalance
6. FINANCIAL RESPONSIBILITY: When reasonable grounds for insecurity of payment
or title to the gas arise, either party may demand adequate assurance of
performance. Adequate assurance shall mean sufficient security in the form and
for the term reasonably specified by the party demanding assurance, including,
but not limited to, a standby irrevocable letter of credit, a prepayment, a
security interest in an asset acceptable to the demanding party or a
performance bond or guarantee by a creditworthy entity. In the event either
party shall (i) default in the payment obligation to the other party; (ii) file
a petition or otherwise commence, authorize, or acquiesce in the commencement
of a proceeding or cause under any bankruptcy or similar law for the protection
of creditors or have such petition filed or proceeding commenced against it;
(iii) otherwise become bankrupt or insolvent (however evidenced); or (iv) be
unable to pay its debts as they fall due; then the other party shall have the
right to either withhold and/or suspend deliveries or payment, or terminate the
Contract without prior notice, in addition to any and all other remedies
available hereunder. Seller may immediately suspend deliveries to Buyer
hereunder in the event Buyer has not paid any amount due Seller hereunder on or
before the tenth day following the date such payment is due.
7. GENERAL STANDARDS: Unless otherwise agreed in writing, the pressure,
measurement, definitions of "Day" and "Month", and quality standards applicable
to the Contract gas shall be governed by the standards of the Transporter(s)
<PAGE> 7
immediately upstream (or if there is none, immediately downstream) of the
Delivery Point(s).
8. SPECIAL DAMAGES WAIVER: EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN,
IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER THIS CONTRACT, WHETHER IN
CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LABILITY), OR OTHERWISE, FOR
INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES.
9. FORCE MAJEURE:
9.1 Except with regard to a party's obligation to make payment due under
Section 1., neither party shall be liable to the other for failure to perform a
Firm obligation, to the extent such failure was caused by Force Majeure. The
term "Force Majeure" as employed herein means any cause not reasonably within
the control of the party claiming suspension, as further defined in Section
9.2.
9.2 Force Majeure shall include but not be limited to the following: (i)
physical events such as acts of God, landslides, lightning, earthquakes, fires,
storms or storm warnings, such as hurricanes, which result in evacuation of the
affected area, floods, washouts, explosions, breakage or accident or necessity
of repairs to machinery or equipment or lines of pipe; (ii) weather related
events affecting an entire geographic region, such as low temperatures which
cause freezing or failure of wells or lines of pipe; (iii) interruption of firm
transportation and/or storage by Transporters; (iv) acts of others such as
strikes, lockouts or other industrial disturbances, riots, sabotage,
insurrections or wars; and (v) governmental actions such as necessity for
compliance with any court order, law, statute, ordinance, or regulation
promulgated by a governmental authority having jurisdiction. Seller and Buyer
shall make reasonable efforts to avoid the adverse impacts of a Force Majeure
and to resolve the event or occurrence once it has occurred in order to resume
performance.
9.3 Neither party shall be entitled to the benefit of the provisions of Force
Majeure to the extent performance is affected by any or all of the following
circumstances: (i) the curtailment of interruptible or secondary firm
transportation unless primary, in-path, firm transportation is also curtailed;
(ii) the party claiming excuse failed to remedy the condition and to resume the
performance of such covenants or obligations with reasonable dispatch; or (iii)
economic hardship.
9.4 Notwithstanding anything to the contrary herein, the parties agree that the
settlement of strikes, lockouts or other industrial disturbances shall be
entirely within the sole discretion of the party experiencing such disturbance.
9.5 The party whose performance is prevented by Force Majeure must provide
notice to the other party. Initial notice may be given orally; however, written
notification with reasonably full particulars of 'the event or occurrence is
required as soon as reasonably possible. Upon providing written notification of
Force Majeure to the other party, the affected party will be relieved of its
obligation to make or accept delivery of gas as applicable to the extent and
for the duration of Force Majeure, and neither party shall be deemed to have
failed in such obligation to the other during such occurrence or event.
<PAGE> 8
9.6 In lieu of the references to Imbalance Charges responsibility in Sections
9.1 and 9.3, any Imbalance Charges incurred as a result of Force Majeure event
shall be resolved and payment responsibility agreed to by the parties at the
time of the event.
10. RESPONSIBILITY FOR GAS:
1O.1 Unless otherwise specifically agreed, title to the Gas shall pass from
Seller to Buyer at the Delivery Point(s). Seller shall have responsibility for
and assume any liability with respect to the gas prior to its delivery to Buyer
at the specified Delivery Point(s). Buyer shall have responsibility for and any
liability with respect to said Gas after its delivery to Buyer at the Delivery
Point(s).
10.2 Seller warrants that it will have the right to convey and will transfer
good and merchantable title to all Gas sold hereunder and delivered by it to
Buyer, free and clear of all liens, encumbrances, and claims.
