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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8715
</TABLE>
CRYSTAL OIL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
LOUISIANA 72-0163810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
229 MILAM STREET, SHREVEPORT, 71101
LOUISIANA
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(318) 222-7791
Securities registered pursuant to Section 12(b) of the Act:
</TABLE>
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------------------- -------------------------------------------
COMMON STOCK $.01 PAR VALUE AMERICAN STOCK EXCHANGE, INC.
PACIFIC STOCK EXCHANGE, INCORPORATED
$.06 SENIOR CONVERTIBLE PACIFIC STOCK EXCHANGE, INCORPORATED
VOTING PREFERRED STOCK
(NON-CUMULATIVE), $.01 PAR VALUE
$.075 WARRANTS PACIFIC STOCK EXCHANGE, INCORPORATED
$.10 WARRANTS PACIFIC STOCK EXCHANGE, INCORPORATED
$.125 WARRANTS PACIFIC STOCK EXCHANGE, INCORPORATED
$.15 WARRANTS PACIFIC STOCK EXCHANGE, INCORPORATED
$.25 WARRANTS PACIFIC STOCK EXCHANGE, INCORPORATED
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 _____
As of March 19, 1996, 2,654,042 shares of Common Stock of the registrant
were outstanding. The aggregate market value of the voting stock of the
registrant (based upon the latest closing price prior to March 19, 1996, of such
shares on the American Stock Exchange, Inc. and the Pacific Stock Exchange,
Incorporated) held by non-affiliates of the registrant was approximately $37.1
million.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
DOCUMENTS REFERENCE TO THIS REPORT
- --------------------------------------------------------- ---------------------------------------------------------
Proxy Statement for Annual Meeting Part III
of Shareholders to be held in 1996
</TABLE>
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
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Business....................................................................................... 2
The Company.................................................................................... 2
Business....................................................................................... 3
Natural Gas Storage and Transportation......................................................... 3
Sales, Customers and Contracts................................................................. 4
Crude Oil and Natural Gas Exploration and Production........................................... 5
Drilling Activities............................................................................ 5
Other Business Information..................................................................... 6
Foreign Operations............................................................................. 6
Competition.................................................................................... 7
Employees...................................................................................... 7
Regulation..................................................................................... 7
Gas Storage and Transportation................................................................. 7
Environmental Matters.......................................................................... 7
Item 2. Properties..................................................................................... 9
Other Properties............................................................................... 9
Item 3. Legal Proceedings.............................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............................................ 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 10
Price Range of Common Stock.................................................................... 10
Dividends...................................................................................... 10
Item 6. Selected Financial Data........................................................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 12
General........................................................................................ 12
Results of Operations.......................................................................... 13
General........................................................................................ 13
Crude Oil and Natural Gas Exploration and Production........................................... 14
Investment Income.............................................................................. 15
Net Gain on Sale of Fixed Assets............................................................... 15
Depreciation, Depletion and Amortization....................................................... 16
General and Administrative Expense............................................................. 16
Taxes and Quasi-Reorganization Adjustment...................................................... 16
Liquidity and Capital Resources................................................................ 17
Other Matters.................................................................................. 18
Item 8. Consolidated Financial Statements and Supplementary Data....................................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 49
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 49
Item 11. Executive Compensation......................................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 49
Item 13. Certain Relationships and Related Transactions................................................. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 50
Signatures................................................................................................. 54
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Crystal Oil Company, a Louisiana corporation (the "Company"), is an
acquisition company that currently owns and operates through wholly owned
subsidiaries a natural gas storage facility near Hattiesburg, Mississippi (the
"Hattiesburg Facility") and holds various interests in crude oil and natural gas
properties in Texas and Louisiana. The Company actively reviews acquisition
opportunities, both within and outside the energy industry, with a focus on
acquisitions that will maximize the return on the Company's existing capital
resources and benefit from the Company's large net operating loss carryforwards
and other tax benefits.
The Company was historically a crude oil and natural gas exploration and
development company. In the fourth quarter of 1994, the Company disposed of
substantially all of its domestic crude oil and natural gas properties for
approximately $98 million and applied a portion of the proceeds to prepay all of
its outstanding indebtedness. In connection with this disposition, the Company
embarked on an acquisition program aimed at identifying assets that would
generate income for the Company on a current basis and would benefit from the
Company's tax position as well as present the opportunity for capital
appreciation.
In June 1995, the Company completed its first acquisition under this program
through the acquisition of First Reserve Gas Company ("FRGC") for approximately
$78.5 million. FRGC's principal asset is the Hattiesburg Facility. The
Hattiesburg Facility is a natural gas storage facility that was constructed in
1991 and consists of three salt-dome caverns with a total storage capacity of
5.5 billion cubic feet ("Bcf") of natural gas, of which 3.5 Bcf is working gas
and 2.0 Bcf is base gas.
The acquisition of FRGC was funded with the Company's available cash and a
$60 million short-term bridge loan. In November 1995, the Company refinanced
this loan through a sale to a newly formed business trust of approximately five
years of future accounts receivable to be generated from the operations of the
Hattiesburg Facility and $36.5 million in long-term debt, the recourse of which
is primarily limited to FRGC and the Hattiesburg Facility. These transactions
resulted in net proceeds to the Company of approximately $58 million, net of
financing costs.
The acquisition of FRGC and the subsequent refinancing thereof resulted in
the Company reevaluating its tax assets for accounting purposes in light of the
taxable income generated or to be generated from the operation of the
Hattiesburg Facility during the life of the Company's net operating loss
carryforwards and other tax benefits and from the 1995 accounts receivable sale.
This evaluation resulted in an upward adjustment to the Company's stockholders'
equity of $22.3 million. Of such increase $14.4 million related to tax benefits
realized in 1995. This adjustment to the Company's tax assets did not affect net
income for 1995 due to the accounting treatment required for the Company's 1986
quasi-reorganization and the fact that the Company's net operating loss
carryforwards and certain of its other tax benefits relate to events prior to
such reorganization.
As of December 31, 1995, the Company had $65.3 million in cash, cash
equivalents and marketable securities that could be utilized for future
acquisitions. In addition, the Company had no material debt other than the debt
directly associated with and primarily recourse to FRGC and the Hattiesburg
Facility.
The Company was incorporated in 1926 under the laws of the State of Maryland
and reincorporated in the State of Louisiana in 1984. On October 1, 1986, the
Company filed for reorganization under Chapter 11 of the United States
Bankruptcy Code and on December 31, 1986, the United States Bankruptcy Court for
the Western District of Louisiana, Shreveport Division, confirmed the Company's
Second Amended and Restated Plan of Reorganization (the "Plan of
Reorganization"). The Plan of Reorganization was consummated on January 30,
1987, and distributions to creditors and
2
<PAGE>
shareholders were thereafter made. The Company accounted for its reorganization
as a quasi-reorganization and restated its assets and liabilities to reflect
their estimated fair market value as of December 31, 1986.
The Company's executive offices are located at 229 Milam Street, Shreveport,
Louisiana 71101, and its telephone number is (318) 222-7791. Except as otherwise
indicated by the context, the terms "Company" and "Crystal", as used herein,
mean Crystal Oil Company and its consolidated subsidiaries.
BUSINESS
The Company's operations currently consist of two business segments: (i)
natural gas storage and transportation and (ii) exploration and development of
crude oil and natural gas. The Company disposed of substantially all of its
crude oil and natural gas properties in 1994 and acquired its natural gas
storage and transportation business in 1995. Although the Company engaged in
crude oil and natural gas exploration and development activities in 1995, these
activities were limited to a prospect development program, which the Company
retained from its 1994 sale. The Company's interest in such activities was that
of an investor and not an operator. Accordingly, the Company's operations and
sources of income in 1995 were significantly different and based on a
fundamentally different asset base than in prior years and results between
periods may not be comparable.
Note R sets forth certain financial information for each of the Company's
segments for the years ended December 31, 1995, 1994 and 1993.
NATURAL GAS STORAGE AND TRANSPORTATION
The Company's natural gas storage and transportation operations are
currently conducted through FRGC and limited to the ownership and operation of
the Hattiesburg Facility and related assets. The Hattiesburg Facility provides
its customers with critical natural gas supply security through a combination of
strategic geographic location, pipeline access and operating flexibility. The
location of the facility in southeastern Mississippi is favorable due to its
proximity to various natural gas pipeline systems, natural gas supplies and
markets. The salt dome facility also allows rapid cycling of working natural gas
volumes through high levels of sustained injection and withdrawal volumes. As a
result, the working capacity of natural gas serves as a reserve for peak day
delivery service, pipeline transportation balancing and certain spot-gas
purchasing strategies. The entire working storage capacity is fully subscribed
to twelve customers under firm storage capacity contracts expiring in 2005.
The Hattiesburg Facility was constructed in 1991 through a conversion of a
propane storage facility built in the early 1970s and the leaching of an
additional cavern in 1991. The Hattiesburg Facility is located on a 73 acre
tract outside of Hattiesburg, Mississippi, and consists of three salt caverns
with storage capacity of 5.5 Bcf of natural gas. The Hattiesburg Facility is
designed to handle 3.5 Bcf of working gas capacity and 2.0 Bcf of base gas.
Working gas capacity refers to natural gas storage capacity available to the
customers of the facility. Base gas refers to that gas which is generally owned
by the facility and necessary to be in the facility to maintain the
deliverability pressure of the facility.
The Hattiesburg Facility is situated on top of a natural salt dome and
utilizes three leached caverns for the storage of natural gas. The Hattiesburg
Facility has a maximum injection capacity in excess of 175 million cubic feet
("Mmcf") of natural gas per day and a maximum withdrawal capacity in excess of
350 Mmcf of natural gas per day. The ability of the Hattiesburg Facility to
handle these high levels of injections and withdrawals of natural gas makes the
facility well suited for customers who desire the ability to meet short duration
load swings and to cover major supply interruption events, such as hurricanes
and temporary losses of production. The high injection and withdrawal rates also
allow customers to take advantage of price savings in natural gas by allowing
for quick
3
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delivery. The characteristics of the salt dome at the Hattiesburg Facility
permit sustained periods of high delivery, the ability to quickly switch from
full injection to full withdrawal and provides an impermeable storage medium.
The location of the Hattiesburg Facility is strategically located near
various major pipelines serving the Northeastern and Southeastern natural gas
markets. The Company owns 26.5 miles of intrastate pipelines connecting the
Hattiesburg Facility to major pipelines in the surrounding area. Customers can
cost-effectively transport significant volumes of natural gas through direct
interconnects with Transcontinental Gas Pipe Line, Tennessee Gas Pipeline, Koch
Gateway Pipeline and the Associated Natural Gas systems and indirect
interconnects to the Texas Eastern Transmission, Southern Natural Gas and
Florida Gas Transmission systems. Natural gas from the facility also enters the
connected pipelines downstream of the capacity constrained segments of these
systems thereby providing ready access to major natural gas markets.
The Hattiesburg Facility and related assets are currently pledged to secure
the indebtedness to refinance the Company's acquisition of FRGC as well as
certain obligations of the Company in regard to the 1995 sale of Hattiesburg
Facility receivables. The Company has also pledged its interest in the firm
storage contracts relating to the facility and the stock of FRGC to secure the
payment and performance of such obligations.
SALES, CUSTOMERS AND CONTRACTS
The Company provides both storage and related transportation services on an
"unbundled" basis that permit customers to contract for storage space, injection
and withdrawal capacities and transportation. These services are currently
provided on a firm and interruptible basis to local distribution companies,
pipelines, marketers and producers. In a firm basis contract, the user pays a
charge for the availability of the storage space and of the injection and
withdrawal rights regardless of whether the space or injection and withdrawal
capacity is actually used. In an interruptible arrangement, the user customarily
pays a per diem fee because the facility may be unable to make the storage,
injection or withdrawal capacities available if the facility or a customer with
a firm contract requires the space or the use of the facilities. The number of
contracts and their terms for a given storage cavern will depend upon the
physical limitations of available space and injection and withdrawal capacity.
The rates charged by the Company at the Hattiesburg Facility for its
services are negotiated rates subject to regulation by the Mississippi Public
Service Commission (the "MPSC"). Such rates are based on various factors,
including cost of capital and rates of return. The Hattiesburg Facility is not
subject to regulation by the Federal Energy Regulatory Commission ("FERC"). See
Regulations.
The entire working gas capacity at the Hattiesburg Facility is currently
fully subscribed on a firm basis under long-term contracts expiring in 2005. The
rates under the contracts have all been approved by the MPSC. The Company and
the customers have each agreed not to seek any rate adjustment prior to the year
2000. The customers under these contracts consist of eight local natural gas
distribution companies, two major natural gas producers and two natural gas
marketers. During 1995, the Company had one customer (Public Service Electric
and Gas of New Jersey) which accounted for 10% of total revenues. In respect to
the natural gas storage segment, the Company had four customers with sales in
excess of 10% of revenues from gas storage services. These customers were Public
Service Electric and Gas of New Jersey (18%), Consolidated Edison of New York
(16%), Brooklyn Union Gas Company (11%) and Piedmont Natural Gas Company (11%).
The Company realized $6.3 million in revenues from gas storage services
during the period of June 19, 1995, through December 31, 1995. Revenues from gas
storage services represented 54.8% of total revenues in 1995.
In November 1995, the Company sold for $42.7 million the right to the
receivables to be created under its natural gas storage contracts through June
2000 to a trust established by the Company and
4
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of which the Company acquired a 47.3% non-voting subordinated interest for $20.2
million. This sale did not involve transfer or sale of any of the contracts or a
disposition of any of the Company's rights in the Hattiesburg Facility.
Since acquiring FRGC, the Company has actively marketed interruptible
storage at the facility as well as additional "winter firm" storage that is
available during the winter months due to expanded capacity from seasonable
temperature variations. Interruptible service utilizes the unused storage
capacity at the Hattiesburg Facility, which during 1995 ranged from no
availability to 57% of total working gas capacity and averaged 30% over the
year. The Company is also reviewing other potential pipeline connections at the
Hattiesburg Facility that could be used to enhance the value of the facility and
its desirability to current and future customers.
CRUDE OIL AND NATURAL GAS EXPLORATION AND PRODUCTION
With the disposition of substantially all of the Company's domestic crude
oil and natural gas properties in the fourth quarter of 1994, the Company's
current exploration and development activities are limited to its participation
in a prospect development and exploration program with two industry partners.
The Company's investment in this program is limited in amount and scope.
Prior to the Company's disposition of substantially all of its domestic
crude oil and natural gas properties in 1994, the Company's exploration and
production activities were concentrated in Louisiana and its offshore waters,
Texas and Arkansas. Within these areas, exploration and development activity was
primarily focused on development of the Company's interest in the Southeast Pass
field in Plaquemines Parish, Louisiana (which was acquired in late 1992) and the
Company's Vernon field in North Louisiana. The Company also held significant fee
properties and royalty interest in South Louisiana through its Vermilion Bay
Land Company subsidiary.
Production of crude oil and natural gas was not significant during 1995 as
new wells under the prospect development and exploration program were completed
in the third and fourth quarters of 1995. The Company's net volumes of crude oil
(including condensate and liquefied petroleum gases) and natural gas produced
and sold from working and royalty interests and the average prices received by
the Company for the years ended December 31, 1995, 1994 1993 are shown below.
<TABLE>
<CAPTION>
AVERAGE PRICE
VOLUME PER UNIT
---------------------- ----------------------
BARRELS OF BARRELS OF
OIL AND MCF OIL AND MCF
YEAR ENDED DECEMBER 31 CONDENSATE OF GAS CONDENSATE OF GAS
- ------------------------------------------------------------ ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995........................................................ 2 8 $ 19.00 $ 2.38
1994........................................................ 969 7,349 15.84 1.83
1993........................................................ 1,106 7,550 17.12 1.98
</TABLE>
The average production cost (including severance tax) per equivalent barrel
(natural gas converted to barrels on a 6 Mcf to 1 barrel basis) from crude oil
and natural gas producing activities during 1995, 1994 and 1993 was
approximately $4.99, $5.36 and $5.09, respectively.
Absent the addition of new reserves through discovery and acquisition, the
production of crude oil and natural gas expected in 1996 will be limited to the
Company's participation in the drilling activities under a prospect development
program.
DRILLING ACTIVITIES
During 1995, the Company's capital expenditures for exploration and
development activities were $1.0 million compared to $12.1 million and $7.8
million during 1994 and 1993, respectively. Included in expenditures for 1995,
1994 and 1993 were approximately $50 thousand, $2.4 million and $1.3 million in
exploration costs, respectively. The exploration costs in 1995 were for the
abandonment
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of an exploration prospect. Capital expenditures for 1994 were primarily
associated with the Company's Vernon field. Expenditures for exploration and
development activities for 1996 are currently budgeted at approximately $1.1
million and relate solely to the Company's prospect development program.
The following table sets forth the Company's interest in both development
and exploratory wells and the working interest completions for each of the
following years:
EXPLORATORY WELLS
<TABLE>
<CAPTION>
WORKING INTEREST COMPLETIONS
NUMBER OF WELLS ----------------------------------------------------------------------
PARTICIPATED IN
BY THE COMPANY OIL GAS DRY
---------------------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED DECEMBER 31 GROSS NET GROSS NET GROSS NET GROSS NET
- ----------------------- ----------------- --------------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995................... 1 .05 -- -- 1 .05 -- --
1994................... 4 .80 -- -- -- -- 4 .8
1993................... 2 .70 -- -- -- -- 2 .7
<CAPTION>
NET
WELL
SUCCESS
YEAR ENDED DECEMBER 31 RATE
- ----------------------- ------------
<S> <C>
1995................... 100%
1994................... -- %
1993................... -- %
</TABLE>
DEVELOPMENT WELLS
<TABLE>
<CAPTION>
WORKING INTEREST COMPLETIONS
NUMBER OF WELLS ----------------------------------------------------------------------
PARTICIPATED IN
BY THE COMPANY OIL GAS DRY
------------------------------ ---------------------- ---------------------- ----------------------
YEAR ENDED DECEMBER 31 GROSS NET GROSS NET GROSS NET GROSS NET
- ----------------------- --------------- ------------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995................... 1 .05 -- -- 1 .05 -- --
1994................... 6 2.30 1 .1 5 2.20 -- --
1993................... 11 4.80 7 3.9 3 .70 1 .2
<CAPTION>
NET
WELL
SUCCESS
YEAR ENDED DECEMBER 31 RATE
- ----------------------- ------------
<S> <C>
1995................... 100%
1994................... 100%
1993................... 96%
</TABLE>
TOTAL EXPLORATORY AND DEVELOPMENT WELLS
<TABLE>
<CAPTION>
WORKING INTEREST COMPLETIONS
NUMBER OF WELLS ----------------------------------------------------------------------
PARTICIPATED IN
BY THE COMPANY OIL GAS DRY
-------------------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED DECEMBER 31 GROSS NET GROSS NET GROSS NET GROSS NET
- ----------------------- --------------- --------------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995................... 2 .1 -- -- 2 .1 -- --
1994................... 10 3.1 1 .1 5 2.2 4 .8
1993................... 13 5.5 7 3.9 3 .7 3 .9
<CAPTION>
NET
WELL
SUCCESS
YEAR ENDED DECEMBER 31 RATE
- ----------------------- ------------
<S> <C>
1995................... 100%
1994................... 74%
1993................... 84%
</TABLE>
At December 31, 1995, the Company had proved developed reserves of 77
thousand barrels of crude oil and 633 Mmcf of natural gas with a present value
of future net revenues of approximately $2.4 million. The Company also had .09
net (2 gross) exploratory wells in progress as of December 31, 1995.
OTHER BUSINESS INFORMATION
FOREIGN OPERATIONS
In 1993, the Company entered into an agreement with the Orenburgneft
Production Association ("Orenburgneft") in Orenburg, Russia, to form a closed
stock corporation owned equally by Crystal and Orenburgneft. To date, this joint
venture has been unable to obtain regulatory approval. As a result, the Company
has curtailed its activities in Russia pending Orenburgneft's ability to obtain
regulatory approval of the joint venture or the proposal of an alternative
venture that would be economically viable under the laws of the Russian
Federation. The Company does not currently expect that its operations in the
Russian Federation will be significant in the future.
6
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COMPETITION
The Hattiesburg Facility competes with other forms of natural gas storage
including other salt dome storage facilities, depleted reservoir facilities and
pipelines. Competition is primarily based on location, the ability to deliver
gas in a timely and reliable manner and cost. Many of the Company's competitors
are significantly larger and have greater capital resources than the Company.
Currently, all of the storage capacity at the Hattiesburg Facility is fully
subscribed on a firm basis under long-term contracts extending through the year
2005. As a result, competition with respect to the Hattiesburg Facility is
primarily limited to the Company's interruptible storage services. The
interruptible storage services provided by the Company compete with other
interruptible services provided by competitors as well as firm storage provided
by other facilities.
The Company believes that the location of the Hattiesburg Facility, combined
with the existence of the long-term contracts for storage at the Hattiesburg
Facility, allows the Company to compete effectively with other companies for
natural gas storage. Once the Company's firm storage contracts have expired, the
Company will have greater competition for storage at the Hattiesburg Facility.
Such competition will be dependent upon the nature of the market existing at
that time.
EMPLOYEES
At December 31, 1995, the Company employed 26 persons, including officers.
In connection with the disposition of assets during the fourth quarter of 1994
and first quarter of 1995, the Company significantly reduced its number of
employees. None of the Company's employees are represented by a labor union.
REGULATION
GAS STORAGE AND TRANSPORTATION
Hattiesburg Industrial Gas Sales Company ("HIGS"), which serves as operator
of the Hattiesburg Facility, is a regulated utility under the jurisdiction of
the MPSC. Accordingly, the rates charged for natural gas storage services are
subject to approval from the MPSC. The present rates of the firm long-term
contracts were approved in 1990 and are subject to redetermination in the year
2000. Under the redetermination process, the Company has the right, upon its
election, or shall be obligated, upon request of the customers, to submit cost
of service information to the MPSC for a review of the rates charged and to
request a determination by the MPSC of a rate for the remaining term of the firm
contracts.
A portion of the Company's natural gas storage business is also subject to a
limited jurisdiction certificate issued by FERC under Section 7(c) of the
Natural Gas Act. The FERC certificate authorizes the Company to provide storage
services on behalf of interstate pipelines and local distribution companies for
natural gas that may be ultimately consumed outside of the State of Mississippi.
The Company has been authorized by FERC to charge for storage services provided
under the certificate at the rates approved by the MPSC.
ENVIRONMENTAL MATTERS
The Company's activities in connection with the operation of the natural gas
storage facility are also subject to environmental and safety regulation of
federal and state authorities including the State of Mississippi Department of
Environmental Quality. In most instances, the regulatory requirements relate to
the discharge of substances into the environment and include measures to control
water and air pollution. Management believes that the Company has obtained and
is in current compliance with the applicable environmental regulations in
respect of its natural gas storage operations.
The Company, as an entity that has been involved in the exploration,
development and production of crude oil and natural gas, has certain obligations
based on federal, state and local regulations concerning the discharge of
materials into the environment or otherwise relating to the protection of the
environment. These environmental obligations include the remediation or
mitigation of the
7
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effects on the environment of the disposal or release of certain chemical and
petroleum substances at certain properties previously owned or operated by the
Company such as crude oil and natural gas fields and other facilities. As part
of the Company's agreement with Apache Corporation ("Apache") with respect to
the disposition of various of the Company's properties in 1994, Apache assumed
various plugging and abandonment costs with respect to the properties acquired.
The Company, however, agreed to indemnify Apache for certain environmental
liabilities relating to the properties sold to it to the extent a claim is made
by June 30, 1996.
In 1995, the Company was advised by Atlantic Richfield Corporation ("ARCO")
of the existence of a potential environmental cleanup of a mining site in
Colorado that was sold by a subsidiary of the Company to ARCO. The mining assets
were owned by the Company's subsidiary for approximately eight years during the
1970s and were sold by the subsidiary to ARCO in 1980. The Company has filed a
declaratory action in the Federal District Court for the Northern District of
Louisiana, Shreveport Division, seeking a determination that the Company has no
liability to ARCO with respect to this site due to, among other things, a
contractual agreement between the subsidiary of the Company that sold the
property to ARCO's predecessor by merger in which such predecessor agreed that
the Company's subsidiary would have no further liability with respect to the
properties other than for certain express items. The Company is currently
reviewing the scope of the potential cleanup and the cost thereof. Although no
specific cost estimates have been made by the Company to date, the Company has
been advised by ARCO that the total cost of cleanup could exceed $20 million.
The Company intends to vigorously defend this matter.
In 1991, the Company was named, among others, as a potentially responsible
party ("PRP"), for environmental cleanup by the Indiana Department of
Environmental Management and received an informational request concerning the
Company's activities at a site located in Indiana. A now dissolved subsidiary of
the Company owned a refinery on this site for a period of approximately four
years during the 1970s. Other parties have owned and operated this site since
the construction of the refinery in 1946.
The Company was recently notified by the Department of Transportation of the
State of Louisiana ("DOT") that it intends to seek contribution from the Company
for the prior cleanup by the DOT of a site located in Shreveport, Louisiana, on
which a refinery previously owned by the Company once operated in the 1920s.
Other parties which have owned this site or conducted operations at this site
have similarly been notified. The DOT is seeking $4.5 million from all PRPs. The
Company is engaged in a preliminary review of this matter and, based on such
review, believes that any contamination at the site was primarily related to
operations or events at the site subsequent to the Company's ownership thereof.
The Company currently intends to vigorously defend this matter and has not
agreed to any contribution.
The Company has also recently been advised by the Louisiana Department of
Environmental Quality of the potential need for cleanup of 5.5 acres in a 30
acre tract of land outside of Shreveport which the Company owned from 1926 to
1965 and leased to another party that built and operated a crude oil refinery in
the 1930s and 1940s. The Company has never owned or operated a refinery at this
site and is currently investigating this matter to make a determination as to
the potential costs to the Company, if any, of a cleanup of this site.
Under federal and state environmental laws providing for joint and several
liability for environmental cleanup, a governmental plaintiff could seek to
recover all remediation costs at a waste disposal site from any one of the PRPs
for such site, including the Company, despite the involvement of other PRPs. The
Company's policy is to accrue environmental remediation costs if it is probable
that a liability has been incurred and an amount is reasonably estimable. In
light of the foregoing matters, the Company accrued as of December 31, 1995,
$1.5 million for defense and related costs of such matters. Because the forgoing
matters relate to matters existing prior to the Company's quasi-
8
<PAGE>
reorganization in 1986, this accrual was recorded net of related tax impact as
an offset to additional paid-in capital. Such accrual will be reviewed
periodically and adjusted, if necessary, to reflect any additional charges that
the Company believes will be probable.
ITEM 2. PROPERTIES
For information with respect to the natural gas storage facility and crude
oil and natural gas properties see "Item 1. Business -- Natural Gas Storage and
Crude Oil and Natural Gas Exploration and Production".
OTHER PROPERTIES
The general office of the Company in Shreveport, Louisiana, occupies
approximately 55,000 square feet in the Crystal Building, which is owned by the
Company through a wholly-owned subsidiary. The Company also owns various
personal property, including computer equipment, transportation and furniture
and fixtures.
ITEM 3. LEGAL PROCEEDINGS
In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company,
Charter Oil Company, and Crystal Exploration and Production Company", was filed
in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County,
Florida, Cause No. 79-12012-CA-07. Plaintiff, the limited partner of Caloosa
1974 Limited Partnership, a Colorado limited partnership, of which Crystal
Exploration and Production Company, formerly Charter Exploration and Production
Company, is the
general partner, claims compensatory damages of $10 million, punitive damages in
an undetermined amount, interest and costs of litigation. The suit alleges
breach of contract, breach of fiduciary duty, mismanagement and fraud in
connection with the operation of Caloosa 1974 Limited Partnership. In recent
years, the suit has been generally inactive and the Company believes that the
likelihood of a recovery, if any, by Plaintiff in a material amount is remote.
For information with respect to environmental matters see "Item 1. Business
- -- Environmental Matters".
The Company is currently a party to various other lawsuits which, in
management's opinion, will not have a significant adverse impact on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1995.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the American Stock Exchange, Inc. (the "AMEX")
and the Pacific Stock Exchange, Incorporated. The following table sets forth,
for the periods indicated, the reported high and low sales prices per share of
the Common Stock. Prices are based upon the closing sale prices reported by the
AMEX.
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
High........................................ $ 31 1/2 $ 34 1/2 $ 32 1/4 $ 30 5/8
Low......................................... 29 1/4 29 3/4 29 1/2 29 1/8
<CAPTION>
1994
-----------------------------------------------------------------
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
High........................................ $ 23 $ 24 7/8 $ 27 5/8 $ 33 3/4
Low......................................... 21 1/2 20 1/8 24 1/2 25 5/8
</TABLE>
On March 19, 1996, the last reported sales price of the Common Stock on the
AMEX was $33 5/8 or $33.625 per share. The number of holders of record of the
Company's Common Stock as of March 19, 1996, was 457.
DIVIDENDS
The Company has not paid any dividends on the Common Stock since the third
quarter of 1984. Under the terms of the Company's Articles of Incorporation, the
Company may not pay dividends on the Common Stock or its $.06 Senior Convertible
Voting Senior Preferred Stock (non-cumulative), $.01 par value ("Senior
Preferred Stock"), unless (i) there does not exist any superior indebtedness
(which includes the Company's existing obligations under various letters of
credit issued on behalf of the Company that do not expire until the year 2001
and certain indebtedness relating to the securing therefor), (ii) after giving
effect to the payment of such dividends, the Company would have at least $1 in
consolidated retained earnings, and (iii) the declaration or payment of such
dividends would not violate any applicable law or provision of any material
contract to which the Company is a party. As a result of this provision unless
such terms are otherwise modified or amended, the above restrictions on the
Company's ability to pay dividends on its Common Stock will apply until January
1, 2001. The Company does not anticipate the payment of any dividends with
respect to its capital stock in the foreseeable future.
In conjunction with the issuance in November 1995 of HGSC's 8.12% Senior
Guaranteed Notes due 2005, FRGC and its subsidiaries have agreed to various
restrictions on the distribution of assets from the FRGC parties to the Company.
However, such restrictions do not restrict the ability of the Company to pay
dividends to its shareholders from available cash and accumulated earnings,
exclusive of the operating cash flows of the FRGC parties.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1995 1994 1993 1992 1991
----------- --------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Revenues(1)(2)(3)................................ $ 11,518 $ 43,523 $ 35,940 $ 27,531 $ 29,003
Income from operations before extraordinary
item(2)(4)...................................... 1,404 4,426 1,040 229 1,588
Income per share from operations before
extraordinary item(4)(5):
Primary........................................ .52 1.68 .40 .09 .65
Cash dividends per common share(5)............... -- -- -- -- --
At year-end:
Total assets(1)(2)(6)(7)....................... 173,445 91,940 117,334 129,050 96,974
Long-term obligations(1)(2)(4)(6)(7)........... 37,860 181 22,786 32,038 11,341
Deferred revenue from sale of future contract
receivables(1)................................ 22,160 -- -- -- --
Working capital(1)(2)(4)(6)(7)(8).............. 63,444 75,723 14,935 17,836 23,501
Stockholders' equity(1)........................ 110,549 86,287 84,647 82,936 79,880
</TABLE>
- ------------------------
(1) In 1995, the Company acquired FRGC. This acquisition was financed with
existing cash, the sale of five years of future storage contract receivables
and borrowings under a long-term obligation. In addition, the acquisition
resulted in an increase of approximately $24 million to total assets, net of
accruals, and stockholders' equity as a result of the recognition and
accounting treatment for the actual and expected utilization of certain
operating loss and tax credit carryforwards generated prior to the the
Company's quasi-reorganization.
(2) In 1994, the Company disposed of substantially all of its crude oil and
natural gas properties and related assets for approximately $98 million, net
of expenses. This disposition resulted in a $12.5 million net gain on sale
of assets, which is included in revenues, and an increase in working
capital. In addition, the Company reviewed the carrying value of its
remaining assets and liabilities and recorded additional net expense of
approximately $854 thousand. The Company also reduced the carrying value of
its Russian projects by approximately $2.0 million in the fourth quarter of
1994 in light of the continuing difficulties existing in the Russian
Federation.
(3) In 1993, the increase in revenues resulted from the effect of the
acquisitions of producing crude oil and natural gas properties during the
third and fourth quarters of 1992.
(4) In connection with the Company's 1994 disposition of crude oil and natural
gas properties, the Company prepaid substantially all of its indebtedness
and recorded an extraordinary charge for the early extinguishment of debt in
the amount of approximately $3.8 million ($2.3 million net of taxes).
(5) Per share amounts have been adjusted to reflect a 100-to-one reverse stock
split and forward split in the form of a stock dividend of nine shares of
Common Stock per share of Common Stock, which were effected on May 29, 1992,
and June 1, 1992, respectively.
(6) In 1992, the increase in total assets and long-term obligations resulted
primarily from the acquisition of crude oil and natural gas properties and
the financing of an acquisition of crude oil and natural gas properties
mostly through borrowings under the credit agreement with its banks.
(7) In 1993, the Company utilized existing cash for the prepayment of $5.0
million of long-term obligations, which contributed to a decrease in total
assets and working capital.
11
<PAGE>
(8) In 1992, the decrease in working capital was primarily attributable to the
increase in the current portion of long-term obligations from the financing
of crude oil and natural gas property acquisitions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should assist in the understanding of the Company's
financial condition as of December 31, 1995, as compared to the last fiscal
year, as well as the Company's operating results for the three years ended
December 31, 1995. Certain material events affecting the business of the Company
are discussed in Items 1 and 3 of this report. The Notes to the Consolidated
Financial Statements contain detailed information that should be read in
conjunction with this discussion.
GENERAL
The Company was historically a crude oil and natural gas exploration and
development company. In the fourth quarter of 1994, the Company disposed of
substantially all of its domestic crude oil and natural gas properties for
approximately $98 million and applied a portion of the net proceeds to prepay
all of its outstanding indebtedness. In connection with this disposition, the
Company embarked on an acquisition program aimed at identifying assets that
would generate income for the Company on a current basis that would benefit from
the Company's tax position as well as present the opportunity for capital
appreciation.
The Company's disposition of properties in 1994 resulted in the Company
recognizing a gain on the sale of assets of approximately $12.5 million. This
gain was offset by various charges, including reserves with respect to the
Company's Russian ventures, the writedown of certain assets to net realizable
value and severance and other costs relating to the disposition of the Company's
crude oil and natural gas properties. In addition, the Company recognized an
extraordinary charge of $2.3 million in 1994 relating to the early
extinguishment of debt attributable to its prepayment of its outstanding
indebtedness.
In June 1995, the Company completed its first acquisition following its 1994
asset disposition through the acquisition of FRGC for approximately $78.5
million. FRGC's principal asset was the Hattiesburg Facility. The Hattiesburg
Facility is a gas storage facility that was constructed in 1991 and consists of
three salt-dome caverns with a total storage capacity of 5.5 Bcf of natural gas,
of which 3.5 Bcf is working gas and 2.0 Bcf is base gas.
The acquisition of FRGC was funded with the Company's available cash and a
$60 million short-term bridge loan. In November 1995, the Company refinanced
this loan through a sale to a newly formed business trust for $42.7 million of
approximately five years of accounts receivable to be generated from the
operations of the Hattiesburg Facility and $36.5 million in debt, the recourse
of which is primarily limited to FRGC and the Hattiesburg Facility. These
transactions resulted in net proceeds to the Company of approximately $58
million, net of financing costs.
The acquisition of FRGC and the subsequent refinancing thereof resulted in
the Company reevaluating its tax assets for accounting purposes in light of the
taxable income generated or to be generated from the operation of the
Hattiesburg Facility during the life of the Company's net operating loss
carryforwards and other tax benefits and from the 1995 accounts receivable sale.
This evaluation resulted in an upward adjustment to the Company's stockholders'
equity of $22.3 million. Of such increase $14.4 million related to tax benefits
realized in 1995. This adjustment to the Company's tax assets did not affect net
income for 1995 due to the accounting treatment required for the Company's 1986
quasi-reorganization and the fact that the Company's net operating loss
carryforwards and certain of its other tax benefits relate to events prior to
such reorganization.
As of December 31, 1995, the Company had $65.3 million in cash, cash
equivalents and marketable securities that could be utilized for future
acquisitions. In addition, the Company had no debt other than the debt directly
associated with and recourse limited to FRGC and the Hattiesburg Facility.
12
<PAGE>
Future acquisitions will focus on income generating businesses and assets
without limitation on the type of business or industry. Future acquisitions will
likely involve a combination of the use of a portion of the Company's available
cash and debt or other financing. To the extent possible, the Company will seek
to limit the recourse of any financing to the business and assets acquired. The
Company may also seek to finance future acquisitions with additional equity if
desirable.
As a result of the significant changes the Company has undergone since the
disposition of its crude oil and natural gas properties in the fourth quarter of
1994, the results of operations for the periods presented herein may not be
comparable.
RESULTS OF OPERATIONS
GENERAL
The following sets forth a discussion of the Company's results of operations
for the years ended December 31, 1995, 1994 and 1993. Results for each of 1995,
1994 and 1993 included various items which make a comparison of such years
difficult. In this regard, income during 1995 was primarily attributable to six
months of operations of the Company's natural gas storage operations and
interest income on the Company's available cash. Income in 1994 related
principally to the Company's crude oil and natural gas operations and was
significantly affected by the one-time gains and charges relating to the
Company's disposition of properties in the fourth quarter of 1994. Results in
1993 were generally unaffected by unusual items and related to the Company's
crude oil and natural gas activities.
The Company recorded revenues of $11.5 million, $43.5 million and $35.9
million in 1995, 1994 and 1993, respectively. Revenues for 1995 were primarily
attributable to gas storage activities ($6.3 million) and investment income
($4.7 million) from the investment by the Company of cash received on the
disposition of its crude oil and natural gas properties in the fourth quarter of
1994. Future results are expected to benefit from additional natural gas storage
revenues as the operations of FRGC are consolidated with those of the Company.
Results for 1995 also included a net gain of approximately $.9 million from the
sale of assets primarily in the first quarter and charges of $484 thousand
incurred primarily during the second quarter for severance and other related
expenses associated with the reduction in the Company's staff. The charge for
severance and related expenses was recorded as an offset to the gains on sales
of crude oil and natural gas properties recorded in the first quarter of 1995
and as an extension of the restructuring plan contemplated in connection with
the sale of the Company's crude oil and natural gas properties in the fourth
quarter of 1994.
Revenues for 1994 and 1993 were primarily attributable to sales of crude oil
and natural gas. Revenues from crude oil and natural gas were $57 thousand,
$28.8 million and $33.9 million in 1995, 1994 and 1993, respectively. Revenues
for 1994 also included a $12.5 million net gain from the disposition of crude
oil and natural gas properties. In addition, the Company also recorded
approximately $1.4 million in other income in 1994, of which $600 thousand
related to net gains on the settlement of various interest rate and commodity
swaps.
The Company recorded total costs and expenses of $9.2 million, $36.3 million
and $34.3 million in 1995, 1994 and 1993, respectively. In 1995, total costs and
expenses included $587 thousand associated with the Company's newly acquired gas
storage operations. Total costs and expenses in 1994 and 1993 primarily related
to crude oil and natural gas exploration and production activities. Expenses for
1994 also included a writeoff of $2.5 million on various properties held by the
Company relating to its crude oil and natural gas operations and $2.0 million
relating to the Company's Russian projects.
Interest expense was $2.3 million for 1995, compared to $2.8 million for
1994 and $3.6 million for 1993. The reduction in interest expense results in the
overall reduction of average debt obligation from period to period and the
restructuring of the Company's debt obligations due to the purchase of FRGC in
June 1995. The recent financing of FRGC relating to the Hattiesburg Facility
will result in increased interest expense and the addition of expense associated
with the amortization of the discount on the sale of the future storage accounts
receivable.
13
<PAGE>
The Company recorded net income of $1.4 million, or $.52 per share, in 1995,
net income before extraordinary item of $4.4 million, or $1.68 per share, in
1994 and net income of $1.0 million, or $.40 per share, in 1993. The Company
recognized an extraordinary charge of $2.3 million in 1994 for the early
extinguishment of debt, which reduced net income for 1994 to $2.1 million, or
$.80 per share.
The net effect of the Company's disposition of substantially all of its
crude oil and natural gas assets in December 1994 before $2.5 million in income
taxes is set forth in the chart below:
<TABLE>
<CAPTION>
AMOUNT
ITEM (IN MILLIONS)
- --------------------------------------------------------------------------------- -------------
<S> <C>
Net gain on sale of properties to Apache......................................... $ 10.4
Net gain on sale of other properties............................................. 2.1
Gain on cancellation of swaps.................................................... .6
Writedown of certain assets to net realizable value or fair value following the
disposition..................................................................... (2.5)
Reduction of contingent liabilities due to the disposition....................... 1.6
Writedown of Russian projects.................................................... (2.0)
-----
Net Effect of unusual items or infrequently occurring items.................... 10.2
Extraordinary charge for early extinguishment of debt............................ (3.8)
-----
Net Effect of unusual or infrequently occurring items and extraordinary item
before provision in lieu of taxes............................................. $ 6.4
-----
-----
</TABLE>
Excluding the unusual and extraordinary items noted above, the Company would
have recorded a net loss of approximately $1.8 million for 1994, due primarily
to decreases in crude oil and natural gas revenues and an increase in dry hole
costs relating to the drilling of four exploratory wells.
The Company's production of crude oil in 1995 was insignificant at two
thousand barrels. The production in 1994 decreased by 137 thousand barrels to
969 thousand barrels, as compared to 1993. The production of natural gas by the
Company was eight thousand Mcf in 1995, compared to 7.3 Bcf in 1994 and 7.6 Bcf
in 1993. Production in 1995 was greatly reduced due to the sale of substantially
all of the Company's crude oil and natural gas reserves in December 1994 and
limited to production from the Company's interests in properties included in its
prospect development program. Levels of production in 1994 as compared to 1993
reflected both normal declines from producing reserves and the effect of a
three-week shut-in of production in the Southeast Pass field due to upgrade and
maintenance of a pipeline in the area. Production from the Company's 1994
development wells in the Vernon field offset the declines in natural gas
production beginning in the third quarter of 1994.
During 1995, the Company's limited production of crude oil and natural gas
was sold primarily during the fourth quarter at average prices of $19.00 for
crude oil and $2.38 for natural gas. The average crude oil prices received by
the Company during 1994 and 1993 were $15.84 and $17.12, respectively. The
successive decreases in crude oil prices related to a number of factors,
including excess supplies in crude oil throughout the world and various
political factors. The average natural gas prices received by the Company during
1994 and 1993 were $1.83 and $1.98, respectively. Natural gas prices increased
to an average of approximately $2.00 per Mcf in 1993, then gradually declined to
a low of approximately $1.36 per Mcf in October 1994. The Company had
historically entered into derivative products such as commodity and interest
rate swaps to stabilize its average crude oil and natural gas prices. In
connection with the sale of substantially all of its properties in December
1994, the Company canceled all of its swap contracts and had none outstanding as
of December 31, 1995 and 1994.
CRUDE OIL AND NATURAL GAS EXPLORATION AND PRODUCTION
Results of operations before the unusual or extraordinary items noted
previously and provision for income taxes attributable to crude oil and natural
gas activities was a profit of $360 thousand in 1995, as compared to a $4.6
million profit in 1994 and a $9.7 million profit in 1993. (See Note L of Notes
to Consolidated Financial Statements.) The decline in crude oil and natural gas
sales in 1995
14
<PAGE>
was attributable to the sale by the Company of substantially all of its crude
oil and natural gas reserves in the fourth quarter of 1994. The decline in 1994
compared to 1993 reflected reduced revenues from the declines in the levels of
production and prices received for crude oil and natural gas, and higher
dry-hole costs. The production levels in 1994 reflected both normal declines
from producing reserves and the effect of a three-week shut-in of production in
the Southeast Pass field. The decline in production was partially offset by
increased production from the Vernon field following the drilling of two
additional development wells in the field in 1994. As compared to 1993, the
average prices received by the Company in 1994 for its crude oil and natural gas
were subject to adverse market conditions. As compared to 1993, crude oil and
natural gas activities during 1994 included decreases in production taxes and
depreciation, depletion and impairment as a result of declines in production
volumes and a modest increase in lease operating expense due to an increase in
environmental related charges.
Due to the sale by the Company of substantially all of its crude oil and
natural gas reserves in the fourth quarter of 1994, a comparison of crude oil
and natural gas production operations for 1995 and 1994 is not meaningful. The
following table sets forth certain additional data with respect to the Company's
crude oil and natural gas production operations for the year ended December 31,
1994 and 1993.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 PERCENT
-------------------- INCREASE INCREASE
1994 1993 (DECREASE) (DECREASE)
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PRICES)
<S> <C> <C> <C> <C>
Revenue
Crude oil sales................................................. $ 15,349 $ 18,937 $ (3,588) (19%)
Natural gas sales............................................... 13,470 14,925 (1,455) (10%)
--------- --------- -----------
Total revenues................................................ $ 28,819 $ 33,862 $ (5,043) (15%)
--------- --------- -----------
--------- --------- -----------
Volume
Crude oil--Bbls................................................. 969 1,106 (137) (12%)
Natural gas--Mcf................................................ 7,349 7,550 (201) (3%)
Average net price
Crude oil per Bbl............................................... $ 15.84 $ 17.12 $ (1.28) (7%)
Natural gas per Mcf............................................. $ 1.83 $ 1.98 $ (.15) (8%)
Lease operating expense, including production taxes............... $ 11,756 $ 12,030 $ (274) (2%)
Depreciation, depletion and impairment............................ $ 10,612 $ 12,199 $ (1,587) (13%)
Exploration cost.................................................. $ 2,351 $ 1,264 $ 1,087
</TABLE>
Exploration costs reflect the level of exploratory drilling activity for
unsuccessful exploratory wells.
INVESTMENT INCOME
The Company's investment income was approximately $4.7 million in 1995
compared to approximately $742 thousand and $658 thousand in 1994 and 1993,
respectively. The level of investment income in 1995 reflects the average
investment in debt securities of approximately $76 million. The average interest
rate received by the Company on its investments was 6.18% during 1995. The
Company's investment of its liquid assets are currently in short term government
securities.
NET GAIN ON SALE OF FIXED ASSETS
Net gain on sale of fixed assets in 1995 included $860 thousand from the
disposition of the Company's proportionate share of the net proceeds of asset
sales from the Company's partnerships, the sale of an exploratory prospect and
the final liquidation and disposition of various surplus equipment and
inventory. Net gain on sale of fixed assets in 1995 also included charges of
$484 thousand incurred primarily in the second quarter of 1995 relating to
severance and other costs associated with the reduction of the Company's staff.
The charges were made as an offset to the gains on sales of crude oil and
natural gas properties recorded in the first quarter of 1995 and as an
15
<PAGE>
extension of the restructuring plan contemplated in connection with the sale of
crude oil and natural gas assets in the fourth quarter of 1994. The Company
recognized a net gain of approximately $12.5 million in 1994 from the sale of
substantially all of its domestic crude oil and natural gas properties. Net gain
on sale of property, plant and equipment was $651 thousand in 1993.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization declined substantially in 1995 to
$1.8 million from $14.2 million and $12.6 million in 1994 and 1993,
respectively. Such declines were attributable to the Company's 1994 disposition
of the Company's crude oil and natural gas properties. Current depreciation
charges are primarily associated with the Company's natural gas storage facility
and other assets acquired in June 1995, which have a substantially longer
depreciable life than the Company's historical crude oil and natural gas
properties. The carrying value of such assets reflects the cash purchase price
for assets and the liabilities assumed in the purchase, including $18 million
associated with deferred tax liabilities attributable to the difference between
the book and tax bases of such assets purchased and liabilities assumed.
Depreciation, depletion and amortization for the year ended 1994 included
approximately $2.9 million in writedowns of the Russian projects and other
assets to fair market value net of a reduction of contingent liabilities due to
the disposition of crude oil and natural gas properties.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense for 1995 was approximately $3.8 million.
Such expense represented a decrease of approximately $1.4 million (26.4%) and
$1.0 million (21.2%) when compared to 1994 and 1993, respectively. The decrease
in general and administrative expenses reflects the reduction in the Company's
staff following the disposition of its crude oil and natural gas properties in
late 1994. The staff reductions continued through the first two quarters of 1995
as the Company completed various post-closing matters associated with the sale.
The staff reductions are now substantially complete. The decline in general and
administrative expenses realized during 1995, was partially offset by certain
transitional expenses and costs relating to the Company's Russian operations,
which have been suspended pending improvements in the political and economic
climate in Russia. The Company, however, has taken actions to reduce its
expenses relating to its Russian operations. General and administrative expense
also included approximately $126 thousand for the settlement of various lawsuits
during 1995.
TAXES AND QUASI-REORGANIZATION ADJUSTMENT
Income before extraordinary item for 1995, 1994 and 1993 included provisions
for income taxes of $962 thousand, $2.8 million and $626 thousand, respectively.
In addition, net income for 1994 included an income tax benefit of approximately
$1.5 million for losses related to early extinguishment of debt.
The provision for income taxes includes a noncash accounting charge required
by virtue of the Company's quasi-reorganization in 1986 in an amount equal to
the deferred income taxes that the Company would have recognized had it not been
able to utilize its net operating loss carryforwards against such income taxes.
As a result of the Company's quasi-reorganization accounting treatment, the
current and future benefit from utilization of the income tax credits and net
operating loss carryforwards accumulated prior to the Company's reorganization
are recorded as an adjustment to additional paid-in capital. Exclusive of the
net operating loss carryforwards and other tax benefits recognized following the
acquisition of FRGC during 1995, $246 thousand, $1.3 million and $605 thousand
were credited to additional paid-in capital as a result of utilization of such
tax carryforwards during 1995, 1994 and 1993, respectively.
The completion of the Company's acquisition of FRGC and the subsequent
financing therefor (including the sale of the future storage contract
receivables) also resulted in the Company adjusting its tax assets in light of
the taxable income generated or to be generated from the operation of the
Hattiesburg Facility during the life of the Company's net operating loss
carryforwards and other tax
16
<PAGE>
benefits and from the 1995 accounts receivable sale. This evaluation resulted in
an upward adjustment to the Company's stockholders' equity of $22.3 million. Of
such increase $14.4 million related to tax benefits realized in 1995. This
adjustment to the Company's tax assets did not affect net income for 1995 due to
the accounting treatment required for the Company's 1986 quasi-reorganization
and the fact that the Company's net operating loss carryforwards and certain of
its other tax benefits relate to events prior to such reorganization. In
addition, recognition of tax benefit carryforwards generated after the Company's
quasi-reorganization resulted in a reduction of $2.2 million in the amount
recorded as the carrying value of the gas storage facility.
In assessing the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Based upon projections for future
taxable income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowance at December 31, 1995. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had marketable securities of approximately
$54.4 million and cash and cash equivalents of approximately $10.8 million
compared to $75.5 million in cash and cash equivalents at December 31, 1994. The
reduction in cash and cash equivalents from December 31, 1994, reflects the
investment of the Company's net proceeds from the sale of its crude oil and
natural gas properties in 1994 to purchase marketable securities and to fund a
portion of the Company's acquisition of FRGC.
On November 22, 1995, Hattiesburg Gas Storage Company ("HGSC") and HIGS,
indirect wholly-owned subsidiaries of the Company, sold to the FRGC Owner Trust,
a newly formed Delaware business trust (the "Trust"), the right to receive
payments on the firm storage contract receivables to be generated by HGSC and
HIGS through June 30, 2000, from the operation of the FRGC Storage Facility (the
"HGSC Sold Receivables") for a total cash consideration of approximately $42.7
million, representing a 7.52% annualized discount on the receivables. The HGSC
Sold Receivables were sold without recourse to HGSC or the Company. However,
HGSC, HIGS and FRGC agreed to be responsible for the payment of liquidated
damages for certain breaches under the sales agreement that would materially and
adversely impair the collection of the accounts receivable in the future and to
self-insure against certain force majeure events to the extent they are not
covered by insurance. The Company also agreed to be responsible for the payment
of up to $10 million (subject to an annual $2 million reduction) of such
liquidated damages and self-insurance under certain limited circumstances
following a bankruptcy of HGSC, HIGS or FRGC (collectively, the "FRGC Parties").
The obligations of the FRGC Parties are secured by substantially all of their
assets, including the FRGC Storage Facility and HGSC's storage contracts, but
excluding certain receivables to be generated after June 30, 2000.
Immediately prior to the sale of the HGSC Sold Receivables, HGSC purchased
approximately 47.3% of the interests of the Trust for approximately $20.2
million, of which 26.8% were senior interests ranking on an equal basis with the
interests sold to the other investors and 20.5% were junior to the interests
sold to other investors. Such interests represent the right to receive funds
from the Trust as the HGSC Sold Receivables are collected by the Trust.
Simultaneously with the sale of the HGSC Sold Receivables to the Trust, HGSC
issued approximately $36.5 million in 8.12% Secured Guaranteed Notes Due 2005
(the "Notes"). The terms of the Notes provide for the payment of interest only
through June 30, 2000, at which time principal is to be amortized over the
remaining life of the Notes. The Notes, which are without recourse to the
Company, are secured by substantially all the assets of the FRGC Parties,
including the FRGC Storage
17
<PAGE>
Facility, HGSC's storage contracts, certain accounts receivable to be generated
after June 30, 2000, and a pledge of the cash flow from HGSC's 26.8% senior
interest in the Trust. The net proceeds from the Notes, funds of $22.5 million
derived from the sale of the HGSC Sold Receivables and existing cash were used
by the Company to repay $60 million in indebtedness incurred in connection with
the Company's acquisition of FRGC in June 1995.
Under the various agreements relating to the sale of the HGSC Sold
Receivables and the Notes, the FRGC Parties agreed to various covenants and
agreements relating to the Hattiesburg Facility. Among such covenants and
agreements were covenants (i) not to take certain actions that would materially
adversely affect the HGSC Sold Receivables, (ii) with respect to the manner of
operation of the Hattiesburg Facility and the other assets of the FRGC Parties,
(iii) restricting the business of the FRGC Parties to the operation of the
Hattiesburg Facility, the provision of transportation and storage services
relating to the Hattiesburg Facility, the expansion, prior to the year 2000, of
or addition to the Hattiesburg Facility or to other storage and transportation
services provided in connection with the Hattiesburg Facility and the provision
of management and operational services for other facilities in the vicinity of
the Hattiesburg Facility, (iv) requiring the continued ownership by the FRGC
Parties of the Hattiesburg Facility and (v) restricting certain affiliated
transactions.
The FRGC Parties also agreed under the Indenture relating to the Notes to
various restrictions on the distribution of assets from the FRGC Parties to the
Company. However, such restrictions do not restrict the ability of the Company
to pay dividends to its shareholders from available cash and accumulated
earnings, exclusive of the operating cash flows of the FRGC Parties.
Although HGSC and HIGS sold all of their rights and interests in the HGSC
Sold Receivables through June 30, 2000, to the Trust and received payment
therefor, the proceeds from the sale have been classified for accounting
purposes as "Deferred Revenue from Sale of Future Contract Receivables" and will
be recognized over the period during which the HGSC Sold Receivables are to be
generated. The discount between the funds received on the sale of the HGSC Sold
Receivables and the scheduled payments thereunder will be amortized over the
life of the HGSC Sold Receivables based on the discount rate applied in fixing
the sale price of the HGSC Sold Receivables and recorded as "Amortization of
Discount on Sale of Future Contract Receivables." The amount of "Deferred
Revenue" reflected on the Company's Balance Sheet reflects the amount of revenue
generated from the sale of the HGSC Sold Receivables less the Company's carrying
value of the senior and subordinated interests in the Trust that were purchased
by HGSC.
The Company's working capital position decreased by approximately $12.3
million to $63.4 million at December 31, 1995, compared to $75.7 million at
December 31, 1994, primarily as a result of the utilization of existing cash for
partially funding the Company's acquisition of FRGC. This decrease in working
capital was partially offset by the transfer of approximately $5.1 million from
restricted funds to cash equivalents. The Company reduced the level of
restricted funds from $6.6 million at December 31, 1994, to $1.5 million at
December 31, 1995, as a result of a reduction in the cash collateral
requirements under the Company's amended credit agreement from 100% to 30% of
the outstanding letters of credit previously issued by the Company's banks on
behalf of the Company.
