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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-7179
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SONAT INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-0647939
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
TELEPHONE 205-325-3800
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION> NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- -------------------------------------------- ----------------------------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
</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
Indicate by check mark if disclosure of delinquent files 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. / /
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT, AS OF FEBRUARY 1, 1994 -- $2,779,383,680.
NUMBER OF SHARES OF COMMON STOCK, $1.00 PAR
VALUE, OUTSTANDING ON FEBRUARY 1, 1994 -- 87,172,087
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT OF THE REGISTRANT DATED AS OF MARCH 16, 1994
ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT ON FORM 10-K.
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<PAGE> 2
SONAT INC.
INDEX TO REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................................... I-1
Exploration and Production................................................ I-2
Consolidated Net Production............................................ I-6
Consolidated Wells and Acreage......................................... I-6
Consolidated Exploratory and Development Wells......................... I-6
Competition and Current Business Conditions............................ I-7
Transmission, Sale, and Marketing of Natural Gas.......................... I-8
Sonat Natural Gas Group:
Southern Natural Gas Company......................................... I-8
Order No. 636 Restructuring....................................... I-8
Markets -- Transportation and Sales............................... I-10
Gas Supplies...................................................... I-12
Potential Royalty Claims.......................................... I-12
Southern Energy Company........................................... I-13
Sea Robin Pipeline Company........................................ I-13
Sonat Energy Services Company........................................ I-14
Sonat Marketing Company........................................... I-14
Sonat Intrastate-Alabama Inc...................................... I-14
Sonat Ventures Inc................................................ I-14
AES/Sonat Power, L.L.C............................................ I-14
Citrus Corp.......................................................... I-15
Florida Gas Transmission Company.................................. I-15
Competition and Current Business Conditions............................ I-16
Investment in Sonat Offshore Drilling Inc................................. I-18
Drilling Units and Equipment........................................... I-18
Drilling Contracts..................................................... I-19
Sales of Marine Units.................................................. I-20
Operational Hazards and Insurance...................................... I-20
Competition and Current Business Conditions............................ I-20
Foreign Operations..................................................... I-21
Governmental Regulation................................................... I-21
Exploration and Production............................................. I-21
Transmission, Sale, and Marketing of Natural Gas....................... I-22
Rate and Regulatory Proceedings...................................... I-22
Contract Drilling...................................................... I-22
Environmental Matters..................................................... I-24
</TABLE>
<PAGE> 3
SONAT INC.
INDEX TO REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993 (CONTINUED)
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C> <C>
Stock Sale by Subsidiary.................................................. I-26
Discontinued Operations................................................... I-26
Item 2. Properties.................................................................. I-26
Item 3. Legal Proceedings........................................................... I-26
Item 4. Submission of Matters to a Vote of Security Holders......................... I-27
Executive Officers of the Registrant.................................................. I-27
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters... II-1
Item 6. Selected Financial Data..................................................... II-1
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. II-1
Item 8. Financial Statements and Supplementary Data................................. II-1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. II-1
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... III-1
Item 11. Executive Compensation...................................................... III-1
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. III-1
Item 13. Certain Relationships and Related Transactions.............................. III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ IV-1
</TABLE>
<PAGE> 4
PART I
ITEM 1. BUSINESS
Sonat Inc. ("Sonat") is a diversified energy holding company. It is engaged
through Sonat Exploration Company ("Exploration") in domestic oil and natural
gas exploration and production; through Southern Natural Gas Company
("Southern") and Citrus Corp. ("Citrus") in the transmission, storage, and sale
of natural gas; through Sonat Energy Services Company ("Energy Services") in
natural gas marketing, intrastate transportation, and other nonregulated natural
gas ventures; and through its investment in Sonat Offshore Drilling Inc.
("Offshore") in contract drilling.
Exploration, which is one of the largest independent natural gas producers
in the United States, operates primarily in Texas, Oklahoma, Louisiana,
Arkansas, and the Gulf of Mexico. Oil and gas exploration and production
activities contributed approximately 11 percent of Sonat's consolidated revenues
and approximately 37 percent of Sonat's consolidated operating profit for 1993.
Southern, which has been in the interstate natural gas pipeline business
since the early 1930s, is a major transporter of natural gas to the southeastern
United States. Its natural gas transmission system extends primarily from gas
producing areas of Texas and Louisiana, both onshore and offshore, to markets in
a seven-state area of the Southeast. Sonat and Enron Corp. each owns a one-half
interest in Citrus, a holding company that owns 100 percent of Florida Gas
Transmission Company ("Florida Gas"). Florida Gas is an interstate natural gas
pipeline that serves electric generation, resale, and industrial markets in
Florida. Energy Services was formed in late 1989 to coordinate the activities of
Sonat's subsidiary companies engaged in marketing natural gas, intrastate
transportation, and other activities that are not regulated by the U.S. Federal
Energy Regulatory Commission (the "FERC"). Its largest subsidiary, Sonat
Marketing Company ("Marketing"), sells natural gas throughout much of the United
States. In 1993 Marketing assumed responsibility for the sale of almost all of
Exploration's production. Natural gas operations, excluding Citrus, contributed
approximately 83 percent of Sonat's consolidated revenues and approximately 61
percent of Sonat's consolidated operating profit for 1993. Sonat's share of
Citrus' earnings are reflected in Equity in Earnings of Unconsolidated
Affiliates.
As a result of the initial public offering of Offshore's common stock,
which was completed on June 4, 1993, Sonat currently retains ownership of 39.9
percent of Offshore's outstanding shares. Offshore, which was formed in the
early 1950s and had formerly been a wholly owned subsidiary of Sonat, was one of
the world's first marine drilling contractors and is recognized as a world
leader in offshore drilling technology. It is engaged in exploration and
development contract drilling for major international, government-controlled,
and independent oil companies in offshore areas throughout the world. Contract
drilling activities for the period prior to the public offering contributed
approximately six percent of Sonat's consolidated revenues and approximately one
percent of Sonat's consolidated operating profit for 1993. Beginning on June 5,
1993, Offshore has been accounted for on the equity method and Sonat's share of
Offshore's earnings during that part of 1993 are reflected in Equity in Earnings
of Unconsolidated Affiliates.
Sonat was incorporated under the laws of Delaware in 1973 in connection
with a restructuring of Southern. At January 1, 1994, Sonat and its subsidiaries
employed approximately 2,230 persons.
Sonat's principal executive offices are located at 1900 Fifth Avenue North,
AmSouth-Sonat Tower, Birmingham, Alabama 35203, and its telephone number is
(205) 325-3800.
Additional business information is contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations and in the Notes to
Consolidated Financial Statements in Part II of this report, which are hereby
incorporated herein by reference. Reference is made to Note 12 of the Notes to
Consolidated Financial Statements contained in Part II of this report for
further information with respect to the portions of Sonat's revenues, operating
profit, and identifiable assets attributable to each of its business segments
and geographic areas of operations.
I-1
<PAGE> 5
EXPLORATION AND PRODUCTION
Sonat is engaged in the exploration for and the acquisition, development,
and production of oil and natural gas through its wholly owned subsidiary, Sonat
Exploration Company, and its subsidiary companies (collectively referred to as
"Exploration" unless the context indicates otherwise). Exploration's principal
office is located in Houston, Texas. Exploration has regional offices in Tyler,
Texas, Oklahoma City, Oklahoma, and Houston, Texas.
The oil and gas properties of Exploration are principally located onshore
in the Southern coastal states, in various states in the Southwest and Midwest,
and in federal waters offshore Louisiana and Texas. As of December 31, 1993,
Exploration had operations or properties in 14 states. Exploration had working
interests in approximately 2.4 million gross acres or 1.4 million net acres
onshore as of December 31, 1993. Of this onshore acreage, approximately 1.2
million gross or 633,165 net acres were producing oil or gas. In addition, as of
such date, Exploration had a working interest in 74 federal offshore blocks in
the Gulf of Mexico and one state offshore block, totaling 330,311 gross acres or
155,200 net acres. Of these blocks, 60 were producing oil or gas.
Exploration has a 50-percent interest in a coal seam degasification project
near Brookwood, Alabama. Most of the gas from this project is sold to Southern
under a long-term contract. The other 50-percent interest in the Brookwood
project is owned by Jim Walter Resources, Inc.
Beginning in 1988 Exploration implemented a strategy to acquire gas
properties with significant development potential. As a result of this strategy,
Exploration has more than quintupled its proved reserves since that time. At the
end of 1993 Exploration had total proved reserves of approximately 1.35 trillion
cubic feet of natural gas equivalent. Approximately 88 percent of Exploration's
proved reserves are natural gas.
In 1993 Exploration continued its strategy of acquiring producing oil and
gas properties with potential for additional reserves and production
development. Exploration's acquisition activity is being directed generally
toward areas in which Exploration currently operates, although it may make
investments in other domestic basins.
During 1993 Exploration acquired approximately 313 billion cubic feet
("Bcf") of proved natural gas equivalent reserves in 21 separate transactions
totaling $266 million, for an average acquisition cost of $.85 per thousand
cubic feet equivalent. The largest single acquisition was from Mobil Exploration
and Producing U.S., Inc. in September 1993 of several offshore Gulf of Mexico
gas producing lease blocks for which Exploration paid approximately $126 million
for 106 Bcf of proved natural gas equivalent reserves.
Other significant 1993 acquisitions included a January 1993 purchase of all
of Grace Petroleum Corporation's oil and gas assets in East Texas and North
Louisiana for approximately $38 million, which added approximately 60 Bcf of
proved natural gas equivalent reserves and 171 wells. Exploration also acquired
the limited partnership interest of Prudential Insurance Company of America in
the Sonat/P Anadarko Limited Partnership ("Sonat/P") for $11.5 million cash and
the assumption of $4.1 million of debt pertaining to Prudential's interest in
the partnership. This acquisition added approximately 14 Bcf of proved natural
gas equivalent reserves. After closing, the partnership was dissolved. Sonat/P,
which was created in 1992, owned oil and gas properties acquired in that year
from Louisiana Land and Exploration Company in the Anadarko Basin in Oklahoma.
Exploration significantly increased its presence in south Texas with the
acquisition of leasehold interests from Tri-C Resources, Inc. for approximately
$66 million. These properties added about 94 Bcf proved natural gas equivalent
reserves to Exploration's reserve base and greatly enhanced Exploration's
drilling operations in that area. The remaining 1993 acquisitions of Exploration
totalled approximately $20 million, with proved reserves of approximately 39 Bcf
of natural gas equivalent. Many of these interests were within fields and wells
already operated by Exploration.