10.3 Seller agrees to indemnify Buyer and save it harmless from all losses,
liabilities or claims including attorneys' fees and costs of court ("Claims"),
from any and all persons, arising from or out of claims of title, personal
injury or property damage from said gas or other charges thereon which attach
before title passes to Buyer. Buyer agrees to indemnify Seller and save it
harmless from all Claims, from any and all persons, arising from or out of
claims regarding payment, personal injury or property damage from said gas or
other charges thereon which attach after title passes to Buyer. Notwithstanding
the other provisions of this Sections 10., as between Seller and Buyer, Seller
will be liable for all Claims to the extent that such arise from the failure of
Gas delivered by Seller to meet the quality standards of Section 7.
11. DULY CONSTITUTED AUTHORITIES: This Contract and the operations and all
obligations hereunder are subject to all and shall be modified by legal
requirements of any governmental authority (without waiver of any right to
question or contest any such legal requirement) and each party shall be excused
from performance to the extent necessary to comply with such requirements. To
the extent during the term of this Contract any governmental authority takes
any action affecting a party whereby the sale, delivery, or transportation of
gas as contemplated hereunder shall be proscribed, limited, restricted or
curtailed, or subjected to terms, conditions, regulations, restraints or sales
price controls that in the sole judgment of the party affected are unduly
burdensome to that party, or make performance commercially impracticable, the
affected party shall be excused from such performance and may cancel and
terminate this Contract upon immediate notice without further liability
hereunder, other than the liability to discharge obligations theretofore
accrued hereunder. As to the Buyer, this Contract shall be subject to the
approval of the Alabama Public Service Commission.
12. LAW APPLICABLE: SELLER AND BUYER EXPRESSLY AGREE THAT THE LAWS OF THE
STATE OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE WHICH
WOULD APPLY THE LAW OF ANOTHER JURISDICTION.
13. CONFIDENTIALITY: The terms of this Contract shall be kept confidential by
the parties hereto, except (a) to the extent that any information must be
disclosed to a third party as required by law, regulation or order, immediate
<PAGE> 9
notice shall be given to the other party and there shall be a request for
confidential treatment and minimization of the amount of disclosure or (b) for
the purpose of effectuating transportation of the subject gas pursuant to this
Contract in which case the minimum necessary amount of disclosure shall be
provided.
14. TERMINATION: No termination of this Contract shall affect the obligations
incurred by either party prior to the effective date of such termination.
15. NOTICES:
15.1 All invoices, payments and other communications made pursuant to the
Contract ("Notices") shall be made to the addresses specified in writing by the
respective parties from time to time.
15.2 All Notices required hereunder may be sent by facsimile or mutually
acceptable electronic means, a nationally recognized overnight courier service,
first class mail or hand delivered.
15.3 Notice shall be given when received on a Business Day by the addressee. In
the absence of proof of the actual receipt date, the following presumptions
will apply. Notices sent by facsimile shall be deemed to have been received
upon the sending party's receipt of its facsimile machine's confirmation
of successful transmission, if the day on which such facsimile is received is
not a Business Day or is after five p.m. on a Business Day, then such facsimile
shall be deemed to have been received on the next following Business Day.
Notice by overnight mail or courier shall be deemed to have been received on
the next Business Day after it was sent or such earlier time as is confirmed by
the receiving party. Notice via first class mail shall be considered delivered
five (5) Business Days after mailing.
SELLERS ADDRESS: BUYERS ADDRESS:
- --------------- --------------
FOR PAYMENTS: FOR INVOICES:
(Wire or ACH) Mobile Gas Service Corp.
Citibank, N.A., New York, NY 2828 Dauphin Street
ABA No. 021000089 Mobile, AL 36606
Account No. 4067-6152 Attn: Mr. Harris Oswalt
FOR NOTICES: FOR NOTICES:
MidCon Gas Services Corp. Mobile Gas Service Corp.
P.O. Box 283 2828 Dauphin Street
Houston, Texas 77001-0283 Mobile, AL 36606
Attn: Manager Contract Admin. Attn: Mr. Harris Oswalt
Fax: (713)964-5632 Fax: (334) 476-8292
Phone: (334) 450-4688
16. MISCELLANEOUS:
16.1 This Contract shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, and heirs of the respective
parties hereto, and the covenants, conditions, rights and obligations of this
Contract shall run for the full term of this Contract. No assignment of this
Contract, in whole or in part, will be made without the prior written consent
of the non-assigning party, which consent will not be unreasonably withheld or
delayed; provided, either party may transfer its interest to any parent or
<PAGE> 10
affiliate by assignment, merger or otherwise without the prior approval of the
other party. Upon any transfer and assumption, the transferor shall not be
relieved of or discharged from any obligations hereunder.
16.2 If any provision in this Contract is determined to be invalid, void or
unenforceable by any court having jurisdiction, such determination shall not
invalidate, void, or make unenforceable any other provision, agreement or
covenant of this Contract.
16.3 No waiver of any breach of this Contract shall be held to be a waiver of
any other or subsequent breach.
