<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 0-10763
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ALATENN RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALABAMA 63-0821819
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
POST OFFICE BOX 918, FLORENCE, ALABAMA 35631
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (205) 383-3631
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK (PAR VALUE $0.10 PER SHARE)
----------------------------------------
(TITLE OF CLASS)
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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ESTIMATED AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT AT FEBRUARY 28, 1995 $35,347,760
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
AT FEBRUARY 28, 1995 2,115,484 SHARES
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. [X]
DOCUMENTS INCORPORATED BY REFERENCE
PARTS I, II AND IV OF THIS REPORT INCORPORATE BY REFERENCE CERTAIN PORTIONS OF
THE REGISTRANT'S 1994 ANNUAL REPORT TO SHAREHOLDERS.
PART III OF THIS REPORT INCORPORATES BY REFERENCE THE REGISTRANT'S PROXY
STATEMENT RELATING TO THE 1995 ANNUAL MEETING OF SHAREHOLDERS.
<PAGE> 2
ALATENN RESOURCES, INC.
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
PART I.
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 16
PART II.
5. Market for Registrant's Common Equity and
Related Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 20
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART III.
10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 20
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 21
PART IV.
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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ALATENN RESOURCES, INC.
PART I
ITEM 1 - BUSINESS
GENERAL
AlaTenn Resources, Inc. (AlaTenn or the Company) was incorporated in
the state of Alabama in 1982 in connection with a reorganization of
Alabama-Tennessee Natural Gas Company (Alabama-Tennessee) which was
founded in 1944 and which has been in operation since 1950. AlaTenn is
a diversified holding company which is engaged in two lines of
business: (1) energy - natural gas transmission and marketing,
primarily through the provision of natural gas service in the lower
Tennessee Valley area and (2) the manufacture of products for the
health care industry. During 1994, the Company was the sole owner of
five natural gas transmission companies, a natural gas marketing
company, two natural gas distribution companies and one company which
was engaged in oil and gas exploration through its participation in a
limited partnership. Also, in 1994 the Company, through RIC
Acquisition Corporation, a wholly-owned subsidiary of the Company
formed to effect the acquisition, purchased the business of Ryder
International Corporation, a manufacturer of health care products.
The Company's principal pipeline subsidiary, Alabama-Tennessee, is an
interstate natural gas pipeline company engaged in the transportation
of natural gas in the Tennessee Valley. Its main pipeline extends from
Selmer, Tennessee approximately 130 miles across northern Mississippi
and Alabama to Huntsville, Alabama. This system includes approximately
288 miles of pipeline and two compressor stations.
Because it is engaged in the transportation of natural gas in
interstate commerce, Alabama-Tennessee is a "natural gas company" as
defined in the Natural Gas Act of 1938. As such, it is subject to the
jurisdiction of the Federal Energy Regulatory Commission (FERC), which
jurisdiction includes the power to regulate Alabama-Tennessee's rates
on the transportation of natural gas for its customers, as well as the
power to authorize the construction and operation of certain new
facilities.
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Tennessee River Intrastate Gas Company, Inc. (TRIGAS), one of the
Company's intrastate pipeline subsidiaries, completed construction in
1990 of a 38-mile, 10-inch pipeline that extends from Barton, Alabama
to Courtland, Alabama. In 1990, TRIGAS entered into a long-term
agreement to transport natural gas to an industrial customer in the
Courtland, Alabama area. In 1993, this customer increased its
existing contract for a three-year period by approximately 70%.
AlaTenn Energy Marketing Company, Inc. (ATEMCO) is the Company's
natural gas marketing subsidiary. ATEMCO buys natural gas primarily
on the spot market and sells that natural gas to customers on the
Company's interstate and intrastate pipelines, as well as to
off-system customers. As part of its services, ATEMCO evaluates
customers' supply requirements, locates natural gas supplies and
negotiates and manages contracts for those customers. ATEMCO also can
arrange for the use of its customers' excess gas storage and
transportation rights by others, generating savings for its customers.
Two of the Company's subsidiaries, Central Gas Company (Central) and
Tennessee River Development Company (Tennessee River), operated
natural gas distribution systems in Alabama prior to May 3, 1991, when
both subsidiaries sold substantially all their distribution assets to
the City of Florence, Alabama. Since that time, both subsidiaries
have transported or sold natural gas to the City of Florence for
resale to its customers.
Hardin County Gas Company, an AlaTenn distribution subsidiary, serves
approximately 140 customers in Hardin County, Tennessee. In 1994,
North Mississippi Natural Gas Corporation, which is also an AlaTenn
distribution subsidiary sold substantially all of its distribution
assets to a former customer and is not active at the current time.
Vulcan Oil and Gas Company (Vulcan) is a wholly owned subsidiary of
AlaTenn engaged in oil and natural gas exploration through its
participation as a limited partner in Lima Resources Associates
(Lima). Vulcan did not make any additional investments in Lima during
1994, its thirteenth year as a limited partner. As of December 31,
1992, the total investment in Lima had been written off by the
Company, and Vulcan is under no obligation to invest any additional
funds in the limited
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partnership. The Company does not anticipate any significant income
in the future from Lima's operations.
In recent years, changes in the nature of Alabama-Tennessee's business
attributable in large part to significant regulatory changes in the
natural gas industry contributed to the emergence of ATEMCO as the
Company's primary marketer of natural gas. For the past several
years, ATEMCO has been the primary seller of natural gas for the
Company. Sales by ATEMCO constituted 72%, 68% and 74% of the
Company's total revenues for the years 1994, 1993 and 1992,
respectively. However, due to the relatively small margins on such
sales, ATEMCO's contribution to the Company's net income was
significantly less than its percentage of the Company's total revenues
for each of the three years.
Also, as a result of these regulatory changes, Alabama-Tennessee's
customers have increasingly utilized Alabama-Tennessee to provide
transportation services rather than sales services and have utilized
other companies, including ATEMCO, for the purchase of their natural
gas supplies. While this change in the nature of its business has had
an adverse impact on Alabama-Tennessee, ATEMCO has benefitted from the
open-access status of Alabama-Tennessee and other pipelines and has
made significant contributions to the Company's revenues and net
income during the last three years. Also, TRIGAS contributed
materially to the Company's earnings in 1994, 1993 and 1992 as a
result of deliveries through its pipeline.
On April 19, 1994, the Company through RIC Acquisition Corporation, a
wholly-owned subsidiary of the Company formed to effect the
acquisition, purchased the business of Ryder International Corporation
by acquiring its assets, excluding cash and receivables, and assuming
substantially all of its liabilities. The Company paid to Ryder
International Corporation, including post-closing adjustments, $11.1
million in cash, issued a promissory note in the principal amount of
$1.0 million and assumed liabilities totaling $2.2 million, for a
total purchase price of $14.3 million. Following the closing, RIC
Acquisition Corporation's name was changed to Ryder International
Corporation (Ryder). Ryder is principally engaged in the design,
development, manufacture and sale of proprietary products for the
health care industry, including disposable or semi-disposable soft
contact lens storage and disinfection
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systems and diagnostic products sold primarily by major health care
companies.
In 1994, the Company formed AlaTenn Pipeline Company Inc., which has
agreed in principle with an industrial gas producer to construct and
operate a 23-mile, 8-5/8" high pressure steel pipeline to transport
gaseous oxygen to a large industrial customer in North Alabama.
Beginning in 1994, with the acquisition of Ryder, the Company
classifies its continuing operations into two industry segments,
energy and health care products. Unless the context otherwise
requires, references in this report to AlaTenn or the Company mean
AlaTenn Resources, Inc. and its subsidiaries.
Additional information respecting certain of the above matters is
contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in the Notes to Consolidated
Financial Statements in the Company's 1994 Annual Report to
shareholders incorporated herein by reference.
REVENUES
During 1994, 1993 and 1992, Alabama-Tennessee accounted for 14%, 30%
and 24% of total revenues, respectively. ATEMCO accounted for 72%, 68%
and 74% of revenues during these same periods. The table below
summarizes total revenue and delivered volumes for the Company's
pipelines as well as for its natural gas marketing and other
subsidiaries.
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- --------------------
Revenue Volume Revenue Volume Revenue Volume
($000) (MMMBtu) ($000) (MMMBtu) ($000) (MMMBtu)
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ENERGY
------
Natural Gas Transportation
--------------------------
Interstate Pipelines 8,764 32,637 4,702 32,186 2,748 32,861
Intrastate Pipelines 2,285 9,461 1,823 10,111 1,802 8,689
------- ------- ------- ------- ------- -------
11,049 42,098 6,525 42,297 4,550 41,550
------- ------- ------- ------- ------- -------
Gas Marketing and
Other Sales 52,396 23,350 112,497 38,088 117,101 46,993
----------- ------- ------- ------- ------- ------- -------
Marketing Volumes
Included in Pipeline
Transportation Volumes (19,925) (33,538) (38,436)
HEALTH CARE PRODUCTS 7,460 N/A 0 N/A 0 N/A
-------------------- ------- -------- ------- ------- ------- --------
Total 70,905 45,523 119,022 46,847 121,651 50,107
======= ======= ======= ======= ======= =======
</TABLE>
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During 1994, gas marketing sales by ATEMCO totaled 22.5 million MMBtu
of natural gas, a decrease of 11.9 million MMBtu from the 1993 volume
of 34.4 million MMBtu. Related revenues decreased to $51.5 million in
1994, a reduction of $30.0 million from 1993. These decreases in
volumes and revenues were due to the loss of certain ATEMCO customers
in late 1993, as described below, three of which have since returned
to ATEMCO for sales services. The decreases in revenues and volume
between years were partially offset by an increase of approximately
1.8 million MMBtu and $2.1 million in revenues from off-system sales.
The decrease in revenues was also attributable to a decrease in the
price of natural gas purchased and sold. Natural gas prices decreased
by approximately 14% in 1994 compared with 1993. Gas marketing sales
in 1993 totaled 34.4 million MMBtu of natural gas, a decrease of 11.3
million MMBtu from the 1992 volume of 46.3 million MMBtu. Related
revenues decreased to $81.5 million in 1993, a reduction of $9.4
million from 1992. Approximately 7.1 million MMBtu and $13.5 million
in revenues of such decreases between years are attributable to a
reduction in off-system sales. This decrease in revenues from 1992
was partially offset by an increase in the price of natural gas
purchased and sold. For a description of recent changes in ATEMCO's
contractual relationship with certain of its municipal customers, see
"Competition" below.
Alabama-Tennessee receives a fee for transportation services to its
customers which is set by the FERC. However, the transportation fee is
much lower than the total consideration Alabama-Tennessee otherwise
received in prior periods when it provided a bundled sales and
transportation service because the cost of natural gas is not included
when only transportation service is provided. During 1994, 1993 and
1992, almost all volumes delivered through Alabama-Tennessee's
pipeline were transportation volumes. In 1993, as a result of changes
in the natural gas industry brought about by FERC Order 636,
Alabama-Tennessee's sales customers converted their firm sales service
on Alabama-Tennessee to firm transportation service, and also acquired
Alabama-Tennessee's firm capacity on Tennessee Gas Pipeline Company
(TGP), an upstream pipeline. The conversion of sales service to
transportation service along with the upstream assignments resulted in
decreased revenues by Alabama-Tennessee because (1) transportation
service does not include a gas cost component as does a bundled sales
and transportation
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service and (2) the assignment of upstream capacity on TGP required
those customers to pay TGP directly, thereby removing those revenues
from Alabama-Tennessee.
During 1994, 1993 and 1992, ATEMCO sold approximately 50%, 74% and
92%, respectively, of the natural gas delivered on the Company's
pipelines, enabling the Company in 1993 and 1992 to maintain sales
levels on its pipelines comparable to those prior to the
implementation of open-access transportation service (see Regulation).
However, on November 1, 1993, ATEMCO's contract with the municipal
customers on the Company's pipeline system terminated and some of
those customers chose to make other arrangements for gas supply, using
a marketing company other than ATEMCO. Three of those customers,
however, have since begun using ATEMCO again. Those customers
formerly contracting with ATEMCO for their gas supply which are now
utilizing different marketing companies accounted for 29% of the
Company's revenues, but only $0.1 million of the Company's net income,
for the twelve-month period ended October 31, 1993. Also, as a result
of increased deliveries to an industrial customer which could not
obtain alternate fuels due to the flooding on the Mississippi River,
Alabama-Tennessee was able to increase its deliveries in 1993 above
prior year levels. Increased deliveries to an industrial customer on
the TRIGAS pipeline also resulted in a substantial increase in
deliveries in 1993 through that pipeline.
In 1994, two industrial customers, Champion International Corporation
and Amoco Chemicals Corporation, accounted for approximately 32% and
12%, respectively, of the Company's operating revenues. For
information regarding recent developments related to the City of
Decatur, see "Competition" below.
Approximately 59% of Alabama-Tennessee's natural gas throughput in
1994 was delivered to 17 municipal customers serving 28 communities,
including several industrial customers located within those
communities. Alabama-Tennessee serves most of the communities
extending from Selmer, Tennessee to Huntsville, Alabama, including
portions of northeast Mississippi, the Muscle Shoals area of northwest
Alabama, and Athens, Decatur and Huntsville, Alabama. The remaining
41% of Alabama- Tennessee's throughput was delivered directly to 6
industrial users. Approximately 99% of TRIGAS's throughput was
delivered to one
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industrial customer while the remaining 1% was delivered to a single
resale customer.
Alabama-Tennessee's business is seasonal in nature and is strongly
influenced by weather conditions. Natural gas deliveries on
Alabama-Tennessee's pipeline system tend to be higher in the winter
months due to increased consumption for residential heating. Natural
gas deliveries during the summer months decline as a result of lower
residential usage. Sales by ATEMCO to municipal customers on the
Company's pipelines also tend to be seasonal in nature, while sales to
industrial users are not normally impacted by weather changes.
TRIGAS, the Company's intrastate pipeline, is less subject to such
seasonal fluctuations because the majority of its deliveries are to
two industrial users whose usage does not change as a result of
weather conditions.
Ryder, the Company's health care products subsidiary, is engaged in
the design, development , manufacture and sale of proprietary products
used in the health care industry. Ryder's products are generally
manufactured through an injection molding process, using
state-of-the-art equipment. These products include disposable and
semi-disposable soft contact lens storage and disinfection systems
which are marketed to major health care companies worldwide in
conjunction with their name-brand products. Ryder also produces a
range of diagnostic devices, including products used in blood
analysis, tissue biopsies and microbiological testing which major
health care companies market and distribute to hospitals, clinics,
surgical centers, physicians and other health care providers. Ryder
develops working models or prototypes that allow its customers to
test products in their own markets. As a result of its development of
various products and engineering solutions, Ryder currently holds more
than 100 design and use patents. Ryder relies on patents and
contracts to protect its proprietary technology. Ryder generally
enters into confidentiality agreements with its employees, consultants
and customers and limits access to and distribution of its
documentation and other proprietary information. In 1994, Ryder spent
approximately $.5 million for research and development of new products
or improvements to existing product lines. Typically, Ryder bears the
expense of the product-development phase and then enters into
long-term contracts with its customers which allow Ryder to retain
exclusive world-wide manufacturing rights to the products it has
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developed. Ryder employs a limited number of sales persons who make
direct contact with potential customers who may have need of Ryder's
services. Currently, more than 20% of Ryder's products are shipped to
international markets.
For additional financial information regarding each operating segment,
see Note 12 of Notes to Consolidated Financial Statements contained in
the Company's 1994 Annual Report to shareholders incorporated herein
by reference.
AVAILABILITY OF NATURAL GAS SUPPLY AND RAW MATERIALS
Alabama-Tennessee's historical supplier of natural gas under firm
contract until the implementation of FERC Order 636 (See Regulation)
was TGP, a subsidiary of Tenneco, Inc. In November 1993,
Alabama-Tennessee assigned all of its firm transportation and storage
entitlement on the TGP system to its resale customers. By so doing,
Alabama-Tennessee gave those customers the ability to obtain gas
supplies from various suppliers and to transport such supply on a firm
basis on the TGP system to Alabama-Tennessee for ultimate delivery to
the resale customers' facilities.
On September 1, 1993, Alabama-Tennessee converted the balance of its
capacity on TGP to firm transportation service as a result of
regulatory changes requiring the implementation by TGP of FERC Order
636, which resulted in the "unbundling" of sales and transportation
service on regulated pipelines. Effective September 1, 1993,
Alabama-Tennessee also implemented Order 636 allowing its customers to
convert firm sales capacity on Alabama-Tennessee to firm
transportation service. Alabama-Tennessee, as required by Order 636,
assigned to its customers the firm transportation service which it
held on TGP, giving its customers firm transportation service on both
Alabama-Tennessee and its upstream pipeline. The assignment of these
firm transportation and storage rights enhanced these customers'
flexibility in acquiring and maintaining gas supplies by allowing them
to benefit from recent changes in the natural gas industry (see
Regulation).
During 1994, transportation services by Alabama-Tennessee constituted
100% of its throughput. As a result of FERC Order 636, as noted
above, Alabama-Tennessee will have no future obligation to provide a
sales service to its customers.
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ATEMCO, the Company's marketing subsidiary, generally purchases
natural gas on the spot market, but has contracted for longer-term
supplies as required to meet its commitments to its customers. In all
cases in which ATEMCO contracts for long-term supplies, matching
long-term sales contracts are also obtained that allow ATEMCO to serve
as a conduit between the producer and the end-user of the natural gas
without incurring the risk of shortfalls in either the demand or
supply. These spot market and long-term arrangements should provide
ATEMCO with an adequate supply of natural gas in 1995.
In 1990, ATEMCO entered into a 15-year contract with a producer to
purchase up to 20,000 MMBtu of natural gas per day. ATEMCO obtained
this supply to meet a matching sales obligation with an industrial
customer. During 1993, this industrial customer increased its supply
requirements by 9,000 MMBtu per day. At that time, ATEMCO entered
into new agreements with a natural gas producer to secure a source of
supply to meet this increased obligation (see Revenues).
Ryder purchases high-grade resin and other minor components for its
manufacturing process from various suppliers. The resin is a readily
available material and, while Ryder is selective in its choice of
suppliers, it believes that there are no significant restrictions or
limitations on supply.
COMPETITION
Except for natural gas deliveries to four municipal customers and one
industrial customer from other intrastate pipelines,
Alabama-Tennessee's and TRIGAS's pipelines currently are the only
pipelines utilized by their customers to access upstream pipelines and
supplies of natural gas. The principal competitive fuels for
industrial and commercial purposes are coal and fuel oil. Electricity
is the main competition for residential uses.
In the past, Alabama-Tennessee's profitability was a function of its
ability to sell natural gas as a merchant. As a result of changes
adopted by the FERC which required pipelines to offer equal access to
their pipelines to all customers, Alabama- Tennessee was under
pressure to reduce sales margins on sales to industrial customers in
1987 and 1988 and to provide lower-margin transportation services for
industrial customers which chose to buy natural gas directly from
third parties. Also, as
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a result of FERC Order 636, Alabama-Tennessee was required to
substitute firm transportation service for its firm sales service to
its industrial customers, effective September 1, 1993. These
substitutions have resulted in reductions in margins on
Alabama-Tennessee as these customers will pay only FERC regulated
transportation rates. As these customers have converted their firm
sales entitlement to firm transportation service, ATEMCO has generally
been able to negotiate contracts with certain of these customers to
maintain a portion of the sales margins previously earned by Alabama-
Tennessee.
ATEMCO buys and resells natural gas primarily on the spot market,
resulting in a gross margin equal to the difference between the
purchase price and the resale price of such gas. ATEMCO has a
long-term agreement to supply natural gas for a plant expansion on the
TRIGAS pipeline. Almost all of ATEMCO's other contracts are
shorter-term agreements. Through its knowledge of the industry and
contacts with industry personnel, ATEMCO identifies potential natural
gas markets, contracts for the sale of natural gas to these markets,
contracts for the purchase of natural gas from suppliers and arranges
for the transportation of the natural gas over one or more pipeline
systems. ATEMCO's success is highly dependent upon its ability to
find and market competitively-priced natural gas.
Regulatory changes culminating with FERC Order 636 have given
customers on Alabama-Tennessee's pipeline system increased flexibility
over the past few years in contracting directly with producers and
marketing companies for their natural gas supplies. ATEMCO's service
contracts with its municipal customers on Alabama-Tennessee's pipeline
system terminated as of October 31, 1993 and on November 1, 1993,
ATEMCO entered into new two-year contracts with several of these
municipal customers. Of those municipal customers who opted to
contract with other natural gas suppliers, three have since returned
to ATEMCO. Regulatory changes have enabled ATEMCO to provide certain
new services, the income from which should more than offset the
decline in net income attributable to the loss of some of its
customers.
The City of Decatur, which accounted for approximately 16% of
Alabama-Tennessee's pipeline throughput in 1994, received
authorization from the FERC in 1994 to connect directly to TGP via a
proposed 37-mile pipeline to be constructed and operated
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by Decatur, and thereby bypass Alabama-Tennessee's facilities. Should
Decatur construct the pipeline and by-pass Alabama- Tennessee's
pipeline system, Alabama-Tennessee would attempt to resell Decatur's
capacity to other customers and would be permitted by the FERC to seek
from Alabama-Tennessee's remaining customers the revenues lost as a
result of this by-pass. The FERC has also granted authorization for
three of Decatur's major industrial customers to obtain natural gas
service directly from Alabama-Tennessee, thus bypassing Decatur. As
of the end of 1994, one of these customers, Monsanto Company, had
already begun to receive service directly from the Company. This
bypass of Decatur, and similar bypasses, would have the effect of
reducing or eliminating the adverse impact of the municipality's
by-pass of Alabama-Tennessee's pipeline system.
Ryder, the Company's health care products subsidiary, manufactures
products for certain major health care companies and is dependent on
several customers for the majority of its sales. The loss of one or
more of these customers would have a material adverse impact on the
health care products segment of the Company. Also, the fact that
Ryder's products are somewhat limited in number and normally are only
a component of the ultimate product sold by Ryder's customers,
requires Ryder to be continually attentive to the need to manufacture
such products at competitive prices and in compliance with strict
manufacturing standards. Depending on the product and the nature of
the project, Ryder competes on the basis of its ability to provide
engineering and design expertise as well as on the basis of product
and price. Ryder believes that its expertise and reputation for
quality products have allowed it to compete favorably with respect to
each such factor and to maintain long-term relationships with these
customers.
To the extent that each Ryder product is sold to a single customer,
Ryder is dependent on the ability of that customer to sell its
products, of which Ryder's products are a component. Therefore, Ryder
seeks to choose highly successful companies with which to do business.
This risk is somewhat minimized by Ryder's ability to obtain long-term
exclusive manufacturing rights while its customers have long-term
marketing rights.