From January 1, 1994, through February 28, 1994, Exploration acquired
additional oil and gas interests and properties for a total of approximately
$1.4 million, with proved reserves of approximately 2.2 Bcf of natural gas
equivalent.
I-2
<PAGE> 6
In 1993 Exploration continued its aggressive drilling program,
participating in the drilling of 301 development wells, of which approximately
88 percent were successful. In addition to the large development drilling
program, Exploration is continuing to develop its substantial acreage position
in the eastern extension of the Austin Chalk trend in Texas and Louisiana.
Exploration participated in the drilling of 15 horizontal wells in this trend
during 1993, all of which were successful.
Exploration's natural gas production from 344 tight-sand and coal-seam
formation wells generated $19 million of Section 29 tax credits for Sonat in
1993, a $5 million increase from 1992. Production from wells that qualify for
these credits will begin to decline in 1994 as these wells follow their normal
decline pattern.
As of December 31, 1993, Exploration's net proved reserves totaled 27
million barrels of crude oil, condensate, and natural gas liquids and 1,187 Bcf
of natural gas. As of December 31, 1992, Exploration's net proved reserves
amounted to 20 million barrels of crude oil, condensate, and natural gas liquids
and 1,028 Bcf of natural gas. For additional information concerning reserves,
see Note 13 of the Notes to Consolidated Financial Statements in Part II of this
report.
Exploration's total exploration and production capital expenditures in 1993
were $441 million (including its share of Sonat/P's capital expenditures)
compared with $194 million in 1992. Exploration will continue to emphasize
producing property acquisitions and development drilling in 1994, when capital
spending is expected to be approximately $390 million, including participation
in a 328-well development program. While maintaining an active program,
Exploration has also continued its cost control and productivity improvement
efforts.
There have been no oil or gas reserve estimates filed or included in any
reports to any federal agency within the last twelve months, except Form EIA-23
Annual Survey of Domestic Oil and Gas Reserves filed with the FERC and Form
9-1866 (Request for Reservoir Maximum Efficient Rate) filed with the Minerals
Management Service of the U.S. Department of the Interior. There are no material
differences in the reserves reflected in such reports and the estimated reserves
as reflected in Note 13 of the Notes to Consolidated Financial Statements in
Part II of this report, except for differences resulting from actual production,
acquisitions, property sales, and necessary reserve revisions and additions to
reflect actual experience.
Exploration relies on its own technical staff for the selection of its
drilling prospects. Leases on desirable, nonproducing offshore prospects are
typically acquired in federal and state waters through a competitive bidding
process from the federal or state governments. Exploration has, and may in the
future, bid for leases on prospective offshore acreage with other companies from
time to time. Onshore leases are acquired by Exploration's staff and by
independent lease brokers at the direction of Exploration's staff, through
farmouts, through participation in prospects developed by others, or by
acquisition. Exploration may, as it has in the past, enter into joint venture
arrangements where exploration and development activity is performed on behalf
of the joint venture by whichever company is designated as operator. Exploration
participated in the drilling of a total of 305 wells in 1993 (including four
exploratory wells, all of which were successful), of which it operated 177.
Drilling for Exploration is conducted by independent drilling contractors.
I-3
<PAGE> 7
The following tables detail the gross lease acreage of both producing and
non-producing onshore properties and offshore lease blocks in which Exploration
had an interest at December 31, 1993. The following map generally depicts the
areas in which Exploration had significant lease interests as of that date.
SONAT EXPLORATION COMPANY
ONSHORE GROSS LEASE ACREAGE
<TABLE>
<CAPTION>
STATE PRODUCING NON-PRODUCING TOTAL
- --------------------------------------------------- --------- ------------- ---------
<S> <C> <C> <C>
Alabama............................................ 80,584 -0- 80,584
Arkansas........................................... 330,041 57,764 387,805
Colorado........................................... 320 320 640
Kansas............................................. 4,626 80 4,706
Louisiana.......................................... 188,754 563,964 752,718
Michigan........................................... 40 190 230
Mississippi........................................ 834 2,429 3,263
Montana............................................ 9,264 8,928 18,192
New Mexico......................................... 480 3,473 3,953
North Dakota....................................... -0- 13,860 13,860
Oklahoma........................................... 297,825 154,444 452,269
Texas.............................................. 283,334 340,663 623,997
West Virginia...................................... -0- 178 178
Wyoming............................................ 5,720 3,032 8,752
--------- ------------- ---------
Total.................................... 1,201,822 1,149,325 2,351,147
========= ============= =========
</TABLE>
OFFSHORE GROSS LEASE BLOCKS
<TABLE>
<CAPTION>
AREA PRODUCING NON-PRODUCING TOTAL
- ---------------------------------------------------------------- --------- ------------- -----
<S> <C> <C> <C>
Mustang Island.................................................. 4 2 6
High Island..................................................... 6 0 6
Sabine Pass..................................................... 5 0 5
West Cameron(1)................................................. 15 0 15
East Cameron.................................................... 9 5 14
South Marsh Island.............................................. 1 0 1
Eugene Island(2)................................................ 5 1 6
Ship Shoal...................................................... 11 2 13
Grand Isle...................................................... 1 0 1
Main Pass....................................................... 1 5 6
Mississippi Canyon(3)........................................... 4 0 4
-- -- --
Total................................................. 62 15 77
</TABLE>
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(1) Exploration has a 12.5 percent interest below 9,500 feet in West Cameron
290, which is one of the 15 producing blocks.
(2) Exploration only has an overriding interest in one of the producing blocks,
Eugene Island 10.
(3) Exploration is not a lessee of one of the four producing blocks (Mississippi
Canyon 150), but this block has been unitized with the three producing
lease blocks in the area in which Exploration has working interests.
I-4
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SONAT EXPLORATION COMPANY MAP
I-5
<PAGE> 9
In order to focus its exploration and production efforts and to minimize
administrative and other costs, Exploration disposed of certain minor,
non-strategic oil and gas interests in 1993 in the states of Louisiana, Texas,
Oklahoma, and Arkansas. These properties were sold for a total of approximately
$20 million and included approximately 61,517 net developed acres of oil and gas
leases with interests in approximately 355 gross productive wells. The decrease
in Exploration's net proved reserves of approximately 22 Bcf natural gas
equivalent resulting from the sale of all of these properties was more than
offset by the reserves acquired in 1993. Exploration expects that it will
continue to dispose of non-strategic oil and gas interests in the future.
Consolidated Net Production
Exploration had interests in production from 3,423 producing wells onshore
and 173 producing wells offshore as of December 31, 1993. Reference is made to
the table in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II of this report showing the consolidated net
production (sales volumes) of oil and condensate, natural gas liquids, and
natural gas for 1991 to 1993 and the average sales prices for those years
(including transfers). The average production (lifting) costs per unit of oil
and gas for each of those years was $.38 in 1993, $.38 in 1992, and $.45 in
1991. The average production cost is calculated by converting all units of
production to equivalent Mcf of gas using the relative energy content method.
Exploration sells its crude oil production generally at posted prices,
subject to adjustments for gravity and transportation. Exploration sells its
natural gas primarily to Marketing at spot-market prices. Exploration also sells
some of its gas under long-term contracts directly to pipelines, distribution
companies, and end-users. Exploration sells natural gas liquids at market prices
under monthly or long-term contracts.
During 1993 Marketing assumed responsibility for the marketing of almost
all of Exploration's natural gas, natural gas liquids, and oil production.
Marketing purchases most of Exploration's natural gas production directly and
markets, pursuant to an agency agreement, almost all of the rest of
Exploration's natural gas production as well as its natural gas liquids and
crude oil production. Marketing hedges a portion of Exploration's production on
behalf of Exploration through the use of oil and gas futures transactions and
price swaps in order to decrease the volatility of the revenues received from
the sale of oil and natural gas.
Consolidated Wells and Acreage
The following table sets forth information concerning Exploration's
consolidated working interests in oil and gas properties as of December 31,
1993.
<TABLE>
<CAPTION>
NO. OF
TOTAL NO. OF WELLS
PRODUCTIVE DEVELOPED UNDEVELOPED BEING
WELLS ACRES ACRES DRILLED
------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
OIL GAS
--- -----
Gross........................................... 582(1) 3,014(2) 1,456,829 1,224,629 63
Net............................................. 244 1,396 755,559 839,322 38
</TABLE>
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(1) One of these wells is a multiple completion.
(2) 225 of these wells are multiple completions.
Consolidated Exploratory and Development Wells
The following table sets forth certain consolidated information regarding
exploratory and development wells drilled during the years 1991 through 1993.
<TABLE>
<CAPTION>
NET EXPLORATORY NET DEVELOPMENT
WELLS DRILLED WELLS DRILLED
------------------- ------------------------
1993 1992 1991 1993 1992 1991
---- ---- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Productive.......................................... 1.71 .50 3.47 147.22 125.10 119.25
Dry................................................. -0- .50 .82 26.15 12.35 6.45
</TABLE>
I-6
<PAGE> 10
For information concerning Exploration's (i) capitalized costs of oil and
gas producing activities, (ii) costs incurred in oil and gas producing
activities, (iii) net revenues from oil and gas production, (iv) estimated
proved oil and gas reserves, (v) estimated future oil and gas net revenues, and
(vi) present value of estimated future net revenues from estimated production of
proved oil and gas reserves, see Note 13 of the Notes to Consolidated Financial
Statements in Part II of this report. The standardized measures of discounted
future net cash flows relating to Exploration's oil (including condensate) and
gas reserves are calculated as prescribed by Statement of Financial Accounting
Standards No. 69. The standardized measures of Exploration's proved oil and gas
reserves presented in Part II of this report do not represent Sonat's estimate
of their fair market value and are not otherwise representative of the value
thereof, but rather, as stipulated and required by the Financial Accounting
Standards Board, are intended solely to assist financial statement users in
making comparisons between companies.
Competition and Current Business Conditions
The oil and gas business is highly competitive in the search for and
acquisition of additional reserves and in the marketing of oil and natural gas.
Exploration's competitors include the major and intermediate size oil companies,
independent oil and gas concerns, and individual producers or operators.
Supply and demand for natural gas are in close balance for the first time
in many years and demand appears to be growing. Near term, however, the recent
drop in oil prices could put pressure on the price of natural gas. Natural gas
prices averaged $1.99 per thousand cubic feet in 1993 compared with $1.71 in
1992. Oil prices were lower, however: $17.42 per barrel in 1993 versus $18.94
per barrel in 1992. Exploration is unable to predict price levels for oil or
natural gas in 1994 or beyond. Exploration believes, however, that over the long
term the improvement in the balance between natural gas supply and demand should
positively impact natural gas prices.