16.4 This Contract sets forth all understandings between the parties respecting
each transaction subject hereto, and any prior contracts, understandings and
representations, whether oral or written, relating to such transactions are
merged into and superseded by this Contract. This Contract may be amended only
by a writing executed by both parties.
16.5 This Contract and all provisions herein will be subject to all applicable
and valid statutes, rules, orders and regulations of any Federal, State, or
local governmental authority having jurisdiction over the parties, their
facilities, or gas supply, this Contract or any provisions thereof.
16.6 There is no third party beneficiary to this Contract.
16.7 Each party to this Contract represents and warrants that it has full and
complete authority to enter into and perform this Contract. Each person who
executes this Contract on behalf of either party represents and warrants that
it has full and complete authority to do so and that such party will be bound
thereby.
<PAGE> 1
EXHIBIT 10(u)-3
AMENDMENT TO
REVOLVING CREDIT AGREEMENT
BY AND AMONG
MOBILE GAS SERVICE CORPORATION,
as Borrower,
and
AmSOUTH BANK OF ALABAMA, as Agent,
and
AmSOUTH BANK OF ALABAMA, REGIONS BANK,
WHITNEY BANK OF ALABAMA, BANK OF MOBILE
SOUTHTRUST BANK, N.A., and COMMONWEALTH
NATIONAL BANK,
as Lenders
* * *
$20,000,000
* * *
July 15, 1997
<PAGE> 2
AMENDMENT TO REVOLVING CREDIT AGREEMENT
This Amendment to Revolving Credit Agreement ("this Amendment") is entered
into as of the 15th day of July, 1997, by and among Mobile Gas Service
Corporation, as Borrower ("Borrower"), AmSouth Bank of Alabama, as Agent for
Lenders ("Agent"), and AmSouth Bank of Alabama, Regions Bank (successor to
First Alabama Bank), Whitney Bank of Alabama, Bank of Mobile, SouthTrust Bank,
N.A., and Commonwealth National Bank, as Lenders (collectively, "Lenders").
W I T N E S S E T H :
WHEREAS, Borrower, Agent and Lenders entered into a Revolving Credit
Agreement (the "Revolving Credit Agreement") as of the 17th day of July, 1995;
WHEREAS, by Amendment to Revolving Credit Agreement dated as of July 15,
1996, Borrower, Agent and the Lenders amended the Revolving Credit Agreement by
extending the Commitment Termination Date, as defined in Section 1.14 of the
Revolving Credit Agreement; and
WHEREAS, Borrower, Agent and Lenders desire to further amend the Revolving
Credit Agreement by further extending the Commitment Termination Date, as
defined in Section 1.14 of the Revolving Credit Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
<PAGE> 3
contained, and for other valuable consideration, the parties hereto agree as
follows:
1. Section 1.14 of the Revolving Credit Agreement is amended to read in
its entirety, as follows:
Section 1.14. "Commitment Termination Date" shall mean the earlier of
(i) July 17, 1999, or, if such date is not a business day, the business day
next succeeding such date, unless the Lenders and Borrower shall agree in
writing by July 17, 1998 to the extension of the date of payment of the
indebtedness evidenced by the Notes for one additional period of one (1) year,
in which event the date of payment of the indebtedness evidenced by the Notes,
as thereby extended, shall be the Commitment Termination Date, or (ii) the date
on which the Commitment is terminated by either Borrower or Lenders pursuant to
the provisions hereof.
2. The Revolving Credit Agreement, as hereby amended, remains in full
force and effect.
3. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement, and any of
the parties hereto may execute this Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
day and year first above written.
BORROWER
MOBILE GAS SERVICE CORPORATION
/s/ John S. Davis
By: John S. Davis
Title: President and Chief Executive Officer
<PAGE> 4
/s/ Charles P. Huffman
By: Charles P. Huffman
Title: Vice President, Chief Financial Officer
and Treasurer
AGENT
AmSOUTH BANK, as Agent for Lenders
Pursuant to the terms of the Revolving
Credit Agreement
/s/ L. J. Marks
By: L. J. Marks
Title: Assistant Vice President
LENDERS
AmSOUTH BANK
/s/ L. J. Marks
By: L. J. Marks
Title: Assistant Vice President
REGIONS BANK
(successor to First Alabama Bank)
/s/ Peter P. Gaillard
By: Peter P. Gaillard
Title: Senior Vice President
3
<PAGE> 5
WHITNEY BANK OF ALABAMA
/s/ Kyle C. Pugh
By: Kyle C. Pugh
Title: Vice President
BANK OF MOBILE
/s/ Robert S. Murray, Jr.
By: Robert S. Murray, Jr.
Title: Vice President
SOUTHTRUST BANK, N.A.