OTHER MATTERS
As previously described under "Item 1. Business -- Environmental Matters",
the Company is currently subject to various claims regarding environmental
matters, which will require the expenditure of funds for defense costs and could
require additional expenditure of funds for remediation if it is determined that
the Company is responsible for such remediation or otherwise agrees to
contribute to the cost of such remediation. It is the Company's policy to accrue
for environmental remediation costs if it is probable that a liability has been
incurred and an amount is reasonably estimable. The resolution of the known
environmental matters affecting the Company will be subject to various factors,
including the discovery of additional information with respect to the nature of
contamination at the known sites, the legal responsibility of various parties
for any cleanup obligations, the financial capability of responsible parties and
other actions by governmental agencies and private parties.
18
<PAGE>
Although the cost of cleanup of sites in which the Company has been notified of
potential liability is currently estimated to involve the expenditure of funds
by all potentially responsible parties in excess of $25 million, based on
information known to the Company, the Company does not believe that its ultimate
payment obligations with respect to such matters will have a material adverse
impact on the Company's financial position.
The Company will adopt Statement of Financial Accounting Standards No. 123
("SFAS 123"), Accounting for Stock-Based Compensation, in 1996. The Company
currently plans to continue to measure compensation cost for employee stock
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
The Company will adopt Statement of Financial Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, in 1996. Under SFAS 121, an impairment is
determined to have occurred and a loss is recognized when the net of future cash
inflows expected to be generated by an identifiable long-lived asset and cash
outflows expected to be required to obtain those inflows is less than the
carrying value of the asset. The adoption of SFAS 121 is not expected to have a
material impact on the Company's financial statements.
While the Company continues to be affected by fluctuations in the purchasing
power of the dollar, inflation has not had a significant affect on the Company's
earnings or financial condition in recent years.
19
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Stockholders and
Board of Directors
Crystal Oil Company:
We have audited the consolidated balance sheets of Crystal Oil Company and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the Index at Item 14 (a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crystal Oil
Company and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note H to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES, in 1993.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
February 26, 1996
20
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................................. $ 10,812 $ 75,541
Marketable securities..................................................................... 54,447 --
Accounts receivable, net
Gas storage............................................................................. 631 --
Crude oil and natural gas............................................................... 49 4,071
Other receivables....................................................................... 24 1,207
Prepaid expenses and other................................................................ 57 376
---------- ---------
TOTAL CURRENT ASSETS.................................................................. 66,320 81,195
PROPERTY, PLANT AND EQUIPMENT
Gas storage facilities.................................................................... 93,989 --
Producing and non-producing crude oil and natural gas properties.......................... 1,944 3,979
Land and building......................................................................... 1,940 1,964
Furniture, office equipment and other..................................................... 1,135 1,723
---------- ---------
99,008 7,666
Less allowances for depreciation and depletion............................................ (2,727) (3,684)
---------- ---------
TOTAL PROPERTY, PLANT AND EQUIPMENT................................................... 96,281 3,982
OTHER ASSETS
Deferred tax assets..................................................................... 7,398 --
Restricted cash equivalents and marketable securities................................... 1,476 6,563
Others.................................................................................. 1,970 200
---------- ---------
10,844 6,763
---------- ---------
$ 173,445 $ 91,940
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations.................................................. $ 294 $ 60
Accounts payable.......................................................................... 1,948 4,612
Other accrued expenses.................................................................... 634 800
---------- ---------
TOTAL CURRENT LIABILITIES............................................................. 2,876 5,472
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............................................... 37,860 181
DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT
RECEIVABLES................................................................................ 22,160 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
$.06 Senior convertible voting preferred stock (non-cumulative), $.01 par value; $1.00
liquidation preference; authorized 51,200,773; issued and outstanding 14,788,328......... 148 148
Common stock, $.01 par value; authorized 4,000,000 shares; issued and outstanding
2,654,042 and 2,576,292 shares, respectively............................................. 27 26
Additional paid-in capital................................................................ 96,902 74,045
Retained earnings (Since January 1, 1987)................................................. 13,472 12,068
---------- ---------
TOTAL STOCKHOLDERS' EQUITY............................................................ 110,549 86,287
---------- ---------
$ 173,445 $ 91,940
---------- ---------
---------- ---------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Gas storage fees............................................................. $ 6,317 $ -- $ --
Crude oil sales.............................................................. 38 15,349 18,937
Natural gas sales............................................................ 19 13,470 14,925
Net gain on sale of property, plant and equipment............................ 376 12,524 651
Investment income............................................................ 4,695 742 658
Other income................................................................. 73 1,438 769
--------- --------- ---------
11,518 43,523 35,940
COSTS AND EXPENSES
Gas storage operating expenses............................................... 587 -- --
Crude oil and natural gas lease operating expense............................ 14 9,014 8,907
Taxes other than income tax.................................................. 543 2,742 3,123
General and administrative expense........................................... 3,796 5,157 4,819
Interest and debt expense.................................................... 2,252 2,773 3,575
Amortization of discount on sale of future contract receivables.............. 141 -- --
Exploration cost............................................................. 50 2,351 1,264
Depreciation, depletion and amortization..................................... 1,769 14,220 12,586
--------- --------- ---------
9,152 36,257 34,274
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.............................. 2,366 7,266 1,666
INCOME TAXES................................................................... 962 2,840 626
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM............................................... 1,404 4,426 1,040
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX
BENEFIT OF $1,489 THOUSAND)................................................... -- 2,320 --
--------- --------- ---------
NET INCOME..................................................................... $ 1,404 $ 2,106 $ 1,040
--------- --------- ---------
--------- --------- ---------
NET INCOME PER SHARE OF COMMON AND COMMON STOCK EQUIVALENT SHARE
INCOME BEFORE EXTRAORDINARY ITEM............................................. $ .52 $ 1.68 $ .40
EXTRAORDINARY ITEM........................................................... -- (.88) --
--------- --------- ---------
NET INCOME................................................................... $ .52 $ .80 $ .40
--------- --------- ---------
--------- --------- ---------
CASH DIVIDENDS PER SHARE OF COMMON STOCK....................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
AVERAGE OF COMMON AND COMMON STOCK EQUIVALENT SHARES OUTSTANDING............... 2,703 2,635 2,623
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SENIOR SERIES A ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS
----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993............................... $ 182 $ 270 $ 25 $ 73,537 $ 8,922
Net income............................................. -- -- -- -- 1,040
Conversion of preferred stock into common stock........ -- (15) -- 15 --
Issuance of common stock............................... -- -- -- 87 --
Payments in lieu of fractional shares.................. -- -- -- (21) --
Utilization of net operating loss carryforward......... -- -- -- 605 --
----- ----------- --- ----------- ---------
Balance at December 31, 1993............................. $ 182 $ 255 $ 25 $ 74,223 $ 9,962
Net income............................................. -- -- -- -- 2,106
Conversion of preferred stock into common stock........ -- (186) -- 186 --
Issuance of common stock............................... -- -- 1 364 --
Redemption of preferred stock.......................... -- (69) -- (502) --
Purchase of senior preferred stock..................... (34) -- -- (1,477) --
Utilization of net operating loss carryforward......... -- -- -- 1,251 --
----- ----------- --- ----------- ---------
Balance at December 31, 1994............................. $ 148 $ -- $ 26 $ 74,045 $ 12,068
Net income............................................. -- -- -- -- 1,404
Issuance of common stock............................... -- -- 1 1,344 --
Utilization of net operating loss carryforward and
recognition of deferred tax assets.................... -- -- -- 22,513 --
Recognition of environmental remediation liability, net
of tax................................................ -- -- -- (1,000) --
----- ----------- --- ----------- ---------
Balance at December 31, 1995............................. $ 148 $ -- $ 27 $ 96,902 $ 13,472
----- ----------- --- ----------- ---------
----- ----------- --- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 1,404 $ 2,106 $ 1,040
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary item...................................................... -- 2,320 --
Amortization of discount on convertible subordinated notes and deferred
cost................................................................... 27 1,843 2,078
Net accretion on investments in debt securities......................... (355) -- --
Depreciation, depletion and amortization................................ 1,769 14,220 12,586
Exploration expenses.................................................... 50 2,351 1,264
Provision in lieu of income taxes....................................... 246 2,740 605
Deferred income taxes................................................... (357) -- --
Net gain on sale of property, plant and equipment....................... (376) (12,524) (651)
Decrease in accounts receivable......................................... 4,264 1,498 1,281
Decrease (increase) in prepaid expenses and other current assets........ 149 95 (91)
Decrease (increase) in other assets..................................... 44 165 (184)
Increase (decrease) in accounts payable and accrued expenses............ (3,200) 53 (2,020)
----------- --------- ---------
Net cash provided by operating activities................................... 3,665 14,867 15,908
----------- --------- ---------
Cash flows from investing activities:
Acquisition of First Reserve Gas Company, net of cash received.............. (78,509) -- --
Proceeds from sale of property, plant and equipment......................... 2,310 96,555 1,202
Capital expenditures........................................................ (1,267) (13,762) (8,977)
Investment in Russian joint venture......................................... (365) (805) (945)
Purchase of marketable securities........................................... (156,461) -- (4,931)
Maturity of marketable securities........................................... 102,369 -- 4,931
Investment of restricted funds.............................................. -- (6,563) --
Reduction of restricted funds............................................... 5,087 -- --
----------- --------- ---------
Net cash provided by (used in) investing activities....................... (126,836) 75,425 (8,720)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term note payable to bank............................... 60,000 -- --
Repayment of short-term note payable to bank................................ (60,000) -- --
Increase in long-term obligations........................................... 36,474 11,292 --
Reduction in long-term obligations.......................................... (61) (42,650) (12,815)
Redemption of preferred stock............................................... -- (571) --
Purchase of senior preferred stock.......................................... -- (1,511) --
Proceeds from issuance of common stock...................................... 1,345 365 87
Proceeds from sale of future contracts receivables.......................... 22,504 -- --
Reduction of deferred revenue from sale of future contract receivables...... (344) -- --
Payments in lieu of fractional shares....................................... -- -- (21)
Payment of costs for financing and sale of future contracts receivables..... (1,476) (65) (325)
----------- --------- ---------
Net cash provided by (used in) financing activities....................... 58,442 (33,140) (13,074)
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (64,729) 57,152 (5,886)
Cash and cash equivalents at beginning of year................................ 75,541 18,389 24,275
----------- --------- ---------
Cash and cash equivalents at end of year...................................... $ 10,812 $ 75,541 $ 18,389
----------- --------- ---------
----------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized........................................ $ 2,045 $ 933 $ 1,564
----------- --------- ---------
----------- --------- ---------
Income taxes................................................................ $ 1,368 $ -- $ 70
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the accounts
of Crystal Oil Company and subsidiaries (the "Company"), all of which are wholly
owned. All material intercompany accounts and transactions have been eliminated.
BUSINESS -- The Company's principal business is the operation of a natural
gas storage facility in Hattiesburg, Mississippi, which was acquired on June 19,
1995 (See Note C). The Company had been primarily engaged in crude oil and
natural gas exploration and production in Louisiana, Southern Arkansas,
Northeast Texas and offshore Louisiana prior to disposing of substantially all
of its domestic crude oil and natural gas properties and related assets in the
fourth quarter of 1994 and first quarter of 1995 (See Note D). The comparability
of the Company's financial statements for the periods presented are affected by
the change in operations.
BASIS OF PRESENTATION -- On October 1, 1986, Crystal Oil Company filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Western District of Louisiana, Shreveport Division (the "Court"). On December
31, 1986, the Court entered an order confirming the Second Amended and Restated
Plan of Reorganization (the "Plan") of the Company, which was consummated on
January 30, 1987. The Company accounted for the reorganization as a
quasi-reorganization. Accordingly, all assets and liabilities were restated to
reflect their estimated fair value as of December 31, 1986.
ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. The actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments with an original maturity at date of purchase of three months or
less to be cash equivalents.
CRUDE OIL AND NATURAL GAS PROPERTIES -- The successful efforts accounting
method is followed under which intangible development costs and certain
non-recoverable tangible costs are capitalized with respect to producing wells
and nonproducing development wells and are charged to operations with respect to
nonproducing exploratory wells. Costs to acquire interests in undeveloped leases
are capitalized and either transferred to producing properties when the
properties become productive or charged against the impairment allowance when
surrendered. An impairment allowance for undeveloped leases is determined on a
property-by-property basis for significant properties and in the aggregate for
other properties. Geological and geophysical costs and lease rentals are
expensed as incurred.
The carrying amounts of assets sold or otherwise disposed of, except for
certain development wells, and the related allowances for depreciation and
depletion are eliminated from the accounts, and any resulting gain or loss is
included in operations. Individual development wells in a producing field, which
are retired or otherwise disposed of, are deemed to be fully amortized, and the
related cost is charged to accumulated depreciation and depletion for that
field. The carrying amounts of producing crude oil and natural gas properties
sold from a depletable field is apportioned to the interest sold and the
interest retained on the basis of the fair values of those interests.
A valuation adjustment for the impairment of crude oil and natural gas
properties is provided to the extent that the carrying amount of producing crude
oil and natural gas properties and undeveloped lease and mineral rights for
financial reporting purposes exceeds undiscounted future net cash
25
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
flow from proved crude oil and natural gas reserves and the lower of cost or
estimated fair market value of properties not being depleted. There were no
valuation adjustments recorded during any of the three years in the period ended
December 31, 1995.
DEPRECIATION, DEPLETION AND AMORTIZATION -- Depreciation of gas storage
facilities and equipment is provided using the straight-line method over the
estimated useful lives of the assets which range from 20 to 40 years.
Approximately $8.0 million associated with certain gas storage contracts
providing for firm capacity to various customers is included under the
classification gas storage facilities and is amortized using the straight-line
method over the term of such contracts.
Depletion of intangible drilling and leasehold costs relating to producing
crude oil and natural gas properties is computed by the unit of production
method on a field basis using only proved developed reserves. Depletion of
leasehold acquisition costs relating to properties acquired is computed using
total proved reserves. The provision for depreciation of other tangible assets
has been computed on a straight-line basis over the estimated useful lives of
the assets.
INTEREST CAPITALIZATION -- Interest cost is capitalized based upon the
average interest rate of outstanding borrowings during the period required to
complete a construction project or drill a crude oil or natural gas well. In
1995, the Company did not incur any interest cost during the period required for
the completion of fixed asset projects. Interest capitalized during the periods
ended December 31, 1994 and 1993, was approximately $77 thousand and $56
thousand, respectively.
INCOME TAXES -- Net operating loss carryforwards and other tax benefits are
available to offset future federal and state income taxes. However, as a result
of the Company's quasi-reorganization accounting treatment, the future benefits
from recognition of these benefits accumulated prior to the reorganization are
recorded as an adjustment to additional paid-in capital (See Note H).
Debt Discounts and Deferred Costs of Financing and Sale of Future Contract
Receivables -- The interest method is used to amortize debt discounts and
deferred costs relating to long-term debt and sale of future contracts
receivables.
RECLASSIFICATIONS -- Certain reclassifications have been made in the 1994
and 1993 financial statements to conform to the classifications used in 1995.
NATURAL GAS IMBALANCES -- The Company utilizes the "entitlement method" to
account for over and under deliveries of natural gas (gas imbalances) resulting
from the sale by one or more lease owners of volumes in excess of their gross
revenue working interest in total natural gas production from a particular
lease. Under the entitlement method, natural gas revenue is based on the
Company's ownership of the production of natural gas reserves.
The Company also maintains operating balancing agreements with pipeline
companies transporting natural gas into the storage facility in order to account
for over and under deliveries of natural gas resulting from the difference
between the volumes injected into or withdrawn from the storage facility through
the pipelines and the volumes nominated for the customers utilizing the storage
facility. The Company records an account payable or receivable to or from the
pipeline companies for the over or under delivery of natural gas and adjusts the
level of the Company's base natural gas in the storage facility. The Company
settles the natural gas imbalances with the pipelines through the exchange of
volumes in-kind or cash.
26
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMODITY SWAP CONTRACTS -- Gains or losses on the Company's commodity swap
contracts are recognized when the volumes of crude oil and natural gas being
hedged are sold. The cash flows from futures contracts are accounted for as
hedges for sales of crude oil and natural gas and are classified as operating
activities in the consolidated statements of cash flows.
The Company will adopt Statement of Financial Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, in 1996. Under SFAS 121, an impairment is
determined to have occurred and a loss is recognized when the net of future cash
inflows expected to be generated by an identifiable long-lived asset and cash
outflows expected to be required to obtain those inflows is less than the
carrying value of the asset. The adoption of SFAS 121 is not expected to have a
significant impact on the Company's financial statements.
NOTE B -- INVESTMENTS IN DEBT SECURITIES
Under the guidelines of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", management
determines the appropriate classification of its investments in marketable debt
securities at the time of the purchase and reevaluates such determination at
each balance sheet date. At December 31, 1995, marketable debt securities have
been categorized as available for sale and as a result are stated at fair value.
Unrealized gains and losses are reported as an adjustment to shareholder's
equity.
At December 31, 1995, the Company's investments in debt securities were
classified in the Company's balance sheet as cash equivalents, marketable
securities and restricted funds. These investments are all highly liquid debt
instruments with a maturity of less than three months at the time of purchase
for investments classified as cash equivalents and a maturity of less than one
year but greater than three months at the time of purchase for investments
classified as marketable securities and restricted funds.
The following is a summary of the estimated fair value of available for sale
securities by balance sheet classification at December 31, 1995:
<TABLE>
<CAPTION>
($IN THOUSANDS)
---------------
<S> <C>
Cash equivalents
U. S. Government Agency Security............................................................... $ 10,025
---------------
---------------
Marketable securities
U. S. Treasury bills........................................................................... $ 22,321
U. S. Treasury note............................................................................ 461
U. S. Government Agency Security............................................................... 31,665
---------------
$ 54,447
---------------
---------------
Restricted funds
U. S. Treasury note............................................................................ $ 1,476
---------------
---------------
</TABLE>
The estimated fair value of each investment approximates the amortized cost,
and therefore, there are no unrealized gains or losses as of December 31, 1995.
NOTE C -- ACQUISITION
On June 19, 1995, the Company acquired First Reserve Gas Company ("FRGC"), a
natural gas storage company with facilities in Hattiesburg, Mississippi, for
approximately $78.5 million, subject to
27
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE C -- ACQUISITION (CONTINUED)
certain adjustments. The acquisition was initially funded with approximately $18
million of the Company's available cash and borrowings under a $60 million
bridge loan. Such borrowings were repaid on November 22, 1995, with the net
proceeds of $22.5 million from sale of future storage contract receivables (See
Note E), $36.5 million from long-term financing (See Note F) and existing cash.
FRGC's storage facility consists of three salt-dome caverns with a total
capacity of 5.5 billion cubic feet ("Bcf") of natural gas, of which
approximately 3.5 Bcf consists of working gas and approximately 2.0 Bcf consists
of the Company's base gas. The working gas capacity is fully subscribed to
twelve customers under firm storage capacity contracts expiring in 2005. FRGC's
facility interconnects with Transcontinental Gas Pipe Line, Koch Gateway
Pipeline, Tennessee Gas Pipeline and Associated Natural Gas systems.
The cost of the gas storage facilities also includes costs associated with
the deferred tax liability of $18 million resulting from the difference between
the book and tax bases of the net assets acquired. In addition, recognition of
tax benefit carryforwards generated after the Company's quasi-reorganization
resulted in a reduction of $2.2 million in the carrying value of the gas storage
facility (See Note H). The amortization of the additional cost is essentially
offset by additional deferred tax benefits.
The acquisition has been accounted for in accordance with the "purchase
method" of accounting, and accordingly, the results of operations of FRGC are
included in the Company's consolidated statement of operations from the
acquisition date. In connection with the acquisition, the Company also acquired
current assets (net of current liabilities assumed and excluding cash) totaling
$294 thousand.
The following supplemental unaudited proforma information reflects condensed
results of operations of the Company as though FRGC had been acquired at January
1, 1994, and as though the disposition of substantially all of the Company's
crude oil and natural gas properties (which occurred on December 30, 1994) had
occurred as of January 1, 1994. The condensed results of operations on a
proforma basis for the year ended December 31, 1994, do not include interest
income that would have been earned from investing the funds derived from the
sale of crude oil and natural gas properties. The proforma information does not
purport to be indicative of the results of operations of the Company that would
actually have occurred had FRGC been acquired as of the beginning of the
respective periods, had substantially all of the Company's crude oil and natural
gas properties been sold as of January 1, 1994, or of the future results of
operations that will be obtained from the acquisition.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total Revenues................................................................... $ 16,488 $ 12,639
--------- ---------
--------- ---------
Net Income (loss)................................................................ $ 2,442 $ (140)
--------- ---------
--------- ---------
Income per Common and Common Stock Equivalent Share
Primary........................................................................ $ .90 $ (.05)
--------- ---------
--------- ---------
Fully diluted.................................................................. $ .90 $ (.05)
--------- ---------
--------- ---------
</TABLE>
28
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE D -- ASSET DISPOSITIONS
During the first quarter of 1995, the Company recognized a net gain of
approximately $477 thousand from its ownership interest in four crude oil and
natural gas drilling partnerships as a result of the sale of all of the
partnership's crude oil and natural gas properties and related assets to Apache
Corporation. Pursuant to the partnership agreements, the disposition
transactions resulted in the liquidation of the partnerships and the Company
received proceeds in the aggregate amount of $832 thousand in April 1995. In
addition, during the first half of 1995, the Company completed the sale of its
interest in an exploratory project, a producing property in South Texas, various
non-producing properties and surplus equipment and inventory for an aggregate
consideration of approximately $1.1 million. The sale of the exploratory project
and producing and non-producing properties resulted in a net gain of
approximately $383 thousand. No gain or loss was realized on the surplus
equipment and inventory sale.
Charges of $484 thousand incurred primarily in the second quarter of 1995
relating to severance and other costs associated with further reductions of the
Company's staff were made as an offset to the gains on sales of crude oil and
natural gas properties recorded in 1995 and as an extension of the restructuring
plan contemplated in connection with the sale of crude oil and natural gas
assets in the fourth quarter of 1994.
On December 30, 1994, the Company disposed of substantially all of its
domestic crude oil and natural gas properties and related assets to Apache
Corporation ("Apache") for approximately $94.5 million cash, net of
approximately $3.3 million in net cash flow from the properties from October 1,
1994, the effective date of the transaction, through the closing. The net book
value of the assets sold was approximately $82.5 million and the Company
recognized a net gain of approximately $10.4 million after disposition costs of
approximately $1.6 million. In addition, the Company received $1.3 million in
April 1995 ($800 thousand of which related to crude oil and natural gas
properties) relating to the final post-closing adjustment procedure for its
disposition transaction effected with Apache Corporation on December 30, 1994.
The Company accounted for the anticipated effect of the final settlement in the
Company's financial statements as of December 31, 1994. During 1994, the Company
also consummated the disposition of various crude oil and natural gas properties
for cash consideration of approximately $3.5 million and recognized a net gain
of approximately $2.1 million.
After considering the sale of substantially all of its properties during
1994 and its ongoing operational needs, the Company reviewed the carrying value
of its remaining assets and recorded a write-down of certain remaining crude oil
and natural gas and other assets of approximately $2.5 million to reflect such
assets at net realizable value or the estimated fair value thereof. The
write-down was based on a review of the assets excluded from the dispositions of
properties during 1994 and a determination of a permanent decline in the value
of such assets in relation to current real estate or market values. In addition
as a result of obligations assumed by Apache, the Company reversed an accrual of
contingent liabilities of approximately $1.6 million.
Under these disposition transactions, the Company sold its crude oil and
natural gas properties located primarily in Louisiana, Southern Arkansas,
Northeast Texas and offshore Louisiana and specifically its dispositions
included crude oil and natural gas wells together with the corresponding reserve
production from such wells, interest in four crude oil and natural gas drilling
partnerships, equipment and fixtures, developed and undeveloped leasehold
acreage and mineral interests, and approximately 51,000 acres of fee lands. The
Company excluded from the disposition transaction its cash, accounts receivable,
and property, plant and equipment primarily corresponding to various domestic
exploratory projects and office building.
29
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE D -- ASSET DISPOSITIONS (CONTINUED)
During 1993, the Company sold its interest in certain producing crude oil
and natural gas properties for cash consideration of approximately $1.2 million,
which resulted in a net gain of approximately $651 thousand.
NOTE E -- DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT RECEIVABLES
On November 22, 1995, Hattiesburg Gas Storage Company ("HGSC") and
Hattiesburg Industrial Gas Sales Company ("HIGS"), indirect wholly owned
subsidiaries of the Company, sold to the FRGC Owner Trust, a newly formed
Delaware business trust (the "Trust"), the right to receive payments on the firm
storage contract receivables to be generated by them through June 30, 2000, from
the operation of the FRGC Storage Facility (the "HGSC Sold Receivables") for a
total cash consideration of approximately $42.7 million, representing $50.6
million at 7.52% annualized discount on the receivables. The HGSC Sold
Receivables were sold without recourse to HGSC or the Company. However, HGSC,
HIGS and First Reserve Gas Company, a subsidiary of the Company ("FRGC"), agreed
to be responsible for the payment of liquidated damages for certain breaches
under the sales agreement that would materially and adversely impair the
collection of the accounts receivable in the future and to self-insure against
certain force majeure events to the extent they are not covered by insurance.
The Company also agreed to be responsible for the payment of up to $10 million
(subject to an annual $2 million reduction) of such liquidated damages and
self-insurance under certain limited circumstances following a bankruptcy of
HGSC, HIGS or FRGC (collectively, the "FRGC Parties"). The obligations of the
FRGC Parties are secured by substantially all of their assets, including the
FRGC Storage Facility and HGSC's storage contracts, but excluding certain
receivables to be generated after June 30, 2000.
Prior to the sale of the HGSC Sold Receivables, HGSC purchased approximately
47.3% of the interests of the Trust for approximately $20.2 million, of which
26.8% were senior interests ranking and equal basis with the interests sold to
the other investors and 20.5% were junior and subordinate to the interest sold
to other investors. Such interests represent the right to receive funds from the
Trust as the HGSC Sold Receivables are collected by it.
The net proceeds of $22.5 million from the HGSC Sold Receivables in
conjunction with funds of $36.5 million derived from long-term borrowings and
existing cash were used by the Company to repay $60 million in indebtedness
incurred in connection with the Company's acquisition of FRGC in June 1995.
Although HGSC and HIGS sold all of their rights and interests in the HGSC Sold
Receivables to the Trust and received payment therefor, the proceeds from such
receivables have been classified for accounting purposes as "Deferred Revenue
from Sale of Future Contract Receivables" and will be recognized over the period
during which the HGSC Sold Receivables are to be generated. The discount between
the funds received on the sale of the HGSC Sold Receivables and the scheduled
payments thereunder will be amortized over the life of the HGSC Sold Receivables
based on the discount rate applied in fixing the sale price of the HGSC Sold
Receivables and recorded as "Amortization of Discount on Sale of Future Contract
Receivables." The amount of the Deferred Revenue reflected on the Company's
Balance Sheet reflects the amount of revenue generated from the sale less the
Company's carrying value of the senior and subordinated interests in the Trust
that were purchased by HGSC.
The amount of Deferred Revenues that will be amortized over the next five
years will be approximately $4.3 million in 1996, $4.6 million in 1997, $5.0
million in 1998, $5.4 million in 1999 and $2.9 million in 2000.
30
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE F -- LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
8.12% Secured guaranteed notes, due in monthly amounts from July 2000 through July
2005............................................................................... $ 36,474 $ --
Mortgage note to a bank at prime plus 1/4 of 1%..................................... 10 10
Other............................................................................... 1,670 231
--------- ---------
38,154 241
Less current portion................................................................ (294) (60)
--------- ---------
Amount classified as long-term...................................................... $ 37,860 $ 181
--------- ---------
--------- ---------
</TABLE>
On November 22, 1995, HGSC issued approximately $36.5 million in 8.12%
Secured Guaranteed Notes Due 2005 (the "Notes"). The terms of the Notes provide
for the payment of interest only through June 30, 2000, at which time principal
is to be amortized over the remaining life of the Notes. The Notes, which are
without recourse to Crystal Oil Company, are secured by substantially all the
assets of the FRGC Parties, including the FRGC Storage Facility, HGSC's storage
contracts, certain accounts receivable to be generated after June 30, 2000, and
a pledge of the cash flow from HGSC's 26.8% senior interest in the Trust. The
net proceeds from the Notes, funds of $22.5 million derived from the sale of the
HGSC Sold Receivables and existing cash were used by the Company to repay $60
million in indebtedness incurred in connection with the Company's acquisition of
FRGC in June 1995.
The FRGC Parties also agreed under the Indenture relating to the Notes to
various restrictions on the distribution of assets from the FRGC Parties to the
Company. However, such restrictions do not restrict the ability of the Company
to pay dividents to its shareholders from available cash and accumulated
earnings, exclusive of the operating cash flows of the FRGC Parties.
The Company prepaid the borrowings of $5.0 million under a reducing
revolving credit facility (the "Revolving Credit Commitment") in 1993 and the
outstanding balance under a derivative-linked acquisition term loan (the "Term
Loan") of approximately $11.6 million in December 1994 as a result of the
disposition of assets during the fourth quarter of 1994. In addition, the
Company agreed with its banks to terminate the Revolving Credit Commitment and
to provide a collateral of approximately $6.6 million in cash and cash
equivalents as assurance for the repayment of the Company's obligations with
respect to the outstanding letters of credit previously issued by the banks on
behalf of the Company and its subsidiaries (see Note K). On March 31, 1995, the
Company amended its credit facility (the "Credit Agreement") with its banks
relating to the standby letters of credit and reduced the cash collateral
requirements for the facility to 30% of the outstanding letters of credit.
Accordingly, the Company's Balance Sheets as of December 31, 1995 and 1994,
included restricted marketable securities of $1.5 million and restricted cash
equivalents of $6.6 million, respectively, which were classified as a
non-current asset. The Credit Agreement continues to prohibit the declaration
and payment of any dividends on the Company's stock as long as there are
outstanding letters of credit under the Credit Agreement, the latest of which
will terminate on January 1, 2001.
In conjunction with the borrowing under the Term Loan, the Company entered
into an interest rate swap agreement and hydrocarbon swap agreements with the
objectives of hedging against the fluctuations of interest rates and the
volatility of crude oil and natural gas prices for production derived from the
property acquired in Plaquemines Parish (See Note O). The net payments or
receipts under the interest rate swap agreement were recorded as adjustments to
interest expense. On
31
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE F -- LONG-TERM OBLIGATIONS (CONTINUED)
December 30, 1994, and as result of the prepayment of the Term Loan, the Company
agreed to cancel the interest rate swap contract in consideration for
approximately $200 thousand, which gain was accounted for as other income.
In connection with the disposition of assets during 1994, the Company also
acquired and redeemed all of its outstanding Non-Interest Bearing Convertible
Subordinated Notes due 1997 (the "Convertible Notes") for approximately $15.5
million. On November 21, 1994, the Company purchased approximately $5.0 million
principal amount of the Convertible Notes with a carrying value of approximately
$3.7 million for approximately $4.2 million pursuant to an unsolicitated
privately negotiated transaction. On December 30, 1994, the Company called for
redemption all of its $11.3 million outstanding Convertible Notes with a
carrying value of approximately $8.4 million at the principal amount thereof.
The carrying value of the Convertible Notes was calculated using a discount rate
of approximately 15%.
As a result of prepayment of long-term obligations in 1994, the Company
recognized a loss of approximately $3.8 million ($2.3 million net of income tax
benefit) relating to approximately $3.4 million from the difference between the
reacquisition price for the Convertible Notes and the carrying value and
approximately $373 thousand from the write-off of unamortized deferred financing
costs associated with the bank debt. The loss on early extinguishment of debt
was classified as an extraordinary item in the Company's Consolidated Statement
of Operations for the year ended December 31, 1994.
Maturities of debt obligations for each of the next five years are $294
thousand in 1996; $268 thousand in 1997; $266 thousand in 1998; $266 thousand in
1999; and $3.3 million in 2000.
NOTE G -- STOCKHOLDERS' EQUITY
A summary of the Company's capital stock, as of December 31, 1995, is as
follows:
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AND
AUTHORIZED OUTSTANDING
------------- -------------
<S> <C> <C>
$.06 Senior Convertible Voting............................................ 51,200,773
Preferred Stock (Non-Cumulative), $.01 par value ("Senior Preferred
Stock"); $1.00 liquidation preference.................................. 14,788,328
Common Stock, $.01 par value ("Common Stock")............................. 4,000,000 2,654,042
</TABLE>
The Company's Senior Preferred Stock is entitled to a non-cumulative, $.06
per share annual dividend. However, no dividends may be paid until the following
conditions are met: (a) certain liabilities to the bank, including the standby
letters of credit, the last of which does not expire until January 1, 2001, are
no longer outstanding, (b) after giving effect to such dividends, the Company
has positive retained earnings and (c) the declaration and payment of such
dividends will not violate any applicable law or provision of any material
contract to which the Company is a party. The shares of the Senior Preferred
Stock are convertible at the option of the holder into shares of Common Stock at
any time at the conversion rate of 444.44 shares of Senior Preferred Stock per
share of Common Stock (.00225 of a share of Common Stock per share). During the
fourth quarter of 1994, the Company purchased approximately 3.4 million shares
of its Senior Preferred Stock for approximately $1.5 million pursuant to an
unsolicited privately negotiated transaction.
32
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE G -- STOCKHOLDERS' EQUITY (CONTINUED)
The Senior Preferred Stock has a $1 liquidation preference for each share
outstanding. As a result, if the Company were to have been liquidated and its
assets sold and its liabilities settled at the carrying values thereof at
December 31, 1995, $14.8 million of the equity of the Company would have been
attributed entirely to the Senior Preferred Stock.
Holders of the Senior Preferred Stock are entitled to vote with the holders
of the Common Stock, as a single class, for the election of directors and on all
matters submitted to a vote of stockholders of the Company. Each share of Senior
Preferred Stock is entitled to .001 of a vote.
During 1995 and 1994, the Company issued 67,750 shares and 20,350 shares of
Common Stock, respectively, for an aggregate consideration of approximately $1.3
million and $365 thousand, respectively, pursuant to the Crystal Oil Company
1992 Employee Stock Option Plan (the "Option Plan") (See Note I).
The table below shows the total number of shares of Common Stock which, at
December 31, 1995, were reserved for future issuance upon conversion or exercise
of the following securities:
<TABLE>
<CAPTION>
SHARES RESERVED
---------------
<S> <C>
Senior Preferred Stock................................................................. 33,274
Warrants issued and outstanding........................................................ 449,308
Shares reserved for issuance pursuant to the Employee Stock Option Plan (See Note I)... 106,875
---------------
589,457
---------------
---------------
</TABLE>
The Company's outstanding warrants allow its holders to purchase an
aggregate of 449,308 shares of the Company's Common Stock at per share prices
ranging from $97.78 to $325.93. The outstanding warrants expire on January 30,
1999.
The Company has reserved for future issuance 106,875 shares of Common Stock
that are issuable pursuant to an Employee Stock Option Plan. Of such shares
reserved, options have been granted and are outstanding to purchase 85,250
shares of Common Stock (See Note I).
In 1994, the shareholders of the Company approved an amendment to the
Company's Articles of Incorporation that effected a change to the terms of the
Series A Convertible Voting Preferred Stock, $.01 par value ("Series A Preferred
Stock"). The amendment included an increase in the conversion rate applicable to
the Series A Preferred Stock from .002 to .0031 of a share of the Company's
Common Stock for each share of Series A Preferred Stock (equivalent to a change
from 500 to approximately 323 shares of Series A Preferred Stock for one share
of Common Stock) and required the Company to redeem for $.06 per share all of
the shares of Series A Preferred Stock outstanding and not converted into shares
of Common Stock as of the close of business on April 18, 1994. Pursuant to such
amendment the Company received for conversion approximately 18.6 million shares
of Series A Preferred Stock which were converted into approximately 58 thousand
shares of Common Stock and the remaining approximately 6.8 million shares of
Series A Preferred Stock were redeemed on April 19, 1994, at $.06 per share for
approximately $410 thousand and related costs of approximately $161 thousand.
33
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE H -- PROVISION FOR INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss carryforwards and other tax benefits. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
In January 1993, the Company adopted the asset and liability method of
accounting for income taxes under Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), Accounting for Income Taxes, without restating prior
years' financial statements. The adoption of SFAS 109 did not have an effect on
the Company's financial statements because of available net operating loss
carryforwards for income tax purposes and the Company's quasi-reorganization
accounting treatment of the realization of such carryforwards and accordingly, a
cumulative effect of a change in accounting principle was not recorded.
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current-Alternative Minimum Tax........................................... $ 867 $ 100 $ 21
Provision in lieu of income taxes......................................... 214 1,078 518
Deferred tax benefit...................................................... (357) -- --
State:
Current................................................................... 206 -- --
Provision in lieu of income taxes......................................... 32 173 87
--------- --------- ---------
$ 962 $ 1,351 $ 626
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes vary from the amounts computed by applying
the statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts computed by applying statutory rate................................. $ 804 $ 1,175 $ 566
Benefit of state income taxes............................................... (80) (59) (30)
Other....................................................................... -- 62 3
--------- --------- ---------
724 1,178 539
State income taxes.......................................................... 238 173 87
--------- --------- ---------
$ 962 $ 1,351 $ 626
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of the Company's quasi-reorganization accounting treatment, the
benefits of utilizing the net operating loss carryforwards and income tax
credits accumulated prior to the Company's reorganization are credited to
additional paid-in-capital and are reported as a provision in lieu of income
taxes in the statement of operations for financial reporting purposes. However,
see elsewhere in this note for impact on deferred taxes of the FRGC purchase.
The significant components of deferred income tax expense (benefit) for the
years ended December 31, 1995, 1994 and 1993, included
34
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE H -- PROVISION FOR INCOME TAXES (CONTINUED)
decreases of $756 thousand, $1.3 million and $605 thousand, respectively, in
gross deferred tax assets (net of gross deferred tax liabilities) and the
beginning of the year valuation allowance as a result of utilizing net operating
loss, capital loss and tax credit carryforwards, net of an increase in 1995 for
recognition of a deferred tax asset of $867 thousand for the payment of
alternative minimum tax expected to be utilized to offset future taxable income.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1995 and
1994, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Sale of future contract receivables.......................................... $ 14,300 $ --
Net operating loss carryforwards............................................. 61,801 75,202
Investment tax credit carryforward........................................... 6,515 6,515
Percentage depletion carryforward............................................ 2,539 2,900
Alternative minimum tax credit carryforward.................................. 2,363 921
State net operating loss carryforward........................................ 2,157 2,642
Property, plant and equipment -- valuation and depreciation.................. -- 1,553
Other........................................................................ 1,455 431
---------- ----------
Total gross deferred tax assets............................................ 91,130 90,164
Less valuation allowance................................................... (65,706) (90,051)
---------- ----------
Gross deferred tax assets net of valuation allowance..................... 25,424 113
---------- ----------
Deferred tax liabilities
Property, plant and equipment -- valuation and depreciation.................. (18,026) --
Partnership earnings......................................................... -- (113)
---------- ----------
Total gross deferred tax liabilities....................................... (18,026) (113)
---------- ----------
Net deferred tax assets.................................................. $ 7,398 $ --
---------- ----------
---------- ----------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The valuation allowance
for deferred tax assets as of January 1, 1995 and 1994, was $90.1 million and
$109.9 million, respectively. The net change in the total valuation allowance
for the years ended December 31, 1995 and 1994, were decreases of $24.3 million
and $18.5 million, respectively. The change in 1995 relates primarily to the
purchase of FRGC which resulted in an assessment that certain existing net
operating loss carryforwards and other tax benefits are more likely than not to
be utilized. As a result of the Company's quasi-reorganization accounting
treatment, the recognition of net operating loss carryforwards and other tax
benefits generated prior to the Company's quasi-reorganization resulted in an
addition to paid-in capital of $22.8 million in connection with the acquisition.
In addition, recognition of tax benefit carryforwards generated after the
Company's quasi-reorganization resulted in a reduction of $2.2 million in the
carrying value of the gas storage facility. The change in 1994 relates primarily
to the effects of the sale of substantially all assets of the Company.
In assessing the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this
35
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE H -- PROVISION FOR INCOME TAXES (CONTINUED)
assessment. In order to fully realize the deferred tax asset at December 31,
1995, the Company will need to generate future taxable income of approximately
$21.3 million prior to the expiration of the net operating loss carryforwards in
2002. Taxable income for the years ended December 31, 1995 and 1994 was $42.0
million and $19.0 million, respectively. Taxable income for 1995 differed from
income before taxes as reported in the accompanying statement of operations for
the same period due primarily to the taxable income generated in connection with
the sale of future contract receivable. The difference for 1994 was a result of
the sale of substantially all of the Company's crude oil and natural gas
properties and the extinguishment of the Convertible Notes. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at December 31, 1995. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
Investment tax credits and regular tax net operating loss carryforwards of
$6.5 million and $181.7 million, respectively, are available for federal income
tax purposes with expiration dates primarily from 1997 to 2002. In addition,
statutory depletion carryforwards and Alternative Minimum Tax credit
carryforwards of $7.5 million and $2.4 million, respectively, are available for
federal income tax purposes and have no expiration date. As a result of the
Company's quasi-reorganization accounting treatment, the future benefit from
utilization of any additional net operating loss carryforwards accumulated prior
to the Company's reorganization, and not previously recognized, will be recorded
as an adjustment to additional paid-in capital. During 1995, 1994 and 1993, $246
thousand, $1.3 million and $605 thousand, respectively, were credited to
additional paid-in capital as a result of utilization of such tax carryforwards,
exclusive of that recognized in connection with the acquisition of FRGC during
1995.
NOTE I -- EMPLOYEE INCENTIVE AND BENEFIT PLANS
The Company has an Option Plan intended to provide a means whereby certain
key employees of the Company may obtain a proprietary interest in the continued
development and financial success of the Company. The Option Plan provides for
the granting of stock options in the aggregate amount of 200,000 shares of
Common Stock and for a four-year vesting period on the basis of one-fourth
vesting on each anniversary date of the date of grant and subject to earlier
vesting upon the occurrence of certain events such as the substantial
disposition of assets. On December 30, 1994, the participants in the Option Plan
became fully vested as a result of the disposition transaction with Apache. The
determination of the individuals eligible to participate in the Option Plan and
the allocation of stock options to the participants are administered by a
committee of the Board of Directors. The price at which a share of Common Stock
may be purchased pursuant to a stock option may not be less than the
36
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE I -- EMPLOYEE INCENTIVE AND BENEFIT PLANS (CONTINUED)
fair market value of a share of Common Stock on the date the stock option is
granted, and the maximum term of a stock option may not exceed ten years.
Additional information relating to the Option Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
STOCK OPTIONS PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
- ------------------------------------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
At December 31, 1992....................... $17.50 81,500 -- 28,500
Authorized................................. -- -- 90,000
Granted.................................... $21.50 37,500 -- (37,500)
Became exercisable......................... $17.50 -- 20,375 --
Exercised.................................. $17.50 (5,025) (5,025) --
Terminated................................. $17.50 to $21.50 (4,625) -- 4,625
----------- ----------- ---------
At December 31, 1993....................... $17.50 to $21.50 109,350 15,350 85,625
Authorized -- -- --
Granted.................................... $22.125 46,500 -- (46,500)
Became exercisable......................... $17.50 to $22.125 -- 140,500 --
Exercised.................................. $17.50 to $21.50 (20,350) (20,350) --
Terminated................................. -- -- --
----------- ----------- ---------
At December 31, 1994....................... $17.50 to $22.125 135,500 135,500 39,125
Authorized................................. -- -- --
Granted.................................... $31.125 17,500 -- (17,500)
Became exercisable......................... -- -- --
Exercised.................................. $17.50 to $22.125 (67,750) (67,750) --
Terminated................................. -- -- --
----------- ----------- ---------
At December 31, 1995....................... $17.50 to $31.125 85,250 67,750 21,625
----------- ----------- ---------
----------- ----------- ---------
Average option price at December 31,
1995...................................... $22.50
</TABLE>
The Company will adopt Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," in 1996. The Company
currently plans to continue to measure compensation cost for employee stock
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company provides a Retirement Savings Plan ("Savings Plan") for its
eligible employees. The Savings Plan allows participants to defer a portion of
their income through contributions to the Savings Plan pursuant to section
401(K) of the Internal Revenue Code and does not provide for any matching
contributions by the Company. The Company bears the administrative costs of the
Savings Plan.
The Company adopted the Crystal Oil Company Employee Stock Ownership Plan
(the "ESOP"), effective January 1, 1993, for its eligible employees. Under the
ESOP, the Company may contribute annually an amount, if any, determined by the
Board of Directors in a specified percentage of total employee compensation, not
to exceed 10%. All contributions are made to a trust for the benefit of the
employees and are invested in shares of Common Stock to be purchased by an
independent trustee in the open market. The Company may elect to make its
contribution in the form of shares of Common Stock. The Board of Directors
approved a contribution to the ESOP of $50 thousand and $150 thousand or
approximately 5% of total annual employee compensation in 1995 and 1994,
respectively, which amounts were recorded as general and administrative expense.
At December 31, 1995, 5,709
37
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE I -- EMPLOYEE INCENTIVE AND BENEFIT PLANS (CONTINUED)
shares of the Company's Common Stock, purchased in the open market, are held in
trust for the ESOP. The Company's contributions are subject to vesting based on
the number of years that the employee is employed with the Company from and
after January 1, 1993, with amounts being vested at a rate of 20% for each year
of employment after January 1, 1993, subject to earlier vesting upon the
occurrence of certain events such as the substantial disposition of assets. On
December 30, 1994, the participants in the ESOP became fully vested with respect
to the prior contributions of the Company as a result of the disposition
transaction with Apache. Employees are entitled to receive a single distribution
of the number of vested shares in the employee's account following retirement,
disability, death or termination of employment but may, in accordance with rules
under the ESOP, elect to receive the entire distribution in cash based on the
existing value of the Common Stock.
As a result of the disposition of assets, the Company adopted a special
severance pay policy for eligible employees terminated due to a reduction in
work force. The Company recorded charges of $484 thousand and $700 thousand in
1995 and 1994, respectively, primarily relating to severance compensation as an
offset to the gains on sales of crude oil and natural gas properties.
NOTE J -- NET INCOME PER SHARE
Earnings per common share were computed by dividing adjusted net income by
the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the year. The Convertible Notes, the Senior
Preferred Stock, the stock options and all classes of warrants are considered to
be the equivalent of Common Stock. For the years ended December 31, 1995, 1994
and 1993, the effective exercise price of all classes of warrants, when used in
connection with the Senior Preferred Stock, was greater than the average market
price of the Common Stock, and therefore not considered in calculating income
per share.
For 1993, the number of shares issuable on conversion of the Series A
Preferred Stock (convertible into 50,959 shares of Common Stock) was added to
the number of shares of Common Stock outstanding. The Senior Preferred Stock in
1995, 1994 and 1993 were assumed converted into Common Stock, thereby increasing
the number of common shares outstanding by 33,274 in 1995, 33,274 in 1994 and
40,828 in 1993. The number of shares outstanding was increased in 1995, 1994 and
1993 by 21,583, 39,621, and 23,364 shares, respectively, for the increase in
shares issuable from the outstanding stock options, net of the effect of
applying the treasury stock method. The exercise of warrants utilizing the
Convertible Notes and the conversion of the remaining Convertible Notes were
anti-dilutive and therefore were not assumed to be exercised or converted for
1994 and 1993. All conversions into Common Stock and exercises of warrants were
assumed to have been converted or exercised at the beginning of the year.
Earnings per common share assuming full dilution is computed on the same
basis except that in 1995 and 1994 the increase in the number of shares
outstanding relating to the Company's stock options under full dilution was
22,168 and 41,015, respectively, because the closing market price of the Common
Stock was higher than the average market price during the period for which such
options became dilutive.
NOTE K -- COMMITMENTS AND CONTINGENCIES
The Company, as an entity that has been involved in the exploration,
development and production of crude oil and natural gas, has certain obligations
based on federal, state and local regulations concerning the discharge of
materials into the environment or otherwise relating to the protection of the
environment. These environmental obligations include the remediation or
mitigation of the effects on the environment of the disposal or release of
certain chemical and petroleum substances at
38
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE K -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
certain properties previously owned or operated by the Company such as crude oil
and natural gas fields and other facilities. As part of the Company's agreement
with Apache Corporation ("Apache") with respect to the disposition of various of
the Company's properties in 1994, Apache assumed various plugging and
abandonment costs with respect to the properties acquired. The Company, however,
agreed to indemnify Apache for certain environmental liabilities relating to the
properties sold to it to the extent a claim is made by June 30, 1996.
In 1995, the Company was advised by Atlantic Richfield Corporation ("ARCO")
of the existence of a potential environmental cleanup of a mining site in
Colorado that was sold by a subsidiary of the Company to ARCO. The mining assets
were owned by the Company's subsidiary for approximately eight years during the
1970s and were sold by the subsidiary to ARCO in 1980. The Company has filed a
declaratory action in the Federal District Court for the Northern District of
Louisiana, Shreveport Division, seeking a determination that the Company has no
liability to ARCO with respect to this site due to, among other things, a
contractual agreement between the subsidiary of the Company that sold the
property to ARCO's predecessor by merger in which such predecessor agreed that
the Company's subsidiary would have no further liability with respect to the
properties other than for certain express items. The Company is currently
reviewing the scope of the potential cleanup and the cost thereof. Although no
specific cost estimates have been made by the Company to date, the Company has
been advised by ARCO that the total cost of cleanup could exceed $20 million.
The Company intends to vigorously defend this matter.
In 1991, the Company was named, among others, as a potentially responsible
party ("PRP"), for environmental cleanup by the Indiana Department of
Environmental Management and received an informational request concerning the
Company's activities at a site located in Indiana. A now dissolved subsidiary of
the Company owned a refinery on this site for a period of approximately four
years during the 1970s. Other parties have owned and operated this site since
the construction of the refinery in 1946. Presently, no environmental-related
cost have been assessed for remediation of this site.
The Company was recently notified by the Department of Transportation of the
State of Louisiana ("DOT") that it intends to seek contribution from the Company
for the prior cleanup by the DOT of a site located in Shreveport, Louisiana, on
which a refinery previously owned by the Company once operated in the 1920s.
Other parties which have owned this site or conducted operations at this site
have similarly been notified. The DOT is seeking $4.5 million from all PRPs. The
Company is engaged in a preliminary review of this matter and, based on such
review, believes that any contamination at the site was primarily related to
operations or events at the site subsequent to the Company's ownership thereof.
The Company currently intends to vigorously defend this matter and has not
agreed to any contribution.
The Company has also recently been advised by the Louisiana Department of
Environmental Quality of the potential need for cleanup of 5.5 acres in a 30
acre tract of land outside of Shreveport which the Company owned from 1926 to
1965 and leased to another party that built and operated a crude oil refinery in
the 1930s and 1940s. The Company has never owned or operated a refinery at this
site and is currently investigating this matter to make a determination as to
the potential costs to the Company, if any, of a cleanup of this site.
Under federal and state environmental laws providing for joint and several
liability for environmental cleanup, a governmental plaintiff could seek to
recover all remediation costs at a waste disposal site from any one of the PRPs
for such site, including the Company, despite the involvement of other PRPs. The
Company's policy is to accrue environmental remediation costs if it is probable
39
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE K -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
that a liability has been incurred and an amount is reasonably estimable. In
light of the foregoing matters, the Company accrued as of December 31, 1995,
$1.5 million for defense and related costs of such matters. Because the forgoing
matters relate to matters existing prior to the Company's quasi-reorganization
in 1986, this accrual was recorded net of related tax impact as an offset to
additional paid-in capital. Such accrual will be reviewed periodically and
adjusted, if necessary, to reflect any additional charges that the Company
believes will be probable.
In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company,
Charter Oil Company, and Crystal Exploration and Production Company", was filed
in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County,
Florida, Cause No. 79-12012-CA-07. Plaintiff, the limited partner of Caloosa
1974 Limited Partnership, a Colorado limited partnership, of which Crystal
Exploration and Production Company, formerly Charter Exploration and Production
Company, is the general partner, claims compensatory damages of $10 million,
punitive damages in an undetermined amount, interest and costs of litigation.
The suit alleges breach of contract, breach of fiduciary duty, mismanagement and
fraud in connection with the operation of Caloosa 1974 Limited Partnership. In
recent years, the suit has been generally inactive and the Company believes that
the likelihood of a recovery, if any, by Plaintiff in a material amount is
remote.
The Economic Recovery Tax Act of 1981, as supplemented by the Tax Equity and
Fiscal Responsibility Act of 1982, provided for transactions that were
structured in the form of a lease for tax purposes but, in substance, were
solely the sale and purchase of tax benefits such as investment tax credits and
deductions under the Accelerated Cost Recovery System. The sales agreements
place restrictions on the disposal of assets and, in certain situations, require
the Company to indemnify the tax lessor against loss of these tax benefits
unless the purchaser of the assets assumes the obligations. In respect to the
disposition of assets during 1994, the purchasers agreed to assume the Company's
obligations with respect to substantially all of the tax lease agreements in
effect. However, the Company is required to maintain its current letters of
credit to support the tax lease agreements assumed by the purchasers, and is
subject to reimbursement from the purchasers of the assets for draws against the
letters of credit. As of December 31, 1995, approximately $4.6 million of
standby letters of credit are remaining and primarily support the obligations
with respect to the tax benefits sold. These letters of credit have quarterly
fees of 3/4 of 1% per annum of the amount of the letters of credit from time to
time outstanding. The Company's contingent obligations with respect to the
letters of credit pursuant to the Company's Credit Agreement are secured by a
collateral account maintained at the issuing bank with approximately $1.5
million in marketable securities. The balance of outstanding standby letters of
credit decreases $4.1 million in 1996, $.2 million in 1997, $.1 million in 1998,
$.1 million in 1999 and $.1 million thereafter through January 1, 2001.
On November 10, 1994, the Company entered into various employment agreements
with its key officers and employees. These agreements expire on December 31,
1999, and provide for a cash payment to the officer equal to a multiple of one
to three times the most recent base salary and extension of certain employee
benefits for a period of time in the event of termination of employment under
certain circumstances and without cause. In addition, the employment agreements
provide for certain cash bonus payment payable in equal semi-annual installments
over a two year period and aggregating to 50% of the base salary if the officer
is in the employ of the Company at that time.
The future minimum rental payments for all non-cancelable operating leases
as of December 31, 1995, are immaterial. Rental expense on operating leases was
not significant in 1995 and approximated $.8 million, and $.6 million in 1994
and 1993, respectively.
40
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE L -- CRUDE OIL AND NATURAL GAS COST DATA AND RESULTS OF OPERATIONS
The following tables set forth certain data with respect to crude oil and
natural gas acquisition, exploration, development and production activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of properties:
Unproved................................................................ $ 158 $ 1,203 $ 260
Proved.................................................................. -- -- 50
Exploration costs......................................................... 866 900 2,270
Development costs......................................................... 110 11,203 5,550
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Aggregate capitalized costs (including work in progress):
Crude oil and natural gas properties............................................ $ 1,944 $ 3,652
Undeveloped leases and mineral interests........................................ -- 327
Less accumulated depreciation and depletion..................................... (6) (2,087)
--------- ---------
Costs relating to crude oil and natural gas activities, net..................... $ 1,938 $ 1,892
--------- ---------
--------- ---------
</TABLE>
Results of operations from exploration and production activities excluding
the gain on the sale of the assets in the fourth quarter of 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Sales to unaffiliated customers....................................... $ 57 $ 28,819 $ 33,862
Other income.......................................................... 376 506 1,312
--------- --------- ---------
Total revenues...................................................... 433 29,325 35,174
Production costs (lease operating expense and taxes).................... 17 11,756 12,030
Exploration costs....................................................... 50 2,351 1,264
Depreciation, depletion and impairment.................................. 6 10,612 12,199
--------- --------- ---------
Total costs......................................................... 73 24,719 25,493
--------- --------- ---------
Results of operations before income tax................................. 360 4,606 9,681
Income tax (1).......................................................... 122 1,566 3,291
--------- --------- ---------
Results of operations................................................... $ 238 $ 3,040 $ 6,390
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Results of operations from exploration and production activities reflects a
income taxes for comparative purposes. However, taxable income from
operations is offset by the utilization of the Company's net operating loss
carryforward.