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REGULATION
Alabama-Tennessee is subject to the Natural Gas Pipeline Safety Act of
1968, as amended, which regulates pipeline safety requirements, and to
the National Environmental Policy Act and other environmental
legislation. Alabama-Tennessee has a continuing program of inspection
designed to keep all of its facilities in compliance with
environmental and pipeline safety requirements.
Also, as an interstate natural gas pipeline company, Alabama-Tennessee
is subject to the jurisdiction of the FERC (under the Natural Gas Act
of 1938 and other federal legislation) with respect to interstate
sales and transportation of natural gas, certain rates and charges,
construction of new facilities, extension or abandonment of services
and facilities, accounts and records, depreciation and amortization
policies and certain other related matters. Alabama-Tennessee holds
certificates of public convenience and necessity issued by the FERC
authorizing it to construct and operate all pipelines, facilities and
properties which it now operates, and to transport natural gas in
interstate commerce in instances where such certificates are required.
As necessary, Alabama-Tennessee files with the FERC applications for
changes in its transportation rates and charges which are designed to
allow it to recover its costs of providing such services to its
customers, as well as a reasonable return on its investment. These
rates are normally allowed to become effective, subject to refund,
until such time as the FERC determines the just and reasonable rates.
On April 1, 1993, Alabama-Tennessee increased its jurisdictional rates
from rates that had been in effect since April 1, 1990. This rate
increase was agreed to in an uncontested settlement with
Alabama-Tennessee's customers which the FERC has approved. As a
result of this settlement, Alabama-Tennessee realized an increase in
its jurisdictional revenue of approximately $400,000 per year which
was offset by the lower recovery of certain demand charges, resulting
in a net decrease of approximately $350,000 per year compared with
actual jurisdictional revenues realized in the 12 months ended May 31,
1992, the base period used in the rate filing.
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<PAGE> 15
During the past few years, the FERC has issued a series of orders
which have resulted in significant changes in the natural gas
industry. The primary thrust of these new orders has been to bring
increased competition to the transportation and sale of natural gas in
interstate commerce. Among other things, the regulations promulgated
by the FERC: (1) require interstate pipelines that provide
self-implementing transportation to do so for all other shippers on a
nondiscriminatory basis ("open-access transportation"); (2) require
open-access pipelines to establish rates which remove incentives
favoring the pipeline's merchant function; (3) permit the customers of
open-access pipelines to convert firm sales entitlement to firm
transportation service; and (4) make available to pipelines an
optional expedited certificate process to institute new services and
to construct and operate facilities relating to those new services,
provided that the pipelines file for and accept a blanket
transportation certificate to perform open-access transportation and
that the pipeline assume certain market risks.
During 1992, the FERC issued Order Nos. 636, 636-A and 636-B,
(collectively referred to as the "Restructuring Rule"). Under the
Restructuring Rule, which is pending review by certain federal
appellate courts, all interstate natural gas pipelines were required
to make a number of changes in the structure of the services which
they provide prior to the end of 1993. Among other things, the
Restructuring Rule required interstate pipelines to revise their
tariffs to reflect a separating or "unbundling" of their sales
services from their transportation services and the provision of all
transportation services on a basis that is equal in quality for all
natural gas supplies, whether purchased from the pipeline or from any
other natural gas supplier. The Restructuring Rule also provides that
pipelines would be allowed to collect from their customers the
prudently incurred "transition costs" associated with the changes
required by these orders, including gas supply realignment costs.
Alabama-Tennessee implemented restructured services on its system as
of September 1, 1993 in compliance with the FERC's orders under the
Restructuring Rule.
From 1988 through 1992, Alabama-Tennessee's firm supplier of natural
gas, TGP, passed on to its customers certain take-or-pay costs paid
to its producers. During the same period, Alabama-Tennessee sought to
recover from its customers the take-or-pay
- 13 -
<PAGE> 16
costs passed through to it by TGP. In accordance with the allocation
method required by the FERC at the time, the Company recorded a
provision of $6.4 million, net of income taxes, in 1989 for its
estimate of the nonrecoverable portion of its take-or-pay obligation.
However, changes in the allocation methodology employed by the FERC
and agreements with customers in 1991 resulted in a favorable
after-tax adjustment of $3.4 million in the estimate for
non-recoverable take-or-pay expense. Based on this favorable
adjustment and a favorable settlement with the Internal Revenue
Service in 1993 concerning the Company's treatment of take-or-pay
payments and collections in certain tax returns, the Company recorded
income in 1993 of $3.6 million, reduced by income taxes of $1.3
million.
As a result of the payments made by Alabama-Tennessee to TGP since
1988, Alabama-Tennessee has reduced its ultimate take-or-pay
obligation to TGP by $22.3 million through December 31, 1994. As of
that date, Alabama-Tennessee had an unpaid balance owed to TGP, under
the settlement, of $0.7 million, including interest.
For more information on take-or-pay matters, see Note 4 of Notes to
Consolidated Financial Statements contained in the Company's 1994
Annual Report to shareholders incorporated herein by reference.
The facilities of Ryder, the Company's health care products
subsidiary, are registered with the Food and Drug Administration
(FDA). All of Ryder's medical products are manufactured in accordance
with Good Manufacturing Practices as set forth in the Food, Drug and
Cosmetic Act of 1938. The FDA does not establish or regulate price
levels for products manufactured by Ryder.
TRIGAS, the Company's intrastate pipeline subsidiary, is subject to
the jurisdiction of the Alabama Public Service Commission (APSC), as
are Central Gas Company and Tennessee River Development Company.
Hardin County Gas Company and North Mississippi Natural Gas
Corporation are subject to the jurisdiction of the Tennessee Public
Service Commission and the Mississippi Public Service
- 14 -
<PAGE> 17
Commission, respectively. There are no material proceedings before
these state commissions involving these companies.
Additional regulatory information is contained in Management's
Discussion and Analysis of Financial Condition and Results of
Operations and in Note 3 of Notes to Consolidated Financial Statements
in the Company's 1994 Annual Report to shareholders incorporated
herein by reference.
PEOPLE
At December 31, 1994, the Company had 159 full-time employees, 40 of
which are employed by Alabama-Tennessee. AlaTenn and its energy
related subsidiaries of the Company are managed and operated by
Alabama-Tennessee's employees and have no employees of their own.
Ryder employs 119 full time employees in the health care products
segment.
Employee relations are good and there has not been any work stoppage
due to labor disagreements. None of the Company's employees is
represented by any labor union.
ITEM 2 - PROPERTIES
The headquarters of the Company and its subsidiaries are located in a
Company-owned office building in Sheffield, Alabama.
Alabama-Tennessee has approximately 288 miles of transmission pipeline
and two compressor stations. Its primary transmission pipeline extends
from an interconnection with TGP's pipeline near Selmer, Tennessee
approximately 130 miles eastward across northern Mississippi and
Alabama to Huntsville, Alabama. The system interconnects with TGP's
Kinder- Portland line near Corinth, Mississippi and its Delta-Portland
line near Barton, Alabama. The system also interconnects with the
Columbia Gulf Transmission Pipeline near Corinth and with the Texas
Eastern Transmission Pipeline near Barton. Pipe sizes range from
2-inch to 16-inch, including 74 miles of 12-inch, 97 miles of 10-inch,
48 miles of 8-inch, 51 miles of 6-inch and 18 miles of various other
diameters. These transmission pipelines are located primarily on
rights-of-way held under easement, license or permit
- 15 -
<PAGE> 18
on lands owned by others. None of Alabama-Tennessee's properties is
subject to any liens. Alabama-Tennessee's pipeline system is
certificated by the FERC to deliver approximately 133,000 MMBtu per
day of natural gas to its customers.
TRIGAS has 38 miles of 10-inch pipeline, extending from Barton,
Alabama to Courtland, Alabama.
Ryder's manufacturing facilities are located on a 67-acre campus in
Arab, Alabama. Ryder has three office buildings which house
administrative, engineering and design operations and which jointly
contain approximately 27,000 square feet of work space. The
manufacturing facility, situated on the same location, contains
approximately 112,000 square feet of manufacturing space.
During 1991, two of the Company's distribution subsidiaries, Central
Gas Company and Tennessee River Development Company, sold
substantially all of their distribution pipeline service lines to the
City of Florence, Alabama. The Company's two remaining natural gas
distribution subsidiaries have 11 miles of distribution pipeline. The
Company's investment in these systems at original cost is
approximately $300,000.
For further information on Properties, see System Map included
herewith as Exhibit 99.
ITEM 3 - LEGAL PROCEEDINGS
For information concerning regulatory proceedings, see Item 1 above
under the caption "Regulation" and see Note 3 of the Notes to
Consolidated Financial Statements in the Company's 1994 Annual Report
to shareholders incorporated herein by reference.
There were no other material pending legal proceedings to which the
Company or any of its subsidiaries was a party, or of which any of
their property was the subject, as of December 31, 1994.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 16 -
<PAGE> 19
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Jerry A. Howard 52 Chairman of the Board, President and Chief Executive Officer of the
Company and of Alabama-Tennessee Natural Gas Company and Chairman of the
Board or President of all other subsidiaries.
George G. Petty 54 Vice President-Finance, Chief Financial Officer and Secretary-Treasurer
of the Company and of Alabama-Tennessee Natural Gas Company.
Jeffery Strickland 36 Vice President-Corporate Development, Asst. Secretary and Asst. Treasurer
of the Company and Vice President-Planning of Alabama-Tennessee Natural
Gas Company.
Gus Magrini 42 President and Secretary of AlaTenn Energy Marketing Company, Inc.
Richard Rabenau 53 President and Secretary of Ryder International Corporation
</TABLE>
The persons who are identified as executive officers of the Company
currently serve as officers of the Company or of Alabama-Tennessee,
Ryder International Corporation or of AlaTenn Energy Marketing
Company, Inc. or of both the Company and Alabama-Tennessee. The
officers of the Company and Ryder International Corporation,
Alabama-Tennessee and AlaTenn Energy Marketing Company are elected
annually by the respective Boards of Directors of the Company and its
subsidiaries at the first meeting of such Boards of Directors held
after the annual meetings of shareholders of such entities.
Accordingly, the
- 17 -
<PAGE> 20
terms of office of the current officers of the Company and of
Alabama-Tennessee are due to expire on May 1, 1995 when such meetings
of the Boards of Directors of the Company and of Alabama-Tennessee are
scheduled to be held or when their successors are elected.
There are no arrangements or understandings between any officer and
any other person pursuant to which the officer was elected. There are
no family relationships between any of the executive officers or
directors.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any executive officers during the past
five years.
BRIEF ACCOUNT OF THE BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
Except as noted below, the above listed executive officers have served
in the positions indicated above for more than the past five years.
Mr. Howard has served as Chairman of the Board, President and Chief
Executive Officer of the Company and of Alabama- Tennessee and
Chairman of the Board and President of all other subsidiaries, except
for AlaTenn Energy Marketing Company, Inc. for more than five years,
except for his position as Chairman of the Board of the Company, which
position became effective in January 1991. Mr. Howard also serves as
Chairman of the Board for AlaTenn Energy Marketing Company, Inc. and
served as its President and Chief Executive Officer until May, 1992.
Mr. Howard has also served as Chairman of the Board of Ryder
International Corporation since April, 1994.
Mr. Strickland has served as Vice President-Corporate Development
since May 1992 and as Assistant Secretary and Assistant Treasurer of
the Company since May 1990. Mr. Strickland served as Director of
Planning of the Company from December 1988 until May 1992. Mr.
Strickland has served as Vice President-Planning of Alabama-Tennessee
since May 1992 and as Director of Planning of Alabama-Tennessee prior
to May 1992.
- 18 -
<PAGE> 21
Mr. Magrini has served as President and Secretary of AlaTenn Energy
Marketing Company, Inc. since May, 1993. From May, 1992 until May,
1993, Mr. Magrini served as Vice-President-Customer Relations of
Alabama-Tennessee. Prior to that time, Mr Magrini served as Vice
President-Sales and Supply of Alabama-Tennessee since December 1989.
Mr. Rabenau has served as President and Secretary of Ryder
International Corporation since April 19, 1994, when the assets of
Ryder were acquired by RIC Acquisition Corporation, a Company
subsidiary formed to effect the acquisition, after which RIC
Acquisition Corporation was renamed Ryder International Corporation.
From April 1, 1990 until April 19, 1994, Mr. Rabenau served as
President of the predecessor company, also named Ryder International
Corporation prior to the purchase of its assets by the Company.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The information for this item is set forth on page 28 of the Company's
1994 Annual Report to shareholders (Exhibit 13) under the heading
"Stock Information" and is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information for this item is set forth in the section entitled
"Selected Financial Data" on page 22 of the Company's 1994 Annual
Report to shareholders (Exhibit 13) and is incorporated herein by
reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information for this item is set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 23 through 26 of the Company's 1994
Annual Report to shareholders (Exhibit 13) and is incorporated herein
by reference.
- 19 -
<PAGE> 22
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information for this item is set forth on pages 11 through 21 of
the Company's 1994 Annual Report to shareholders (Exhibit 13) and is
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS -
The information for this item relating to directors and nominees of
the Company and to the filing of reports under Section 16(a) of the
Securities Exchange Act of 1934 is set forth in the section entitled
"Election of Directors" in the Company's Proxy Statement related to
the annual meeting of shareholders to be held on May 1, 1995, which
section is incorporated herein by reference.
EXECUTIVE OFFICERS -
The information for this item relating to executive officers of the
Company is set forth on pages 16 through 18 of this report.
ITEM 11 - EXECUTIVE COMPENSATION
The information for this item is set forth in the section entitled
"Executive Compensation" in the Company's Proxy Statement related to
the annual meeting of shareholders to be held on May 1, 1995, which
section (except for the portions thereof entitled "Compensation
Committee Report on Executive Compensation" and "Performance of Common
Shares") is incorporated herein by reference.
- 20 -
<PAGE> 23
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS -
The information for this item is set forth in the section entitled
"Information Regarding Certain Beneficial Owners of Common Shares" in
the Company's Proxy Statement related to the annual meeting of
shareholders to be held on May 1, 1995, which section is incorporated
herein by reference.
SECURITY OWNERSHIP OF MANAGEMENT -
The information for this item is set forth in the section entitled
"Securities Ownership of Management" in the Company's Proxy Statement
related to the annual meeting of shareholders to be held on May 1,
1995, which section is incorporated herein by reference.
CHANGES IN CONTROL -
The Company knows of no arrangements which may at a subsequent date
result in a change in control of the Company.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this item is set forth in the section entitled
"Certain Transactions" in the Company's Proxy Statement related to the
annual meeting of shareholders to be held on May 1, 1995, which
section is incorporated herein by reference.
- 21 -
<PAGE> 24
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
ANNUAL REPORT
FINANCIAL STATEMENTS PAGE NUMBER
-------------------- -------------
<S> <C>
The following consolidated financial
statements, related notes to consolidated
financial statements and report of independent public
accountants contained on pages 11
through 21 of the Company's 1994 Annual
Report to shareholders (Exhibit 13) are
incorporated herein by reference in Item 8:
Consolidated Statements of Income
for the years ended December 31, 1994, 1993
and 1992 11
Consolidated Balance Sheets as of
December 31, 1994 and 1993 12-13
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1993
and 1992 14
Notes to Consolidated Financial Statements 15-21
Report of Independent Public Accountants 10
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted since the required
information is included in the consolidated financial statements or the notes
thereto, or is not applicable or required.
EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
The following exhibits are filed as part of this 1994 Form 10-K Report. Those
exhibits previously filed and incorporated herein by
- 22 -
<PAGE> 25
reference are identified below by a note reference to the previous filing.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<S> <C>
2 Stock Purchase Agreement dated February 17, 1990, between AlaTenn Resources, Inc. and MEGA Natural Gas
Company, as amended by Letter Agreement dated March 9, 1990 (1)
3a Articles of Incorporation, as amended (2)
3b Bylaws, as amended (3)
4a Rights Agreement, dated as of February 1, 1990, between AlaTenn Resources, Inc. and American Stock Transfer & Trust
Company, which includes the form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common
Shares as Exhibit B (4)
4b Loan Agreement dated November 15, 1989, among AlaTenn Credit Corp., Third National Bank in Nashville, and The First
National Bank of Florence (16)
4c Revolving Credit Note in the principal amount of $20 million dated November 15, 1989, by AlaTenn Credit Corp. in
favor of Third National Bank in Nashville and The First National Bank of Florence (17)
4d First Amendment to Loan Agreement dated December 29, 1989 among AlaTenn Credit Corp., Third National Bank in
Nashville, and the First National Bank of Florence (23)
4e Second Amendment to Loan Agreement dated November 6, 1990 among AlaTenn Credit Corp., Third National Bank in
Nashville, and the First National Bank of Florence (24)
4f Credit Agreement in the amount of $20 million, dated January 20, 1995 between AlaTenn Credit Corporation and
Compass Bank (5)
10a Stock Purchase and Sales Agreement dated September 15, 1986, between AlaTenn Resources, Inc. and the shareholders
of Colony Energy Corporation (6)
10b Amendment and Waiver dated October 11, 1988, by and among the former shareholders of Colony Energy Corporation,
AlaTenn Resources, Inc. and Colony Energy Corporation (7)
10c Amendment No. 1 to Escrow Agreement dated October 11, 1988, by and among the former shareholders of Colony Energy
Corporation, AlaTenn Resources, Inc. and Crestar Bank (8)
</TABLE>
- 23 -
<PAGE> 26
<TABLE>
<S> <C>
10d Promissory Note dated October 7, 1988 in the principal amount of $255,000, by David C. Presley in favor of Crestar
Bank (9)
10e Promissory Note dated October 7, 1988 in the principal amount of $637,500 by AlaTenn Resources, Inc. in favor of
Crestar Bank (10)
10f Severance Agreement dated October 11, 1988 between David C. Presley and Colony Energy Corporation (11)
10g Consulting Agreement dated September 19, 1988 between Colony Energy Corporation and David C. Presley (12)
10h* Performance Share Plan of AlaTenn Resources, Inc. (13)
10i* Change in Control Agreement between AlaTenn Resources, Inc. and Jerry A. Howard, dated October 23, 1987 and
amendment dated March 11, 1988 (14)
10j* Change in Control Agreement between AlaTenn Resources, Inc. and George G. Petty, dated October 23, 1987 and
amendment dated March 11, 1988 (15)
10k Escrow Agreement dated December 27, 1989 by Alabama-Tennessee Natural Gas Company and Third National Bank In
Nashville, as escrow agent and Tennessee Gas Pipeline Company (18)
10l Gas Sales Contract between Alabama-Tennessee Natural Gas Company and Tennessee Gas Pipeline Company, dated August
1, 1989 (19)
10m Agreement for Purchase and Sale of Assets, dated October 3, 1990, by and among Central Gas Company, Tennessee River
Development Company and the City of Florence, Alabama (25)
10n First Amendment to Agreement for Purchase and Sale of Assets, dated March 5, 1991, by and among Central Gas
Company, Tennessee River Development Company and the City of Florence, Alabama (26)
10o Offer to Purchase, dated December 27, 1989 between Oryx Energy Company and Alabama-Tennessee Natural Gas Company
(27)
10p Agreement of Sale, dated November 19, 1990 by and among AlaTenn Resources, Inc., Triton Energy Corporation and
Pacific Basin Company (28)
10q* 1990 Stock Option Plan, adopted March 15, 1990 (20)
10r* Form of Incentive Stock Option Agreement (21)
10s* Restricted Shares Compensation Plan for Non-Employee Directors, adopted May 6, 1991 (22)
10t* Alabama-Tennessee Natural Gas Company Non-Employee Directors Deferral Plan (29)
</TABLE>
- 24 -
<PAGE> 27
<TABLE>
<S> <C>
10u* Alabama-Tennessee Natural Gas Company Supplemental Executive Retirement Plan (30)
10v* Alabama-Tennessee Natural Gas Company Supplemental Executive Thrift Plan (31)
10w Assets Purchase Agreement, dated April 19, 1994 between Ryder International Corporation, Frank and Carolyn Ryder,
RIC Acquisition Corporation and AlaTenn Resources (32)
10x* 1994 Key Employee Stock Incentive Plan (33)
13 Portions of 1994 Annual Report to Shareholders which are incorporated by reference into the form 10-K (5)
21 Subsidiaries of AlaTenn Resources, Inc. as of December 31, 1994 (5)
23 Consent of Arthur Andersen & Co. (5)
24 Powers of Attorney authorizing Jerry A. Howard and George G. Petty to sign the AlaTenn Resources, Inc. Annual
Report on Form 10-K for fiscal year ended December 31, 1994 on behalf of certain directors of the Company (5)
99 System Map of Alabama-Tennessee Pipeline System (5)
Notes:
(1) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc. dated March 26, 1990
(2) Filed as Exhibit 3a to Form 10-K of AlaTenn Resources, Inc. dated March 27, 1987
(3) Filed as Exhibit 3b to Form 10-Q of AlaTenn Resources, Inc. dated May 14, 1987
(4) Filed as Exhibit 1 to Registration Statement on Form 8-A of AlaTenn Resources, Inc. dated February 15, 1990.
(5) Filed herewith
(6) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc. dated October 28, 1986
(7) Filed as Exhibit 10b to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(8) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(9) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(10) Filed as Exhibit 10e to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(11) Filed as Exhibit 10f to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(12) Filed as Exhibit 10g to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
</TABLE>
- 25 -
<PAGE> 28
<TABLE>
<S> <C>
(13) Filed as Exhibit A to the definitive Proxy Statement of AlaTenn Resources, Inc. dated March 25, 1983
(14) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources, Inc. dated March 29, 1988
(15) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources, Inc. dated March 29, 1988
(16) Filed as Exhibit 4b to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(17) Filed as Exhibit 4c to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(18) Filed as Exhibit 10k to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(19) Filed as Exhibit 10l to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(20) Filed as Appendix A to the Definitive Proxy Statement of the Company dated April 6, 1990.
(21) Filed as Exhibit 4(d) to the Registration Statement on Form S-8 of AlaTenn Resources, Inc., filed May 17, 1991
(File No. 33-40639).
(22) Filed as Appendix A to the Definitive Proxy Statement of the Company dated March 29, 1991.
(23) Filed as Exhibit 4d to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(24) Filed as Exhibit 4e to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(25) Filed as Exhibit 10m to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(26) Filed as Exhibit 10n to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(27) Filed as Exhibit 10o to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(28) Filed as Exhibit 10p to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(29) Filed as Exhibit 10t to Form 10-K of AlaTenn Resources, Inc., dated March 27, 1992.
(30) Filed as Exhibit 10u to Form 10-K of AlaTenn Resources, Inc., dated March 26, 1993.
(31) Filed as Exhibit 10v to Form 10-K of AlaTenn Resources, Inc., dated March 26, 1993.