Since 1986 Exploration has marketed gas released from contracts with
pipelines and new uncommitted gas production on the spot market. With the
exception of gas from the Brookwood coal seam degasification project, most of
Exploration's natural gas volumes in 1993 were sold at spot-market prices.
Exploration agreed to a contract amendment with Southern during 1993 pursuant to
which, in return for a payment from Southern of approximately $34 million,
beginning January 1, 1994, all of Exploration's gas from the Brookwood coal seam
degasification project is now sold at spot-market prices as well. Sales of
natural gas by Exploration to affiliates accounted for approximately 44 percent
of Exploration's revenues in 1993 and 23 percent in 1992.
Exploration's business is subject to all of the operating risks normally
associated with the exploration for and production of oil and gas, including
blowouts, cratering, pollution, and fires, each of which could result in damage
to or destruction of oil and gas wells, formations, production facilities, or
properties or in personal injury. Sonat maintains broad insurance coverage on
behalf of Exploration limiting financial loss resulting from these operating
hazards.
See "Governmental Regulation -- Exploration and Production" below for
information concerning the effect of various laws and governmental regulations
on Exploration's operations.
I-7
<PAGE> 11
TRANSMISSION, SALE AND MARKETING OF NATURAL GAS
SONAT NATURAL GAS GROUP
In March 1991 Sonat formed the Sonat Natural Gas Group to coordinate more
efficiently the activities of the various companies comprising its natural gas
transmission and marketing segment. Included in the Sonat Natural Gas Group are
Southern and its subsidiaries, Energy Services and its subsidiaries, and Sonat's
50-percent interest in Citrus.
Southern Natural Gas Company
The principal business of Southern, which is a wholly owned subsidiary of
Sonat, is the transmission of natural gas in interstate commerce. Southern,
including its subsidiaries, owns approximately 9,230 miles of interstate
pipeline. Its pipeline system has a certificated daily delivery capacity of
approximately 2.4 billion cubic feet of natural gas. Southern's pipeline system
extends from gas fields in Texas, Louisiana, Mississippi, Alabama, and the Gulf
of Mexico to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South
Carolina, and Tennessee. Southern also has pipeline facilities offshore Texas
connecting gas supplies to other pipelines that transport such gas to Southern's
system. A map of Southern's pipeline system, including pipelines of its
subsidiaries, as well as of the pipeline system of Florida Gas, appears on page
I-17.
Southern owns and operates Muldon Storage Field ("Muldon"), a large
underground natural gas storage field in Mississippi connected to its pipeline
system. Based on operating experience, Southern recently sought to have the
working storage capacity of Muldon reduced from 52 to 31 billion cubic feet of
gas. The FERC approved this reduction for a one-year period ending November 1,
1994, subject to a further review of Muldon's operations during the 1993-94
winter period.
Bear Creek Storage Company ("Bear Creek"), an unincorporated joint venture
between wholly owned subsidiaries of Southern and Tenneco Inc., each of which is
a 50-percent participant, owns a large underground natural gas storage field
located in Louisiana that is operated by Southern and provides storage service
to Southern and Tennessee Gas Pipeline Company, a subsidiary of Tenneco Inc. The
Bear Creek Storage Field has a total certificated working storage capacity of
approximately 65 billion cubic feet of gas, half of which is committed to
Southern. At December 31, 1993, Bear Creek's gross facilities cost was
approximately $246,923,000 and its participants' equity was $90,907,000.
Southern had an investment in Bear Creek, including its equity in undistributed
earnings, of $45,453,000 at December 31, 1993.
Under the terms of Order No. 636, discussed below, effective November 1,
1993, Southern commenced providing contract storage services as part of its
unbundled and restructured services. Consequently, most of Southern's working
storage capacity at Muldon and its half of Bear Creek are now used for such
services. As a part of making this new service available, effective November 1,
1993, Southern sold at its cost $123 million of its working storage gas
inventory to its new storage customers.
Southern's interstate pipeline business is subject to regulation by the
FERC, the U.S. Department of Energy's Economic Regulatory Administration (the
"ERA"), and the U.S. Department of Transportation under the terms of the Natural
Gas Policy Act of 1978 (the "NGPA"), the Natural Gas Act, and various pipeline
safety and environmental laws. See "Governmental Regulation" below for
information concerning the regulation of natural gas transmission operations.
Southern's business is subject to the usual operating risks associated with
the transmission of natural gas through a pipeline system, which could result in
property damage and personal injury. Sonat maintains broad insurance coverage on
behalf of Southern limiting financial loss resulting from these operating risks.
Additional information concerning Southern for the year ended December 31,
1993, may be found in Southern's Annual Report on Form 10-K to the Securities
and Exchange Commission for such period.
Order No. 636 Restructuring. In 1992 the FERC issued its Order No. 636
(the "Order"). As required by the Order, interstate natural gas pipeline
companies, including Southern, South Georgia Natural Gas Company ("South
Georgia"), a wholly owned interstate pipeline subsidiary of Southern, and
Florida Gas, have made significant changes in the way they operate. The Order
required pipelines, among other things, to
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<PAGE> 12
(1) separate (unbundle) their sales, transportation, and storage services; (2)
provide a variety of transportation services, including a "no-notice" service
pursuant to which the customer is entitled to receive gas from the pipeline to
meet fluctuating requirements without having previously scheduled delivery of
that gas; (3) adopt a straight-fixed-variable method for rate design (which
assigns more costs to the demand component of the rates than do other
rate-design methodologies previously utilized by pipelines); and (4) implement a
pipeline capacity release program under which firm customers have the ability to
"broker" the pipeline capacity for which they have contracted. The Order also
authorizes pipelines to offer unbundled sales services at market-based rates and
allows for pregranted abandonment of some services.
Interstate pipeline companies, including Southern, are incurring certain
costs ("transition costs") as a result of the Order, the principal one being
costs related to amendment or termination of existing gas purchase contracts,
which are referred to as gas supply realignment ("GSR") costs. The Order
provides for the recovery of 100 percent of the GSR costs and other transition
costs to the extent the pipeline can prove that they are eligible, that is,
incurred as a result of customers' service choices in the implementation of the
Order, and were incurred prudently.
In its restructuring settlement discussions, Southern has advised its
customers that the amount of GSR costs that it actually incurs will depend on a
number of variables, including future natural gas and fuel oil prices, future
deliverability under Southern's existing gas purchase contracts, and Southern's
ability to renegotiate certain of these contracts. While the level of GSR costs
is impossible to predict with certainty because of these numerous variables,
based on current spot-market prices, a range of estimates of future oil and gas
prices, and recent contract renegotiations, the amount of GSR costs would be
approximately $275-$325 million on a present-value basis. This amount includes
the payments made to amend or terminate gas purchase contracts described below.
On September 3, 1993, the FERC generally approved a compliance plan for
Southern and directed Southern to implement its restructured services pursuant
to the Order on November 1, 1993 (the "September 3 order"). Pursuant to
Southern's compliance plan, GSR costs that are eligible for recovery include
payments to reform or terminate gas purchase contracts. Where Southern can show
that it can minimize transition costs by continuing to purchase gas under the
contract (i.e., it is more economic to continue to perform), eligible GSR costs
would also include the difference between the contract price and the higher of
(a) the sales price for gas purchased under the contract or (b) a price
established by an objective index of spot-market prices. Recovery of these
latter costs is permitted for an initial period of two years.
Southern's compliance plan contains two mechanisms pursuant to which
Southern is permitted to recover 100 percent of its GSR costs. The first
mechanism is a monthly fixed charge designed to recover 90 percent of the GSR
costs from Southern's firm transportation customers. The second mechanism is a
volumetric surcharge designed to collect the remaining ten percent of such costs
from Southern's interruptible transportation customers. This funding will
continue until the GSR costs are fully recovered or funded. The FERC also
indicated that Southern could file to recover any GSR costs not recovered
through the volumetric surcharge after a period of two years. In addition,
Southern's compliance plan provides for the recovery of other transition costs
as they are incurred and any remaining transition costs may be recovered through
a regular rate filing. Southern's customers have generally opposed the recovery
of its GSR costs.
The September 3 order rejected the argument of certain customers that a
1988 take-or-pay recovery settlement bars Southern from recovering GSR costs
under gas purchase contracts executed before March 31, 1989, which comprise most
of Southern's GSR costs. Those customers subsequently filed motions urging the
FERC to reverse its ruling on that issue. On December 16, 1993, the FERC
affirmed its September 3 ruling with respect to the 1988 take-or-pay recovery
settlement (the "December 16 order"). The December 16 order generally approved
Southern's restructuring tariff submitted pursuant to the September 3 order.
Various parties have filed motions urging the FERC to modify the December 16
order and have sought judicial review of the September 3 order. Southern and its
customers engaged in settlement discussions regarding Southern's restructuring
filing prior to the September 3 order, but the parties were unable to reach a
settlement. Those discussions are continuing.
During 1993 Southern reached agreements to reduce significantly the price
payable under a number of high cost gas purchase contracts in exchange for
payments of approximately $114 million. On December 1,
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<PAGE> 13
1993, Southern filed with the FERC to recover such costs and approximately $3
million of prefiling interest (the "December 1 filing"). On December 30, 1993,
the FERC accepted such filing to become effective January 1, 1994, subject to
refund, and subject to a determination through a hearing before an
administrative law judge that such costs were prudently incurred and eligible
under Order No. 636. Southern's customers are opposing its recovery of these GSR
costs in this proceeding. The December 30 order rejected arguments of various
parties that a pipeline's payments to affiliates, in this case Southern's
payment to a subsidiary of Exploration that represented approximately $34
million of the December 1 filing, may not be recovered under Order No. 636.
In December 1993 Southern reached agreement to reduce the price under
another contract in exchange for payments having a present value of
approximately $52 million. Payments will be made in equal monthly installments
over an eight-year period ending December 31, 2001. On February 14, 1994,
Southern made a rate filing to recover, beginning March 1, 1994, those costs as
well as approximately $2 million of other settlement costs and $800,000 of
prefiling interest. Southern also incurred approximately $17.5 million of GSR
costs, plus prefiling interest, from November 1, 1993, through January 31, 1994,
from continuing to purchase gas under contracts that are in excess of current
market prices. On March 1, 1994, Southern made a rate filing to recover those
costs beginning April 1, 1994. Southern plans to make additional rate filings
quarterly to recover these "price differential" costs and any other GSR costs.
Southern is unable to predict all of the elements of the ultimate outcome
of its Order No. 636 restructuring proceeding, its settlement discussions with
its customers regarding all of the pending issues arising in connection with the
proceeding, or its rate filings to recover its transition costs.