Ricky L. Chastain
By: Ricky L. Chastain
Title: Senior Vice President
COMMONWEALTH NATIONAL BANK
/s/ Charles N. Delmore
By: Charles N. Delmore
Title: Senior Vice President
4
<PAGE> 1
EXHIBIT 10(aa)
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION AGREEMENT
THIS AGREEMENT is made and entered into as of this 26th day of September,
1997 by and between MOBILE GAS SERVICE CORPORATION, an Alabama corporation,
with a mailing address of P. O. Box 2248, Mobile, Alabama 36652, herein called
"Mobile Gas," and METHANOL ONE of ALABAMA, L.L.C., an Alabama limited liability
corporation, with a mailing address of P. O. Box 1234, Slidell, Louisiana
70459, herein called "Customer."
Whereas, Customer desires to use natural gas for the operation of
Customer's proposed chemical manufacturing facility to be located in Theodore,
Alabama (the "Plant"); and
Whereas, Mobile Gas operates a system for the distribution of natural gas
from natural gas transmission pipelines and processing plants and Customer
intends that it or its agents will purchase natural gas from third parties
("Customer's Shippers") who will deliver such gas to Mobile Gas for redelivery
to the Plant.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE I - TRANSPORTATION SERVICE
1.1 Mobile Gas will transport up to the "Contract Demand Volume," which shall
be *** MMBtu per day, of Customer's gas, not to exceed *** MMBtu per hour.
Customer will pay Mobile Gas for all gas transported by Mobile Gas to the Plant
and agrees to accept and pay for service subject to the terms and conditions
hereof:
1.2 The RATE for such transportation service and the *** hereunder are as
specified in Exhibit "A" which is attached hereto and made part of this
agreement. The rate is a special negotiated rate.
1.3 Customer may request that the Contract Demand Volume be increased by
delivering a written request to Mobile Gas for such increase. Mobile Gas may
approve or decline such request in its discretion (such request being deemed to
be declined if Mobile Gas does not approve the request within 30 (thirty) days
after the date of receipt thereof). In the event Mobile Gas approves such a
request, it may specify an effective date for the requested increase in the
Contract Demand Volume, such date to be not later than 24 months after the
approval date.
1.4 Except as otherwise specified in this section, Mobile Gas shall be the ***
of natural gas to Customer during the term of this Agreement. If during the
term of this Agreement Mobile Gas, due to default by Mobile Gas or force
majeure affecting Mobile Gas is unable to deliver adequate volumes, Customer
may obtain gas volumes from other sources for the duration of such default or
force majeure. If during
<PAGE> 2
the term of this Agreement Customer's operations require an increase in the
Contract Demand Volume, and such increase is requested by Customer and not
approved by Mobile Gas as described in Section 1.3, Customer may obtain
transportation of gas volumes exceeding the Contract Demand Volume from other
sources.
ARTICLE II - TERM OF AGREEMENT
2.1 The term of this Agreement shall be *** years, beginning on the
Commencement Date, as herein defined, and shall be automatically extended for a
period of two years from each expiration date of such term or any automatic
extension thereof unless either party shall notify the other in writing not
less than 90 days prior to the expiration date, or the expiration of any two
year extension of such expiration date, of its intention to terminate this
Agreement.
2.2 The "Commencement Date" shall be the earlier of (i) the first day of the
month following the date ninety (90) days after written notification by
Customer of intended plant completion (ii) the date Customer first takes
redelivery of natural gas from Mobile Gas at the Point of Redelivery, or (iii)
December 31, 1999. In no case shall the Commencement Date be before April 1,
1999.
2.3 Notwithstanding the provisions of Section 2.1, this Agreement shall become
effective as of the date hereof with respect to the obligations of the parties
specified in Section 4.4 hereof, and payment obligations arising prior to
expiration or termination of this Agreement shall remain in effect after the
term of this Agreement.
2.4 This Agreement may only be terminated prior to the expiration of the
initial term or a renewal term hereof, if any, as the case may be:
(a) by Mobile Gas, (i) in accordance with Section 5.3, or (ii) after
occurrence of any other material breach by Customer in the performance of its
obligations hereunder and the continuance of such breach 30 days after written
notice by Mobile Gas to Customer of such breach and demand by Mobile Gas that
Customer cure same.
(b) by Customer after occurrence of any material breach by Mobile Gas in the
performance of its obligations hereunder and the continuance of such breach 30
days after written notice by Customer to Mobile Gas of such breach and demand
by Customer that Mobile Gas cure same. In the event of termination by either
party under this Section 2.4 Customer shall not owe any minimum bill payments
as provided for in Exhibit A beyond the date of termination.
<PAGE> 3
ARTICLE III - QUALITY
3.1 The volumes of natural gas delivered hereunder shall be measured at an
equivalent pressure base of 14.73 pounds per square inch absolute (psia) and an
assumed atmospheric pressure of 14.7 psia, and at a temperature base of 60
degrees Fahrenheit. The volume of natural gas determined hereunder may be
adjusted to give effect to Boyle's Law in accordance with standard procedure.