(32) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc., dated May 2, 1994.
(33) Filed as Appendix A to the Definitive Proxy Statement of the Company dated March 28, 1994.
</TABLE>
- 26 -
<PAGE> 29
* Management Contract or Compensatory Plan or Arrangement
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1994.
- 27 -
<PAGE> 30
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.
AlaTenn Resources, Inc.
By: /s/Jerry A. Howard
-------------------------
Jerry A. Howard
Chairman of the Board,
President and Chief
Executive Officer
Dated: March 30, 1995
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 Capacity Date
--------- -------- ----
<S> <C> <C>
(i) Principal Executive
-------------------
Officer:
--------
/s/Jerry A. Howard Chairman of the Board, March 25, 1995
------------------ President and Chief
(Jerry A. Howard) Executive Officer
(ii) Principal Financial
-------------------
Officer:
--------
/s/George G. Petty Vice President - March 30, 1995
------------------ Finance and Chief
(George G. Petty) Financial Officer
</TABLE>
- 28 -
<PAGE> 31
<TABLE>
<S> <C> <C>
(iii) Directors:
----------
Director March 30, 1995
------------------
(Emile A. Battat)
/s/Jerry A. Howard Director March 30, 1995
------------------
(Jerry A. Howard)
/s/Richard O. Jacobson Director March 30, 1995
----------------------
(Richard O. Jacobson)
/s/Jerome J. McGrath Director March 30, 1995
--------------------
(Jerome J. McGrath)
/s/Hugh J. Morgan, Jr. Director March 30, 1995
----------------------
(Hugh J. Morgan, Jr.)
/s/J. Kenneth Smith Director March 30, 1995
-------------------
(J. Kenneth Smith)
/s/Roger F. Stebbing Director March 30, 1995
--------------------
(Roger F. Stebbing)
/s/John P. Stupp, Jr. Director March 30, 1995
---------------------
(John P. Stupp, Jr.)
</TABLE>
- 30 -
<PAGE> 32
ALATENN RESOURCES, INC.
INDEX OF EXHIBITS
The following exhibits are filed as part of this 1994 Form 10-K Report. Those
exhibits previously filed and incorporated herein by reference are identified
below by a note reference to the previous filing.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C>
2 Stock Purchase Agreement dated February 17, 1990,
between AlaTenn Resources, Inc. and MEGA Natural
Gas Company, as amended by Letter Agreement dated
March 9, 1990 (1)
3a Articles of Incorporation, as amended (2)
3b Bylaws, as amended (3)
4a Rights Agreement, dated as of February 1, 1990,
between AlaTenn Resources, Inc. and American Stock
Transfer & Trust Company, which includes the form
of Right Certificate as Exhibit A and the Summary
of Rights to Purchase Common Shares as
Exhibit B (4)
4b Loan Agreement dated November 15, 1989, among
AlaTenn Credit Corp., Third National Bank in
Nashville, and The First National Bank of
Florence (16)
4c Revolving Credit Note in the principal amount
of $20 million dated November 15, 1989, by
AlaTenn Credit Corp. in favor of Third National
Bank in Nashville and The First National Bank
of Florence (17)
4d First Amendment to Loan Agreement dated
December 29, 1989 among AlaTenn Credit Corp.,
Third National Bank in Nashville, and the
First National Bank of Florence (23)
4e Second Amendment to Loan Agreement dated
November 6, 1990 among AlaTenn Credit Corp.,
Third National Bank in Nashville, and the
First National Bank of Florence (24)
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C>
4f Credit Agreement in the amount of $20 million,
dated January 20, 1995 between AlaTenn Credit
Corporation and Compass Bank(5) ___
10a Stock Purchase and Sales Agreement dated
September 15, 1986, between AlaTenn Resources,
Inc. and the shareholders of Colony Energy
Corporation (6)
10b Amendment and Waiver dated October 11, 1988,
by and among the former shareholders of
Colony Energy Corporation, AlaTenn Resources,
Inc. and Colony Energy Corporation (7)
10c Amendment No. 1 to Escrow Agreement dated
October 11, 1988, by and among the former
shareholders of Colony Energy Corporation,
AlaTenn Resources, Inc. and Crestar Bank (8)
10d Promissory Note dated October 7, 1988 in
the principal amount of $255,000, by
David C. Presley in favor of Crestar Bank (9)
10e Promissory Note dated October 7, 1988
in the principal amount of $637,500 by
AlaTenn Resources, Inc. in favor of
Crestar Bank (10)
10f Severance Agreement dated October 11, 1988
between David C. Presley and Colony Energy
Corporation (11)
10g Consulting Agreement dated September 19, 1988
between Colony Energy Corporation and
David C. Presley (12)
10h* Performance Share Plan of AlaTenn
Resources, Inc. (13)
10i* Change in Control Agreement between
AlaTenn Resources, Inc. and Jerry A. Howard,
dated October 23, 1987 and amendment dated
March 11, 1988 (14)
10j* Change in Control Agreement between AlaTenn
Resources, Inc. and George G. Petty,
dated October 23, 1987 and amendment dated
March 11, 1988 (15)
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C>
10k Escrow Agreement dated December 27, 1989
by Alabama-Tennessee Natural Gas Company
and Third National Bank In Nashville,
as escrow agent and Tennessee Gas
Pipeline Company (18)
10l Gas Sales Contract between Alabama-Tennessee
Natural Gas Company and Tennessee Gas
Pipeline Company, dated August 1, 1989 (19)
10m Agreement for Purchase and Sale of Assets,
dated October 3, 1990, by and among Central
Gas Company, Tennessee River Development
Company and the City of Florence, Alabama (25)
10n First Amendment to Agreement for Purchase
and Sale of Assets, dated March 5, 1991,
by and among Central Gas Company,
Tennessee River Development Company
and the City of Florence, Alabama (26)
10o Offer to Purchase, dated December 27, 1989
between Oryx Energy Company and
Alabama-Tennessee Natural Gas Company (27)
10p Agreement of Sale, dated November 19, 1990
by and among AlaTenn Resources, Inc.,
Triton Energy Corporation and Pacific
Basin Company (28)
10q* 1990 Stock Option Plan, adopted
March 15, 1990 (20)
10r* Form of Incentive Stock Option Agreement (21)
10s* Restricted Shares Compensation Plan
for Non-Employee Directors, adopted
May 6, 1991 (22)
10t* Alabama-Tennessee Natural Gas Company
Non-Employee Directors Deferral Plan (29)
10u* Alabama-Tennessee Natural Gas Company
Supplemental Executive Retirement Plan (30)
10v* Alabama-Tennessee Natural Gas Company
Supplemental Executive Thrift Plan (31)
10w Assets Purchase Agreement, dated
April 19, 1994 between Ryder International
Corporation, Frank and Carolyn Ryder,
Ric Acquisition Corporation and AlaTenn
Resources (32)
10x* 1994 Key Employee Stock Incentive Plan (33)
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C>
13 1993 Annual Report to shareholders (5) __-__
21 Subsidiaries of AlaTenn Resources, Inc.
as of December 31, 1993 (5) __
23 Consent of Arthur Andersen & Co. (5) __
24 Powers of Attorney authorizing
Jerry A. Howard and George G. Petty
to sign the AlaTenn Resources, Inc.
Annual Report on Form 10-K for
fiscal year ended December 31, 1994
on behalf of certain directors
of the Company (5) __-__
99 System Map of Alabama-Tennessee Pipeline System __
Notes:
(1) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc. dated March 26, 1990
(2) Filed as Exhibit 3a to Form 10-K of AlaTenn Resources, Inc. dated March 27, 1987
(3) Filed as Exhibit 3b to Form 10-Q of AlaTenn Resources, Inc. dated May 14, 1987
(4) Filed as Exhibit 1 to Registration Statement on Form 8-A of AlaTenn Resources, Inc. dated February 15, 1990.
(5) Filed herewith
(6) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc. dated October 28, 1986
(7) Filed as Exhibit 10b to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(8) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(9) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(10) Filed as Exhibit 10e to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(11) Filed as Exhibit 10f to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(12) Filed as Exhibit 10g to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1989.
(13) Filed as Exhibit A to the definitive Proxy Statement of AlaTenn Resources, Inc. dated March 25, 1983
(14) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources, Inc.
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
dated March 29, 1988
(15) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources, Inc. dated March 29, 1988
(16) Filed as Exhibit 4b to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(17) Filed as Exhibit 4c to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(18) Filed as Exhibit 10k to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(19) Filed as Exhibit 10l to Form 10-K of AlaTenn Resources, Inc. dated March 30, 1990.
(20) Filed as Appendix A to the Definitive Proxy Statement of the Company dated April 6, 1990.
(21) Filed as Exhibit 4(d) to the Registration Statement on Form S-8 of AlaTenn Resources, Inc.,
filed May 17, 1991 (File No. 33-40639).
(22) Filed as Appendix A to the Definitive Proxy Statement of the Company dated March 29, 1991.
(23) Filed as Exhibit 4d to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(24) Filed as Exhibit 4e to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(25) Filed as Exhibit 10m to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(26) Filed as Exhibit 10n to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(27) Filed as Exhibit 10o to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(28) Filed as Exhibit 10p to Form 10-K of AlaTenn Resources, Inc., dated March 28, 1991.
(29) Filed as Exhibit 10t to Form 10-K of AlaTenn Resources, Inc., dated March 27, 1992.
(30) Filed as Exhibit 10u to Form 10-K of AlaTenn Resources, Inc., dated March 26, 1993.
(31) Filed as Exhibit 10v to Form 10-K of AlaTenn Resources, Inc., dated March 26, 1993.
(32) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc., dated May 2, 1994.
(33) Filed as Appendix A to the Definitive Proxy Statement of the Company dated March 28, 1994.
</TABLE>
* Management Contract or Compensatory Plan or Arrangement
<PAGE> 1
EXHIBIT 4F
$20,000,000.00
CREDIT AGREEMENT
Dated January 20, 1995
between
ALATENN CREDIT CORP.
and
COMPASS BANK
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . 1
ARTICLE II
THE CREDITS . . . . . . . . . . . . 9
2.1 Commitment. . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Extensions. . . . . . . . . . . . . . . . . . . . . . . . 13
2.3. Facility 1. . . . . . . . . . . . . . . . . . . . . . . . 14
2.4. Facility 2. . . . . . . . . . . . . . . . . . . . . . . . 14
2.5. Term Option . . . . . . . . . . . . . . . . . . . . . . . 15
2.6. Non-use Fee . . . . . . . . . . . . . . . . . . . . . . . 17
2.7. Applicable Interest Rate. . . . . . . . . . . . . . . . . 17
2.8. Record of Advances, Payments, Etc . . . . . . . . . . . . 17
2.9. Procedure for Re-Advances, Payments, Etc. . . . . . . . . 17
2.10. Assignment of Group Member Notes. . . . . . . . . . . . 17
2.11 Letters of Credit . . . . . . . . . . . . . . . . . . . 17
2.12 Partial Release of Negative Pledge. . . . . . . . . . . 18
ARTICLE III
CONDITIONS PRECEDENT. . . . . . . . . . 18
3.1. Initial Advance. . . . . . . . . . . . . . . . . . . . . 18
3.2. Each Advance . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . 19
4.1. Corporate Existence and Standing . . . . . . . . . . . . 19
4.2. Authorization and Validity . . . . . . . . . . . . . . . 20
4.3. No Conflict; Government Consent. . . . . . . . . . . . . 20
4.4. Financial Statements . . . . . . . . . . . . . . . . . . 20
4.5. Material Adverse Change. . . . . . . . . . . . . . . . . 20
4.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7. Litigation and Guaranteed Obligations. . . . . . . . . . 21
4.8. Group. . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10. Accuracy of Information . . . . . . . . . . . . . . . . 21
4.11. Regulation U. . . . . . . . . . . . . . . . . . . . . . 21
4.12. Material Agreements . . . . . . . . . . . . . . . . . . 21
4.13. Compliance With Laws. . . . . . . . . . . . . . . . . . 21
4.14. Investment Company Act. . . . . . . . . . . . . . . . . 22
4.15. Public Utility Holding Company Act. . . . . . . . . . . 22
4.16. Licenses. . . . . . . . . . . . . . . . . . . . . . . . 22
4.17. Solvency. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
COVENANTS. . . . . . . . . . . . . 22
5.1. Financial Reporting. . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.2. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 23
5.3. Notice of Certain Events . . . . . . . . . . . . . . . . 24
5.4. Conduct of Business. . . . . . . . . . . . . . . . . . . 24
5.5. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 24
5.7. Compliance with Laws . . . . . . . . . . . . . . . . . . 24
5.8. Maintenance of Properties. . . . . . . . . . . . . . . . 24
5.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . 25
5.10. Merger. . . . . . . . . . . . . . . . . . . . . . . . . 25
5.11. Sale of Assets. . . . . . . . . . . . . . . . . . . . . 25
5.12. Sale and Leaseback. . . . . . . . . . . . . . . . . . . 25
5.13. Liens (Negative Pledge) . . . . . . . . . . . . . . . . 25
5.14. Consolidated Tangible Net Worth . . . . . . . . . . . . 25
5.15. Ratio of Consolidated Indebtedness to Consolidated
Tangible Net Worth . . . . . . . . . . . . . . . . . . 25
5.16. Interest Coverage Ratio . . . . . . . . . . . . . . . . 25
5.17. Ratio of Cash Flow to Current Maturities. . . . . . . . 25
5.18. Earnings. . . . . . . . . . . . . . . . . . . . . . . . 26
5.19. Affiliates. . . . . . . . . . . . . . . . . . . . . . . 26
5.20. Compliance with ERISA. . . . . . . . . . . . . . . . . 26
ARTICLE VI
DEFAULTS. . . . . . . . . . . . . 26
6.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
6.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . 28
7.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . 28
7.2. Preservation of Rights . . . . . . . . . . . . . . . . . 29
ARTICLE VIII
GENERAL PROVISIONS . . . . . . . . . . 29
8.1. Survival of Representations. . . . . . . . . . . . . . . 29
8.2. Governmental Regulation. . . . . . . . . . . . . . . . . 29
8.3. Headings . . . . . . . . . . . . . . . . . . . . . . . . 29
8.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
8.5. Benefits of this Agreement . . . . . . . . . . . . . . . 29
8.6. Expenses; Indemnification. . . . . . . . . . . . . . . . 29
8.7. Accounting . . . . . . . . . . . . . . . . . . . . . . . 30
8.8. Severability of Provisions . . . . . . . . . . . . . . . 30
8.9. Nonliability of Lender . . . . . . . . . . . . . . . . . 30
8.10. Choice of Law . . . . . . . . . . . . . . . . . . . . . 30
8.11. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
NOTICES . . . . . . . . . . . . . 30
9.1. Giving Notice. . . . . . . . . . . . . . . . . . . . . . 30
9.2. Change of Address. . . . . . . . . . . . . . . . . . . . 30
Testimonium. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit "A-1" - Form of Facility 1 Note
Exhibit "A-2" - Form of Facility 2 Note
Exhibit "B" - Form of Group Member Notes
Exhibit "C" - Form of Collateral Assignment and
Pledge of Master Promissory Notes
Exhibit "D" - Form of Opinion
Exhibit "E" - Form of Compliance Certificate
Schedule "1" - Subsidiaries
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of January 20, 1995("this Agreement")
isentered into by ALATENN CREDIT CORP., an Alabama corporation (the
"Borrower"), and COMPASS BANK, an Alabama banking corporation (the"Lender").
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Advance" means a borrowing hereunder pursuant to Facility 1or
Facility 2 and shall include the face amount of all Letters of Credit issued by
Lender for Borrower's account.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to controlanother Person if the controlling Person
owns 10% or more of any class of voting securities (orother ownership
interests) of the controlled Person or possesses,directly or indirectly, the
power to direct or cause the direction of the management or policies of
thecontrolled Person, whether through ownership of stock, by contract or
otherwise.
"Agreement" means this credit agreement, as it may be amended or
modified and in effect from time to time.
"Article" means an article of this Agreement.
"Authorized Officer" means any of the President, Secretary, Treasurer,
Assistant Secretary or Assistant Treasurer, acting singly.
"Borrower" means AlaTenn Credit Corp., an Alabama corporation, and its
successors and assigns.
"Borrower's Loan Accounts" shall mean the accounts on the books of
Lender in which Lender will record Advances to or on behalf of Borrower
pursuant to the Facility 2 and the Facility 1, payments received on such
Advances, and other appropriate debits and credits as provided by this
Agreement or any of the other Loan Documents. Separate Borrower's Loan
Accounts shall be maintained for the Facility 2 and the Facility 1.
"Borrowing Date" means a date on which an Advance is made hereunder.
1
<PAGE> 8
"Business Day" means a day (other than a Saturday or Sunday) on which
banks generally are open in Birmingham, Alabama for the conduct of
substantially all of their commercial lending activities and on which Federal
Reserve Banks are open.
"Capitalized Lease" of a member of the Group means any lease of
Property by such Group Member as lessee that would be capitalized on the
consolidated balance sheet of the Group prepared in accordance with GAAP.
"Capitalized Lease Obligations" of the Group means the amount of the
obligations of the Group under Capitalized Leases that would be shown as the
liability on a balance sheet of the Group prepared in accordance with GAAP
(exclusive of any Capitalized Lease Obligation of a project financed through
Project Financing).
"Change Date" shall mean a date ninety (90) days after the date
hereof, and successive dates, each ninety (90) days after the other, provided,
however, that in the event that the applicable rate under the Facility 1 Note
or the Facility 2 Note is based on "Compass Bank Prime Rate," the applicable
interest rate thereunder shall change as Compass Bank Prime Rate changes.
"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock
of the Borrower.
"Closing Date" means January 20, 1995.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Collateral Assignment" means the Collateral Assignment and Pledge of
Master Promissory Notes from Borrower to Lender dated as of the date hereof, in
substantially the form of Exhibit C hereto, pursuant to which the Group Member
Notes are being assigned and pledged to Lender.
"Compass Bank Prime Rate", as used herein, is a reference rate
established by Lender for use in computing and adjusting interest, is subject
to increase, decrease or change at Lender's discretion, and is only one of the
reference rates or indices that Lender uses. Lender may lend to others at
rates of interest at, or greater or less than, Compass Bank Prime Rate or the
rate(s) provided herein. Any change in said rate due to a change in Compass
Bank Prime Rate shall take effect on the day of such change.
"Compliance Certificate" shall mean a certificate in the form of
Exhibit E attached hereto, signed by an Authorized Officer of Borrower.
2
<PAGE> 9
"Concentration Account" means the checking account of Borrower with
Lender into which shall be deposited Advances under the Facility 1 and the
Facility 2 and payments under the Group Member Notes and from which shall be
disbursed advances from Borrower to Group Members under the Group Member Notes.
The day-to-day administration of the Concentration Account shall be governed by
Section 2.10 hereof and by Lender's standard forms of cash management account
agreements to be executed by Borrower and Lender.
"Consolidated Cash Flow" means net profit plus depreciation and
amortization of the Group as determined on a consolidated basis in accordance
with GAAP (exclusive of any cash flow generated from a project financed through
Project Financing other than cash distributions to the Group on account of the
applicable Group member's equity interest in the project so financed).
"Consolidated Current Maturities" means that portion of long-term debt
of Group which is due within twelve months of the statement date as determined
on a consolidated basis in accordance with GAAP (exclusive of any Project
Financing).
"Consolidated Indebtedness" means the Indebtedness of the Group as
shown on the Group's financial statements on a consolidated basis in accordance
with GAAP (exclusive of any Project Financing).
"Consolidated Interest Expense" means, for any period of calculation,
interest expense, whether paid or accrued, of the Group calculated on a
consolidated basis in accordance with GAAP (exclusive of any such expense
related to Project Financing).
"Consolidated Net Income" means, for any period of calculation, the
net income of the Group as shown on the Group's consolidated financial
statement calculated on a consolidated basis in accordance with GAAP (exclusive
of any income from any project financed through Project Financing other than
income to the Group from distributions on account of the applicable Group
member's equity interest in the project so financed).
"Consolidated Retained Earnings" means the amount of consolidated
retained earnings of the Group as shown on the Group's consolidated financial
statements determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means the amount of consolidated
tangible net worth of the Group as shown on the Group's consolidated financial
statements, determined in accordance with GAAP (excluding patents and
goodwill).
"Default" means an event described in Article VI.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
3
<PAGE> 10
"ERISA Affiliate" means any Person that is a member of the Group, or
under common control with the Borrower, within the meaning of Section 414 of
the Code.
"ERISA Event" means (i) the occurrence with respect to a Plan of a
reportable event, within the meaning of Section 4034 of ERISA, unless the
30-day notice requirement with respect thereto has been waived by the PBGC;
(ii) the provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section 4041(e) of
ERISA); (iii) the cessation of operations at a facility of the Borrower or any
ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA;
(iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (v) the conditions set forth in Section
302(f)(1)(A) and (B) of ERISA upon the creation of a lien upon property or
rights to property of the Borrower or any ERISA Affiliate for failure to make a
required payment to a Plan are satisfied; (vi) the adoption of an amendment to
a Plan requiring the provision of security to such Plan, pursuant to Section
307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate
a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that constitutes grounds for the
termination of, or the appointment of a trustee to administer, a Plan.
"Facility 1" means the $10,000,000.00 line of credit described in
Section 2.3 hereof.
"Facility 1 Note" means the $10,000,000.00 Master Revolving Promissory
Note (Facility 1) executed by Borrower and delivered to Lender to evidence sums
advanced and repayable under Facility 1 in substantially the form of Exhibit
A-1 hereto.
"Facility 2" means the $10,000,000.00 line of credit described in
Section 2.4 hereof.
"Facility 2 Collateral" means collateral now or hereafter securing
Advances under Facility 2.
"Facility 2 Note" means the $10,000,000.00 Master Revolving Promissory
Note (Facility 2) executed by Borrower and delivered to Lender to evidence
advances made and repayable under Facility 2 in substantially the form of
Exhibit A-2 hereto.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession. Unless otherwise specified herein, all accounting terms used
herein or in any other Loan Document shall be interpreted, and all accounting
determinations and computations hereunder or thereunder shall be made in
accordance with GAAP as in effect on the Closing Date and all financial
statements required to be delivered hereunder or thereunder shall be prepared
in accordance with GAAP as in effect on the date of, or for the period covered
4
<PAGE> 11
by, such financial statements; provided, however, that interim financial
statements shall be unaudited and subject to normal year end adjustments.
"Governmental Authority" means the federal government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government including, without limitation, the Federal Energy Regulatory
Commission or its successor in function.
"Group" means the Borrower, the Guarantor and the Subsidiaries listed
on Schedule 1 attached hereto and any Subsidiary subsequently formed or
acquired.