In requiring that Southern provide unbundled storage service, the Order
resulted in a substantial reduction of Southern's working storage gas inventory
and consequently a reduction in its rate base. This reduction was effective on
November 1, 1993, when Southern restructured pursuant to the Order and sold at
its cost $123 million of its working storage gas inventory to its customers. The
Order also resulted in rates that are less seasonal, thereby shifting revenues
and earnings for Southern out of the winter months.
Markets -- Transportation and Sales. As described above, effective
November 1, 1993, Southern and South Georgia (collectively "Southern" unless the
context indicates otherwise), restructured their services in compliance with
FERC Order No. 636 by separating their transportation, storage, and merchant
services. With the exception of some limited sales necessary to dispose of its
gas supply remaining under contract, Southern essentially became solely a
transporter of natural gas. Effective May 5, 1992, South Georgia had converted
all its sales service to transportation-only service and Southern had begun to
provide a gas sales service to South Georgia's former sales customers.
Southern transports or sells gas at wholesale for distribution for
domestic, commercial, and industrial uses to nine gas distributing companies, to
114 municipalities and gas districts, and to nine connecting interstate pipeline
companies. Southern also transported or sold gas directly to 55 industrial
end-users in 1993. Southern principally transports gas to resale and industrial
customers and to other pipelines, sells some limited volumes of gas at wholesale
for distribution, and sells very minimal volumes of gas directly to industrial
customers. The principal industries served directly by Southern's pipeline
system and indirectly through its resale customers' distribution systems include
the chemical, pulp and paper, textile, primary metals, stone, clay and glass
industries.
Transportation volumes in 1993 were 763 Bcf or 91 percent of Southern's
total throughput of 836 Bcf, compared with 733 Bcf or 87 percent of Southern's
total 1992 throughput of 842 Bcf. Sales to resale distribution customers,
including municipalities and gas districts, accounted for virtually all of 1993
sales of 73 Bcf (excluding the sale of storage inventory) and 1992 sales of 109
Bcf. Southern's sales to direct sales customers and interstate pipeline
companies in both years were negligible. Southern had sales of 19 Bcf during
November and December 1993 (following implementation of its Order No. 636
restructuring) that were made at receipt points where the gas entered its
pipeline system; consequently, those volumes are included within the 763 Bcf of
transportation volumes for 1993.
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<PAGE> 14
Transportation service is rendered by Southern for its resale customers,
direct industrial customers and other end-users, gas producers, other gas
pipelines, and gas marketing and trading companies. Southern provides
transportation service in both its gas supply and market areas. Transportation
service is provided under rate schedules that are subject to FERC regulatory
authority. Rates for transportation service depend on whether such service is on
a firm or interruptible basis and the location of such service on Southern's
pipeline system. Transportation rates for interruptible service (i.e., service
of a lower priority than firm transportation) are charged for actual volumes
transported. Firm transportation service also includes a demand charge designed
so that the customer pays for a significant portion of the service each month
based on a contract demand volume regardless of the actual volume transported.
Rates for transportation service are discounted by Southern in individual
instances to respond to competition in the markets it serves. Continued
discounting could, under certain circumstances, increase the risk that Southern
may not recover all of its costs allocated to transportation services.
Sales by Southern are anticipated to continue only until Southern's
remaining supply contracts expire, are terminated, or are assigned. As a result
of Order No. 636 Southern is attempting to terminate its remaining gas purchase
contracts through which it had traditionally obtained its long-term gas supply.
Some of these contracts contain clauses requiring Southern either to purchase
minimum volumes of gas under the contract or to pay for it ("take-or-pay"
clauses). Although Southern currently is incurring essentially no take-or-pay
liabilities under these contracts, the annual weighted average cost of gas under
these contracts is in excess of current spot-market prices. Pending the
termination of these remaining supply contracts, Southern has agreed to sell a
portion of its remaining gas supply to a number of its firm transportation
customers for a one-year term that began November 1, 1993. Recently, the sales
agreements with Atlanta Gas Light Company and its subsidiary, Chattanooga Gas
Company (collectively "Atlanta") were extended through March 31, 1995. The rest
of Southern's remaining supply will be sold on a month-to-month basis. Southern
will file to recover as a GSR cost pursuant to Order No. 636 the difference
between the cost associated with the gas supply contracts and the revenue from
the sale agreements and month-to-month sales and also any cost incurred to
reduce the price under or to terminate Southern's remaining gas supply
contracts.
When long-term sales service agreements with substantially all of
Southern's resale customers expired or were terminated in 1989, Southern entered
into a series of short-term agreements on an annual basis with virtually all of
such customers. Prior to the implementation of Order No. 636, several customers
had already reduced their firm sales contract demand volumes or converted a
portion of their firm sales volumes to firm transportation volumes. From 1988
until Southern's implementation of Order No. 636, total daily delivery
obligations under firm sales contracts (the "contract demand" upon which monthly
demand charges are based) were reduced by approximately 689 million cubic feet
("MMcf") from their level at the end of 1987 of approximately 2.1 Bcf. Prior to
Southern's implementation of Order No. 636, approximately 74 percent of this
reduction had been replaced with firm transportation volumes under contracts of
varying terms and durations, which also provided for fixed monthly charges.
In accordance with the September 3 order approving Southern's Order No. 636
compliance plan, Southern solicited service elections from its customers in
order to implement its restructured services on November 1, 1993. Southern's
largest customer, Atlanta, bid for firm transportation service on Southern at
prices significantly below Southern's filed tariff rates. Southern rejected
Atlanta's bids. Southern and Atlanta subsequently entered into an interim
agreement under which Atlanta signed firm transportation service agreements with
transportation demands of 582 million cubic feet per day for a minimum term of
four months beginning November 1, 1993, and 118 million cubic feet per day for a
term extending until April 30, 2007, at the maximum FERC-approved rates. This
represented an aggregate reduction of 100 million cubic feet per day from
Atlanta's level of service prior to November 1, 1993. In January 1994 Atlanta
provided notice that it had elected to continue that level of firm service until
October 31, 1994. Southern's other customers elected in aggregate to obtain an
amount of firm transportation services that represented a slight increase from
their level of firm sales and transportation services from Southern prior to
Southern's implementation of Order No. 636, at the maximum FERC-approved tariff
rates, for terms ranging from one to ten or more years.
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<PAGE> 15
Although management believes that most of Southern's former resale
customers ultimately will commit to some type of new long-term firm
transportation agreements with Southern under its restructuring program, it is
unable to predict at what total volume level or for what duration such
commitments will be made.
Transportation and sales by Southern, combined with sales by Marketing, to
two unaffiliated distribution customers, Atlanta and Alabama Gas Corporation,
accounted for approximately 21 percent and 12 percent, respectively, of Sonat's
1993 consolidated revenues. Atlanta and Alabama Gas Corporation were the only
two customers that accounted for ten percent or more of Sonat's consolidated
revenues for 1993.
Southern is continuing to pursue growth opportunities to expand the level
of services in its traditional market area and to connect new gas supplies. On
May 13, 1993, Southern and South Georgia received approval from the FERC for a
$27 million expansion of South Georgia's pipeline system into northern Florida
and southwestern Georgia that will increase firm daily capacity by 40 million
cubic feet per day. Construction on this project is under way and should be
completed in mid-1994. In January 1994 Southern reached tentative agreement with
a group of new customers to expand its service in the growing eastern Tennessee
area. The proposed project entails a 20-mile pipeline extension that would
deliver approximately nine million cubic feet of natural gas per day to a
delivery point near Chattanooga.
For additional information regarding Southern's transportation and sales of
gas, see Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Part II of this report.
Gas Supplies. During 1993 Southern purchased its gas supply from the
following areas: 51 percent from southern Louisiana and from the Gulf of Mexico,
offshore Louisiana, and Texas; three percent from northern Louisiana and Texas;
and 46 percent from Mississippi and Alabama. Southern has approximately 60 gas
purchase contracts remaining with gas producers that commit proved recoverable
reserves to Southern. As described above, pursuant to Order No. 636, Southern is
attempting to terminate its remaining gas purchase contracts.
The following table contains information as to Southern's gas supply and
the general sources from which that supply was obtained during the years 1991
through 1993.
<TABLE>
<CAPTION>
MMCF*
-------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Purchased from non-affiliated field producers................. 102,438 109,481 102,822
Purchased from affiliate...................................... 7,317 11,003 9,653
Other......................................................... 54 97 2
------- ------- -------
Total Purchases............................................... 109,809 120,581 112,477
</TABLE>
- ---------------
* As used in this report, the term "Mcf" means thousand cubic feet; the term
"MMcf" means million cubic feet; and the term "Bcf" means billion cubic feet.
All volumes of natural gas referred to in this report are stated at a pressure
base of 14.73 pounds per square inch absolute ("psia") and at 60 degrees
Fahrenheit.
Southern entered into no new long-term gas purchase agreements in 1993, due
to the cessation of its merchant role because of Order No. 636 as discussed
above. Since Order No. 636 prohibits Southern from providing its traditional
bundled merchant service, Southern does not anticipate at this time that it will
need to contract for the long-term purchase of any additional natural gas
supplies in the future. Southern will purchase minimal volumes of gas from time
to time as may be required for system management purposes. Southern does expect,
however, that adequate gas supplies will need to continue to be available to its
system; consequently, Southern has continued its efforts to have new gas
supplies attached to its system.
Potential Royalty Claims. In connection with its settlements of
take-or-pay claims made by producers over the past few years, Southern has in
certain limited instances indemnified, to varying degrees, the producer from
certain potential claims made by royalty owners. Southern has thus far been
notified of 12 potential royalty claims under the indemnity provisions of
various settlement agreements. The claims for which Southern may have to
indemnify these producers have been asserted by both private lessors with
respect to onshore leases and the Minerals Management Service Division of the
U.S. Department of the Interior (the
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<PAGE> 16
"MMS") with respect to offshore and Indian leases. Southern settled four of
these claims during 1993 for approximately $1.2 million.
In addition to the claims for which Southern has been put on notice, it is
possible that other producers may make future claims against Southern for
royalty indemnification. The June 26, 1992 decision of the Louisiana Supreme
Court in Frey v. Amoco, in which the court held that royalty was due on
take-or-pay payments, may form a basis for royalty claims for a share of
take-or-pay settlements by private lessors in Louisiana and in other states that
may follow the Frey decision. Because courts typically require that interest be
paid on the royalty back to the date of settlement, the amount owed can
substantially exceed the royalty amount. Management believes that Southern's
maximum exposure under all of its various royalty indemnities in onshore
take-or-pay settlements, including interest, approximates $15 million.
Management is unable to state whether any additional royalty claims based on
Southern's indemnification provisions in its take-or-pay settlements will be
asserted or to predict the outcome of any such claims or resulting litigation.