41
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
--------- --------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1995
Revenues........................................... $ 2,191 $ 1,306 $ 3,909 $ 4,112 $ 11,518
--------- --------- ------------- ------------ ---------
--------- --------- ------------- ------------ ---------
Gross profit....................................... $ -- $ 302 $ 2,580 $ 2,776 $ 5,658
--------- --------- ------------- ------------ ---------
--------- --------- ------------- ------------ ---------
Net income (loss).................................. $ 528 $ (139) $ 590 $ 425 $ 1,404
--------- --------- ------------- ------------ ---------
--------- --------- ------------- ------------ ---------
Net income (loss) per common and common stock
equivalent share.................................. $ .20 $ (.05) $ .22 $ .16 $ .52
--------- --------- ------------- ------------ ---------
--------- --------- ------------- ------------ ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
----------- --------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1994
Revenues........................................... $ 7,676 $ 7,307 $ 8,130 $ 20,410 $ 43,523
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Gross profit....................................... $ 4,676 $ 4,364 $ 4,619 $ 3,910 $ 17,569
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Income (loss) before extraordinary item............ $ (1,102) $ (246) $ 110 $ 5,664 $ 4,426
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Net income (loss).................................. $ (1,102) $ (246) $ 110 $ 3,344 $ 2,106
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Income (loss) before extraordinary item per common
and common stock equivalent share................. $ (.44) $ (.10) $ .04 $ 2.14 $ 1.68
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Net income (loss) per common and common stock
equivalent share.................................. $ (.44) $ (.10) $ .04 $ 1.26 $ .80
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
</TABLE>
The results of operations include a charge to exploration cost of $2.0
million for the quarter ended March 31, 1994, based on the assessment of wells
in progress being drilled as uneconomical to complete. Revenues include a gain
from the sale of crude oil and natural gas properties of approximately $12.5
million in the quarter ended December 31, 1994.
NOTE N -- COMMODITY SWAP CONTRACTS
The Company entered into commodity swap contracts with financial
institutions for the purpose of hedging against the volatility in the prices
that it receives for a portion of its crude oil and natural gas production.
Under such commodity swap contracts, the Company was either entitled to receive
or required to pay, on a quarterly basis, an amount of cash equal to the
difference between the fixed price in such contracts and a reference price of a
barrel of crude oil or a MMbtu of natural gas as quoted or referenced in an
agreed established market multiplied by the volume hedged for each contract.
These contracts were derivative financial instruments negotiated with the
individual financial institution and did not require deliveries of the commodity
hedged.
During the fourth quarter of 1994 and as a result of the disposition of
substantially all of the Company's crude oil and natural gas properties, the
Company agreed to cancel all of its commodity swap contracts in consideration
for a net amount of approximately $.7 million. The gain from the
42
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE N -- COMMODITY SWAP CONTRACTS (CONTINUED)
termination of such contracts was allocated over the original periods of such
contracts and recognized for the period ended December 31, 1994, as revenues
from crude oil and natural gas of approximately $.3 million for the allocations
to volumes hedged and sold from the termination date through the consummation of
the disposition transaction on December 30, 1994, and as miscellaneous income of
approximately $.4 million for the allocation to the remaining hedged volumes.
Unless otherwise noted, all transactions identified in the financial
statements as hedging transactions are identified and accounted for as hedging
transactions for income tax purposes pursuant to Treasury Regulations Section
1.1221-2T(c).
NOTE O -- CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents, marketable
securities and trade accounts receivables. The Company consistently invests its
idle funds in short term debt securities through major banks. At December 31,
1995, the outstanding balance of these securities included approximately $10.0
million classified as cash equivalents and $55.9 million classified as
marketable securities, $1.5 million of which are restricted funds, in the
accompanying financial statements. Such investments consist of short term
government obligations that are for terms of less than one year.
The Company's operating revenues are primarily generated from providing firm
gas storage capacity to twelve customers under 15-year contracts expiring in
2005. These customers consist of eight local natural gas distribution companies,
two major natural gas producers and two natural gas marketers. The concentration
of credit risk in a relatively small number of customers in the natural gas
industry affects the Company's overall exposure to credit risk because customers
may be similarly affected by changes in economic and other conditions. The
Company performs ongoing credit evaluations of its customer's financial
condition.
NOTE P -- INVESTMENT IN RUSSIAN JOINT VENTURE
In 1993, the Company entered into an agreement with the Orenburgneft
Production Association ("Orenburgneft") in Orenburg, Russia, to form a joint
venture that would be structured as a closed stock corporation owned equally by
Crystal and Orenburgneft. This joint venture is expected to engage in workover
and enhanced recovery activities in two fields with existing producing crude oil
and natural gas deposits located in the Orenburg Region of the Russian
Federation.
The Company's activities in Russia are subject to the risks associated with
foreign operations, including political and economic uncertainties, risks of
cancellation or unilateral modification of agreements, operating restrictions,
repatriation restrictions, expropriation, export restrictions, the imposition of
new taxes and the increase of existing taxes, inflation and other risks arising
out of foreign governmental sovereignty over areas in which the operations are
conducted. As a result of such operating environment and the extended period
required for obtaining the necessary regulatory approvals and tax exemptions,
the Company expensed during the fourth quarter of 1994 its aggregate investment
of approximately $2.0 million in the joint venture and another potential venture
in the developing stages with the Russian Federation. Presently, this joint
venture has been unable to obtain regulatory approval. As a result, the Company
has curtailed its activities in Russia pending Orenburgneft's ability to obtain
regulatory approval of the joint venture or the proposal of an alternative
venture that would be economically viable under the laws of the Russian
Federation.
43
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE Q -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of certain of the Company's financial instruments at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents.......................................... $ 10,812 $ 10,812 $ 75,864 $ 75,864
Marketable securities.............................................. 54,447 54,447 -- --
Restricted cash and cash equivalents............................... -- -- 6,563 6,563
Restricted marketable securities................................... 1,476 1,476 -- --
Long-term obligations, including current maturities................ 36,654 36,654 241 241
Deferred revenue from sale of future contract
receivables....................................................... 22,160 22,160 -- --
</TABLE>
The following methods and assumptions were used by the Company in
determining its fair value disclosure for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates fair value due to the short maturity of the cash equivalents.
Marketable securities: Marketable securities consist of debt securities.
Fair values are based on quoted market prices.
Current and Long-Term Obligations: The carrying amount of the Company's
secured guaranteed notes, note to bank and others approximates its fair value,
which is estimated using discounted cash flow method based on the Company's
borrowing rates for similar types of financing arrangements.
Deferred Revenue from Sale of Future Contract Receivables: The carrying
amount of the Company's deferred revenue from sale of future contract
receivables reflects the net proceeds from the HGSC Sold Receivables and
approximates its fair value. The fair value of the HGSC Sold Receivables is
estimated using discounted cash flow method based on the discount rate for
similar types of arrangements.
Off-balance-sheet instruments: Fair values for the Company's letter of
credit contracts are based on costs which would be incurred to terminate
existing agreements and enter into new agreements for similar amounts,
expiration dates and counterparties' credit standing. Such estimated fair value
approximates the carrying amount of the obligation for fees related to the
letters of credit.
The carrying amounts of account receivable, accounts payable and accrued
expenses approximate their fair value due to the short maturity of these
instruments.
NOTE R -- SEGMENT INFORMATION AND OTHER
The Company's operations were primarily concentrated in the natural gas
storage segment after the acquisition of FRGC in June 1995 and the crude oil and
natural gas exploration and production segment prior to the substantial
disposition of the related assets during the fourth quarter of 1994. Operating
profit for each segment includes total revenues (inclusive of gain on sale of
property, plant and equipment of $12.5 million in 1994) less operating expenses
and excludes general and administrative expenses, interest and debt expense and
income taxes.
44
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE R -- SEGMENT INFORMATION AND OTHER (CONTINUED)
The following table presents information relating to the Company's business
segments included in its Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Segment Revenues:
Crude oil and natural gas exploration and production......................... $ 433 $ 41,849 $ 35,174
Natural gas storage.......................................................... 6,317 -- --
Investment income and other.................................................. 4,768 1,674 766
--------- --------- ---------
Total...................................................................... $ 11,518 $ 43,523 $ 35,940
--------- --------- ---------
--------- --------- ---------
Segment Operating Profit:
Crude oil and natural gas exploration and production......................... $ 360 $ 17,130 $ 9,681
Natural gas storage.......................................................... 4,123 -- --
--------- --------- ---------
Operating profit............................................................. 4,483 17,130 9,681
Corporate and general and administrative expense, net of investment income
and other revenues.......................................................... 135 (7,091) (4,440)
Interest and debt expense.................................................... (2,252) (2,773) (3,575)
--------- --------- ---------
$ 2,366 $ 7,266 $ 1,666
--------- --------- ---------
--------- --------- ---------
</TABLE>
The identifiable assets of the Company, by segment, at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Crude oil and natural gas exploration and production........................... $ 2,522 $ 6,552
Natural gas storage............................................................ 93,417 --
Corporate and other............................................................ 77,506 85,388
----------- ---------
Total........................................................................ $ 173,445 $ 91,940
----------- ---------
----------- ---------
</TABLE>
Depreciation and amortization expense and capital expenditure information
for each segment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Depreciation and Amortization Expense:
Crude oil and natural gas exploration and production................ $ 6 $ 10,612 $ 12,199
Natural gas storage................................................. 1,495 -- --
Corporate and other................................................. 268 3,608 387
--------- --------- ---------
Total............................................................. $ 1,769 $ 14,220 $ 12,586
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Capital Expenditures:
Crude oil and natural gas exploration and production................ $ 1,499 $ 14,111 $ 9,075
Natural gas storage................................................. 78,509 -- --
Corporate and other................................................. 133 456 847
--------- --------- ---------
Total............................................................. $ 80,141 $ 14,567 $ 9,922
--------- --------- ---------
--------- --------- ---------
</TABLE>
45
<PAGE>
CRYSTAL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED
DECEMBER 31, 1995
NOTE R -- SEGMENT INFORMATION AND OTHER (CONTINUED)
During 1995, the Company's operating revenues were primarily generated from
the operation of the gas storage facility and specifically from the 15-year
contracts, which expire in 2005, providing for firm capacity to twelve
customers. The Company had one customer which accounted for $1.2 million (10%)
of total revenue in 1995. In respect to the crude oil and natural gas production
activities, the Company had one purchaser of natural gas production which
accounted for $10.6 million (24%) and $12.6 million (35%) of total revenue in
1994 and 1993, respectively, and one purchaser of crude oil production which
accounted for approximately $10.5 million (24%) and $13.3 million (37%) of total
revenues in 1994 and 1993, respectively. There are no other customers to whom
sales represent more than 10% of total revenues.
46
<PAGE>
SUPPLEMENTAL INFORMATION
(UNAUDITED)
Supplemental information includes crude oil and natural gas reserve
information pertaining to the Company's crude oil and natural gas exploration
and production operations required by Statement No. 69 of the Financial
Accounting Standards Board entitled "Disclosures About Oil and Gas Producing
Activities".
RESERVE INFORMATION
The following tables present certain information regarding the Company's
proved reserves, all of which are located in the United States. The Company
engaged the independent engineering firm of Harlan Consulting to report on the
crude oil and natural gas reserves at December 31, 1993. An independent review
of the reserves was not obtained at December 31, 1995 and 1994. At December 31,
1995, the reserves were derived from the Company's participation in the drilling
activities under a prospect development program. At December 31, 1994, the
reserves related to the Company's interest in one South Texas field and its
interest, through a subsidiary, in its four partnerships. All of such reserves
have been sold during the first quarter of 1995. The proved crude oil and
natural gas reserves were estimated in all periods generally utilizing prices
and costs then in effect. Actual future net cash flows will be affected by
actual production, supply and demand for crude oil and natural gas, curtailments
or increases in consumption by natural gas purchasers and changes in
governmental regulations or taxation. As required, the prices used in preparing
the following tables are those in effect at the respective year ends presented,
which may vary from prices subsequently received due to seasonal fluctuations or
changes in the industry except to extent prices are fixed and determinable from
existing contracts or hedging arrangements. The timing of future cash flows from
proved reserves, and thus their present value, is affected by the timing of the
incurrence of expenses in connection with their development. In estimating
future net cash flows and their present values, estimates were made about the
Company's development drilling activities.
NET PROVED CRUDE OIL AND NATURAL GAS RESERVES
The proved developed and undeveloped crude oil and natural gas reserves, all
of which are located in the United States, are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993
---------------------- ----------------------- ----------------------
OIL GAS OIL GAS OIL GAS
----------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(BARRELS) (MCF) (BARRELS) (MCF) (BARRELS) (MCF)
Proved developed and undeveloped
reserves:
Beginning of period.................... 18,947 799,073 6,098,536 73,162,203 6,856,812 58,928,720
Revisions of previous estimates........ -- -- 44,346 247,655 95,244 20,325,563
Improved recovery (secondary).......... -- -- -- -- -- --
Purchases of minerals in place......... -- -- -- -- -- --
Extensions, discoveries, and other
additions............................. 122,084 1,065,075 -- -- 311,060 1,834,187
Production............................. (2,141) (7,592) (968,524) (7,349,131) (1,106,192) (7,550,909)
Sales of minerals in place............. (18,947) (799,073) (5,155,411) (65,261,654) (58,388) (375,358)
----------- --------- ---------- ----------- ---------- ----------
End of period.......................... 119,943 1,057,483 18,947 799,073 6,098,536 73,162,203
----------- --------- ---------- ----------- ---------- ----------
----------- --------- ---------- ----------- ---------- ----------
Proved developed reserves:
Beginning of period.................... 18,947 799,073 4,857,749 51,904,640 5,639,268 55,295,935
----------- --------- ---------- ----------- ---------- ----------
----------- --------- ---------- ----------- ---------- ----------
End of period.......................... 77,292 632,570 18,947 799,073 4,847,749 51,904,640
----------- --------- ---------- ----------- ---------- ----------
----------- --------- ---------- ----------- ---------- ----------
</TABLE>
47
<PAGE>
ESTIMATED STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The estimated standardized measure of discounted future net cash flows and
changes therein relating to proved crude oil and natural gas reserves are
summarized below:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1995 1994 1993
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows............................................................ $ 5,386 $ 1,298 $ 260,907
Future production costs........................................................ (552) (663) (79,588)
Future development costs....................................................... (131) -- (20,464)
--------- --------- ------------
Future net cash flow, before income tax expense (1)(2)......................... 4,703 635 160,855
Annual discount of estimated future net cash flow (3).......................... (908) (241) (64,590)
--------- --------- ------------
Present value of future net cash flow before income taxes (4).................. 3,795 394 96,265
Future income tax expense discounted at 10% (5)................................ -- -- --
--------- --------- ------------
Standardized measure of discounted future net cash flow (3).................... $ 3,795 $ 394 $ 96,265
--------- --------- ------------
--------- --------- ------------
Costs relating to crude oil and natural gas activities, net (6)................ $ 1,938 $ 1,892 $ 78,483
--------- --------- ------------
--------- --------- ------------
</TABLE>
- ------------------------
(1) In computing future net cash flow, crude oil and natural gas prices were
based on year-end prices and consider increases or decreases to the extent
they are fixed and determinable from existing contracts. No deductions have
been made for general corporate overhead or any other indirect costs.
(2) Includes future net cash flow attributable to proved developed non-producing
properties of $1.3 million, $11 thousand and $23.2 million respectively,
which is net of future development costs of $5.1 million in 1993. The future
development costs are not significant in 1995 and 1994.
(3) The annual discount of estimated future net cash flow is defined for use
herein as future net cash flow, before income tax expense, discounted at 10%
per year over the expected period of realization. Standardized measure of
discounted future net cash flows, as used herein, should not be construed as
fair market value, since no consideration has been given to many factors
which influence the prices at which petroleum products are traded, such as
allowance for return on the investment and normal risks incident to the
crude oil and natural gas business.
(4) Includes the present value of future net cash flow before income taxes
attributable to proved developed non-producing properties of $1.1 million,
$7 thousand and $13.7 million, respectively.
(5) The future income tax expense varies primarily from the amount computed by
applying statutory rates because of the benefits derived from the
utilization of net operating loss carryforwards and other tax benefits
available for tax purposes. Undiscounted future income taxes were none in
1995, 1994 and 1993.
(6) At December 31, 1995, includes approximately $395 thousand relating to
investment in a South Louisiana field and approximately $1.6 million
relating to work in progress in an exploration venture with two partners,
for which, at current, no future revenues are estimated until completion of
each exploratory well.
48
<PAGE>
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1995 1994 1993
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.................................................. $ 394 $ 96,265 $ 99,602
Sales and transfers of crude oil and natural gas produced, net of production
costs........................................................................ (40) (17,063) (21,831)
Revisions for net change in price and production costs........................ -- (407) (12,538)
Revisions of previous quantity estimates...................................... -- 450 20,799
Estimated future development costs and other.................................. -- (10,416) (3,376)
Sales of minerals in place.................................................... (394) (78,061) (630)
Extensions, discoveries and improved recovery, less related costs............. 3,835 -- 4,279
Purchases of minerals in place................................................ -- -- --
Net change in income taxes, net of discount................................... -- -- --
Accretion of discount......................................................... -- 9,626 9,960
--------- ---------- ----------
Balance at end of year........................................................ $ 3,795 $ 394 $ 96,265
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
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
The information required under Item 10 is incorporated by reference to
information contained in the definitive Proxy Statement with respect to the
Company's Annual Meeting of Shareholders to be held in 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required under Item 11 is incorporated by reference to
information contained in the definitive Proxy Statement with respect to the
Company's Annual Meeting of Shareholders to be held in 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under Item 12 is incorporated by reference to
information contained in the definitive Proxy Statement with respect to the
Company's Annual Meeting of Shareholders to be held in 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Item 13 is incorporated by reference to
information contained in the definitive Proxy Statement with respect to the
Company's Annual Meeting of Shareholders to be held in 1996.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
(a) 1. Financial Statements
Crystal Oil Company and Subsidiaries:
Report of Independent Certified Public Accountants for each year of the three years in the
period ended December 31, 1995............................................................. 20
Consolidated Balance Sheets as of December 31, 1995 and 1994................................ 21
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1995.......................................................................... 22
Consolidated Statements of Stockholders' Equity for each of the three years in the period
ended December 31, 1995.................................................................... 23
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995.......................................................................... 24
Notes to Consolidated Financial Statements for each of the three years in the period ended
December 31, 1995.......................................................................... 25
Supplemental Information (Unaudited)........................................................ 47
Financial Statement Schedules for each of the three years in the period ended December 31, 1995
2.
Schedule II -- Valuation and qualifying accounts and reserves............................... 53
(All other schedules are omitted as the required information is inappropriate or presented
in the Consolidated Financial Statements or related footnotes.)
</TABLE>
50
<PAGE>
3. Exhibits
<TABLE>
<C> <S>
2.1 Purchase and Sale Agreement dated November 6, 1994, between Crystal Oil
Company as Seller and Apache Corporation as Buyer (Reference is made to
Report of Form 10-Q filed by the Company for the period ended September 30,
1994).
3.1 Amended and Restated Articles of Incorporation of the Company, as amended.
(Reference is made to Report on Form 10-K filed by the Company for the
period ended December 31, 1993).
3.2 By-laws of the Company, as amended through January 29, 1988 (Reference is
made to Report on Form 10-K filed by the Company for the period ended
December 31, 1987).
4.1 Credit Agreement dated March 31, 1995, (the "Credit Agreement"), between the
Company and Bankers Trust Company, Morgan Guaranty Trust Company of New York
and Texas Commerce Bank, National Association (Reference is made to Report
on Form 10-Q filed by the Company for the period ended March 31, 1995).
* 4.2 Trust Agreement dated November 21, 1995, between Hattiesburg Gas Storage
Company as Seller, Hattiesburg Industrial Gas Sales Company as Seller and
Servicer and Wilmington Trust Company as Owner Trustee.
* 4.3 Indenture dated November 21, 1995, between Hattiesburg Gas Storage Company
and Chemical Bank as Indenture Trustee.
4.4 Article IV of the Amended and Restated Articles of Incorporation of the
Company (Reference is made to Exhibit 3.1 contained herein).
4.5 Amended and Restated Warrant Agreement dated as of January 1, 1987, between
the Registrant and RepublicBank Dallas, National Association relating to the
$.075 Warrants (Reference is made to Exhibit 2(c) to the Report on Form 8
filed by the Company on April 6, 1987).
4.6 Amended and Restated Warrant Agreement dated as of January 1, 1987, between
the Registrant and RepublicBank Dallas, National Association relating to the
$.10 Warrants (Reference is made to Exhibit 2(d) to the Report on Form 8
filed by the Company on April 6, 1987).
4.7 Amended and Restated Warrant Agreement dated as of January 1, 1987, between
the Registrant and RepublicBank Dallas, National Association relating to the
$.125 Warrants (Reference is made to Exhibit 2(e) to the Report on Form 8
filed by the Company on April 6, 1987).
4.8 Amended and Restated Warrant Agreement dated as of January 1, 1987, between
the Registrant and RepublicBank Dallas, National Association relating to the
$.15 Warrants (Reference is made to Exhibit 2(f) to the Report on Form 8
filed by the Company on April 6, 1987).
4.9 Amended and Restated Warrant Agreement dated as of January 1, 1987, between
the Registrant and RepublicBank Dallas, National Association relating to the
$.25 Warrants (Reference is made to Exhibit 2(g) to the Report on Form 8
filed by the Company on April 6, 1987).
10.1 Stock Purchase Agreement dated May 2, 1995, between the Company as Purchaser
and First Reserve Energy Assets Fund, Limited Partnership and First Reserves
Fund V, Limited Partnership as Sellers. (Reference is made to Report of Form
10-Q filed by the Company for the period ended March 31, 1995).
* 10.2 Sale and Servicing Agreement dated November 21, 1995, between Hattiesburg Gas
Storage Company as Seller, Hattiesburg Industrial Gas Sales Company as
Seller and Servicer and Wilmington Trust Company as Owner Trustee.
</TABLE>
51
<PAGE>
<TABLE>
<C> <S>
* 10.3 First Amendment to the Sales and Servicing Agreement dated as of January 31,
1996, between Hattiesburg Gas Storage Company as Seller, Hattiesburg
Industrial Gas Sales Company as Seller and Servicer and Wilmington Trust
Company as Owner Trustee.
10.4 Form of Indemnity Agreement between the Company and each of its directors and
executive officers (Reference is made to Report on Form 10-K filed by the
Company for the period ended December 31, 1989).
( a)10.5 Employment Agreement dated August 22, 1989, as amended between the Company
and J. N. Averett, Jr. (Reference is made to Report on Form 10-K filed by
the Company for the period ended December 31, 1989).
( a)10.6 Crystal Oil Company Employee Stock Option Plan and Form of Option Agreement
dated March 23, 1992, as amended through May 27, 1993, between the Company
and its executives. (Reference is made to Report of Form 10-K filed by the
Company for the period ended December 31, 1993).
( a)10.7 Crystal Oil Company Employee Stock Ownership Plan dated January 1, 1993,
between the Company and its employees (Reference is made to Report on Form
10-K filed by the Company for the period ended December 31, 1992).
( a)10.8 First Amendment to the Crystal Oil Company Employee Stock Ownership Plan
dated July 21, 1993. (Reference is made to Report on Form 10-K filed by the
Company for the period ended December 31, 1993).
( a)10.9 Form of Executive Compensation and Severance Agreement dated November 10,
1994, between the Company and the Executives. (Reference is made to Report
on Form 10-Q filed by the Company for the period ended September 30, 1994).
* 11 Computation of Earnings Per Common Share.
* 22 Subsidiaries of the Company.
* 23 Consent of Independent Auditors dated March 20, 1996.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None
- ------------------------
(a) Management Incentive Compensation Plans
* Filed herein
52
<PAGE>
SCHEDULE II
CRYSTAL OIL COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
ALLOWANCE FOR DOUBTFUL BEGINNING COSTS AND OTHER END OF
TRADE ACCOUNTS RECEIVABLE OF PERIOD EXPENSES ACCOUNTS(B) DEDUCTIONS(A) PERIOD
- ------------------------------------------------ ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995.......................................... $ 231 $ 48 $ -- $ -- $ 279
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
1994.......................................... $ 76 $ 109 $ 54 $ 8 $ 231
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
1993.......................................... $ 41 $ 50 $ -- $ 15 $ 76
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
<CAPTION>
IMPAIRMENT ALLOWANCE ON
UNDEVELOPED LEASES
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995.......................................... $ 307 $ 20 $ -- $ 327 $ --
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
1994.......................................... $ 406 $ 795 $ (227) $ 667 $ 307
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
1993.......................................... $ 1,096 $ 984 $ -- $ 1,674 $ 406
----------- ----- ------ ------------- -----
----------- ----- ------ ------------- -----
</TABLE>
- ------------------------
(A) Includes uncollectible trade accounts receivable and expired leases
charged-off during the year against the allowance.
(B) Includes reduction to impairment for leases sold during 1994.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 15th day of
March 1996.
CRYSTAL OIL COMPANY
By: /s/ J. N. AVERETT, JR.
-----------------------------------
J. N. Averett, Jr.
PRESIDENT, CHIEF OPERATING
OFFICER AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ J. A. BALLEW
-----------------------------------
J. A. Ballew
SENIOR VICE PRESIDENT, TREASURER,
AND CHIEF FINANCIAL OFFICER
By: /s/ PAUL E. HOLMES
-----------------------------------
Paul E. Holmes
VICE PRESIDENT/CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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>
/s/ J. N. AVERETT, JR.
------------------------------------------- Director March 15, 1996
J. N. Averett, Jr.
/s/ GEORGE P. GIARD, JR.
------------------------------------------- Director March 15, 1996
George P. Giard, Jr.
/s/ GARY S. GLADSTEIN
------------------------------------------- Director March 15, 1996
Gary S. Gladstein
/s/ ROBERT HODES
------------------------------------------- Director March 15, 1996
Robert Hodes
/s/ DONALD G. HOUSLEY
------------------------------------------- Director March 15, 1996
Donald G. Housley
/s/ LIEF ROSENBLATT
------------------------------------------- Director March 15, 1996
Lief Rosenblatt
</TABLE>
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST AGREEMENT
AMONG
HATTIESBURG GAS STORAGE COMPANY
SELLER
HATTIESBURG INDUSTRIAL GAS SALES COMPANY
SELLER AND SERVICER
AND
WILMINGTON TRUST COMPANY
OWNER TRUSTEE
DATED AS OF NOVEMBER 21, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
ORGANIZATION. . . . . . . . . . . . . 1
SECTION 2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2 Office . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.3 Purposes and Powers. . . . . . . . . . . . . . . . . . 1
SECTION 2.4 Appointment of Owner Trustee . . . . . . . . . . . . . 2
SECTION 2.5 Initial Capital Contribution of Owner
Trust Estate . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.6 Declaration of Trust . . . . . . . . . . . . . . . . . 2
SECTION 2.7 Liability of the Residual Certificateholder
and the Investor Certificateholders. . . . . . . . . . 3
SECTION 2.8 Title to Trust Property. . . . . . . . . . . . . . . . 3
SECTION 2.9 Situs of Trust . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.10 Representations and Warranties of
Servicer and Seller. . . . . . . . . . . . . . . . . . 3
SECTION 2.11 Tax Treatment. . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
THE INVESTOR CERTIFICATES. . . . . . . . . . 4
SECTION 3.1 Investor Certificates. . . . . . . . . . . . . . . . . 4
SECTION 3.2 Form of the Investor Certificates. . . . . . . . . . . 4
SECTION 3.3 Execution, Authentication and Delivery . . . . . . . . 4
SECTION 3.4 Registration; Registration of Transfer
and Exchange of Investor Certificates. . . . . . . . . 5
SECTION 3.5 Investor Certificate Transfer Restrictions . . . . . . 6
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen
Investor Certificates. . . . . . . . . . . . . . . . . 7
SECTION 3.7 Persons Deemed Investor Certificateholders . . . . . . 8
SECTION 3.8 Access to List of Investor Certificateholders'
Names and Addresses. . . . . . . . . . . . . . . . . . 8
SECTION 3.9 Maintenance of New York Office . . . . . . . . . . . . 8
SECTION 3.10 Distributions. . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.11 Investor Certificates Held by HGSC . . . . . . . . . . 9
SECTION 3.12 Servicer or HGSC as Investor
Certificateholder. . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
THE RESIDUAL CERTIFICATE. . . . . . . . . . 10
SECTION 4.1 Residual Certificate . . . . . . . . . . . . . . . . . 10
SECTION 4.2 Form of the Residual Certificate . . . . . . . . . . . 10
SECTION 4.3 Execution, Authentication and Delivery . . . . . . . . 11
SECTION 4.4 No Transfer. . . . . . . . . . . . . . . . . . . . . . 11
-i-
<PAGE>
PAGE
ARTICLE V
ACCOUNTS; DISTRIBUTIONS . . . . . . . . . . 11
SECTION 5.1 Establishment of Accounts. . . . . . . . . . . . . . . 11
SECTION 5.2 Distributions. . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.3 Method of Payment. . . . . . . . . . . . . . . . . . . 17
SECTION 5.4 Accounting and Reports to Certificateholders,
the Internal Revenue Service and Others. . . . . . . . 17
SECTION 5.5 Signature on Returns; Tax Matters Partner. . . . . . . 17
ARTICLE VI
CAPITAL ACCOUNTS; ALLOCATIONS. . . . . . . . . 17
SECTION 6.1 Capital Accounts . . . . . . . . . . . . . . . . . . . 17
SECTION 6.2 Allocations of Income and Losses . . . . . . . . . . . 18
ARTICLE VII
ACTIONS BY THE OWNER TRUSTEE. . . . . . . . . 18
SECTION 7.1 Action by Investor Certificateholders
with Respect to Certain Matters. . . . . . . . . . . . 18
SECTION 7.2 Action by Investor Certificateholders
with Respect to Bankruptcy . . . . . . . . . . . . . . 19
SECTION 7.3 Restrictions on Certificateholders' Power. . . . . . . 19
ARTICLE VIII
COVENANTS OF THE SERVICER AND OTHERS. . . . . . . 19
SECTION 8.1 Covenants of the Servicer and Others . . . . . . . . . 19
SECTION 8.2 Purchase of Investor Certificates. . . . . . . . . . . 19
ARTICLE IX
THE OWNER TRUSTEE. . . . . . . . . . . . 19
SECTION 9.1 Duties of the Owner Trustee. . . . . . . . . . . . . . 19
SECTION 9.2 Rights of the Owner Trustee. . . . . . . . . . . . . . 20
SECTION 9.3 Acceptance of Trusts and Duties. . . . . . . . . . . . 21
SECTION 9.4 Action upon Instruction by Investor
Certificateholders . . . . . . . . . . . . . . . . . . 22
SECTION 9.5 Furnishing of Documents. . . . . . . . . . . . . . . . 23
SECTION 9.6 Representations and Warranties of
the Owner Trustee. . . . . . . . . . . . . . . . . . . 23
SECTION 9.7 Reliance; Advice of Counsel. . . . . . . . . . . . . . 24
SECTION 9.8 Owner Trustee May Own Investor Certificates. . . . . . 24
SECTION 9.9 Compensation and Indemnity . . . . . . . . . . . . . . 24
SECTION 9.10 Replacement of the Owner Trustee . . . . . . . . . . . 25
SECTION 9.11 Merger or Consolidation of the Owner Trustee . . . . . 26
SECTION 9.12 Appointment of Co-Trustee or Separate
Trustee. . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 9.13 Eligibility Requirements for
the Owner Trustee. . . . . . . . . . . . . . . . . . . 27
-ii-
<PAGE>
PAGE
ARTICLE X
TERMINATION OF TRUST AGREEMENT . . . . . . . . 28
SECTION 10.1 Termination of Trust Agreement . . . . . . . . . . . . 28
SECTION 10.2 Dissolution upon Bankruptcy of the Residual
Certificateholder. . . . . . . . . . . . . . . . . . . 29
ARTICLE XI
AMENDMENTS AND WAIVERS . . . . . . . . . . 30
SECTION 11.1 Purpose of Amendments and Waivers. . . . . . . . . . . 30
SECTION 11.2 Form of Amendments or Waivers. . . . . . . . . . . . . 31
ARTICLE XII
MISCELLANEOUS. . . . . . . . . . . . . 31
SECTION 12.1 No Legal Title to Owner Trust Estate . . . . . . . . . 31
SECTION 12.2 Limitations on Rights of Others. . . . . . . . . . . . 31
SECTION 12.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 12.4 Severability . . . . . . . . . . . . . . . . . . . . . 32
SECTION 12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . 32
SECTION 12.6 Successors and Assigns . . . . . . . . . . . . . . . . 32
SECTION 12.7 Confidentiality. . . . . . . . . . . . . . . . . . . . 32
SECTION 12.8 No Recourse. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 12.9 Headings . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 12.10 Collateral Sharing and Security Agreement. . . . . . . 33
SECTION 12.11 Governing Law. . . . . . . . . . . . . . . . . . . . . 34
-iii-
<PAGE>
SCHEDULES
Schedule 1 Schedule of Monthly Return Of Capital on the Certificates
Schedule 2 Schedule of Payments and Distributions in Respect of the
Residual Certificate
Schedule 3 Closing Conditions
EXHIBITS
Exhibit A Form of Investor Certificate
Exhibit B Form of Residual Certificate
Exhibit C Form of Certificate of Trust
Exhibit D Form of Undertaking Letter
Exhibit E Form of Servicer's Certificate
Exhibit F Operation of Trust
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TRUST AGREEMENT, dated as of November 21, 1995, by and among
Hattiesburg Gas Storage Company, a Delaware general partnership ("HGSC"),
Hattiesburg Industrial Gas Sales Company, a Delaware corporation (the "Servicer"
and together with HGSC, the "Seller"), and Wilmington Trust Company, as owner
trustee (the "Owner Trustee").
The Servicer, the Seller and the Owner Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Certain capitalized terms used in this
Agreement shall have the respective meanings assigned to them in Part I of
APPENDIX A to the Sale and Servicing Agreement. All references herein to "the
Agreement" or "this Agreement" are to this Trust Agreement as it may be amended
and supplemented from time to time, the Exhibits hereto and the capitalized
terms used herein which are defined in such APPENDIX A, and all references
herein to Articles, Sections and subsections are to Articles, Sections and
subsections of this Agreement unless otherwise specified. The rules of
construction set forth in Part II of such APPENDIX A shall be applicable to this
Agreement.
ARTICLE II
ORGANIZATION
SECTION 2.1 NAME. The Trust created hereby shall be known as the
"FRGC Owner Trust" in which name the Owner Trustee may conduct the business of
the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued on behalf of the Trust.
SECTION 2.2 OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Servicer.
SECTION 2.3 PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to acquire, manage and hold the Purchased Contract
Receivables, the other Purchased Property and the other parts of the Owner
Trust Estate;
(ii) to issue two classes of certificates, designated as the
"Investor Certificates" and the "Residual Certificate" each such class to
have the rights and restrictions provided for herein;
(iii) to make payments or distributions on the Certificates
to the Certificateholders, to make deposits into and withdrawals from the
Investment Account, the Collection Account and other accounts established
pursuant to the
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Basic Trust Documents and to pay the organizational,
start-up and transactional expenses of the Trust;
(iv) to enter into and perform its obligations and exercise
its rights under the Basic Trust Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable, desirable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith;
and
(vi) subject to compliance with the Basic Trust Documents,
to engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of payments or
distributions to the Certificateholders.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the Basic Trust Documents. As of the date hereof, the Trust owns no real
property in the State of Louisiana.
SECTION 2.4 APPOINTMENT OF OWNER TRUSTEE. HGSC hereby appoints the
Owner Trustee as the trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
SECTION 2.5 INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. HGSC
hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as
of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from HGSC, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Owner Trust Estate and shall be
deposited in the Collection Account. Prior to the issuance of the Certificates
to the Investor Certificateholders, HGSC shall be the sole beneficiary of the
Trust. HGSC shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by it.
SECTION 2.6 DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions and obligations set forth herein and in the Sale and Servicing
Agreement for the use and benefit of the Certificateholders. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute, that this Agreement constitute the governing
instrument of such business trust and that the Certificates represent the equity
interests therein. The rights of the Certificateholders shall be determined as
set forth herein and in the Business Trust Statute and the relationship between
the parties hereto created by this Agreement shall not constitute indebtedness
for any purpose. It is the intention of the parties hereto that, solely for
purposes of federal income taxes, state and local income and franchise taxes,
and any other taxes imposed upon, measured by or based upon gross or net income,
the Trust shall be treated as a partnership. The parties agree that, unless
otherwise required by appropriate tax authorities, the Trust shall file or cause
to be filed annual or other
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necessary returns, reports and other forms consistent with the characterization
of the Trust as a partnership for such tax purposes. Effective as of the date
hereof, the Owner Trustee shall have all rights, powers and duties set forth in
this Agreement, the Sale and Servicing Agreement and the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
SECTION 2.7 LIABILITY OF THE RESIDUAL CERTIFICATEHOLDER AND THE
INVESTOR CERTIFICATEHOLDERS.
(a) The Residual Certificateholder shall be liable directly to and
shall indemnify the Trust and any Investor Certificateholder for all losses,
claims, damages, liabilities and expenses (collectively, "Losses") incurred by
the Trust or such Investor Certificateholder to the extent that the Residual
Certificateholder would be liable if the Trust were a partnership under the
Delaware Revised Uniform Limited Partnership Act in which the Residual
Certificateholder were a general partner; PROVIDED, HOWEVER, that the Residual
Certificateholder shall not be liable for any Losses incurred by an Investor
Certificateholder as a result of any default by an Obligor under the Purchased
Contract Receivables.
(b) No Investor Certificateholder, other than the Residual
Certificateholder to the extent set forth in subsection 2.7(a), shall have any
personal liability for any liability or obligation of the Trust.
SECTION 2.8 TITLE TO TRUST PROPERTY. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee or a
separate trustee, as the case may be.
SECTION 2.9 SITUS OF TRUST. The Trust shall be located and
administered in the State of Delaware. The Trust shall not have any employees
in any state other than Delaware; PROVIDED, HOWEVER, that nothing herein shall
restrict or prohibit the Owner Trustee from having employees within or without
the State of Delaware. The only office of the Trust shall be the Corporate
Trust Office in Delaware.
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF SERVICER AND SELLER.
Each of the Seller and the Servicer (in its capacity as Servicer and Operator)
hereby represents and warrants to the Owner Trustee, for the benefit of the
Owner Trustee and the Investor Certificateholders, that (i) each of the
representations and warranties of the Seller and the Servicer contained in
Sections 3.1 and 3.2 of the Sale and Servicing Agreement are true and correct as
of the date hereof and (ii) after giving effect to the closing of the
transactions contemplated by the Basic Documents, the Consolidated Net Worth of
HGSC will be at least equal to the Initial Required Net Worth.
SECTION 2.11 TAX TREATMENT. HGSC and the Owner Trustee, by entering
into this Agreement, and the Investor Certificateholders, by acquiring any
Investor Certificate, (i) express their intention that the Certificates qualify
under
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applicable tax law as partnership interests in a partnership which holds the
Owner Trust Estate for their benefit, and (ii) unless otherwise required by
appropriate taxing authorities, agree to treat the Certificates as partnership
interests in such a partnership for the purposes of federal income taxes, state
and local income and franchise taxes, and any other taxes imposed upon, measured
by or based upon gross or net income.
ARTICLE III
THE INVESTOR CERTIFICATES
SECTION 3.1 INVESTOR CERTIFICATES. The Investor Certificates shall
represent fractional undivided beneficial interests in the Trust, including the
right to receive, subject to the terms and conditions set forth herein,
distributions to be made to the Investor Certificateholders as set forth in
Article V hereof.
SECTION 3.2 FORM OF THE INVESTOR CERTIFICATES.
(a) The Investor Certificates shall be substantially in the form set
forth in EXHIBIT A and shall be issued in minimum denominations of $1,000,000,
except for one Investor Certificate which may be issued to HGSC in any
denomination. The Investor Certificates shall be executed on behalf of the
Trust by manual or facsimile signature of a Responsible Officer of the Owner
Trustee. Investor Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be, when authenticated pursuant
to Section 3.3, validly issued and entitled to the benefits of this Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Investor
Certificates or did not hold such offices at the date of authentication and
delivery of such Investor Certificates.
(b) The Investor Certificates shall be issued in definitive, fully-
registered form only. The Investor Certificates shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders) all as determined by the officers executing
such Investor Certificates, as evidenced by their execution of such Investor
Certificates.
(c) The terms of the Investor Certificates set forth in EXHIBIT A
(including, without limitation, the legend set forth therein) shall form part of
this Agreement.
SECTION 3.3 EXECUTION, AUTHENTICATION AND DELIVERY. Concurrently
with the sale of the Purchased Contract Receivables to the Trust pursuant to the
Sale and Servicing Agreement, the Owner Trustee shall cause the Investor
Certificates in an aggregate amount equal to the initial Investor Certificate
Balance to be executed on behalf of the Trust, authenticated and delivered to
the Initial Investors pursuant to the Certificate Purchase Agreement upon the
written order of HGSC, signed by a duly authorized officer of the Servicer, as
managing general partner of HGSC, without further action by HGSC, in authorized
denominations. No Investor Certificate shall
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entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Investor Certificate a
certificate of authentication substantially in the form set forth in EXHIBIT A
executed by the Owner Trustee,by manual signature. Such authentication shall
constitute conclusive evidence that such Investor Certificate shall have been
duly authenticated and delivered hereunder. All Investor Certificates shall be
dated the date of their authentication.
SECTION 3.4 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE OF
INVESTOR CERTIFICATES.
(a) The Investor Certificate Registrar shall keep or cause to be
kept, at the office or agency maintained pursuant to Section 3.9, an Investor
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Owner Trustee shall provide for the registration of Investor
Certificates and transfers and exchanges of Investor Certificates as provided
herein; PROVIDED, HOWEVER, that no Investor Certificate may be subdivided upon
registration of transfer or exchange such that the denomination of any resulting
Investor Certificate would have been less than $1,000,000 if such Investor
Certificate had been issued in the initial distribution of Investor
Certificates. Wilmington Trust Company shall be the initial Investor
Certificate Registrar. Upon any resignation of an Investor Certificate
Registrar, the Owner Trustee shall promptly appoint a successor.
(b) The Servicer shall have the right to inspect the Investor
Certificate Register at all reasonable times and to obtain copies thereof for
purposes of performing its obligations under the Sale and Servicing Agreement.
(c) Upon surrender for registration of transfer of any Investor
Certificate at the office or agency maintained pursuant to Section 3.9, the
Owner Trustee shall, subject to compliance with any restrictions on transfer set
forth in EXHIBIT A, execute on behalf of the Trust, authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Investor
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Owner Trustee. The Owner Trustee shall not be
obligated to, and shall not, cause any transfer to be registered unless the
restrictions on transfer set forth in EXHIBIT A have been complied with. In
addition, if the Servicer shall have advised the Owner Trustee in writing that
an Undertaking Letter shall be required with respect to any transfer, such
registration of transfer shall not be effective unless the requirements of
Section 3.5, with respect to the delivery of an Undertaking Letter, shall have
been complied with.
(d) At the option of an Investor Certificateholder, Investor
Certificates may be exchanged for other Investor Certificates of authorized
denominations of a like aggregate principal amount upon surrender of the
Investor Certificates to be exchanged at the office or agency maintained
pursuant to Section 3.9. Whenever any Investor Certificates are so surrendered
for exchange, the Owner Trustee shall execute on behalf of the Trust,
authenticate and deliver one or more Investor Certificates dated the date of
authentication by the Owner Trustee. Such Investor Certificates shall be
delivered to the Investor Certificateholder making the exchange.
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(e) Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Owner Trustee duly
executed by the Investor Certificateholder or his attorney duly authorized in
writing and such other documents and instruments as may be required by
Section 3.5. Each Investor Certificate surrendered for registration of transfer
or exchange shall be cancelled and subsequently destroyed or otherwise disposed
of by the Owner Trustee in accordance with its customary practice.
(f) No service charge shall be made for any registration of transfer
or exchange of Investor Certificates, but the Owner Trustee may require payment
of a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer or exchange of Investor Certificates.
SECTION 3.5 INVESTOR CERTIFICATE TRANSFER RESTRICTIONS.
(a) The Investor Certificates may not be acquired by or for the
account of (i) an employee benefit plan (as defined in Section 3(3) of ERISA)
that is subject to the provisions of Title I of ERISA, (ii) a plan described in
Section 4975(e)(1) of the Code or (iii) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"BENEFIT PLAN") unless the acquisition and holding of the Investor Certificates
by such an entity does not constitute a non-exempt prohibited transaction within
the meaning of ERISA and the Code. Any transferee of an Investor
Certificateholder shall execute and deliver to the Owner Trustee an Undertaking
Letter in the form set forth in EXHIBIT D. Transfers of Investor Certificates
are also subject to the restrictions set forth in the legends contained in
EXHIBIT A hereto. The Investor Certificates are also subject to the minimum
denomination specified in Section 3.2(a).
(b) None of the Investor Certificates shall be traded on an
established securities market or issued in a transaction registered under the
Securities Act of 1933, as amended.
(c) No transfer of any Investor Certificate shall be effective and
any such purported transfer shall not be recognized or approved by the Owner
Trustee at a time when the Investor Certificates are readily tradeable on a
secondary market, unless the Owner Trustee receives in connection with any such
purported transfer an opinion of counsel reasonably acceptable to the Owner
Trustee to the effect that such transfer will not cause the Trust to be treated
as a publicly traded partnership.
(d) No transfer of any Investor Certificate shall be effective and
any such purported transfer shall not be recognized or approved by the Owner
Trustee if the effect of such transfer would be to cause the Trust to be
beneficially owned by more than 50 Persons.
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SECTION 3.6 MUTILATED, DESTROYED, LOST OR STOLEN INVESTOR CERTIFICATES.
(a) If (i) any mutilated Investor Certificate is surrendered to the
Investor Certificate Registrar, or the Investor Certificate Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any Investor
Certificate (PROVIDED, that an Institutional Investor that is an Investor
Certificateholder, or the nominee of which is an Investor Certificateholder, may
provide its own written evidence of such destruction, loss or theft and such
written evidence shall be deemed satisfactory for such purpose), and (ii) there
is delivered to the Investor Certificate Registrar, the Owner Trustee and the
Trust such security or indemnity as may be required by them and is reasonably
acceptable to the Servicer to hold each of them harmless (PROVIDED, that if the
Investor Certificateholder is, or is a nominee for, an Institutional Investor
with a claims-paying ability or long-term debt rating of at least investment
grade or its equivalent, then an unsecured agreement of indemnity by such
Institutional Investor shall be deemed satisfactory for such purpose), then, in
the absence of notice to the Investor Certificate Registrar or the Owner Trustee
that such Investor Certificate has been acquired by a bona fide purchaser, the
Owner Trustee shall execute on behalf of the Trust and the Owner Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Investor Certificate, a replacement Investor
Certificate in authorized denominations of a like amount; PROVIDED, HOWEVER,
that if the final distribution with respect to any such destroyed, lost or
stolen Investor Certificate, but not a mutilated Investor Certificate, shall
have become or within seven days shall be required to be made, then instead of
issuing a replacement Investor Certificate the Owner Trustee may make the final
distribution with respect to such destroyed, lost or stolen Investor Certificate
when so required to be made.
(b) If, after the delivery of a replacement Investor Certificate or
distribution in respect of a destroyed, lost or stolen Investor Certificate
pursuant to subsection 3.6(a), a bona fide purchaser of the original Investor
Certificate in lieu of which such replacement Investor Certificate was issued
presents for payment such original Investor Certificate, the Owner Trustee shall
be entitled to recover such replacement Investor Certificate (or such
distribution) from the Person to whom it was delivered or any Person taking such
replacement Investor Certificate from such Person to whom such replacement
Investor Certificate was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Owner Trustee in connection therewith.
(c) In connection with the issuance of any replacement Investor
Certificate under this Section 3.6, the Owner Trustee or HGSC may require the
payment by such Investor Certificateholder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto.
(d) Any duplicate Investor Certificate issued pursuant to this
Section 3.6 in replacement of any mutilated, destroyed, lost or stolen Investor
Certificate shall constitute an original additional contractual obligation of
the Trust, whether or not the mutilated, destroyed, lost or stolen Investor
Certificate shall be found at any time or be enforced by anyone, and shall be
entitled to all the benefits of this Agreement
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equally and proportionately with any and all other Investor Certificates duly
issued hereunder.
(e) The provisions of this Section 3.6 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Investor
Certificates.
SECTION 3.7 PERSONS DEEMED INVESTOR CERTIFICATEHOLDERS. Prior to due
presentation of an Investor Certificate for registration of transfer, the Owner
Trustee or the Investor Certificate Registrar may treat the Person in whose name
any Investor Certificate shall be registered in the Investor Certificate
Register as the Investor Certificateholder of such Investor Certificate for the
purpose of receiving distributions pursuant to Article V and for all other
purposes whatsoever, and neither the Owner Trustee nor the Investor Certificate
Registrar shall be bound by any notice to the contrary.
SECTION 3.8 ACCESS TO LIST OF INVESTOR CERTIFICATEHOLDERS' NAMES AND
ADDRESSES.
(a) The Owner Trustee shall furnish or cause to be furnished to the
Servicer, within 10 Business Days after registering any change in ownership of
the Investor Certificates, a list, in such form as the Servicer may reasonably
require, of the names and addresses of the Investor Certificateholders as of the
most recent Record Date.
(b) Within five Business Days after the receipt by the Investor
Certificate Registrar of a written request by any Investor Certificateholder
stating that such Investor Certificateholder desires to communicate with other
Investor Certificateholders, the Owner Trustee shall provide such Investor
Certificateholder with a copy of the most recent list of the names and addresses
of the Investor Certificateholders as set forth in the Investor Certificate
Registrar.
(c) The Owner Trustee may provide information with respect to the
name and addresses of the Investor Certificateholders and the Investor
Certificate Balance held by them to the Collateral Trustee for purposes of the
Collateral Sharing and Security Agreement.
(d) Each Investor Certificateholder, by receiving and holding an
Investor Certificate, shall be deemed to have agreed not to hold either the
Servicer or the Owner Trustee accountable by reason of the disclosure of its
name and address for purposes of this Agreement, regardless of the source from
which such information was derived.
SECTION 3.9 MAINTENANCE OF NEW YORK OFFICE. The Owner Trustee shall
maintain in the Borough of Manhattan, the City of New York, an office or offices
or agency or agencies where Investor Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Investor Certificates and the Basic
Documents may be served. The Owner Trustee initially designates the offices of
Harris Trust Company, 177 Water
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Street, 4th Floor, New York, New York 10005, Attention: Reginald Aloissi, as
its principal office for such purposes. The Owner Trustee shall give prompt
written notice to the Servicer and to the Certificateholders of any change in
the location of the Investor Certificate
Register or any such office or agency.
SECTION 3.10 DISTRIBUTIONS. The Paying Agent shall make
distributions to Investor Certificateholders pursuant to Section 5.2 and shall
report the amounts of such distributions to the Owner Trustee. Any Paying Agent
shall have the revocable power to withdraw funds from the Collection Account for
the purpose of making the distributions referred to above. The Owner Trustee
may revoke such power and remove the Paying Agent if the Owner Trustee
determines in its sole discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement in any material respect. The
Paying Agent shall initially be Wilmington Trust Company. Any Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Owner Trustee. If Wilmington Trust Company shall no longer be the Paying Agent,
the Owner Trustee shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company). The Owner Trustee shall cause such successor
Paying Agent to execute and deliver to the Owner Trustee an instrument in which
such successor Paying Agent shall agree with the Owner Trustee that as Paying
Agent, such successor Paying Agent shall hold all sums, if any, held by it for
distribution to the Investor Certificateholders in trust for the benefit of the
Investor Certificateholders entitled thereto until such sums shall be paid to
such Investor Certificateholders. The Paying Agent shall return all unclaimed
funds to the Owner Trustee and upon removal of a Paying Agent such Paying Agent
shall also return all funds in its possession to the Owner Trustee. The
provisions of Sections 9.3, 9.6, 9.7, 9.8 and 9.9 shall apply to the Owner
Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall
act as Paying Agent.
SECTION 3.11 INVESTOR CERTIFICATES HELD BY HGSC. On and after the
Closing Date, HGSC shall, except as provided below, maintain beneficial and
record ownership of Investor Certificates representing not less than 20% of the
Investor Certificate Balance; PROVIDED that such Investor Certificates may be
transferred to another FRGC Party or any Person that succeeds to the business of
HGSC if (x) the Owner Trustee receives an opinion of counsel (a copy of which
shall be provided to the Rating Agency) reasonably acceptable to the Owner
Trustee to the effect that the proposed transfer will not adversely affect the
Trust's tax classification as a partnership or (y) HGSC (or any such successor)
obtains the consent of the Majority Certificateholders, which consent may be
withheld at the sole discretion of the Investor Certificateholders; PROVIDED
that nothing in this Section 3.11 shall prohibit or otherwise restrict the sale,
transfer or assignment by HGSC (or any such successor) of the right to
distributions and any other payments in respect of the Investor Certificates
held by HGSC (or any such successor). Except as provided in the immediately
preceding sentence, any attempted transfer of any Investor Certificate by HGSC
(or any such successor) that would reduce such interest of HGSC (or any such
successor) below 20% of the Investor Certificate Balance shall be void. The
Owner Trustee shall cause any Investor Certificate issued to HGSC (or any such
successor) to contain a legend stating "THIS INVESTOR CERTIFICATE IS NOT
TRANSFERABLE, EXCEPT AS PROVIDED IN SECTION 3.11 OF THE TRUST AGREEMENT."
Except as otherwise
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provided herein, any Investor Certificates held by HGSC, another FRGC Party or
any Person that succeeds to the business of HGSC shall not have any rights to
vote hereunder as long as they are held by any FRGC Party.
SECTION 3.12 SERVICER OR HGSC AS INVESTOR CERTIFICATEHOLDER. The
Servicer or HGSC in its individual or any other capacity may, subject to
Section 3.11, become the owner or pledgee of Investor Certificates and may in
its capacity as such owner or pledgee, subject to the provisions limiting voting
rights pursuant to Section 3.11, otherwise deal with the Owner Trustee or its
Affiliates as if it were not the Servicer or Seller.
ARTICLE IV
THE RESIDUAL CERTIFICATE
SECTION 4.1 RESIDUAL CERTIFICATE. The Residual Certificate shall
represent a fractional undivided beneficial interest in the Trust subordinated
to the interests of the Investor Certificateholders, including the right to
receive, subject to the terms and conditions set forth herein, (i) on each
Distribution Date, the balance of the collections on the Purchased Contract
Receivables after the Investor Certificateholders have received all
distributions to which they are entitled hereunder and (ii) any other
distribution to be made to the Residual Certificateholder as set forth in
Article V hereof on such Distribution Date. The holder of the Residual
Certificate shall have no right to vote with respect to the appointment of a
successor Owner Trustee or the Servicer.
SECTION 4.2 FORM OF THE RESIDUAL CERTIFICATE.
(a) The Residual Certificate shall be substantially in the form set
forth in EXHIBIT B. The Residual Certificate shall be executed on behalf of the
Trust by manual or facsimile signature of a Responsible Officer of the Owner
Trustee. The Residual Certificate bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be, when authenticated pursuant
to Section 4.3, validly issued and entitled to the benefits of the Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of the Residual Certificate
or did not hold such offices at the date of authentication and delivery of the
Residual Certificate.
(b) The Residual Certificate shall be issued in definitive, fully-
registered form only. The Residual Certificate shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders) all as determined by the officers executing
the Residual Certificate, as evidenced by their execution thereof.
(c) The terms of the Residual Certificate set forth in EXHIBIT B
(including, without limitation, the legend set forth therein) shall form part of
this Agreement.
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SECTION 4.3 EXECUTION, AUTHENTICATION AND DELIVERY. Concurrently
with the sale of the Purchased Contract Receivables to the Trust pursuant to the
Sale and Servicing Agreement, the Owner Trustee shall cause the Residual
Certificate to be executed on behalf of the Trust, authenticated and delivered
to HGSC in return for the Initial Residual Capital paid in immediately available
funds, signed by its chairman of the board, its president or any vice president,
without further corporate action by the Servicer. The Residual Certificate
shall not entitle the holder thereof to any benefit under this Agreement, or be
valid for any purpose, unless there shall appear on the Residual Certificate a
certificate of authentication substantially in the form set forth in EXHIBIT B,
executed by the Owner Trustee by manual signature. Such authentication shall
constitute conclusive evidence that the Residual Certificate shall have been
duly authenticated and delivered hereunder. The Residual Certificate shall be
dated the date of its authentication.