3.2 The quality of the gas delivered by Customer's Shippers to Mobile Gas
shall be pipeline quality, and:
(a) Shall be dehydrated and shall in no event have a water content in excess
of seven (7) pounds of water per million (1,000,000) cubic feet of gas measured
at a pressure base of 14.73 psi and at a temperature base of 60 degrees
Fahrenheit, as determined by dew point or other moisture measuring equipment in
general use in the industry.
(b) Shall not contain more than one (1) grain of hydrogen sulfide per one
hundred (100) cubic feet as determined by quantitative methods in general use
in the industry.
(c) Shall not contain more than twenty (20) grains of total sulphur, including
hydrogen sulfide, per one hundred (100) cubic feet as determined by
quantitative methods in general use in the industry.
(d) Shall not contain in excess of:
(i) Three percent (3.0%) by volume carbon dioxide.
(ii) Two tenths percent (0.2%) by volume oxygen.
(e) Shall be commercially free from dust, gum, gum-forming constituents or
other liquid or solid matter which might become separate from the gas in the
course of transportation through pipelines.
(f) Shall be commercially free of water and other objectionable liquids at the
temperature and pressure at which the gas is delivered and the gas shall not
contain any hydrocarbons which might condense to free liquids in the pipeline
under normal pipeline conditions.
<PAGE> 4
ARTICLE IV - POINT OF DELIVERY AND REDELIVERY
4.1 The Point of Delivery by Customer's Shippers to Mobile Gas shall be as
specified in Exhibit A, Customer's Shippers shall make delivery to the Point of
Delivery at a minimum pressure sufficient to enable Mobile Gas to redeliver gas
to Customer at a minimum of 400 pounds per square inch gauge. Mobile Gas shall
not be obligated to redeliver gas at the Point of Redelivery unless Customer's
Shippers make delivery at the Point of Delivery as specified in this Section
4.1.
4.2 The Point of Redelivery of natural gas hereunder to Customer shall be the
Customer's flange downstream of the Mobile Gas metering station to be located
on Customer's Plant premises. Maintenance by Mobile Gas of gas pressure of a
minimum of 400 pounds per square inch gauge at the Point of Redelivery shall
constitute redelivery of gas for purpose of this Agreement.
4.3 The gas shall be redelivered by Mobile Gas to Customer in like good order
and condition and at quality in accordance with specifications as set forth in
Article III of this agreement.
4.4 Customer shall be responsible for construction of its pipeline from the
Point of Redelivery to its Plant. Mobile Gas shall at its expense construct
such facilities as may be necessary to enable it to redeliver gas to Customer
at the Point of Redelivery at the Contract Demand Volume on the Commencement
Date. Customer shall provide to Mobile Gas such easement or easements, in form
reasonably acceptable to Mobile Gas, covering approximately 100 feet by 100
feet of Customer's property, for construction of pipelines, for above and below
ground facilities to the Point of Redelivery as shall cross property owned or
leased by Customer, as well as for maintenance of a metering station on
Customer's premises.
ARTICLE V - BILLING
5.1 On or before the seventh (7th) working day of each calendar month, Mobile
Gas shall render to Customer, a statement of the amount of gas transported
hereunder by Mobile Gas to Customer during the preceding, calendar month (and
with respect to the first such statement, with respect to the portion of a
month, if any, between the Commencement Date and the first full calendar
month), and shall also render a bill for all gas so transported. On or before
the twenty-first (21st) day of each calendar month, Customer shall make payment
to Mobile Gas at Mobile Gas' office, P. O. Box 2248, Mobile, Alabama 36652.
5.2 In the event that Customer disputes any amount shown on a statement issued
by Mobile Gas to Customer, such disputed amount shall be paid. Notwithstanding
such payment, Customer shall have the right to claim from Mobile Gas such
disputed amount. Upon receipt by Mobile Gas of any claim from Customer for a
disputed amount, Mobile Gas and Customer shall endeavor to amicably resolve the
disputed amount prior to institution of arbitration by Customer. The parties
are not obligated to pursue amicable resolution for more than ten (10) days.
<PAGE> 5
5.3 Should Customer fail to pay any amount due (except for any minimum
billings as specified in Exhibit A falling due during any period of force
majeure invoked by Mobile Gas pursuant to Section 6.1) to Mobile Gas when the
same is due, Mobile Gas shall give notice and interest shall accrue on all
unpaid amounts from the date due until paid at a rate of interest equal to 2%
in excess of the "prime rate" reported in the Wall Street Journal or any
successor thereto. Should such failure to pay continue for ten (10) days,
Mobile Gas may suspend deliveries of gas hereunder, and the exercise of such
right shall be in addition to any and all remedies available to Mobile Gas.
Should such failure to pay continue for ninety (90) days after written notice
is given by Mobile Gas to Customer of such failure to pay, Mobile Gas may
terminate this Agreement, and the exercise of such right shall be in addition
to any and all remedies available to Mobile Gas. Such termination shall not
relieve Customer of its payment obligations hereunder.