In addition to the potential royalty claims related to onshore production,
Southern also faces exposure in connection with indemnifications in take-or-pay
settlements with producers who have federal offshore or Indian leases. The MMS
issued a policy statement and guidelines on May 3, 1993, declaring its intention
to collect royalty payments for contract buy-downs, buy-outs, pricing disputes,
and on any portion of take-or-pay settlement payments that are subject to future
recoupment. In June 1993 the MMS began to issue letters to producers requiring
payment of royalty on all such payments received under take-or-pay settlements,
along with interest back to the date of payment. The MMS has been aggressively
auditing producers since this time and issuing orders to pay. A lawsuit filed by
the Independent Petroleum Association of America against the MMS and others
challenging the validity of the MMS' new policy is pending in federal district
court for the District of Columbia. Management is unable to predict the outcome
of this litigation or the ultimate outcome of any collection efforts by the MMS.
Management believes that Southern's maximum exposure for all royalty claims
related to offshore production, including interest, approximates $10 million if
no recovery from its customers is allowed. Under the terms of a 1988 take-or-pay
recovery settlement with Southern's customers, Southern is entitled to seek
recovery of these costs under the FERC's Order No. 500 cost-sharing procedures.
The customers, however, are entitled to challenge any effort by Southern to
recover those costs. Management is unable to predict the outcome of the efforts
of the MMS to collect royalty on a portion of any offshore settlement or of
Southern's efforts to recover any amounts it may ultimately pay from its
customers.
Southern believes that it is adequately reserved for any royalty claims
that it may ultimately have to pay or to settle and that, in any event, such
claims will not have a material adverse effect on its financial condition or
results of operations.
Southern Energy Company. Southern Energy Company ("Southern Energy"), a
wholly owned subsidiary of Southern, owns a liquefied natural gas ("LNG")
receiving terminal near Savannah, Georgia, which was constructed for a project,
now terminated, to import LNG from Algeria. The terminal has been inactive since
the early 1980s. On July 22, 1992, the FERC issued an order approving a
settlement relating to Southern Energy's LNG facilities. The settlement resolved
a number of outstanding rate and accounting issues on a favorable basis and
preserved an option for customers of Southern Energy to obtain LNG through this
facility at least through the year 1999.
Sea Robin Pipeline Company. For many years Southern was a 50-percent
participant, through a wholly owned subsidiary, with a wholly owned subsidiary
of United Gas Pipe Line Company ("United"), in Sea Robin Pipeline Company ("Sea
Robin"), an unincorporated gas supply pipeline joint venture. Sea Robin was
originally constructed to obtain Gulf of Mexico gas supplies for Southern's and
United's respective pipeline systems and was operated by United. In December
1990 Southern, through a newly formed subsidiary, acquired the 50-percent
interest in Sea Robin formerly owned by the subsidiary of United. As a result of
the acquisition, two wholly owned subsidiaries of Southern own 100 percent of
Sea Robin, which is now being operated by Southern. Sea Robin has a 436-mile
pipeline system located in the Gulf of Mexico through which it transports gas
for others under its FERC-regulated tariffs. Sea Robin is a transportation-only
pipeline that has restructured in compliance with FERC Order No. 636. Sea
Robin's compliance filing has been accepted
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<PAGE> 17
by the FERC. Sea Robin transported approximately 287 Bcf of natural gas in 1993.
These Sea Robin volumes are included within the Southern transportation volumes
discussed earlier. See Note 9 of the Notes to Consolidated Financial Statements
in Part II of this report for additional information regarding Sea Robin.
Sonat Energy Services Company
Energy Services, which is a wholly owned subsidiary of Sonat, acts as a
holding company for several of Sonat's largely non-FERC-regulated companies
engaged in natural gas marketing, intrastate transportation, and other
nonregulated natural gas ventures. Effective January 1, 1990, Marketing, which
had been a wholly owned subsidiary of Sonat, became a wholly owned subsidiary of
Energy Services.
Sonat Marketing Company. Marketing, which is headquartered in Birmingham,
Alabama, provides natural gas marketing services for industrial and commercial
users, gas distribution companies, gas producers, and gas pipelines throughout
the Gulf Coast, Southeast, Midwest, and Northeast United States. During 1993
Marketing sold 285 Bcf of natural gas purchased from approximately 250 natural
gas producers. Based on its year-end 1993 volumes, Marketing is expected to
exceed 400 Bcf in sales during 1994.
Marketing continues to expand its natural gas marketing business. At the
end of 1992 Marketing's volumes were approximately 500 million cubic feet per
day and were primarily on the Southern system. During 1993 Marketing assumed
responsibility for marketing almost all of the natural gas and liquids
production of Exploration, including execution of Exploration's risk management
program. This has allowed Marketing to expand its presence in Gulf Coast,
Midwest, and Northeast markets and, in turn, provide attractive markets to
unaffiliated producers. As a result of these efforts, Marketing's volumes
exceeded 1.1 billion cubic feet per day at the end of 1993, making it one of the
twenty largest natural gas marketers in the country.
Sonat Intrastate-Alabama Inc. Sonat Intrastate-Alabama Inc. ("SIA"), a
wholly owned subsidiary of Energy Services, owns a 454-mile intrastate pipeline
system extending from natural gas fields and coal seam gas production areas in
the Black Warrior Basin in northwest and central Alabama to connections with
customers in Alabama, as well as interconnections with three other pipelines,
including Southern. SIA's throughput in 1993 was approximately 36 Bcf.
Sonat Ventures Inc. Sonat Ventures Inc. ("Ventures"), a wholly owned
subsidiary of Energy Services, was created in January 1992 for the purpose of
commercializing alternative uses for natural gas and to engage in various
activities related to the purchase and marketing of natural gas. Sonat NGV
Technology Inc. ("NGV"), a wholly owned subsidiary of Ventures, was created in
July 1992. NGV, along with Georgia Energy Company, a wholly owned subsidiary of
Atlanta Gas Light Company, and Natural Gas Vehicles Development Company
Southeast, Inc., formed a joint venture in 1992 to convert vehicles to natural
gas. The conversion facility near Atlanta, Georgia, opened in February 1993. In
addition to the conversion of vehicles, the venture plans to operate an EPA/FTP
lab and emissions testing facility, which is currently under construction.
During 1993 Ventures also entered into two joint ventures with local
distribution companies in Alabama and Florida to construct, own, and operate
natural gas vehicle refueling stations as well as finance the conversion of
fleet vehicles. The first station in Alabama began operating in March of 1994.
Ventures is currently pursuing opportunities to own and operate refueling
centers elsewhere in the Southeast.
AES/Sonat Power, L.L.C. In June 1992 Sonat and The AES Corporation
announced a 50-50 joint venture, AES/Sonat Power, that will construct, own, and
operate natural gas-fueled independent power and cogeneration plants in the
United States, Canada, and Mexico. In January 1994 Pacific Gas and Electric
Company announced that it would sign a contract with AES Pacific, Inc., an
affiliate of AES/Sonat Power, to purchase power from a 221-megawatt power plant
to be constructed in San Francisco. Efforts to satisfy all contract-signing
prerequisites are under way and, if successful, a subsidiary of The AES
Corporation will construct and operate the plant and a subsidiary of Sonat will
manage the gas supply and transportation requirements. The plant is scheduled to
be completed by mid-1997 and would require an equity investment from Sonat in
the range of approximately $15-20 million.
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<PAGE> 18
Citrus Corp.
On June 30, 1986, Sonat acquired one-half of the stock of Citrus, which
owns all of the stock of Florida Gas. Citrus also owns 100 percent of three
natural gas marketing companies, Citrus Trading Corp., which began selling
natural gas to Florida Power & Light Company during 1990 under a 15-year
contract for up to 125 Bcf annually, and Citrus Marketing Company and Citrus
Industrial Sales Company, Inc., both of which market gas to customers in
Florida.
Florida Gas Transmission Company. Florida Gas, like Southern, is an
interstate natural gas transmission company. It is operated by a subsidiary of
Enron Corp., which through a subsidiary owns the other 50 percent of Citrus.
Florida Gas' approximately 4,700-mile pipeline system extends from south Texas
to a point near Miami, Florida, with a certificated daily delivery capacity of
925 million cubic feet per day. See the map on page I-17. Florida Gas is the
primary pipeline transporter of natural gas in the state of Florida and the sole
pipeline transporter to peninsular Florida.
In August 1990 Florida Gas commenced providing open-access gas
transportation services under the provisions of FERC Order No. 500 and
restructured its sales and transportation services. As a result, Florida Gas'
throughput volumes, once primarily sales, became primarily transportation
volumes. Effective November 1, 1993, Florida Gas, like Southern, restructured
its services in compliance with FERC Order No. 636 and essentially became solely
a transporter of natural gas.
Florida Gas has terminated its gas purchase contracts with a weighted
average cost in excess of current spot-market prices and has been negotiating
with its customers and the FERC to recover settlement payments made to terminate
such contracts as a part of its Order No. 636 proceeding. On September 17, 1993,
Florida Gas received approval of its restructuring settlement proposal (the
"Restructuring Settlement") with regard to Order No. 636. The Restructuring
Settlement includes a Transition Cost Recovery ("TCR") mechanism that allows
Florida Gas, effective November 1, 1993, to recover from its customers 100
percent of payments above the $106 million level approved in a previous
settlement, up to $160 million. Florida Gas will be allowed to recover 75
percent of any amounts greater than $160 million. Florida Gas has substantially
completed the renegotiation and termination of these contracts for less than
$160 million, however, and therefore expects to recover all of the amounts spent
and not already expensed through its approved TCR mechanism.
In 1993 Florida Gas transported approximately 314 Bcf under transportation
agreements and had sales of approximately 10 Bcf to resale customers and
approximately 5 Bcf to direct sale customers, compared to transportation of
approximately 298 Bcf, sales for resale of approximately 28 Bcf, and direct
sales of approximately 16 Bcf in 1992. Transportation rates are regulated by the
FERC. A large majority of the gas transported in 1993 by Florida Gas was sold by
the Citrus marketing companies.
A significant 15-year gas supply contract ending in 2005 that Citrus
Trading Corp. has with its principal customer has become unprofitable. This
contract may be terminated by Citrus under certain circumstances relating to
future prices for natural gas and competing fuel oil. Citrus is seeking to
negotiate a restructuring of the pricing under the contract. No assurance can be
given, however, that the contract will be terminated or that Citrus will be
successful in negotiating a restructuring.