SECTION 4.4 NO TRANSFER. On and after the Closing Date, HGSC shall,
except as provided below, maintain beneficial and record ownership of the
Residual Certificate; PROVIDED that (i) the right to distributions and other
payments in respect of the Residual Certificate may be pledged by HGSC to the
Collateral Trustee under the Collateral Sharing and Security Agreement and
(ii) the Residual Certificate may be transferred to another FRGC Party or any
Person that succeeds to the business of HGSC if (x) the Owner Trustee receives
an opinion of counsel reasonably acceptable to the Owner Trustee to the effect
that the proposed transfer will not adversely affect the Trust's tax
classification as a partnership or (y) HGSC (or any such successor) obtains the
consent of the Majority Certificateholders, which consent may be withheld at the
sole discretion of the Investor Certificateholders; PROVIDED that nothing in
this Section 4.4 shall prohibit or otherwise restrict the sale, transfer or
assignment by HGSC (or any such successor) of the right to distributions and
other payments in respect of the Residual Certificate. Any attempted transfer
of the Residual Certificate by HGSC (or any such successor) other than to any
other FRGC Party or any Person that succeeds to the business of HGSC shall be
void. Transfers of the Residual Certificates shall be subject to the provisions
set forth in Sections 3.5(b), (c) and (d). The Residual Certificate shall bear
a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN
SECTION 4.4 OF THE TRUST AGREEMENT."
ARTICLE V
ACCOUNTS; DISTRIBUTIONS
SECTION 5.1 ESTABLISHMENT OF ACCOUNTS.
(a) The Owner Trustee, for the benefit of the Certificateholders,
shall establish and maintain in the name of the Owner Trustee an Eligible
Account known as the FRGC Owner Trust Collection Account (the "COLLECTION
ACCOUNT"), bearing an additional designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders. If a
Lockbox Account is established, all funds received in the Lockbox Account shall
be deposited by the Owner Trustee into the Collection Account and all Liquidated
Damages or other funds received by the Owner
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Trustee in respect of the Purchased Contract Receivables shall be deposited into
the Collection Account, in each case within one Business Day of receipt thereof.
Any funds received upon the sale of the Investor Certificates and the Residual
Certificate that are not used to acquire the Purchased Contract Receivables
shall also be deposited in the Collection Account. Funds on deposit in the
Collection Account shall be invested by the Owner Trustee only in Eligible
Investments. All earnings on such investment shall be deposited in the
Collection Account.
(b) The Owner Trustee, for the benefit of the Certificateholders,
shall establish and maintain in the name of the Owner Trustee an Eligible
Account known as the FRGC Owner Trust Investment Account (the "INVESTMENT
ACCOUNT"), bearing an additional designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders. On each
Distribution Date until the aggregate amount deposited (without giving effect to
any withdrawals made from the Investment Account hereunder) in the Investment
Account, plus interest thereon, equals $1,800,000, the Owner Trustee shall
withdraw from the Collection Account pursuant to clause (iii) of Section 5.2(d)
the amount required thereby and deposit such amount into the Investment Account.
Funds on deposit in the Investment Account shall be invested by the Owner
Trustee only in Eligible Investments. From and after the date on which the
amount deposited (without giving effect to any withdrawals) in the Investment
Account pursuant to Section 5.2(d)(iii) and interest thereon first equals or
exceeds $1,800,000, no additional funds shall be required to be deposited into
the Investment Account and all further interest on the funds in the Investment
Account earned after such date (net of any investment losses) shall be
distributed to the Residual Certificateholder. Funds on deposit in the
Investment Account shall be distributed to the Residual Certificateholder on the
terms and conditions set forth in Section 5.2(f).
(c) The Owner Trustee shall possess all right, title and interest in
and to all funds on deposit from time to time in the Collection Account and the
Investment Account and in all proceeds thereof. Except as otherwise provided
herein, the Collection Account and the Investment Account shall each be under
the sole dominion and control of the Owner Trustee for the benefit of the
Certificateholders. If, at any time, the Collection Account or the Investment
Account ceases to be an Eligible Account, the Owner Trustee shall within 10
Business Days establish a new Collection Account or Investment Account, as the
case may be, as an Eligible Account and shall cause any cash or any investments
in the old Collection Account or Investment Account to be transferred to such
new Collection Account or Investment Account, as applicable.
SECTION 5.2 DISTRIBUTIONS.
(a) On or before the day that is two Business Days prior to each
Distribution Date, the Servicer shall calculate the Collected Amount and all
other amounts required to determine the amounts to be deposited in or paid from
each of the Collection Account and the Investment Account on such Distribution
Date.
(b) On or before the day that is two Business Days prior to each
Distribution Date, the Servicer shall deliver to the Owner Trustee a certificate
in
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substantially the form attached hereto as EXHIBIT E (the "SERVICER'S
CERTIFICATE") executed by the President or any Vice President of the Servicer
containing all information necessary to the Owner Trustee for making the
calculations, withdrawals, deposits, transfers and distributions required by
this Article V, the status of each Purchased Contract Receivable and all
information required to be provided to Investor Certificateholders pursuant to
Section 5.2(g).
(c) On or before the day preceding each Distribution Date, the Owner
Trustee shall cause to be made the following withdrawals, deposits, transfers
and distributions in the amounts set forth in the Servicer's Certificate for
such Distribution Date:
(i) from the Collection Account to the Servicer, in
immediately available funds, the Reinvestment Income in respect of such
Distribution Date; and
(ii) from the Investment Account to the Collection Account,
the lesser of (A) the amount of cash or other immediately available funds
in the Investment Account on the day preceding such Distribution Date and
(B) the amount, if any, by which the sum of the Aggregate Fixed Return and
Aggregate Return of Capital for such Distribution Date exceeds the
Collected Amount in respect of such Distribution Date.
(d) Before 12:00 noon, New York City time, on each Distribution Date,
the Owner Trustee (based on the information contained in the Servicer's
Certificate for such Distribution Date) shall, subject to Section 5.2(f), make
the following distributions from the Collection Account (after the withdrawals,
deposits and transfers specified in Section 5.2(c) have been made) in the
following order of priority:
(i) first, to the Investor Certificateholders, on a pro
rata basis, the lesser of, for such Distribution Date, (A) the Total
Available Amount and (B) the Aggregate Fixed Return;
(ii) second, to the Investor Certificateholders, on a pro
rata basis, the lesser of, for such Distribution Date, (A) the Total
Available Amount (as such amount has been reduced by the distributions
described in clause (i) above) and (B) the Aggregate Return Of Capital;
(iii) third, subject to Section 5.1(b), to the Investment
Account, the lesser of (A) the Total Available Amount (as such amount has
been reduced by the distributions described in clauses (i) and (ii) above)
and (B) the Monthly Deposit Amount;
(iv) fourth, to the Investor Certificateholders, on a pro
rata basis, the lesser of, for such Distribution Date, (A) the Total
Available Amount (as such amount has been reduced by the distributions
described in clauses (i), (ii) and (iii) above) and (B) the Additional
Distributions, if any, payable on such
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Distribution Date and any Additional Distributions that were required to be
paid on a prior Distribution Date but were not paid; and
(v) fifth, subject to paragraph (e) below, to the Residual
Certificateholder, the balance of the Collected Amount.
(e) In addition to, and without limiting, the distributions contained
in Section 5.2(d), on each Distribution Date for each Monthly Period following
the effective date of a Regulatory Increase (including the Monthly Period in
which such Regulatory Increase occurs), the Owner Trustee (based on the
information contained in the Servicer's Certificate for such Distribution Date)
shall, subject to Section 5.2(f), distribute to the Investor Certificateholders,
on a pro rata basis, 10% of collections on the Contract Regulatory Receivables
received during the related Monthly Period.
(f) At any time after the Investor Certificate Balance shall have
been reduced to zero (including on the same date on which the Investor
Certificate Balance has been reduced to zero), distributions from the Trust
shall be made as follows:
(i) If the Seller has paid Liquidated Damages in respect of
all Purchased Contract Receivables, then the Investor Certificateholders
shall be entitled to no further distributions from the Trust other than any
Additional Distributions that are then payable, and all funds in the
Collection Account and the Investment Account shall thereafter be
distributed to the Residual Certificateholder.
(ii) In all other circumstances, the Investor
Certificateholders shall be entitled thereafter only to payments from the
Trust pursuant to Section 5.2(e), and the Residual Certificateholder shall
receive a distribution of (A) all funds in the Investment Account and
(B) all funds in the Collection Account other than the amount necessary to
pay amounts payable pursuant to Section 5.2(e).
(iii) After all payments, if any, required to be made
pursuant to Section 5.2(e) have been made, then the Investor
Certificateholders shall be entitled to no further payments from the Trust,
and all funds in the Collection Account and the Investment Account shall be
distributed to the Residual Certificateholder.
(iv) On the first Business Day after the Investor
Certificateholders shall have received all distributions required pursuant
to Sections 5.2(d) and (e), the Residual Certificateholder may request the
Owner Trustee to distribute all remaining assets (whether in the form of
cash or other property) of the Owner Trust Estate, after payment of all
expenses, to the Residual Certificateholder.
The provisions of this Section 5.2(f) shall in no event limit the rights of the
Investor Certificateholders to distributions required to be made prior to the
dates or events set forth in this Section 5.2(f).
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(g) On each Distribution Date, the Owner Trustee shall send to each
Investor Certificateholder and the Rating Agency the Servicer's Certificate
furnished pursuant to Section 5.2(b). In addition to the items set forth in
Section 5.2(b), the Servicer's Certificate shall set forth the following
information as to the Investor Certificates with respect to such Distribution
Date or the preceding Monthly Period, as applicable:
(i) the Collected Amount for such Monthly Period;
(ii) the amount of Liquidated Damages paid and required to be
paid by the Seller since the immediately preceding Distribution Date;
(iii) the Total Available Amount in respect of such Distribution Date;
(iv) the distributable amount determined pursuant to Section 5.2(d)(i)
in respect of such Distribution Date;
(v) the distributable amount determined pursuant to Section
5.2(d)(ii) in respect of such Distribution Date;
(vi) the distributable amount determined pursuant to Section
5.2(d)(iii) in respect of such Distribution Date;
(vii) the distributable amount determined pursuant to Section
5.2(d)(iv) in respect of such Distribution Date;
(viii) the distributable amount determined pursuant to Section 5.2(d)(v)
in respect of the Distribution Date;
(ix) the transfer from the Collection Account to the Servicer pursuant
to Section 5.2(c)(i) in respect of such Distribution Date;
(x) the amount transferred from the Investment Account to the
Collection Account pursuant to Section 5.2(c)(ii);
(xi) the distributable amount determined pursuant to Section 5.2(e) in
respect of such Distribution Date;
(xii) the balance of the Investment Account on such Distribution Date,
after giving effect to distributions, withdrawals, transfers and deposits
made on such date, and the change in such balance from that of the
immediately preceding Distribution Date;
(xiii) the Investor Certificate Balance after giving effect to the
distributions to be made on such Distribution Date;
(xiv) the amount by which the sum of the funds transferred pursuant to
Section 5.2(d)(iii) and the distributions made pursuant to Section
5.2(d)(v) are
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less than the amount scheduled to be paid pursuant to such Sections as of
such Distribution Date in Schedule 2; and
(xv) the status of each Purchased Contract Receivable, including
identifying any Purchased Contract Receivable that is not current and the
age of such Purchased Contract Receivable and the actions being taken to
collect on such past due Purchased Contract Receivable.
Each amount set forth pursuant to clauses (iv), (v), (vi), (vii), (xi) and
(xiii) above shall also be expressed as a dollar amount per $1,000 of the
initial Investor Certificate Balance.
(h) If any withholding tax is imposed on the Trust's distributions
(or allocations of income) to any Certificateholder, such tax shall reduce the
amount otherwise distributable to such Certificateholder in accordance with this
Section 5.2. The Owner Trustee is hereby authorized and directed to retain from
amounts otherwise distributable to any Certificateholders sufficient funds for
the payment of any tax that is legally owed by the Trust (but such authorization
shall not prevent the Owner Trustee from contesting any such tax in appropriate
proceedings and withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings). The amount of any withholding tax imposed
with respect to any Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Trust and remitted to
the appropriate taxing authority. If any Certificateholder wishes to apply for
a refund of any such withholding tax, the Owner Trustee shall reasonably
cooperate with such Certificateholder in making such claim so long as such
Certificateholder agrees to reimburse the Owner Trustee for any out-of-pocket
expenses incurred.
(i) Within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of this Agreement, the
Servicer shall prepare and execute and the Owner Trustee shall mail to each
Person who at any time during such calendar year shall have been an Investor
Certificateholder and received any payments thereon, a statement prepared and
supplied by the Servicer containing the sum of the amounts set forth in each of
clauses (iv), (v), (vi), (vii), (xi) and (xiii) of Section 5.2(g) for such
calendar year or, if such Person shall have been an Investor Certificateholder
during a portion of such calendar year and received any payments thereon, for
the applicable portion of such year, for the purposes of such Investor
Certificateholders' preparation of federal income tax returns.
(j) The Servicer shall be provided full access to information with
respect to the Collection Account and Investment Account in order to perform its
obligations hereunder, including the right (x) to receive directly from the
Eligible Institution or Eligible Institutions in which such accounts are
established copies of all statements, confirmations and notices provided to the
Owner Trustee, (y) to make inquiries directly to such Eligible Institution or
Eligible Institutions regarding deposits, withdrawals and other payments to or
from such accounts and balances in such accounts and (z) any other information
relating to such matters as the Servicer may from time to time reasonably
request.
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SECTION 5.3 METHOD OF PAYMENT.
(a) Distributions required to be made to Investor Certificateholders
on any Distribution Date shall be made to each Investor Certificateholder of
record on the related Record Date (i) by wire transfer, in immediately available
funds, to the account of such Investor Certificateholder at a bank or other
entity having appropriate facilities therefor if such Investor Certificateholder
shall have provided to the Seller appropriate written instructions at least five
Business Days prior to such Record Date or (ii) if clause (i) is not applicable,
by check mailed to such Investor Certificateholder at the address of such
Investor Certificateholder appearing in the Investor Certificate Register.
(b) Distributions required to be made to the Servicer pursuant to
Section 5.2(c)(i) and to the Residual Certificateholder shall be made (i) by
wire transfer, in immediately available funds, to the account of the Servicer or
the Residual Certificateholder, as the case may be, at a bank or other entity
having appropriate facilities therefor if such Person shall have furnished to
the Owner Trustee appropriate written instructions at least five Business Days
prior to such Distribution Date or (ii) if clause (i) is not applicable by check
mailed to the Servicer or the Residual Certificateholder, as the case may be, at
the address provided pursuant to APPENDIX B to the Sale and Servicing Agreement.
SECTION 5.4 ACCOUNTING AND REPORTS TO CERTIFICATEHOLDERS, THE
INTERNAL REVENUE SERVICE AND OTHERS. The Owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on the basis of a fiscal year
ending December 31 on the accrual method of accounting, (b) deliver to each
Certificateholder, as may be required by the Code and applicable Treasury
Regulations or otherwise, such information as may be required to enable each
Certificateholder to prepare its federal income tax returns, (c) file or cause
to be filed such tax returns relating to the Trust and make such elections as
may from time to time be required or appropriate under any applicable state or
federal statute or rule or regulation thereunder so as to maintain the Trust's
characterization as a partnership for federal income tax purposes, (d) cause
such tax returns to be signed in the manner required by law and (e) collect or
cause to be collected any withholding tax as described in and in accordance with
subsection 5.2(h) with respect to income or distributions to Certificateholders.
SECTION 5.5 SIGNATURE ON RETURNS; TAX MATTERS PARTNER. The Residual
Certificateholder shall sign on behalf of the Trust any and all tax returns of
the Trust. The Residual Certificateholder shall be the "tax matters partner" of
the Trust pursuant to the Code.
ARTICLE VI
CAPITAL ACCOUNTS; ALLOCATIONS
SECTION 6.1 CAPITAL ACCOUNTS. A separate capital account ("CAPITAL
ACCOUNT") shall be established and maintained for each Certificateholder. The
Capital Account of each Certificateholder shall be credited with the initial
purchase price paid
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by such Certificateholder for its Certificates and allincome and gain allocated
to such Certificateholder pursuant to Section 6.2, andshall be debited by the
amount of any loss or deduction allocated to suchCertificateholder pursuant to
Section 6.2 and all distributions made to suchCertificateholder pursuant to
Article V. To the extent not provided for in thepreceding sentence, the Capital
Accounts of the Certificateholders shall beadjusted and maintained in accordance
with the rules of Treasury RegulationsSection 1.704-1(b)(2)(iv), as the same may
be amended or revised. Anyreferences in any section of this Agreement to the
Capital Account of aCertificateholder shall be deemed to refer to such Capital
Account as the samemay be credited or debited from time to time as set forth
above. In the eventof any transfer of any Certificate in accordance with the
terms of thisAgreement, the transferee shall succeed to the Capital Account of
the transferorto the extent it relates to the transferred Certificate.
SECTION 6.2 ALLOCATIONS OF INCOME AND LOSSES. All items of income,
gain, loss and deductions shall be allocated to the Certificateholders' Capital
Accounts in a manner consistent with the distribution procedures set forth in
Article V; PROVIDED, HOWEVER, that any loss resulting from a default on a
Purchased Contract Receivable shall be allocated to the Residual
Certificateholder; and PROVIDED, FURTHER, that if the losses resulting from a
default on one or more Purchased Contract Receivables would exceed the current
balance of the Residual Certificateholder's Capital Account, then an amount of
such losses equal to the current balance of the Residual Certificateholder's
Capital Account shall be allocated to the Residual Certificateholder and any
excess losses shall be allocated to the Investor Certificateholders on a pro
rata basis in accordance with the balances in their Capital Accounts.
ARTICLE VII
ACTIONS BY THE OWNER TRUSTEE
SECTION 7.1 ACTION BY INVESTOR CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. The Owner Trustee shall not have the power, except upon the
written direction of the Majority Certificateholders, to (a) remove the Servicer
under the Sale and Servicing Agreement pursuant to Section 7.1 thereof or
(b) require the Operator to engage a substitute operator under the Sale and
Servicing Agreement pursuant to Section 5.2(b) thereof. The Owner Trustee shall
not have the power, except upon the written direction of the Majority
Certificateholders and the Residual Certificateholder, to sell the Purchased
Contract Receivables or any interest therein or release any Obligor of any
obligation with respect thereto; PROVIDED, HOWEVER, that the Majority
Certificateholders may so direct the Owner Trustee without the consent of the
Residual Certificateholder if there shall occur and be continuing a breach by an
FRGC Party under any covenant, representation or warranty under any of the Basic
Documents in a manner which materially adversely affects (after giving effect to
the distribution of any Additional Net Distribution Amount payable in connection
with such event) the Investor Certificateholders, and the Seller or the
Servicer, as the case may be, fails to remedy such breach within 30 days after
receiving written notice from the Owner Trustee or any Investor
Certificateholder.
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SECTION 7.2 ACTION BY INVESTOR CERTIFICATEHOLDERS WITH RESPECT TO
BANKRUPTCY. The Owner Trustee shall not have the power to commence a voluntary
proceeding in bankruptcy relating to the Trust without the unanimous prior
approval of all Investor Certificateholders unless the Owner Trustee reasonably
believes that the Trust is insolvent.
SECTION 7.3 RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents, nor shall the Owner Trustee be obligated to follow any such
direction, if given.
ARTICLE VIII
COVENANTS OF THE SERVICER AND OTHERS
SECTION 8.1 COVENANTS OF THE SERVICER AND OTHERS. Until such time as
all required distributions have been made on the Investor Certificates pursuant
to the terms hereof, each of HIG (in its capacity as Servicer and Operator) and
the Seller, for the benefit of the Trust and the Investor Certificateholders,
agrees to perform and comply with each of the covenants set forth in the Sale
and Servicing Agreement to be performed by it.
SECTION 8.2 PURCHASE OF INVESTOR CERTIFICATES. The Seller will not,
and will not permit any Affiliate, to purchase or otherwise acquire, directly or
indirectly, any of the Investor Certificates except pursuant to an offer to
purchase made by the Seller or an Affiliate pro rata to all Investor
Certificateholders upon the same terms and conditions. Any such offer shall
remain open for at least 20 Business Days.
ARTICLE IX
THE OWNER TRUSTEE
SECTION 9.1 DUTIES OF THE OWNER TRUSTEE.
(a) The Owner Trustee undertakes to perform such duties, and only
such duties, as are specifically set forth in this Agreement and the other Basic
Trust Documents, including the administration of the Trust in the interest of
the Certificateholders, in accordance with the provisions of this Agreement and
the other Basic Trust Documents. No implied covenants or obligations shall be
read into this Agreement or any other Basic Trust Document against the Owner
Trustee.
(b) Notwithstanding the foregoing, the Owner Trustee shall be deemed
to have discharged its duties and responsibilities hereunder and under the Basic
Trust Documents to the extent the Servicer has agreed in the Basic Trust
Document to perform any act or to discharge any duty of the Owner Trustee
hereunder or under any Basic Trust Document, and the Owner Trustee shall not be
liable for the default or
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failure of the Servicer to carry out its obligations under any of the Basic
Trust Documents.
(c) In the absence of bad faith on its part, the Owner Trustee may
conclusively rely upon certificates or opinions furnished to it and conforming
to the requirements of this Agreement in determining the truth of the statements
and the correctness of the opinions contained therein; PROVIDED, HOWEVER, that
the Owner Trustee shall have examined such certificates or opinions so as to
determine compliance of the same with the requirements of this Agreement.
(d) The Owner Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this subsection 9.1(d) shall not limit the effect of
subsection 9.1(a) or (b);
(ii) the Owner Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is proved
that the Owner Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Owner Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 7.1 or 9.4.
(e) Subject to Section 5.1, monies received by the Owner Trustee
hereunder need not be segregated in any manner except to the extent required by
law, this Agreement or the Sale and Servicing Agreement and may be deposited
under such general conditions as may be prescribed by law, and the Owner Trustee
shall not be liable for any interest thereon.
(f) The Owner Trustee shall not take any action that (i) is
inconsistent with the purposes of the Trust set forth in Section 2.3 or
(ii) would, to the actual knowledge of a Responsible Officer of the Owner
Trustee, result in the Trust's becoming taxable as a corporation for federal
income tax purposes.
(g) Neither the Servicer nor the Certificateholders shall direct the
Owner Trustee to take any action that would violate the provisions of this
Section 9.1.
SECTION 9.2 RIGHTS OF THE OWNER TRUSTEE. The Owner Trustee is
authorized and directed to execute and deliver the Basic Trust Documents and
each certificate or other document attached as an exhibit to or contemplated by
the Basic Trust Documents to which the Trust is to be a party, in such form as
the Owner Trustee shall approve as evidenced conclusively by the Owner Trustee's
execution thereof. In addition to the foregoing, the Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Trust Documents.
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SECTION 9.3 ACCEPTANCE OF TRUSTS AND DUTIES. Except as otherwise
provided in this Article IX, in accepting the trusts hereby created, the Owner
Trustee acts solely as trustee hereunder and not in its individual capacity and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Trust Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof. The
Owner Trustee accepts the trusts hereby created and agrees to perform its duties
hereunder with respect to such trusts but only upon the terms of this Agreement.
The Owner Trustee also agrees to disburse all monies actually received by it
constituting part of the Owner Trust Estate upon the terms of this Agreement.
The Owner Trustee shall not be liable or accountable hereunder or under any
Basic Trust Document under any circumstances, except (i) for its own negligent
action, its own negligent failure to act or its own willful misconduct or
(ii) in the case of the inaccuracy of any representation or warranty contained
in Section 9.6 and expressly made by the Owner Trustee. In particular, but not
by way of limitation (and subject to the exceptions set forth in the preceding
sentence):
(a) the Owner Trustee shall not at any time have any responsibility
or liability for or with respect to the legality, validity and
enforceability of any Contract, any Purchased Contract Receivable or for or
with respect to the sufficiency of the Owner Trust Estate or its ability to
generate the distributions and payments to be made to Certificateholders
under this Agreement;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of
the Servicer or any Certificateholder in accordance with this Agreement;
(c) no provision of this Agreement or any Basic Trust Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers
hereunder or under any Basic Trust Document, if the Owner Trustee shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Trust
Documents, including the Investor Certificate Balance and any return on the
Investor Certificates;
(e) the Owner Trustee shall not be responsible for or in respect of,
and the Owner Trustee does not make any representation as to the validity
or sufficiency of, any provision of this Agreement or for the due execution
hereof by the Servicer or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or
in respect of the validity or sufficiency of the Basic Documents, the
Certificates (other than the certificate of authentication on the
Certificates) or of any Contract, any Purchased Contract Receivables or any
related documents, and the Owner Trustee shall not in any event assume or
incur any liability, duty or obligation to any Investor
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Certificateholder or to the Servicer, other than as expressly provided for
herein and in the Basic Trust Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Servicer or the Seller under any of the Basic Trust
Documents or otherwise, and the Owner Trustee shall not have any obligation
or liability to perform the obligations of the Trust under this Agreement
or the Basic Trust Documents that are required to be performed by the
Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall not be under any obligation to exercise
any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or
otherwise or in relation to this Agreement or any Basic Trust Document, at
the request, order or direction of any of the Certificateholders, unless
such Certificateholders have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities
that may be incurred by the Owner Trustee therein or thereby. The right of
the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Basic Trust Document shall not be construed as a duty,
and the Owner Trustee shall not be answerable for other than its negligence
or willful misconduct in the performance of any such act.
SECTION 9.4 ACTION UPON INSTRUCTION BY INVESTOR CERTIFICATEHOLDERS.
(a) Subject to Section 7.3, the Majority Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Trust Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Basic Trust Document
or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Basic Trust Document, or is unsure as to the application,
intent, interpretation or meaning of any provision of this Agreement or the
Basic Trust Documents, the Owner Trustee shall promptly give notice (in such
form as shall be appropriate under the circumstances) to all of the Investor
Certificateholders requesting instruction as to the course of action to be
adopted, and, to the extent the Owner Trustee acts in good faith in accordance
with any such instruction received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate instructions from the Majority Certificateholders within
ten days of such notice (or within such shorter period of time as reasonably may
be specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action which is
consistent, in its view, with this Agreement and the Basic Trust Documents, and
as it shall deem to be in the best
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interests of the Investor Certificateholders,
and the Owner Trustee shall have no liability to any Person for any such action
or inaction.
SECTION 9.5 FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Investor Certificateholders, promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Basic Trust Documents and such other information as the
Investor Certificateholders may reasonably request.
SECTION 9.6 REPRESENTATIONS AND WARRANTIES OF THE OWNER TRUSTEE.
The Owner Trustee hereby represents and warrants to the Servicer, for the
benefit of the Investor Certificateholders and the Servicer, that:
(a) It is a banking corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The
eligibility requirements set forth in Section 9.13(a)-(c) are satisfied with
respect to it.
(b) It has full power, authority and legal right to execute, deliver
and perform the Basic Trust Documents to which it is a party, and has taken all
necessary action to authorize the execution, delivery and performance by it of
the Basic Trust Documents to which it is a party.
(c) The execution, delivery and performance by it of the Basic Trust
Documents to which it is a party (i) shall not violate any provision of any law
or regulation governing the banking and trust powers of the Owner Trustee or any
order, writ, judgment or decree of any court, arbitrator or Governmental
Authority applicable to the Owner Trustee or any of its assets, (ii) shall not
violate any provision of the corporate charter or by-laws of the Owner Trustee,
or (iii) shall not violate any provision of, or constitute, with or without
notice or lapse of time, a default under, or result in the creation or
imposition of any Lien on any properties included in the Trust pursuant to the
provisions of any mortgage, indenture, contract, agreement or other undertaking
to which it is a party, which violation, default or Lien could reasonably be
expected to have a material adverse effect on the Owner Trustee's performance or
ability to perform its duties under the Basic Trust Documents to which it is a
party or on the transactions contemplated in the Basic Trust Documents to which
it is a party.
(d) The execution, delivery and performance by it of the Basic Trust
Documents to which it is a party shall not require the authorization, consent or
approval of, the giving of notice to, the filing or registration with, or the
taking of any other action in respect of, any Governmental Authority or agency
regulating the corporate trust activities of the Owner Trustee.
(e) The Basic Trust Documents to which it is a party have been duly
executed and delivered by the Owner Trustee and constitutes the legal, valid and
binding agreement of the Owner Trustee, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights in general and by
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general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
SECTION 9.7 RELIANCE; ADVICE OF COUNSEL.
(a) The Owner Trustee shall not incur any liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper believed by
it to be genuine and believed by it to be signed by the proper party or parties
and need not investigate any fact or matter in any such document. The Owner
Trustee may accept a certified copy of a resolution of the board of directors or
other governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the method of the determination of which
is not specifically prescribed herein, the Owner Trustee may for all purposes
hereof rely on a certificate, signed by the president or any vice president or
by the treasurer or other authorized officers of the relevant party as to such
fact or matter, and such certificate shall constitute full protection to it for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Trust Documents, the Owner Trustee: (i) may act directly or through its agents,
attorneys, custodians or nominees pursuant to agreements entered into with any
of them, and shall not be liable for the conduct or misconduct of such agents,
attorneys, custodians or nominees if such agents, attorneys, custodians or
nominees shall have been selected by it with reasonable care; and (ii) may
consult with counsel, accountants and other skilled professionals to be selected
with reasonable care and employed by it. The Owner Trustee shall not be liable
for anything done, suffered or omitted in good faith by it in accordance with
the opinion or advice of any such counsel, accountants or other such Persons and
not contrary to this Agreement or any Basic Document.
SECTION 9.8 OWNER TRUSTEE MAY OWN INVESTOR CERTIFICATES. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Investor Certificates and may in its capacity as such owner or pledgee deal
with the Servicer in transactions in the same manner as it would have if it were
not a trustee hereunder.
SECTION 9.9 COMPENSATION AND INDEMNITY. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Servicer and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Servicer for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, custodians, nominees,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder. The Servicer shall indemnify the Owner Trustee and its successors,
assigns, directors, officers, employees and agents in accordance with the
provisions of Section 6.1 of the Sale and Servicing Agreement. The compensation
and indemnities described in this Section 9.9 shall survive the resignation
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or termination of the Owner Trustee or the termination of this Agreement. Any
amounts paid to the Owner Trustee pursuant to this Article IX shall be deemed
not to be a part of the Owner Trust Estate immediately after such payment.
SECTION 9.10 REPLACEMENT OF THE OWNER TRUSTEE.
(a) The Owner Trustee may give notice of its intent to resign and be
discharged from the trusts hereby created by written notice thereof to the
Servicer and the Investor Certificateholders; PROVIDED that no such resignation
shall become effective, and the Owner Trustee shall not resign, prior to the
time set forth in Section 9.10(c). The Servicer shall appoint, subject to the
written consent of the Majority Certificateholders, a successor Owner Trustee by
delivering a written instrument, in duplicate, to the resigning Owner Trustee
and the successor Owner Trustee. If no successor Owner Trustee shall have been
appointed and have accepted appointment within 30 days after the giving of such
notice, the resigning Owner Trustee giving such notice may petition any court of
competent jurisdiction for the appointment of a successor Owner Trustee. The
Servicer shall, subject to the written consent of the Majority
Certificateholders, remove the Owner Trustee if:
(i) the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.13 and shall fail to resign
after written notice thereof is provided by the Servicer;
(ii) the Owner Trustee shall be adjudged bankrupt or
insolvent;
(iii) a receiver or other public officer shall be appointed
or take charge or control of the Owner Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation; or
(iv) the Owner Trustee shall otherwise be incapable of acting.
(b) If the Owner Trustee gives notice of its intent to resign or is
removed or if a vacancy exists in the office of the Owner Trustee for any
reason, the Servicer, subject to the written consent of the Majority
Certificateholders, shall promptly appoint a successor Owner Trustee by written
instrument in duplicate (one copy of which instrument shall be delivered to the
outgoing Owner Trustee so removed and one copy to the successor Owner Trustee)
and shall pay all fees owed to the outgoing Owner Trustee.
(c) Any resignation or removal of the Owner Trustee and appointment
of a successor Owner Trustee pursuant to any of the provisions of this Section
9.10 shall not become effective and no such resignation shall be deemed to have
occurred until a written acceptance of appointment is delivered by the successor
Owner Trustee to the outgoing Owner Trustee and the Servicer and all fees and
expenses due to the outgoing Owner Trustee are paid. Any successor Owner
Trustee appointed pursuant to this Section 9.10 shall be eligible to act in such
capacity in accordance with Section 9.13 and, following compliance with the
preceding sentence, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor under this
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Agreement, with like effect as if originally named as the Owner Trustee. The
Servicer shall provide notice of any resignation or proposed removal and
replacement of the Owner Trustee to all Investor Certificateholders and the
Rating Agency.
(d) The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement. The Servicer and the predecessor Owner
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
(e) Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section 9.10, the Servicer shall mail notice of the successor
of the Owner Trustee to all Certificateholders and the Rating Agency.
(f) The Residual Certificateholder shall not be entitled to remove or
replace the Owner Trustee.
SECTION 9.11 MERGER OR CONSOLIDATION OF THE OWNER TRUSTEE. Any
Person into which the Owner Trustee may be merged or converted or with which it
may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such Person shall be eligible pursuant to Section 9.13, and without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto; PROVIDED, HOWEVER, that the Owner Trustee shall as promptly
as reasonably practical prior to the merger or consolidation mail notice of such
merger or consolidation to all Investor Certificateholders and the Rating
Agency.
SECTION 9.12 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Owner Trust Estate may at the time be located, the Owner
Trustee shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Owner Trustee to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or trustees, of all or
any part of the Owner Trust Estate, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to the
other provisions of this Section 9.12, such powers, duties, obligations, rights
and trusts as the Owner Trustee may consider necessary or desirable. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor trustee pursuant to Section 9.13 and no
notice of the appointment of any co-trustee or separate trustee shall be
required pursuant to Section 9.10.
(b) Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
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(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is
not authorize to act separately without the Owner Trustee joining in such
act), except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed, the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which
event such rights, powers, duties and obligations (including the holding of
title to the Trust or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreemen (unless such other trustee acts or fails to act at the direction
of such first trustee); and
(iii) the Owner Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time appoint the
Owner Trustee as its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 9.13 ELIGIBILITY REQUIREMENTS FOR THE OWNER TRUSTEE. The
Owner Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute. The Owner Trustee shall at all
times: (a) be authorized to exercise corporate trust powers; (b) have a
combined capital and surplus of at least $250,000,000 and be subject to
supervision or examination by federal or state authorities; and (c) have a
certificate of deposit rating of at least D-1 by the Rating Agency or be
otherwise satisfactory to the Rating Agency. If such corporation shall publish
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose
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of this Section 9.13, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Owner Trustee shall cease
to be eligible in accordance with the provisions of this Section 9.13, the Owner
Trustee shall resign immediately in the manner and with the effect specified in
Section 9.10.
ARTICLE X
TERMINATION OF TRUST AGREEMENT
SECTION 10.1 TERMINATION OF TRUST AGREEMENT.
(a) This Agreement (other than Section 9.9) and the Trust shall
terminate and be of no further force or effect on the earlier of (i) the final
distribution by the Owner Trustee of all monies or other property or proceeds of
the Owner Trust Estate in accordance with the terms of Article V or (ii) at the
time provided in Section 10.2. The bankruptcy, liquidation, dissolution, death
or incapacity of any Certificateholder, other than HGSC in its capacity as the
Residual Certificateholder as described in Section 10.2, shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such Investor
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or the Owner Trust Estate nor (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 10.1(a), none of the Servicer, the
Seller or any Certificateholder shall be entitled to revoke or terminate the
Trust or this Agreement.
(c) Notice of any termination of the Trust, except as otherwise
provided in Section 10.2, specifying the Distribution Date upon which the
Investor Certificateholders shall surrender their Investor Certificates, and the
Residual Certificateholder shall surrender the Residual Certificate, to the
Owner Trustee for payment of the final distribution and cancellation, shall be
given by the Owner Trustee by letter to the Investor Certificateholders and the
Residual Certificateholder mailed within five Business Days prior to such final
Distribution Date, stating: (i) the Distribution Date upon or with respect to
which the final distribution on the Certificates shall be made upon presentation
and surrender of the Certificates at the office of the Owner Trustee therein
designated; (ii) the amount of any such final distribution; and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
distributions being made only upon presentation and surrender of the
Certificates at the office of the Owner Trustee therein specified. Upon
presentation and surrender of the Certificates to the Owner Trustee, the
Servicer shall cause to be distributed to Investor Certificateholders and to the
Residual Certificateholder amounts distributable on such Distribution Date in
accordance with Section 5.2. Notwithstanding the foregoing, all references to
presentation and surrender in this Section 10.1(c) are subject to
Section 10.1(h) and any such notice shall so provide.
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(d) If all of the Investor Certificateholders shall not surrender
their Investor Certificates for cancellation within six months after the date
specified in the written notice specified in Section 10.1(c), the Owner Trustee
shall give a second written notice to the remaining Investor Certificateholders
to surrender their Investor Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Investor Certificates shall not have been surrendered for cancellation,
the Owner Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Investor Certificateholders
concerning surrender of their Investor Certificates, and the cost thereof shall
be paid out of the funds and other assets that shall remain subject to this
Agreement. Subject to applicable laws with respect to escheat of funds, any
funds remaining in the Trust after exhaustion of such remedies in the preceding
sentence shall be deemed property of the Residual Certificateholder and
distributed by the Owner Trustee to the Residual Certificateholder.
(e) On the Business Day immediately following the final Distribution
Date and after the final distribution has been made to Investor
Certificateholders pursuant to Section 5.2, any remaining funds on deposit in
the Investment Account shall be distributed to the Residual Certificateholder by
the Owner Trustee.
(f) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
(g) Within sixty days of the later of (i) the cancellation of all of
the Investor Certificates pursuant to Section 10.1(c) or Section 10.1(d), or
(ii) payment to the Residual Certificateholder of funds remaining in the Trust
pursuant to Sections 10.1(d) and (e), the Owner Trustee shall provide the Rating
Agency with written notice stating that all Investor Certificates have been so
cancelled or such funds have been so paid to the Residual Certificateholder.
(h) Notwithstanding the foregoing provisions of this Section 10.1, if
an Investor Certificateholder is an Institutional Investor (or a nominee of an
Institutional Investor), such Institutional Investor shall use its reasonable
efforts to surrender its Investor Certificates upon written request of the Trust
following final payment in respect thereof, but shall not be required to
surrender its Investor Certificates as a condition to receipt of any payment in
respect of any Investor Certificate. If an Institutional Investor shall not
have surrendered its Investor Certificates within ten Business Days of being so
requested to do so pursuant to this Section 10.1(h), such Institutional Investor
will be deemed to indemnify, defend and hold harmless the Trust, the Owner
Trustee and the Seller from and against any and all costs, expenses, losses,
claims, damages and liabilities (including, without limitation, expenses of
counsel and expenses of litigation) arising out of or incurred in connection
with such failure to surrender its Investor Certificates.
SECTION 10.2 DISSOLUTION UPON BANKRUPTCY OF THE RESIDUAL
CERTIFICATEHOLDER. Subject to the liquidation, winding-up and dissolution
procedures and
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time periods described below, upon the occurrence of an Insolvency Event with
respect to the Residual Certificateholder, the Trust shall terminate, subject
to the liquidation, winding-up and dissolution procedures
described below, and provided that the rights and obligations of the parties to
this Agreement shall not terminate during such liquidation, winding-up and
dissolution. Promptly after the occurrence of any Insolvency Event with respect
to the Residual Certificateholder: (i) the Residual Certificateholder shall
give the Owner Trustee written notice of such Insolvency Event and (ii) the
Owner Trustee shall, upon the receipt of such written notice from the Residual
Certificateholder, give prompt written notice to the Investor Certificateholders
of the occurrence of such event; PROVIDED, HOWEVER, that any failure to give a
notice required by this sentence shall not prevent or delay in any manner a
termination of the Trust pursuant to the first sentence of this Section 10.2.
Ninety days after the date the Residual Certificateholder gives the notice
described in the preceding sentence, unless the Owner Trustee shall have
received written instructions from the Majority Certificateholders as of the
close of the preceding Distribution Date, to the effect that such Persons
disapprove of the prospective liquidation of the assets held by the Trust and
the prospective termination of the Trust and wish to reconstitute the Trust
pursuant to terms corresponding to the terms of this Agreement, the Owner
Trustee shall promptly sell, dispose of or otherwise liquidate or realize upon
the assets of the Trust in a commercially reasonable manner and on commercially
reasonable terms (which may include continuing to hold the Purchased Contract
Receivables and receiving collections thereon). The proceeds of any such sale,
disposition or liquidation of the assets of the Trust shall be treated as
collections on the Purchased Contract Receivables and deposited in the
Collection Account and promptly distributed by the Owner Trustee in accordance
with Section 5.2.
ARTICLE XI
AMENDMENTS AND WAIVERS
SECTION 11.1 PURPOSE OF AMENDMENTS AND WAIVERS. This Agreement may
be amended, or any provision hereof may be waived, from time to time by the
Residual Certificateholder, the Servicer and the Owner Trustee with the consent
of the Majority Certificateholders (which consent, whether given pursuant to
this Section 11.1 or pursuant to any other provision of this Agreement, shall be
conclusive and binding on all Investor Certificateholders and on all future
holders of Investor Certificates and of any Investor Certificates issued upon
the transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Investor Certificates) for the purpose
of adding any provisions to or changing in any manner or eliminating or waiving
compliance with any of the provisions of this Agreement, or of modifying in any
manner the rights of the Investor Certificateholders; PROVIDED, HOWEVER, that no
such amendment or waiver shall, without the consent of the Investor
Certificateholder of each Investor Certificate at the time outstanding
(a) change in any manner the amount of, or accelerate or delay the timing of,
distributions that shall be required to be made on any Investor Certificate,
(b) adjust the Fixed Return Rate, (c) change the aforesaid percentage required
to consent to any such amendment or waiver or (d) amend Section 7.2 or
Section 10.2. No amendment or waiver affecting the interest of the Residual
Certificateholder shall be made without its consent.
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SECTION 11.2 FORM OF AMENDMENTS OR WAIVERS.
(a) Prior to the execution of any amendment or waiver pursuant to
Section 11.1, the Owner Trustee shall furnish written notification of the
substance of such amendment or waiver to the Investor Certificateholders and the
Rating Agency.
(b) Promptly after the execution of any amendment or waiver pursuant
to Section 11.1, the Owner Trustee shall furnish a copy of such amendment or
waiver to each Investor Certificateholder and the Rating Agency.
(c) The particular form of any proposed amendment or waiver shall be
required to be provided to the Investor Certificateholders and the Rating Agency
in connection with any request for an amendment or waiver. The manner of
obtaining such consents (and any other amendments or waivers of Investor
Certificateholders provided for in this Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Investor Certificateholders shall be subject to such reasonable requirements as
the Owner Trustee may prescribe.
(d) Promptly after the execution of any amendment to the Certificate
of Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
(e) Prior to the execution of any amendment to this Agreement or the
Certificate of Trust or waiver of any provision of this Agreement, the Owner
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment or waiver is authorized or permitted by
this Agreement and that all conditions precedent to such execution have been
satisfied. The Owner Trustee may, but shall not be obligated to, enter into any
such amendment or waiver which affects its own rights, duties or immunities
under this Agreement or otherwise.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
the Basic Trust Documents. No transfer, by operation of law or otherwise, of
any right, title, and interest of the Certificateholders to and in their
ownership interest in the Owner Trust Estate shall operate to terminate this
Agreement or the trusts hereunder or entitle any transferee to an accounting or
to the transfer to it of legal title to any part of the Owner Trust Estate.
SECTION 12.2 LIMITATIONS ON RIGHTS OF OTHERS. The provisions of
this Agreement are solely for the benefit of the Owner Trustee, the Servicer and
the Certificateholders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in
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the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 12.3 NOTICES. All demands, notices and communications upon
or to the Servicer, the Owner Trustee, the Rating Agency or any
Certificateholder under this Agreement shall be delivered as specified in
APPENDIX B to the Sale and Servicing Agreement.
SECTION 12.4 SEVERABILITY. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed enforceable to the fullest extent permitted, and if not so
permitted, shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
SECTION 12.5 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts (and by different parties on separate
counterparts), each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument.
SECTION 12.6 SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Servicer, HGSC, the Owner Trustee, the Residual Certificateholder and each
Investor Certificateholder and their respective successors and permitted
assigns, all as herein provided. Any request, notice, direction, consent,
waiver or other instrument or action by an Investor Certificateholder shall bind
the successors and assigns of such Investor Certificateholder.
SECTION 12.7 CONFIDENTIALITY. For the purposes of this
Section 12.7, "Confidential Information" means information delivered to an
Investor Certificateholder by or on behalf of the Trust or the Servicer in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by the Investor
Certificateholder as being confidential information of the Servicer or the
Trust, provided that such term does not include information that (a) was
publicly known or otherwise known to the Investor Certificateholder prior to the
time of such disclosure, (b) subsequently becomes publicly known through no act
or omission by the Investor Certificateholder or any Person acting on its
behalf, (c) otherwise becomes known to the Investor Certificateholder other than
through disclosure by any FRGC Party or (d) constitutes financial statements
delivered to it under this Agreement that are otherwise publicly available.
Each Investor Certificateholder will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by it in good
faith to protect confidential information of third parties delivered to it,
provided that each Investor Certificateholder may deliver or disclose
Confidential Information to (i) its directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of its investment in the Trust), (ii) its financial
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advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 12.7, (iii) any other Certificateholder, (iv) any Institutional Investor
to which the Investor Certificateholder sells or offers to sell its Investor
Certificates (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 12.7),
(v) any Person from which it offers to purchase any security of the Trust or any
FRGC Party (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 12.7),
(vi) any federal or state regulatory authority having jurisdiction over it,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access
to information about its investment portfolio, or (viii) any other Person to
which such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to it, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which it is a party or (z) if a default by the Servicer under any
of the Basic Trust Documents has occurred and is continuing, to the extent it
may reasonably determine such delivery and disclosure to be necessary or
appropriate. Each Investor Certificateholder, by its acceptance of an Investor
Certificate, will be deemed to have agreed to be bound by and to be entitled to
the benefits of this Section 12.7 as though it were a party to this Agreement.
SECTION 12.8 NO RECOURSE. Each Investor Certificateholder by
accepting an Investor Certificate acknowledges that such Person's Investor
Certificate represents a beneficial interest in the Trust only and does not
represent interest in or obligation of the Servicer, the Seller, the Owner
Trustee or any Affiliate thereof. Except as expressly provided in the Basic
Trust Documents, neither the Servicer nor the Owner Trustee in their respective
individual capacities, nor any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns, shall be
personally liable for, nor shall recourse be had to any of them for, the
distribution of the Investor Certificate Balance with respect to (or earnings
on) the Investor Certificates, or the Owner Trustee's performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Investor Certificates or this Agreement, it being understood
that such covenants and obligations have been made by the Owner Trustee solely
in its capacity as the Owner Trustee. Each Investor Certificateholder by the
acceptance of an Investor Certificate shall agree that, except as expressly
provided in the Basic Trust Documents, in the case of nonpayment of any amounts
with respect to the Investor Certificates, it shall have no claim against any of
the foregoing for any deficiency, loss or claim therefrom.
SECTION 12.9 HEADINGS. The headings of the various Articles and
Sections herein are for purposes of reference only and shall not affect the
meaning or interpretation of any provision hereof.
SECTION 12.10 COLLATERAL SHARING AND SECURITY AGREEMENT. The
Investor Certificateholders agree to be bound by the terms and conditions of the
Collateral Sharing and Security Agreement.
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SECTION 12.11 GOVERNING LAW. This agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Delaware, excluding choice-of-law principles of the laws of such State that
would require the application of the laws of a jurisdiction other than such
State.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, in the presence of the undersigned witnesses, as of the day and year
first above written.
HATTIESBURG GAS STORAGE COMPANY
By: HATTIESBURG INDUSTRIAL
GAS SALES COMPANY, its
General Partner
By:/s/ J.A. Ballew
---------------------------
J. A. Ballew, Vice President
Witnesses:
/s/ Jennifer L. Janss
-----------------
/s/ Darrick Gring
-----------------
HATTIESBURG INDUSTRIAL GAS SALES
COMPANY
By:/s/ J.A Ballew
---------------------------
J. A. Ballew, Vice President
Witnesses:
/s/ Jennifer L. Janss
-----------------
/s/ Darrick Gring
-----------------
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: /s/ W. Chris Sponenberg
-----------------------
Name: W. Chris Sponenberg
Title: Financial Services Officer
Witnesses:/s/ Jennifer L. Janss
-----------------
/s/ Darrick Gring
-----------------
-35-
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this the 21st day of November, 1995, before me, Holly C. Waugh, the
undersigned officer, personally appeared J. A. Ballew, who acknowledged himself
to be the Vice President of HATTIESBURG INDUSTRIAL GAS SALES COMPANY, the
general partner of HATTIESBURG GAS STORAGE COMPANY, and that he, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Holly C. Waugh
------------------
Notary Public in and for the
State of New York
My Commission expires:
July 31, 1996
------------------
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this the 21st day of November, 1995, before me, Holly C. Waugh, the
undersigned officer, personally appeared J. A. Ballew, who acknowledged himself
to be the Vice President of HATTIESBURG INDUSTRIAL GAS SALES COMPANY, and that
he, being authorized to do so, executed the foregoing instrument for the
purposes therein contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Holly C Waugh
--------------------
Notary Public in and for the
State of New York
My Commission expires:
July 31, 1996
----------------------
-36-
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this the 21st day of November, 1995, before me, Holly C. Waugh, the
undersigned officer, personally appeared W. Chris Sponenberg, who acknowledged
himself to be the Financial Services Officer of WILMINGTON TRUST COMPANY, and
that he, being authorized to do so, executed the foregoing instrument for the
purposes therein contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Holly C. Waugh
----------------------
Notary Public in and for the
State of New York
My Commission expires:
July 31, 1996
----------------------
-37-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HATTIESBURG GAS STORAGE COMPANY
8.12% Secured Guaranteed Notes Due 2005
--------------------
INDENTURE
Dated as of November 21, 1995
--------------------
CHEMICAL BANK
Indenture Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . 2
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
THE NOTES. . . . . . . . . . . . . . 2
SECTION 2.1 Form . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2 Execution, Authentication and Delivery . . . . . . . . 2
SECTION 2.3 Registration; Registration of Transfer and
Exchange of Notes. . . . . . . . . . . . . . . . . . 3
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . 4
SECTION 2.5 Persons Deemed Noteholders . . . . . . . . . . . . . . 5
SECTION 2.6 Payment of Principal and Interest. . . . . . . . . . . 6
SECTION 2.7 Cancellation of Notes. . . . . . . . . . . . . . . . . 6
SECTION 2.8 Tax Treatment. . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
AND THE SERVICER. . . . . . . . . . . . 7
SECTION 3.1 Representations and Warranties as to the
Receivables and Contracts. . . . . . . . . . . . . . 7
SECTION 3.2 Other Representations and Warranties . . . . . . . . . 7
ARTICLE IV
COVENANTS. . . . . . . . . . . . . . 11
SECTION 4.1 Payment of Principal and Interest. . . . . . . . . . . 11
SECTION 4.2 Maintenance of Agency Office . . . . . . . . . . . . . 12
SECTION 4.3 Money for Payments To Be Held in Trust . . . . . . . . 12
SECTION 4.4 Protection of Trust Estate; Acknowledgment
of Pledge. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.5 Covenants of the Issuer and the Servicer . . . . . . . 13
SECTION 4.6 Annual Statement as to Compliance;
Annual Opinion . . . . . . . . . . . . . . . . . . . 17
SECTION 4.7 Information Provided to Rating Agency. . . . . . . . . 18
SECTION 4.8 Delivery of Financial Statements . . . . . . . . . . . 18
SECTION 4.9 Other Information. . . . . . . . . . . . . . . . . . . 19
SECTION 4.10 Notice of Events of Default. . . . . . . . . . . . . . 19
SECTION 4.11 Further Instruments and Acts . . . . . . . . . . . . . 20
ARTICLE V
SATISFACTION AND DISCHARGE . . . . . . . . . 20
SECTION 5.1 Satisfaction and Discharge of Indenture. . . . . . . . 20
SECTION 5.2 Application of Trust Money . . . . . . . . . . . . . . 20
i
<PAGE>
Page
----
ARTICLE VI
DEFAULT AND REMEDIES. . . . . . . . . . . 20
SECTION 6.1 Events of Default. . . . . . . . . . . . . . . . . . . 20
SECTION 6.2 Acceleration of Maturity; Rescission and
Annulment; Remedies. . . . . . . . . . . . . . . . . 22
SECTION 6.3 Other Remedies; Priorities . . . . . . . . . . . . . . 25
SECTION 6.4 Limitation of Suits. . . . . . . . . . . . . . . . . . 26
SECTION 6.5 Unconditional Rights of Noteholders To
Receive Principal and Interest . . . . . . . . . . . 27
SECTION 6.6 Restoration of Rights and Remedies . . . . . . . . . . 27
SECTION 6.7 Rights and Remedies Cumulative . . . . . . . . . . . . 28
SECTION 6.8 Delay or Omission Not a Waiver . . . . . . . . . . . . 28
SECTION 6.9 Control by Noteholders . . . . . . . . . . . . . . . . 28
SECTION 6.10 Waiver of Past Defaults. . . . . . . . . . . . . . . . 28
SECTION 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . . 29
SECTION 6.12 Action on Notes. . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII
THE INDENTURE TRUSTEE. . . . . . . . . . . 30
SECTION 7.1 Duties of Indenture Trustee. . . . . . . . . . . . . . 30
SECTION 7.2 Rights of Indenture Trustee. . . . . . . . . . . . . . 32
SECTION 7.3 Indenture Trustee May Own Notes. . . . . . . . . . . . 33
SECTION 7.4 Indenture Trustee's Disclaimer . . . . . . . . . . . . 33
SECTION 7.5 Notice of Defaults . . . . . . . . . . . . . . . . . . 33
SECTION 7.6 Reports by Indenture Trustee to Noteholders. . . . . . 33
SECTION 7.7 Compensation; Indemnity. . . . . . . . . . . . . . . . 34
SECTION 7.8 Replacement of Indenture Trustee . . . . . . . . . . . 34
SECTION 7.9 Merger or Consolidation of Indenture Trustee . . . . . 35
SECTION 7.10 Appointment of Co-Indenture Trustee or
Separate Indenture Trustee . . . . . . . . . . . . . 36
SECTION 7.11 Eligibility; Disqualification. . . . . . . . . . . . . 37
SECTION 7.12 Representations and Warranties of
Indenture Trustee. . . . . . . . . . . . . . . . . . 37
SECTION 7.13 Indenture Trustee May Enforce Claims
Without Possession of Notes. . . . . . . . . . . . . 37
SECTION 7.14 Suit for Enforcement . . . . . . . . . . . . . . . . . 37
SECTION 7.15 Rights of Noteholders to Direct Indenture
Trustee. . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII
NOTEHOLDERS' LISTS AND REPORTS . . . . . . . . 38
SECTION 8.1 Indenture Trustee To Furnish Issuer Names
and Addresses of Noteholders . . . . . . . . . . . . 38
SECTION 8.2 Preservation of Information; Communications
to Noteholders . . . . . . . . . . . . . . . . . . . 38
ii
<PAGE>
Page
----
ARTICLE IX
COLLATERAL ACCOUNT, DISBURSEMENTS AND RELEASES . . . . 39
SECTION 9.1 Collateral Account . . . . . . . . . . . . . . . . . . 39
SECTION 9.2 Servicing Procedures . . . . . . . . . . . . . . . . . 40
SECTION 9.3 Release of Trust Estate. . . . . . . . . . . . . . . . 42
SECTION 9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . 42
ARTICLE X
SUPPLEMENTAL INDENTURES . . . . . . . . . . 42
SECTION 10.1 Purpose of Supplemental Indentures . . . . . . . . . . 42
SECTION 10.2 Execution of Supplemental Indentures . . . . . . . . . 44
SECTION 10.3 Effect of Supplemental Indenture . . . . . . . . . . . 44
SECTION 10.4 Reference in Notes to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XI
REDEMPTION AND REPURCHASE OF NOTES . . . . . . . 45
SECTION 11.1 Optional Redemption. . . . . . . . . . . . . . . . . . 45
SECTION 11.2 Repurchase at the Option of Noteholders. . . . . . . . 46
SECTION 11.3 Mandatory Partial Redemption . . . . . . . . . . . . . 47
SECTION 11.4 Purchase of Notes. . . . . . . . . . . . . . . . . . . 48
SECTION 11.5 Application of Funds on Prepayment or Purchase . . . . 49
ARTICLE XII
MISCELLANEOUS. . . . . . . . . . . . . 49
SECTION 12.1 Compliance Certificates and Opinions . . . . . . . . . 49
SECTION 12.2 Form of Documents Delivered to Indenture Trustee . . . 50
SECTION 12.3 Acts of Noteholders. . . . . . . . . . . . . . . . . . 50
SECTION 12.4 Notices, etc., to Indenture Trustee, Issuer
and Rating Agency. . . . . . . . . . . . . . . . . . 51
SECTION 12.5 Notices to Noteholders; Waiver . . . . . . . . . . . . 51
SECTION 12.6 Alternate Payment and Notice Provisions. . . . . . . . 51
SECTION 12.7 Effect of Headings and Table of Contents . . . . . . . 52
SECTION 12.8 Successors and Assigns . . . . . . . . . . . . . . . . 52
SECTION 12.9 Separability . . . . . . . . . . . . . . . . . . . . . 52
SECTION 12.10 Benefits of Indenture. . . . . . . . . . . . . . . . . 52
SECTION 12.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . 52
SECTION 12.12 Governing Law. . . . . . . . . . . . . . . . . . . . . 52
SECTION 12.13 Counterparts . . . . . . . . . . . . . . . . . . . . . 53
SECTION 12.14 Recording of Indenture . . . . . . . . . . . . . . . . 53
SECTION 12.15 No Recourse. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 12.16 Access to Certain Documentation and Information
Regarding Pledged Contract Receivables . . . . . . . 53
SECTION 12.17 Confidentiality. . . . . . . . . . . . . . . . . . . . 54
SECTION 12.18 Surrender of Notes by Institutional Investors. . . . . 55
SECTION 12.19 Collateral Sharing and Security Agreement. . . . . . . 55
iii
<PAGE>
Page
----
Schedule 1 - Schedule of Payments of Principal of the Notes
Schedule 2 - Closing Conditions
Schedule 3 - [Intentionally Omitted]
Schedule 4 - Schedule of Contracts and Monthly Payments
Schedule 5 - Business Interruption Insurance
Schedule 6 - Storage Facilities
Schedule 7 - Eligible Obligors
Schedule 8 - Schedule of Pledged Contract Receivables
Exhibit A - Form of Note
Exhibit B - [Intentionally Omitted]
Exhibit C - Form of Collateral Sharing and Security Agreement
Exhibit D - Undertaking Letter
Exhibit E - Form of Deed of Trust, Security Agreement and
Fixture Filing
Exhibit F - Form of Guarantee of FRGC
Exhibit G - Form of Guarantee of HIG
Appendix A - Defined Terms and Rules of Construction
Appendix B - Notice Addresses and Procedures
iv
<PAGE>
INDENTURE, dated as of November 21, 1995, by and among HATTIESBURG GAS
STORAGE COMPANY, a Delaware general partnership (the "Issuer"), HATTIESBURG
INDUSTRIAL GAS SALES COMPANY, a Delaware corporation (the "Servicer") and
CHEMICAL BANK, as trustee and not in its individual capacity (the "Indenture
Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Noteholders:
GRANTING CLAUSE
The Issuer (and the Servicer with respect to clauses (a), (b) and (e) of
this paragraph to the extent of its interest therein, if any) hereby Grants to
the Indenture Trustee at the Closing Date, as trustee for the benefit of the
Noteholders, all of the Issuer's and the Servicer's, as the case may be, right,
title and interest in, to and under (a) the Pledged Contract Receivables and all
monies paid or to be paid thereon and due or to be due thereunder; (b) all
guarantees, insurance and other agreements or arrangements of Obligors of
whatever character to the extent supporting or securing payment of any Pledged
Contract Receivable whether pursuant to the Contracts or otherwise; (c) all
rights to distributions and other payments in respect of the Investor
Certificates in an aggregate initial amount of $11,452,177.84 acquired by the
Issuer on the Closing Date (the "Pledged Investor Certificate Rights"); (d) the
Collateral Account and all funds on deposit therein from time to time; and
(e) all rights relating to or arising therefrom and all proceeds of any and all
of the foregoing (collectively, the "COLLATERAL"), to secure the payment of
principal and premium, if any, of and interest on, and any other amounts owing
in respect of, the Notes, equally and ratably without prejudice, priority or
distinction, and to secure all obligations under, and compliance with the
provisions of, this Indenture, all as provided in this Indenture. This
Indenture constitutes a security agreement under the UCC.