"Group Member Notes" means the promissory notes of the Group Members
payable to the order of Borrower which shall be in substantially the form of
Exhibit B hereto, shall evidence advances from Borrower to such Group Members
of funds advanced to Borrower hereunder and shall be pledged to Lender to
secure advances under Facility 1 and Facility 2 pursuant to the Collateral
Assignment in substantially the form of Exhibit C hereto.
"Guaranteed Obligations" of a Person means all guaranties,
endorsements, assumptions and other contingent obligations with respect to, or
to purchase or to otherwise pay or acquire, Indebtedness of others.
"Guarantor" means AlaTenn Resources, Inc., an Alabama
corporation.
"Guaranty" means the Guaranty of even date herewith executed by the
Guarantor in favor of the Lender.
"Highest Lawful Rate" means the maximum non-usurious interest rate
that at any time may be contracted for, taken, reserved, charged or received on
amounts due Lender, under laws applicable to Lender presently in effect or, to
the extent allowed by law, under such applicable laws that shall allow a higher
maximum non-usurious rate than applicable laws now allow.
"Indebtedness" of the Group means, without duplication, (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of the Group's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from Property now or hereafter owned or
acquired by a member of the Group, (iv) obligations evidenced by notes,
acceptances or other instruments, including guaranties and other contingent
obligations (v) Capitalized Lease Obligations, and (vi) obligations for
reimbursement of amounts drawn or available to be drawn under Letters of
Credit, as reflected on the consolidated financial statements of the Group
determined in accordance with GAAP, but exclusive of Project Financing.
"Insufficiency" means, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities as defined in Section 4001(a)(18) of ERISA.
5
<PAGE> 12
"Lender" means Compass Bank, its successors and assigns.
"Letter of Credit" of a Group member means a letter of credit or
similar instrument issued upon the application of such Group member or upon
which such member is an account party or for which it is in any way liable.
"License" means any license, certificate of authority, permit or other
authorization required to be obtained from a Governmental Authority in
connection with the operation, ownership or transaction of the business of any
member of the Group.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan Documents" means this Agreement, the Notes, the Collateral
Assignment and the Guaranty.
"Material Adverse Effect" means with respect to the Group an effect,
resulting from any occurrence of whatever nature (including any adverse
determination in any litigation, arbitration or governmental investigation or
proceeding), which: (a) is materially adverse to the consolidated financial
condition of the Group; or (b) materially impairs the ability of the Borrower
to make any payment or perform any other material obligation required under
this Credit Agreement or any other Loan Document; provided that unless
otherwise specified, references to any Material Adverse Effect shall mean any
effect with respect to the Group taken as a whole; it being understood that for
all purposes of the Loan Documents, the consummation of the transactions
contemplated in the Loan Documents shall not constitute a Material Adverse
Effect.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 3(37) of ERISA.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Group
or an ERISA Affiliate and at least one Person other than the Borrower and its
ERISA Affiliates or (ii) was so maintained and with respect to which the
Borrower or an ERISA Affiliate could have liability under Section 4064 or 4049
of ERISA in the event such plan has been or were to be terminated.
"Ninety-Day LIBOR Rate" means, at the time of any computation required
under the Facility 1 Note or the Facility 2 Note, the interest rate offered on
the London interbank market for deposits of ninety days' maturity, as reported
by an on-line financial reporting service such as Reuters or TeleRate on each
Change Date or, if the London interbank market is not open for trading on any
Change Date, then on the next day on which the London interbank market is open
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<PAGE> 13
for trading. In the event quotations become unavailable on such an on-line
reporting service, Lender may obtain quotations from such other sources as may
be available at its discretion. In the event funds of ninety days' maturity
are no longer offered on the London interbank market, Lender shall so advise
Borrower promptly and shall offer to Borrower an alternative index (to which
one percentage point per annum (1%) shall be added to calculate the applicable
rate under the Note on each Change Date) which is reasonably equivalent to the
Ninety-Day LIBOR Rate and the Borrower shall have the option, within 5 business
days of receiving such advice from Lender, to elect such alternative index (to
which one percentage point per annun (1%) shall be added to calculate the
applicable rate under the Note on each Change Date) or an applicable rate for
the Facility 1 Note and the Facility 2 Note equal to Compass Bank Prime Rate,
and unless and until Borrower makes such election, Compass Bank Prime Rate
shall be the applicable rate on the Facility 1 Note and the Facility 2 Note.
"Notes" mean the promissory notes duly executed by the Borrower and
payable to the order of Lender consisting of the Facility 1 Note and the
Facility 2 Notes, including any amendment, modification, renewal or replacement
of each such promissory note evidencing the Facility 1 and the Facility 2
hereunder.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the Lender
or any indemnified party hereunder arising under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Liens" means:
(a) Liens to secure the cost of acquisition or rental by
any member of the Group of additional assets, or the
refinancing thereof, provided, however, that any such
Lien shall be confined solely to the Property
acquired or refinanced and shall not exceed the cost
thereof;
(b) Liens for taxes, assessments, or other governmental
charges not yet due or which are being contested in
good faith by appropriate action promptly initiated
and diligently conducted, if the Group shall have
made any reserve therefor required by GAAP;
(c) Liens of landlords, vendors, carriers, warehousemen,
mechanics, contractors, laborers, and materialmen
arising by law in the ordinary course of business for
sums not yet due or being contested in good faith by
appropriate action promptly initiated and diligently
conducted, if Group shall have made any reserve
therefor required by GAAP;
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<PAGE> 14
(d) Pledges or deposits made in the ordinary course of
business in connection with worker's compensation,
unemployment insurance, and other similar laws;
(e) Inchoate Liens arising under ERISA to secure the
contingent liability of any member of the Group;
(f) Liens referred to or reflected in the Group's June
30, 1994 consolidated financial statements, which
statements have been certified by an Authorized
Officer of Borrower;
(g) Liens securing debt of Subsidiaries of any member of
the Group provided that such Subsidiary, or
substantially all of its assets, are acquired
subsequent to the date hereof and such debt exists as
of the date of the acquisition;
(h) Liens respecting Project Financing provided that such
liens are limited to the assets of the subject
project; and
(i) Liens created after the date hereof which cover
assets expressly released by Lender pursuant to
Section 2.5(e) or 2.12 hereof.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any Governmental Authority.
"Plan" means a Single Employer Pension Plan or a Multiple Employer
Pension Plan.
"Project Financing" means any financing obtained by any member of the
Group which is non-recourse as to all members of the Group, which financing
does not include any Group members' equity interest in the project so financed.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by banks for the purpose of purchasing or carrying
margin stocks applicable to member banks of the Federal Reserve System.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
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<PAGE> 15
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate and no Person other than the Borrower and its
ERISA Affiliates or (ii) was so maintained and with respect to which the
Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA
in the event such plan has been or were to be terminated.
"Subsidiary" means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by the Borrower or the
Guarantor or by one or more of their Subsidiaries or by the Borrower and one or
more of its Subsidiaries, or (ii) any partnership, association, joint venture
or similar business organization more than 50% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
"Substantial Portion" means, with respect to the Property of the
Group, Property that represents more than 20% of the consolidated assets of the
Group as would be shown in the consolidated financial statements of the Group
as at the beginning of the twelve-month period ending with the month in which
such determination is made or (ii) is responsible for more than 20% of the
Consolidated Net Income of the Group as reflected in the Group's most recent
financial statements delivered to Lender.
"Term Loans" means Advances which are converted to term obligations
pursuant to Section 2.5 hereof.
"Termination Date" means January 20, 1996, or such earlier date on
which the obligations of the Lender to make Loans hereunder are terminated
pursuant to the terms of this Agreement or such subsequent date or dates to
which the availability of advances hereunder is extended pursuant to the
express terms of this Agreement.
"Unmatured Default" means an event that, but for the lapse of any
applicable cure period or the giving of notice, or both, would constitute a
Default.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1 Commitment. (a) From and including the date of this Agreement
and prior to the Termination Date, Lender agrees, on the terms and
conditions set forth in this Agreement, to make Advances to the
Borrower from time to time in amounts not to exceed in the aggregate
at any one time outstanding the amount of $20,000,000.00. Subject to
the terms and conditions set forth below, such Advances may be
obtained under either the Facility 2 or the Facility 1; provided,
however, that at no time shall
9
<PAGE> 16
the aggregate Advances outstanding under the Facility 2 and the
Facility 1 exceed $10,000,000.00 each; provided, further, that such
maximum limitations may be adjusted pursuant to the provisions of
Section 2.2 below. Facility 1 and Facility 2 shall be secured by a
pledge of the Group Member Notes and Facility 2 shall be further
secured by the additional collateral provided pursuant to Section 2.4
hereof. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow and prepay without penalty at any time
prior to the Termination Date.
(b)(i) The Facility 1 Note and the Facility 2 Note shall bear
interest at the Ninety-Day LIBOR Rate plus one percentage point per
annum (1%), adjusted on each Change Date on the basis of the
then-effective Ninety-Day LIBOR Rate, determined in accordance with
the foregoing definition of Ninety-Day LIBOR Rate. All references to
the London interbank market notwithstanding, Borrower agrees the
Lender shall not be required actually to obtain funds from such source
at any time. Any sums outstanding after maturity (whether due to
acceleration or otherwise) shall bear interest at the Compass Bank
Prime Rate.
(ii) Irrespective of whether the applicable interest rate is
Compass Bank Prime Rate, the applicable increment over the Ninety-Day
LIBOR Rate or some other rate, interest from date on the outstanding
unpaid principal balance shall be calculated by multiplying the
product of the relevant principal amount and the applicable rate set
forth herein by the actual number of days elapsed, and dividing by
360.
(iii) It is the intention of Lender and Borrower to conform
strictly to any applicable usury laws. Accordingly, if the
transactions contemplated hereby would be usurious under any
applicable law, then, in that event, notwithstanding anything to the
contrary in either the Facility Note or the Facility 2 Note, or any
other agreement entered into in connection with or as security for or
guaranteeing either the Facility 1 Note or the Facility 2 Note, it is
agreed as follows: (I) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for,
taken, reserved, charged, or received by Lender under the respective
Note or under any other agreement entered into in connection with or
as security for or guaranteeing Facility 1 or Facility 2 shall
under no circumstances exceed the Highest Lawful Rate, and any excess
shall be canceled automatically and, if theretofore paid, shall, at
the option of Lender, be credited by Lender on the principal amount of
any indebtedness owed to Lender by Borrower or refunded by Lender to
Borrower, and (II) in the event that the payment of Facility 1 or
Facility 2 is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under
law applicable to Lender may never include more than the Highest
Lawful Rate and excess interest, if any, to Lender provided for in
this Note or otherwise shall be canceled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at
the option of Lender, be credited by Lender on the principal amount of
any indebtedness owed to Lender by Borrower or refunded by Lender to
Borrower.
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<PAGE> 17
(iv) Notwithstanding anything herein to the contrary, in no
event will interest payable to Lender exceed the maximum amount
permitted by the law applicable to Lender (after taking into account
all charges payable to Lender that constitute interest under such
applicable law), but if any amount referred to in the respective Note
that would be payable to Lender but for the applicability of usury or
other laws limiting the consideration payable to Lender is not paid to
Lender as a result of the applicability of such laws, then interest on
the outstanding principal balance of this Note payable to Lender
shall, to the extent permitted by the law, accrue at the maximum rate
of interest permitted by applicable law (after taking into account all
charges payable to Lender that constitute interest under applicable
law) until the total amount received by Lender equals the amount it
would have received had no such laws been applicable.
(v) With respect to Advances bearing interest calculated with
reference to the Ninety-Day LIBOR Rate, if any future law, rule,
regulation or directive, or any future judicial or administrative
interpretation of any existing law, rule, regulation or directive
(a) subjects Lender to any tax, duty, charge or
withholding on or from payments due from
Borrower (excluding taxation of the overall
net income of Lender or taxation which may be
treated as an offset against such taxation of
overall net income), or
(b) imposes or increases any reserve, assessment,
special deposit or similar requirement
against Lender, or
(c) imposes any other condition, the result of
which is to increase the cost to Lender of
making, funding or maintaining loans or
reduces any amount receivable by Lender in
connection with loans, or to require Lender
to make any payment calculated by reference
to the amount of loans held or interest
received by it,
then, in accordance with the following paragraph, Borrower shall pay
to Lender that portion of such increased expense incurred or reduced
amount received which is attributable to making, funding and
maintaining such advances hereunder. Lender promptly shall notify
Borrower upon its becoming aware of any such increased expense or
reduced amount received.
A certificate as to the amount due under clause (v) above,
together with reasonable substantion of such increase, shall be
submitted by the Lender to Borrower. Determination of amounts payable
under clause (v) above shall be calculated as though
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<PAGE> 18
Lender funded the Ninety-Day LIBOR Rate Advances through the purchase
of a deposit of the type, amount and maturity corresponding to the
deposit used as a reference in determining the applicable rate for
such advance. The amount specified in the certificate shall be
payable on the interest payment date next following receipt by
Borrower of the certificate. The indemnity obligations of Borrower
under this Agreement shall survive payment of the Facility 1 Note and
the Facility 2 Note.
(vi) If Lender, in its reasonable discretion, determines that
maintenance of any rate based upon the Ninety-Day LIBOR Rate would
violate any applicable law, rule, regulation, or directive applicable
to Lender, then Lender may suspend the availability of such a rate and
shall so advise Borrower promptly and shall offer to Borrower an
alternative index (to which one percentage point per annum (1%) shall
be added to calculate the applicable rate under the Facility 1 Note
and the Facility 2 Note on each Change Date) and Borrower shall have
the option, within 5 business days of receiving such advice from
Lender, to elect such alternative index (to which one percentage point
per annum (1%) shall be added to calculate the applicable rate under
the Facility 1 Note and the Facility 2 Note on each Change Date) or an
applicable rate for the Facility 1 Note and Facility 2 Note equal to
Compass Bank Prime Rate, and unless and until Borrower makes such
election, the Compass Bank Prime Rate will be the applicable rate
under the Facility 1 Note and the Facility 2 Note.
(vii) Notwithstanding anything to the contrary contained or
implied herein, the applicable rate on Advances which are converted to
a Term Loan pursuant to Section 2.5 hereof shall be determined
pursuant to Section 2.5 hereof.
(c) The Commitment to lend hereunder shall expire on the
Termination Date, or if the Termination Date is extended pursuant to
the terms hereof, on the date to which the Termination Date is
extended (each such extended date being referred to herein as the
("Extended Termination Date"). Any outstanding Advances and all other
unpaid Obligations (other than those outstanding under Term Loans)
shall be paid in full by the Borrower on the Termination Date or any
Extended Termination Date.
(d) If at any time prior to the Termination Date, as it may be
extended from time to time, all amounts payable by Borrower hereunder
have been paid in full (including, without limitation, fees payable
under Section 2.6 below) and all other obligations under the Loan
Documents have been satisfied, the Borrower may terminate this Credit
Agreement, and its obligations hereunder, by delivering to Lender a
written release of its commitment to lend and of any other Lender
obligations hereunder, which release shall be in form and substance
satisfactory to the Lender and its counsel.
(e) If at any time prior to the Termination Date, as it may be
extended from time to time, all amounts payable by Borrower hereunder
have been paid in full with the exception of amounts outstanding under
the Term Loans, and all other obligations under the Loan Documents
have been satisfied (including, without limitation, payment
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<PAGE> 19
of fees under Section 2.6 below), the Lender, upon receipt from
Borrower of a release in the form described in Section 2.1(d) above,
(I) shall have no continuing commitment to lend hereunder and (II)
shall release the Borrower from the provisions of this Agreement
except to the extent that any of the terms hereof are contained or
incorporated by reference in the documents and instruments relating to
the Term Loans executed pursuant to Section 2.5(b) hereof, and the
Term Loans shall be governed by the provisions of such Term Loan
documents and instruments executed pursuant to Section 2.5(b) hereof.
2.2 Extensions.
(a) Initial Extension. The Termination Date shall be
extended 364 days (the "Initial Extension") subject to the following
conditions:
(i) Between 30 and 60 days prior to the Termination
Date, Borrower shall submit to Lender a written notice to extend and,
in the event Borrower wishes to lower the amount of credit available
hereunder, Borrower shall specify such lower amount, (the "Initial
Extension Notice");
(ii) The Initial Extension Notice shall be
accompanied by a Compliance Certificate, together with a copy of the
most recent unaudited consolidated and consolidating financial
statements of the Group; and
(iii) As disclosed by such Compliance Certificate,
the financial information which accompanies same, and such other
information as may be available to lender, there shall exist no
Default or Unmatured Default.
(b) Additional Extension Options.
Borrower may request, at the same time that an Extension
Request is made pursuant to clauses 2.2(a)(i) or 2.2(c)(i) hereof, an
option to extend the Extended Termination Date for additional periods
of 364 days beyond the Initial Extension or any Subsequent Extension,
as hereinafter defined, subject to the following conditions:
(i) Contemporaneously with the submission of the
Initial Extension Notice pursuant to Subsection 2.2(a) above or any
submission of any Subsequent Extension Notice pursuant to Subsection
2.2(c) below, Borrower may submit to Lender a written request (the
"Additional Extension Option Request"), which shall make specific
reference to this Subsection 2.2(b) and which shall specify the amount
of credit requested.
(ii) Within 60 days following receipt of the
Additional Extension Option Request, Lender shall notify Borrower in
writing whether or not Lender is willing, based on its normal credit
underwriting procedures, to offer the Additional
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<PAGE> 20
Extension Option on terms substantially similar to the terms hereof,
subject to adjustment of financial covenants as stated in such
writing.
(iii) It is acknowledged and agreed that Lender has
no obligation to grant any Additional Extension Option Request.
(c) Exercise of Additional Extension Option.
If the Lender grants any Additional Extension Option Request
pursuant to 2.2(b) above, the Borrower may exercise such option to
extend ("Subsequent Extension") by satisfaction of the following
conditions:
(i) Between 30 and 60 days prior to the Extended
Termination Date, Borrower shall submit to Lender a written notice of
its intent to exercise the Additional Extension option ("Subsequent
Extension Notice").
(ii) The Subsequent Extension Notice shall be
accompanied by a Compliance Certificate, together with the most recent
unaudited consolidated and consolidating financial statements of the
Group.
(iii) Any amendments or modifications of this
Agreement, as appropriate to place in effect the conditions imposed by
Lender pursuant to Subsection 2.2(b)(ii), shall have been executed by
Borrower.
(iv) As disclosed by the subject Compliance
Certificate and the accompanying financial statements and other
information as may be available to Lender, there shall exist no
Default or Unmatured Default under this Agreement, as modified
pursuant to Subsection 2.2(b)(ii), above.
2.3. Facility 1. On any Business Day prior to the Termination Date
or any Extended Termination Date, so long as there exists no Default or
Unmatured Default hereunder, Borrower may automatically obtain Advances under
the Facility 1 to the extent of shortages in the Concentration Account and upon
verbal or written request of the Borrower. All Advances shall be recorded in
the Borrower's Loan Account for Facility 1 and deposited in the Concentration
Account.
2.4. Facility 2. (a) From the date hereof until the Termination Date
or any Extended Termination Date, so long as there exists no Default or
Unmatured Default hereunder, Advances shall be available under the Facility 2.
Advances may be obtained upon the submission of a written request specifying
the amount of such requested Advance. In addition to such written request,
Borrower shall furnish the Lender all information regarding the collateral
which Borrower proposes to serve as security for the Advance as may be
necessary for the Lender to obtain a security interest therein and to assess
the value thereof. If, in the exclusive and absolute judgment of the Lender,
the value of such proposed collateral is unacceptable to Lender
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<PAGE> 21
to secure the subject Advance, whether in terms of amount, type or otherwise,
Lender may require such additional collateral as it considers necessary to
adequately secure each such Advance. In order to allow Lender to assess the
value of the proposed collateral prior to each Advance and to allow time to
prepare all documentation necessary to create and perfect the Lender's security
interest, Borrower shall submit any request for an Advance under Facility 2 at
least 30 days prior to the date on which such Advance is to be made. The
collateral for each Advance under Facility 2 shall secure all other Advances
evidenced by the Facility 2 Note. Borrower shall execute and deliver all
documentation reasonably required by Lender and its counsel to create and
perfect the required security interest in the collateral to secure such
Advance. Any out-of-pocket expenses incurred in connection with such
documentation, including, without limitation, reasonable fees and expenses of
Lender's legal counsel, recording taxes, filing fees, title insurance premiums,
surveys, and environmental reports shall be born by the Borrower.
(b) Notwithstanding the fact that all Facility 2 Collateral secures
all Facility 2 Advances, the Lender acknowledges that to the extent that each
Facility 2 Advance relates to a specific project (the "Project Advance"), the
principal collateral to be offered as security for such Advance will relate to
such project (the "Project Collateral"); provided, however, that such
acknowledgement by Lender is made solely for convenience of reference to and to
describe a relationship between a particular Project Advance and the principal
collateral therefor and that nothing contained or implied in this paragraph
shall constitute an acceptance by lender, or create any obligation of Lender to
accept or release any collateral, the acceptance or release of collateral by
lender being subject to Lender's absolute and exclusive determination of the
acceptability thereof as expressly provided elsewhere in this Agreement. Upon
Borrower's written request and payment in full of the applicable Project
Advance, provided that no Event of Default or Unmatured Default exists at such
time and Lender determines in its exclusive and absolute judgment that the
value of all other Facility 2 Collateral is acceptable to Lender in terms of
amount, type and in all other respects to secure Facility 2, Lender agrees to
consider releasing the Project Collateral applicable to the paid Project
Advance from any and all mortgages, security agreements, pledge agreements or
other security documents.
2.5. Term Option. (a) From time to time, Borrower may convert any
portion of Facility 1 or Facility 2 to a Term Loan provided that (i) conversion
of Advances under Facility 1 to Term Loans shall be conditioned upon the
Borrower's granting to Lender a security interest in collateral acceptable to
Lender in its exclusive and absolute judgment in terms of amount, type and
otherwise to secure such Term Loans and (ii) all Advances under Facility 2
converted to Term Loans shall be secured by that portion of the Facility 2
Collateral given in connection with all such Facility 2 Advances being
converted.
(b) Each Term Loan shall be evidenced by a promissory note with an
adjustable interest rate equal to (i) fifty (50) basis points in excess of the
rate of interest applicable under the Facility 1 Note and the Facility 2 Note,
as applicable, subject to periodic adjustments as provided therein, or (ii)
alternatively, at the Borrower's option, to be exercised at the time of
conversion, a fixed interest rate equivalent to such adjusted rate, determined
with reference to
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<PAGE> 22
the "interest rate swap" market at such time. The maturity and repayment terms
of each Term Loan shall be subject to the mutual agreement of Lender and
Borrower, provided that each Term Loan (i) shall have a term of two (2) years
or such longer term as the parties may agree or such shorter term as Borrower
shall elect commencing on the Termination Date as it may be extended from time
to time, (ii) shall provide for equal payments of principal plus interest based
on an amortization schedule of no fewer than 120 months with a balloon payment
upon maturity, and (iii) if the applicable note provides for an adjustable
interest rate, shall provide for prepayment without premium or penalty.