Florida Gas, with approval of the FERC, completed a project in late 1991
known as the Phase II expansion, which increased its system capacity by 100
million cubic feet of gas per day to its current total of 925 million cubic feet
per day. Also, in response to continuing growth in demand for natural gas in
Florida, primarily in the electric generation market, Florida Gas filed with the
FERC in 1991 a proposal that would further increase its system capacity. This
expansion, known as Phase III, will increase capacity to existing markets and
also offer new service to the Tampa-St. Petersburg area. Florida Gas was granted
final certificate authority by the FERC on September 15, 1993, for its Phase III
expansion. This expansion will increase system capacity by 530 million cubic
feet per day at a capital cost of approximately $900 million. As part of the
expansion project, Florida Gas contracted for 100 million cubic feet per day of
new firm transportation to be delivered from Southern's system. In connection
with the Phase III expansion, Sonat expects to increase its equity investment in
Citrus by $150 million by the end of the construction period. Additionally,
Florida Gas is
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<PAGE> 19
currently reviewing the prospects for further expansions of its pipeline system
into the Florida market that could be in service in 1996 or 1997.
In connection with its Phase III expansion, Florida Gas entered into an
agreement to acquire an interest in an existing pipeline in the Mobile Bay area
that, pursuant to the agreement, will be expanded by over 300,000 Mcf per day
and connected to Florida Gas' pipeline system.
At December 31, 1993, Citrus' gross pipeline and facilities cost was
approximately $1,731,456,000. Sonat had an investment in Citrus, including its
equity in undistributed earnings, of $103,822,000 at December 31, 1993. For
additional information regarding Citrus, see Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in Part II
of this report, and the Notes to Citrus' Consolidated Financial Statements
contained in Part IV of this report.
Competition and Current Business Conditions
The natural gas transmission industry, although regulated, is very
competitive. During the period from the mid-1980s until the Order No. 636
restructuring, customers had switched much of their volumes from a bundled
merchant service to transportation service, reflecting an increased willingness
to rely on gas supply under unregulated arrangements such as those provided by
Sonat Marketing and Citrus Marketing. Southern competes with several pipelines
for the transportation business of its customers and at times discounts its
transportation rates in order to maintain market share. Southern continues to
provide a limited merchant service with gas supply remaining under contract and,
in this capacity, competes with other suppliers, pipelines, gas producers,
marketers, and alternate fuels.
Natural gas is sold in competition principally with fuel oil, coal,
liquefied petroleum gases, and electricity. An important consideration in
Southern and Florida Gas' markets is the ability of natural gas to compete with
alternate fuels. Residual fuel oil, the principal competitive alternate fuel in
Southern and Florida Gas' market area, was at certain times in 1993, and
currently is, priced at or below the comparable price of natural gas in
industrial and electric generation markets. Some parts of Southern's market area
are also served by one or more other pipeline systems that can provide
transportation as well as sales service in competition with Southern. Southern's
two largest customers are both able to obtain a portion of their natural gas
requirements through transportation by other pipelines.
Competition in the gas marketing business is changing as Order No. 636 is
implemented across the pipeline industry, but it is expected to remain intense
due to the large number of industry participants.
Natural gas in the Florida market faces intense competition from residual
fuel oil, which affects both the volumes of gas transported by Florida Gas and
the volumes of gas sold by the Citrus marketing companies. In addition, certain
pipeline competitors of Florida Gas are currently pursuing proposed pipelines
that may be built to serve the Florida market later in the decade.
Orimulsion, a heavy crude oil product from Venezuela, has also recently
emerged as a potential competitive fuel for the electric generation market in
Florida. Orimulsion is a mixture of tar and water that is very high in sulfur.
It can be burned as an alternative to coal or to fuel oil, but is cheaper than
fuel oil and more easily transported than coal. Because of its high sulfur
content, however, Orimulsion can only be burned in plants that have advanced
environmental protection equipment.
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[SOUTHERN NATURAL PIPELINE MAP GOES HERE]
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INVESTMENT IN SONAT
OFFSHORE DRILLING INC.
Sonat Offshore Drilling Inc. and its subsidiaries (collectively referred to
as "Offshore" unless the context indicates otherwise) are engaged in contract
drilling for oil and gas in offshore areas throughout the world. As a result of
the initial public offering of Offshore's common stock on June 4, 1993, Sonat
currently retains ownership of 39.9 percent of Offshore's outstanding shares.
Offshore maintains offices, land bases, and other facilities at various
locations throughout the world.
See "Governmental Regulation -- Contract Drilling" below for information
concerning governmental regulation of contract drilling operations. See "Stock
Sale by Subsidiary" below for information concerning the public offering.
Drilling Units and Equipment
As of March 15, 1994, Offshore wholly owns nineteen marine units and
operates three others, two of which it partially owns and one of which it
bareboat charters. All of Offshore's drilling equipment is suitable for both
exploratory and development drilling, and Offshore is normally engaged in both
types of drilling activity. At March 15, 1994, 17 of the 22 marine units were
working or committed to work under contract.
The offshore contract drilling industry principally uses the following four
types of rigs: (1) Semisubmersibles are floating vessels that can be submerged
so that a substantial portion of the lower hull is below the water surface
during drilling operations, which make them well suited for operations in rough
water conditions. (2) Drillships are generally self-propelled and designed to
drill in deep water. Shaped like a conventional ship, they are the most mobile
of the major rig types. (3) Jack-up rigs stand on the ocean floor with their
hull and drilling equipment elevated above the water on connected support legs.
They are best suited for water depths of 350 feet or less. (4) Submersibles sit
on the ocean floor with the drilling deck structure supported above the water by
vertical trusses and columns. They are limited to shallow water applications.
The search for oil and gas has increasingly been moving into deeper and
more demanding offshore environments, and Offshore's primary focus has been on
the technically demanding deep water and harsh environment segments of the
market. Offshore operates five of the world's thirteen "fourth-generation"
semisubmersibles. "Fourth-generation" semisubmersibles are those built after
1984 that are larger than other semisubmersibles, are capable of working in
harsh environments, and have other advanced features. With the acquisition of
the outstanding interests in the Polar Pioneer described below, Offshore now
wholly owns three of these five semisubmersibles, while the other two are owned
by a company in which Offshore has a 25 percent interest and are managed by
Offshore through 1995. As of March 15, 1994, four of these rigs were working in
the North Sea under contracts of varying duration, expiring from April 1994
through October 1997, and one was working in a deep water area of the Gulf of
Mexico under a contract expiring in November 1994.
Offshore also owns three older semisubmersibles. One of them was mobilized
from the North Sea to the Gulf of Mexico during 1993. As of March 15, 1994, that
rig was under contract through August 1994, one rig was enroute from the North
Sea to the Gulf of Mexico, and the other one was idle in the North Sea.
Offshore owns two dynamically positioned drillships that, as of March 15,
1994, were under contracts expiring in May 1994 and December 1994. One is
working in the U.S. Gulf of Mexico and the other is working offshore Brazil.
Offshore also operates eleven jack-ups and one submersible in selected
shallow water markets. Ten of the jack-ups and the submersible are owned by
Offshore, while one of the jack-ups is owned by unaffiliated companies and
bareboat chartered to Offshore through completion of its current contract. Five
jack-ups and the submersible are in the Gulf of Mexico. As of March 15, 1994,
four of these jack-ups and the submersible were under short-term contracts of
varying duration. Offshore has five jack-ups in Egypt, four of which, as of
March 15, 1994, were under contracts of varying duration. The eleventh jack-up
is currently idle in the United Arab Emirates.
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Upon the expiration of existing contracts, there can be no assurance that
such contracts will be renewed or extended, that new contracts will be
available, or if contracts are available, that they will provide revenues
adequate to cover all fixed and variable costs associated with the units.
Offshore acquired ten offshore drilling rigs from Dixilyn-Field Drilling
Company ("Dixilyn-Field"), a subsidiary of Panhandle Eastern Corporation, in
1987. Under the terms of the purchase agreement, the total consideration to be
paid to Dixilyn-Field for the transfer of the rigs will be determined solely by
the economic performance of the rigs during a period no longer than 13 years
from the date of the acquisition. In 1993 the rigs had a negative cash flow
position on a combined, cumulative basis and, therefore, Dixilyn-Field was not
entitled to receive any additional compensation for the rigs for that year.
Offshore has sold four of the rigs acquired from Dixilyn-Field, including one
which was bareboat chartered by Offshore from the rig purchaser and is expected
to be returned to the rig purchaser in April 1994.
In December 1993 Offshore entered into agreements with its partners in the
Polar Frontier joint venture providing for the purchase of the remaining 52.5
percent interest in the Polar Pioneer by Offshore for approximately $44.6
million plus certain adjustments relating to rig upgrades and drydocking
estimated at $2.5 million and limited future consideration (up to $3 million)
contingent upon the future operations of the Polar Pioneer. The transaction
closed on February 18, 1994. The acquisition was funded by Offshore through cash
reserves and a private placement of $30 million of senior notes.
Drilling Contracts
Offshore's drilling contracts are individually negotiated, generally after
competitive bidding, and vary in their terms and provisions. The contracts
generally provide for a basic daily drilling rate ("dayrate") and for lower
rates for periods of travel or when drilling operations are interrupted or
restricted by equipment breakdowns, adverse weather conditions, or other
circumstances beyond the control of Offshore. A drilling contract may be
terminated by the customer in the event the drilling unit is destroyed or lost
or if drilling operations are suspended for a specified period of time as a
result of a breakdown of major equipment or, in some cases, due to other events
beyond the control of either party. The duration of a dayrate drilling contract
may be determined either by the time required to drill a specified number of
wells or by the lapse of a stated term.
Offshore has also entered into "turnkey" contracts at fixed prices per
well. Under turnkey contracts, Offshore agrees to drill a well to a specified
depth for a fixed price. Turnkey contracts offer the possibility of gains or
losses that are substantially greater than those that would ordinarily result
under typical dayrate contracts, depending upon the performance of the drilling
unit and other factors. Consequently, turnkey contracts generally provide an
opportunity for greater profits than do conventional dayrate contracts, but
entail more financial risk. In addition, revenues and operating costs from
turnkey contracts are much higher than under dayrate contracts since Offshore
provides substantially more of the material and services necessary to drill the
wells.
In 1991 Offshore was awarded contracts to drill up to six turnkey wells in
the Bay of Campeche, Mexico by Petroleos Mexicanos ("Pemex"), the national oil
company of Mexico. The turnkey portions of all six of these wells have been
completed. In 1992 Pemex awarded contracts to Offshore to drill up to an
additional four turnkey wells in the Bay of Campeche, two of which had been
completed as of March 15, 1994, and one of which Pemex had decided not to drill.
Offshore continues to investigate additional turnkey opportunities as they
arise, but there can be no assurance that Offshore will obtain additional
contracts before the completion of its current projects.