The foregoing Grant includes all rights, powers and options (but none of
the obligations, if any) of the Issuer and the Servicer under any agreement or
instrument included in the Collateral, including the immediate and continuing
right to claim for, collect, receive and give receipt for payments in respect of
the Pledged Contract Receivables included in the Collateral and all other monies
payable under the Collateral, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Issuer, the Servicer or
otherwise and generally to do and receive anything that the Issuer is or may be
entitled to do or receive under or with respect to the Collateral.
The Indenture Trustee, as trustee on behalf of the Noteholders,
acknowledges such Grant and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture.
In addition to the foregoing, the Issuer, the Servicer and FRGC have
contemporaneously herewith granted to the Collateral Trustee, for the benefit of
the Indenture Trustee and as security for the obligations of the Issuer and
Servicer
<PAGE>
hereunder, a security interest in the Shared Collateral and Mortgage
Collateral pursuant to the Collateral Sharing and Security Agreement and the
Mortgage.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS. Certain capitalized terms used in this
Indenture shall have the respective meanings assigned them in Part I of
APPENDIX A to this Indenture. All references herein to "the Indenture" or "this
Indenture" are to this Indenture as it may be amended, supplemented or modified
from time to time, the exhibits hereto and the capitalized terms used herein
which are defined in such APPENDIX A. All references herein to Articles,
Sections, subsections and exhibits are to Articles, Sections, subsections and
Exhibits contained in or attached to this Indenture unless otherwise specified.
All terms defined in this Indenture shall have the defined meanings when used in
any certificate, notice, Note or other document made or delivered pursuant
hereto unless otherwise defined therein. The rules of construction set forth in
Part II of such APPENDIX A shall be applicable to this Indenture.
ARTICLE II
THE NOTES
SECTION 2.1 FORM.
(a) The Notes, with the Indenture Trustee's certificate of authentication,
shall be substantially in the form set forth in EXHIBIT A, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and with such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
(b) The Notes shall be issued in definitive, fully-registered form only.
The Notes shall be typewritten, printed, lithographed or engraved or produced by
any combination of these methods (with or without steel engraved borders), all
as determined by the officers executing such Notes, as evidenced by their
execution of such Notes.
(c) Each Note shall be dated the date of its authentication. The terms of
the Notes as provided for in EXHIBIT A hereto are part of the terms of this
Indenture.
SECTION 2.2 EXECUTION, AUTHENTICATION AND DELIVERY.
(a) Each Note shall be dated the date of its authentication, and shall be
issuable as a registered Note in the minimum denomination of $1,000,000.
-2-
<PAGE>
(b) The Notes shall be executed on behalf of the Issuer by any of its
Authorized Officers. The signature of any such Authorized Officer on the Notes
may be manual or facsimile.
(c) Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
office prior to the authentication and delivery of such Notes or did not hold
such office at the date of such Notes.
(d) The Indenture Trustee shall upon Issuer Order authenticate and deliver
to or upon the order of the Issuer, the Notes for original issue in aggregate
principal amount of $36,474,020.00.
(e) No Notes shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form set forth in EXHIBIT A,
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE OF
NOTES.
(a) The Note Registrar shall cause to be kept the Note Register in which,
subject to such reasonable regulations as the Note Registrar may prescribe, the
Issuer shall provide for the registration of the Notes and the registration of
transfers and exchanges of the Notes. The Indenture Trustee shall initially be
the Note Registrar for the purpose of registering the Notes and transfers of the
Notes as herein provided. Upon any resignation of any Note Registrar, the
Issuer shall promptly appoint a successor Note Registrar or, if it elects not to
make such an appointment, assume the duties of the Note Registrar.
(b) If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register. The Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof. The Indenture Trustee shall have the right to rely upon
a certificate executed on behalf of the Note Registrar by an Executive Officer
thereof as to the names and addresses of the Noteholders and the principal
amounts and number of such Notes.
(c) Upon surrender for registration of transfer of any Note at the
Corporate Trust Office of the Indenture Trustee or the Agency Office of the
Issuer (and following the delivery, in the former case, of such Notes to the
Issuer by the Indenture Trustee), the Issuer shall execute, the Indenture
Trustee shall authenticate and the Noteholder shall obtain from the Indenture
Trustee, in the name of the designated transferee or transferees, one or more
new Notes in any authorized denominations, of a like aggregate principal amount.
If the Issuer requests, any transferee of a Note shall
-3-
<PAGE>
execute and deliver to the Indenture Trustee an Undertaking Letter in the form
set forth in Exhibit D.
(d) At the option of the Noteholder, Notes may be exchanged for other
Notes in any authorized denominations, of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Indenture Trustee or the Agency Office of the Issuer (and following the
delivery, in the former case, of such Notes to the Issuer by the Indenture
Trustee), the Issuer shall execute, and the Indenture Trustee shall authenticate
and the Noteholder shall obtain from the Indenture Trustee, the Notes which the
Noteholder making the exchange is entitled to receive.
(e) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes transferred
or exchanged.
(f) Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Indenture Trustee and the Note
Registrar, duly executed by the Noteholder thereof or such Noteholder's attorney
duly authorized in writing.
(g) No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Issuer or Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 10.4 not involving
any transfer.
(h) The preceding provisions of this Section 2.3 notwithstanding, the
Issuer shall not be required to transfer or make exchanges, and the Note
Registrar need not register transfers or exchanges, of Notes that (i) are being
redeemed, or are required to be redeemed, pursuant to Article XI, if applicable;
or (ii) are due for repayment in full, in each case, within 15 days of
submission to the Corporate Trust Office or the Agency Office.
SECTION 2.4 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
(a) If (i) any mutilated Note is surrendered to the Indenture Trustee, or
the Indenture Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note (PROVIDED, that an Institutional Investor that is a
Noteholder, or the nominee of which is a Noteholder, may provide its own written
evidence of such destruction, loss or theft and such written evidence shall be
deemed satisfactory evidence for such purpose), and (ii) there is delivered to
the Indenture Trustee such security or indemnity as may be required by it to
hold the Issuer and the Indenture Trustee harmless (PROVIDED, that if the
Noteholder is, or is a nominee for, an Institutional Investor with a
claims-paying ability or long-term debt rating of at least investment grade or
its equivalent, then an unsecured agreement of indemnity by such Institutional
Investor shall be deemed satisfactory indemnity for such purpose), then,
-4-
<PAGE>
in the absence of notice to the Issuer or the Indenture Trustee that such Note
has been acquired by a bona fide purchaser, the Issuer shall execute and upon
the Issuer's request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note of a like aggregate principal amount; PROVIDED, HOWEVER, that
if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable in full, or shall have been
called for redemption, instead of issuing a replacement Note, the Issuer may
make payment to the Noteholder of such destroyed, lost or stolen Note when so
due or payable or upon the redemption date, if applicable, without surrender
thereof.
(b) If, after the delivery of a replacement Note or payment in respect of
a destroyed, lost or stolen Note pursuant to subsection (a), any bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Issuer and the Indenture Trustee
shall be entitled to recover such replacement Note (or such payment) from
(i) any Person to whom it was delivered, (ii) the Person taking such replacement
Note from the Person to whom such replacement Note was delivered or (iii) any
assignee of such Person, except any bona fide purchaser, and the Issuer and the
Indenture Trustee shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
(c) In connection with the issuance of any replacement Note under this
Section 2.4, the Issuer may require the payment by the Noteholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
(d) Any duplicate Note issued pursuant to this Section 2.4 in replacement
for any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be found at any time or be enforced by any
Person, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
(e) The provisions of this Section 2.4 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5 PERSONS DEEMED NOTEHOLDERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the Noteholder for
the purpose of receiving payments of principal and premium, if any, of and
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and neither the Issuer, the Indenture Trustee nor any agent of
the Issuer or the Indenture Trustee shall be affected by notice to the contrary.
-5-
<PAGE>
SECTION 2.6 PAYMENT OF PRINCIPAL AND INTEREST.
(a) Interest on Notes shall accrue in the manner set forth in EXHIBIT A at
the Interest Rate, and such interest shall be payable on each Payment Date as
specified in the form of Note set forth in EXHIBIT A. Any installment of
interest payable on any Note shall be paid to the Person in whose name such Note
is registered on the applicable Record Date.
(b) Prior to the occurrence of an Event of Default and an acceleration in
accordance with Section 6.2(a) or (b) the principal of the Notes shall be
payable on each Payment Date as specified in the form of Note set forth in
EXHIBIT A and SCHEDULE 1. Any instalment of principal payable on any Note shall
be paid to the Person in whose name such Note is registered on the applicable
Record Date.
(c) With respect to any Payment Date on which the final instalment of
principal and premium, if any, of and interest on the Notes is to be paid, the
Indenture Trustee shall notify each Noteholder as of the Record Date for such
Payment Date of the fact that the final instalment of principal and premium, if
any, of and interest on the Notes is to be paid on such Payment Date. Such
notice shall be sent on the Record Date in accordance with Section 12.5(a) and
shall specify, subject to Section 12.18 hereof, that such final instalment shall
be payable only upon presentation and surrender of Notes and shall specify the
place where Notes may be presented and surrendered for payment of such
instalment and the manner in which such payment shall be made. Notices in
connection with redemptions of Notes shall be mailed to Noteholders as provided
in Section 11.3. Within sixty days of the surrender pursuant to this
Section 2.6(c) or cancellation pursuant to Section 2.7 of all Notes, the
Indenture Trustee shall provide the Rating Agency with written notice stating
that all Notes have been surrendered or cancelled.
(d) Any instalment of principal and premium, if any, or of interest on the
Notes shall be paid (i) by wire transfer, in immediately available funds, to the
account of the Person entitled thereto at a bank or other entity having
appropriate facilities therefor, if such Person shall have provided to the
Issuer appropriate written instructions at least five Business Days prior to the
Record Date for such payment or (ii) if clause (i) is not applicable, by check
mailed first-class, postage prepaid to such Person's address as it appears in
the Note Register on such Record Date.
SECTION 2.7 CANCELLATION OF NOTES. All Notes surrendered for payment,
redemption, exchange or registration of transfer shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section 2.7, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by
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an Issuer Order that they be returned to it; PROVIDED, HOWEVER, that such Issuer
Order is
timely and the Notes have not been previously disposed of by the Indenture
Trustee. The Indenture Trustee shall certify to the Issuer that surrendered
Notes have been duly cancelled and retained or destroyed, as the case may be.
SECTION 2.8 TAX TREATMENT. The Issuer in entering into this Indenture,
and the Noteholders, by acquiring any Note, (i) express their intention that the
Notes qualify under applicable tax law as indebtedness secured by the
Collateral, the Shared Collateral and Mortgage Collateral, and (ii) unless
otherwise required by appropriate taxing authorities, agree to treat the Notes
as indebtedness secured by the Collateral, the Shared Collateral and Mortgage
Collateral for the purpose of federal income taxes, state and local income and
franchise taxes, and any other taxes imposed upon, measured by or based upon
gross or net income.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
AND THE SERVICER
SECTION 3.1 REPRESENTATIONS AND WARRANTIES AS TO THE RECEIVABLES AND
CONTRACTS. Each of the Issuer and HIG (in its capacity as Servicer) hereby
represents and warrants to the Indenture Trustee, for the benefit of the
Noteholders, that as of the Closing Date (i) each Obligor is an Eligible
Obligor, (ii) each Pledged Contract Receivable is an Eligible Receivable and
(iii) with respect to each Contract, each statement set forth in the definition
of Eligible Receivable relating to the Contract is true and correct.
SECTION 3.2 OTHER REPRESENTATIONS AND WARRANTIES. Each of the Issuer
and HIG (in its capacity as Servicer and Operator) represents and warrants to
the Indenture Trustee for the benefit of the Noteholders as of the Closing Date
as follows:
(a) HIG (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, (ii) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (iii) has all licenses necessary
to service the Pledged Contract Receivables pursuant to this Indenture,
(iv) is duly qualified as a foreign corporation and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
to the extent that the failure to be so qualified and in good standing
would not have a Material Adverse Effect and (v) is in compliance with all
Requirements of Law except to the extent that the failure to comply
therewith would not, individually or in the aggregate, have a Material
Adverse Effect; HGSC (i) is a general partnership organized and existing
under the laws of the State of Delaware, (ii) has the full partnership
power and authority, and the legal right, to own and operate its property,
to lease the property it operates as lessee and to conduct the business in
which it is currently engaged and (iii) is in compliance with all
Requirements of Law except to the extent that the failure
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to comply therewith would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) It (i) has the corporate or partnership power and authority to
make, deliver and perform each Basic Note Document to which it is a party,
(ii) has taken all necessary action to authorize the execution, delivery
and performance of each Basic Note Document to which it is a party and
(iii) has duly executed and delivered each Basic Note Document to which it
is a party.
(c) The execution, delivery and performance of each Basic Note
Document to which it is a party will not violate any Requirement of Law or
Contractual Obligation of it except for violations that would not have a
Material Adverse Effect, and will not result in, or require, the creation
or imposition of any Lien (other than Permitted Liens and Liens created by
the Basic Documents) on any of its properties or revenues pursuant to any
such Requirement of Law or Contractual Obligation.
(d) Each Basic Note Document to which it is a party and each Contract
constitutes the legal, valid and binding obligation of it enforceable
against it in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(e) It has good and marketable title to the Pledged Contract
Receivables, free of any Lien other than the Lien pursuant to this
Indenture; and, upon execution and delivery of this Indenture by the
parties hereto, the Indenture Trustee shall have all of the right, title
and interest of the Issuer and the Servicer, as the case may be, in, to and
under, and a first priority perfected security interest in, the Trust
Estate free of any Lien other than Permitted Liens and Liens created
pursuant to the Basic Documents.
(f) Each of the audited consolidated balance sheet, statement of
operations, statement of stockholders' equity and statement of cash flows
of FRGC for each of the two fiscal years ended December 31, 1993 and 1994,
and the two fiscal years ended December 31, 1993 and 1992, the audited
consolidated balance sheet of FRGC as of June 19, 1995, the unaudited
consolidated balance sheet, statement of operations and statement of cash
flows of FRGC for the three-month period ended March 31, 1995, and the
unaudited consolidated balance sheet and statement of operations of FRGC
for the nine-month period ended September 30, 1995, respectively, have been
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except for the unaudited financial statements which
are subject to normal year-end adjustments and purchase price adjustments
as a result of Crystal's acquisition of FRGC and which do not contain
footnote disclosures) and each fairly presents the consolidated financial
position of FRGC and its Subsidiaries at the respective dates thereof and
the consolidated results of their operations and changes in cash flows for
the periods indicated.
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(g) Since June 19, 1995, there has been no development or event which
has had or could reasonably be expected to have a Material Adverse Effect.
(h) No proceeds of the issuance of any Notes will be used by it to
purchase or carry any margin stock (as defined in Regulations U and G of
the Board of Governors of the Federal Reserve System, as in effect from
time to time). It is in compliance with all applicable regulations of the
Board of Governors of the Federal Reserve System (including, without
limitation, Regulations U and G with respect to "margin stock").
(i) None of the FRGC Parties is an "investment company" within the
meaning of, or subject to regulation under, the Investment Company Act of
1940 and the rules and regulations thereunder.
(j) Each of Crystal and the FRGC Parties has filed or caused to be
filed all tax returns which, to its knowledge, are required to be filed and
have paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes,
fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on its
books), except where the failure to file or to pay such taxes, fees or
other charges would not, individually or in the aggregate, have a Material
Adverse Effect; no tax Lien has been filed, and, to its knowledge, no claim
is being asserted, with respect to any such tax, fee or other charge,
except for such claims which would not, individually or in the aggregate,
have a Material Adverse Effect. Except for the Federal income tax
liabilities of FRGC, which have been determined through 1991, the Federal
income tax liabilities of the FRGC Parties have not been finally determined
by the Internal Revenue Service for any period.
(k) It has good record and indefeasible title in fee simple to, or a
valid leasehold interest in, or other valid right to use, all its real
property, and good title to, or a valid leasehold interest in, or other
valid right to use, all its other property, and none of such property is
subject to any Lien other than (i) Permitted Liens and (ii) the Liens
created pursuant to the Basic Documents.
(l) It is not in default under or with respect to any of its
Contractual Obligations except for such defaults which, individually or in
the aggregate, would not have a Material Adverse Effect.
(m) It has previously delivered to the Indenture Trustee true and
correct copies of each Contract (including any amendments thereto); and the
terms other than price, volumes and payment dates of the Contracts as they
relate to the Purchased Contract Receivables are the same in all material
respects as the terms set forth in the Contracts attached to the Private
Placement Memorandum with respect to the offer and sale of the Investor
Certificates.
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(n) It has not within the last twelve months made any transfer or
incurred any obligation with actual intent to hinder, delay or defraud any
entity to which it was or may become indebted and it has not transferred
any material property without receiving reasonably equivalent value for any
such transfer or obligation. Both immediately prior to and immediately
after the transactions occurring on the Closing Date, (i) the fair value of
its assets at a fair valuation exceeds its debts and liabilities,
subordinated, contingent or otherwise; (ii) the present fair salable value
of its property is greater than the amount that will be required to pay its
probable liability on its debts and other liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; (iii) it is reasonably expected to be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) it will not have
unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be
conducted. For all purposes of clauses (i) through (iv) above, the amount
of contingent liabilities at any time shall be computed as the amount that,
in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual
or matured liability.
(o) Except for any other FRGC Party, it has no Subsidiaries.
(p) The Servicer has in place procedures pursuant to the Basic Note
Documents that are either necessary or advisable to ensure the timely
collection of the Pledged Contract Receivables.
(q) The Servicer has in force business interruption insurance with
respect to the Storage Facilities as described in Schedule 5 hereto (the
"Business Interruption Insurance").
(r) The office at which it keeps its records concerning the Pledged
Contract Receivables is located at 229 Milam Street, Shreveport, Louisiana
71101. Since June 19, 1995, its chief executive office has been located at
229 Milam Street, Shreveport, Louisiana 71101 and is the place where it is
"located" for the purposes of Section 9-103(3)(d) of the UCC of each
jurisdiction the laws of which govern the transfer of the Pledged Contract
Receivable hereunder. From January 1, 1995 until June 19, 1995, its chief
executive office was "located" in Dallas, Texas for the purposes of
Section 9-103(3)(d) of the UCC as in effect in the State of Texas. The
taxpayer identification number of HGSC is 75-2316407 and of HIG is
75-2051721.
(s) Its legal name is as set forth in this Indenture. It has no
trade names, fictitious names, assumed names or "doing business as" names.
(t) Schedule 8 accurately sets forth the amounts scheduled to come
due after the Cut-off Date with respect to the Pledged Contract
Receivables.
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(u) No action, claim or proceeding is pending and, to its knowledge,
no investigation is pending or threatened that would adversely affect the
payment or enforceability of the Pledged Contract Receivables.
(v) No consents or filings with any Governmental Authority or
approvals by any Governmental Authority that have not been made or obtained
are required for the execution, delivery and performance of the Basic Note
Documents to which it is a party.
(w) There are no pending or, to its knowledge, threatened actions,
suits or proceedings against any FRGC Party that would adversely affect the
transactions contemplated by the Basic Note Documents to which it is a
party, and there is no injunction, writ, restraining order or other similar
order in effect that adversely affects any of the FRGC Parties' performance
of the agreements and transactions contemplated by the Basic Note Documents
to which it is a party.
(x) All of the FRGC Parties' pension and profit sharing plans have
been fully funded in accordance with the applicable FRGC Parties'
obligations.
(y) Each Contract is a legal, valid and binding obligation and
contract, as the case may be, of the FRGC Party thereto, enforceable
against such party in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except as to any
material provision of any Contract the lack of enforceability of which
would not affect the enforceability of the payment obligations of the
Obligors thereunder in respect of any Pledged Contract Receivable.
(z) Since September 30, 1995, except on the Closing Date from the net
proceeds from the sale of the Notes and the Investor Certificates, none of
the FRGC Parties has made a Restricted Payment.
(aa) The projected distributions with respect to the Pledged Investor
Certificate Rights are sufficient to pay the interest obligations with
respect to the Notes through July 2000.
The representations and warranties set forth in this Article III shall
survive the initial issuance of the Notes.
ARTICLE IV
COVENANTS
SECTION 4.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer shall duly
and punctually pay the principal and premium, if any, of and interest on the
Notes in accordance with the terms of the Notes and this Indenture. Any payment
of principal
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and premium, if any, of or interest on the Notes may be reduced by
amounts, if any, required to be withheld under the Code. Any amounts so
withheld shall be considered as having been paid by the Issuer to such
Noteholder for all purposes of this Indenture.
SECTION 4.2 MAINTENANCE OF AGENCY OFFICE. As long as any of the Notes
remains Outstanding, the Issuer shall maintain in the Borough of Manhattan, The
City of New York, an office (the "Agency Office"), being an office or agency
where Notes may be surrendered to the Issuer for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of the
Notes and this Indenture may be served. The Issuer hereby initially appoints
the Indenture Trustee to serve as its agent for the foregoing purposes. The
Issuer shall give prompt written notice to the Indenture Trustee of the
location, and of any change in the location, of the Agency Office. If at any
time the Issuer shall fail to maintain any such office or agency or shall fail
to furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Indenture Trustee, and the Issuer hereby appoints the Indenture Trustee as its
agent to receive all such surrenders, notices and demands.
SECTION 4.3 MONEY FOR PAYMENTS TO BE HELD IN TRUST.
(a) All payments of amounts due and payable with respect to any Notes that
are to be made from the Collateral Account pursuant to Section 9.1(d) shall be
made on behalf of the Issuer by the Indenture Trustee, and no amounts so
withdrawn from the Collateral Account for payments of Notes shall be paid over
to the Issuer except as provided in this Section 4.3 or Section 9.1.
(b) The Issuer and the Indenture Trustee shall comply with all
requirements of the Code with respect to the withholding from any payments made
by it on any Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
(c) Subject to applicable laws with respect to escheat of funds, any money
held by or on behalf of the Indenture Trustee for the payment of any amount due
with respect to any Note and remaining unclaimed for one year after such amount
has become due and payable shall be discharged from such trust and be returned
to the Issuer on Issuer Request; and the Noteholder shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Indenture Trustee with respect to such trust money shall thereupon cease;
PROVIDED, HOWEVER, that the Indenture Trustee, before being required to make any
such payment, may at the expense of the Issuer cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be paid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense of the Issuer, any other
reasonable means of notification of such payment (including, but not limited to,
mailing notice of such payment to Noteholders whose Notes have been called but
have not been
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surrendered for redemption or whose right to or interest in monies
due and payable but not claimed is determinable from the records of the
Indenture Trustee, at the last address of record for each such Noteholder).
SECTION 4.4 PROTECTION OF TRUST ESTATE; ACKNOWLEDGMENT OF PLEDGE. The
Issuer shall from time to time execute and deliver all such supplements and
amendments hereto and all such financing statements, amendments thereto,
continuation statements, assignments, certificates, instruments of further
assurance and other instruments as may be determined to be necessary or
advisable in an Opinion of Counsel to the Indenture Trustee to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture, the Mortgage and the Collateral
Sharing and Security Agreement or carry out more effectively the purposes
hereof including:
(w) by making the necessary filings of financing statements or
amendments thereto within sixty days after the occurrence of, and by
promptly notifying the Indenture Trustee of, any of the following: (A)
any change in the Issuer's name, (B) any change in the location of the
Issuer's principal place of business and (C) any merger or
consolidation or other change in the Issuer's identity or
organizational structure;
(x) by delivering the Pledged Investor Certificates to the
Indenture Trustee, together with a duly executed blank assignment; and
(y) by delivering immediately upon receipt thereof any
instrument evidencing or constituting part of the Collateral, together
with a duly executed blank assignment;
(ii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iii) enforce the rights of the Indenture Trustee and the Noteholders
in any of the Collateral;
(iv) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee and the Noteholders in such Trust Estate against the
claims of all Persons and parties; or
(v) maintain or preserve the lien and security interest (and the
priority thereof) of the Collateral Sharing and Security Agreement and the
Mortgage and the benefits contemplated thereunder with respect to the
Noteholders.
SECTION 4.5 COVENANTS OF THE ISSUER AND THE SERVICER. Until such time
as there are no Notes Outstanding, each of the Issuer and HIG (in its capacity
as Servicer and Operator) covenants, for the benefit of the Indenture Trustee
and the Noteholders, as follows:
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(i) it will not voluntarily or involuntarily terminate or permit
the termination of, or take any action which would permit the Obligors to
terminate, any of the Contracts;
(ii) it will not voluntarily or involuntarily take any action
(including, without limitation, by agreeing to any amendment, modification
or waiver of any provision of any Contract which would result in the
reduction, or change the terms, of the Pledged Contract Receivables) which
would permit the Obligors to reduce or adversely affect their obligations
under the Pledged Contract Receivables, including, without limitation, by
way of setoff or otherwise;
(iii) it will not, without the consent of the Indenture Trustee at
the direction of the Majority Noteholders, consent to an assignment by an
Obligor which releases such Obligor from its obligations with respect to a
Pledged Contract Receivable;
(iv) it will operate the Storage Facilities in a good and prudent
manner, consistent with its historical practices;
(v) it will perform its obligations under the Contracts in all
material respects;
(vi) except for Indebtedness to Crystal or an Affiliate of Crystal
to be repaid at Closing, other than the Notes and the obligations relating
thereto, it will not incur, assume or become liable for any Indebtedness,
or assume or guarantee any Indebtedness of any Person;
(vii) it will not voluntarily or involuntarily create, grant or
permit to exist any Liens on any of its property or assets other than
(1) Permitted Liens, (2) Liens in the form of sales or leases of assets
permitted pursuant to Section 4.5(xv) and (3) Liens created pursuant to any
of the Basic Documents as executed and delivered at the closing of the
transactions contemplated hereby;
(viii) it will not expand or make any material additions or capital
improvements to the Storage Facilities that would result in a reduction in
the contractual rates for the Pledged Contract Receivables provided under
the Contracts;
(ix) it will not enter into contracts with respect to the Storage
Facilities which (1) would prohibit or otherwise impose any material cost
on the Indenture Trustee in selling or foreclosing on the Storage
Facilities after an Event of Default or (2) would bind a subsequent
purchaser of the Storage Facilities acquired in a foreclosure or sale
unless the receivables under such contracts in the case of clause (2) are
assigned as additional security to the Trust and the Indenture Trustee
pursuant to the Collateral Sharing and Security Agreement;
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(x) it will not engage in any business other than (w) the operation
of the Storage Facilities, (x) the provision of transportation and storage
services relating to or in connection with the Storage Facilities, (y) any
expansion or additions to the Storage Facilities or its operations or to
the transportation and storage services provided in connection with the
Storage Facilities or (z) the provision of management or operational
services for other Persons at facilities located in the Petal Dome area in
Mississippi provided that such management and operational services would
not have a Material Adverse Effect, it being understood that the Seller or
the Servicer may, subject to the foregoing limitations and the other
provisions of this Indenture, increase the storage capacity of the Storage
Facilities, expand or leach new caverns on or under the property where the
Storage Facilities are currently located (it being understood that no
storage facilities outside such location will be acquired by it),
construct, acquire or expand new or existing pipelines and related
equipment which may connect directly or indirectly to the Storage
Facilities or enhance the services provided at the Storage Facilities and
enter into joint ventures and partnerships with respect to the storage,
transportation or delivery of natural gas and other hydrocarbons to the
extent that such joint ventures and partnerships do not create a Lien on
the Storage Facilities and are reasonably related to the operations of the
Storage Facilities;
(xi) except as expressly contemplated by the Basic Note Documents,
the Servicer will service the Pledged Contract Receivables in accordance
with its historical practices and policies;
(xii) it will maintain its corporate existence separate and apart
from any other entity except that, subject to the terms of the Trust
Agreement, any of FRGC, the Servicer and HGSC may merge with each other and
HGSC may liquidate and dissolve as long as (1) either FRGC or HIG holds
individually or together the assets of HGSC immediately following the
liquidation, (2) no Default or Event of Default would exist following any
such action and (3) any successor entity in any such action explicitly
assumes the liabilities of its predecessor entity (and a copy of any such
assumption agreement is delivered to the Noteholders and the Indenture
Trustee);
(xiii) it will (1) comply with all Requirements of Law, (2) perform
its Contractual Obligations and (3) promptly pay its taxes and other
liabilities as they become due and payable except, in each case, for such
non-compliance, non-performance or non-payment which would not,
individually or in the aggregate, have a Material Adverse Effect;
(xiv) it will maintain Business Interruption Insurance (which shall
name the Indenture Trustee as loss payee thereunder in respect of its
interests in the Pledged Contract Receivables) of the type and in the
amount set forth in Schedule 5 hereto and to the extent such insurance is
not available on a reasonable basis or sufficient to cover all Force
Majeure Events under a Contract for the entire time that such Force Majeure
Event exists, it will self insure against such Force Majeure Event;
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(xv) an FRGC Party will at all times own all the material assets
constituting the Storage Facilities; PROVIDED, however, this provision will
not restrict the sale of movable equipment that is not necessary for the
operation of the Storage Facilities, sales and loans of base gas in the
ordinary course of business and modifications and terminations of the
leases and other agreements that would not have a Material Adverse Effect;
(xvi) subject to the limitations of clause (xvii) of this Section 4.5
and except for the payment of dividends on shares of its capital stock,
distributions with respect to its partnership interests, repurchases of
shares of its capital stock, issuances of new classes or series of its
capital stock, the lending of funds to Crystal or any of its Affiliates,
the lending or borrowing of funds between or among the FRGC Parties or
other transactions between or among the FRGC Parties, it will not engage in
any material transaction with an Affiliate that is not on substantially the
same terms as would reasonably be expected to be obtained on an arm's
length basis with an unaffiliated third party;
(xvii) except on the Closing Date from the net proceeds from the sale
of the Notes and the Investor Certificates, it will not (x) make any
payment in respect of any Indebtedness owed to Crystal to the extent any
such Indebtedness may subsequently be permitted with the consent of the
Majority Noteholders in accordance with the terms of this Indenture, or
make any loan or advances of any amounts to Crystal, or make any payments
in respect of any tax sharing arrangement or (y) permit FRGC (or any other
Person that succeeds to FRGC's ownership of the Issuer or HIG) to take any
such action or to pay any dividend on, or purchase or otherwise redeem or
acquire any shares of FRGC's capital stock or options, warrants or rights
to subscribe for capital stock or securities convertible or exchangeable
for shares of capital stock (any of the foregoing in clauses (x) or (y), a
"RESTRICTED PAYMENT"); provided that it or FRGC may make any such
Restricted Payment at any time (the date of any such Restricted Payment, a
"RESTRICTED PAYMENT DATE") if immediately after, and after giving effect
to, the payment of such Restricted Payment on such Restricted Payment Date,
the aggregate amount of all Restricted Payments made by all FRGC Parties to
all Persons other than an FRGC Party since the Closing Date would not
exceed the sum of (i) subject to the further proviso set forth below, all
cash equity contributions made to an FRGC Party by Crystal or any other
Affiliate (other than an FRGC Party) from and after June 30, 1995, (ii) all
cash payments of principal and interest on Indebtedness owed to FRGC made
by any Affiliates of FRGC (other than Subsidiaries of FRGC) and made within
six months prior to the applicable Restricted Payment Date and (iii) the
Specified Percentage (as defined below) of the Consolidated Net Income of
FRGC since June 30, 1995 (after adding back all charges, accruals and
provisions for income taxes or charges in lieu of income taxes and
deducting all income taxes actually paid by an FRGC Party and all
consolidated losses of the FRGC Parties since such date); PROVIDED,
FURTHER, that at such times as the Fixed Charge Coverage Test (as defined
below) is not satisfied, equity contributions set forth in clause (i) above
may not be included in determining the aggregate amount of Restricted
Payments which may be made on any Restricted Payment Date to the extent
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that such contributions were received by FRGC more than six months prior to
the applicable Restricted Payment Date. The term "SPECIFIED PERCENTAGE"
shall mean (A) 85%, if none of the Pledged Contract Receivables are then
delinquent by more than 30 days or in default (including with respect to
which the related Obligor is subject to an Insolvency Event) and neither
the Issuer nor the Servicer is in default under any of the covenants set
forth in this Section 4.5 and no other Default or Event of Default exists
or would exist after giving effect to any such Restricted Payment, and
(B) 0%, in all other cases. The "FIXED CHARGE COVERAGE TEST" shall be
deemed to be satisfied at any time if (and only if) the ratio of
(A) Consolidated Cash Flow Available for Fixed Charges for the period of
four consecutive fiscal quarters of FRGC most recently ended at such time
to (B) Consolidated Fixed Charges for such period, is greater than 1 to 1;
(xviii) neither it nor any other FRGC Party will enter into a tax
sharing arrangement that would require the payment of taxes by the FRGC
Parties greater than that which would be required to be paid by the FRGC
Parties as a consolidated group absent the existence of the tax sharing
agreement; and
(xix) it will not enter into any speculative hedge contracts.
SECTION 4.6 ANNUAL STATEMENT AS TO COMPLIANCE; ANNUAL OPINION.
(a) The Servicer and Issuer shall deliver to the Indenture Trustee, each
Noteholder and the Rating Agency, on or before March 31 of each year, beginning
March 31, 1996, an officer's certificate signed by the President or any Vice
President of the Servicer and by an Authorized Officer of the Issuer, dated as
of such date, stating that (i) a review of the activities of the Servicer or the
Issuer, as the case may be, during the prior calendar year (or, with respect to
the first such certificate, such period as shall have elapsed from the Closing
Date to the end of the prior calendar year) and of its performance under this
Indenture and the other Basic Note Documents has been made under such officer's
supervision and (ii) to such officer's knowledge, based on such review, the
Servicer or the Issuer, as the case may be, has fulfilled in all material
respects all its obligations under this Indenture and the other Basic Note
Documents throughout such period, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and remedies therefor being pursued.
(b) The Servicer shall deliver to the Indenture Trustee and each
Noteholder not later than 55 days after the end of each fiscal quarter beginning
with the fiscal quarter ending December 31, 1995, a certificate setting forth
the status of each Pledged Contract Receivable, including identifying any
Pledged Contract Receivable that is not current and the age of such Pledged
Contract Receivable and the actions being taken to collect on such past due
Pledged Contract Receivable.
(c) The Servicer shall send to each Noteholder the Servicer's Certificate
furnished to the Owner Trustee pursuant to Section 5.2(b) of the Trust Agreement
at the same time such certificate is sent to the Owner Trustee.
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(d) The Servicer shall deliver to the Indenture Trustee, on or before
April 30 of each year, beginning in 1997, an Opinion of Counsel either (i)
stating that, in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Indenture Trustee in the Pledged
Contract Receivables and to preserve and protect the interest of the Collateral
Trustee in the Shared Collateral and the Mortgage Collateral, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are given, or (ii) stating that, in the opinion of such counsel, no
further action is necessary to preserve and protect such interest. The Issuer
shall also deliver to the Indenture Trustee, within 45 days after any change in
location of the Issuer's chief executive office, stating that in the opinion of
such counsel all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the interest
of the Indenture Trustee in the Pledged Contract Receivables and to preserve and
protect the interest of the Collateral Trustee in the Shared Collateral and
Mortgage Collateral, and reciting the details of such filings or referring to
prior opinions in which such details are given.
SECTION 4.7 INFORMATION PROVIDED TO RATING AGENCY. In addition to
receiving any information or documents required to be delivered to the Rating
Agency pursuant to any Basic Document, the Rating Agency may request in writing
to the Servicer, and the Servicer shall deliver, reasonable additional
information necessary to the Rating Agency to monitor the Notes. Promptly, but
in no event later than five Business Days, after obtaining knowledge of an
Insolvency Event with respect to any FRGC Party, the Servicer shall deliver to
the Rating Agency (with a copy to the Noteholders and the Indenture Trustee)
notice of such Insolvency Event. The Servicer agrees to maintain and pay for
the retention of the Rating Agency pursuant to the agreement between Crystal and
the Rating Agency dated August 31, 1995. Failure by the Servicer to comply with
the terms of this Section 4.7 shall constitute a default hereunder only of the
Servicer and the sole remedy available to the Indenture Trustee shall be
replacement of the Servicer as provided in Section 6.2.
SECTION 4.8 DELIVERY OF FINANCIAL STATEMENTS.
The Issuer shall furnish to the Indenture Trustee, each Noteholder and the
Rating Agency:
(i) as soon as available, but in any event not later than 105 days
after the end of each fiscal year of FRGC ending on or after December 31,
1995, the consolidated balance sheet of FRGC and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of earnings and retained earnings and cash flow statements,
each of which shall be audited by a nationally recognized accounting firm;
and
(ii) as soon as available, but in any event not later than 55 days
after the end of each of the first three quarterly periods of each fiscal
year of FRGC beginning with the first fiscal quarter of 1996, the unaudited
consolidated balance sheet of FRGC and its consolidated Subsidiaries as at
the end of such quarter and the related unaudited consolidated statements
of earnings and
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retained earnings and cash flow statements of FRGC and its
consolidated Subsidiaries for such quarter, and the portion of the fiscal
year through the end of such quarter;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal quarter or fiscal year, as the case may be, all
in reasonable detail, prepared in accordance with GAAP applicable to quarterly
or annual financial statements generally; provided that footnote disclosure
shall not be required for quarterly financial statements. The quarterly and
annual financial statements shall be certified by a Responsible Officer of FRGC
that such consolidated statements fairly present the financial condition of FRGC
and its consolidated Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated, subject, in the case
of interim statements, to changes resulting from audit and normal year-end
adjustment. The annual financial statements shall also be accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of FRGC and its
Subsidiaries and their results of operations and cash flows and, except as set
forth therein, have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for the opinion in the circumstances.
SECTION 4.9 OTHER INFORMATION.
(a) The Servicer and the Seller agree to provide to the Indenture Trustee
and each Noteholder, with reasonable promptness, such additional data and
information as may be reasonably requested relating to the business, operations,
affairs, financial condition, assets and properties of the FRGC Parties, the
Contracts and the ability of any of the FRGC Parties to perform their respective
obligations under any of the Basic Note Documents.
(b) The Servicer shall furnish to the Indenture Trustee and each
Noteholder within five Business Days of the filing thereof a copy of each Annual
Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on
Form 8-K that may be filed by Crystal with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, for so
long as Crystal shall be subject to such filing obligations or until such
earlier date that FRGC shall cease to be a Subsidiary of Crystal.
SECTION 4.10 NOTICE OF EVENTS OF DEFAULT. The Issuer shall furnish to
the Indenture Trustee, each Noteholder and the Rating Agency, promptly, and in
any event within five days, after obtaining knowledge of the occurrence of any
Event of Default hereunder or any Insolvency Event with respect to any FRGC
Party, a written notice specifying the nature and existence thereof and what
action the applicable FRGC Party is taking or proposes to take with respect
thereto.
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SECTION 4.11 FURTHER INSTRUMENTS AND ACTS. Upon request of the Indenture
Trustee, the Issuer shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE V
SATISFACTION AND DISCHARGE
SECTION 5.1 SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to:
(i) rights of registration of transfer and exchange; (ii) substitution of
mutilated, destroyed, lost or stolen Notes; (iii) rights of Noteholders to
receive payments of principal and premium, if any, thereof and interest thereon;
(iv) Sections 4.1, 4.2 and 4.3(b) and (c); (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 7.7 and the obligations of the Indenture Trustee
under Section 5.2); and (vi) the rights of Noteholders as beneficiaries hereof
with respect to the property so deposited with the Indenture Trustee payable to
all or any of them, and the Indenture Trustee, on demand of and at the expense
of the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, and the release of all
Collateral hereunder and all rights to any collateral under the Collateral
Sharing and Security Agreement or the Mortgage, if all Notes theretofore
authenticated and delivered (other than (1) Notes that have been destroyed, lost
or stolen and that have been replaced or paid as provided in Section 2.4 and
(2) Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the Issuer
or discharged from such trust, as provided in Section 4.3) have been delivered
to the Indenture Trustee for cancellation.
SECTION 5.2 APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 5.1 shall be held in trust for the
Noteholders and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment of all sums due and to become due thereon for
principal and premium, if any, and interest, but such monies need not be
segregated from other funds except to the extent required herein or by
applicable law.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT. For the purposes of this Indenture,
"Event of Default" wherever used herein, means any one of the following events:
(a) failure to pay any principal or premium, if any, of or interest
on any Note as and when the same becomes due and payable (including,
without limitation on any redemption date), and such default shall continue
unremedied for a period of five (5) days; or
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(b) any of the representations and warranties made by the Issuer or
the Servicer in Sections 3.1 and 3.2 or by any FRGC Party in any Basic Note
Document shall be false in any material respect when made, and such default
shall continue or not be cured or remedied for a period of thirty (30) days
after the earlier of (i) an Executive Officer of any FRGC Party obtaining
actual knowledge of such default and (ii) the Issuer, the Servicer or the
FRGC Party, as the case may be, receiving a written notice from the
Indenture Trustee or any Noteholder, specifying such default, demanding
that it be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(c) default in the observance or performance in any respect of any
covenant or agreement of the Issuer or the Servicer made in this Indenture
or by any FRGC Party under any Basic Note Document (other than a covenant
or agreement, a default in the observance or performance of which is
specifically dealt with elsewhere in this Section 6.1), and such default
shall continue or not be cured or remedied for a period of thirty (30) days
after the earlier of (i) an Executive Officer of any FRGC Party obtaining
actual knowledge of such default and (ii) the Issuer, the Servicer or the
FRGC Party, as the case may be, receiving a written notice from the
Indenture Trustee or any Noteholder, specifying such default, demanding
that it be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(d) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of any FRGC Party or any
substantial part of the Trust Estate, the Shared Collateral or the Mortgage
Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of any FRGC Party or for any substantial
part of the Trust Estate or the collateral under the Collateral Sharing and
Security Agreement or the Mortgage, or ordering the winding-up or
liquidation of any FRGC Party's affairs, and such decree or order shall
remain unstayed and in effect for a period of sixty (60) consecutive days;
or
(e) the commencement by any FRGC Party of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by any FRGC Party to the entry of an
order for relief in an involuntary case under any such law, or the consent
by any FRGC Party to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of any FRGC Party or for any substantial part of the Trust Estate, the
Shared Collateral or the Mortgage Collateral, or the making by any FRGC
Party of any general assignment for the benefit of its creditors, or the
failure by any FRGC Party generally to pay its debts as such debts become
due, or the taking of action by any FRGC Party in furtherance of any of the
foregoing; or
(f) a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against one or more of the
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FRGC Parties and which judgments are not, within 60 days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay.
The Issuer shall deliver to the Indenture Trustee and each Noteholder, within
three Business Days after learning of the occurrence thereof, written notice in
the form of an Officer's Certificate of any Default under Section 6.1(b) or (c),
its status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 6.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT;
REMEDIES.
(a) If an Event of Default described in clause (d) or (e) of Section 6.1
(other than the failure by the Issuer generally to pay its debts as such debts
become due or the taking of action by the Issuer in furtherance of such event)
has occurred, all the Notes then outstanding shall automatically become
immediately due and payable.
(b) If any other Event of Default should occur and be continuing, then and
in every such case (except in the case of a Default under clause (b) or (c) of
Section 6.1 which relates to one or more specific Contracts or Pledged Contract
Receivables, in which case the provisions of Section 11.3 shall be applicable
and, subject to the rights set forth in Sections 6.2(d) and (f), which shall be
the sole remedy with respect to such Default) unless the principal amount of the
Notes shall have already become due and payable, either the Indenture Trustee or
the Noteholders representing the Majority Noteholders may, and at the direction
of the Majority Noteholders, the Indenture Trustee shall, declare all the Notes
to be immediately due and payable, by a notice in writing to the Issuer (and to
the Indenture Trustee if given by the Noteholders) setting forth the Event of
Default or Events of Default, and upon any such declaration the unpaid principal
amount of such Notes, together with accrued and unpaid interest thereon through
the date of payment, shall become immediately due and payable; PROVIDED,
HOWEVER, that if any such Event of Default or Events of Default were the result
of an action taken by the Issuer or the Servicer that was intended by such
Person to cause an acceleration of the Notes (with the Issuer or the Servicer
being presumed for the purposes of this Section 6.2(b) to have intended any
action that was reasonably within the ability or control of any FRGC Party to
avoid or prevent), then the amount due on the Notes shall include the Basic
Make-Whole Premium.
(c) At any time after such acceleration of maturity of the Notes has been
made and before a judgment or decree for payment of the money due thereunder has
been obtained by the Indenture Trustee as hereinafter provided in this
Article VI, the Majority Noteholders, by written notice to the Issuer and the
Indenture Trustee, may rescind and annul such acceleration and its consequences;
PROVIDED that no such rescission and annulment shall extend to or affect any
subsequent or other Default or impair any right consequent thereto; and
PROVIDED, FURTHER, that if the Indenture Trustee shall have proceeded to enforce
any right under this Indenture and such proceedings shall have been discontinued
or abandoned because of such rescission and annulment or for any other reason,
or such proceedings shall have been determined adversely to the Indenture
Trustee, then in every such case, the Indenture Trustee, the Issuer and the
Noteholders, as the case may be, shall be restored to their respective
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former positions and rights hereunder, and all rights, remedies and powers of
the Indenture Trustee, the Issuer and the Noteholders, as the case may be, shall
continue as though no such proceedings had been commenced.
(d) The Issuer hereby confirms its appointment of HIG as Operator of the
Storage Facilities on behalf of the Issuer. In addition to, and not in
limitation of any other remedies the Indenture Trustee may have hereunder or
under applicable law, in the event the Issuer or HIG breaches any of the
covenants set forth in the Basic Note Documents (but only to the extent such
covenant relates to the operation of the Storage Facilities), and such breach is
not remedied or cured within 45 calendar days of receipt of written notice
thereof from the Indenture Trustee, or in the event there shall have occurred
and be continuing an Insolvency Event with respect to HIG, HIG agrees if
requested pursuant to the provisions of the Collateral Sharing and Security
Agreement to resign as Operator and HIG and HGSC agree that a substitute
operator of the Storage Facilities may be engaged by the Collateral Trustee
pursuant to Section 13 of the Collateral Sharing and Security Agreement.
(e) In the event HIG shall breach any of the covenants in the Basic Note
Documents (but only to the extent such covenant relates to the servicing of the
Pledged Contract Receivables) and such breach shall be continuing and shall not
be remedied or cured within 45 calendar days of receipt of written notice
thereof from the Indenture Trustee or any Noteholder, or in the event there
shall have occurred and be continuing an Insolvency Event with respect to HIG,
the Indenture Trustee or the Majority Noteholders by notice given in writing to
the Servicer may, in addition to the other rights and remedies available in a
court of law or equity to damages, injunctive relief and specific performance
(which other rights and remedies shall not be available in the case of a breach
of Section 4.7), terminate all of the rights and obligations of the Servicer
under this Indenture or appoint a successor servicer, and HIG agrees to pay the
reasonable fees and expenses of such successor servicer. Unless otherwise
provided in the notice, on or after receipt by HIG of such written notice, all
authority and power of the Servicer under this Indenture shall pass to and be
vested in the Indenture Trustee pursuant to and under this Section 6.2(e). The
Indenture Trustee is hereby authorized and empowered to execute and deliver, on
behalf of HIG, as prepared by and at the expense of HIG, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination. In such case, HIG agrees to cooperate with the Indenture
Trustee in effecting the termination of the responsibilities and rights of HIG
as Servicer under this Indenture. Unless otherwise provided in the notice, on
and after the time the Servicer receives a notice of termination pursuant to
this Section 6.2(e), the Indenture Trustee shall appoint a successor servicer,
who shall succeed to the Servicer in its capacity as servicer under this
Indenture and the transactions set forth or provided for in this Indenture, and
shall be subject to all the responsibilities, restrictions, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
of this Indenture; PROVIDED, HOWEVER, that the predecessor servicer shall remain
liable for, and the successor servicer shall have no liabilities for, any
indemnification obligations of the Servicer arising as a result of acts,
omissions or occurrences during the period in which the predecessor servicer was
the Servicer; and PROVIDED, FURTHER, that HIG shall remain liable for all
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such indemnification obligations of the Servicer without regard to whether it is
still Servicer hereunder.
(f) If the Issuer shall fail forthwith to pay any amounts due under this
Section 6.2 upon demand, the Indenture Trustee, in its own name and as trustee
of an express trust (and at the expense of the Issuer), may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer, any guarantor hereof or other obligor upon such Notes and collect in
the manner provided by law out of the property of the Issuer, any guarantor
hereof or other obligor upon such Notes, wherever situated, the monies adjudged
or decreed to be payable. In addition, in any such case, the Indenture Trustee,
in its own name and as trustee of an express trust, may cause the Collateral
Trustee to exercise any right or remedy or other action permitted to be taken by
the Collateral Trustee pursuant to the terms and conditions of the Collateral
Sharing and Security Agreement and the Mortgage.
(g) If an Event of Default occurs and is continuing, the Indenture Trustee
may, and at the direction of the Majority Noteholders shall, as more
particularly provided in Section 6.3, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders, by such appropriate
Proceedings as the Indenture Trustee shall deem most effective to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy or legal or equitable right vested
in the Indenture Trustee by this Indenture, the other Basic Note Documents or by
applicable law.
(h) If there shall be pending, relative to the Issuer, any guarantor
hereof or any other obligor upon the Notes or any Person having or claiming an
ownership interest in the Trust Estate, the Shared Collateral or the Mortgage
Collateral, Proceedings under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or other similar law, or if a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Issuer or its property or such other obligor or Person, or in
case of any other comparable judicial Proceedings relative to the Issuer, other
obligor or such other Person upon the Notes, or to the creditors or property of
the Issuer, other obligor or such other Person, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by acceleration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section 6.2, shall be entitled and empowered, by intervention in such
Proceedings or otherwise:
(i) to file and prove a claim or claims for the entire amount of the
unpaid principal and premium, if any, and interest owing in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee (including
any claim for reasonable compensation to the Indenture Trustee and each
predecessor trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all
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expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor trustee, except as a result of negligence or
bad faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Noteholders in any election of a trustee, a standby trustee
or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Indenture Trustee on
their behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture
Trustee or the Noteholders allowed in any judicial proceedings relative to
the Issuer or such other obligor or Person, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, if the Indenture Trustee shall consent
to the making of payments directly to such Noteholders, to pay to the Indenture
Trustee such amounts as shall be sufficient to cover reasonable compensation to
the Indenture Trustee, each predecessor trustee and their respective agents,
attorneys and counsel, and all other expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor trustee, except as
a result of negligence or bad faith on the part of the Indenture Trustee.
(i) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Noteholder or to authorize
the Indenture Trustee to vote in respect of the claim of any Noteholder in any
such proceeding except, as aforesaid, to vote for the election of a trustee in
bankruptcy or similar Person.
(j) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
SECTION 6.3 OTHER REMEDIES; PRIORITIES.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee may do one or more of the following:
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then due and payable on the
Notes or
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under this Indenture with respect thereto, whether by acceleration
or otherwise, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee and the Noteholders;
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law or elect to have the Issuer
maintain possession of the Pledged Contract Receivables and continue to
apply collections on such Pledged Contract Receivables as if there had been
no acceleration; and
(v) cause the Collateral Trustee to (x) institute Proceedings from
time to time for the complete or partial foreclosure of the Shared
Collateral and the Mortgage Collateral under the Collateral Sharing and
Security Agreement and the Mortgage or (y) exercise any other right or
remedy or take any other action permitted to be taken by the Collateral
Trustee following such Event of Default;
PROVIDED, HOWEVER, that the Indenture Trustee may not take an action or request
the Collateral Trustee to take an action with respect to the Shared Collateral
or the Mortgage Collateral unless it shall have complied with the terms and
conditions of the Collateral Sharing and Security Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article VI, it shall pay out or deposit such money or property in the
following order:
FIRST: to the Indenture Trustee for amounts due under Section 7.7;
SECOND: to the Collateral Account, for distribution pursuant to
Article IX; and
THIRD: after all sums due under the Notes and the other Basic Note
Documents have been paid in full, to the Issuer.
SECTION 6.4 LIMITATION OF SUITS. No Noteholder shall have any right to
institute any Proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) Noteholders representing not less than 25% of the Outstanding
Amount of the Notes have made written request to the Indenture Trustee to
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institute such Proceeding in respect of such Event of Default in its own
name as Indenture Trustee hereunder;
(iii) such Noteholder has offered to the Indenture Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
complying with such request;
(iv) the Indenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 30-day period by the Majority
Noteholders;
it being understood and intended that no Noteholder shall have any right in any
manner whatsoever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Noteholders or
to obtain or to seek to obtain priority or preference over any other Noteholders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal, ratable (on the basis of the respective aggregate
amount of principal, premium, if any, and interest, respectively, due and unpaid
on the Notes held by each Noteholder) and common benefit of all Noteholders.