Borrower and Lender shall, in connection with the conversion of any Advance to
a Term Loan, execute and deliver documents and instruments relating thereto and
the collateral therefor containing or incorporating such of the covenants,
events of default, representations and warranties of this Agreement as may be
applicable thereto, as well as such other terms, conditions and assurances
relating to the priority, preservation and perfection of Lender's interest in
the collateral for such Term Loan as Lender may require in connection
therewith.
(c) Unless Lender and Borrower agree otherwise in writing, the
maximum amount of credit available under Facility 1 shall be reduced by the
amount of Facility 1 Advances converted to Term Loans, and the maximum amount
of credit available under Facility 2 shall be reduced by the amount of Facility
2 Advances converted to Term Loans. Subject to Section 2.5(d) below, as the
principal balance of any Term Loan is reduced, the maximum amount of credit
availability under Facility 1 or Facility 2, as applicable, shall be increased
by the amount of such reduction.
(d) A reduction of the principal balance of any Term Loan shall not
result in a corresponding increase in credit available under Facility 1 and
Facility 2 in the event that (i) the Borrower has paid a Term Loan in full and
has requested a corresponding reduction in credit availability under Facility 1
or Facility 2, as applicable and (ii) in accordance with Section 2.5(e) below,
the Lender has granted to Borrower a written release of the covenant set forth
in Section 5.13 hereof as it relates to the assets that were held by the Lender
as collateral with respect to any such Term Loan.
(e) Provided that no Default or Unmatured Event of Default then
exists, upon payment in full of any Term Loan and upon Borrower's request for a
corresponding reduction in the amount of credit available under Facility 1 or
Facility 2, as applicable, Lender agrees to release the collateral specifically
granted to secure such Term Loan (i) from any mortgage, security agreement or
other applicable collateral documents and (ii) from the covenant set forth in
Section 5.13 hereof. Thereafter, any liens created by the Borrower with
respect to such released assets shall be considered Permitted Liens for
purposes of this Credit Agreement.
(f) Provided that no Default or Unmatured Event of Default then
exists, upon payment in full of any Term Loan and a corresponding increase in
the amount of credit available under Facility 1 or Facility 2, as applicable,
Lender agrees to release the collateral specifically granted to secure such
Term Loan from any mortgage, security agreement or other applicable collateral
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<PAGE> 23
documents; provided that any assets so released will remain subject to the
covenants set forth in Section 5.13 hereof.
2.6. Non-use Fee. The Borrower agrees to pay to the Lender upon
submission of an invoice, a non-use fee of .25% (25 basis points) per annum on
the daily unborrowed portion of the Facility 2 and the Facility 1 from the
Closing Date to and including the Termination Date, payable in arrears on the
first day of each January, April, July and October hereafter and on the
Termination Date. All accrued non-use fees shall be payable on the effective
date of any termination of the obligations of the Lender to make Loans
hereunder.
2.7. Applicable Interest Rate. All Advances shall bear interest at
the rate set forth in the Notes, payable as provided therein.
2.8. Record of Advances, Payments, Etc. All Advances and payments
shall be debited or credited, as the case may be, to the appropriate Borrower's
Loan Account. Lender shall also record in the appropriate Borrower's account
all other charges, expenses, fees and other items properly chargeable to
Borrower hereunder. The debit balance of each Borrower's Loan Account shall
reflect the amount of Borrower's indebtedness under the Facility 2 and the
Facility 1, as applicable, from time to time outstanding. Not less than
monthly, Lender shall furnish Borrower with statements of Borrower's Loan
Account with respect to the Facility 2 and the Facility 1 provided that such
information will be available to Borrower daily by telephone. Unless Borrower
objects to the information contained in any such statement within 30 days after
the date thereof, such statement shall be conclusive as to the information
therein contained absent manifest error.
2.9. Procedure for Re-Advances, Payments, Etc. Proceeds of Advances
shall be re-advanced to Group Members under the Group Member Notes. Such
re-advances shall be disbursed from the Concentration Account, and all payments
under the Group Member Notes shall be deposited in the Concentration Account.
At the close of each business day, any funds remaining in the Concentration
Account will be applied to Advances outstanding under Facility 1 or the
Facility 2 in the following order, unless otherwise directed in writing by the
Borrower: first, to Advances outstanding under the Facility 1 and, second, to
Advances outstanding under the Facility 2. At the end of each business day,
any shortages in the Concentration Account will be covered by Advances under
the Facility 1. If at the end of any business day the funds in the
Concentration Account exceed sums outstanding under the Facility 1 and the
Facility 2, such excess amount shall be invested overnight in accordance with
instructions from Borrower.
2.10. Assignment of Group Member Notes. Each of the Group Member
Notes shall be assigned and pledged to Lender as collateral for the Facility 1
or the Facility 2, as appropriate, pursuant to the Collateral Assignment pledge
agreements in substantially the form of Exhibit C hereto.
2.11 Letters of Credit. Provided that all conditions for Advances
shall have been and remain fully satisfied and Borrower otherwise would at such
time be eligible for an Advance,
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<PAGE> 24
Lender shall issue upon Borrower's request and for Borrower's account Letters
of Credit, in form and substance acceptable to Lender, with the aggregate face
amount of Letters of Credit issued reducing the credit availability under
Facility 1 or Facility 2, as applicable. Lender's obligation to issue any such
Letter of Credit shall be conditioned upon (i) Borrower's payment of a one
percent (1%) Letter of Credit issuance fee and Lender's other customary Letter
of Credit charges and (ii) Borrower's execution of such promissory notes,
letter of credit applications, reimbursement agreements, collateral documents
and other documents as Lender shall request in connection therewith, all in
form and substance acceptable to Lender.
2.12 Partial Release of Negative Pledge. In the event that Borrower
receives a bona fide irrevocable commitment from a financial institution other
than Lender (the "Other Lender") for a secured loan with a term longer than two
(2) years or an amortization longer than 120 months, provided that Borrower
shall have first requested that Lender make such financing available to
Borrower on substantially the same terms and Lender shall have declined to make
such financing available to Borrower, Borrower shall promptly present such
commitment of Other Lender to Lender within three (3) days of receipt thereof
by Borrower, and Lender shall have the option in its sole discretion to: (1)
provide financing to Borrower under Facility 2 on substantially the same terms
as the commitment of the Other Lender, with a corresponding reduction in
availability under Facility 2, (2) consider reducing the credit available under
Facility 2 by an amount equal to the Other Lender's committed amount and
releasing from the negative pledge under Section 5.13 hereof the assets
required as collateral under the Other Lender's commitment to the extent
required by such Other Lender in order to receive a first priority security
interest or mortgage, or (3) advise Borrower that Lender will neither release
such assets from Section 5.13 nor make such financing available. Lender shall
advise Borrower within 10 business days of its receipt of the Other Lender's
commitment whether Lender has elected option (1), (2) or (3). In the event
that Lender chooses option (2) above, the mortgage or security interest of the
other Lender on the assets released by Lender will constitute a Permitted Lien.
ARTICLE III
CONDITIONS PRECEDENT
3.1. Initial Advance. The Lender shall not be required to make the
initial Advance hereunder unless the Borrower has furnished to the Lender:
(i) A certificate of corporate existence and
qualification from the Secretary of State of Alabama
and a certificate of good standing from the
Department of Revenue of the State of Alabama.
(ii) Copies, certified by the Secretary or an Assistant
Secretary of the Borrower, of its certificate of
incorporation, together with all amendments thereto,
and by-laws and Board of Directors' resolutions (and
resolutions of other bodies, if any are deemed
necessary by counsel for Lender) authorizing the
execution of the Loan Documents.
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<PAGE> 25
(iii) An incumbency certificate, executed by the Secretary
or any Assistant Secretary of the Borrower, which
shall identify by name and title and bear the
signature of the officers of the Borrower authorized
to sign the Loan Documents and to make borrowings
hereunder, upon which certificate the Lender shall be
entitled to rely until informed in writing by the
Borrower of any change.
(iv) A certificate, signed by an Authorized Officer of the
Borrower, stating that on the initial Borrowing Date
no Default or Unmatured Default has occurred and is
continuing.
(v) A written opinion of the Borrower's counsel,
addressed to the Lender in substantially the form of
Exhibit "D" hereto.
(vi) The Notes.
(vii) A duly completed Compliance Certificate as of the
Closing Date.
(viii) Such other documents as Lender or its counsel may
have reasonably requested.
3.2. Each Advance. The Lender shall not be required to make any
Advance, unless on the applicable Borrowing Date.
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in
Article IV (other than Section 4.5) are trueand
correct as of the date of such Advance.
Each request for an Advance shall constitute a representation and
warranty by the Borrower that the conditions contained in Section 3.2(i) and
(ii) have been satisfied. Lender may require a duly completed Compliance
Certificate as a condition to making an Advance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that:
4.1. Corporate Existence and Standing. Each of the Borrower and the
Guarantor is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
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<PAGE> 26
4.2. Authorization and Validity. The Borrower has the corporate
power and authority and legal right to execute and deliver the Loan Documents
and to perform its obligations thereunder. The execution and delivery by the
Borrower of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings, and the
Loan Documents constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally. The Guarantor has
the corporate power and authority and legal right to execute and deliver the
Guaranty and to perform its obligations thereunder. The execution and delivery
by the Guarantor of the Guaranty and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings, and the
Guaranty constitutes legal, valid and binding obligations of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except its
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
4.3. No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents, nor the consummation of the
transactions provided for therein, nor compliance with the provisions thereof,
will violate any law, rule, regulation, order, writ, judgment, injunction,
decree or award binding on the Borrower or any Group Member or the Borrower's
or any Group Member's certificate or articles of incorporation or by-laws or
the provisions of any indenture, instrument or agreement to which the Borrower
or any member of the Group is a party or is subject, or by which it, or its
Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
the Borrower or any member of the Group pursuant to the terms of any such
indenture, instrument or agreement, other than such violations, conflicts or
defaults which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any Governmental Authority is required to authorize, or
is required in connection with the execution, delivery and performance of, or
the legality, validity, binding effect or enforceability of, any of the Loan
Documents.
4.4. Financial Statements. The December 31, 1993 consolidated
financial statements of the Group heretofore delivered to the Lender were
prepared in accordance with GAAP in effect on the date such statements were
prepared and present fairly the consolidated financial condition and operations
of the Group at such date.
4.5. Material Adverse Change. Since December 31, 1993, there has
been no change in the business, Property, financial condition or results of
operations of the Group which would have a Material Adverse Effect.
4.6. Taxes. The Group has filed all United States federal tax
returns and all other tax returns required to be filed and have paid all taxes
due pursuant to said returns or pursuant to any assessment received by the
Group or any , member of the Group except such taxes, if any, as are being
contested in good faith and as to which, in the good faith judgment of the
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<PAGE> 27
Borrower, adequate reserves have been provided and except for those returns
with respect to which the failure to file would have no material adverse
effect. The charges, accruals and reserves on the books of any member of the
Group with respect to any taxes or other governmental charges are adequate in
the good faith judgment of the Borrower.
4.7. Litigation and Guaranteed Obligations. There is no litigation,
arbitration, governmental investigation, pending or inquiry pending or, to the
knowledge of any of their officers, threatened against or affecting any member
of the Group which could reasonably be expected to have a Material Adverse
Effect. The Borrower has no material Guaranteed Obligations not provided for
or disclosed in the financial statements referred to in Section 4.4.
4.8. Group. Schedule "1" hereto contains an accurate list of all of
the now existing members of the Group, setting forth their respective
jurisdictions of incorporation and the percentage of their respective capital
stock owned by the Borrower or the Guarantor. All the issued and outstanding
shares of capital stock of such Subsidiaries have been duly authorized and
issued and are fully paid and non-assessable.
4.9. ERISA. Each Plan complies in all material respects with all
applicable requirements of law and regulations, and no ERISA Event has occurred
or is reasonably expected to occur with respect to any Plan. No Insufficiency
exists with respect to any Plan. Neither the Borrower nor any ERISA Affiliate
is required to contribute to or has ever had a liability to a Multiemployer
Plan.
4.10. Accuracy of Information. Neither any verbal statements made by
Borrower's President or Secretary/Treasurer nor any written information,
exhibit or report furnished by or on behalf of the Borrower or any member of
the Group to the Lender in connection with the negotiation of, or compliance
with, the Loan Documents contained any material misstatement of fact or
purposely omitted to state a material fact.
4.11. Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of those assets of the Group that are subject to any
limitation on sale, pledge or other restriction hereunder.
4.12. Material Agreements. No member of the Group is a party to any
agreement or instrument or subject to any charter or other corporate
restriction that could reasonably be expected to have a Material Adverse
Effect. No member of the Group is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement to which it is a party, which default could reasonably be expected to
have a Material Adverse Effect. No member of the Group is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument evidencing or governing
Indebtedness.
4.13. Compliance With Laws. Each member of the Group has complied
with all applicable statutes, rules, regulations, orders and restrictions of
any Governmental Authority
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<PAGE> 28
having jurisdiction over the conduct of their respective businesses or the
ownership of its respective Property, except where the failure so to comply
could not reasonably be expected to have a Material Adverse Effect. No member
of the Group has received any notice to the effect that its operations are not
in compliance with any of the requirements of applicable federal, state and
local environmental, health and safety statutes and regulations or the subject
of any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any toxic or hazardous waste or substance
into the environment, which noncompliance or remedial action could reasonably
be expected to have a Material Adverse Effect.
4.14. Investment Company Act. No member of the Group is an
"investment company" nor a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
4.15. Public Utility Holding Company Act. The Group is exempt from
the requirements of the Public Utility Holding Company Act of 1935, as amended.
4.16. Licenses. Each member of the Group holds all necessary
Licenses, and is authorized to transact business, in each jurisdiction wherein
it transacts any business. No such License is the subject of a proceeding for
suspension or revocation, there is no sustainable basis for such suspension or
revocation, and to the Borrower's knowledge no such suspension or revocation
has been threatened by any Governmental Authority.
4.17. Solvency. The total assets of the Group exceed its total
liabilities, and the Group is capable of paying its debts as and when they
become due.
ARTICLE V
COVENANTS
During the term of this Agreement, unless the Lender shall otherwise
consent in writing:
5.1. Financial Reporting. The Group will maintain a system of
accounting established and administered in accordance with GAAP and furnish to
the Lender:
(a) Annual Reports. Within one hundred twenty (120) days
after the close of each fiscal year, the audited consolidated financial
statements of the Group as at the end of such year, setting forth the audited
consolidated balance sheet, as at the end of such year, and the audited
consolidated statement of income, statement of cash flows and statement of
retained earnings for such year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year, accompanied by the
report of the Group's independent certified public accountants and by an
unaudited consolidating balance sheet and unaudited consolidating statement of
income of the Group duly certified by the Guarantor's chief financial officer
as being correct reflections of the information used for the audited
consolidated financial
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<PAGE> 29
statements. The report pertaining to the financial statements required by this
Section shall be the unqualified opinion of a firm of independent certified
public accountants of national standing or of a firm of independent certified
public accountants otherwise acceptable to the Lender (provided that the
unqualified status of such opinion may be waived at the Lender's discretion
upon written request of Borrower); and
(b) Quarterly and Year to Date Reports. Within sixty (60)
days after the end of each calendar quarter and fiscal year, the unaudited
consolidated and consolidating balance sheets of the Group as of the end of
such quarter or fiscal year and the related unaudited consolidated and
consolidating statements of income and the consolidated statement of cash flows
for such quarter and fiscal year to date, all certified by an Authorized
Officer.
(c) Together with the financial statements required
hereunder, a compliance certificate signed by an Authorized Officer of the
Borrower showing the calculations necessary to determine compliance with the
financial covenants contained herein and stating that no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists, stating the
nature and status thereof.
(d) In the event an Insufficiency exists, within 270 days
after the close of each fiscal year, a statement of the Insufficiency with
respect to each Plan, certified as correct by an actuary enrolled under ERISA.
(e) Promptly upon the request of the Lender, copies of all
the most recent material reports and notices in connection with Plans that the
Borrower or any Group member is required to file under ERISA with the Internal
Revenue Service or the PBGC or the U.S. Department of Labor, or which the
Borrower or any Subsidiary receives from such Governmental Authorities.
(f) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of any notice alleging any violation of any
federal, state or local environmental, health or safety law or regulation by
any member of the Group, which could reasonably be expected to have a Material
Adverse Effect.
(g) Promptly upon the filing thereof, copies of all Forms
10Q, 10K and 8K (other than earnings press releases) and any registration
statements that any member of the Group files with the Securities and Exchange
Commission.
(h) Such other information (including, without limitation,
non-financial information) as the Lender may from time to time reasonably
request.
5.2. Use of Proceeds. The Borrower will, and will cause each member
of the Group to, use the proceeds of the Advances only for corporate purposes
of the Group. The Borrower will not, nor will it permit any member of the
Group to, use any of the proceeds of the Advances to purchase or carry any
"margin stock" (as defined in Regulation U).
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<PAGE> 30
5.3. Notice of Certain Events. The Borrower will give prompt notice
in writing to the Lender of (i) the occurrence of any Default or Unmatured
Default and of any other development, financial or otherwise, that could
reasonably be expected to have a Material Adverse Effect, (ii) the receipt of
any notice from any Governmental Authority of the expiration without renewal,
revocation or suspension of, or the institution of any proceedings to revoke or
suspend, any License now or hereafter held by any Group member which is
required to conduct business in compliance with all applicable laws and
regulations, other than such expiration, revocation or suspension that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, (iii) the receipt of any notice from any Governmental
Authority of the institution of any disciplinary proceedings against or with
respect to any Subsidiary, or the issuance of any order, the taking of any
action or any request for an extraordinary audit for cause by any Governmental
Authority which, if adversely determined, could reasonably be expected to have
a Material Adverse Effect or (iv) any judicial or administrative order limiting
or controlling the business of any Subsidiary which has been issued or adopted
and which could reasonably be expected to have a Material Adverse Effect.
5.4. Conduct of Business. The Borrower will do, and will cause each
member of the Group to do, all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted.
5.5. Taxes. The Borrower will pay, and will cause each member of the
Group to pay, when due all taxes, assessments and governmental charges and
levies upon it or its income, profits or Property, except those that are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
5.6. Insurance. The Borrower will maintain, and will cause each
member of the Group to maintain, with financially sound and reputable insurance
companies insurance on all or substantially all of its Property in such amounts
and covering such risks, and with such risk retention or self-insurance, as is
consistent with sound business practice for Persons in substantially the same
industry as the Borrower or such member of the Group, and the Borrower will
furnish to Lender upon request full information as to the insurance carried and
any applicable risk retention or self-insurance.
5.7. Compliance with Laws. The Borrower will comply, and will cause
each member of the Group to comply, with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject,
except where the failure to so comply could not reasonably be expected to have
a Material Adverse Effect.
5.8. Maintenance of Properties. The Borrower will do, and will cause
each member of the Group to do, all things reasonably necessary to maintain,
preserve, protect and keep its Property in good repair, working order and
condition and make all reasonably necessary repairs, renewals and replacements
for the conduct of its business.
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<PAGE> 31
5.9. Inspection. The Borrower will permit, and will cause each
member of the Group to permit, the Lender to inspect any of the Property,
corporate books and financial records of the Borrower and each member of the
Group, to examine and make copies of the books or accounts and other financial
records of the Borrower and each member of the Group, and to discuss the
affairs, finances and accounts of the Borrower and each member of the Group
with, and to be advised as to the same by, their respective Presidents and
financial officers at such reasonable times and intervals as the Lender may
designate.
5.10. Merger. The Borrower will not, nor will it permit any member
of the Group to, merge or consolidate with or into any other Person, except
that (i) a member of the Group may merge with the Borrower, the Guarantor or a
Wholly-Owned Subsidiary, and (ii) the Borrower and any member of the Group may
merge with any other Person provided that (a) the Borrower or such member of
the Group shall be the continuing or surviving corporation and, after giving
effect to such merger, no Default shall exist or (b) the surviving
corporation's tangible net worth shall exceed that of the merging corporation.
5.11. Sale of Assets. The Borrower will not, nor will it permit any
member of the Group to, lease, sell or otherwise dispose of all or a
Substantial Portion of the Property of the Group to any other Person in any
single transaction or series of transactions within any 12-month period, except
for the sale of assets in the ordinary course of business or with the prior
written consent of Lender, not to be unreasonably withheld).
5.12. Sale and Leaseback. The Borrower will not, nor will it permit
any member of the Group in any single transaction or series of transactions
within any 12 month period to, sell or transfer a Substantial Portion of its
Property in order concurrently or subsequently to lease as lessee such or
similar Property, other than in the ordinary course of business.
5.13. Liens (Negative Pledge). The Borrower will not create, incur
or suffer to exist, nor shall Borrower allow any member of the Group to create,
incur or suffer to exist, any Lien in, of or on any of their Properties except
for Permitted Liens.
5.14. Consolidated Tangible Net Worth. The Group will maintain at all
times Consolidated Tangible Net Worth equal to not less than $17,385,000.
5.15. Ratio of Consolidated Indebtedness to Consolidated Tangible Net
Worth. The Group will maintain at all times a ratio of Consolidated
Indebtedness to Consolidated Tangible Net Worth of not more than 2.9 to 1.0.
5.16. Interest Coverage Ratio. The Group shall maintain, on a
rolling four-quarter average basis, a ratio of Consolidated Cash Flow plus
Consolidated Interest Expense to Consolidated Interest Expense of not less than
2.0 to 1.0.
5.17. Ratio of Cash Flow to Current Maturities. The Group shall
maintain, on a rolling four-quarter average basis, a ratio of Consolidated Cash
Flow to Consolidated Current
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<PAGE> 32
Maturities of not less than 1.75 to 1.0. For purposes of the foregoing none of
the Advances to be made hereunder shall be considered "Current Maturities"
(except for any principal portion of any Advance converted to a term loan and
payable during the then current Fiscal Year).
5.18. Earnings. The Group shall have a minimum annual Consolidated
Net Income after taxes for each fiscal year, beginning with the fiscal year
ending December 31, 1995, of at least $2,500,000.