During the past five years Offshore has engaged in contract drilling for
many of the international oil companies (or their affiliates) in the world, as
well as for many government-controlled and independent oil companies. During
this period Offshore's principal customers included Royal Dutch/Shell, Conoco,
British Petroleum, Pemex, Gulf of Suez Petroleum Company, Amoco, Petrobras, and
Norsk Hydro. Offshore's two largest customers in 1993 were Pemex and Royal
Dutch/Shell, which accounted for 35 percent and 26 percent, respectively, of
Offshore's 1993 consolidated operating revenues.
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Sales of Marine Units
In December 1990 Offshore contributed one of its fourth-generation
semisubmersibles, the Henry Goodrich, to Arcade Drilling as. ("Arcade
Drilling"), a Norwegian corporation whose shares are traded on the Oslo Stock
Exchange, for $70 million in cash and 21.75 percent of Arcade Drilling's common
stock. Arcade Drilling also owns another fourth-generation semisubmersible, the
Sonat Arcade Frontier, which was delivered from a Korean shipyard in 1990.
Offshore has been engaged by Arcade Drilling to manage both of these rigs under
five-year management contracts expiring in 1995. In August 1991 Reading & Bates
Corporation ("R&B"), a competitor of Offshore, acquired effective control of
Arcade Shipping as. ("Shipping"), a company that has a 46.25 percent interest in
Arcade Drilling. R&B's control of Shipping, together with the shares of Arcade
Drilling that it owns individually, gave R&B control of Arcade Drilling.
Offshore has subsequently purchased additional shares of Arcade Drilling stock
on the open market, increasing its interest in Arcade Drilling to approximately
25 percent.
Operational Hazards and Insurance
Offshore's operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blowouts, reservoir damage, loss of
production, loss of well control, cratering, or fires, which could result in the
suspension of drilling operations, damage to or destruction of the equipment
involved, and injury to rig personnel. In addition, offshore drilling operations
are subject to perils peculiar to marine operations, including capsizing,
grounding, collision, and loss or damage from severe weather or storms. Offshore
maintains broad insurance coverage limiting financial loss resulting from these
operating hazards, but present insurance coverage would not in all situations
provide sufficient funds to protect Offshore from all liabilities that could
result from its drilling operations or to replace the unit if a total loss
occurred, including certain of its fourth-generation semisubmersibles and
drillships. Also, insurance coverage in most cases does not protect against loss
of revenues.
Offshore is subject to liability under various environmental laws and
regulations. See "Governmental Regulations -- Contract Drilling" below. Damage
to the environment could also result from Offshore's operations, particularly
through oil spillage or extensive uncontrolled fires. Offshore has generally
been able to obtain some degree of contractual indemnification pursuant to which
Offshore's customer agrees to protect and indemnify Offshore from liability for
pollution and environmental damages. There is no assurance, however, that
Offshore can obtain such indemnities in all of its contracts or that, in the
event of extensive pollution and environmental damages, the customer will have
the financial capability to fulfill its contractual obligation to Offshore.
Also, these indemnities may not be enforceable in all instances. No such
indemnification is typically available for turnkey operations.
Competition and Current Business Conditions
Historically, the offshore contract drilling industry has been highly
competitive and cyclical, with periods of high demand, short rig supply, and
high dayrates followed by periods of low demand, excess rig supply, and low
dayrates. The industry is characterized by high capital costs, long lead times
for construction of new rigs, and numerous competitors. The offshore contract
drilling business is influenced by many factors, including the current and
anticipated prices of oil and gas (which affect the expenditures by oil
companies for exploration and production) and the availability of drilling
units.
For a number of years, depressed oil and gas prices and an oversupply of
rigs have adversely affected the offshore drilling market. These forces have
resulted in fewer contract drilling opportunities and substantial declines in
dayrates for drilling services. In addition, Offshore has competition from many
other offshore drilling contractors in all of the areas in which it operates.
Offshore cannot predict the timing or extent of any improvement in the industry
or the future level of demand for Offshore's drilling services.
The offshore drilling market in 1992 and 1993 generally experienced
difficult conditions, although certain geographic areas have performed better
than others. The North Sea market continues to be depressed in comparison with
recent years, primarily due to the recent decline in oil prices and the effects
of changes made in 1993 to the U.K. Petroleum Revenue Tax on exploratory
drilling. Despite the recent awarding of additional
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licenses by the U.K. and Norwegian governments providing new drilling prospects
and Offshore's belief that there has been a permanent reduction in the supply of
rigs available for drilling in the North Sea as a result of U.K. safety
regulations, Offshore expects the North Sea market to remain weak in 1994,
especially in the first half of the year. A strong natural gas price environment
continues to support the U.S. Gulf of Mexico drilling market. As a result of the
improved market there, several drilling contractors, including Offshore, have
recently moved rigs back to the Gulf of Mexico and additional mobilizations are
expected through early 1994. The recent influx of rigs and decline in oil
prices, however, have resulted in decreased dayrates and drilling opportunities
over the past few months. Offshore believes the market will strengthen after the
first quarter and will then remain strong for the remainder of 1994 as long as
gas prices continue at or above the corresponding 1993 levels. Additional
contractors have recently elected to focus on turnkey drilling, which has caused
that market to become more competitive as compared to prior years.
Generally, Offshore has had a good degree of success in keeping its deep
water and harsh environment drilling units utilized at acceptable dayrates. In
spite of this success, however, there can be no assurance that as contracts for
these units end new contracts offering similar returns can be found.
Foreign Operations
Offshore has derived a majority of its revenues from its foreign drilling
operations in each of the past three years. Offshore cannot predict whether
foreign drilling operations will account for a greater or lesser percentage of
such revenues in future periods.
Risks inherent in foreign operations include loss of revenue and equipment
from such hazards as expropriation, nationalization, war, insurrection, and
other political risks. Offshore is protected to a substantial extent against
capital loss (but typically not loss of revenues) from most of these hazards by
insurance, indemnity provisions in its drilling contracts, or both, but usually
not risk of expropriation or other political risks. Other risks inherent in
foreign operations are the possibility of currency exchange losses where
revenues are received in currencies other than U.S. dollars and losses resulting
from an inability to collect U.S. dollar revenues because of a shortage of U.S.
currency available to the foreign country. To date, Offshore's foreign
operations have not been materially affected by these currency risks.
The ability of Offshore to compete in the international drilling market may
be adversely affected by foreign governmental practices that favor or
effectively require the awarding of drilling contracts to local contractors.
Offshore expects to continue to structure certain of its operations through
joint ventures or other appropriate means in order to remain competitive in the
world market.
GOVERNMENTAL REGULATION
Exploration and Production
The federal government and the states in which Exploration has oil and gas
production and owns interests in producing properties regulate production, the
drilling and spacing of wells, conservation, and various other matters affecting
Exploration's oil and gas production.
The operations of Exploration under federal oil and gas leases are subject
to certain statutes and regulations of the U.S. Department of the Interior that
currently impose liability upon lessees for the cost of clean-up of pollution
resulting from their operations. Royalty obligations on all federal leases are
regulated by the MMS, which has promulgated valuation guidelines for the payment
of royalty by producers. To the extent the MMS finally determines valuation
based on a method other than actual sales proceeds received, producers could be
required to pay royalties at a rate higher than actual sales proceeds.
Other federal, state, and local laws and regulations relating to the
protection of the environment may affect Exploration's oil and gas operations,
both directly and indirectly, through their effect on the construction and
operation of facilities, drilling operations, production, or the delay or
prevention of future offshore lease sales. Sonat maintains substantial insurance
on behalf of Exploration for oil pollution liability. Exploration is also
subject to various governmental safety regulations in the jurisdictions in which
it operates.
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Transmission, Sale, and Marketing of Natural Gas
Southern is subject to regulation by the FERC and by the Secretary of
Energy under the Natural Gas Act, the NGPA, and the Department of Energy
Organization Act of 1977 (the "DOE Act"). Southern's operating subsidiaries and
Florida Gas are also subject to such regulation.
The Natural Gas Act, modified by the DOE Act, grants to the FERC authority
to regulate the construction and operation of pipeline and related facilities
utilized in the transportation and sale of natural gas in interstate commerce,
including the extension, enlargement, or abandonment of such facilities.
Southern, its operating subsidiaries, and Florida Gas hold required certificates
of public convenience and necessity issued by the FERC authorizing them to
construct and operate all pipelines, facilities, and properties now in operation
for which certificates are required, and to transport and sell natural gas in
interstate commerce.
The FERC also has authority to regulate the transportation of natural gas
in interstate commerce and the sale of natural gas in interstate commerce for
resale. Although the FERC still retains jurisdiction over their resale rates,
following the implementation of Order No. 636, Southern, Florida Gas, and other
interstate pipeline companies are now permitted to charge market-based rates for
gas sold in interstate commerce for resale. Gas sold by Marketing and other
marketing companies is not regulated by the FERC. Transportation rates remain
fully regulated. The price at which gas is sold to direct industrial customers
is not subject to the FERC's jurisdiction. As necessary, Southern, its operating
subsidiaries, and Florida Gas file with the FERC applications for changes in
their transportation rates and charges designed to allow them to recover fully
their costs of providing such service to their customers, including a reasonable
rate of return. These rates are normally allowed to become effective, subject to
refund, until such time as the FERC rules on the actual level of rates. See
"Rate and Regulatory Proceedings" below.
The Natural Gas Wellhead Decontrol Act of 1989, enacted on July 26, 1989,
phased in decontrol of the wellhead price of all gas then remaining subject to
maximum lawful price limitations by January 1, 1993. Thus, the price of all gas
sold at the wellhead is no longer regulated.
Regulation of the importation of natural gas is vested in the Secretary of
Energy, who has delegated various aspects of this import jurisdiction to the
FERC and the ERA.
Southern, its operating subsidiaries, and Florida Gas are subject to the
Natural Gas Pipeline Safety Act of 1968, as amended, which regulates pipeline
and LNG plant safety requirements, and to the National Environmental Policy Act
and other environmental legislation. Southern, its operating subsidiaries, and
Florida Gas have a continuing program of inspection designed to keep all of
their facilities in compliance with pollution control and pipeline safety
requirements and believe that they are in substantial compliance with applicable
requirements. Southern's capital expenditures to comply with environmental and
pipeline safety regulations were approximately $14 million in 1993. It is
anticipated that such expenditures will be approximately $11 million in 1994 and
approximately $10 million in 1995. For more information regarding environmental
matters, see the discussion below.