For the protection and enforcement of the provisions of this Section 6.4, each
and every Noteholder shall be entitled to such relief as can be given either at
law or in equity.
If the Indenture Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Noteholders, each representing
less than the Majority Noteholders, the Indenture Trustee in its sole discretion
may determine what action, if any, shall be taken, notwithstanding any other
provisions of this Indenture.
SECTION 6.5 UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST. Notwithstanding any other provisions in this Indenture, any
Noteholder shall have the right, which is absolute and unconditional, to receive
payment of the principal and premium, if any, of and interest on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, if applicable, on or after the
redemption date) and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Noteholder.
SECTION 6.6 RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally to their respective former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the Noteholders shall continue as though no such Proceeding had been instituted.
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SECTION 6.7 RIGHTS AND REMEDIES CUMULATIVE. Except as provided in
Section 6.1 and Section 11.3, no right or remedy herein conferred upon or
reserved to the Indenture Trustee or to the Noteholders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.8 DELAY OR OMISSION NOT A WAIVER. No delay or omission of the
Indenture Trustee or any Noteholder to exercise any right or remedy accruing
upon any Default shall impair any such right or remedy or constitute a waiver of
any such Default or an acquiescence therein. Every right and remedy given by
this Article VI or by law to the Indenture Trustee or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee or by the Noteholders, as the case may be.
SECTION 6.9 CONTROL BY NOTEHOLDERS. The Majority Noteholders shall,
subject to provision being made for indemnification against costs, expenses and
liabilities in a form satisfactory to the Indenture Trustee, have the right to
direct the time, method and place of conducting any Proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exercising any
trust or power conferred on the Indenture Trustee; PROVIDED, HOWEVER, that:
(i) such direction shall not be in conflict with any rule of law or
with this Indenture, the Collateral Sharing and Security Agreement or the
Mortgage; and
(ii) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction;
PROVIDED, HOWEVER, that, subject to Section 7.1, the Indenture Trustee need not
take any action that it determines might cause it to incur any liability
(a) with respect to which the Indenture Trustee shall have reasonable grounds to
believe that adequate Indemnity against such liability in not assured to it and
(b) which might materially adversely affect the rights of any Noteholders not
consenting to such action.
SECTION 6.10 WAIVER OF PAST DEFAULTS.
(a) Prior to the acceleration of the maturity of the Notes as provided in
Section 6.2(a) or the purchase of the Notes pursuant to Section 11.3,
Noteholders representing the Majority Noteholders may waive any past Default and
its consequences except a Default (i) in the payment of principal or premium, if
any, of or interest on any of the Notes or (ii) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of each
Noteholder. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Noteholders shall be restored to their respective former positions and
rights hereunder; but no such waiver shall extend to or affect any subsequent or
other Default or impair any right consequent thereto.
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(b) Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to or affect any
subsequent or other Default or impair any right consequent thereto.
SECTION 6.11 UNDERTAKING FOR COSTS. All parties to this Indenture agree,
and each Noteholder by such Noteholder's acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any Proceeding for
the enforcement of any right or remedy under this Indenture, or in any
Proceeding against the Indenture Trustee for any action taken, suffered or
omitted by it as Trustee, the filing by any party litigant in such Proceeding of
an undertaking to pay the costs of such Proceeding, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such Proceeding, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 6.11 shall not apply to:
(a) any Proceeding instituted by the Indenture Trustee;
(b) any Proceeding instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes; or
(c) any Proceeding instituted by any Noteholder for the enforcement
of the payment of principal or premium, if any, of or interest on any Note
on or after the due date expressed in such Note or in this Indenture (or,
in the case of redemption, on or after the redemption date).
SECTION 6.12 ACTION ON NOTES. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate,
the Shared Collateral or the Mortgage Collateral or upon any of the assets of
the Issuer. Any money or property collected by the Indenture Trustee shall be
applied in accordance with Section 6.3(b).
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ARTICLE VII
THE INDENTURE TRUSTEE
SECTION 7.1 DUTIES OF INDENTURE TRUSTEE.
(a) The Indenture Trustee, prior to the occurrence of an Event of Default
of which a Responsible Officer of the Indenture Trustee shall have actual
knowledge and after the curing of all such Events of Default that may have
occurred, undertakes to perform such duties and obligations and only such duties
and obligations as are specifically set forth in this Indenture. If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. The Indenture
Trustee, upon receipt of all resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments furnished to the Indenture
Trustee which are specifically required to be furnished pursuant to any
provision of this Indenture, shall examine them to determine whether they
conform to the requirements of this Indenture; PROVIDED, however, that the
Indenture Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer or the Issuer hereunder. If any such
instrument is found not to conform in any material respect to the requirements
of this Indenture, the Indenture Trustee shall notify the Noteholders of such
instrument in the event that the Indenture Trustee, after so requesting, does
not receive a satisfactorily corrected instrument.
(b) Except during the continuance of an Event of Default of which a
Responsible Officer of the Indenture Trustee shall have actual knowledge:
(i) the Indenture Trustee undertakes to perform such duties and
obligations and only such duties and obligations as are specifically set
forth in this Indenture and the Collateral Sharing and Security Agreement
and no implied covenants or obligations shall be read into this Indenture,
the Collateral Sharing and Security Agreement or any other Basic Note
Document against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this Section 7.1(c) does not limit the effect of Section 7.1(b);
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or other officer of
the Indenture
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Trustee unless it is proved that the Indenture Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes, suffers or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.10.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Collateral Sharing and Security Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayments
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(g) If the Indenture Trustee commits any willful misfeasance, bad faith or
gross negligence (except errors in judgment) in the performance of its duties
under any of the Basic Note Documents, or is in reckless disregard of its
obligations and duties under any of the Basic Note Documents, the Issuer may, in
addition to any other remedies available to the Issuer, replace the Indenture
Trustee in accordance with Section 7.8.
(h) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any default or Event of Default unless a
Responsible Officer of the Indenture Trustee shall have received written notice
thereof or otherwise has actual knowledge thereof. In the absence of receipt of
such notice, the Indenture Trustee may conclusively assume that there is no
default or Event of Default.
(i) Subject to the other provisions of this Indenture and without limiting
the generality of this Section 7.1, the Indenture Trustee shall have no duty
(i) to see to any recording, filing, or depositing of this Indenture or any
agreement referred to herein or any financing statement or continuation
statement evidencing a security interest, or to see to the maintenance of any
such recording or filing or depositing or to any recording, refiling or
redepositing of any thereof, (ii) to see to any insurance, (iii) to see to the
payment or discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust Estate, the Shared Collateral or the Mortgage
Collateral from funds available in the Collateral Account or (iv) to confirm or
verify the contents of any reports or certificates of the Servicer delivered to
the Indenture Trustee pursuant to this Indenture believed by the Indenture
Trustee to be genuine and to have been signed or presented by the proper party
or parties.
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(j) Every provision of this Indenture relating to the Indenture Trustee
shall be subject to the provisions of this Section 7.1.
SECTION 7.2 RIGHTS OF INDENTURE TRUSTEE.
(a) The Indenture Trustee may rely and shall be protected in acting or
refraining from acting on any document believed by it in good faith to be
genuine and to have been signed or presented by the proper Person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
consult with counsel or require an Officer's Certificate from the Issuer or an
Opinion of Counsel that such action or omission is required or permissible
hereunder. The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such advice of counsel, Officer's
Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; PROVIDED, HOWEVER, that the Indenture Trustee's conduct does
not constitute wilful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(f) The Indenture Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Indenture or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request, order or
direction of any of the Noteholders, pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby (which will be deemed to be satisfied
by a letter agreement with respect to such costs from the Majority Noteholders);
nothing contained herein shall, however, relieve the Indenture Trustee of the
obligation, upon the occurrence of an Event of Default of which a Responsible
Officer of the Indenture Trustee shall have actual knowledge (which has not been
cured), to exercise such of the rights and powers vested in it by this
Indenture, and to use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
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(g) The Indenture Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so by the Majority
Noteholders; PROVIDED, however, that if the payment within a reasonable time to
the Indenture Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of the
Indenture Trustee, not reasonably assured to the Indenture Trustee by the
security afforded to it by the terms of this Indenture, the Indenture Trustee
may require reasonable indemnity against such cost, expense or liability as a
condition to taking any such action. The reasonable expense of every such
examination shall be paid by the Servicer or, if paid by the Indenture Trustee,
shall be repaid by the Servicer upon demand from the Servicer's own funds.
(h) The right of the Indenture Trustee to perform any discretionary act
enumerated in this Indenture shall not be construed as a duty, and the Indenture
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act.
(i) The Indenture Trustee shall not be required to give any bond or surety
in respect of the execution of the Trust Estate created hereby or the powers
granted hereunder.
SECTION 7.3 INDENTURE TRUSTEE MAY OWN NOTES. The Indenture Trustee in
its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuer, the Servicer or any of their respective
Affiliates with the same rights it would have if it were not Indenture Trustee;
PROVIDED, HOWEVER, that the Indenture Trustee shall comply with Sections 7.10
and 7.11.
SECTION 7.4 INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity, legality
or adequacy of this Indenture, the Notes or the Collateral Sharing and Security
Agreement, it shall not be accountable for the Issuer's use of the proceeds from
the Notes, and it shall not be responsible for any statement of the Issuer in
the Indenture or in any document issued in connection with the sale of the Notes
or in the Notes other than the Indenture Trustee's certificate of
authentication.
SECTION 7.5 NOTICE OF DEFAULTS. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to each Noteholder notice of the Default within
five Business Days after it occurs.
SECTION 7.6 REPORTS BY INDENTURE TRUSTEE TO NOTEHOLDERS. The Indenture
Trustee shall deliver to each Noteholder the information and documents set forth
in Article VIII, and, in addition, all such information with respect to the
Notes as may be required, as specified by the Servicer, to enable such
Noteholder to prepare its federal and state income tax returns.
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SECTION 7.7 COMPENSATION; INDEMNITY.
(a) The Issuer shall pay to the Indenture Trustee from time to time such
compensation for its services as shall be agreed upon in writing. The Indenture
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall reimburse the Indenture Trustee
and any director, officer, employee or agent of the Indenture Trustee for all
losses, liabilities and reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts.
(b) The Issuer's obligations to the Indenture Trustee pursuant to this
Section 7.7 shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in
Section 6.1(d) or (e) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
SECTION 7.8 REPLACEMENT OF INDENTURE TRUSTEE.
(a) The Indenture Trustee may at any time give notice of its intent to
resign by so notifying the Issuer; PROVIDED, HOWEVER, that no such resignation
shall become effective and the Indenture Trustee shall not resign prior to the
time set forth in Section 7.8(c). The Majority Noteholders may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. Such resignation or removal shall become effective
in accordance with Section 7.8(c). The Issuer shall, at the direction of the
Majority Noteholders, remove the Indenture Trustee if:
(i) the Indenture Trustee commits any act described in Section 7.1(g)
or fails to comply with Section 7.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
(b) If the Indenture Trustee gives notice of its intent to resign or is
removed or if a vacancy exists in the office of Indenture Trustee for any reason
(the Indenture Trustee in such event being referred to herein as the retiring
Indenture Trustee), the Issuer shall, at the direction of the Majority
Noteholders, promptly appoint and designate a successor Indenture Trustee.
(c) A successor Indenture Trustee shall deliver a written acceptance of
its appointment and designation to the retiring Indenture Trustee and to the
Issuer.
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Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to Noteholders
and to the Rating Agency. The retiring Indenture Trustee shall promptly
transfer all property held by it as Indenture Trustee to the successor Indenture
Trustee.
(d) If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee gives notice of its intent to resign or is
removed, the retiring Trustee, the Issuer or the Majority Noteholders may
petition any court of competent jurisdiction for the appointment and designation
of a successor Indenture Trustee.
(e) If the Indenture Trustee fails to comply with Section 7.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
(f) Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 7.8, the Issuer's obligations under Section 7.7 shall continue for
the benefit of the retiring Indenture Trustee.
SECTION 7.9 MERGER OR CONSOLIDATION OF INDENTURE TRUSTEE.
(a) Any corporation or banking association into which the Indenture
Trustee may be merged or with which it may be consolidated, or any corporation
or banking association resulting from any merger or consolidation to which the
Indenture Trustee shall be a party, or any corporation or banking association
succeeding to the corporate trust business of the Indenture Trustee, shall be
the successor of the Indenture Trustee under this Indenture; PROVIDED, HOWEVER,
that such corporation or banking association shall be eligible under the
provisions of Section 7.11, without the execution or filing of any instrument or
any further act on the part of any of the parties to this Indenture, anything in
this Indenture to the contrary notwithstanding. Following such merger or
consolidation, the successor Indenture Trustee shall mail a notice of such
merger or consolidation to the Rating Agency.
(b) If at the time such successor or successors by merger or consolidation
to the Indenture Trustee shall succeed to the trusts created by this Indenture,
any of the Notes shall have been authenticated but not delivered, any such
successor to the Indenture Trustee may adopt the certificate of authentication
of any predecessor trustee, and deliver such Notes so authenticated; and in case
at that time any of the Notes shall not have been authenticated, any successor
to the Indenture Trustee may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor to the Indenture Trustee.
In all such cases such certificate of authentication shall have the same full
force as is provided anywhere in the Notes or herein with respect to the
certificate of authentication of the Indenture Trustee.
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SECTION 7.10 APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE.
(a) Notwithstanding any other provisions of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Trust Estate may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Trust Estate, and to vest in such
Person or Persons, in such capacity and for the benefit of the Noteholders, such
title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section 7.10, such powers, duties, obligations, rights and
trusts as the Indenture Trustee may consider necessary or desirable. No co-
trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 7.11 and no notice to
Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 7.8.
(b) Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or co-
trustee is not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Indenture Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VII. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection
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to, the Indenture Trustee. Every such instrument shall be filed with the
Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. The Indenture Trustee
shall not be responsible for any action or inaction of any such separate trustee
or co-trustee. If any separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Indenture
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 7.11 ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee shall
be an Eligible Institution.
SECTION 7.12 REPRESENTATIONS AND WARRANTIES OF INDENTURE TRUSTEE. The
Indenture Trustee represents and warrants as of the Closing Date that:
(a) the Indenture Trustee is a New York banking corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and the eligibility requirements set forth in Section 7.11 are
satisfied with respect to the Indenture Trustee;
(b) the Indenture Trustee has full power, authority and legal right to
execute, deliver and perform this Indenture, and has taken all necessary action
to authorize the execution, delivery and performance by it of this Indenture;
and
(c) this Indenture has been duly executed and delivered by the Indenture
Trustee and constitutes the legal, valid and binding agreement of the Indenture
Trustee, enforceable in accordance with its terms.
SECTION 7.13 INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES. Subject to the Collateral Sharing and Security Agreement, all rights of
action and claims under this Indenture or the Notes may be prosecuted and
enforced by the Indenture Trustee without the possession of any of the Notes or
the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Indenture Trustee shall be brought in its own name
as Indenture Trustee. Any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee, its agents and counsel, be for the ratable benefit of the
Noteholders in respect of which such judgment has been obtained.
SECTION 7.14 SUIT FOR ENFORCEMENT. Subject to the Collateral Sharing and
Security Agreement, if an Event of Default shall occur and be continuing, the
Indenture Trustee in its discretion may, subject to the provisions of
Section 7.1 and the other terms of this Indenture, proceed to protect and
enforce its rights and the rights of the Noteholders under this Indenture by a
Proceeding whether for the specific performance
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of any covenant or agreement contained in this Indenture or in aid of the
execution of any power granted in this Indenture or for the enforcement of any
other legal, equitable or other remedy as the Indenture Trustee, being advised
by counsel, shall deem most effectual to protect and enforce any of the rights
of the Indenture Trustee or the Noteholders.
SECTION 7.15 RIGHTS OF NOTEHOLDERS TO DIRECT INDENTURE TRUSTEE. The
Majority Noteholders shall have the right to direct in writing the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee or exercising any trust or power conferred on the Indenture Trustee;
PROVIDED, HOWEVER, that subject to Section 7.1, the Indenture Trustee shall have
the right to decline to follow any such direction if the Indenture Trustee being
advised by counsel determines that the action so directed may not lawfully be
taken, or if the Indenture Trustee in good faith shall, by a Responsible
Officer, determine that the Proceedings so directed would be illegal or subject
it to personal liability or be unduly prejudicial to the rights of Noteholders
not parties to such direction; and PROVIDED, FURTHER, that nothing in this
Indenture shall impair the right of the Indenture Trustee to take any action
deemed proper by the Indenture Trustee and which is not inconsistent with such
direction by the Majority Noteholders.
ARTICLE VIII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 8.1 INDENTURE TRUSTEE TO FURNISH ISSUER NAMES AND ADDRESSES OF
NOTEHOLDERS. The Indenture Trustee shall furnish (a) promptly, and in any event
within five days, following any transfer of record of any Note the name and
address of the transferee and (b) at such times as the Issuer may request in
writing, within 10 days after receipt by the Indenture Trustee of any such
request, a list of the names and addresses of the Noteholders.
SECTION 8.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Noteholders contained in
the most recent list furnished to the Indenture Trustee as provided in
Section 8.1. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 8.1 upon receipt of a new list so furnished.
(b) Within five Business Days after the receipt by the Indenture Trustee
of a written request by any Noteholder stating that such Noteholder desires to
communicate with other Noteholders, the Indenture Trustee shall provide such
Noteholder with a copy of the most recent list of the names and addresses of the
Noteholders as furnished to the Indenture Trustee pursuant to Section 8.1.
(c) The Indenture Trustee may provide information with respect to the
names and addresses of the Noteholders and the principal amounts of Notes held
by them to the Collateral Trustee for purposes of the Collateral Sharing and
Security Agreement.
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ARTICLE IX
COLLATERAL ACCOUNT, DISBURSEMENTS AND RELEASES
SECTION 9.1 COLLATERAL ACCOUNT.
(a) On or prior to the Closing Date, the Indenture Trustee shall establish
and maintain, in the name of the Indenture Trustee, for the benefit of the
Noteholders, an Eligible Account known as the FRGC Collateral Account (the
"COLLATERAL ACCOUNT"), bearing an additional designation clearly indicating that
the funds deposited therein are held for the benefit of the Noteholders. Funds
on deposit in the Collateral Account shall be invested by the Indenture Trustee
only in Eligible Investments. All earnings on such investment shall be
deposited in the Collateral Account. The Indenture Trustee shall possess all
right, title and interest in and to all funds on deposit from time to time in
the Collateral Account and in all proceeds thereof. Except as otherwise
provided therein, the Collateral Account shall be under the sole dominion and
control of the Indenture Trustee for the benefit of the Noteholders. If, at any
time, the Collateral Account ceases to be an Eligible Account, the Indenture
Trustee shall within 10 Business Days establish a new Collateral Account as an
Eligible Account and shall transfer any cash and/or an investments in the old
Collateral Account to such new Collateral Account.
(b) On the Closing Date, the Issuer shall deliver to the Indenture Trustee
Investor Certificates in the aggregate initial amount of $11,452,177.84 to be
held by it in order to enforce the security interest with respect to the
Collateral granted hereby. From and after the Closing Date and until such time
as the Collateral shall have been released, all distributions and proceeds in
respect of the Pledged Investor Certificate Rights shall be made directly to the
Collateral Account, and the Issuer agrees to so instruct the Owner Trustee.
(c) Prior to July 1, 2000, the Issuer and the Servicer shall instruct all
Obligors to make payments in respect of the Pledged Contract Receivables to a
Lockbox, a Lockbox Account or the Collateral Account. All collections received
in a Lockbox shall, within one Business Day of receipt thereof, be deposited in
a Lockbox Account. Amounts on deposit in any Lockbox Account shall be promptly
transferred to the Collateral Account and in all events not later than the first
Business Day following such deposit. In the event that any payments in respect
of the Pledged Contract Receivables are made directly to the Issuer or the
Servicer, including, without limitation, any employees thereof or independent
contractors employed thereby, the Issuer or the Servicer, as the case may be,
shall, as soon as reasonably practicable but in no event more than two Business
Days after receipt thereof, deposit such amounts in a Lockbox Account.
(d) Without limiting in any respect the Issuer's absolute obligation to
pay principal, premium, if any, of and interest on the Notes when due in
accordance with the terms hereof, on each Payment Date and to make the other
payments under the Basic Note Documents, the Indenture Trustee shall distribute
all amounts on deposit in the Collateral Account to the Noteholders to the
extent of amounts due and unpaid
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on the Notes for principal and premium, if any, of and interest and other
amounts due and owing in the following amounts, and in the following order of
priority:
(i) to accrued and unpaid interest on the Notes; PROVIDED, HOWEVER,
that if there are not sufficient funds in the Collateral Account to pay the
entire amount of accrued and unpaid interest then due on the Notes, the
amount in the Collateral Account shall be applied to the payment of such
interest on each of the Notes pro rata on the basis of the respective
aggregate amount of interest due on each such Note;
(ii) to due and unpaid principal and premium, if any, on the Notes;
PROVIDED, HOWEVER, that if there are not sufficient funds in the Collateral
Account to pay the entire amount of unpaid principal and premium, if any,
then due on the Notes, the amount in the Collateral Account shall be
applied to the repayment of principal and premium, if any, on each of the
Notes pro rata on the basis of the respective unpaid principal amount of
each such Note; and
(iii) to the payment of any other obligations due and owing under the
Basic Note Documents.
In the event that the amount on deposit in the Collateral Account on the
Business Day preceding any Payment Date is less than the full amount required to
pay all interest and principal and premium, if any, due on the Notes on such
Payment Date, the Issuer shall deposit into the Collateral Account on such
Business Day the amount of such deficiency.
On any Payment Date, if all amounts then due on the Notes and under the
other Basic Note Documents have been paid exclusively from amounts deposited in
the Collateral Account from collections on the Collateral, and provided that no
Default or Event of Default under this Indenture shall have occurred and is
continuing, any balance remaining in the Collateral Account from amounts
deposited in respect of Pledged Contract Receivables due during the preceding
month shall be distributed to the Issuer on the first Business Day following
such Payment Date.
(e) In the event that the Indenture Trustee shall request the Servicer to
engage a substitute operator of the Storage Facilities pursuant to
Section 6.2(d), then amounts retained in the Collateral Account pursuant to the
last paragraph of Section 9.1(d) above shall be available to secure the
Servicer's obligation to pay the fees and expenses of such substitute operator
as additional Collateral for the Notes.
SECTION 9.2 SERVICING PROCEDURES.
(a) HIG is hereby appointed and authorized to act as agent for the Issuer
and the Indenture Trustee and HIG hereby accepts such appointment. HIG agrees
that in such capacity it will manage, service, administer and, subject to
Section 9.2(c), make collections on the Pledged Contract Receivables prudently
and in accordance with customary and usual servicing procedures and applicable
law and, to the extent not inconsistent with the foregoing, to exercise that
degree of skill and care it uses in
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servicing assets held for its own account. The Servicer hereby accepts such
appointment and authorization and agrees to perform the duties of Servicer with
respect to the Pledged Contract Receivables set forth herein. The Servicer's
duties shall include posting of all payments, responding to inquiries of
Obligors on the Pledged Contract Receivables, investigating and collecting
delinquencies, reporting tax information to Obligors, managing the collateral,
accounting for collections and furnishing quarterly and annual statements to
the Indenture Trustee pursuant to this Indenture, generating federal income
tax information and performing the other duties specified herein. Subject to
the provisions of Section 9.2(c), the Servicer shall follow its historical
policies and procedures and shall have full power and authority, acting alone,
to do any and all things, consistent with the terms of the Basic Note
Documents, in connection with such managing, servicing, administration and
collection that it may deem necessary or desirable.
In fulfilling its obligations hereunder, the Servicer shall at any
time and from time to time (i) be authorized to review and obtain copies of all
information provided to the Indenture Trustee with respect to the Pledged
Contract Receivables, (ii) be entitled to receive copies of all statements,
notices and reports regarding the Collateral Account, (iii) be entitled to
obtain any and all information regarding deposits, withdrawals and transfers to
and from the Collateral Account and the current balances therein and (iv) be
entitled to obtain such other reasonable information and documentation it deems
necessary or desirable to perform the servicing and administrative duties
required of it under this Indenture.
(b) On or immediately following the Closing Date, the Servicer shall
instruct all Obligors to make payments in respect of the Pledged Contract
Receivables to the Collateral Account. If any future collections are received
in a Lockbox, they shall, within one Business Day of receipt thereof, be
deposited in a Lockbox Account. In the event that any payments in respect of
the Pledged Contract Receivables are made directly to the Issuer or the
Servicer, including, without limitation, any employees thereof or independent
contractors employed thereby, the Issuer or the Servicer, as the case may be,
shall, as soon as reasonably practicable but in no event more than two Business
Days after receipt thereof, deposit such amounts in a Lockbox Account.
(c) The Servicer shall use reasonable efforts to collect all payments
called for under the terms and provisions of the Pledged Contract Receivables as
and when the same shall become due, and shall follow such collection practices,
policies and procedures as are consistent with past practices and as it follows
with respect to comparable contract receivables that it services for itself or
others.
(d) The Servicer shall not take any action to cause any Pledged Contract
Receivable to be evidenced by any instrument (as defined in the UCC as in effect
in the State of New York) except in connection with its enforcement or
collection of a Pledged Contract Receivable, in which event the Servicer shall
deliver such instrument to the Indenture Trustee as soon as reasonably
practicable but in no event more than five days after receipt thereof.
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SECTION 9.3 RELEASE OF TRUST ESTATE.
(a) Subject to the payment of its fees and expenses pursuant to
Section 7.7, the Indenture Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property in the Trust
Estate from the lien of this Indenture, or convey the Indenture Trustee's
interest in the same, in a manner and under circumstances that are consistent
with the provisions of this Indenture. No party relying upon an instrument
executed by the Indenture Trustee as provided in this Article IX shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies. The Indenture
Trustee shall not, without the consent of Noteholders representing at least two-
thirds of the Outstanding Amount of Notes, release from the lien of this
Indenture or consent to the release of any collateral from the lien of the
Collateral Sharing and Security Agreement or the Mortgage (i) the Pledged
Contract Receivables, (ii) the Pledged Investor Certificate Rights or (iii) any
other material collateral hereunder or thereunder.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Indenture Trustee pursuant to Section 7.7
have been paid, notify the Issuer thereof in writing and upon receipt of an
Issuer Request, (i) release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture, (ii) release to the Issuer or
any other Person entitled thereto any funds then on deposit in the Collateral
Account and (iii) cause there to be released from the Collateral Sharing and
Security Agreement and the Mortgage lien and the security interest any property
or assets securing the payment of the Notes and other obligations under this
Indenture.
SECTION 9.4 OPINION OF COUNSEL. The Indenture Trustee shall receive at
least three Business days' notice when requested by the Issuer to take any
action pursuant to Section 9.3(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating that all conditions precedent to the taking of such
action have been complied with. Counsel rendering any such Opinion of Counsel
may rely, without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Indenture Trustee in connection
with any such action.
ARTICLE X
SUPPLEMENTAL INDENTURES
SECTION 10.1 PURPOSE OF SUPPLEMENTAL INDENTURES.
(a) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, with prior notice to the Rating Agency and with the consent of the
Majority Noteholders, by Act of such Noteholders delivered to the Issuer and the
Indenture Trustee, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, changing in any manner, or eliminating
any of the
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provisions of, this Indenture or modifying in any manner the rights
of the Noteholders under this Indenture; PROVIDED, HOWEVER, that no such
supplemental indenture shall, without the consent of each Noteholder affected
thereby:
(i) change the due date of any instalment of principal or premium, if
any, of or interest on any Note, or change the principal amount thereof,
the interest rate applicable thereto, or the redemption price with respect
thereto, change any place of payment where, or the coin or currency in
which, any Note or any interest thereon is payable, or impair the right to
institute suit for the enforcement of the provisions of this Indenture
requiring the application of funds available therefor, as provided in
Article VI, to the payment of any such amount due on the Notes on or after
the respective due dates thereof (or, in the case of redemption, on or
after the redemption date);
(ii) change the percentage of the Outstanding Amount of the Notes, the
consent of the Noteholders of which is required for (a) any such
supplemental indenture, (b) any waiver of compliance with certain
provisions of this Indenture, certain defaults hereunder and their
consequences as provided for in this Indenture or (c) any action described
in Sections 6.2, 6.4, 6.5, 6.9, 6.10, 7.8, 7.15 or 9.3 or other section
fixing a specified percentage of Noteholders to take an action under this
Indenture;
(iii) modify or alter the provisions of the proviso to the definition
of the term "Outstanding";
(iv) modify any provision of this Section 10.1 to change the required
minimum percentage necessary to approve any amendments to any provisions of
this Indenture;
(v) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of principal or
premium, if any, of or interest on any Note on any Payment Date (including
the calculation of any of the individual components of such calculation),
or modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Issuer, the Servicer or any Affiliate of either of them;
or
(vi) except as expressly contemplated by the Basic Documents, permit
the creation of any Lien ranking prior to or on a parity with the lien of
this Indenture with respect to any part of the Trust Estate, the lien of
the Collateral Sharing and Security Agreement with respect to any part of
the Shared Collateral or the lien of the Mortgage with respect to any part
of the Mortgage Collateral or, except as otherwise permitted or
contemplated herein or the Basic Documents, terminate the lien of this
Indenture on any property at any time subject to the lien of this Indenture
or deprive any Noteholder of the security afforded by the lien of this
Indenture; or
(vii) except as expressly contemplated herein by the Basic Documents,
authorize the termination of the liens of the Collateral Sharing and
Security
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Agreement or Mortgage on any property subject thereto or deprive
any Noteholder of the security afforded by the Collateral Sharing and
Security Agreement or Mortgage.
(b) It shall be sufficient if an Act of Noteholders approves the
substance, but not the form, of any proposed supplemental indenture.
(c) Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section 10.1, the Indenture
Trustee shall mail to the Noteholders a copy of such supplemental indenture.
Any failure of the Indenture Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 10.2 EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article X or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 7.1 and 7.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture and that all conditions precedent to
such execution have been satisfied. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 10.3 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer and the Noteholders shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 10.4 REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article X may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for the Outstanding Notes.
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ARTICLE XI
REDEMPTION AND REPURCHASE OF NOTES
SECTION 11.1 OPTIONAL REDEMPTION.
(a) The Issuer may, at its option, redeem the Notes in whole at any time
at a price in cash equal to the aggregate principal amount thereof to be
redeemed, plus accrued and unpaid interest, if any, thereon to the date of
redemption, plus the Redemption Make-Whole Premium.
(b) If the Issuer elects to redeem the Notes, it shall notify the
Indenture Trustee in writing of the redemption date and the principal amount of
Notes to be redeemed. The Issuer shall give each notice provided for in this
Section 11.1(b) at least 30 days but not more than 60 days before the redemption
date (unless a shorter notice shall be agreed to by the Indenture Trustee in
writing), together with an Officer's Certificate stating that such redemption
shall comply with the conditions contained herein and in the Notes.
(c) At least ten Business Days but not more than 60 days prior to a
redemption date, the Issuer shall mail or cause the mailing of a notice of
redemption by first-class mail to each Noteholder of Notes to be redeemed at the
address of such Noteholder set forth in the Note Register. At the Issuer's
request, the Indenture Trustee shall give the notice of redemption in the
Issuer's name and at the Issuer's expense.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the estimated total redemption price together with a reasonably
detailed calculation thereof (with the actual total redemption price
together with a reasonably detailed calculation thereof to be identified in
a notice to the Noteholders delivered at least two Business Days prior to
the proposed redemption date);
(3) the name and address of the Indenture Trustee;
(4) that, subject to Section 12.18 hereof, the Notes called for
redemption must be surrendered to the Indenture Trustee to collect the
redemption price; and
(5) that, unless the Issuer defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Noteholders
is to receive payment of the redemption price upon surrender to the
Indenture Trustee of the Notes redeemed.
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(d) Once notice of redemption is mailed to the Noteholders, Notes called
for redemption become due and payable on the redemption date and at the
redemption price and shall cease to bear interest from and after the redemption
date (unless the Issuer shall default in the payment of the redemption price or
accrued interest). Upon surrender to the Indenture Trustee, such Notes shall be
paid at the redemption price, plus accrued interest to the redemption date.
(e) At least one Business Day prior to the redemption date, the Issuer
shall deposit with the Indenture Trustee in immediately available funds money
sufficient to pay the redemption price of all Notes to be redeemed on the
redemption date. If any Note surrendered for redemption in the manner provided
in the Notes shall not be so paid on the redemption date due to the failure of
the Issuer to deposit sufficient funds with the Indenture Trustee, interest
shall continue to accrue from the redemption date until such payment is made on
the unpaid principal and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the Interest Rate.
(f) In the event that, notwithstanding the requirement in Section 11.1(a)
that any optional redemption be in whole, any optional redemption is made in
part, any such partial redemption shall be to all Noteholders on a pro rata
basis, based on the principal amount of Notes held by each Noteholder.
SECTION 11.2 REPURCHASE AT THE OPTION OF NOTEHOLDERS.
(a) Upon the occurrence of a Change of Control, the Issuer shall make an
offer to all Noteholders to purchase all, but not less than all, of the Notes
held by each such Noteholder pursuant to the offer described below (the "CHANGE
OF CONTROL OFFER") at a price in cash (the "CHANGE OF CONTROL PAYMENT") equal to
the aggregate principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase, plus the Repurchase Make-Whole Premium. Within
15 days following any Change of Control, the Issuer shall mail a notice to each
Noteholder, with a copy to the Indenture Trustee, with the following
information: (1) a Change of Control Offer is being made pursuant to the
Indenture, and that all, but not less than all, Notes held by such Noteholder
properly tendered pursuant to such Change of Control Offer will be accepted for
payment, (2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed, except
as may be otherwise required by applicable law (the "CHANGE OF CONTROL PAYMENT
DATE"); (3) any Notes not properly tendered will remain Outstanding and continue
to accrue interest; (4) unless the Issuer defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Noteholders electing to have their Notes purchased pursuant to a
Change of Control Offer will be required to surrender their Notes with the form
entitled "Option of Noteholder to Elect Purchase" on the reverse of the Notes
completed (or appropriate indemnifications must be provided to the Indenture
Trustee and the Issuer regarding missing or lost Notes), to the Indenture
Trustee specified in the notice at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; and (6) Noteholders will be entitled to withdraw their tendered
Notes and their election to require the Issuer to purchase such Notes, PROVIDED
that the
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Indenture Trustee receives, not later than the close of business on the
last day of the offer period, a telegram, telefax, facsimile transmission or
letter setting forth the name of the Noteholder, the principal amount of Notes
tendered for purchase, and a statement that such Noteholder is withdrawing his
tendered Notes and his election to have such Notes purchased.
(b) Prior to any Change of Control, the Issuer shall obtain written
confirmation from the Rating Agency that after such Change of Control, including
after giving effect to all Change of Control Payments, the rating on the
remaining Outstanding Notes and the Investor Certificates will not be lowered or
withdrawn from its then current rating.
(c) The Issuer shall notify in writing the Indenture Trustee and the
Noteholders of the execution and delivery of any definitive agreement providing
for a prospective Change of Control within ten Business Days of the
effectiveness of such agreement.
SECTION 11.3 MANDATORY PARTIAL REDEMPTION.
(a) If an Event of Default described in Section 6.1(b) or (c) shall occur
and be continuing that specifically relates to and materially and adversely
affects the collection of the payments when due on one or more specific Pledged
Contract Receivables or Contracts related thereto (an "AFFECTED PLEDGED CONTRACT
RECEIVABLE"), and such breach continues or is not cured within the period
described in Section 6.1(b) or (c), as the case may be, then, subject to the
provisions of Sections 6.2(d) and 6.2(e), the remedy for such Event of Default
shall be limited to that set forth in this Section 11.3, PROVIDED that the
Issuer performs its obligations pursuant to this Section 11.3. Following such
Event of Default, upon the request of the Indenture Trustee or the Majority
Noteholders, the Issuer shall call for redemption, within 10 days of such
request, Notes in an aggregate principal amount equal to the product of (1) the
aggregate principal amount of the Notes Outstanding on such date, and (2) a
fraction the numerator of which is the sum of the remaining scheduled payments
to be made under the Affected Pledged Contract Receivable and the denominator of
which is the sum of the remaining scheduled payments to be made under all
outstanding Pledged Contract Receivables, including such Affected Pledged
Contract Receivable (such amount, the "MANDATORY PARTIAL REDEMPTION AMOUNT"), at
a redemption price equal to the Mandatory Partial Redemption Amount, plus
accrued and unpaid interest, if any, on the Notes to be redeemed to the date of
redemption; provided, however, that if any such Event of Default was the result
of an action taken by the Issuer that was intended by the Issuer to cause an
acceleration of the Notes (with the Issuer being presumed for the purposes of
this Section 11.3(a) to have intended any action that was reasonably within the
ability or control of any FRGC Party to avoid or prevent), then the redemption
price shall include the Basic Make-Whole Premium.
(b) The Issuer shall notify the Indenture Trustee in writing of the
redemption date and the Mandatory Partial Redemption Amount as promptly as
possible. Such notice shall be accompanied by an Officer's Certificate stating
that such redemption shall comply with the conditions contained herein and the
Notes.
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(c) The Indenture Trustee shall redeem the Notes on a pro rata basis,
based on the principal amount of Notes held by each Noteholder. The Indenture
Trustee shall promptly notify the Issuer in writing of such Notes and Mandatory
Partial Redemption Amount.
(d) At least ten days but not more than 30 days prior to a redemption
date, the Issuer shall mail or cause the mailing of a notice of redemption by
first-class mail to each Noteholder to be redeemed at the address of such
Noteholder set forth in the Note Register. At the Issuer's request, the
Indenture Trustee shall give the notice of redemption in the Issuer's name and
at the Issuer's expense.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the estimated total redemption price together with a reasonably
detailed calculation thereof and the Mandatory Partial Redemption Amount
(with the actual total redemption price together with a reasonably detailed
calculation thereof to be identified in a notice to the Noteholders
delivered at least two Business Days prior to the proposed redemption
date); and
(3) the name and address of the Indenture Trustee.
(e) Once notice of redemption is mailed to the Noteholders, Notes called
for redemption become due and payable on the redemption date and at the
redemption price and shall cease to bear interest from and after the redemption
date (unless the Issuer shall default in the payment of the redemption price or
accrued interest). Upon surrender to the Indenture Trustee, such Notes shall be
paid at the redemption price, plus accrued interest to the redemption date.
(f) At least one Business Day prior to the redemption date, the Issuer
shall deposit with the Indenture Trustee in immediately available funds money
sufficient to pay the redemption price of all Notes or portions thereof to be
redeemed on the redemption date. If any Note surrendered for redemption in the
manner provided in the Notes shall not be so paid on the redemption date,
interest shall continue to accrue from the redemption date until such payment is
made on the unpaid principal and, to the extent lawful, on any interest not paid
on such unpaid principal, in each case at the Interest Rate.
SECTION 11.4 PURCHASE OF NOTES. The Issuer will not and will not permit
any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the Outstanding Notes except (i) upon the payment or
prepayment of the Notes in accordance with the terms of this Indenture and the
Notes or (ii) pursuant to an offer to purchase made by the Issuer or an
Affiliate pro rata to the Noteholders upon the same terms and conditions. Any
such offer shall remain open for at least 20 Business Days. The Issuer will
not, and will not permit any Affiliate to, purchase or acquire any Investor
Certificates pursuant to Section 8.2 of the Trust Agreement unless an offer to
purchase Notes for an equivalent amount of funds is made pro rata to the
Noteholders
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on substantially the same terms and conditions. The Issuer will promptly cancel
all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Indenture and no Notes may
be issued in substitution or exchange for any such Notes.
SECTION 11.5 APPLICATION OF FUNDS ON PREPAYMENT OR PURCHASE. In the
event any Notes are repurchased pursuant to Section 11.2, redeemed pursuant to
Section 11.3 or purchased pursuant to Section 11.4, the principal amount of each
required payment of the Notes becoming due on or after such repurchase,
redemption or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes was reduced as a result of such repurchase,
redemption or purchase.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application
or request by the Issuer to the Indenture Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Indenture Trustee:
(i) an Officer's Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished. Every certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the judgment of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
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SECTION 12.2 FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE.
(a) In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(b) Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Servicer or the Issuer, stating that the information with respect to such
factual matters is in the possession of the Servicer or the Issuer, unless such
counsel knows that the certificate or opinion or representations with respect to
such matters are erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
(d) Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 12.3 ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Noteholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Noteholders in person or by agents duly appointed
in writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered to the
Indenture Trustee, and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the
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"Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 7.1)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section 12.3.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by a Noteholder (or any one or more predecessor Noteholders with
respect to the Notes held by the Noteholder) shall bind the Noteholder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 12.4 NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER AND RATING
AGENCY. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to or filed with the Indenture Trustee, the
Issuer or the Rating Agency under this Indenture shall be made upon, given or
furnished to or filed with such party as specified in Appendix B.
SECTION 12.5 NOTICES TO NOTEHOLDERS; WAIVER.
(a) Where this Indenture provides for notice to Noteholders of any
condition or event, such notice shall be given as specified in Appendix B.
(b) Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
(c) In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event of Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
(d) Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
SECTION 12.6 ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may
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enter into any agreement with any Noteholder providing for a method of
payment, or notice by the Indenture Trustee to such Noteholder, that is
different from the methods provided for in this Indenture for such payments or
notices. The Issuer shall furnish to the Indenture Trustee a copy of each such
agreement and the Indenture Trustee shall cause payments to be made and notices
to be given in accordance with such agreements.
SECTION 12.7 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 12.8 SUCCESSORS AND ASSIGNS.
(a) All covenants and agreements in this Indenture and the Notes by the
Issuer shall bind its successors and assigns, whether so expressed or not.
(b) All covenants and agreements of the Indenture Trustee in this
Indenture shall bind its successors and assigns, whether so expressed or not.
SECTION 12.9 SEPARABILITY. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.10 BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, the Noteholders and (only to the extent
expressly provided herein) the Certificateholders, any other party secured
hereunder and any other Person with an ownership interest in any part of the
Trust Estate, the Shared Collateral or the Mortgage Collateral, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 12.11 LEGAL HOLIDAYS. If the date on which any payment is due
shall not be a Business Day, then (notwithstanding any other provision of the
Notes or this Indenture) payment need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the date on which nominally due, and no interest shall accrue for the period
from and after any such nominal date.
SECTION 12.12 GOVERNING LAW. This Indenture shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
excluding choice-of-law principles of the laws of such State that would require
the application of the laws of a jurisdiction other than such State; PROVIDED,
however, that insofar as the laws of another state govern the perfection of the
Lien pursuant to this Indenture, it is agreed that, to the extent required by
the laws of such other state, the laws of such other state shall apply to the
enforcement of the power of sale or other rights and remedies created herein
with respect to such Lien.
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SECTION 12.13 COUNTERPARTS. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 12.14 RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
SECTION 12.15 NO RECOURSE. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Indenture
Trustee on the Notes or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against:
(i) the Indenture Trustee in its individual capacity;
(ii) any owner of a beneficial interest in the Issuer; or
(iii) any partner, owner, beneficiary, agent, officer, director,
employee or agent of the Indenture Trustee in their individual capacities,
any holder of a beneficial interest in the Issuer or the Indenture Trustee
or of any successor or assign of the Indenture Trustee in their individual
capacities (or any of their successors or assigns), except as any such
Person may have expressly agreed (it being understood that the Indenture
Trustee has no such obligations in its individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any instalment or call owing to such
entity.
SECTION 12.16 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
PLEDGED CONTRACT RECEIVABLES. Each of the FRGC Parties shall provide to the
Indenture Trustee and the Noteholders reasonable access to the documentation
regarding the Pledged Contract Receivables and to their respective officers,
employees and accountants. Each of the FRGC Parties shall also permit the
representatives of each Noteholder that is an Institutional Investor:
(a) If no Default or Event of Default of an FRGC Party under any of the
Basic Note Documents shall have occurred and be continuing, at the expense of
such Noteholder and upon reasonable prior notice to the FRGC Parties, to visit
the principal executive office of the FRGC Parties, to discuss the affairs,
finances and accounts of the FRGC Parties as they relate to their respective
obligations under the Basic Note Documents with their respective officers, and
(with the consent of the FRGC Parties, which consent shall not be unreasonably
withheld) their respective independent public accountants, and (with the consent
of any FRGC Party, which consent shall not be unreasonably withheld) to visit
the other offices and properties of the FRGC Parties,
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all at such reasonable times and as often as may be reasonably requested in
writing; and
(b) If a Default or an Event of Default shall have occurred and be
continuing for more than 30 days, at the expense of the FRGC Parties to visit
and inspect any of the offices or properties of the FRGC Parties, to examine all
their respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision the FRGC Parties authorize said accountants to discuss the
affairs, finances and accounts of the FRGC Parties), all at such times and as
often as may be requested.
SECTION 12.17 CONFIDENTIALITY. For the purposes of this Section 12.17,
"Confidential Information" means information delivered to a Noteholder by or on
behalf of the Issuer in connection with the transactions contemplated by or
otherwise pursuant to this Indenture that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
the Noteholder as being confidential information of the Issuer, provided that
such term does not include information that (a) was publicly known or otherwise
known to the Noteholder prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by the Noteholder or any
Person acting on its behalf, (c) otherwise becomes known to the Noteholder other
than through disclosure by any FRGC Party or (d) constitutes financial
statements delivered to the Noteholder under this Indenture that are otherwise
publicly available. Each Noteholder will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by it in good
faith to protect confidential information of third parties delivered to it,
provided that each Noteholder may deliver or disclose Confidential Information
to (i) its directors, officers, employees, agents, attorneys and affiliates (to
the extent such disclosure reasonably relates to the Notes), (ii) its financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 12.17, (iii) any other Noteholder, (iv) any Institutional Investor to
which the Noteholder sells or offers to sell its Notes (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 12.17), (v) any Person from which the
Noteholder offers to purchase any security of any FRGC Party (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 12.7), (vi) any federal or state
regulatory authority having jurisdiction over it, (vii) the National Association
of Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about its
investment portfolio, or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to it, (x) in response to any subpoena
or other legal process, (y) in connection with any litigation to which it is a
party or (z) if default by the Issuer under any of the Basic Note Documents has
occurred and is continuing, to the extent it may reasonably determine such
delivery and disclosure to be necessary or appropriate. Each Noteholder, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 12.17 as though it were a party to this
Indenture.
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SECTION 12.18 SURRENDER OF NOTES BY INSTITUTIONAL INVESTORS.
Notwithstanding anything else in this Indenture or the Notes to the contrary, if
a Noteholder is an Institutional Investor (or a nominee of an Institutional
Investor), such Institutional Investor shall use its reasonable efforts to
surrender its Notes upon written request of the Issuer or the Indenture Trustee
following final payment in respect thereof, but shall not be required to
surrender its Notes as a condition to receipt of any payment in respect of any
Note. If an Institutional Investor shall not have surrendered its Notes within
ten Business Days of being so requested to do so pursuant to this Indenture,
such Institutional Investor will be deemed to indemnify, defend and hold
harmless the Indenture Trustee and the Issuer from and against any and all
costs, expenses, losses, claims, damages and liabilities (including, without
limitation, expenses of counsel and expenses of litigation) arising out of or
incurred in connection with failure to surrender its Notes.
SECTION 12.19 COLLATERAL SHARING AND SECURITY AGREEMENT. The Noteholders
agree to be bound by the terms and conditions of the Collateral Sharing and
Security Agreement.
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IN WITNESS WHEREOF, the Issuer, the Servicer and the Indenture Trustee
have caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized, all as of the day and year first above written.
HATTIESBURG GAS STORAGE COMPANY
By: HATTIESBURG INDUSTRIAL
GAS SALES COMPANY, its
General Partner
By: /s/ J. A. Ballew
--------------------------------
J. A. Ballew, Vice President
Witnesses:
/s/ Jennifer L. Janss
- -------------------------
/s/ Darrick Gring
- -------------------------
HATTIESBURG INDUSTRIAL GAS SALES
COMPANY
By: /s/ J. A. Ballew
-------------------------------
J. A. Ballew, Vice President
Witnesses:
/s/ Jennifer L. Janss
- --------------------------
/s/ Darrick Gring
- --------------------------
CHEMICAL BANK,
as Indenture Trustee
By: /s/ Dennis Kildea
-------------------------------
Name: Dennis Kildea
-------------------------------
Title: Trust Officer
-------------------------------
Witnesses:
/s/ Charles E. Dooley
- ---------------------------
/s/ Matthew Lefferts
- ---------------------------
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STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this the 21st day of November, 1995, before me, Davalyn D. Curtis, the
undersigned officer, personally appeared J. A. Ballew, who acknowledged himself
to be the Vice President of HATTIESBURG INDUSTRIAL GAS SALES COMPANY, the
general partner of HATTIESBURG GAS STORAGE COMPANY, and that he, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Davalyn D. Curtis
----------------------------------
Notary Public in and for the
State of New York
My Commission expires:
7/8/97
----------------------------------
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this the 21st day of November, 1995, before me, Davalyn D. Curtis, the
undersigned officer, personally appeared J. A. Ballew, who acknowledged himself
to be the Vice President of HATTIESBURG INDUSTRIAL GAS SALES COMPANY, and that
he, being authorized to do so, executed the foregoing instrument for the
purposes therein contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Davalyn D. Curtis
----------------------------------
Notary Public in and for the
State of New York
My Commission expires:
7/8/97
----------------------------------
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STATE OF NY )
)
COUNTY OF NY )
On this the 21st day of November, 1995, before me, Davalyn D. Curtis, the
undersigned officer, personally appeared Dennis Kildea, who acknowledged
himself to be the Trust Officer of CHEMICAL BANK, and that he, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained.
In witness whereof, I hereunto set my hand and official seal.
/s/ Davalyn D. Curtis
----------------------------------
Notary Public in and for the
State of New York
My Commission expires:
7/8/97
----------------------------------
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APPENDIX A
PART I - INDENTURE DEFINITIONS
All terms defined in this Appendix shall have the defined meanings
when used in any of the Basic Note Documents, unless otherwise defined therein.
ACT: An act specified in Section 12.3(a) of the Indenture.
AFFECTED PLEDGED CONTRACT RECEIVABLE: As defined in Section 11.3 of the
Indenture.
AFFILIATE: With respect to any specified Person, any other Person
controlling, controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
AGENCY OFFICE: The office of the Issuer maintained pursuant to Section 4.2
of the Indenture.
AUTHORIZED OFFICER: With respect to the Issuer, any officer of the Issuer
who is authorized to act for the Issuer in matters relating to the Issuer and
who is identified on the list of Authorized Officers delivered by the Issuer to
the Indenture Trustee on the Closing Date (as such list may be modified or
supplemented from time to time hereafter).
BASIC DOCUMENTS: The Basic Note Documents and the Basic Trust Documents
(as defined in the Sale and Servicing Agreement).
BASIC MAKE-WHOLE PREMIUM: With respect to any Note accelerated pursuant to
Section 6.2 of the Indenture or redeemed pursuant to Section 11.3 of the
Indenture, an amount equal to the excess, if any, of the Discounted Value of the
Remaining Scheduled Payments with respect to the Called Principal of such Note
accelerated or redeemed over the amount of such Called Principal, provided that
the Basic Make-Whole Premium may in no event be less than zero.
BASIC NOTE DOCUMENTS: The Indenture, the Notes, the Note Purchase
Agreements, the Mortgages, the Guarantees and the Collateral Sharing and
Security Agreement.
BUSINESS DAY: Any day other than a Saturday, a Sunday or any other day on
which banking institutions in New York, New York are authorized or obligated by
law, executive order or governmental decree to be closed.
BUSINESS INTERRUPTION INSURANCE: As defined in Section 3.2(q) of the
Indenture.
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CALLED PRINCIPAL: With respect to any Note, the principal of such Note
that is declared to be immediately due and payable pursuant to Section 6.2 of
the Indenture, is redeemed pursuant to Section 11.1 or 11.3 of the Indenture or
is repurchased pursuant to Section 11.2 of the Indenture, as the context
requires.
CERTIFICATEHOLDER: A Person in whose name an Investor Certificate or a
Residual Certificate is registered pursuant to the terms of the Trust Agreement.
CHANGE OF CONTROL: With respect to FRGC, a Change of Control shall be
deemed to occur in the event that Crystal fails to own, directly or indirectly,
at least 80% of the outstanding capital stock of FRGC (or any permitted
successor or assign) and have the power to elect at least a majority of the
Board of Directors of FRGC (or any permitted successor or assign).
CHANGE OF CONTROL OFFER: As defined in Section 11.2 of the Indenture.
CHANGE OF CONTROL PAYMENT: As defined in Section 11.2 of the Indenture.
CHANGE OF CONTROL PAYMENT DATE: As defined in Section 11.2 of the
Indenture.
CLOSING CONDITIONS: The conditions to the closing of the transactions
contemplated by the Basic Documents which are set forth in Schedule 2 to the
Indenture.
CLOSING DATE: November 22, 1995.
CODE: The Internal Revenue Code of 1986, as amended from time to time, and
the Treasury Regulations promulgated thereunder.
COLLATERAL: The collateral specified in the Granting Clause of the
Indenture.
COLLATERAL ACCOUNT: As defined in Section 9.1 of the Indenture.
COLLATERAL SHARING AND SECURITY AGREEMENT: The Collateral Sharing and
Security Agreement substantially in the form of Exhibit C to the Indenture, as
amended and supplemented from time to time.
COLLATERAL TRUSTEE: As defined in the Collateral Sharing and Security
Agreement.
CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES: For any period, the
SUM of (i) Consolidated Net Income for such period PLUS (ii) to the extent (and
only to the extent) that such aggregate amount was deducted in the computation
of Consolidated Net Income for such period, the aggregate amount of (a) income
tax expense, depreciation, amortization and other non-cash charges of the FRGC
Parties for such period, determined on a consolidated basis for such Persons,
and (b) Consolidated Fixed Charges for such period.
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CONSOLIDATED FIXED CHARGES: For any period, the aggregate amount, without
duplication, of (i) interest expense of the FRGC Parties, (ii) the Monthly Fixed
Return (as defined in the Trust Agreement) on the Investor Certificates (whether
or not paid), (iii) scheduled amortization (whether or not paid) of Indebtedness
of the FRGC Parties and scheduled payments (whether or not paid) of Monthly
Return of Capital (as defined in the Trust Agreement), and (iv) lease expense of
FRGC and its Subsidiaries, determined on a consolidated basis for the FRGC
Parties.
CONSOLIDATED NET INCOME: For any period, the net earnings (or loss) after
income taxes of the FRGC Parties for such period, determined on a consolidated
basis for such Persons in accordance with GAAP.
CONTRACT: Each of the contracts described on Schedule 4 to the Indenture.
CONTRACT RECEIVABLES: With respect to each Contract, the indebtedness and
payment obligations arising from or relating to storage charges designated in
such Contract as "D(1)" and deliverability charges designated as "D(2)".
CONTRACT REGULATORY RECEIVABLES: With respect to any Contract, any
increase in the Contract Receivables in respect of such Contract arising from or
relating to a redetermination by the appropriate regulatory body of the storage
or deliverability charges payable thereunder in accordance with the terms of
such Contract.
CONTRACTUAL OBLIGATION: As to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee, the
principal office at which at any particular time the corporate trust business of
the Indenture Trustee shall be administered, which offices at the Closing Date
are located at 450 West 33rd Street, 15th Floor, New York, New York 10001.
CRYSTAL: Crystal Oil Company, a Louisiana corporation.
CUT-OFF DATE: December 1, 1995.
DEFAULT: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
DISCOUNTED VALUE: With respect to the Called Principal of any Note, the
amount obtained by discounting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due dates to the
Settlement Date with respect to the Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
ELIGIBLE ACCOUNT: A segregated trust account with an Eligible Institution.
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ELIGIBLE INSTITUTION: A depository institution organized under the laws of
the United States of America or any State (or any domestic branch of a foreign
bank), (A) which either (1) has a long-term unsecured debt rating of at least A+
from the Rating Agency at the time of any deposit therein (or, if such
obligations are at the time of such deposit not rated by the Rating Agency but
are rated at least A+ by Standard & Poor's ("S&P") and at least A1 by Moody's
Investor Services Inc. ("Moody's"), provided that if such obligations are rated
by only one of S&P or Moody's, such rating shall be sufficient) or (2) is a
federal or state charter depository institution subject to regulations regarding
fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b),
(B) whose deposits are insured by the FDIC and (C) having a combined capital and
surplus of at least $250,000,000 as set forth in its most recent published
annual report of condition.