5.19. Affiliates. The Group will not enter, and will not permit any
member of the Group to enter, into any transaction (including, without
limitation, the purchase or sale of any Property or service) with, or make any
payments or transfer to, any Affiliate (other than a Wholly-Owned Subsidiary)
except for (i) the loans by the Borrower to the members of the Group (ii) any
such transactions, payments or transfers with or to such Affiliates as are made
in the ordinary course of business and pursuant to the reasonable requirements
of the Borrower's, the Guarantor's or such Subsidiary's business and upon fair
and reasonable terms no less favorable to the Borrower, the Guarantor or such
Subsidiary than the Borrower, the Guarantor or such Subsidiary would obtain in
a comparable arms-length transaction and (iii) any such other transactions,
payments or transfers with or to such Affiliates as could not reasonably be
expected to have a Material Adverse Effect.
5.20. Compliance with ERISA. The Group will not (i) terminate, or
permit any ERISA Affiliate to terminate, any Plan so as to result in any
material liability of the Borrower or an ERISA Affiliate to the PBGC; (ii)
permit to exist any occurrence of any Reportable Event (as defined in Title IV
of ERISA), or any other event or condition, that presents a material risk of
such a termination by the PBGC of any Plan so as to result in any material
liability of the Borrower or any ERISA Affiliate to the PBGC; (iii) be an
"employer" (as defined in Section 3(5) of ERISA), or permit any ERISA Affiliate
to be an "employer", required to contribute to any Multiemployer Plan; or (iv)
fail to comply in any material respect with any laws or regulations applicable
to any Plan.
ARTICLE VI
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
6.1. Any representation or warranty made or deemed made by or on
behalf of the Borrower or any member of the Group to the Lender under or in
connection with this Agreement, any Loan or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
false on the date as of which made.
6.2. Nonpayment of principal of any Loan when due, or nonpayment of
interest upon any Loan or of any commitment fee or non-payment of any other
Obligation under any of the
26
<PAGE> 33
Loan Documents within 10 days after written notice from Lender to Borrower that
such Obligation is due.
6.3. The breach of any of the terms or provisions of Section 5.2,
5.3, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17 or 5.18 and, in the case of
a breach of the provisions of Section 5.14 or 5.15, the continuance of such
breach for a period of 15 days.
6.4. The breach (other than a breach that constitutes a Default under
any Section of this Article VI other than this Section 6.4 ) of any of the
terms or provisions of this Agreement, and the continuance of such breach for a
period of 30 days after written notice thereof from Lender to Borrower.
6.5. Failure of the Borrower or any member of the Group to pay when
due any Indebtedness, if the aggregate amount of all such Indebtedness involved
exceeds $1,000,000; or any Indebtedness of the Borrower or any Subsidiary shall
be declared to be due and payable or required to be prepaid (other than by a
regularly scheduled payment) prior to the stated maturity thereof due to any
failure to pay any amounts payable in respect of Indebtedness, if the aggregate
amount of all such accelerated Indebtedness involved exceeds $1,000,000; or any
Indebtedness of the Borrower or any Subsidiary shall be declared to be due and
payable or required to be pre-paid (other than by a regularly scheduled
payment) prior to the stated maturity date thereof as a result of the
occurrence of any default arising from any circumstance or condition other than
the failure to pay, if the aggregate amount of Indebtedness involved exceeds
$1,000,000, and such Indebtedness shall not be paid in full within 3 days of
such acceleration; or the Borrower or any of its Subsidiaries shall not pay, or
admit in writing its inability to pay, its debts generally as they become due.
6.6. The Borrower or any member of the Group shall (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as now
or hereafter in effect, (ii) make an assignment for the benefit of creditors,
(iii) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it
or any Substantial Portion of the Property of the Group, (iv) institute any
proceeding seeking an order for relief under the Federal bankruptcy laws as now
or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file
an answer or other pleading denying the material allegations of any such
proceeding, filed against it, (v) take any corporate action to authorize or
effect any of the foregoing actions set forth in this Section 6.6 or (vi) fail
to contest in good faith any appointment or proceeding described in Section
6.7.
6.7. Without the application, approval or consent of the Borrower or
any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
6.6(iv) shall be instituted against the Borrower or any of its
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<PAGE> 34
Subsidiaries, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 consecutive days.
6.8. Any Governmental Authority shall condemn, seize or otherwise
appropriate, or take custody or control of (each a "Condemnation"), all or any
portion of the Property of the Borrower or any of its Subsidiaries which, when
taken together with all other Property of the Borrower and its Subsidiaries so
condemned, seized, appropriated or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation
occurs, constitutes a Substantial Portion.
6.9. The Borrower or the Guarantor shall fail within 45 days to pay,
bond or otherwise discharge any judgment or order for the payment of money in
excess of $1,000,000, which is not covered by insurance or stayed on appeal or
otherwise being appropriately contested in good faith.
6.10. (i) Any ERISA Event shall have occurred.
6.11. Any Governmental Authority having jurisdiction shall prohibit
or limit the payment or distribution to the Borrower of dividends, principal or
interest payments or management fees, if such prohibition or limitation could
reasonably be expected to have a Material Adverse Effect.
6.12. The Borrower or any member of the Group shall be the subject of
any proceedings or governmental investigation of any toxic or hazardous waste
or substance into the environment, or any violation of any federal, state or
local environmental, health or safety law or regulation, which, in either case,
could reasonably be expected to have a Material Adverse Effect.
6.13. Any Change in Control shall occur.
ARTICLE VII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
7.1. Acceleration. If any Default described in Section 6.6 or 6.7
occurs, the obligations of the Lender to make Loans hereunder shall
automatically terminate, and the Obligations shall immediately become due and
payable without any election or action on the part of the Lender. If any other
Default occurs, Lender may, without notice to the Borrower, terminate or
suspend the obligations of the Lender to make Loans hereunder, or declare all
the Obligations to be due and payable, or both, whereupon all the Obligations
shall become immediately due and payable, without presentment, demand or
protest all of which the Borrower hereby expressly waives.
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7.2. Preservation of Rights. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by law
afforded shall be cumulative, and all shall be available to the Lender until
the Obligations have been paid in full.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Survival of Representations. All representations and warranties
of the Borrower contained in this Agreement shall survive delivery of the Notes
and the making of the Loans.
8.2. Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, Lender shall not be obligated to extend credit
to the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulations.
8.3. Headings. Section headings in the Loan Documents are for
convenience of reference only and shall not govern the interpretation of any of
the provisions of the Loan Documents.
8.4. Entire Agreement. The Loan Documents embody the entire
agreement and understanding between the Borrower and the Lender and supersede
all prior agreements and understandings among the Borrower and the Lender
relating to the subject matter thereof.
8.5. Benefits of this Agreement. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and assigns.
8.6. Expenses; Indemnification. The Borrower shall reimburse the
Lender for any costs and out-of-pocket expenses (including 90% of attorneys'
fees of attorneys for the Lender, not to exceed $15,000) paid or incurred by
the Lender in connection with the preparation, negotiation, execution, delivery
and review of the Loan Documents. The Borrower also agrees to reimburse the
Lender for any out-of-pocket expenses (including reasonable attorneys' fees of
attorneys for the Lender) paid or incurred by the Lender in connection with the
collection and enforcement of the Loan Documents. The obligations of the
Borrower under this Section 8.6 shall survive the termination of this
Agreement.
29
<PAGE> 36
8.7. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.
8.8. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
8.9. Nonliability of Lender. The relationship between the Borrower
and the Lender shall be solely that of borrower and lender. Lender shall not
have any fiduciary responsibilities to the Borrower. Lender undertakes no
responsibility to the Borrower to review or inform the Borrower of any matter
in connection with any phase of the Borrower's business or operations.
8.10. Choice of Law. The Loan Documents shall be construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Alabama.
8.11. Setoff. In addition to, and without limitation of, any
rights of the Lender under applicable law, if the Borrower becomes insolvent,
however evidenced, or any Default occurs, any and all deposits (including all
account balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by Lender to or
for the credit or account of the Borrower may be offset and applied toward the
payment of the Obligations owing to Lender.
ARTICLE IX
NOTICES
9.1. Giving Notice. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing and shall be delivered or mailed (or in the case of electronic
communication, delivered by telecopy with copy by U.S. mail or courier)
addressed to such party at its address set forth below its signature hereto or
at such other address as may be designated by such party in a notice to the
other parties. Any notice, if personally delivered or mailed (properly
addressed with postage prepaid), shall be deemed given when received; any
notice, if transmitted by telecopy shall be deemed given when transmitted
(receipt confirmed by telephone).
9.2. Change of Address. The Borrower and the Lender may change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement on the day and year first above written.
30
<PAGE> 37
BORROWER:
ALATENN CREDIT CORP.
By: George G. Petty
-----------------------
Print Name: George G. Petty
---------------
Title: Secretary/Treasurer
Address: 100 East Second Street
Sheffield, Alabama 35660
Attention: Mr. George Petty
Telephone Number: (205) 323-6241
----------
Telecopier: (205) 381-2858
LENDER:
COMPASS BANK
By: W. Don Ellis
----------------------------
Print Name: W. Don Ellis
--------------------
Title: Vice President
-------------------------
Address: 412 North Court Street
Florence, Alabama
Attention: Commercial Loan Department
Telephone Number: (205) 767-8879
-------------
Telecopier: (205) 767-8872
31
<PAGE> 1
EXHIBIT 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of AlaTenn Resources, Inc.:
We have audited the accompanying consolidated balance sheets of AlaTenn
Resources, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AlaTenn Resources, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 10, 1995
10
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME
(For the years ended December 31, 1994, 1993 and 1992)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES $70,905 $119,022 $121,651
COST OF GOODS SOLD 55,319 106,881 109,684
------------------------------------------------------------------------------------------------
GROSS MARGIN 15,586 12,141 11,967
------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Operations 6,779 4,655 4,421
Maintenance 345 376 251
Depreciation and amortization 976 577 543
Taxes other than income taxes 360 321 318
------------------------------------------------------------------------------------------------
8,460 5,929 5,533
------------------------------------------------------------------------------------------------
OPERATING INCOME 7,126 6,212 6,434
------------------------------------------------------------------------------------------------
RECOVERY OF ESTIMATED NONRECOVERABLE TAKE-OR-PAY EXPENSE -- 3,636 --
INTEREST AND OTHER INCOME 489 529 736
INTEREST EXPENSE (330) (248) (193)
------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES 7,285 10,129 6,977
------------------------------------------------------------------------------------------------
INCOME TAXES (NOTE 6) (2,595) (3,362) (2,312)
------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,690 6,767 4,665
INCOME FROM DISCONTINUED OPERATIONS (NOTE 2) -- 565 --
------------------------------------------------------------------------------------------------
NET INCOME $ 4,690 $ 7,332 $ 4,665
================================================================================================
EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $ 2.22 $ 3.21 $ 2.23
EARNINGS FROM DISCONTINUED OPERATIONS -- 0.27 --
------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 2.22 $ 3.48 $ 2.23
================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 2,113 2,108 2,094
================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
11
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(As of December 31, 1994 and 1993)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
ASSETS: 1994 1993
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 440 $ 8,761
Accounts receivable, including $2,462,000 in 1994 and $2,669,000 in 1993
of take-or-pay settlement costs (Note 4) 10,643 13,598
Materials and supplies, at average cost 521 504
Inventories 745 --
Prepaid expenses 317 280
---------------------------------------------------------------------------------------------
12,666 23,143
---------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 33,123 27,681
Less accumulated depreciation and amortization 15,117 14,461
---------------------------------------------------------------------------------------------
18,006 13,220
---------------------------------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES:
Take-or-pay settlement costs (Note 4) 2,197 4,230
Patents, net 5,944 --
Goodwill, net 2,765 --
Other 2,159 2,060
---------------------------------------------------------------------------------------------
13,065 6,290
---------------------------------------------------------------------------------------------
$43,737 $42,653
=============================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
12
<PAGE> 4
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AND LIABILITIES: 1994 1993
-----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5) $ 203 $ --
Accounts payable and accrued liabilities, including $741,000 in 1994 and $931,000
in 1993 of take-or-pay obligations (Note 4) 10,025 13,987
Accrued income and other taxes 621 564
-----------------------------------------------------------------------------------------------------------
10,849 14,551
-----------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 5) 2,682 --
-----------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS:
Take-or-pay obligations (Note 4) -- 987
Accumulated deferred income taxes (Note 6) 1,299 1,441
Unamortized investment tax credits (Note 6) 256 270
Other 1,541 539
-----------------------------------------------------------------------------------------------------------
3,096 3,237
-----------------------------------------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY:
Common shares, par value $0.10 per share, authorized 10,000,000 shares,
issued 2,280,000 shares 228 228
Paid-in capital 6,049 6,007
Retained earnings (Note 8) 22,725 20,571
Treasury shares, 164,516 shares in 1994 and 168,716 shares in 1993, at cost (1,892) (1,941)
-----------------------------------------------------------------------------------------------------------
27,110 24,865
-----------------------------------------------------------------------------------------------------------
$43,737 $42,653
===========================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
13
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1994, 1993 and 1992)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,690 $ 7,332 $ 4,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,120 577 543
Deferred income taxes (125) 19 965
Provision for estimated nonrecoverable take-or-pay expense (Note 4) -- (3,636) --
Net take-or-pay recoveries (Note 4) 1,128 1,563 1,177
Other 121 (587) (118)
----------------------------------------------------------------------------------------------------------------
6,934 5,268 7,232
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 3,142 6,329 (5,284)
(Increase) in other current assets (1,757) (180) (84)
Increase (decrease) in accounts payable and accrued liabilities (3,125) (2,156) 3,285
Increase (decrease) in other current liabilities 585 396 (3,476)
----------------------------------------------------------------------------------------------------------------
5,779 9,657 1,673
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Ryder assets (Note 2) (11,124) -- --
Property, plant and equipment additions (1,390) (578) (3,036)
Other -- -- 152
----------------------------------------------------------------------------------------------------------------
(12,514) (578) (2,884)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term indebtedness 870 -- --
Issuance of common shares 80 139 270
Cash dividends paid (2,536) (2,530) (2,464)
----------------------------------------------------------------------------------------------------------------
(1,586) (2,391) (2,194)
----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (8,321) 6,688 (3,405)
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF YEAR 8,761 2,073 5,478
----------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF YEAR $ 440 $ 8,761 $ 2,073
================================================================================================================
CASH PAID FOR:
Interest (net of capitalized amounts) $ 315 $ 253 $ 187
Income taxes (net of refunds) 2,742 2,294 4,750
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
14
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AlaTenn Resources,
Inc. and its subsidiaries (the Company). All significant intercompany
transactions and balances have been eliminated in consolidation.
Property, Plant and Equipment
Property, plant and equipment are stated at original cost. The cost of
additions to property, plant and equipment includes direct labor and materials
costs, allocable overheads and, in the case of pipeline plant, an allowance for
the estimated cost of equity and debt funds used during construction (AFUDC).
Such provisions for AFUDC are not reflected separately in the accompanying
consolidated statements of income as the amounts are not material. Maintenance
and repairs, including the cost of renewals of minor items of property, are
charged principally to expense as incurred. Replacements of property
(exclusive of minor items of property) are charged to the appropriate property
accounts. Upon retirement of a pipeline plant asset, its cost is charged to
accumulated depreciation together with the cost of removal, less salvage value.
Depreciation
Depreciation on pipeline plant is calculated using the composite rate method
which approximates an average depreciation rate of 2.0% in 1994 and 2.1% in
1993 and 1992. Depreciation on facilities and equipment used in the manufacture
of health care products is calculated on a straight-line basis over the useful
lives of the assets.
Operating Revenue
The Company recognizes revenue from natural gas sales and transportation
service in the period the service is provided. Provision is made for possible
refund of revenues collected which are subject to future rate decisions.
Revenues from the sale of health care products are recognized on an accrual
basis, at the time of sale.
Income Taxes
The Company's deferred income taxes for 1994 and 1993 reflect the impact of
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. These temporary
differences are determined in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes (see Note 6),
and are more inclusive in nature than timing differences as determined under
previously applicable accounting principles which applied in 1992. Investment
tax credits are deferred and amortized to income over the lives of the related
assets (see Note 6).
Inventory
Inventories are stated at lower of cost or market. Cost is determined by using
the first-in, first-out method.
Goodwill
Goodwill represents the excess of cost over the fair market value of tangible
and identifiable intangible net assets. Goodwill is being amortized over 25
years.
Patents
Values assigned to patents were agreed to at the time of the acquisition
between selling and acquiring parties and are being amortized over the
remaining life of the individual patents.
Temporary Cash Investments
Temporary cash investments are securities with original maturities of 90 days
or less. For purposes of the Consolidated Statements of Cash Flows, temporary
cash investments are considered cash equivalents.
Financial Presentation
Certain prior year amounts have been reclassified to conform with current year
presentation.
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS AND SUBSIDIARIES
Acquisition of Ryder International
On April 19, 1994, the Company, through RIC Acquisition Corporation, a
wholly-owned subsidiary of the Company formed to effect the acquisition,
purchased the business of Ryder International Corporation by acquiring its
operating assets, including plant, equipment, inventory, patents and other
intangibles but excluding cash and receivables, and assuming substantially all
of its liabilities. The Company paid to Ryder International Corporation,
including post-closing adjustments, $11.1 million in cash, issued a promissory
note in the principal amount of $1.0 million and assumed liabilities totaling
$2.2 million. To purchase the business of Ryder International Corporation, the
Company used available cash and borrowings on a revolving loan agreement with a
bank group. As of year end, the Company's remaining indebtedness associated with
this acquisition was $2.9 million. The acquisition was recorded using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets and liabilities acquired based on their estimated fair value at the
date of acquisition. The excess of the consideration paid over the estimated
fair value of the assets acquired of $2.4 million was recorded as goodwill and
is being amortized over 25 years. Only results from operations subsequent to
the acquisition date are reflected in the accompanying consolidated financial
statements. Following the closing, RIC Acquisition Corporation's name was
changed to Ryder International Corporation (Ryder).
15
<PAGE> 7
Ryder is principally engaged in the design, development, manufacture and sale
of proprietary products for the health care industry, including disposable or
semi-disposable soft contact lens storage and disinfection systems and
diagnostic products used or distributed by major health care companies. These
products are generally marketed to major health care companies, both in the
U.S. and overseas, in conjunction with their technology and products.
The following table presents selected financial data on a pro forma basis
assuming the purchase of the business of Ryder International Corporation had
occurred as of January 1, 1994 and 1993. The pro forma data reflect asset and
liability values and other assumptions which are based on estimates and
subject to revision. The pro forma combined results presented have been
prepared for comparative purposes only and are not necessarily indicative of
actual results that would have been achieved had the acquisition occurred at
the beginning of the periods presented or of future results.
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues (000) $73,925 $129,432
Income From Continuing
Operations (000) $ 4,937 $ 7,767
Net Income (000) $ 4,937 $ 8,332
Net Income Per Share $ 2.34 $ 3.94
</TABLE>
Disposal of Assets
In the second quarter of 1993, the Company recorded income of $565,000 for
additional tax benefits associated with the disposal of the assets of End
Devices, Inc. which the Company sold in 1990. This income has been reflected as
income from discontinued operations in 1993 in the Consolidated Statements of
Income.
3. REGULATORY AND RATE MATTERS
The Companys interstate pipeline subsidiary, Alabama-Tennessee Natural Gas
Company (Alabama-Tennessee), is regulated by the Federal Energy Regulatory
Commission (FERC). The FERC establishes the maximum and minimum transportation
rates Alabama-Tennessee is permitted to charge its customers. The Company's
intrastate pipeline subsidiary, Tennessee River Intrastate Gas Company, Inc.
(TRIGAS), is regulated by the Alabama Public Service Commission (APSC). The
rates to TRIGAS's transportation customers are determined by negotiated
contracts which were approved by the APSC.
On April 1, 1993, Alabama-Tennessee increased its jurisdictional rates from
rates that had been in effect since April, 1990. This rate increase was agreed
to in an uncontested settlement with Alabama-Tennessee's customers which the
FERC approved on December 30, 1993. As a result of this settlement,
Alabama-Tennessee realized an increase in its jurisdictional revenues of
approximately $400,000 per year which was offset by the lower recovery of
certain demand charges, resulting in a net decrease of approximately $350,000
per year compared with actual jurisdictional revenues realized in the twelve
months ended May 31, 1992, the base period used in the rate filing.
On April 8, 1992, August 3, 1992, and November 27, 1992, the FERC issued Order
Nos. 636, 636-A and 636-B, respectively (together hereafter referred to as the
"Restructuring Rule" or the "Rule"). Under the Restructuring Rule, which is
pending federal appellate court review, all interstate natural gas pipelines
were required to make a number of changes in the structure of the services they
provide effective with the 1993-1994 winter heating season. Among other things,
in these orders the FERC required interstate pipelines to revise their tariffs
so as to reflect the unbundling or separation of their sales services from
their transportation services. The Restructuring Rule provides that interstate
pipelines are permitted to recover all transition costs prudently incurred in
complying with the new rules, including all costs prudently incurred in
realigning natural gas supply contracts.
Alabama-Tennessee implemented restructured services on its system as of
September 1, 1993 in compliance with the FERC's orders under the Restructuring
Rule. This implementation included: 1) termination of all sales service
arrangements such that since September 1, 1993, Alabama-Tennessee has been
providing transportation service only; 2) the assignment of all upstream firm
transportation capacity held by Alabama-Tennessee to its former firm sales
customers; 3) the transfer of all sales service functions to Alabama-Tennessee's
marketing affiliate, AlaTenn Energy Marketing Company, Inc.; 4) the
establishment and maintenance of a capacity release program which allows
transporters on its system to sell unused firm capacity to third parties and 5)
the development and maintenance of an electronic bulletin board.
Alabama-Tennessee did not have any contracts with producers for the purchase of
natural gas supplies at the time of restructuring and, therefore, did not incur
any gas supply realignment costs directly with producers in connection with its
implementation of restructured service under the Rule. However,
Alabama-Tennessee's historical supplier, Tennessee Gas Pipeline Company (TGP),
has made a series of filings with the FERC, commencing in 1993, for recovery
from its customers of certain transition costs incurred as a result of its
implementation of services under the Rule, including $5,489,232 from
Alabama-Tennessee. As of December 31, 1994, Alabama-Tennessee had paid this
amount to TGP and has recovered most of these costs and has contractual
arrangements which allow for the recovery
16
<PAGE> 8
of the balance over the next three years.
The facilities of Ryder, the Company's medical products subsidiary, are
registered with the Food and Drug Administration (FDA). All medical products
are manufactured in accordance with Good Manufacturing Practices as set forth
in the Food, Drug and Cosmetic Act of 1938. The FDA does not establish or
regulate price levels for products manufactured by Ryder.
4. TAKE-OR-PAY ISSUE
During the 1980s and early 1990s, many interstate natural gas pipelines
incurred significant take-or-pay liabilities owed to natural gas producers.