ARTICLE VI - FORCE MAJEURE
6.1 In the event Mobile Gas is rendered unable, wholly or in part, by reason of
force majeure to carry out its obligations under this Agreement, it is agreed
that Mobile Gas shall give notice and reasonably full particulars of such force
majeure, in writing by either mail, hand delivery, or facsimile, to Customer
within a reasonable time after the occurrence of the cause relied on, and the
obligations of Mobile Gas, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for
no longer period, and such cause shall, so far as possible, be remedied with
all reasonable dispatch.
6.2 In the event the Customer is rendered unable, wholly or in part, by reason
of force majeure to carry out its obligations under this Agreement (other than
the obligation to make payment of amounts due hereunder), which obligations
shall not be affected by events of force majeure), it is agreed that Customer
shall give notice and reasonably full particulars of such force majeure, in
writing by either mail, hand delivery, or facsimile, to Mobile Gas within a
reasonable time after the occurrence of the cause relied on, and the
obligations of Customer, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for
no longer period, and such cause shall, so far as possible, be remedied with
all reasonable dispatch.
6.3 The term, "force majeure," as employed herein shall mean acts of God;
strikes, lockouts, or other industrial disturbances; conditions arising from a
change in governmental laws, orders, rules or regulations; acts of public
enemy; wars; blockades; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; storms; floods; washouts; arrests and restraints of
governments and people; civil disturbances; explosions; breakage or accident to
machinery or lines of pipe; the necessity for making repairs, tests or
alterations to machinery or lines of pipe; freezing of wells or lines of pipe;
partial or entire failure of wells, processing or gasification and gas
manufacturing facilities; and any other causes, whether of the kind herein
enumerated or otherwise, not within the control of the party claiming
suspension, and which by the exercise of due diligence, such party is unable to
prevent or overcome. Such term shall likewise include: (a) those instances
where either Mobile Gas or Customer is required to obtain servitudes,
rights-of-way, grants, permits or licenses to enable such party to fulfill its
<PAGE> 6
obligations under this Agreement; such party is unable to acquire, at
reasonable costs, and after the exercise of reasonable diligence, such
servitudes, rights-of-way, grants, permits or licenses, and (b) those instances
where either Mobile Gas or Customer's Shipper or Customer is required to
furnish materials and supplies for the purpose of constructing or maintaining
facilities or is required to secure permits or permissions from any
governmental agency to enable such party to fulfill its obligations under this
Agreement and such party is unable to acquire, or is delayed in acquiring, at
reasonable costs, and after the exercise of reasonable diligence, such
materials and supplies, permits and permissions. Force majeure shall not
include failure of gas supply due to pricing considerations.
6.4 It is understood and agreed that the settlement of strikes or lockouts
shall be entirely within the discretion of the party having the difficulty, and
that the above requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes or lockouts by
acceding to the demands of the opposing party when such course is inadvisable
in the discretion of the party having the difficulty.
ARTICLE VII - ARBITRATION
7.1 Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled exclusively by arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association.
7.2 All arbitrations pursuant to this Agreement shall be held at Mobile,
Alabama.
There shall be three arbitrators. One of the arbitrators shall be appointed by
Mobile Gas, the second by Customer, and the third shall be a neutral arbitrator
selected by these two arbitrators. Such neutral arbitrator shall be chairman
of the arbitration panel.
The arbitration shall be decided by a majority vote of the arbitration panel.
The cost of arbitration, including the fees of the arbitrators, shall be borne
by the losing party, unless the arbitrators decide otherwise.
ARTICLE VIII- SPECIAL PROVISIONS
The following Special Provisions for TRANSPORTATION are made a part
hereof:
8.1 If, on any day, Customer takes unauthorized volumes of gas, Customer
shall pay to Mobile Gas, as damages, any gas costs incurred by Mobile Gas. The
payment of damages for unauthorized volumes by Customer shall not under any
circumstances, be considered as giving Customer the right to take unauthorized
volumes, nor shall such payment be considered as a substitute for any other
remedies available to Mobile Gas against Customer for failure to respect its
obligations to adhere to the provisions of its contract with Mobile Gas.
<PAGE> 7
8.2 In the event, Mobile Gas incurs any cost, expense and/or penalties
resulting from Customer being over or under nominated for any period of time,
the Customer shall reimburse Mobile Gas for such cost, expenses and/or
penalties. Nomination shall be made using existing practices and procedures
subject to change in accordance with industry standards.
8.3 A "day" when used in this Agreement shall mean a twenty-four (24)
hour period ending at 9:00 A.M. Mobile, Alabama Time.
8.4 (a) Gas delivered will be measured through one or more meters,
either turbine meters, orifice meters, or combination of the two, each
installed and maintained by Mobile Gas. Mobile Gas will inspect such meters
from time to time, and shall keep measuring equipment accurate and in repair.
Inspection shall be in accord with A.G.A. Report 3 for orifice meters or A.G.A.