ELIGIBLE INVESTMENTS: Book-entry securities, negotiable instruments or
securities represented by instruments in bearer or registered form which
evidence:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof (or any domestic branch of a
foreign bank); and subject to supervision and examination by Federal or
State banking or depository institution authorities; PROVIDED, HOWEVER,
that at the time of the investment or contractual commitment to invest
therein, the commercial paper or other short-term unsecured debt
obligations (other than such obligations the rating of which is based on
the credit of a Person other than such depository institution or trust
company) thereof shall have a credit rating from the Rating Agency (or
equivalent rating of S&P or Moody's) for short-term unsecured debt
obligations or certificates of deposit granted thereby of at least D-1 (or
equivalent rating of S&P or Moody's);
(iii) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from the Rating Agency
(or equivalent rating of S&P or Moody's) for short-term unsecured debt
obligations granted thereby of at least D-1 (or equivalent rating of S&P or
Moody's);
(iv) investments in money market or common trust funds having a
rating from the Rating Agency (or equivalent rating of S&P or Moody's) for
short-term unsecured debt obligations granted thereby of at least D-1 (or
equivalent rating of S&P or Moody's) (including funds for which the
Indenture Trustee or any of its Affiliates is investment manager or
advisor, so long as such fund shall have such rating);
(v) bankers' acceptances issued by any depository institution or
trust company referred to in clause (ii) above; and
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<PAGE>
(vi) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) described in clause (ii);
in each case maturing not later than the Business Day immediately preceding the
next Payment Date.
ELIGIBLE OBLIGOR: Any Obligor listed on Schedule 7 to the Indenture.
ELIGIBLE RECEIVABLE: Each Contract Receivable:
(i) that constitutes an account within the meaning of Section
9-106 of the UCC of the State the law of which governs the perfection of
the interest granted in it;
(ii) that is denominated and payable only in United States dollars
in the United States;
(iii) that was created in the ordinary course of business from the
sale of services of the Issuer and in accordance with its historical
credit and collection policies;
(iv) with respect to which all installments due and payable prior
to the Closing Date have been paid in full;
(v) that, together with the Contracts underlying such Contract
Receivable, was created in accordance with and does not contravene any
applicable law, rule or regulation and in connection with which the Seller
is not in violation of any law, rule or regulation;
(vi) that is not a Contract Receivable purchased by the Issuer from
any Person;
(vii) that is not a Contract Receivable for which the Issuer has
established an offsetting specific reserve;
(viii) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by the
Issuer in connection with the creation of such Contract Receivable and the
related Contract have been duly obtained, effected or given and are in
full force and effect;
(ix) which has not been satisfied, subordinated or rescinded and with
respect to which the Issuer is not in default in any material respect under
the terms of the Contract from which such Contract Receivable arose;
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(x) which through the Basic Note Documents has been the subject of
the grant of a first priority perfected security interest therein (and in
the proceeds thereof) to the Indenture Trustee or the Collateral Trustee,
free and clear of all Liens other than Permitted Liens;
(xi) with respect to which the Issuer or its designee has duly given
all notices of assignment in form and substance required to permit the
legal, valid and enforceable assignment of such Contract Receivable by the
Issuer to the Indenture Trustee, and is otherwise in compliance in all
material respects with applicable law, all such notices are in full force
and effect and such Contract Receivable is not subject to any right of
rescission or set-off or, to the extent currently payable or asserted, any
right of counterclaim or any other defense that is enforceable against the
Indenture Trustee;
(xii) that, together with the related Contract, will at all times be
the legal, valid and binding payment obligation and contract, as the case
may be, of the Obligor thereon, enforceable against such Obligor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights in general and by general principles of
equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law, and except as to any immaterial provision
of any Contract the lack of enforceability of which would not affect the
enforceability of the payment obligations of the Obligor in respect of any
Pledged Contract Receivable;
(xiii) with respect to which, on or before the Closing Date, the Issuer
has not (i) taken any action that would impair the rights of the Indenture
Trustee or the holders of the Notes with respect to the Pledged Contract
Receivables or (ii) failed to take any action, that was necessary to avoid
impairing the rights of the Indenture Trustee or the holders of the Notes;
and
(xiv) with respect to which no action, claim or proceeding is pending
or, to the knowledge of Issuer, threatened which would adversely affect
the payment or enforceability of the Pledged Contract Receivables.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: An event specified in Section 6.1 of the Indenture.
EXECUTIVE OFFICER: With respect to any corporation, the Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, President, Executive
Vice President, any Vice President, the Secretary or the Treasurer of such
corporation; and with respect to any partnership, any general partner thereof
acting through any such officer of such general partner.
FDIC: Federal Deposit Insurance Corporation or any successor agency.
FRGC: First Reserve Gas Company, a Delaware corporation.
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FRGC PARTIES: Collectively, FRGC, HIG, HGSC and any successors or
permitted assigns to any of them.
FINAL PAYMENT DATE: August 5, 2005.
FIXED CHARGE COVERAGE TEST: As defined in Section 4.5(xvii) of the
Indenture.
GAAP: Generally accepted accounting principles in the United States of
America in effect from time to time.
GENERAL ACCOUNT ASSETS: The assets of a Noteholder that is an insurance
company, other than assets allocated to a "separate account" (as defined in
ERISA) maintained by such insurance company.
GOVERNMENTAL AUTHORITY: Any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
GRANT: To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of, the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
GUARANTEES: The Guarantees substantially in the form of Exhibits F and G
to the Indenture, as amended and supplemented from time to time.
HGSC: Hattiesburg Gas Storage Company, a Delaware general partnership.
HIG: Hattiesburg Industrial Gas Sales Company, a Delaware corporation.
INDEBTEDNESS: Of any Person at any date: (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices); (ii) any other
indebtedness which is evidenced by a note, bond, debenture or similar
instrument; (iii) all capital lease obligations of such Person; (iv) all
obligations of such Person in respect of outstanding letters of credit,
acceptances and similar obligations created for the account of such Person; and
(v) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment
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thereof. The Indebtedness of any Person shall include any Indebtedness
of any partnership in which such Person is the general partner.
INDENTURE: The Indenture, dated as of November 21, 1995, among HGSC, HIG
and the Indenture Trustee, as amended and supplemented from time to time.
INDENTURE TRUSTEE: Chemical Bank, not in its individual capacity but
solely as trustee under the Indenture, or any successor trustee under the
Indenture.
INSOLVENCY EVENT: With respect to a specified Person, (i) the entry of a
decree or order by a court, agency or supervisory authority having jurisdiction
in the premises for the appointment of a trustee, conservator, receiver,
liquidator or other similar official for such Person, in any bankruptcy,
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of such Person's
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days; (ii) the consent by such Person to the
appointment of a trustee, conservator, receiver, liquidator or other similar
official in any bankruptcy, insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to such Person or
of or relating to substantially all of such Person's property, or (iii) such
Person shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable bankruptcy,
insolvency or reorganization statute, make an assignment for the benefit of its
creditors or voluntarily suspend payment of its obligations.
INSTITUTIONAL INVESTOR: (a) any original purchaser of a Note, (b) any
Noteholder holding more than 25% of the Outstanding Amount of Notes and (c) any
bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance company,
any broker or dealer, or any other similar financial institution or entity,
regardless of legal form.
INTEREST RATE: (a) 8.12% per annum with respect to the unpaid balance of
any Note and (b) 10.12% per annum on any overdue payment of principal, any
overdue payment of premium and any overdue payment of accrued and unpaid
interest, from the date such payment was due until such amounts shall have been
paid in full.
INVESTOR CERTIFICATE: Any of the investor certificates executed by the
Owner Trustee and authenticated by the Owner Trustee in substantially the form
set forth in EXHIBIT A to the Trust Agreement.
ISSUER: HGSC.
ISSUER ORDER and ISSUER REQUEST: A written order or request signed in the
name of the Issuer by any one of its Authorized Officers and delivered to the
Indenture Trustee.
LIEN: Any security interest, lien, charge, pledge, equity or encumbrance
of any kind.
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LOCKBOX: The post office boxes to which the Obligors may be instructed to
remit payments on the Pledged Contract Receivables.
LOCKBOX ACCOUNT: Any intervening deposit account, established in the name
of the Indenture Trustee, used for deposit of funds received in a Lockbox prior
to their transfer to the Collateral Account.
MAJORITY NOTEHOLDERS: Noteholders whose Notes represent greater than 50
percent of the Outstanding Amount of Notes.
MANDATORY PARTIAL REDEMPTION AMOUNT: As defined in Section 11.3 of the
Indenture.
MATERIAL ADVERSE EFFECT: A material adverse effect on (a) the business,
operations, property or condition (financial or otherwise) of the FRGC Parties,
(b) the ability of any of the FRGC Parties to perform their respective
obligations under the Basic Note Documents, (c) the validity or enforceability
of any of the Basic Note Documents against any of the FRGC Parties or (d) the
rights or remedies of the Indenture Trustee or the Noteholders under or with
respect to the Basic Note Documents.
MORTGAGE: The Deed of Trust, Security Agreement and Fixture Filing,
substantially in the form of Exhibit E to the Indenture, pursuant to which the
Issuer has mortgaged the Storage Facilities to the Collateral Trustee, as
amended and supplemented from time to time.
MORTGAGE COLLATERAL: As defined in the Collateral Sharing and Security
Agreement.
NOTEHOLDER: A Person in whose name a Note is registered pursuant to the
terms of the Indenture.
NOTE PURCHASE AGREEMENTS: The several note purchase agreements, dated as
of November 21, 1995, among HGSC, HIG and the purchasers named therein,
providing for the sale and purchase of the Notes.
NOTE REGISTER: The register of Notes specified in Section 2.3 of the
Indenture.
NOTE REGISTRAR: The registrar at any time of the Note Register, appointed
pursuant to Section 2.3 of the Indenture.
NOTES: The 8.12% Secured Guaranteed Notes due 2005 issued by the Issuer
and authenticated by the Indenture Trustee under the Indenture.
OBLIGOR: Each party obligated to make payment with respect to any Contract
Receivable, including any guarantor thereof.
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OFFICER'S CERTIFICATE: A certificate signed by any Authorized Officer of
the Issuer, under the circumstances described in, and otherwise complying with,
the applicable requirements of Section 12.1 of the Indenture, and delivered to
the Indenture Trustee. Unless otherwise specified, any reference in the
Indenture to an officer's certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
OPERATOR: HIG in its capacity as the operator of the Storage Facilities
under the Sale and Servicing Agreement or its successor in interest pursuant to
Section 13 of the Collateral Sharing and Security Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may, except as
otherwise expressly provided, be an employee of the Issuer or the Servicer. In
addition, for purposes of the Indenture, (i) such counsel shall be reasonably
satisfactory to the Indenture Trustee; (ii) the opinion shall be addressed to
the Indenture Trustee as Trustee; (iii) the opinion shall comply with any
applicable requirements of Section 12.1 of the Indenture and shall be in form
and substance satisfactory to the Indenture Trustee; and (iv) such opinion shall
be at the expense of the Issuer.
OUTSTANDING: With respect to the Notes, as of the date of determination,
all Notes theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore cancelled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture Trustee
in trust for the Noteholders; PROVIDED, HOWEVER, that if such Notes are to
be redeemed, notice of such redemption has been duly given pursuant to the
Indenture or provision therefor, satisfactory to the Indenture Trustee, has
been made; and
(iii) Notes in exchange for or in lieu of other Notes which have been
authenticated and delivered pursuant to the Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser;
PROVIDED, HOWEVER, that in determining whether the Noteholders of the requisite
portion of the Outstanding Amount of the Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any Basic
Document, Notes owned by the Issuer, any guarantor or other obligor upon the
Notes, the Servicer or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Indenture Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Notes
that the Indenture Trustee knows to be so owned shall be so disregarded. Notes
so owned that have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Indenture Trustee the
pledgor's right so to act with respect to such Notes and that the pledgee is not
the Issuer, any other obligor upon the Notes, the Servicer or any Affiliate of
any of the foregoing Persons.
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OUTSTANDING AMOUNT: As of any date, the aggregate principal amount of all
Notes Outstanding at such date.
OWNER TRUSTEE: Wilmington Trust Company, not in its individual capacity
but solely as owner trustee under the Trust Agreement, or any successor owner
trustee under the Trust Agreement.
PAYMENT DATE: With respect to a date on which payment in respect of
principal or premium, if any, of or interest on the Notes shall be made pursuant
to the terms of the Indenture or the Notes, the fifth day of each calendar
month.
PERMITTED LIENS: Collectively, (i) statutory Liens for taxes, labor or
materials where payment for such items is not yet delinquent; and (ii) any
defects or imperfections of title, easements, surface leases or rights or plat
restrictions that are not material in character, amount or extent and do not
materially detract from the value, or materially interfere with the use, of the
properties of the Servicer or the Seller, or materially prevent the Servicer or
the Seller from receiving revenues from such properties or otherwise materially
impair, or increase the cost of, the business operations being conducted
thereon.
PERSON: Any legal person, including any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
PLAN: Any employee benefit plan subject to Part 4 of subtitle B of Title I
of ERISA and any plan within the meaning of Section 4975(c)(1) of the Code.
PLEDGED CONTRACT RECEIVABLES: All Contract Receivables due pursuant to the
terms of the Contracts on and after July 1, 2000 and in 2001, 2002, 2003 and
2004 and through July 31, 2005 (other than any Contract Regulatory Receivables
due during the period on and after July 1, 2000 through June 30, 2001).
PLEDGED INVESTOR CERTIFICATE RIGHTS: All rights to distributions and other
payments in respect of the Investor Certificates pledged to the Indenture
Trustee pursuant to the terms of the Indenture.
PREDECESSOR NOTE: With respect to any particular Note, every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 of the Indenture in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
PROCEEDING: Any suit in equity, action at law or other judicial or
administrative proceeding.
PURCHASED CONTRACT RECEIVABLES: (i) All Contract Receivables due pursuant
to the terms of the Contracts in 1995 (but only after the Cut-off Date), 1996,
1997, 1998,
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1999 and through June 30, 2000, and (ii) all Contract Regulatory
Receivables due during the period on and after July 1, 2000 through June 30,
2001.
RATING AGENCY: Duff & Phelps Credit Rating Co. or, if Duff & Phelps Credit
Rating Co. is unable to act as Rating Agency, another nationally recognized
rating agency selected by the Issuer.
RECORD DATE: With respect to any Payment Date, the first Business Day
preceding such Payment Date; provided, however, with respect to the final
instalment of principal and premium, if any, of and interest on the Notes, the
Record Date shall be the 15th of the month immediately preceding the date on
which such instalment is due.
REDEMPTION MAKE-WHOLE PREMIUM: With respect to any Note to be redeemed
pursuant to Section 11.1, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal, provided that
the Redemption Make-Whole Premium may in no event be less than zero.
REINVESTMENT YIELD: With respect to the Called Principal of any Note,
0.50% over the yield to maturity in the case of the Basic Make-Whole Premium and
Redemption Make-Whole Premium and 0.75% over the yield to maturity in the case
of the Repurchase Make-Whole Premium implied by (i) the yields reported, as of
10:00 A.M. (New York City time) on the third Business Day preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page 678" on the Telerate Access Service (or such other display as may
replaced Page 678 on Telerate Access Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if such yields are not reported as
of such time or the yields reported as of such time are unascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the actively
traded U.S. Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security with
the duration closest to and less than the Remaining Average Life.
REMAINING AVERAGE LIFE: With respect to the Called Principal, the number
of years (calculated to the nearest one-twelfth year) obtained by dividing
(i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse
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between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
REMAINING SCHEDULED PAYMENTS: With respect to the Called Principal of any
Note, all payments of such Called Principal and interest thereon that would be
due after the Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest payments
are due to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 6.2, 11.1, 11.2 or 11.3 of the Indenture, as the context
requires.
REPURCHASE MAKE-WHOLE PREMIUM: With respect to any Note to be repurchased
pursuant to Section 11.2, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal, provided that
the Repurchase Make-Whole Premium may in no event be less than zero.
REQUIREMENT OF LAW: As to any Person, the Certificate of Incorporation and
By-Laws or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
RESIDUAL CERTIFICATE: The residual certificate executed by the Owner
Trustee and authenticated by the Owner Trustee in substantially the form set
forth in Exhibit B to the Trust Agreement.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee, any officer
within the Corporate Trust Office of the Indenture Trustee, and, with respect to
any other Person, the President, any Vice President, Assistant Vice President,
Secretary, Assistant Secretary or any other officer or assistant officer of such
Person or general partner of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
RESTRICTED PAYMENT: As defined in Section 4.5(xvii) of the Indenture.
RESTRICTED PAYMENT DATE: As defined in Section 4.5(xvii) of the Indenture.
SALE AND SERVICING AGREEMENT: The Sale and Servicing Agreement dated as of
November 21, 1995, among the Seller, the Servicer and the Trust, as amended and
supplemented from time to time.
SERVICER: HIG in its capacity as the Servicer of the Pledged Contract
Receivables under the Indenture, or its successor in interest.
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SETTLEMENT DATE: With respect to the Called Principal of any Note, the
date on which such Called Principal is declared to be immediately due and
payable pursuant to Section 6.2 of the Indenture, is redeemed pursuant to
Section 11.1 or 11.3 of the Indenture or is repurchased pursuant to Section 11.2
of the Indenture, as the context requires.
SHARED COLLATERAL: As defined in the Collateral Sharing and Security
Agreement.
SPECIFIED PERCENTAGE: As defined in Section 4.5(xvii) of the Indenture.
STATE: Any one of the 50 States of the United States of America or the
District of Columbia.
STORAGE FACILITIES: As set forth on Schedule 6 to the Indenture.
SUBSIDIARY: As to any Person, a corporation, partnership or other entity
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
TREASURY REGULATIONS: The regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST: FRGC Owner Trust, a Delaware business trust created by the Trust
Agreement.
TRUST AGREEMENT: The Trust Agreement, dated as of November 21, 1995, among
the Servicer, the Seller and the Owner Trustee, as amended and supplemented from
time to time.
TRUST ESTATE: All money, instruments, rights and other property that are
subject or intended to be subject to the lien and security interest of the
Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Indenture Trustee), including all proceeds thereof.
UCC: The Uniform Commercial Code as in effect in the relevant jurisdiction
(or if no such jurisdiction is relevant, as in effect in the State of New York).
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE AND SERVICING AGREEMENT
AMONG
HATTIESBURG GAS STORAGE COMPANY
SELLER
HATTIESBURG INDUSTRIAL GAS SALES COMPANY
SERVICER AND SELLER
AND
FRGC OWNER TRUST
DATED AS OF NOVEMBER 21, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
CONVEYANCE OF PURCHASED CONTRACT RECEIVABLES;
ORIGINAL ISSUANCE OF CERTIFICATES. . . . . . . . . 2
SECTION 2.1 Conveyance of Purchased Contract
Receivables. . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2 Payment of Purchase Price. . . . . . . . . . . . . . . . 3
SECTION 2.3 Acceptance by Trust. . . . . . . . . . . . . . . . . . . 3
SECTION 2.4 No Repurchase. . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.5 Certain Allocations. . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE SERVICER. . . . . . . . . . . . . 4
SECTION 3.1 Representations and Warranties as to the
Receivables. . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.2 Other Representations and Warranties . . . . . . . . . . 4
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES . . . . . . 9
SECTION 4.1 Duties of the Servicer . . . . . . . . . . . . . . . . . 9
SECTION 4.2 Servicing Procedures . . . . . . . . . . . . . . . . . . 10
SECTION 4.3 Payment of Certain Expenses by Servicer. . . . . . . . . 10
SECTION 4.4 Annual Statement as to Compliance. . . . . . . . . . . . 10
SECTION 4.5 Access to Certain Documentation
and Information Regarding Purchased
Contract Receivables . . . . . . . . . . . . . . . . . . 11
SECTION 4.6 Information Provided to Rating Agency. . . . . . . . . . 11
SECTION 4.7 Compensation . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.8 Delivery of Financial Statements . . . . . . . . . . . . 12
SECTION 4.9 Other Information. . . . . . . . . . . . . . . . . . . . 13
SECTION 4.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS OF THE SERVICER AND OTHERS; REMEDIES . . . . . 13
SECTION 5.1 Covenants of the Servicer. . . . . . . . . . . . . . . . 13
SECTION 5.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 16
-i-
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Page
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ARTICLE VI
LIABILITIES OF SERVICER AND OTHERS . . . . . . . . 17
SECTION 6.1 Liability of Servicer; Indemnities . . . . . . . . . . . 17
SECTION 6.2 Limitation on Liability of Servicer,
Seller and Others. . . . . . . . . . . . . . . . . . . . 18
SECTION 6.3 Delegation of Duties . . . . . . . . . . . . . . . . . . 19
SECTION 6.4 Servicer Not to Resign . . . . . . . . . . . . . . . . . 19
ARTICLE VII
DEFAULT . . . . . . . . . . . . . . . 19
SECTION 7.1 Servicer Default . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.2 Trustee to Act; Appointment of Successor . . . . . . . . 19
SECTION 7.3 Notification to Investor
Certificateholders . . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . 20
SECTION 8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX
MISCELLANEOUS PROVISIONS. . . . . . . . . . . 20
SECTION 9.1 Waiver and Amendment . . . . . . . . . . . . . . . . . . 20
SECTION 9.2 Protection of Title to Owner Trust Estate. . . . . . . . 21
SECTION 9.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.5 Severability of Provisions . . . . . . . . . . . . . . . 23
SECTION 9.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.7 Third-Party Beneficiaries. . . . . . . . . . . . . . . . 23
SECTION 9.8 Separate Counterparts. . . . . . . . . . . . . . . . . . 23
SECTION 9.9 Headings and Cross-References. . . . . . . . . . . . . . 23
SECTION 9.10 No Petition Covenants. . . . . . . . . . . . . . . . . . 23
SECTION 9.11 Limitation of Liability of the
Owner Trustee. . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9.12 Treatment of Transaction by Seller . . . . . . . . . . . 24
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Schedule 1 - List of Eligible Obligors
Schedule 2 - Schedule of Contracts
Schedule 3 - Schedule of Purchased Contract Receivables
Schedule 4 - Schedule of Liquidated Damages and Fixed Percentage
Schedule 5 - [Intentionally omitted]
Schedule 6 - Description of Business Interruption
Insurance
Schedule 7 - Description of Storage Facilities
Exhibit A - Form of FRGC Guarantee
Exhibit B - [Intentionally omitted]
Exhibit C - Form of Collateral Sharing and Security
Agreement
Exhibit D - [Intentionally omitted]
Exhibit E - [Intentionally omitted]
Exhibit F - Form of Deed of Trust, Security Agreement
and Fixture Filing
APPENDIX A - Defined Terms and Rules of Construction
APPENDIX B - Notice Addresses and Procedures
APPENDIX C - Closing Conditions
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SALE AND SERVICING AGREEMENT, dated as of November 21, 1995, by and
among Hattiesburg Gas Storage Company, a Delaware general partnership ("HGSC"),
Hattiesburg Industrial Gas Sales Company, a Delaware corporation ("HIG" or the
"Servicer" and together with HGSC, the "Seller"), and FRGC Owner Trust, a
Delaware business trust (the "Trust").
WHEREAS, the Seller desires to sell to the Trust, and the Trust
desires to purchase from the Seller, the Purchased Contract Receivables in
consideration of the payment of the Purchase Price, and the Servicer desires to
perform the servicing obligations set forth herein for and in consideration of
the fees and other benefits set forth in this Agreement;
WHEREAS, HGSC is a beneficial owner of the Purchased Contract
Receivables;
WHEREAS, HIG is joining in this Agreement as Seller solely to evidence
the transfer and assignment of its rights, if any, in the Purchased Property as
a result of its being the signatory to the Contracts;
WHEREAS, Crystal Oil Company, the ultimate parent of the Seller, has
agreed, under certain circumstances and subject to certain limitations, to pay
certain amounts payable by Seller in the event of a bankruptcy of the Seller;
and
WHEREAS, the Seller, the Servicer and the Trust wish to set forth the
terms pursuant to which the Purchased Contract Receivables are to be sold by the
Seller to the Trust and serviced by the Servicer;
NOW, THEREFORE, in consideration of the premises and of the mutual
terms and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1 DEFINITIONS. Certain capitalized terms used in the
above recitals and in this Agreement shall have the respective meanings assigned
to them in Part I of APPENDIX A to this Agreement. All references herein to
"the Agreement" or "this Agreement" are to this Sale and Servicing Agreement as
it may be amended, supplemented or modified from time to time, the exhibits
hereto and the capitalized terms used herein which are defined in such
APPENDIX A, and all references herein to Articles, Sections and subsections are
to Articles, Sections or subsections of this Agreement unless otherwise
specified. The rules of construction set forth in Part II of such APPENDIX A
shall be applicable to this Agreement.
<PAGE>
ARTICLE II
CONVEYANCE OF PURCHASED CONTRACT RECEIVABLES;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.1 CONVEYANCE OF PURCHASED CONTRACT RECEIVABLES. In
consideration of the Trust's payment of the Purchase Price pursuant to
Section 2.2, the Seller hereby sells, transfers, assigns and otherwise conveys
to the Trust, WITHOUT RECOURSE other than as expressly provided herein, all
right, title and interest of the Seller in, to and under:
(a) the Purchased Contract Receivables and all monies paid or to be
paid thereon and due or to be due thereunder;
(b) all guarantees, insurance and other agreements or arrangements of
the Obligors, or on behalf of the Obligors, of whatever character
supporting or securing payment of any Purchased Contract Receivable whether
pursuant to the Contracts or otherwise; and
(c) all proceeds of any and all of the foregoing (the assets
described in clauses (a) through (c) being collectively referred to herein
as the "PURCHASED PROPERTY").
It is the intention of the Seller that the transfer and assignment contemplated
by this Agreement shall constitute a sale of the Purchased Contract Receivables
from the Seller to the Trust and the beneficial interest in and title to the
Purchased Property shall not be part of the Seller's estate in the event of the
filing of a bankruptcy petition, or the taking of any similar action, by or
against the Seller under any bankruptcy, insolvency or similar law. The Seller
and the Trust agree that the transfer and assignment contemplated by this
Agreement is intended to be a sale and disposition of all of the Seller's
rights, title and interest in the Purchased Property and will be treated as a
sale for Federal income tax purposes. The Seller agrees to confirm such sale to
any Person inquiring about the Purchased Contract Receivables. Notwithstanding
the foregoing, in the event a court of competent jurisdiction determines that
such transfer and assignment did not constitute such a sale or that such
beneficial interest is part of the Seller's estate, then the Seller shall be
deemed to have granted to the Trust a first priority perfected security interest
in all of the Seller's right, title and interest in, to and under the Purchased
Property, and the Seller hereby grants such security interest. For purposes of
such grant, this Agreement shall constitute a security agreement under the UCC.
Notwithstanding the assignment of the Purchased Property set forth in
this Section 2.1, the Seller does not hereby assign any other rights under the
Contracts or delegate any of its duties or obligations under the Contracts or
the Purchased Property to the Trust or the Owner Trustee and neither the Trust
nor the Owner Trustee accepts such duties or obligations. The foregoing
assignment, set-over and conveyance does not constitute and is not intended to
result in a creation or an assumption by the Trust, the Trustee or any Investor
Certificateholder of any obligation of the Seller or any other Person in
connection with the Purchased Property or under
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any agreement or instrument relating thereto, including, without limitation, any
obligation to any Obligor.
In connection with such assignment, the Seller agrees to record and
file, at its own expense, any financing statements (and continuation statements
with respect to such financing statements when applicable) or, where applicable,
registrations in the appropriate records with respect to the Purchased Property,
in each case meeting the requirements of applicable law in such manner and in
such jurisdictions as are necessary to perfect and maintain perfection of the
assignment of the Purchased Property to the Trust, and to deliver a file-stamped
copy or certified statement of such financing statement or registration or other
evidence of such filing or registration to the Owner Trustee on or prior to the
date of issuance of any Certificates. The Owner Trustee shall be under no
obligation whatsoever to file such financing statement, or a continuation
statement to such financing statement, or to make any other filing or other
registration under the UCC, other relevant legislation or similar statute in
connection with such transfer.
In connection with such assignment, the Seller further agrees, at its
own expense, on or prior to the Closing Date (a) to indicate, or to cause to be
indicated, in its records that the Purchased Contract Receivables have been
conveyed to the Trust pursuant to this Agreement and (b) to deliver or cause to
be delivered to the Owner Trustee a true and complete list of all Purchased
Contract Receivables transferred to the Trust specifying for each group of
Purchased Contract Receivables, as of the Cut-Off Date, (i) the identification
or reference number assigned to such Purchased Contract Receivables by the
Seller and (ii) the amount of such Purchased Contract Receivables. Such list
shall be marked as Schedule 3 to this Agreement and is hereby incorporated into
and made a part of this Agreement.
The Seller shall advise the Obligors of the transfer and assignment to
the Trust of the Purchased Contract Receivables hereunder and instruct the
Obligors that future payments thereon shall be made to the Lockbox and the
Lockbox Account or the Collection Account. The Seller shall not revoke or
otherwise change such instructions to the Obligors prior to the termination of
this Agreement without notifying the Rating Agency and obtaining the prior
written approval of the Trust acting through the Owner Trustee pursuant to
Section 9.4 of the Trust Agreement. Any actions taken by the Servicer with
respect to the Purchased Contract Receivables shall be deemed that as agent for
the Trust and not that as the owner of the Purchased Contract Receivables or as
principal.
SECTION 2.2 PAYMENT OF PURCHASE PRICE. Upon fulfillment of the
Closing Conditions, the Purchase Price for the Purchased Property shall be paid
by the Trust to HGSC by wire transfer of immediately available funds to an
account designated by the Seller in writing to the Trust.
SECTION 2.3 ACCEPTANCE BY TRUST. The Trust hereby accepts the
Purchased Property and agrees to hold such consideration upon the trust set
forth in the Trust Agreement for the benefit of Certificateholders, subject to
the terms and conditions of the Trust Agreement and this Agreement. The Trust
hereby agrees and
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accepts the appointment and authorization of the Servicer under Section 4.1.
The Trust acknowledges that, except as expressly provided herein, the Purchased
Property is being acquired without recourse and that all risks with respect to
the payment and collection of the Purchased Property shall be that of the Trust
and not of the Seller.
SECTION 2.4 NO REPURCHASE. The Seller shall not have any right or
obligation under this Agreement, by implication or otherwise, to repurchase from
the Trust any Purchased Property or to rescind or otherwise retroactively effect
any purchase of any Purchased Property.
SECTION 2.5 CERTAIN ALLOCATIONS. The Seller agrees that, unless
otherwise specified by the Owner Trustee, any payment received in respect of a
Contract during any Monthly Period by the Obligors thereunder shall first be
allocated to the Purchased Contract Receivables under that Contract due during
such Monthly Period and then to any other amount due under such Contract during
such Monthly Period. The Trust agrees that any payments received in respect of
a Contract that are not in respect of or allocated to a Purchased Contract
Receivable shall, subject to the terms and conditions of the Collateral Sharing
and Security Agreement, promptly be remitted back to the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE SERVICER
SECTION 3.1 REPRESENTATIONS AND WARRANTIES AS TO THE RECEIVABLES.
Each of the Seller and HIG (in its capacity as Servicer) hereby represents and
warrants to the Trust, for the benefit of the Investor Certificateholders, that
as of the Closing Date (i) each Obligor is an Eligible Obligor, (ii) each
Purchased Contract Receivable is an Eligible Receivable and (iii) with respect
to each Contract, each statement set forth in the definition of Eligible
Receivable relating to the Contract is true and correct.
SECTION 3.2 OTHER REPRESENTATIONS AND WARRANTIES. Each of the
Seller and HIG (in its capacity as Servicer and Operator) represents and
warrants to the Trust for the benefit of the Investor Certificateholders as of
the Closing Date as follows:
(a) HIG (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, (ii) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (iii) has all licenses necessary
to service the Purchased Contract Receivables pursuant to this Agreement,
(iv) is duly qualified as a foreign corporation and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
to the extent that the failure to be so qualified and in good standing
would not have a Material Adverse Effect and (v) is in compliance with all
Requirements of Law except to the extent that the failure
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<PAGE>
to comply therewith would not, individually or in the aggregate, have a
Material Adverse Effect; HGSC (i) is a general partnership organized and
existing under the laws of the State of Delaware, (ii) has the full
partnership power and authority, and the legal right, to own and operate
its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, and (iii) is in compliance
with all Requirements of Law except to the extent that the failure to
comply therewith would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) It (i) has the corporate or partnership power and authority to
make, deliver and perform each Basic Trust Document to which it is a party,
(ii) has taken all necessary action to authorize the execution, delivery
and performance of each Basic Trust Document to which it is a party and
(iii) has duly executed and delivered each Basic Trust Document to which it
is a party.
(c) The execution, delivery and performance of each Basic Trust
Document to which it is a party will not violate any Requirement of Law or
Contractual Obligation of it except for violations that would not have a
Material Adverse Effect, and will not result in, or require, the creation
or imposition of any Lien (other than Permitted Liens and Liens created by
the Basic Documents) on any of its properties or revenues pursuant to any
such Requirement of Law or Contractual Obligation.
(d) Each Basic Trust Document to which it is a party and each Contract
constitutes the legal, valid and binding obligation of it enforceable
against it in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(e) No Purchased Contract Receivable has been sold, transferred,
assigned or pledged to any Person other than the Trust; immediately prior
to the conveyance of the Purchased Contract Receivables pursuant to this
Agreement, the Seller had good and marketable title thereto, free of any
Lien; and, upon execution and delivery of this Agreement by the parties
hereto, the Trust shall have all of the right, title and interest of the
Seller in, to and under the Purchased Contract Receivables free of any Lien
other than Permitted Liens and Liens created pursuant to the Basic
Documents.
(f) Each of the audited consolidated balance sheet, statement of
operations, statement of stockholders' equity and statement of cash flows
of FRGC for each of the two fiscal years ended December 31, 1993 and 1994,
and the two fiscal years ended December 31, 1993 and 1992, the audited
consolidated balance sheet of FRGC as of June 19, 1995, the unaudited
consolidated balance sheet, statement of operations and statement of cash
flows of FRGC for the three-month period ended March 31, 1995, and the
unaudited consolidated balance sheet and statement of operations of FRGC
for the nine-month period
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<PAGE>
ended September 30, 1995, respectively, have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except for the unaudited financial statements which are subject to normal
year-end adjustments and purchase price adjustments as a result of
Crystal's acquisition of FRGC and which do not contain footnote
disclosures) and each fairly presents the consolidated financial position
of FRGC and its Subsidiaries at the respective dates thereof and the
consolidated results of their operations and changes in cash flows for the
periods indicated.
(g) Since June 19, 1995, there has been no development or
event which has had or could reasonably be expected to have a Material
Adverse Effect.
(h) No proceeds of the issuance of any Investor Certificates
will be used by it to purchase or carry any margin stock (as defined in
Regulations U and G of the Board of Governors of the Federal Reserve
System, as in effect from time to time). It is in compliance with all
applicable regulations of the Board of Governors of the Federal Reserve
System (including, without limitation, Regulations U and G with respect to
"margin stock").
(i) Upon formation of the Trust, and immediately following
its acquisition of the Purchased Contract Receivables pursuant to this
Agreement, none of the FRGC Parties nor the Trust will be an "investment
company" within the meaning of, or subject to regulation under, the
Investment Company Act of 1940 and the rules and regulations thereunder.
(j) Each of Crystal and the FRGC Parties has filed or caused
to be filed all tax returns which, to its knowledge, are required to be
filed and have paid all taxes shown to be due and payable on said returns
or on any assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on its
books), except where the failure to file or to pay such taxes, fees or
other charges would not, individually or in the aggregate, have a Material
Adverse Effect; no tax Lien has been filed, and, to its knowledge, no claim
is being asserted, with respect to any such tax, fee or other charge,
except for such claims which would not, individually or in the aggregate,
have a Material Adverse Effect. Except for the Federal income tax
liabilities of FRGC, which have been determined through 1991, the Federal
income tax liabilities of the FRGC Parties have not been finally determined
by the Internal Revenue Service for any period.
(k) It has good record and indefeasible title in fee simple
to, or a valid leasehold interest in, or other valid right to use, all its
real property, and good title to, or a valid leasehold interest in, or
other valid right to use, all its other property, and none of such property
is subject to any Lien other than (i) Permitted Liens and (ii) the Liens
created pursuant to the Basic Documents.
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<PAGE>
(l) It is not in default under or with respect to any of its
Contractual Obligations except for such defaults which, individually or in
the aggregate, would not have a Material Adverse Effect.
(m) It has previously delivered to the Trust true and
correct copies of each Contract (including any amendments thereto); and the
terms other than price, volumes and payment dates of the Contracts as they
relate to the Purchased Contract Receivables are the same in all material
respects as the terms set forth in the Contracts attached to the Private
Placement Memorandum with respect to the offer and sale of the Investor
Certificates.
(n) It has not within the last twelve months made any
transfer or incurred any obligation with actual intent to hinder, delay or
defraud any entity to which it was or may become indebted and it has not
transferred any material property without receiving reasonably equivalent
value for any such transfer or obligation. Both immediately prior to and
immediately after the transactions occurring on the Closing Date, (i) the
fair value of its assets at a fair valuation exceeds its debts and
liabilities, subordinated, contingent or otherwise; (ii) the present fair
salable value of its property is greater than the amount that will be
required to pay its probable liability on its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; (iii) it is reasonably expected to be able to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured; and (iv) it will not have
unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be
conducted. For all purposes of clauses (i) through (iv) above, the amount
of contingent liabilities at any time shall be computed as the amount that,
in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual
or matured liability.
(o) Except for any other FRGC Party, it has no Subsidiaries.
(p) The Servicer has in place procedures pursuant to the
Basic Trust Documents that are either necessary or advisable to ensure the
timely collection of the Purchased Contract Receivables.
(q) The Servicer has in force business interruption
insurance with respect to the Storage Facilities as described in Schedule 6
hereto (the "Business Interruption Insurance").
(r) The office at which it keeps its records concerning the
Purchased Contract Receivables is located at 229 Milam Street, Shreveport,
Louisiana 71101. Since June 19, 1995, its chief executive office has been
located at 229 Milam Street, Shreveport, Louisiana 71101 and is the place
where it is "located" for the purposes of Section 9-103(3)(d) of the UCC of
each jurisdiction the laws of which govern the transfer of the Purchased
Contract Receivable hereunder. From January 1, 1995 until June 19, 1995,
its chief executive office was "located"
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in Dallas, Texas for the purposes of Section 9-103(3)(d) of the UCC as in
effect in the State of Texas. The taxpayer identification number of HGSC
is 75-2316407 and of HIG is 75-2051721.
(s) Its legal name is as set forth in this Agreement. It
has no trade names, fictitious names, assumed names or "doing business as"
names.
(t) Schedule 3 accurately sets forth the Collected Amounts
scheduled to come due after the Cut-off Date with respect to the Purchased
Contract Receivables.
(u) No action, claim or proceeding is pending and, to its
knowledge, no investigation is pending or threatened that would adversely
affect the payment or enforceability of the Purchased Contract Receivables.
(v) No consents or filings with any Governmental Authority
or approvals by any Governmental Authority that have not been made or
obtained are required for the execution, delivery and performance of the
Basic Trust Documents to which it is a party.
(w) There are no pending or, to its knowledge, threatened
actions, suits or proceedings against any FRGC Party that would adversely
affect the transactions contemplated by the Basic Trust Documents to which
it is a party, and there is no injunction, writ, restraining order or other
similar order in effect that adversely affects any of the FRGC Parties'
performance of the agreements and transactions contemplated by the Basic
Trust Documents to which it is a party.
(x) All of the FRGC Parties' pension and profit sharing
plans have been fully funded in accordance with the applicable FRGC
Parties' obligations.
(y) Each Contract is a legal, valid and binding obligation
and contract, as the case may be, of the FRGC Party thereto, enforceable
against such party in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except as to any
material provision of any Contract the lack of enforceability of which
would not affect the enforceability of the payment obligations of the
Obligors thereunder in respect of any Purchased Contract Receivable.
(z) Upon the completion of the sale of the Purchased
Contract Receivables, the Trust's ownership therein will be reflected on
the books and records of the Seller.
The representations and warranties set forth in this Article III
shall survive the transfer and assignment of the Purchased Property to the
Trust.
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ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1 DUTIES OF THE SERVICER. The Servicer is hereby appointed
and authorized to act as agent for the Trust and in such capacity shall manage,
service, administer and, subject to Section 4.2, make collections on the
Purchased Contract Receivables for the benefit of the Trust and the
Certificateholders prudently and in accordance with customary and usual
servicing procedures and applicable law and, to the extent not inconsistent with
the foregoing, to exercise that degree of skill and care it uses in servicing
assets held for its own account. The Servicer hereby accepts such appointment
and authorization and agrees to perform the duties of Servicer with respect to
the Purchased Contract Receivables set forth herein. The Servicer's duties
shall include posting of all payments, responding to inquiries of Obligors on
the Purchased Contract Receivables, investigating and collecting delinquencies,
reporting tax information to Obligors, managing the collateral, accounting for
collections and furnishing monthly and annual statements to the Trust pursuant
to the Trust Agreement, generating federal income tax information and performing
the other duties specified herein. Subject to the provisions of Section 4.2,
the Servicer shall follow its historical policies and procedures and shall have
full power and authority, acting alone, to do any and all things, consistent
with the terms of the Basic Trust Documents, in connection with such managing,
servicing, administration and collection that it may deem necessary or
desirable.
In fulfilling its obligations hereunder, the Servicer shall at any
time and from time to time (i) be authorized to review and obtain copies of all
information provided to the Trust with respect to the Purchased Contract
Receivables, (ii) be entitled to receive copies of all statements, notices and
reports regarding the Collection Account and Investment Account, (iii) be
entitled to obtain any and all information regarding deposits, withdrawals and
transfers to and from the Collection Account and Investment Account and the
current balances therein and (iv) be entitled to obtain such other reasonable
information and documentation it deems necessary or desirable to perform the
servicing and administrative duties required of it under this Agreement.
Without limiting the generality of the foregoing, the Servicer is
hereby authorized to commence in the name of the Trust or the Owner Trustee or,
to the extent necessary, in its own name, a legal proceeding to enforce any
Purchased Contract Receivable, or to commence or participate in a legal
proceeding (including a bankruptcy proceeding) relating to or involving any
Purchased Contract Receivable. If the Servicer commences or participates in
such a legal proceeding in its own name, the Trust shall thereupon be deemed to
have automatically assigned such Purchased Contract Receivable to the Servicer
solely for purposes of commencing or participating in any such proceeding as a
party or claimant, and the Servicer is hereby authorized and empowered by the
Trust to execute and deliver in the Servicer's name any notices, demands,
claims, complaints, responses, affidavits or other documents or instruments in
connection with any such proceeding. The Owner Trustee, upon the written
request of the Servicer, shall furnish the Servicer with any powers of attorney
and other documents and take any other steps which the Servicer may deem
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties
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under this Agreement. Except to the extent required by the preceding two
sentences, the authority and rights granted to the Servicer in this Section 4.1
shall be nonexclusive and shall not be construed to be in derogation of the
retention by the Trust of equivalent authority and rights.
SECTION 4.2 SERVICING PROCEDURES.
(a) On or immediately following the Closing Date, the Servicer shall
instruct all Obligors to make payments in respect of the Purchased Contract
Receivables to the Collection Account. If any future collections are received
in a Lockbox, they shall within one Business Day of receipt thereof, be
deposited in a Lockbox Account. In the event that any payments in respect of
the Purchased Contract Receivables are made directly to the Seller or the
Servicer, including, without limitation, any employees thereof or independent
contractors employed thereby, the Seller or the Servicer, as the case may be,
shall, as soon as reasonably practicable but in no event more than two Business
Days after receipt thereof, deposit such amounts in the Lockbox Account or
Collection Account.
(b) The Servicer shall use reasonable efforts to collect all payments
called for under the terms and provisions of the Purchased Contract Receivables
as and when the same shall become due, and shall follow such collection
practices, policies and procedures as are consistent with past practices and as
it follows with respect to comparable contract receivables that it services for
itself or others.
(c) The Servicer shall not take any action to cause any Purchased
Contract Receivable to be evidenced by any instrument (as defined in the UCC as
in effect in the State of New York) except in connection with its enforcement
or collection of a Purchased Contract Receivable, in which event the Servicer
shall deliver such instrument to the Owner Trustee as soon as reasonably
practicable but in no event more than five days after receipt thereof.
SECTION 4.3 PAYMENT OF CERTAIN EXPENSES BY SERVICER. Subject to any
limitations on the Servicer's liability hereunder, the Servicer shall be
required to pay all expenses incurred by it in connection with its activities
under this Agreement or any other Basic Document (including reasonable fees and
disbursements of the Trust, the Owner Trustee and independent accountants, taxes
imposed on the Servicer, expenses incurred in connection with distributions and
reports to Investor Certificateholders and all other fees and expenses not
expressly stated under this Agreement to be for the account of the Investor
Certificateholders, but excluding federal, state and local income and franchise
taxes, if any, of the Trust or any Investor Certificateholder).
SECTION 4.4 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer shall
deliver to the Owner Trustee, each Investor Certificateholder and the Rating
Agency, on or before March 31 of each year, beginning March 31, 1996, an
officer's certificate signed by the President or any Vice President of the
Servicer, dated as of such date, stating that (i) a review of the activities of
the Servicer during the prior calendar year (or, with respect to the first such
certificate, such period as shall have elapsed from the Closing Date to the end
of the prior calendar year) and of its performance under this
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Agreement and the other Basic Trust Documents has been made under such officer's
supervision and (ii) to such officer's knowledge, based on such review, the
Servicer has fulfilled in all material respects all its obligations under this
Agreement and the other Basic Trust Documents throughout such period, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof and
remedies therefor being pursued.
SECTION 4.5 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING PURCHASED CONTRACT RECEIVABLES. Each of the FRGC Parties shall
provide to the Owner Trustee and the Investor Certificateholders reasonable
access to the documentation regarding the Purchased Contract Receivables and to
their respective officers, employees and accountants. Each of the FRGC Parties
shall also permit the representatives of each Certificateholder that is an
Institutional Investor:
(a) If no default of an FRGC Party under any of the Basic Trust
Documents shall have occurred and be continuing, at the expense of such
holder and upon reasonable prior notice to the FRGC Parties, to visit the
principal executive office of the FRGC Parties, to discuss the affairs, finances
and accounts of the FRGC Parties as they relate to their respective obligations
under the Basic Trust Documents with their respective officers, and (with the
consent of the FRGC Parties, which consent shall not be unreasonably withheld)
their respective independent public accountants, and (with the consent of any
FRGC Party, which consent shall not be unreasonably withheld) to visit the other
offices and properties of the FRGC Parties, all at such reasonable times and as
often as may be reasonably requested in writing; and
(b) If a default of an FRGC Party under any of the Basic Trust
Documents shall have occurred and be continuing for more than 30 days, at
the expense of the FRGC Parties to visit and inspect any of the offices or
properties of the FRGC Parties, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their affairs, finances and accounts with their
respective officers and independent public accountants (and by this provision
the FRGC Parties authorize said accountants to discuss the affairs, finances and
accounts of the FRGC Parties), all at such times and as often as may be
requested.
SECTION 4.6 INFORMATION PROVIDED TO RATING AGENCY. In addition to
receiving any information or documents required to be delivered to the Rating
Agency pursuant to any Basic Trust Document, the Rating Agency may request in
writing to the Servicer, and the Servicer shall deliver, reasonable additional
information necessary to the Rating Agency to monitor the Investor Certificates.
Promptly, but in no event later than five Business Days, after obtaining
knowledge of an Insolvency Event with respect to any FRGC Party, the Servicer
shall deliver to the Rating Agency (with a copy to the Investor
Certificateholders and the Owner Trustee) notice of such Insolvency Event. The
Servicer agrees to maintain and pay for the retention of the Rating Agency
pursuant to the agreement between Crystal and the Rating Agency dated August 31,
1995. Failure by the Servicer to comply with the terms of this Section 4.6
shall constitute a default hereunder only of the Servicer and the sole remedy
available to the Owner Trustee shall be replacement of the Servicer as provided
in Article VII.
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SECTION 4.7 COMPENSATION. As compensation for its services
hereunder, the Servicer shall be specially allocated income equal to the
reinvestment income earned on the temporary investment of the funds on deposit
in the Collection Account prior to their distribution to the Certificateholders
on each Distribution Date (such amount, the "REINVESTMENT INCOME"). The
Reinvestment Income shall be distributed to the Servicer on each Distribution
Date pursuant to the terms of the Trust Agreement.
SECTION 4.8 DELIVERY OF FINANCIAL STATEMENTS.
The Servicer shall furnish to the Trust, each Investor
Certificateholder and the Rating Agency:
(i) as soon as available, but in any event not later than
105 days after the end of each fiscal year of FRGC ending on or after
December 31, 1995, the consolidated balance sheet of FRGC and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statements of earnings and retained earnings and cash flow
statements, which shall be audited by a nationally recognized accounting
firm; and
(ii) as soon as available, but in any event not later than 55
days after the end of each of the first three quarterly periods of each
fiscal year of FRGC beginning with the first fiscal quarter of 1996, the
unaudited consolidated balance sheet of FRGC and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of earnings and retained earnings and cash flow
statements of FRGC and its consolidated Subsidiaries for such quarter, and
the portion of the fiscal year through the end of such quarter;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal quarter or fiscal year, as the case may be, all
in reasonable detail, prepared in accordance with GAAP applicable to quarterly
or annual financial statements generally; provided that footnote disclosure
shall not be required for quarterly financial statements. The quarterly and
annual financial statements shall be certified by a Responsible Officer of FRGC
that such consolidated statements fairly present the financial condition of FRGC
and its consolidated Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated, subject, in the case
of interim statements, to changes resulting from audit and normal year-end
adjustment. The annual financial statements shall also be accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of FRGC and its
consolidated subsidiaries and their results of operations and cash flows and,
except as set forth therein, have been prepared in conformity with GAAP, and
that the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for the opinion in
the circumstances.
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SECTION 4.9 OTHER INFORMATION.
(a) The Servicer and the Seller agree to provide to the
Trust and each Investor Certificateholder, with reasonable promptness, such
additional data and information as may reasonably be requested relating to the
business, operations, affairs, financial condition, assets and properties of the
FRGC Parties, the Contracts and the ability of any of the FRGC Parties to
perform their respective obligations under any of the Basic Trust Documents.
(b) The Servicer shall furnish to the Trust, the Rating
Agency and each Investor Certificateholder within five Business Days of the
filing thereof a copy of each Annual Report on Form 10-K, Quarterly Report on
Form 10-Q and Current Report on Form 8-K that may be filed by Crystal with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, for so long as Crystal shall be subject to such filing
obligations or until such earlier date that FRGC shall cease to be a Subsidiary
of Crystal.
SECTION 4.10 NOTICES. The Servicer or the Seller shall
furnish to the Trust, each Investor Certificateholder and the Rating Agency,
promptly, and in any event within five days, after obtaining knowledge of the
occurrence of any default by any FRGC Party of any covenant, or breach of any
representation and warranty of any FRGC Party, under any Basic Trust Document, a
written notice specifying the nature and existence thereof and what action the
applicable FRGC Party is taking or proposes to take with respect thereto.
ARTICLE V
COVENANTS OF THE SERVICER AND OTHERS; REMEDIES
SECTION 5.1 COVENANTS OF THE SERVICER AND OTHERS. Until
such time as all required distributions have been made on the Investor
Certificates pursuant to the terms of Section 5.2(d) and (e) of the Trust
Agreement, each of the Seller and HIG (in its capacity as Servicer and Operator)
covenants, for the benefit of the Trust, the Owner Trustee and the Investor
Certificateholders, as follows:
(i) it will not voluntarily or involuntarily terminate or
permit the termination of, or take any action which would permit the
Obligors to terminate, any of the Contracts;
(ii) it will not voluntarily or involuntarily take any action
(including, without limitation, by agreeing to any amendment, modification
or waiver of any provision of any Contract which would result in the
reduction, or change the terms, of the Purchased Contract Receivables)
which would permit the Obligors to reduce or affect in a manner adverse to
the Trust their obligations under the Purchased Contract Receivables,
including, without limitation, by way of setoff or otherwise;
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(iii) it will not, without the consent of the Owner Trustee at
the direction of the Majority Certificateholders, consent to an assignment
by an Obligor which releases such Obligor from its obligations with respect
to a Purchased Contract Receivable;
(iv) it will operate the Storage Facilities in a good and
prudent manner, consistent with its historical practices;
(v) it will perform its obligations under the Contracts in
all material respects;
(vi) other than the Notes and the obligations relating
thereto, it will not incur, assume or become liable for any Indebtedness,
or assume or guarantee any Indebtedness of any Person;
(vii) it will not voluntarily or involuntarily create, grant
or permit to exist any Liens on any of its property or assets other than
(1) Permitted Liens, (2) Liens in the form of sales or leases of assets
permitted pursuant to Section 5.1(xv) and (3) Liens created pursuant to any
of the Basic Documents as executed and delivered at the closing of the
transactions contemplated hereby;
(viii) it will not at any time prior to June 2000 expand or
make any material additions or capital improvements to the Storage
Facilities that would result in a reduction in the contractual rates for
the Purchased Contract Receivables provided under the Contracts;
(ix) it will not enter into contracts with respect to the
Storage Facilities which (1) would prohibit or otherwise impose any
material cost on the Trust in selling or foreclosing on the Storage
Facilities in the event that the Servicer fails to pay Liquidated Damages
pursuant to Section 5.2(a) or (2) would bind a subsequent purchaser of the
Storage Facilities acquired in a foreclosure or sale unless the receivables
under such contracts in the case of clause (2) are assigned as additional
security to the Trust and the Indenture Trustee pursuant to the Collateral
Sharing and Security Agreement;
(x) it will not engage in any business other than (w) the
operation of the Storage Facilities, (x) the provision of transportation
and storage services relating to or in connection with the Storage
Facilities, (y) any expansion or additions to the Storage Facilities or its
operations or to the transportation and storage services provided in
connection with the Storage Facilities or (z) the provision of management
or operational services for other Persons at facilities located in the
Petal Dome area in Mississippi provided that such management and
operational services would not have a Material Adverse Effect, it being
understood that the Seller or the Servicer may, subject to the foregoing
limitations and the other provisions of this Agreement, increase the
storage capacity of the Storage Facilities, expand or leach new caverns on
or under the property where the Storage Facilities are currently located
(it being understood that no storage facilities outside such location will
be acquired by it), construct,
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acquire or expand new or existing pipelines and related equipment which may
connect directly or indirectly to the Storage Facilities or enhance the
services provided at the Storage Facilities and enter into joint ventures
and partnerships with respect to the storage, transportation or delivery of
natural gas and other hydrocarbons to the extent that such joint ventures
and partnerships do not create a Lien on the Storage Facilities and are
reasonably related to the operations of the Storage Facilities;
(xi) except as expressly contemplated by the Basic Trust
Documents, the Servicer will service the Purchased Contract Receivables in
accordance with its historical practices and policies;
(xii) it will maintain its corporate existence separate and
apart from any other entity except that, subject to the terms of the Trust
Agreement, any of FRGC, the Servicer and HGSC may merge with each other and
HGSC may liquidate and dissolve as long as (1) either FRGC or HIG holds
individually or together the assets of HGSC immediately following the
liquidation, (2) no default under this Agreement would exist following any
such action and (3) any successor entity in any such action explicitly
assumes the liabilities of its predecessor entity (and a copy of any such
assumption agreement is delivered to the Investor Certificateholders, the
Owner Trustee and the Rating Agency);
(xiii) it will (1) comply with all Requirements of Law, (2)
perform its Contractual Obligations and (3) promptly pay its taxes and
other liabilities as they become due and payable except, in each case, for
such non-compliance, non-performance or non-payment which would not,
individually or in the aggregate, have a Material Adverse Effect;
(xiv) it will maintain Business Interruption Insurance (which
shall name the Trust as loss payee thereunder in respect of its interests
in the Purchased Contract Receivables) of the type and in the amount set
forth in Schedule 6 hereto and to the extent such insurance is not
available on a reasonable basis or sufficient to cover all Force Majeure
Events under a Contract for the entire time that such Force Majeure Event
exists, it will self insure against such Force Majeure Event and make such
payments to the Trust as a loss payee as may be necessary to compensate the
Trust as the holder of the Purchased Contract Receivables for all losses
arising from such Force Majeure Event that are not otherwise covered by
Business Interruption Insurance;
(xv) an FRGC Party will at all times own all the material
assets constituting the Storage Facilities; PROVIDED, however, this
provision will not restrict the sale of movable equipment that is not
necessary for the operation of the Storage Facilities, sales and loans of
base gas in the ordinary course of business and modifications and
terminations of the leases and other agreements that would not have a
Material Adverse Effect;
(xvi) except for the payment of dividends on shares of its
capital stock, distributions with respect to its partnership interests,
repurchases of shares of
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its capital stock, issuances of new classes or series of its capital stock,
the lending of funds to Crystal or any of its Affiliates, the lending or
borrowing of funds between or among the FRGC Parties or other transactions
between or among the FRGC Parties, it will not engage in any material
transaction with an Affiliate that is not on substantially the same terms
as would reasonably be expected to be obtained on an arm's length basis
with an unaffiliated third party;
(xvii) HGSC will not pay any distributions to the extent such
distributions would decrease its Consolidated Net Worth below the Initial
Required Net Worth; and
(xviii) it will not enter into any speculative hedge contracts.