These liabilities arose because of reduced levels of purchases and sales of
natural gas by the pipelines due primarily to certain regulatory changes which
allowed their customers to switch from sales to transportation services. During
that period, Alabama-Tennessee did not have any gas purchase contracts directly
with natural gas producers. TGP was the sole supplier of Alabama-Tennessee's
firm natural gas requirements prior to Alabama-Tennessee's implementation of
restructured services under the Rule as of September 1, 1993. Accordingly,
Alabama-Tennessee and the other subsidiaries of the Company did not incur any
direct take-or-pay obligations to natural gas suppliers or producers. However,
through various orders issued during the period from 1988 to 1992, the FERC
allowed TGP to pass on to its customers, including Alabama-Tennessee, one-half
of the take-or-pay buyout and buydown costs of certain of its gas purchase
contracts with producers up to a maximum recovery of $645 million. The portion
of this maximum take-or-pay obligation which Alabama-Tennessee owed to TGP
under various FERC approved orders, including interest, totaled $23 million. As
a result of payments to TGP, Alabama-Tennessee's take-or-pay obligation to TGP
has been reduced to $0.7 million, including interest, as of December 31, 1994.
During the period from 1988 through 1991, Alabama-Tennessee made several
filings with the FERC, which were disputed by its customers, to pass through to
its jurisdictional customers a certain amount of take-or-pay charges billed to
it by TGP. In 1991, Alabama-Tennessee reached a settlement with its resale
customers, as well as with one direct industrial customer, which provided for
the recovery of a portion of the take-or-pay costs billed to it by TGP. The
Company currently estimates that Alabama-Tennessee will ultimately recover
approximately 89% of the $23 million take-or-pay costs billed by TGP.
Alabama-Tennessee's take-or-pay accounts receivable balance, net of customer
payments, was $4.5 million as of December 31, 1994.
In 1989, the Company recorded a net provision for estimated non-recoverable
take-or-pay expense of $6.4 million. However, changes in the allocation
methodology employed by the FERC and agreements with customers in 1991 resulted
in a favorable, after-tax adjustment of $3.4 million in the estimate for
non-recoverable take-or-pay expense. Based on this favorable adjustment and a
favorable settlement with the Internal Revenue Service (IRS) in 1993 concerning
the Company's treatment of take-or-pay payments and collections in certain tax
returns, the Company recorded income in 1993 of $3.6 million, reduced by income
taxes of $1.3 million.
5. LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt as of year-end consisted of the following (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreement $ 870 $ --
Industrial revenue bonds 1,015 --
Notes payable 1,000 --
------------------------------------------------------------------------
2,885 --
Less amounts due in one year 203 --
------------------------------------------------------------------------
$2,682 $ --
========================================================================
</TABLE>
At December 31, 1994, the Company had $870,000 borrowed under a $10 million
unsecured revolving loan commitment with a group of banks. On January 20, 1995,
the Company terminated this agreement and entered into a $20 million revolving
loan agreement with a different bank. Under the new agreement there is a $10
million unsecured revolving facility and a $10 million revolving facility which
must be secured at the time it is used. The agreement provides for a one-year
term with an automatic one-year extension providing the Company is in
compliance with the loan agreement. Subsequent one-year terms are subject to
certain additional conditions, including possible adjustments to financial
covenants. At any time during the term of the agreement, the Company may
convert any or all outstanding amounts, under either facility, to a secured
term loan with a minimum maturity of two years. Loans made on the secured or
unsecured facility bear interest of 1.00% over the 90 day LIBOR rate. The
Company is required to pay a fee of .25% per annum on the daily unused amount
of the commitment. If the Company chooses to convert to a term loan, such loan
would bear interest at 1.50% over the 90 day LIBOR rate. The Company's ability
to borrow funds under the secured and unsecured credit facilities is contingent
on meeting certain restrictions in the loan agreement. Among other things, the
agreement requires minimum net income and tangible net worth levels and mainte-
nance of specified debt to tangible net worth, cash flow to current maturities
and interest coverage ratios. The Company currently is in compliance with all
requirements.
The industrial revenue bonds bear interest at 70% of the prime rate with a
minimum rate of 6%, payable monthly beginning August 1, 1984, and are secured
by the land,
17
<PAGE> 9
buildings and equipment of Ryder, the Company's health care products subsidiary
and by a guaranty of the Company. In April 1994, Ryder executed a promissory
note, guaranteed by the Company, for $1.0 million to the former owner of the
business. Interest is paid quarterly at 6% on the unpaid balance.
The aggregate maturities of long term debt, including current maturities, for
the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
1995 1996 1997 1998 1999 TOTAL
(In thousands) and thereafter
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$203 $203 $703 $703 $1,073 $2,885
============================================================
</TABLE>
6. INCOME TAXES
The items comprising income tax expense are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
1994 1993 1992
(In thousands)
------------------------------------------------------------------
<S> <C> <C> <C>
Charged to income tax expense:
Current--Federal $ 2,563 $ 2,404 $ 1,343
Current--State 260 247 126
------------------------------------------------------------------
2,823 2,651 1,469
------------------------------------------------------------------
Deferred--Federal (207) 73 757
Deferred--State (7) 87 101
------------------------------------------------------------------
(214) 160 858
------------------------------------------------------------------
Investment tax credits (14) (14) (15)
------------------------------------------------------------------
Total income tax expense $ 2,595 $ 2,797 $ 2,312
==================================================================
</TABLE>
On February 10, 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 109, "Accounting For Income Taxes" (SFAS 109), which changed the
criteria for measuring the provisions of income taxes and recognizing deferred
tax assets and liabilities on the balance sheet. The Company adopted the new
accounting and disclosure rules of SFAS 109 in the first quarter of 1993 and
did not restate prior periods. The adoption of SFAS 109 did not have a material
effect on the Company's financial results in 1994, but did require a one-time
adjustment that increased income by $184,000 in the first quarter of 1993.
Temporary differences and carryforwards which gave rise to a significant
portion of deferred tax assets and liabilities as of December 31, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------
1994 1993
(In thousands)
---------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred investment tax credits $ 93 $ 98
Provisions for refunds 465 344
Benefit plans 251 153
Other, net 369 259
---------------------------------------------------------
Subtotal 1,178 854
Valuation allowance -- --
---------------------------------------------------------
Total deferred tax assets $1,178 $ 854
=========================================================
Deferred tax liabilities:
Depreciation and basis differences $1,928 $1,669
Pensions 135 120
Other, net 414 506
---------------------------------------------------------
Total deferred tax liabilities $2,477 $2,295
=========================================================
</TABLE>
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 sheet.
During 1992, deferred income taxes were provided for significant timing
differences in recognition of revenue and expenses between income tax and
financial statement reporting purposes. The components of the deferred income
tax provision in 1992 totaled $858,000 and included $198,000 related to tax
depreciation exceeding book depreciation and a $923,000 tax effected timing
difference between revenues recorded for income tax purposes and financial
reporting purposes offset by a benefit of $263,000 related to other sundry
items. Total income tax expense differs from the amount which would be
provided by applying the statutory federal income tax rate to pretax earnings
as illustrated below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
1994 1993 1992
(In thousands)
--------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at statutory
federal income tax rate $ 2,477 $ 3,444 $ 2,372
Increase (decrease) resulting from:
State income taxes 166 232 149
Capital loss carryovers -- -- (25)
Tax exempt interest (46) (40) (12)
Other, net (2) (839) (172)
--------------------------------------------------------------------
Total income tax expense $ 2,595 $ 2,797 $ 2,312
====================================================================
</TABLE>
7. COMMON SHARES
The Company utilized 4,200 and 6,700 treasury shares in 1994 and 1993,
respectively, to make distributions under its Restricted Shares Compensation
Plan for Non-employee Directors, its 1994 Stock Incentive Plan and its 1990
Stock Option Plan (see Note 11). At December 31, 1994 there were 164,516
shares being held in treasury and the cost of the shares is shown as a
reduction in common shareholders' equity in the Consolidated Balance Sheets.
The Company has adopted a Common Share Purchase
18
<PAGE> 10
Rights Plan which is intended to protect the interests of shareholders in the
event of a hostile attempt to take over the Company. The Rights, which are not
presently exercisable and do not have any voting powers, represent the right of
the Company's shareholders to purchase at a substantial discount, upon the
occurrence of certain events, common shares of the Company or of an acquiring
company involved in a business combination with the Company.
8. RETAINED EARNINGS
The following is a recap of consolidated retianed earnings for the years ended
December 31, 1994, 1993, 1992:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1994 1993 1992
(In thousands)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $20,571 $15,769 $13,568
Add-Net income for the year 4,690 7,332 4,665
Deduct-Cash dividends, $1.20
per share in 1994 and in 1993 and
$1.175 per share in 1992 (2,536) (2,530) (2,464)
--------------------------------------------------------------------------------
Balance, end of year $22,725 $20,571 $15,769
================================================================================
</TABLE>
9. REVENUES FROM MAJOR CUSTOMERS
In 1994, approximately $23.0 million (32.4%) and $8.8 million (12.4%) of the
Company's operating revenues were attributable to two natural gas customers.
In 1993, approximately $24.6 million (20.7%), $18.4 million (15.5%), $18.1
million (15.2%) and $13.2 million (11%) of the Company's operating revenues were
attributable to four natural gas customers.
In 1992, approximately $21.7 million (17.8%), $19.4 million (16%) and $18.0
million (14.8%) of the Company's operating revenues were attributable to three
natural gas customers.
10. EMPLOYEE RETIREMENT AND BENEFIT PLANS
A noncontributory retirement plan is maintained for all regular employees of
the Company. The plan provides benefits based on years of service and other
factors. The Company's funding policy is to make the annual contributions
required by applicable regulations and recommended by its actuary.
Net pension income for 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
--------------------------------------------------------------
1994 1993 1992
(In thousands)
--------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 139 $ 94 $ 91
Interest cost 277 271 268
Actual return on assets 66 (429) (345)
Net amortization and deferral (492) 20 (52)
--------------------------------------------------------------
Net periodic pension income $ (10) $ (44) $ (38)
==============================================================
</TABLE>
The following schedule sets forth the plan's funded status as of December 31,
1994 and 1993 and the amounts recognized in the Company's Consolidated Balance
Sheets during those years:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1994 1993
(In thousands)
-----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligation
Vested $ 2,827 $ 3,040
Non-vested 33 79
-----------------------------------------------------------------------
Accumulated benefit obligation $ 2,860 $ 3,119
-----------------------------------------------------------------------
Projected benefit obligation $(3,436) $(3,884)
Plan assets at fair value 4,569 4,841
-----------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 1,133 957
Unrecognized net loss (gain) (128) 98
Unrecognized net assets at date
of initial adoption (618) (678)
-----------------------------------------------------------------------
Prepaid pension asset $ 387 $ 377
=======================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation shown above was 8.50% in 1994 and
7.25% in 1993. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
shown above was 6% in both 1994 and 1993. The expected long-term rate of return
on assets was 8% in both years. At December 31, 1994, plan assets were invested
approximately 45% in fixed income securities, 4% in cash and cash equivalents
and 51% in equity securities.
Effective July 1, 1992, the Company adopted a nonqualified Supplemental
Executive Retirement Plan (SERP) which provides additional pension benefits to
certain executive officers of the Company. Expense recognized in connection
with the SERP in 1994, 1993 and 1992 was $50,356, $39,824 and $19,912,
respectively.
The Company also sponsors a defined contribution 401(k) plan and a supplemental
thrift plan for its employees, including Ryder's employees who were added to the
plan on August 1, 1994. These plans provide participants a mechanism for making
contributions for retirement savings. Each participant may contribute certain
amounts of eligible compensation. The Company makes a matching contribution to
the plans. The Company's contribution under these plans was $166,498 in 1994,
$104,038 in 1993 and $99,884 in 1992.
The Company also provides certain contributory postretirement health care and
life insurance benefits to full-time employees of Alabama-Tennessee. The
Company's commitment towards the cost of these postretirement health care
benefits in the year 2000 and later are capped based on the levels provided in
1999.
19
<PAGE> 11
The Company adopted FASB Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106) effective as of January
1, 1993. Prior to 1993, the Company recognized these postretirement benefits in
the year the benefits were paid. Postretirement benefits charged to expense in
1992 were $28,678. In its last rate case, Alabama-Tennessee was allowed by the
FERC to recover these SFAS 106 costs in its rates. Therefore, the adoption of
this new standard did not have a material impact on the Company's financial
results. Alabama-Tennessee, in compliance with requirements by the FERC, has
established a VEBA trust and is currently funding and plans to continue funding
these expenses, calculated in accordance with SFAS 106. The expected long-term
rate of return on plan assets was 8% as of December 31, 1994. The investment
income of the trust is subject to federal income tax.
The following schedule presents the plan's funded status reconciled with amounts
recognized in the Company's statement of financial position as of December 31,
1994 and 1993:
<TABLE>
<CAPTION>
----------------------------------------------------------------
1994 1993
(In thousands)
----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(355) $(376)
Fully eligible active plan participants (118) (122)
Other active plan participants (113) (119)
----------------------------------------------------------------
Total $(586) $(617)
Plan Assets 122 90
----------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets $(464) $(527)
Unrecognized prior service cost -- --
Unrecognized net loss (25) 1
Unrecognized transition obligation 498 526
----------------------------------------------------------------
Accrued postretirement benefit cost $ 9 $ --
================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
1994 1993
(In thousands)
-------------------------------------------------------------------
<S> <C>
Service cost $ 15 $ 18
Interest cost 44 44
Actual return on plan assets 3 --
Amortization of transition obligation over 20 years 28 28
Net amortization and deferral (9) --
-------------------------------------------------------------------
Net periodic postretirement benefit cost $ 81 $ 90
===================================================================
</TABLE>
The assumed rate of increase in the per capita cost of covered health care
benefits for pre age 65 plan participants is 11.5% for 1995 and is assumed to
decrease gradually to 6.5% by 2005 and then remain level. For post age 64
participants, the rate is 11.5% for 1995 and is assumed to decrease gradually
to 6.0% by 2006 and then remain level. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $2,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by $200.
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.50% at December 31, 1994 and 7.25% at December 31, 1993.
11. STOCK OPTION PLAN
During 1994, the shareholders of the Company approved the adoption of the
Company's 1994 Key Employee Stock Incentive Plan (the Stock Incentive Plan). The
Stock Incentive Plan provides for the grant to key employees of incentive and
nonqualified options and restricted shares up to 105,000 common shares of the
Company. The purchase price of the shares under option must be at least equal
to the fair market value of such shares on the date of grant. The options
granted become exercisable no earlier than six months and one day after date of
grant and expire ten years after date of grant. The purchase price, if any, to
be paid for restricted shares is fixed by the Compensation Committee of the
Company. During 1990, the shareholders of the Company had approved the adoption
of the Company's 1990 Stock Option Plan which provided for the grant to key
employees of incentive and nonqualified options to purchase common shares of
the Company.
Option transactions for the years 1992, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
Shares Price Per Share
------------------------------------------------------------
<S> <C> <C>
Options outstanding at
December 31, 1991 47,500 $10.125-15.50
Granted in 1992 18,000 $20.000-24.125
Exercised in 1992 (16,500) $10.125-15.50
------------------------------------------------------------
Options outstanding at
December 31, 1992 49,000 $10.125-24.125
Granted in 1993 28,500 $22.75
Exercised in 1993 (3,500) $14.875-20.00
------------------------------------------------------------
Options outstanding
at December 31, 1993 74,000 $10.125-24.125
Granted in 1994 37,350 $17.50-21.75
Exercised in 1994 -- --
------------------------------------------------------------
Options outstanding
at December 31, 1994 111,350 $10.125-24.125
============================================================
</TABLE>
As of December 31, 1994 there remained 68,900 shares for which options may be
granted in the future under the Stock Incentive Plan.
12. SEGMENT INFORMATION
Beginning in 1994, with the acquisition of Ryder, the Company classifies its
continuing operations into two industry segments which are described in
Management's Discussion and Analysis of Financial Condition and Results
20
<PAGE> 12
of Operations. Summarized financial information for these segments is as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SEGMENT
---------------------------------------------------------------------------
Health
Energy Care Products Consolidated
<S> <C> <C> <C>
At December 31, 1994, and
for the year then ended (000s)
Revenues $63,445 $ 7,460 $70,905
Operating income (pre-tax) 5,899 1,227 7,126
Depreciation (charged to
expense) 567 409 976
Identifiable assets 28,216 15,521 43,737
===========================================================================
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Quarter Operating Operating Earnings
Ended Revenue Income Net Income Per Share
-----------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
3/31/94 $20,007 $ 1,168 $ 1,288 $ 0.61
6/30/94 16,963 1,163 1,096 0.52
9/30/94 16,715 1,168 1,139 0.54
12/31/94 17,220 1,176 1,167 0.55
-----------------------------------------------------------------------------------
3/31/93 $36,843 $ 1,368 $ 1,627 $ 0.77
6/30/93 30,309 828 3,739 1.78
9/30/93 28,135 874 963 0.46
12/31/93 23,735 982 1,003 0.47
===================================================================================
</TABLE>
Net income and earnings per share for the second quarter of 1993 include income
attributable to a favorable revision to a provision for estimated
nonrecoverable take-or-pay expense and income from discontinued operations (see
Notes 2 and 4). The sums of the quarterly per share amounts do not equal the
annual amounts due to changes in shares outstanding during the periods.
21
<PAGE> 13
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Industrial sales (3) $40,688 $ 62,234 $ 56,825 $48,570 $39,367
Resale sales (3) 8,506 49,132 45,734 35,503 43,431
Transportation 11,050 6,525 4,550 4,219 4,090
Natural gas marketing 3,119 1,052 14,474 5,270 2,399
Distribution sales 82 79 68 284 352
Health care products 7,460 -- -- -- --
-----------------------------------------------------------------------------------------------------
Total operating revenues $70,905 $119,022 $121,651 $93,846 $89,639
-----------------------------------------------------------------------------------------------------
Income from continuing operations $ 4,690 $ 6,767 $ 4,665 $ 7,934 $ 3,869
Net income (1) (2) 4,690 7,332 4,665 8,375 3,869
Total assets 43,737 42,653 42,766 44,858 38,487
Long-term debt (including current maturities) 2,885 -- -- -- --
Income from continuing operations, per share 2.22 3.21 2.23 3.80 1.72
Net income per share 2.22 3.48 2.23 4.01 1.72
Dividends per share 1.20 1.20 1.18 1.10 1.10
Average shares outstanding 2,113 2,108 2,094 2,089 2,251
Pipeline sales volume (MMBtu) -- 3,182 372 667 3,925
Pipeline transportation volumes (MMBtu) (3) 42,098 42,297 41,550 39,842 34,510
Natural gas marketing volumes (MMBtu) 2,613 836 7,897 3,358 1,013
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1993 amount includes income of $565,000 related to discontinued
operations and $2.3 million attributable to a favorable revision of an
after-tax provision recorded in 1989 of $6.4 million for estimated
nonrecoverable take-or-pay expense.
(2) The 1991 amount includes a $1.0 million after-tax gain on sale of assets
and income of $3.4 million attributable to a favorable revision of an
after-tax provision recorded in 1989 of $6.4 million for estimated
nonrecoverable take-or-pay expense.
(3) Revenues and volume amounts include sales volumes in MMMBtu of 19,924 in
1994, 33,538 in 1993, 38,436 in 1992, 35,855 in 1991 and 26,928 in 1990,
which were sold to pipeline customers by a marketing subsidiary of the
Company.
22
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AlaTenn Resources is a diversified holding company which provides natural gas
service to the lower Tennessee Valley area and manufactures products for the
health care industry. The Company is engaged in two lines of business: (1)
energy - natural gas transmission and marketing and (2) manufacture of
innovative products for the health care industry. The Company's natural gas
business is conducted primarily by Alabama-Tennessee Natural Gas Company
(Alabama-Tennessee), Tennessee River Intrastate Gas Company, Inc. (TRIGAS) and
AlaTenn Energy Marketing Company, Inc. (ATEMCO). Alabama-Tennessee operates an
interstate natural gas pipeline which provides natural gas transmission service
directly to six industrial plants and 17 municipal gas systems in the Tennessee
Valley and is regulated by the Federal Energy Regulatory Commission (FERC).
TRIGAS operates an intrastate natural gas pipeline in northern Alabama which
serves two major customers with which it has long-term contracts. ATEMCO is a
natural gas marketing company and sells natural gas primarily under spot
contracts to customers both on and off the Company's pipeline systems.
The Company's health care products business is conducted by Ryder International
Corporation (Ryder), and was acquired in April 1994. Ryder is principally
engaged in the design, development, manufacture and sale of proprietary
products for the health care industry. Ryder currently holds over 100 design
and use patents. Its products include disposable or semi-disposable soft
contact lens storage and disinfection systems and diagnostic products used or
distributed, both domestically and internationally, by major health care
companies (see Notes 2 and 12 of Notes to Consolidated Financial Statements).
During the last ten years, the natural gas industry has undergone substantial
change, in part in response to certain actions taken by the FERC to promote
greater competition within the industry. The FERCs actions to increase the
availability of transportation services on the interstate pipeline system,
together with the oversupply of deliverable natural gas, have had a significant
impact on the way pipeline companies operate.
Some of the major steps taken by the Company during recent years, partially in
response to the changes in its natural gas business, which have favorably
affected the Companys earnings include the following: 1) settlements with its
customers and with the Internal Revenue Service of various take-or-pay issues
which resulted in favorable after-tax adjustments in 1991 and 1993 of $3.4 and
$2.3 million, respectively, to a 1989 provision for nonrecoverable take-or-pay
expenses (see Note 4 of Notes to Consolidated Financial Statements); 2) the
development of ATEMCO, a natural gas marketing company; 3) the construction by
TRIGAS of a 38-mile intrastate pipeline which was placed in service in 1990;
and 4) entry into the health care products industry in April 1994.
RESULTS OF OPERATIONS
The Company's 1994 net income was $4.7 million or $2.22 per share compared with
$7.3 million or $3.48 per share in 1993 and with $4.7 million or $2.23 per
share in 1992. However, net income in 1993 included income from a favorable
adjustment to a 1989 provision for estimated nonrecoverable take-or-pay
expense and a favorable adjustment to a reserve established in 1989 for a
discontinued operation. Excluding these items, net income in 1993 was $4.4
million or $2.11 per share.