Report 7 for turbine meters, as may be amended from time to time. Mobile Gas
shall give Customer reasonable notice on the day preceding tests conducted on
measuring equipment in order that, if Customer desires, Customer may have its
representative present.
(b) Upon written request of Customer, Customer may challenge the
accuracy of measuring equipment and, when challenged, the equipment shall be
tested, calibrated, and, if necessary, repaired by Mobile Gas. Customer shall
bear the cost of such special tests if the measuring equipment is found to be
accurate to the extent that it affects the measuring accuracy by an amount of
two percent (2%) or less.
(c) Customer may, at its option and expense, install and operate a
check meter to check Mobile Gas' meter, but measurement of gas delivered to
Customer, for the purpose of this Agreement shall be by Mobile Gas' operated
metering only. Any check meter installed shall be of standard type and shall
be subject at all reasonable times to inspection or examination by Mobile Gas,
but the reading, calibration and adjustment thereof and changing of charts
shall be done only by the employees or agents of Customer.
(d) Mobile Gas shall provide Customer appropriate signals from its
measuring equipment that shall enable the Customer to calculate daily an
accumulated flow.
8.5 (a) Mobile Gas agrees to protect, defend, indemnify, and hold
harmless the Customer, its officers, directors, agents, contractors and/or
employees from and against any claims, demands, losses, damages, suits and
expenses, for damages and/or injury to persons and/or property which may be
brought against Customer, its officers, directors, agents, contractors and/or
employees arising out of, or resulting from, the transportation of natural gas
from the Point of Delivery to the Point of Redelivery pursuant to the terms and
conditions expressed herein.
(b) Customer agrees to protect, defend, indemnify, and hold
harmless Mobile Gas, its officers, directors, agents, contractors, and/or
employees from and against any claims, demands, losses, damages, suits and
expenses, for damages and/or injury to persons and/or property which may be
brought against Mobile Gas, its
<PAGE> 8
officers, directors, agents, contractors and/or employees arising out of, or
resulting from, the transportation of natural gas by Customer or its agents or
contractors to the Point of Delivery and from the Point of delivery to and
through its Plant and facilities.
8.6 (a) Customer warrants for itself, its successors and assigns, that it
will have at the time of delivery of gas for transportation hereunder good
title or valid right to deliver such gas hereunder; that the gas it delivers
hereunder shall be free and clear of all liens, encumbrances, or claims
whatsoever; and that it will indemnify Mobile Gas and save it harmless from all
claims, suits, actions, damages, costs and expenses arising directly or
indirectly from or with respect to the title to gas tendered to Mobile Gas
hereunder.
(b) As between Customer and Mobile Gas, Customer shall be in control and
possession of the gas transported hereunder prior to delivery to Mobile Gas at
the Point of Delivery and after delivery by Mobile Gas to Customer at the Point
of Redelivery, and Mobile Gas shall be in control and possession of the gas
after the receipt of the same at the Point of Delivery and until delivery by
Mobile Gas to Customer at the Point of Redelivery. The risk of loss for all
gas transported hereunder shall be and remain with the party having control and
possession of the gas as herein provided.
8.7 Mobile Gas shall use due diligence to provide continual service and having
used reasonable diligence shall not be liable to Customer for failure or
interruption of service.
8.8 The authorized agents of Mobile Gas shall have, at all times, the right of
access to the Plant premises for the purpose of examining and inspecting such
meters and/or for other necessary purposes.
8.9 So long as all amounts due and payable to Mobile Gas at such time have
been paid by customer, Mobile Gas agrees to transport additional volumes of gas
to Customer for a period of up to ten (10) days beyond the termination of this
Agreement in order to bring into balance any imbalance that exists at the
termination of this Agreement.
8.10 This Agreement shall not be assigned or transferred by either party
without prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the respective legal representatives,
successors and assigns of the parties hereto.
8.11 In the event one or more of the provisions contained herein shall for any
reasons be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provision hereof and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
8.12 This Agreement is contingent upon approval by the Alabama Public Service
Commission.
<PAGE> 9
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its officer thereunto dully authorized as of the date first above
written.
WITNESS: MOBILE GAS SERVICE CORPORATION
/s/ G. Edgar Downing, Jr. By: /s/ W. G. Coffeen III
- ------------------------- -------------------------------
Its: Vice President Marketing
------------------------------
WITNESS: METHANOL ONE OF ALABAMA, INC.
/s/ Michael James By: /s/ Dane E. Revette
- ------------------------ ------------------------------
Its: Vice President
------------------------------
<PAGE> 10
EXHIBIT "A"
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION SERVICE CONDITIONS
TRANSPORTATION SERVICE CONDITIONS
1. Special Monthly Transportation Rate "A"
<TABLE>
<CAPTION>
MMBtu per month RATE
------------------------ -----------------
<S> <C>
If less than *** ***
If over ***
First *** *** per MMBtu for all MMBtu
transported during the
month
Over *** *** per MMBtu for all
MMBtu above *** MMBtu.