SECTION 5.2 REMEDIES.
(a) In the event the Seller or HIG breaches any of the covenants set
forth in Section 5.1 (whether voluntarily or involuntarily, including, without
limitation, as a result of or in connection with a bankruptcy proceeding
involving the Seller or HIG, but except as provided in Section 5.2(e)) or any of
the representations and warranties of the Seller or HIG set forth in Article III
is not true and correct as of the Closing Date, in each case in a manner which
materially and adversely affects any Purchased Contract Receivable, if the
Seller or HIG, as the case may be, fails to remedy such breach or correct any
such representation or warranty within 30 days after receiving written notice
from the Owner Trustee or any Investor Certificateholder, then, upon the request
of the Owner Trustee or the Majority Certificateholders, HGSC and HIG shall be
jointly and severally obligated to pay as liquidated damages ("LIQUIDATED
DAMAGES") to the Trust immediately the Liquidated Damages Amount for such
Purchased Contract Receivable. The remedies set forth in this Section 5.2(a)
shall be in addition to, and not in limitation of, any other remedies the Owner
Trustee may have under applicable law, provided that except as set forth in
paragraph (b) below and Section 7.1, in the event that the Seller or HIG fully
performs its obligations under this paragraph (a)in respect of any breach, then
the remedies set forth herein shall be the sole remedy available to the Owner
Trustee in respect of such breach.
(b) HGSC hereby confirms the appointment of HIG as Operator of the
Storage Facilities on behalf of HGSC. In the event HGSC or HIG breaches any of
the covenants set forth in the Basic Trust Documents (but only to the extent
such covenant relates to the operation of the Storage Facilities), and such
breach is not remedied or cured within 45 calendar days of receipt of written
notice thereof from the Trust, or in the event there shall have occurred and be
continuing an Insolvency Event with respect to HIG, HIG agrees if requested
pursuant to the provisions of the Collateral Sharing and Security Agreement, to
resign as Operator and HIG and HGSC agree that a substitute operator of the
Storage Facilities may be engaged by the Collateral Trustee pursuant to Section
13 of the Collateral Sharing and Security Agreement.
(c) As collateral security for the prompt and complete payment of
Liquidated Damages if and when due pursuant to Section 5.2(a) and the amounts
required to be paid by Seller pursuant to Section 5.1(xiv), contemporaneously
herewith
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the Seller has granted to the Collateral Trustee a security interest in the
Storage Facilities, the Contracts and certain other collateral. In the event
the Seller shall fail to pay any Liquidated Damages when due or any amounts
required to be paid pursuant to Section 5.1(xiv) and such failure shall be
continuing, the Owner Trustee may, in addition to any other remedy available to
it, cause the Collateral Trustee to (i) institute
proceedings from time to time for the complete or partial foreclosure of the
Shared Collateral and the Mortgage Collateral under the Collateral Sharing and
Security Agreement and Mortgage or (ii) exercise any other right or remedy or
take any other action permitted to be taken by the Collateral Trustee following
such event.
(d) As additional security for its obligation to pay Liquidated
Damages and the amounts required to be paid by the Seller pursuant to Section
5.1(xiv) ("ADDITIONAL SECURITY"), contemporaneously herewith HGSC has granted
to the Collateral Trustee a security interest in the distributions and other
funds receivable in respect of the Residual Certificate.
(e) In the event there occurs an Event of Force Majeure, the proceeds
of the Business Interruption Insurance maintained by the Seller and the other
amounts, if any, required to be paid by the Seller pursuant to Section 5.1(xiv)
shall be paid to the Trust in respect of any installment (or portion thereof) of
any Purchased Contract Receivables with respect to which the Obligor has not
made such payment as a result of such Event of Force Majeure. Such proceeds
shall be paid to the Collection Account and considered part of the Collected
Amount. Subject to the Seller's compliance with Section 5.1(xiv), any such
Event of Force Majeure shall not constitute a default under this Agreement
or require the payment of any Liquidated Damages.
ARTICLE VI
LIABILITIES OF SERVICER AND OTHERS
SECTION 6.1 LIABILITY OF SERVICER; INDEMNITIES.
(a) The Servicer shall be liable in accordance with this Agreement
only to the extent of the obligations in this Agreement specifically
undertaken by the Servicer. Such obligations shall include the following:
(i) The Servicer shall indemnify, defend and hold harmless the
Owner Trustee and the Trust from and against any taxes that may at any
time be asserted against the Owner Trust or the Trust with respect to the
transactions contemplated in this Agreement, including any sales, gross
receipts, general corporation, tangible personal property, privilege or
license taxes (but not including any taxes asserted with respect to
ownership of the Purchased Contract Receivables or Purchased Property, or
federal or other income taxes arising out of distributions on the
Certificates, or any fees or other compensation payable to the Owner Trust
or the Trust) and costs and expenses in defending against the same;
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(ii) The Servicer shall indemnify, defend and hold harmless
the Owner Trustee, the Trust and any Investor Certificateholder from and
against any and all costs, expenses, losses, claims, damages and
liabilities to the extent that such cost, expense, loss, claim, damage or
liability arose out of, or was imposed upon the Owner Trustee, the Trust or
such Investor Certificateholder through the negligence, willful misfeasance
or bad faith of the Servicer in the performance of its duties under this
Agreement and the other Basic Documents or by reason of reckless disregard
of its obligations and duties under any of the Basic Documents; and
(iii) The Servicer shall indemnify, defend and hold harmless
the Owner Trustee and Wilmington Trust Company, in its individual capacity,
and its agents, officers, directors and employees, from and against all
costs, expenses, losses, claims, damages and liabilities arising out of or
incurred in connection with the acceptance, administration or performance
by, or action or inaction of, the Owner Trustee of the trusts and duties
contained in this Agreement, the Trust Agreement and the other Basic Trust
Documents, including the administration of the Owner Trust Estate, except
in each case to the extent that such cost, expense, loss, claim, damage or
liability: (A) is due to the willful misfeasance, bad faith or negligence
(except for errors in judgment) of the Person seeking to be indemnified, or
(B) to the extent otherwise payable to the Owner Trustee, arises from the
Owner Trustee's breach of any of its representations or warranties set
forth in Section 9.6 of the Trust Agreement.
(b) Indemnification under this Section 6.1 shall survive the
resignation or removal of the Owner Trustee or the termination of this Agreement
and shall include reasonable fees and expenses of counsel and expenses of
litigation. If the Servicer has made any indemnity payments pursuant to this
Section 6.1 and the recipient thereafter collects any of such amounts from
others, the recipient shall promptly repay such amounts collected to the
Servicer, without interest.
SECTION 6.2 LIMITATION ON LIABILITY OF SERVICER, SELLER AND OTHERS.
Neither the Seller, the Servicer nor any of the directors, officers, employees,
agents or Affiliates of the Seller or the Servicer shall be under any liability
to the Trust or the Investor Certificateholders, except as specifically provided
in this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement or any of the Basic Trust Documents or for
errors in judgment; PROVIDED, HOWEVER, that this provision shall not protect the
Seller or the Servicer for any liability for breach of its obligations hereunder
or the Seller, the Servicer or any such Person against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
(except for errors in judgment) in the performance of duties or by reason of
reckless disregard of obligations and duties under this Agreement or any of the
Basic Documents. The Seller and the Servicer and any director, officer,
employee or agent of the Seller or the Servicer may rely in good faith on the
advice of counsel or on any document of any kind PRIMA FACIE properly executed
and submitted by any Person respecting any matters arising under this Agreement.
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SECTION 6.3 DELEGATION OF DUTIES. The Servicer may, at any time
without notice or consent, delegate any duties under this Agreement to any of
the other FRGC Parties. The Servicer may at any time perform specific duties
as Servicer through sub-contractors who are in the business of servicing
receivables comparable to the Purchased Contract Receivables; PROVIDED, HOWEVER,
that no such delegation shall relieve the Servicer of its responsibility with
respect to such duties.
SECTION 6.4 SERVICER NOT TO RESIGN. Subject to the provisions of
Section 7.2, the Servicer shall not resign from the obligations and duties
imposed on it by this Agreement as Servicer except upon a determination that
the performance of its duties under this Agreement is no longer permissible
under applicable law. Any such determination permitting the resignation of the
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to
the Owner Trustee.
ARTICLE VII
DEFAULT
SECTION 7.1 SERVICER DEFAULT. In the event HIG shall reach any of
the covenants in this Agreement (but only to the extent such covenant relates
to the servicing of the Purchased Contract Receivables) and such breach shall
be continuing and shall not be remedied or cured within 45 calendar days of
receipt of written notice thereof from the Owner Trustee or any Investor
Certificateholder, or in the event there shall have occurred and be continuing
an Insolvency Event with respect to HIG, the Owner Trustee or the Majority
Certificateholders by notice given in writing to the Servicer may, in addition
to the other rights and remedies available in a court of law or equity to
damages, injunctive relief and specific performance (which other rights and
remedies shall not be available in the case of a breach of Section 4.6),
terminate all of the rights and obligations of the Servicer under this Agreement
or appoint a successor servicer, and HIG agrees to pay the reasonable fees and
expenses of such successor servicer. Unless otherwise provided in the notice,
on or after receipt by HIG of such written notice, all authority and power of
the Servicer under this Agreement shall pass to and be vested in the Owner
Trustee pursuant to and under this Section 7.1. The Owner Trustee is hereby
authorized and empowered to execute and deliver, on behalf of HIG, as attorney-
in-fact or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of the Purchased Contract Receivables and related documents, or
otherwise. In such case, HIG agrees to cooperate with the Owner Trustee in
effecting the termination of the responsibilities and rights of HIG as the
Servicer under this Agreement, including the transfer to the Owner Trustee for
administration by it of all cash amounts that shall at the time be held by the
Servicer for deposit, or that shall have been deposited by the Servicer in the
Collection Account or thereafter received with respect to the Purchased Contract
Receivables that shall at that time be held by the Servicer.
SECTION 7.2 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. Unless
otherwise provided in the notice, on and after the time the Servicer receives a
notice
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of termination pursuant to Section 7.1, the Owner Trustee shall appoint a
successor servicer, who shall succeed to the Servicer in its capacity as
servicer under this Agreement and the transactions set forth or provided for in
this Agreement, and shall be subject to all the responsibilities, restrictions,
duties and liabilities relating thereto placed on the Servicer by the terms and
provisions of this Agreement; PROVIDED, HOWEVER, that the predecessor servicer
shall remain liable for, and the successor servicer shall have no liabilities
for, any indemnification obligations of the Servicer arising as a result of
acts, omissions or occurrences during the period in which the predecessor
servicer was the Servicer; and PROVIDED, FURTHER, that HIG shall remain liable
for all such indemnification obligations of the Servicer without regard to
whether it is still Servicer hereunder. As compensation therefor, such
successor servicer shall be entitled to the Reinvestment Income which the
Servicer would have been entitled under this Agreement if no such notice of
termination had been given. Any such successor servicer (i) shall have a net
worth of not less than $5 million and (ii) shall have a regular business that
includes the servicing of similar receivables. In the event the Owner Trustee
deems the Reinvestment Income to be insufficient compensation for the successor
servicer's duties and obligations hereunder, such successor servicer shall be
entitled to such additional fee as such successor servicer and the Owner Trustee
shall mutually agree, which additional fee shall be payable from amounts
otherwise distributable to the Residual Certificateholder pursuant to Article V
of the Trust Agreement. The Owner Trustee and such successor servicer shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
SECTION 7.3 NOTIFICATION TO INVESTOR CERTIFICATEHOLDERS. Upon any
termination of, or appointment of a successor to, the Servicer pursuant to this
Article VII, the Owner Trustee shall give prompt written notice thereof to the
Investor Certificateholders and the Rating Agency.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement (other than Section 6.1)
shall terminate and be of no further force or effect upon the termination of
the Trust Agreement pursuant to Section 10.1(a) thereof.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 WAIVER AND AMENDMENT.
(a) This Agreement may be amended, or any provision hereof may be
waived, from time to time by the Seller, the Servicer and the Owner Trustee with
the consent of the Majority Certificateholders (which consent, whether given
pursuant to this Section 9.1 or pursuant to any other provision of this
Agreement, shall be conclusive and binding on all Investor Certificateholders
and on all future holders of Investor Certificates and of any Investor
Certificate issued upon the transfer thereof
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or in exchange thereof or in lieu thereof whether or not notation of such
consent is made upon the Investor Certificates) for the purpose of adding any
provisions to or changing in any manner or eliminating or waiving compliance
with any of the provisions of this Agreement, or of modifying in any manner the
rights of the Investor Certificateholders; PROVIDED, HOWEVER, that no such
amendment or waiver without the consent of each Investor Certificateholder at
the time outstanding shall (i) change in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the Purchased Contract
Receivables, (ii) change the aforesaid percentage required to consent to any
such amendment or waiver, (iii) change the obligation of the Seller to pay
Liquidated Damages pursuant to Section 5.2(a), (iv) change the obligation of the
Seller to make payments pursuant to Section 5.1(xiv) or (v) amend any provision
of this Agreement(including Section 9.6) which requires actions taken under such
provision to have the consent of greater than the Majority Certificateholders,
without the consent of the number of Investor Certificateholders described in
such Section.
(b) Prior to the execution of any such amendment or waiver, the
Owner Trustee shall furnish written notification of the substance of such
amendment or waiver to the Investor Certificateholders and the Rating Agency.
(c) Promptly after the execution of any such amendment or waiver,
the Owner Trustee shall furnish a copy of such amendment or waiver to each
Investor Certificateholder and the Rating Agency.
(d) The particular form of any proposed amendment or waiver shall be
required to be provided to the Investor Certificateholders in connection with
any request for an amendment or waiver. The manner of obtaining such
amendments or waivers (and any other consents of Investor Certificateholders
provided for in this Agreement) and of evidencing the authorization of the
execution thereof by Investor Certificateholders shall be subject to such
reasonable requirements as the Owner Trustee may prescribe.
(e) Prior to the execution of any amendment or waiver to this
Agreement, the Owner Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment or waiver is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment or waiver have been satisfied. The
Owner Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 9.2 PROTECTION OF TITLE TO OWNER TRUST ESTATE.
(a) The Seller shall execute and file such financing statements and
cause to be executed and filed such continuation and other statements, all in
such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of the Investor Certificateholders and the
Owner Trustee under this Agreement in the Purchased Contract Receivables and
the other Purchased Property. The Seller shall deliver (or cause to be
delivered) to the Owner Trustee file-stamped
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copies of, or filing receipts for, any document filed as provided above, as soon
as available following such filing.
(b) The Seller shall not change its name, identity or corporate
structure in any manner that would make any financing statement or
continuation statement filed in accordance with paragraph (a) above seriously
misleading within the meaning of Section 9-402(7) of the UCC, unless it shall
have given the Owner Trustee at least 30 days prior written notice thereof.
(c) The Seller shall give the Owner Trustee at least 30 days prior
written notice of any relocation of its chief executive office if, as a result
of such relocation, the applicable provisions of the UCC would require the
filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement. The Servicer shall at all times
maintain each office from which it services any Purchased Contract Receivables
and its principal executive office within the United States of America.
(d) The Servicer shall maintain accounts and records as to each
Purchased Contract Receivable accurately and in sufficient detail to permit the
reader thereof to know as of a reasonably recent date the status of such
Purchased Contract Receivable, including payments made and payments owing (and
the nature of each).
(e) The Servicer shall maintain its records so that, from and after
the time of sale under this Agreement of the Purchased Contract Receivables to
the Trust, the Servicer's records that refer to any Purchased Contract
Receivable indicate clearly that such Purchased Contract Receivable is owned
by the Trust.
(f) The Servicer shall deliver to the Owner Trustee promptly after
the execution and delivery of this Agreement and of each amendment thereto, an
Opinion of Counsel either (i) stating that, in the opinion of such counsel, all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Owner
Trustee in the Purchased Contract Receivables, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (ii) stating that, in the opinion of such counsel, no such action is
necessary to preserve and protect such interest.
(g) The Servicer shall deliver to the Owner Trustee, on or before
April 30 of each year, beginning in 1997, an Opinion of Counsel either
(i) stating that, in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Owner Trustee in the Purchased Contract
Receivables and the other property transferred to the Owner Trustee hereunder,
and to preserve and protect the interest of the Collateral Trustee in the Shared
Collateral and the Mortgage Collateral, and reciting the details of such filings
or referring to prior Opinions of Counsel in which such details are given, or
(ii) stating that, in the opinion of such counsel, no further action is
necessary to preserve and protect such interest.
-22-
<PAGE>
SECTION 9.3 NOTICES. All demands, notices and communications upon or
to the Servicer, the Owner Trustee, the Investor Certificateholders or the
Rating Agency under this Agreement shall be delivered as specified in APPENDIX
B hereto.
SECTION 9.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAWS OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE; PROVIDED,
HOWEVER THAT THE DUTIES AND IMMUNITIES OF THE OWNER TRUSTEE HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE AND, INSOFAR AS THE LAWS OF ANOTHER STATE GOVERN THE
PERFECTION OF THE TRUST'S INTERESTS IN THE PURCHASED CONTRACT RECEIVABLES, IT IS
AGREED THAT TO THE EXTENT REQUIRED BY THE LAWS OF SUCH OTHER STATE, THE LAWS OF
SUCH OTHER STATE SHALL APPLY TO ENFORCEMENT OF THE POWER OF SALE OR OTHER RIGHTS
AND REMEDIES CREATED HEREIN WITH RESPECT TO SUCH PURCHASED CONTRACT RECEIVABLES.
SECTION 9.5 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
SECTION 9.6 ASSIGNMENT. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may not be assigned by the Servicer
without the prior written consent of the Supermajority Certificateholders. The
Servicer shall provide notice of any such assignment to the Rating Agency.
SECTION 9.7 THIRD-PARTY BENEFICIARIES. This Agreement shall be
binding upon the parties hereto and their respective successors and permitted
assigns and inure to the benefit of the parties hereto, the Investor
Certificateholders and their respective successors and assigns. Except as
otherwise provided in Section 6.1 or in this Article IX, no other Person shall
have any right or obligation hereunder.
SECTION 9.8 SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 9.9 HEADINGS AND CROSS-REFERENCES. The various headings in
this Agreement are included for convenience only and shall not affect the
meaning or interpretation of any provision of this Agreement.
SECTION 9.10 NO PETITION COVENANTS. Notwithstanding any prior
termination of this Agreement, the Servicer shall not, prior to the date
which is one year and one day after the final distribution with respect to the
Investor Certificates acquiesce, petition or otherwise invoke or cause the Trust
to invoke the process of any court or government authority for the purpose of
commencing or sustaining a case
-23-
<PAGE>
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Trust.
SECTION 9.11 LIMITATION OF LIABILITY OF THE OWNER TRUSTEE.
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed by Owner Trustee not in its individual capacity but solely in its
capacity as Owner Trustee of the Trust and in no event shall the Owner Trustee
in its individual capacity or, except as expressly provided in the Trust
Agreement, as Owner Trustee of the Trust have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Trust hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Trust. For all purposes of this Agreement, in the performance of its
duties or obligations hereunder or in the performance of any duties or
obligations of the Trust hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Article IX of the Trust
Agreement.
SECTION 9.12 TREATMENT OF TRANSACTION BY SELLER. Notwithstanding the
fact that the transfer and assignment contemplated by this Agreement constitutes
a sale to the Trust of all of the Seller's right, title and interest in the
Purchased Contract Receivables and will be treated as such for Federal income
tax purposes, the parties hereto acknowledge and agree that such transfer and
assignment may be treated in a different manner as deemed appropriate by the
Seller for regulatory and state tax purposes.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
HATTIESBURG GAS STORAGE COMPANY
By: HATTIESBURG INDUSTRIAL GAS
SALES COMPANY,
its General Partner
By: /s/ J. A. Ballew
----------------------------
J. A. Ballew, Vice President
HATTIESBURG INDUSTRIAL GAS SALES
COMPANY
By: /s/ J. A. Ballew
----------------------------
J. A. Ballew, Vice President
FRGC OWNER TRUSTEE
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By: /s/ W. Chris Sponenberg
------------------------------
Name: W. Chris Sponenberg
----------------------------
Title: Financial Services Officer
----------------------------
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<PAGE>
FIRST AMENDMENT TO
SALE AND SERVICING AGREEMENT
AND
FIRST AMENDMENT TO
TRUST AGREEMENT
FIRST AMENDMENT TO SALE AND SERVICING AGREEMENT and FIRST AMENDMENT TO
TRUST AGREEMENT (this "Amendment"), dated as of January 31, 1996, by and among
Hattiesburg Gas Storage Company, a Delaware general partnership ("HGSC"),
Hattiesburg Industrial Gas Sales Company, a Delaware corporation ("HIG"),
Wilmington Trust Company, as Owner Trustee (the "Owner Trustee"), and FRGC Owner
Trust, a Delaware business trust (the "Trust").
WITNESSETH:
WHEREAS, HGSC, HIG and the Owner Trustee entered into the Trust Agreement
dated as of November 21, 1995 (the "Trust Agreement"), providing for the
formation of the Trust;
WHEREAS, HGSC, HIG and the Trust entered into the Sale and Servicing
Agreement dated as of November 21, 1995 (the "S&S Agreement"), providing for the
sale to the Trust of certain receivables of HGSC and HIG, and pursuant to which
HIG agreed to act as servicer of such receivables;
WHEREAS, pursuant to Article XI of the Trust Agreement and Article IX of
the S&S Agreement, the parties hereto desire to amend certain definitions
contained in Appendix A to the S&S Agreement, which definitions also apply to
the Trust Agreement pursuant to Article I of the Trust Agreement, in order to
resolve an ambiguity with respect to certain distribution calculations and
payment provisions; and
WHEREAS, the parties hereto desire to reaffirm the provisions of the Trust
Agreement and the S&S Agreement subject to the amendments contained herein;
NOW, THEREFORE, in consideration of the premises and of the mutual terms
and covenants contained herein, the parties hereto agree as follows:
1. All capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Trust Agreement and the S&S Agreement.
2. APPENDIX A to the S&S Agreement is hereby amended and restated in its
entirety as set forth in APPENDIX A attached hereto (the only changes to such
APPENDIX A intended by the parties in this Amendment are changes to the
definitions of the terms "Monthly Fixed Return" and "Total Available Amount").
Pursuant to Article I of the Trust Agreement, such amendment shall also apply to
the Trust Agreement to the extent applicable.
<PAGE>
3. This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
4. This Amendment shall be governed by, construed and enforced in
accordance with the laws of the State of New York, excluding choice-of-law
principles of the laws of such State that would require the application of the
laws of a jurisdiction other than such State.
5. As amended by this Amendment, the Trust Agreement and the S&S
Agreement remain in full force and effect and the parties hereto hereby reaffirm
the Trust Agreement and the S&S Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers as of the day and year first above
written.
HATTIESBURG GAS STORAGE COMPANY
By: HATTIESBURG INDUSTRIAL GAS
SALES COMPANY,
its General Partner
By: /s/ J. A. Ballew
---------------------------------------------
J. A. Ballew, Vice President
HATTIESBURG INDUSTRIAL GAS SALES
COMPANY
By: /s/ J. A. Ballew
---------------------------------------------
J. A. Ballew, Vice President
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By: /s/ W. Chris Sponenberg
---------------------------------------------
Name: W. Chris Sponenberg
-------------------------------------------
Title: Financial Services Officer
------------------------------------------
FRGC OWNER TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By: /s/ W. Chris Sponenberg
----------------------------------------
Name: W. Chris Sponenberg
--------------------------------------
Title: Financial Services Officer
-------------------------------------
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<PAGE>
This Amendment has been consented to by the Investor Certificateholders
pursuant to Section 11.1 of the Trust Agreement and Section 9.1 of the S&S
Agreement.
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Audrey L. Milfs By: /s/ William R. Schmidt
--------------------- ---------------------------------------------
Name: Audrey L. Milfs Name: William R. Schmidt
------------------- -------------------------------------------
Title: Secretary Title: Assistant Vice President
------------------ ------------------------------------------
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By: /s/Julie Bock
---------------------------------------------
Name: Julie Bock
-------------------------------------------
Title: Manager
Private Placement Investments
------------------------------------------
By: /s/ James G. Lowery
---------------------------------------------
Name: James G. Lowery
-------------------------------------------
Title: Assistant Vice President
Private Placement Investments
------------------------------------------
-4-
<PAGE>
This Amendment is consented to by all the Noteholders and, at the direction
of all the Noteholders hereby, by the Indenture Trustee pursuant to Section
5.5(d) of the Collateral Sharing and Security Agreement.
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Audrey L. Milfs By: /s/ William R. Schmidt
--------------------- ---------------------------------------------
Name: Audrey L. Milfs Name: William R. Schmidt
------------------- -------------------------------------------
Title: Secretary Title: Assistant Vice President
------------------ ------------------------------------------
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ Peter W. Oliver
---------------------------------------------
Name: Peter W. Oliver
-------------------------------------------
Title: Managing Director
------------------------------------------
MONY LIFE INSURANCE COMPANY OF
AMERICA
By: /s/ Peter W. Oliver
---------------------------------------------
Name: Peter W. Oliver
-------------------------------------------
Title: Authorized Agent
------------------------------------------
PROVIDENT LIFE AND ACCIDENT
INSURANCE COMPANY
By: /s/ David Fusell
---------------------------------------------
Name: David Fusell
-------------------------------------------
Title: Vice President Securities Department
------------------------------------------
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By: /s/Julie Bock By: /s/ James G. Lowery
------------------------ ---------------------------------------------
Name: Julie Bock Name: James G. Lowery
---------------------- -------------------------------------------
Title: Manager Private Title: Assistant Vice President
Placement Investments Private Placement Investments
--------------------- ------------------------------------------
CHEMICAL BANK, as Indenture Trustee
By: /s/ Dennis Kildea
---------------------------------------------
Name: Dennis Kildea
-------------------------------------------
Title: Trust Officer
------------------------------------------
-5-
<PAGE>
APPENDIX A
PART I - TRUST DEFINITIONS
All terms defined in this Appendix shall have the defined meanings
when used in any of the Basic Trust Documents, unless otherwise defined therein.
ADDITIONAL DISTRIBUTIONS: With respect to any Distribution Date, if
Liquidated Damages have been paid since the Closing Date or the immediately
preceding Distribution Date, as applicable, and such payment was required to be
made as a result of a default by any FRGC Party intended to cause the payment of
Liquidated Damages (with any FRGC Party being presumed for purposes of this
definition to have intended any default that was reasonably within the ability
or control of any FRGC Party to avoid or prevent), an amount equal to the
applicable Fixed Percentage for such Distribution Date multiplied by the
Additional Net Distribution Amount.
ADDITIONAL NET DISTRIBUTION AMOUNT: With respect to any Distribution
Date, the amount determined pursuant to clause (iii) of the definition of
Aggregate Return of Capital.
AFFILIATE: With respect to any specified Person, any other Person
controlling, controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
AGGREGATE FIXED RETURN: With respect to any Distribution Date, the
sum of (i) the Monthly Fixed Return for such Distribution Date, (ii) any
outstanding Fixed Return Shortfall as of the close of the preceding Distribution
Date and (iii) one-twelfth of the Fixed Return Rate multiplied by the Fixed
Return Shortfall as of the close of the preceding Distribution Date.
AGGREGATE RETURN OF CAPITAL: With respect to any Distribution Date,
the sum of (i) the Monthly Return Of Capital for such Distribution Date,
(ii) any outstanding Return Of Capital Shortfall as of the close of the
preceding Distribution Date and (iii) 79.5% of the Liquidated Damages Amount
required to be paid to the Trust and that has not previously been paid to the
Trust; provided that to the extent the amount determined pursuant to this
clause (iii) would cause the Investor Certificate Balance on such Distribution
Date to be decreased below the aggregate Discounted Present Value of all
Purchased Contract Receivables with respect to which Liquidated Damages have not
been paid, then the amount to be used for purposes of this clause (iii) shall be
reduced to the amount necessary to prevent such event.
BASIC DOCUMENTS: The Basic Trust Documents and the Basic Note
Documents (as defined in the Indenture).
<PAGE>
BASIC TRUST DOCUMENTS: The Certificates, the Certificate Purchase
Agreements, the Certificate of Trust, the Trust Agreement, the Sale and
Servicing Agreement, the Guarantees, the Mortgage and the Collateral Sharing and
Security Agreement.
BENEFIT PLAN: As defined in Section 3.5 of the Trust Agreement.
BUSINESS DAY: Any day other than a Saturday, a Sunday or any other
day on which banking institutions in New York, New York or Wilmington, Delaware
are authorized or obligated by law, executive order or governmental decree to be
closed.
BUSINESS INTERRUPTION INSURANCE: As defined in Section 3.2(q) of the
Sale and Servicing Agreement.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware Code,
12 DEL. CODE Sections 3801 ET SEQ., as the same may be amended from time to
time.
CAPITAL ACCOUNT: As defined in Section 6.1 of the Trust Agreement.
CERTIFICATEHOLDER: An Investor Certificateholder or a Residual
Certificateholder.
CERTIFICATE OF TRUST: The certificate of trust of the Trust
substantially in the form of EXHIBIT C to the Trust Agreement to be filed for
the Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATE PURCHASE AGREEMENTS: The several certificate purchase
agreements, dated as of November 21, 1995, among the Trust, HGSC, HIG and the
respective purchasers named therein, providing for the sale and purchase of the
Investor Certificates.
CERTIFICATES: The Investor Certificates and the Residual Certificate.
CLOSING CONDITIONS: The conditions to the closing of the transactions
contemplated by the Basic Documents which are set forth on Appendix C to the
Sale and Servicing Agreement and Schedule 3 to the Trust Agreement.
CLOSING DATE: November 22, 1995.
CODE: The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
COLLATERAL SHARING AND SECURITY AGREEMENT: The Collateral Sharing and
Security Agreement substantially in the form of EXHIBIT C to the Sale and
Servicing Agreement, as amended and supplemented from time to time.
COLLATERAL TRUSTEE: As defined in the Collateral Sharing and Security
Agreement.
A-2
<PAGE>
COLLECTED AMOUNT: With respect to any Distribution Date, the total
collections (other than payments of Liquidated Damages) received by the Trust in
respect of the Purchased Contract Receivables during the Monthly Period relating
to such Distribution Date.
COLLECTION ACCOUNT: The account designated as such, established and
maintained pursuant to Section 5.1(a) of the Trust Agreement.
CONSOLIDATED NET WORTH: Of the Residual Certificateholder, as of any
date, all amounts that would be included under partnership capital or
stockholders' equity, as the case may be, of the Residual Certificateholder,
determined on a fair market value basis, by the general partner or the Board of
Directors of the Residual Certificateholder in good faith, minus the amount of
the Investor Certificates and the Residual Certificate held by the Residual
Certificateholder.
CONTRACT: Each of the contracts described on Schedule 2 to the Sale
and Servicing Agreement.
CONTRACT RECEIVABLES: With respect to each Contract, the indebtedness
and payment obligations arising from or relating to storage charges designated
in such Contract as "D1" and deliverability charges designated as "D2"
(including, without limitation, any Contract Regulatory Receivables).
CONTRACT REGULATORY RECEIVABLES: With respect to any Contract, any
increase in the Contract Receivables in respect of such Contract arising from or
relating to a redetermination by the appropriate regulatory body of the storage
or deliverability charges payable thereunder in accordance with the terms of
such Contract, excluding any Contract Regulatory Receivables relating to a
Contract for which Liquidated Damages have been paid pursuant to Section 5.2 of
the Sale and Servicing Agreement.
CONTRACTUAL OBLIGATION: As to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
CORPORATE TRUST OFFICE: With respect to the Owner Trustee, the
principal office at which at any particular time the corporate trust business of
the Owner Trustee shall be administered, which offices at the Closing Date are
located at 1105 North Market Street, Wilmington, Delaware, Attention: Corporate
Trust Administration.
CRYSTAL: Crystal Oil Company, a Louisiana corporation.
CUT-OFF DATE: December 1, 1995.
DISCOUNTED PRESENT VALUE: As of any Distribution Date with respect to
the Purchased Contract Receivables, the sum of the amounts set forth on
Schedule 4 to the Sale and Servicing Agreement as the "Liquidated Damages
Amount" for each Purchased
A-3
<PAGE>
Contract Receivable after giving effect to the distributions paid on such
Distribution Date.
DISTRIBUTION DATE: With respect to a Monthly Period, the fifth day of
the next succeeding calendar month or, if such fifth day is not a Business Day,
the next succeeding Business Day, commencing January 5, 1996.
ELIGIBLE ACCOUNT: A segregated trust account with an Eligible
Institution.
ELIGIBLE INSTITUTION: A depository institution organized under the
laws of the United States of America or any State (or any domestic branch of a
foreign bank), (A) which either (1) has a long-term unsecured debt rating of at
least A+ from the Rating Agency at the time of any deposit therein (or, if such
obligations are at the time of such deposit not rated by the Rating Agency but
are rated at least A+ by Standard & Poor's ("S&P") and at least A1 by Moody's
Investor Services Inc. ("Moody's"), provided that if such obligations are rated
by only one of S&P or Moody's, such rating shall be sufficient) or (2) is a
federal or state charter depository institution subject to regulations regarding
fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b),
(B) whose deposits are insured by the FDIC and (C) having a combined capital and
surplus of at least $250,000,000 as set forth in its most recent published
annual report of condition.
ELIGIBLE INVESTMENTS: Book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the laws of
the United States of America or any state thereof (or any domestic branch
of a foreign bank); and subject to supervision and examination by Federal
or State banking or depository institution authorities; PROVIDED, HOWEVER,
that at the time of the investment or contractual commitment to invest
therein, the commercial paper or other short-term unsecured debt
obligations (other than such obligations the rating of which is based on
the credit of a Person other than such depository institution or trust
company) thereof shall have a credit rating from the Rating Agency (or an
equivalent of S&P or Moody's) for short-term unsecured debt obligations or
certificates of deposit granted thereby of at least D-1 (or an equivalent
of S&P or Moody's);
(iii) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from the Rating Agency
(or an equivalent of S&P or Moody's) for short-term unsecured debt
obligations granted thereby of at least D-1 (or an equivalent of S&P or
Moody's);
(iv) investments in money market or common trust funds having a
rating from the Rating Agency (or an equivalent of S&P or Moody's) for
A-4
<PAGE>
short-term unsecured debt obligations granted thereby of at least D-1 (or
an equivalent of S&P or Moody's) (including funds for which the Owner
Trustee or any of its Affiliates is investment manager or advisor, so long
as such fund shall have such rating);
(v) bankers' acceptances issued by any depository institution or
trust company referred to in clause (ii) above; and
(vi) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) described in clause (ii);
in each case maturing not later than the Business Day immediately preceding the
next Distribution Date.
ELIGIBLE OBLIGOR: Any Obligor listed on Schedule 1 to the Sale and
Servicing Agreement.
ELIGIBLE RECEIVABLE: Each Contract Receivable:
a. that constitutes an account within the meaning of Section 9-106
of the UCC of the State the law of which governs the perfection of the
interest granted in it;
b. that is denominated and payable only in United States dollars in
the United States;
c. that was created in the ordinary course of business from the
sale of services of the Seller and in accordance with its historical credit
and collection policies;
d. with respect to which all installments due and payable prior to
the Closing Date have been paid in full;
e. that, together with the Contracts underlying such Contract
Receivable, was created in accordance with and does not contravene any
applicable law, rule or regulation and in connection with which the Seller
is not in violation of any law, rule or regulation;
f. that is not a Contract Receivable purchased by the Seller from
any Person;
g. that is not a Contract Receivable for which the Seller has
established an offsetting specific reserve;
A-5
<PAGE>
h. with respect to which all material consents, licenses, approvals
or authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by the
Seller in connection with the creation of such Contract Receivable and the
related Contract have been duly obtained, effected or given and are in full
force and effect;
i. which has not been satisfied, subordinated or rescinded and with
respect to which the Seller is not in default in any material respect under
the terms of the Contract from which such Contract Receivable arose;
j. which through the Basic Trust Documents has been the subject of
either (A) a valid sale and assignment from the Seller to the Trust of all
the Seller's right, title and interest therein (including any proceeds
thereof) which results in the Trust having good title thereto, or (B) if
not (A), the grant of a first priority perfected security interest therein
(and in the proceeds thereof) to the Trust, in the case of each of
clauses (A) and (B), free and clear of all Liens other than Permitted
Liens;
k. with respect to which the Seller or its designee has duly given
all notices of assignment in form and substance required to permit the
legal, valid and enforceable assignment of such Contract Receivable by the
Seller to the Trust, and is otherwise in compliance in all material
respects with applicable law, all such notices are in full force and effect
and such Contract Receivable is not subject to any right of rescission or
set-off or, to the extent currently payable or asserted, any right of
counterclaim or any other defense that is enforceable against the Trust;
l. that, together with the related Contract, will at all times
(including after giving effect to the assignment of the Purchased Contract
Receivables to the Trust) be the legal, valid and binding payment
obligation and contract, as the case may be, of the Obligor thereon,
enforceable against such Obligor in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights in general and
by general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except as to any
immaterial provision of any Contract the lack of enforceability of which
would not affect the enforceability of the payment obligations of the
Obligor in respect of any Purchased Contract Receivable;
m. with respect to which, on or before the Closing Date, the Seller
has not (i) taken any action that would impair the rights of the Trust or
the holders of the Investor Certificates with respect to the Purchased
Contract Receivables or the other Purchased Property or (ii) failed to take
any action, that was necessary to avoid impairing the rights of the Trust
or the holders of the Investor Certificates; and
A-6
<PAGE>
n. with respect to which no action, claim or proceeding is pending
or, to the knowledge of Seller, threatened which would adversely affect the
payment or enforceability of the Purchased Contract Receivables.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF FORCE MAJEURE: An event of "force majeure" (as such term is
defined in each Contract).
EXCESS PAYMENTS: As defined in the definition of Liquidated Damages
Amount.
FDIC: Federal Deposit Insurance Corporation or any successor agency.
FIXED PERCENTAGE: With respect to any Distribution Date, the
percentage set forth on Schedule 4 to the Sale and Servicing Agreement for such
Distribution Date.
FIXED RETURN RATE: 7.52%
FIXED RETURN SHORTFALL: With respect to the close of any Distribution
Date, the Aggregate Fixed Return for such Distribution Date that was not paid on
such Distribution Date.
FRGC: First Reserve Gas Company, a Delaware corporation.
FRGC PARTIES: Collectively, FRGC, HIG, HGSC and any successors or
permitted assigns to any of them.
GAAP: Generally accepted accounting principles in the United States
of America in effect from time to time.
GENERAL ACCOUNT ASSETS: The assets of an Investor Certificateholder
that is an insurance company, other than assets allocated to a "separate
account" (as defined in ERISA) maintained by such Investor Certificateholder.
GOVERNMENTAL AUTHORITY: Any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
GUARANTEE: The Guarantee substantially in the form of EXHIBIT A to
the Sale and Servicing Agreement, as amended and supplemented from time to time.
HGSC: Hattiesburg Gas Storage Company, a Delaware general
partnership.
HIG: Hattiesburg Industrial Gas Sales Company, a Delaware
corporation.
A-7
<PAGE>
INDEBTEDNESS: Of any Person at any date: (i) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices); (ii) any other
indebtedness which is evidenced by a note, bond, debenture or similar
instrument; (iii) all capital lease obligations of such Person; (iv) all
obligations of such Person in respect of outstanding letters of credit,
acceptances and similar obligations created for the account of such Person; and
(v) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof. The Indebtedness of any Person shall include any Indebtedness
of any partnership in which such Person is the general partner.
INDENTURE: The Indenture, dated as of November 21, 1995, among HGSC,
HIG and the Indenture Trustee, as amended and supplemented from time to time.
INDENTURE TRUSTEE: Chemical Bank, not in its individual capacity but
solely as trustee under the Indenture, or any successor trustee under the
Indenture.
INITIAL INVESTORS: The purchasers of the Investor Certificates
pursuant to the Certificate Purchase Agreement.
INITIAL REQUIRED NET WORTH: $1,000,000.
INITIAL RESIDUAL CAPITAL: $8,836,332.40.
INSOLVENCY EVENT: With respect to a specified Person, (i) the entry
of a decree or order by a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee, conservator,
receiver, liquidator or other similar official for such Person, in any
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of such
Person's affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; (ii) the consent by such Person
to the appointment of a trustee, conservator, receiver, liquidator or other
similar official in any bankruptcy, insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
such Person or of or relating to substantially all of such Person's property, or
(iii) such Person shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations.
INSTITUTIONAL INVESTOR: (a) any original purchaser of an Investor
Certificate, (b) any Investor Certificateholder holding more than 25% of the
Investor Certificate Balance and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
A-8
<PAGE>
INVESTMENT ACCOUNT: As defined in Section 5.1(b) of the Trust
Agreement.
INVESTOR CERTIFICATE: Any of the investor certificates executed by
the Owner Trustee and authenticated by the Owner Trustee in substantially the
form set forth in EXHIBIT A to the Trust Agreement.
INVESTOR CERTIFICATE BALANCE: Initially, as of the Closing Date,
$33,956,317.84 and, on any Distribution Date thereafter, the initial Investor
Certificate Balance reduced by all distributions in respect of Aggregate Return
Of Capital actually made to Investor Certificateholders on or prior to such date
pursuant to clause (ii) of Section 5.2(d) of the Trust Agreement and, when the
term is used with respect to any Investor Certificate, such Investor
Certificate's pro rata portion of the Investor Certificate Balance of all
Investor Certificates.
INVESTOR CERTIFICATEHOLDER: A Person in whose name an Investor
Certificate is registered pursuant to the terms of the Trust Agreement.
INVESTOR CERTIFICATE REGISTER: The register of Investor Certificates
specified in Section 3.4 of the Trust Agreement.
INVESTOR CERTIFICATE REGISTRAR: The registrar at any time of the
Investor Certificate Register, appointed pursuant to Section 3.4 of the Trust
Agreement.
LIEN: Any security interest, lien, charge, pledge, equity or
encumbrance of any kind.
LIQUIDATED DAMAGES: As defined in Section 5.2(a) of the Sale and
Servicing Agreement.
LIQUIDATED DAMAGES AMOUNT: With respect to any payment of Liquidated
Damages, for a specific Purchased Contract Receivable (i) the amount set forth
on Schedule 4 to the Sale and Servicing Agreement for such Purchased Contract
Receivable as the "Liquidated Damages Amount" for the Distribution Date
immediately preceding the date of the breach triggering the obligation to pay
such Liquidated Damages minus (ii) all payments received by the Trust on such
Purchased Contract Receivable since such Distribution Date and prior to the date
on which the Liquidated Damages are paid.
LOCKBOX: The post office boxes to which the Obligors may be
instructed to remit payments on the Purchased Contract Receivables.
LOCKBOX ACCOUNT: Any intervening deposit account, established in the
name of the Owner Trustee, used for deposit of funds received in a Lockbox prior
to their transfer to the Collection Account.
MAJORITY CERTIFICATEHOLDERS: Investor Certificateholders whose
Investor Certificates represent greater than 50 percent of the Voting Interests
as of the close of the preceding Distribution Date.
A-9
<PAGE>
MATERIAL ADVERSE EFFECT: A material adverse effect on (a) the
business, operations, property or condition (financial or otherwise) of the FRGC
Parties, (b) the ability of any of the FRGC Parties to perform their respective
obligations under the Basic Trust Documents, (c) the validity or enforceability
of any of the Basic Trust Documents against any of the FRGC Parties or (d) the
rights or remedies of the Owner Trustee or the Investor Certificateholders under
or with respect to the Basic Trust Documents.
MONTHLY DEPOSIT AMOUNT: $180,000.
MONTHLY FIXED RETURN: With respect to any Distribution Date, a return
equal to one-twelfth of the Fixed Return Rate multiplied by the Investor
Certificate Balance as of the immediately preceding Distribution Date and after
giving effect to any distributions on such immediately preceding Distribution
Date (or, in the case of the first Distribution Date, based on the Investor
Certificate Balance as of the Closing Date and pro-rata for the number of days
from the Closing Date to but excluding such Distribution Date based on a 360 day
year of twelve 30-day months).
MONTHLY PERIOD: Each calendar month.
MONTHLY RETURN OF CAPITAL: With respect to any Distribution Date, the
amount set forth in the column labelled "Scheduled Monthly Return of Capital"
for such Distribution Date on Schedule 1 to the Trust Agreement.
MORTGAGE: The Deed of Trust, Security Agreement and Fixture Filing,
substantially in the form of EXHIBIT F to the Sale and Servicing Agreement,
pursuant to which the Seller has mortgaged the Storage Facilities to the
Collateral Trustee, as amended and supplemented from time to time.
NOTES: The 8.12% Secured Guaranteed Notes due 2005 issued by HGSC and
authenticated by the Indenture Trustee under the Indenture.
OBLIGOR: Each party obligated to make payment with respect to any
Contract Receivable, including any guarantor thereof.
OPERATOR: HIG in its capacity as the operator of the Storage
Facilities under the Sale and Servicing Agreement, or its successor in interest
pursuant to Section 13 of the Collateral Sharing and Security Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may, except as
otherwise expressly provided, be an employee of the Seller or the Servicer.
OWNER TRUST ESTATE: All right, title and interest of the Trust in and
to the property and rights assigned to the Trust pursuant to Article II of the
Sale and Servicing Agreement or pursuant to the Trust Agreement, all funds on
deposit from time to time in the Collection Account and the Investment Account
and all other property of the Trust from time to time, including any rights of
the Owner Trustee and
A-10
<PAGE>
the Trust pursuant to the Sale and Servicing Agreement and the other Basic Trust
Documents to which the Trust is a party.
OWNER TRUSTEE: Wilmington Trust Company, not in its individual
capacity but solely as owner trustee under the Trust Agreement, or any successor
owner trustee under the Trust Agreement.
PAYING AGENT: The paying agent for distributions to the Investor
Certificateholders appointed pursuant to Section 3.10 of the Trust Agreement.
PERMITTED LIENS: Collectively, (i) statutory Liens for taxes, labor
or materials where payment for such items is not yet delinquent; and (ii) any
defects or imperfections of title, easements, surface leases or rights or plat
restrictions that are not material in character, amount or extent and do not
materially detract from the value, or materially interfere with the use, of the
properties of the Servicer or the Seller, or materially prevent the Servicer or
the Seller from receiving revenues from such properties or otherwise materially
impair, or increase the cost of, the business operations being conducted
thereon.
PERSON: Any legal person, including any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
PLAN: An employee benefit plan subject to Part 4 of subtitle B of
Title I of ERISA and any plan within the meaning of Section 4975(c)(1) of the
Code.
PURCHASED CONTRACT RECEIVABLES: (i) All Contract Receivables due
pursuant to the terms of the Contracts in 1995 (but only after the Cut-off
Date), 1996, 1997, 1998, 1999 and through June 30, 2000, and (ii) all Contract
Regulatory Receivables due during the period on and after July 1, 2000 through
June 30, 2001.
PURCHASED PROPERTY: As defined in Section 2.1 of the Sale and
Servicing Agreement.
PURCHASE PRICE: $42,712,351.02.
RATING AGENCY: Duff & Phelps Credit Rating Co. or, if Duff & Phelps
Credit Rating Co. is unable to act as Rating Agency, another nationally
recognized rating agency selected by the Seller.
RATING AGENCY CONDITION: With respect to any action, the condition
that the Rating Agency shall have been given at least 10 days (or such shorter
period as is acceptable to the Rating Agency) prior notice thereof and that the
Rating Agency shall have notified the Seller, the Servicer and the Trust in
writing that such action shall not result in a downgrade or withdrawal of the
then current rating of the Investor Certificates.
A-11
<PAGE>
RECORD DATE: With respect to any Distribution Date, the first
Business Day preceding such Distribution Date.
REGULATORY INCREASE: A redetermination by the appropriate regulatory
body of the charges payable under any Contract in accordance with the terms
thereof.
REINVESTMENT INCOME: As defined in Section 4.7 of the Sale and
Servicing Agreement.
REQUIREMENT OF LAW: As to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
RESIDUAL CERTIFICATE: The residual certificate executed by the Owner
Trustee and authenticated by the Owner Trustee in substantially the form set
forth in EXHIBIT B to the Trust Agreement.
RESIDUAL CERTIFICATEHOLDER: The Person in whose name the Residual
Certificate is registered pursuant to the terms of the Trust Agreement.
RESPONSIBLE OFFICER: With respect to the Owner Trustee, any officer
within the Corporate Trust Office of the Owner Trustee customarily responsible
for performing the functions contemplated by the Basic Documents, and, with
respect to any other Person, the President, any Vice President, Assistant Vice
President, Secretary, Assistant Secretary or any other officer or assistant
officer of such Person customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
RETURN OF CAPITAL SHORTFALL: With respect to any Distribution Date,
the Aggregate Return of Capital for such Distribution Date that was not paid on
such Distribution Date.
S&S SELLER OBLIGATIONS: As defined in the Collateral Sharing and
Security Agreement.
SALE AND SERVICING AGREEMENT: The Sale and Servicing Agreement dated
as of November 21, 1995, among the Seller, the Servicer and the Trust, as
amended and supplemented from time to time.
SERVICER: HIG in its capacity as the Servicer of the Purchased
Contract Receivables under the Sale and Servicing Agreement, or its successor in
interest.
SERVICER'S CERTIFICATE: A certificate, completed by and executed on
behalf of the Servicer, in accordance with Section 5.2(b) of the Trust
Agreement.
A-12
<PAGE>
STATE: Any one of the 50 States of the United States of America or
the District of Columbia.
STORAGE FACILITIES: As set forth on Schedule 7 to the Sale and
Servicing Agreement.
SUBSIDIARY: As to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
SUPERMAJORITY CERTIFICATEHOLDERS: Investor Certificateholders whose
Investor Certificates represent at least two-thirds of the Voting Interests as
of the close of the preceding Distribution Date.
TOTAL AVAILABLE AMOUNT: With respect to a Distribution Date, the sum
of (i) the Collected Amount for such Distribution Date, (ii) the amount
transferred from the Investment Account to the Collection Account with respect
to such Distribution Date pursuant to Section 5.2(c)(ii) of the Trust Agreement
and (iii) the amount transferred to the Collection Account pursuant to Section
5.1(a) of the Trust Agreement in regard to the funds received by the Trust from
the sale of Certificates but not used to acquire the Purchased Contract
Receivables.
TREASURY REGULATIONS: The regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST: FRGC Owner Trust, a Delaware business trust created by the
Trust Agreement.
TRUST AGREEMENT: The Trust Agreement, dated as of November 21, 1995,
among the Servicer, the Seller and the Owner Trustee, as amended and
supplemented from time to time.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction (or if no such jurisdiction is relevant, as in effect in the State
of New York).
UNDERTAKING LETTER: The letter referred to in Section 3.5 of the
Trust Agreement.
VOTING INTERESTS: As of any date, the aggregate Investor Certificate
Balance of all Investor Certificates outstanding; PROVIDED, HOWEVER, that
Certificates owned by any FRGC Party, the Seller or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be outstanding, except
that, in determining
A-13
<PAGE>
whether the Owner Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Investor
Certificates that the Owner Trustee knows to be so owned shall be so
disregarded.
A-14
<PAGE>
Exhibit 11
CRYSTAL OIL COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Primary (Including dilutive common
stock equivalents):
Income from operations before
extraordinary item $ 1,404 $ 4,426 $ 1,040
Adjustments to income (net of income
tax)
Non-interest-bearing convertible
secured notes amortization of
discount - - -
---------- ---------- ----------
Adjusted net income before
extraordinary items 1,404 4,426 1,040
Extraordinary item - (2,320) -
---------- ---------- ----------
Adjusted net income $ 1,404 $ 2,106 $ 1,040
---------- ---------- ----------
---------- ---------- ----------
Weighted average of common and
common equivalent shares:
Outstanding 2,648,626 2,562,012 2,508,255
Assuming conversion of:
Stock options, net of treasury
shares 21,583 39,621 23,364
Senior preferred stock through
the exercise of warrants - - -
Remaining senior preferred stock 33,274 33,274 40,828
Series A preferred stock - - 50,959
Convertible debt through the
exercise of warrants - - -
Remaining convertible debt - - -
---------- ---------- ----------
2,703,483 2,634,907 2,623,406
---------- ---------- ----------
---------- ---------- ----------
Per share:
Net income before extraordinary
item $ .52 $ 1.68 $ .40
---------- ---------- ----------
---------- ---------- ----------
Net income $ .52 $ .80 $ .40
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
Exhibit 11
(continued)
CRYSTAL OIL COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fully-diluted:
Income from operations before
extraordinary item $ 1,404 $ 4,426 $ 1,040
Adjustments to income (net of income
tax)
Non-interest-bearing convertible
secured notes amortization of
discount - - -
---------- ---------- ----------
Adjusted net income before
extraordinary item 1,404 4,426 1,040
Extraordinary item - (2,320) -
---------- ---------- ----------
Adjusted net income $ 1,404 $ 2,106 $ 1,040
---------- ---------- ----------
---------- ---------- ----------
Weighted average of common and
common equivalent shares:
Outstanding 2,648,626 2,562,012 2,508,255
Assuming conversion of:
Stock options, net of treasury
shares 22,168 41,015 23,364
Senior preferred stock through
the exercise of warrants - - -
Remaining senior preferred stock 33,274 33,274 40,828
Series A preferred stock - - 50,959
Convertible debt through the
exercise of warrants - - -
Remaining convertible debt - - -
---------- ---------- ----------
2,704,068 2,636,301 2,623,406
---------- ---------- ----------
---------- ---------- ----------
Per share:
Net income before extraordinary
item $ .52 $ 1.68 $ .40
---------- ---------- ----------
---------- ---------- ----------
Net income $ .52 $ .80 $ .40
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
EXHIBIT 22
CRYSTAL OIL COMPANY
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1995
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION
- ----------------------------------------------------- -------------
<S> <C>
Hattiesburg Holding Company Delaware
First Reserve Gas Company Delaware
Hattiesburg Industrial Gas Sales Company Delaware
Hattiesburg Gas Storage Company (General Partnership) Delaware
Crystal Program Limited Texas
Crystal Exploration and Production Company (CEPCO) Florida
Vermillion Bay Land Company Delaware
Crystal Capital, Inc. Delaware
Crystal Eurasia Oil Company Delaware
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Crystal Oil Company:
We consent to incorporation by reference in the Registration Statements (No.
33-61114 and 33-66628) on Form S-8 of Crystal Oil Company of our report dated
February 26, 1996, relating to the consolidated balance sheets of Crystal Oil
Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows and
related financial statement schedule for each of the years in the three year
period ended December 31, 1995, which report appears in the December 31,1995,
annual report on Form 10K of Crystal Oil Company. Our report refers to a change
in the method of accounting for income taxes in 1993.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE YEARS ENDED DEECEMBER 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,812
<SECURITIES> 54,447
<RECEIVABLES> 983
<ALLOWANCES> 279
<INVENTORY> 0
<CURRENT-ASSETS> 66,320
<PP&E> 99,008
<DEPRECIATION> 2,727
<TOTAL-ASSETS> 173,445
<CURRENT-LIABILITIES> 2,876
<BONDS> 60,020
0
148
<COMMON> 27
<OTHER-SE> 110,374
<TOTAL-LIABILITY-AND-EQUITY> 173,445
<SALES> 6,374
<TOTAL-REVENUES> 6,823
<CGS> 0
<TOTAL-COSTS> 2,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 2,443
<INCOME-PRETAX> 2,366
<INCOME-TAX> 962
<INCOME-CONTINUING> 1,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,404
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>