Operating revenues were $70.9 million in 1994 compared with $119.0 million in
1993 and $121.7 million in 1992. For 1994, $7.5 million of revenues was
attributable to the operations of Ryder subsequent to the Company's acquisition
of its business in April 1994. The acquisition of Ryder's business was recorded
using the purchase method of accounting. Accordingly, only results from Ryder's
operations subsequent to the acquisition date of April 19, 1994 are reflected
in the Company's financial statements for 1994 and results for prior years are
not included. The decrease in natural gas revenues to $63.4 million in 1994
from $119.0 million in 1993 and $121.7 million in 1992 was primarily
attributable to lower sales volumes by ATEMCO, lower Alabama-Tennessee revenues
due to the impact of Order 636 on operations and lower spot market natural gas
prices in 1994 compared with 1993. The significant decline in revenues did not
have a corresponding effect on earnings as explained below in the discussion of
gross margins. The decrease in 1993 revenues compared with 1992 was
attributable to lower sales volumes by ATEMCO that were partially offset by
higher pipeline transportation volumes and higher spot market natural gas
prices in 1993 compared with 1992. ATEMCO's sales volumes (including off-system
sales) decreased by 34% in 1994 from 1993 sales and decreased in 1993 by 25%
compared with its 1992 sales. The reduction in ATEMCO's sales in 1994 resulted
from reduced spot-market sales to customers on the Companys pipeline system
partially offset by higher sales to off-system customers. The reduction in
ATEMCO's sales in 1993 resulted from lower spot-market sales to off-system
customers and reduced sales to customers on the Company's pipeline system during
the latter part of the year.
As described in the section entitled Rate and Regulatory Matters, as a result
of regulatory changes culminating with FERC Order No. 636, customers on the
Companys pipeline systems have gained considerable flexibility over the past
several years in contracting directly with producers and
23
<PAGE> 15
marketing companies for their natural gas supplies. As of November 1, 1993,
ATEMCO's service contract with the municipal customers on the Company's pipeline
system terminated and some of those customers began using a marketing company
other than ATEMCO. Three of those customers, however, have since begun using
the Company's marketing subsidiary again. The municipalities and one industrial
customer formerly contracting with ATEMCO for their natural gas purchases which
are now purchasing their natural gas through different marketing companies or
directly from producers accounted for 29% of the Company's revenues and $.1
million of the Company's net income for the twelve-month period ended October
31, 1993. However, due to regulatory changes, ATEMCO has been able to provide
certain new services, the income from which more than offset the decline in net
income in 1994 attributable to its loss of such customers (see section
entitled Rate and Regulatory Matters).
As a result of lower natural gas costs and an improved industrial economy,
total natural gas deliveries on the Company's pipeline systems have remained at
high levels over the past several years. Throughput of natural gas on the
Company's pipelines totaled 42.1 million MMBtu in 1994 compared with 45.5
million MMBtu in 1993 and 41.9 million MMBtu in 1992. The 7% decrease in
throughput in 1994 compared to 1993 was due to warmer weather in 1994 and
higher than normal deliveries in 1993 to a steam plant that could not get
alternate fuels due to the flooding on the Mississippi River. The 8% increase
in throughput in 1993 compared with 1992 was attributable primarily to higher
deliveries to an industrial customer which increased its contract level and to
the same steam plant. In contrast to the historical role of pipelines, which
was to provide bundled sales and transportation services, for the last three
years the Company's pipelines have provided primarily transportation service,
and not sales service, for most of the throughput on those systems. Generally,
the substitution of transportation service for sales service has had the effect
of substantially reducing the Company's revenues, because the commodity cost of
natural gas has not been billed by the pipeline or included in operating
revenues. However, ATEMCO's sales of spot market natural gas to the pipelines
customers over the past five years have lessened the adverse impact on revenues
which otherwise would have resulted from such substitution. Transportation
service accounted for 100% of pipeline throughput during 1994, compared with
93% in 1993 and 99% in 1992. The availability of low-priced natural gas
supplies during this period had a favorable impact on the utilization of the
Company's pipelines and decreased the attractiveness of alternate fuels. Some of
the industrial customers directly or indirectly served by the Company's
pipelines have the capability to burn fuels other than natural gas, and these
customers generally switch from natural gas when it costs more than an
alternate fuel.
The Company's cost of sales were $55.3 million in 1994 compared with $106.9
million in 1993 and $109.7 million in 1992. In 1994, the cost of purchased
natural gas was $51.5 million and the cost of sales for the health care
products segment since its acquisition in April 1994 was $3.8 million. The
decrease in purchased natural gas costs for 1994 and 1993 was consistent with
the changes in revenues discussed above.
Gross margins were $15.6 million in 1994 compared with $12.1 million in 1993
and $12.0 million in 1992. Energy gross margins of $11.9 million in 1994
decreased $.2 million compared with 1993 energy gross margins due to higher
sales volumes to the TVA steam plant in 1993, lower earnings in 1994 at
Alabama-Tennessee related to the restructuring of two industrial contracts and
to the lower recovery of certain demand charges. These reductions more than
offset the favorable impact of higher margins from the Company's natural gas
marketing subsidiary due to increased marketing opportunities as a result of
Order 636, a full year of gross margin on sales to a major customer which
increased its contract volumes in June of 1993 and the implementation of new
rates at Alabama-Tennessee effective April 1, 1993. The $.1 million increase in
gross margin in 1993 compared with 1992 was attributable to higher
transportation volumes and higher unit margins on sales which were partially
offset by the loss of certain marketing customers by the Company's natural gas
marketing subsidiary in 1993.
One of Alabama-Tennessee's service contracts with a major industrial customer,
which was due to expire on October 31, 1993, was terminated in early 1993 due
to that customer's changes in service requirements. The Company's marketing
subsidiary entered into a new four year contract with this customer. The
Company's gross margin in 1993 under the new contract was substantially less
than the approximately $1.1 million gross margin received under the terminated
contract for 1992. In mid-1993, one of the Company's subsidiaries amended its
contract with a major existing industrial customer for substantial additional
sales and transportation volume for a three-year term which offsets the
reduction in gross margin discussed above. Implementation of services under
Order 636 resulted in termination in late 1993 of Alabama-Tennessee's sales
contract with a major industrial customer which was due to expire on August
31, 1997. A new transportation contract with Alabama-Tennessee and a new
service contract with ATEMCO, both with terms expiring on August 31, 1997, were
substituted for the terminated contract. The gross margin under these two new
contracts is approximat ely $0.6 million per year below that realized from the
terminated
24
<PAGE> 16
contract in the twelve months preceding such termination. The results from
operations for 1994 fully reflect all of these contract changes.
Operations and maintenance expenses were $7.1 million in 1994 compared with
$5.0 million in 1993 and $4.7 million in 1992. For 1994, $2.0 million of
operations and maintenance expenses, including an allocation of such expenses
from affiliates, were attributable to Ryder. The $.1 million increase in
operations and maintenance expenses for the natural gas segment in 1994
compared with 1993 and the increase of $.3 million in 1993 compared with 1992
were due to higher legal and regulatory expenses and the capitalization of
expenses for certain major capital projects in 1993 and 1992.
Operating income for 1994 was $7.1 million compared with $6.2 million in 1993
and $6.4 million in 1992. For 1994, $1.2 million of operating income resulted
from the health care products segment due to the acquisition of the business of
Ryder. The $.3 million decrease in operating income in 1994 compared to 1993
for the energy segment was due to lower margins from the natural gas
transmission business on the Company's pipelines and higher operations and
maintenance expenses. The decrease in operating income in 1993 compared with
1992 was attributable to the higher operations and m aintenance expenses which
more than offset the higher gross margin.
Interest and other income amounted to $489,000 in 1994 compared with $529,000
in 1993 and $736,000 in 1992. The decrease in other income in 1994 compared
with 1993 and in 1993 compared with 1992 primarily reflects lower receivable
amounts due the Company for the recovery of take-or-pay from
Alabama-Tennessee's customers. The decrease in 1994 also reflects lower invested
cash balances in 1994 compared with 1993 partially offset by higher interest
rates in 1994.
Interest expense was $330,000 in 1994 compared with $248,000 in 1993 and
$193,000 in 1992. The increase in 1994 relates to interest on debt incurred in
the acquisition of the business of Ryder and higher interest rates. The
increase in interest expense in 1993 compared with 1992 reflects interest
expense related to payments to the Internal Revenue Service partially offset by
adjustments to interest expense due to Tennessee Gas Pipeline (TGP) on
take-or-pay.
Income taxes were $2.6 million in 1994 compared with $3.4 million in 1993 and
$2.3 million in 1992. Income taxes for 1993 include $1.3 million for taxes
associated with the $3.6 million favorable adjustment of the Company's provision
for estimated nonrecoverable take-or-pay expense and reflect a $.2 million
one-time favorable adjustment for the implementation of SFAS 109. Other
differences between years reflect changes in pre-tax income between the
respective years.
IMPACT OF INFLATION
The Company experiences the effects of inflation primarily in the prices it
pays for labor, materials and services. The Company has experienced the effects
of moderate inflation in these costs over the last three years. The Company is
able to offset a portion of these increased costs through natural gas
transportation rate increases and through cost escalation clauses in certain
sales contracts in its health care products segment.
LIQUIDITY AND CAPITAL RESOURCES
On January 20, 1995, the Company terminated its existing loan agreement and
entered into a new $20 million revolving loan agreement with another bank to be
utilized for operations and for major capital projects or acquisitions, subject
to certain limitations and restrictions (see Note 5 of No tes to Consolidated
Financial Statements). There was $.9 million in indebtedness under the previous
loan agreement as of December 31, 1994 but no indebtedness as of December 31,
1993 and 1992. The Company did not borrow any significant amounts under its
then existing revolving loan agreement during 1993 or 1992 because excess cash
and cash flow from operations were sufficient to fund cash requirements during
these periods.
As of December 31, 1994, the Company had cash and temporary cash investments of
$.4 million compared with $8.8 million and $2.1 million at the end of 1993 and
1992, respectively. The Company had long-term debt of $2.7 million as of
December 31, 1994 compared with no long-term debt at the end of 1993 or 1992.
The decrease in cash and increase in long-term debt during 1994 was primarily
due to the acquisition of the business of Ryder. In April 1994, the Company
purchased the operations of Ryder for $11.1 million in cash, issued a
promissory note in the principal amount of $1.0 and assumed liabilities of $2.2
million. As indicated above, by year end, the Company's long-term debt was only
$2.7 million. Excluding the assets acquired in the purchase of the Ryder
business, capital expenditures for plant and equipment totaled approximately
$1.4 million in 1994 compared with $.6 million in 1993 and $3.0 million in
1992. The capital expenditures in 1994 and 1993 were related to the improvement
of existing facilities and replacement of certain equipment at
Alabama-Tennessee. Capital expenditures in 1992 for Alabama-Tennessee included
a new building for gas control operations, the addition of a compressor,
replacement of certain heavy equipment for operations and replacement of a
section of pipeline. The most significant items providing
25
<PAGE> 17
cash flow in 1994 were earnings from operations, net take-or-pay collections
and borrowings used in the acquisition of the business of Ryder. The most
significant uses of cash flow in 1994 were capital expenditures of $1.4
million, the purchase of the business of Ryder, payment of $2.5 million of
dividends on common shares and an increase in working capital due primarily to
refunds to customers.
Based on the take-or-pay settlements with its customers which became final in
1991 and the amount of its current remaining obligation to TGP under the
settlement approved by the FERC in 1992, Alabama-Tennessee expects to recover
$3.7 million more from its customers during 1995 and 1996 than it pays to TGP
for take-or-pay during the same period. The Company has budgeted capital
expenditures of approximately $4.7 million in 1995 and $1.3 million in 1996. A
major portion of the 1995 budget is for the construction of a 23-mile, 858 inch
high pressure steel pipeline. The pipeline will be used to transport gaseous
oxygen to a large existing industrial customer in North Alabama by a major
industrial gas supplier. The Company believes that cash flows from operations,
cash recoveries of take-or-pay by Alabama-Tennessee from its customers, and
borrowings under the Company's new revolving loan agreement and other term
financing which the Company believes would be available, if necessary, will be
sufficient to fund the construction of the pipeline described above, potential
projects, Alabama-Tennessees take-or-pay obligation, operations and budgeted
capital expenditures for the next two years.
RATE AND REGULATORY MATTERS
On April 1, 1993, Alabama-Tennessee increased its jurisdictional rates from
rates that had been in effect since April 1, 1990. This rate increase was agreed
to in an uncontested settlement with Alabama-Tennessee's customers which the
FERC approved. As a result of this settlement, Alabama-Tennessee realized an
increase in its jurisdictional revenues of approximately $400,000 per year
which was offset by the lower recovery of certain demand charges, resulting in
a net decrease of approximately $350,000 per year compared with actual
jurisdictional revenues realized in the twelve months ended May 31, 1992, the
base period used in the rate filing.
As a result of Order No. 636 and several amendments issued by FERC in 1992, all
interstate natural gas pipelines were required to make a number of changes in
the structure of the services they provide prior to the end of 1993. After
several filings with FERC in order to comply with the new regulations, the
FERC accepted Alabama-Tennessees tariff and Alabama-Tennessee implemented
restructured services pursuant to the new orders on September 1, 1993.
Alabama-Tennessee did not have any contracts with producers for the purchase of
natural gas supplies and, therefore, has not directly incurred any gas supply
realignment costs with producers in connection with its implementation of
restructured services under Order No. 636. For more information on this matter,
see Note 3 of Notes to Consolidated Financial Statements.
As discussed above in the section entitled "Results of Operations," the Company
has completed the restructuring of certain contracts which were nearing their
expiration or which were subject to restructuring as a result of implementation
of services under Order No. 636. The restructuring of these contracts has
resulted in a reduction in Alabama-Tennessees margins. These regulatory
changes, however, have created opportunities for ATEMCO to generate revenues
and margins through utilization of released capacity on both TGP's and
Alabama-Tennessee's pipelines.
OTHER MATTERS
From time to time, the Company receives inquiries regarding various
environmental matters which have gained increased attention in the natural gas
pipeline and distribution industry over the past few years. The Company
believes that its properties and operations are in full compliance with all
applicable environmental statutes and regulations. There are no administrative
or judicial proceedings arising under environmental statutes pending or known
to be contemplated by governmental agencies to which the Company is a party.
The City of Decatur, Alabama, which accounted for approximately 16% of
Alabama-Tennessee's pipeline throughput in 1994, has received authorization from
the FERC to connect directly to TGP via a proposed 37-mile pipeline to be
constructed and operated by Decatur, and thereby bypass Alabama-Tennessee's
facilities. In the event Decatur bypasses Alabama-Tennessees pipeline system,
Alabama-Tennessee would attempt to resell Decatur's capacity to other
Alabama-Tennessee customers and would be permitted by the FERC to seek the
recovery from Alabama-Tennessee's remaining customers of revenues lost as a
result of the by-pass. The FERC has granted authorization for three of Decatur's
major industrial customers to obtain natural gas service directly from
Alabama-Tennessee, thus bypassing Decatur. One of these customers, Monsanto
Company, has already begun to receive service directly from the Company. This
bypass of Decatur has had, and similar bypasses would have, the effect of
reducing or eliminating the adverse impact that could result from Decaturs
bypass of Alabama-Tennessee's pipeline system.
26
<PAGE> 18
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS EXECUTIVE OFFICERS
Emile A. Battat Jerry A. Howard
Investments Chairman of the Board, President
Riverside, Connecticut and Chief Executive Officer
AlaTenn Resources, Inc.
Jerry A. Howard Chairman of the Board
Chairman of the Board, President or President of all subsidiaries
and Chief Executive Officer
George G. Petty
Richard O. Jacobson Vice President--Finance,
President and Chief Executive Officer Chief Financial Officer
Jacobson Warehouse Company, Inc. and Secretary-Treasurer
Des Moines, Iowa AlaTenn Resources, Inc.
Jerome J. McGrath Jeffery Strickland
Of Counsel to the law firm of Vice President--Corporate
Gallagher, Boland, Meiburger & Development, Assistant Secretary
Brosnan and Assistant Treasurer
Washington, D.C. AlaTenn Resources, Inc.
Hugh J. Morgan, Jr. Dick Rabenau
Chairman of the Board President and Secretary
National Bank of Commerce of Ryder International Corporation
Birmingham
Birmingham, Alabama Gus Magrini
President and Secretary
J. Kenneth Smith AlaTenn Energy Marketing Company, Inc.
Retired, Former Director,
Government Relations
Oryx Energy Company
Gretna, Louisiana
Roger F. Stebbing
President and Chief Executive Officer
Stebbing and Associates, Inc.
and Marlboro Enterprises, Inc.
Signal Mountain, Tennessee
John P. Stupp, Jr.
Executive Vice President
and Secretary
Stupp Bros., Inc.
St. Louis, Missouri
OFFICERS OF PRINCIPAL SUBSIDIARIES
ALABAMA-TENNESSEE NATURAL GAS
COMPANY
Jerry A. Howard
Chairman of the Board, President and
Chief Executive Officer
George G. Petty
Vice President--Finance,
Chief Financial Officer and
Secretary-Treasurer
William E. Adcock
Vice President--Engineering
Robert A. Burns
Vice President--Operations
Donald R. Whittington
Vice President--Customer Services and
Regulatory Affairs
Jeffery Strickland
Vice President--Planning
RYDER INTERNATIONAL CORPORATION
Jerry A. Howard
Chairman of the Board
Dick Rabenau
President and Secretary
Dan Clark
Vice President--Regulatory and Quality
Vandy Cruise
Vice President--Operations
Steve Ferens
Vice President--Sales
Rowland Kanner
Vice President--Technology
Steve Lisak
Vice President--Engineering
TENNESSEE RIVER INTRASTATE GAS
COMPANY, INC.
Jerry A. Howard
Chairman of the Board and President
Gus Magrini
Vice President
George G. Petty
Secretary and Treasurer
Jeffery Strickland
Asst. Secretary and Asst. Treasurer
ALATENN ENERGY MARKETING
COMPANY, INC.
Jerry A. Howard
Chairman of the Board
Gus Magrini
President and Secretary
27
<PAGE> 19
CORPORATE DATA
COMPANY OFFICE
P.O. Box 918
Florence, Alabama 35631
Telephone: (205) 383-3631
REGISTRAR AND TRANSFER AGENT
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
FORM 10-K
A copy of the Company's Form 10-K Annual Report to the Securities and Exchange
Commission may be obtained by any shareholder without charge by written request
to:
Corporate Secretary
AlaTenn Resources, Inc.
Post Office Box 918
Florence, Alabama 35631
STOCK INFORMATION
The Company's common shares trade in the NASDAQ National Market System (Symbol
ATNG). As of March 17, 1995 there were approximately 3,000 shareholders in the
Company, including beneficial owners holding shares in nominee or street name.
The high and low closing prices as reported by NASDAQ for each quarter of 1994
and 1993 are shown below along with the quarterly cash dividends paid per
share.
<TABLE>
<CAPTION>
---------------------------------------------------
1994
---------------------------------------------------
Quarter March June Sept. Dec.
Ended 31 30 30 31
---------------------------------------------------
<S> <C> <C> <C> <C>
High 22 1/4 20 1/2 18 3/4 18 1/2
Low 19 3/4 18 17 1/2 16 1/2
Dividends
per share $.30 $.30 $.30 $.30
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
1993
---------------------------------------------------
Quarter March June Sept. Dec.
Ended 31 30 30 31
---------------------------------------------------
<S> <C> <C> <C> <C>
High 24 1/4 24 23 1/2 24
Low 21 1/2 21 3/4 20 3/4 20
Dividends
per share $.30 $.30 $.30 $.30
</TABLE>
28
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ALATENN RESOURCES, INC.
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION OWNERSHIP
---------- ---------------------- ---------
<S> <C> <C>
Alabama-Tennessee Natural
Gas Company Alabama 100%
Warrior Basin Gas Company Alabama 100%
Vulcan Oil and Gas Company Alabama 100%
Central Gas Company Alabama 100%
Tennessee River Development
Company Alabama 100%
North Mississippi Natural
Gas Corporation Mississippi 100%
Hardin County Gas Company Tennessee 100%
AlaTenn Energy Marketing
Company Alabama 100%
Tennessee River Intrastate
Gas Company Alabama 100%
AlaTenn Credit Corp. Alabama 100%
AlaTenn Pipeline Company Alabama 100%
Ryder International Corporation Alabama 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 10, 1995 incorporated by reference in this Form 10-K
into the Company's previously filed Registration Statement (File No. 33-40639).
Arthur Andersen LLP
Atlanta, Georgia
February 10, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, RICHARD
O. JACOBSON, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1994, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 20th day of March, 1995.
----
Richard O. Jacobson
-------------------
RICHARD O. JACOBSON
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, JEROME
J. MCGRATH, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1994, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 17th day of March, 1995.
----
Jerome J. McGrath
-----------------
JEROME J. MCGRATH
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, HUGH
MORGAN, JR., who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1994, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 16th day of March, 1995.
----
Hugh Morgan, Jr.
----------------
HUGH MORGAN, JR.
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned,
J. KENNETH SMITH, who is a director of AlaTenn Resources, Inc., does hereby
appoint Jerry A. Howard and George G. Petty, or either of them, to be his true
and lawful attorney to execute in his name (whether on behalf of AlaTenn
Resources, Inc., or as a director of AlaTenn Resources, Inc.) the annual report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC
Form 10-K for the year ended December 31, 1994, any and all amendments to such
Form 10-K, and any and all other instruments and documents to be filed with the
Securities and Exchange Commission relating to such Form 10-K, and the
undersigned does hereby ratify, confirm and approve all that such attorney
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 16th day of March, 1995.
----
J. Kenneth Smith
----------------
J. KENNETH SMITH
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, ROGER F.
STEBBING, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1994, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 16th day of March, 1995.
----
Roger F. Stebbing
-----------------
ROGER F. STEBBING
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, JOHN P.
STUPP, JR., who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1994, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto
this 17th day of March, 1995.
----
John P. Stupp, Jr.
------------------
JOHN P. STUPP, JR.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 440
<SECURITIES> 0
<RECEIVABLES> 10,643
<ALLOWANCES> 0
<INVENTORY> 745
<CURRENT-ASSETS> 12,666
<PP&E> 33,123
<DEPRECIATION> 15,117
<TOTAL-ASSETS> 43,737
<CURRENT-LIABILITIES> 10,849
<BONDS> 2,682
<COMMON> 228
0
0
<OTHER-SE> 26,882
<TOTAL-LIABILITY-AND-EQUITY> 43,737
<SALES> 70,905
<TOTAL-REVENUES> 70,905
<CGS> 55,319
<TOTAL-COSTS> 55,319
<OTHER-EXPENSES> 8,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 330
<INCOME-PRETAX> 7,285
<INCOME-TAX> 2,595
<INCOME-CONTINUING> 4,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,690
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
<PAGE> 1
EXHIBIT 99
ALATENN RESOURCES, INC.
SYSTEM MAP
Exhibit 99 is a black-on-white drawing of the pipeline system of
Alabama-Tennessee natural Gas Company and indicates the pipeline system
extending from McNairy County, Tennessee near the city of Selmer, Tennessee
southeastward across northeastern Mississippi, through the Tennessee Valley of
northern Alabama to the City of Huntsville, Alabama. Also shown are major
pipeline laterals and the communities and industries they serve.