</TABLE>
2. ***
The *** monthly bill for such transportation will be *** per
MMBtu of Contract Demand Volume.
3. Rate Adjustment
The rates and minimum bill shall be adjusted by the annual per
centage upward or downward) in the "PPI" on the anniversary
date and year-to-year thereafter for as long as this agreement
shall remain in full force and effect.
In no year shall the annual percentage change in the "PPI" be
taken to be greater than *** upward or downward.
The term "PPI" means the Producer Price Index (PPI) as
published by the U. S. Department of Labor, Bureau of Labor
Statistics.
4. Point of Delivery
The Point of Delivery shall be the Shell Processing Plant
interconnect or Mobil Processing Plant interconnect near
Coden, Alabama, or other mutually agreeable interconnect on
the Mobile Gas Bellingrath Pipeline.
<PAGE> 1
EXHIBIT 11
MOBILE GAS SERVICE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE, AS SHOWN ON
CONSOLIDATED STATEMENTS OF INCOME
Earnings applicable to common stock $8,126 $8,631 $4,028
Average common shares outstanding 3,230 3,217 3,208
Incremental shares resulting from assumed
exercise of stock options 25 8
Average common shares, as adjusted 3,255 3,225 3,208
Primary earnings per share(1) $ 2.50 $ 2.68 $ 1.26
FULLY DILUTED EARNINGS PER SHARE
Earnings applicable to common stock $8,126 $8,631 $4,028
Average common shares outstanding 3,230 3,217 3,208
Incremental shares resulting from assumed
exercise of stock options 43 13
Average common shares, as adjusted 3,273 3,230 3,208
Fully diluted earnings per share(2) $ 2.48 $ 2.67 $ 1.26
</TABLE>
- ------------
(1) Pursuant to footnote 2 to paragraph 14 of APB Opinion No. 15, the Company
is not required to include common stock equivalents resulting from stock
options when the effect is less 3%. The Company has chosen to reflect the
effect of such options within the computation of its earnings per share.
(2) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required to be shown in the Consolidated Statements
of Income pursuant to footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
<PAGE> 1
EXHIBIT 21
MOBILE GAS SERVICE CORPORATION
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Percent of Voting State of
Subsidiary Securities Owned Incorporation
---------- ----------------- -------------
<S> <C> <C>
MGS Energy Services, Inc. 100% Alabama
MGS Storage Services, Inc. 100% Alabama
MGS Marketing Services, Inc. 100% Alabama
</TABLE>
PARTNERSHIPS IN WHICH REGISTRANT OWNS AN INTEREST
<TABLE>
<CAPTION>
Partnership Equity Ownership
----------- ----------------
<S> <C>
Bay Gas Storage Company, Ltd. 87.5%
Southern Gas Transmission Co. 51%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-74613 on Form S-16, No. 33-66474 on Form S-8, and No. 333-02271 on Form S-3 of
Mobile Gas Service Corporation (the "Company") of our report dated November 7,
1997, appearing in this Annual Report on Form 10-K of the Company for the year
ended September 30, 1997.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 5, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
BALANCE SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO (B) THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 124,919
<OTHER-PROPERTY-AND-INVEST> 946
<TOTAL-CURRENT-ASSETS> 28,731
<TOTAL-DEFERRED-CHARGES> 1,306
<OTHER-ASSETS> 5,965
<TOTAL-ASSETS> 161,867
<COMMON> 32
<CAPITAL-SURPLUS-PAID-IN> 17,763
<RETAINED-EARNINGS> 37,382
<TOTAL-COMMON-STOCKHOLDERS-EQ> 55,177
0
0
<LONG-TERM-DEBT-NET> 63,580
<SHORT-TERM-NOTES> 10,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,930
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 29,480
<TOT-CAPITALIZATION-AND-LIAB> 161,867
<GROSS-OPERATING-REVENUE> 72,670
<INCOME-TAX-EXPENSE> 4,712
<OTHER-OPERATING-EXPENSES> 54,692
<TOTAL-OPERATING-EXPENSES> 54,692
<OPERATING-INCOME-LOSS> 17,978
<OTHER-INCOME-NET> (5,140)
<INCOME-BEFORE-INTEREST-EXPEN> 18,453
<TOTAL-INTEREST-EXPENSE> 5,615
<NET-INCOME> 8,126
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,126
<COMMON-STOCK-DIVIDENDS> 3,748
<TOTAL-INTEREST-ON-BONDS> 5,040<F1>
<CASH-FLOW-OPERATIONS> 14,929
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 0
<FN>
<F1>TOTAL INTEREST ON BONDS REPRESENTS INTEREST EXPENSE RELATED TO LONG-TERM DEBT
OUTSTANDING UNDER FIRST MORTGAGE BONDS AND LONG-TERM SECURED NOTES.
</FN>
</TABLE>