Rate and Regulatory Proceedings. Various matters pending before the FERC,
or before the courts on appeal from the FERC, relating to, or that could affect,
Sonat or one or more of its subsidiaries are described in Part II of this report
in Note 9 of the Notes to Consolidated Financial Statements and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are incorporated herein by reference. As described in Note 9, several general
rate changes have been implemented by Southern and remain subject to refund.
Contract Drilling
Offshore's operations are affected from time to time in varying degrees by
governmental laws and regulations. The drilling industry is dependent on demand
for services from the oil and gas exploration industry and, accordingly, is
affected by changing tax and other laws relating to the energy business
generally.
Foreign contract drilling operations are subject to various other
governmental laws and regulations in countries in which Offshore operates. Such
laws and regulations govern various aspects of foreign operations,
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including the equipping and operation of drilling units, currency conversions
and repatriation, oil exploration and development, taxation of foreign earnings
and earnings of expatriate personnel, and use of local employees and suppliers
by foreign contractors. Governments in some foreign countries have become
increasingly active in regulating and controlling the ownership of concessions
and companies holding concessions, the exportation of oil, and other aspects of
the oil industries in their countries. In addition, government action, including
initiatives by OPEC, may continue to cause oil price volatility. In some areas
of the world this governmental activity has adversely affected the amount of
foreign exploration and development work done by major oil companies and may
continue to do so.
In the United States regulations applicable to Offshore's operations
include certain regulations controlling the discharge of materials into the
environment, requiring removal and cleanup of materials that may harm the
environment, or otherwise relating to the protection of the environment. For
example, as an operator of mobile offshore drilling units in navigable United
States waters and certain offshore areas, Offshore may be liable for damages and
costs incurred in connection with oil spills for which it is held responsible,
subject to certain limitations. Laws and regulations protecting the environment
have become more stringent in recent years and may in certain circumstances
impose "strict liability," rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. Such laws and
regulations may expose Offshore to liability for the conduct of or conditions
caused by others, or for acts of Offshore that were in compliance with all
applicable laws at the time such acts were performed. The application of these
requirements or the adoption of new requirements could have a material adverse
effect on Offshore.
The Oil Pollution Act of 1990 ("OPA") and regulations promulgated pursuant
thereto impose a variety of requirements on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills.
Few defenses exist to the liability imposed by the OPA, which could be
substantial. A failure to comply with ongoing requirements or inadequate
cooperation in a spill event could subject a responsible party to civil or
criminal enforcement action.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles, and structures. Violations of environmental-related lease
conditions or regulations issued pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
Certain of the foreign countries in whose waters Offshore is presently
operating or may operate in the future have regulations covering the discharge
of oil and other contaminants in connection with drilling operations.
Offshore believes that it has conducted its operations in substantial
compliance with applicable environmental laws and regulations governing its
activities.
Although significant capital expenditures may be required to comply with
such governmental laws and regulations, such compliance has not materially
adversely affected the earnings or competitive position of Offshore. In 1992
regulations relating to offshore drilling rigs were issued in the U.K. that
required a comprehensive review of the technical characteristics of and
operating procedures for each rig in the U.K. sector of the North Sea. Offshore
does not believe that any upgrade required on its rigs as a result of such
technical review will be significant. Two rigs for which upgrades would be
significant, however, the Sonat D-F 96 and the Sonat D-F 97, were moved from the
North Sea because market conditions there did not justify the amount of capital
expenditures required to upgrade these rigs. It is possible that such laws and
regulations in the future may add to the cost of operating offshore drilling
equipment or may significantly limit drilling activity.
The United Kingdom levies a petroleum revenue tax ("PRT") on revenue
derived from the extraction of oil and natural gas from the U.K. sector of the
North Sea. Prior to the changes discussed below, a company was permitted to
reduce the amount of PRT it owed by taking as a credit against its revenues
certain of its
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expenditures used to explore for oil and natural gas in the U.K. On March 16,
1993, the Chancellor of the Exchequer proposed certain changes in the PRT that
were subsequently enacted. Among other things, these changes have (i) effective
July 1, 1993, reduced the rate of PRT from 75 percent to 50 percent on revenues
derived from existing fields; (ii) abolished the PRT for new fields, defined as
those for which development consent is received after March 15, 1993; and (iii)
eliminated the credit attributable to exploration costs. The changes in the PRT
adversely affected exploratory drilling in the U.K. sector of the North Sea in
1993 and the first quarter of 1994. Offshore expects the impact on developmental
drilling to be favorable, however, because the tax burden has been reduced on
new field production. While Offshore expects these trends to become clearer in
the future, Offshore cannot predict the long-term effect of changes in the PRT
on demand for offshore drilling rigs in the U.K. Sector of the North Sea or on
Offshore. The combination of low oil prices and the changes in the PRT, however,
have resulted in a substantial reduction of drilling activities in the U.K.
sector of the North Sea.
ENVIRONMENTAL MATTERS
Exploration and Southern and certain of their subsidiaries are subject to
extensive federal, state, and local environmental laws and regulations that
affect their operations. Governmental authorities may enforce these laws and
regulations with a variety of civil and criminal enforcement measures, including
monetary penalties, assessment and remediation requirements, and injunctions as
to future activities. Exploration, Southern, and certain of their subsidiaries'
use and disposal of hazardous materials and toxic substances are subject to the
requirements of the federal Toxic Substances Control Act ("TSCA") and the
federal Resource Conservation and Recovery Act ("RCRA"), among others, and
comparable state and local statutes. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), also known as "Superfund," imposes
liability, without regard to fault or the legality of the original act, for
release of a "hazardous substance" into the environment.
Exploration is named as a potentially responsible party ("PRP") at two
Superfund sites, at one of which its status is that of a de minimis contributor.
Exploration has reached tentative agreement with the Environmental Protection
Agency ("EPA") for this latter site, which is projected to result in a total
settlement of Exploration's involvement at the site for less than $20,000. Based
on the information that it currently possesses, Exploration does not believe
that any contribution will be sought from it with regard to the other site.
Southern is named as a PRP at three Superfund sites, at two of which it is
a de minimis party. Based on the number of other financially responsible PRPs at
each of the sites, the estimated relative volume of material contributed to the
sites by Southern, the information that it currently possesses regarding the
expected costs required to remediate the sites, and the amounts already
contributed to remediation, Southern currently estimates that it should not
ultimately be required to contribute in excess of $200,000 in the aggregate to
the costs of remediation of all three sites.
In addition, Southern has been advised by a joint defense group of PRPs
("JDG") at another Superfund site that the JDG might seek to add it as a PRP,
but Southern has received no notification from the EPA asserting that it is a
PRP. A corporation in which a subsidiary of Exploration is a 50-percent
shareholder has been named as a PRP at this site, however, and it has elected to
join the JDG, which acting pursuant to an Administrative Order on Consent among
the EPA and its members, has undertaken to stabilize the site by removing and
disposing of all liquids and containers located thereon for a total cost
believed to be less than $1.5 million, of which Exploration's share, through
this 50-percent-owned corporation, is presently less than $50,000. Sonat has
been informed by representatives of the JDG that no characterization of soil or
groundwater contamination at this site has yet taken place and, therefore, the
extent of such contamination, if any, is not currently known. Southern has thus
far elected not to join the JDG, because it believes that it has significant
potential defenses to liability for this site and that, in any event, it shipped
de minimis amounts of material to this site. Based on the number of other
financially responsible PRPs and other information that it currently possesses,
Sonat currently estimates that neither Southern nor Exploration's subsidiary
will incur liabilities related to this site in an amount material to Sonat.
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Liability under CERCLA (and applicable state law) can be joint and several
with other PRPs. Although volumetric allocation is a factor in assessing
liability, it is not necessarily determinative; thus, the ultimate liability at
any of these sites could be substantially greater than the amounts described
above. Neither Exploration nor Southern believes that its status as a PRP at any
of these sites will have a material adverse effect on its financial condition or
results of operations.
Southern has in the past used lubricating oils containing polychlorinated
biphenyls ("PCBs") in conjunction with auxiliary compressed air systems at
Southern's natural gas compressor stations. Although the use of such oils was
discontinued in the early 1970's, Southern has discovered residual PCB
contamination at certain of its gas compressor station sites. For some time,
Southern has had an ongoing internal project to identify and deal with the
presence of PCBs at these sites. A total of thirteen stations evidenced some
level of on-site PCB contamination ranging from low to moderate. Southern has
completed the characterization and clean-up of twelve of these sites based on
the guidelines of the TSCA at a total cost of approximately $6 million. Southern
has partially completed the characterization and clean-up of the remaining site
and believes that it should be able to complete the remediation of this site for
a total cost of less than $5 million.
In the operation of their natural gas pipeline systems, Southern and South
Georgia have used, and continue to use at several locations, gas meters
containing elemental mercury. Many of these meters have been removed from
service. Southern and South Georgia plan to remove the remaining mercury meters
during the course of regularly scheduled facilities upgrades, but until such
time, the meters are handled pursuant to established procedures that protect
employees and comply with Occupational Safety and Health Administration
standards. It is generally believed in the natural gas pipeline industry that,
in the course of normal maintenance and replacement operations, elemental
mercury may have been released from mercury meters. Although at this time
neither the EPA nor any state in which Southern or South Georgia operates has
yet issued clean-up levels or guidelines with respect to contamination from past
releases or spills of mercury, Sonat expects that guidelines will be
forthcoming. Southern and South Georgia have nonetheless begun preliminary
efforts to address this situation and plan to begin remediation if contamination
is detected upon characterization of these sites. Because the number of sites
involved and the extent of contamination at any site are not yet known, Sonat is
unable at this time to estimate the cost of remediation. Based on its experience
with other remediation projects, the industry experience to date with
remediation of mercury, and its preliminary analysis of the possible extent of
the contamination, however, Sonat believes that its remediation of any mercury
contamination will not have a material adverse effect on its financial condition
or results of operations.
Sonat generally considers environmental assessment and remediation costs
and costs associated with compliance with environmental standards incurred by
Southern and South Georgia to be recoverable through rates since they are
prudent costs incurred in the ordinary course of business and, accordingly, will
seek recovery of such costs through rate filings, although no assurance can be
given with regard to their ultimate recovery.
Exploration, Southern, and their subsidiaries are subject to the federal
Clean Air Act and the federal Clean Air Act Amendments of 1990 ("1990
Amendments"), which added significantly to the existing requirements established
by the federal Clean Air Act. The 1990 Amendments require that the EPA issue new
regulations, mainly related to mobile sources, air toxics, ozone non-attainment
areas, acid rain, permitting, and enhanced monitoring. While it will not be
possible to estimate the additional costs of compliance with these new
requirements until the EPA and the states complete their regulations, Sonat
expects that the regulations when issued may require significant capital
spending to modify certain of its subsidiaries' facilities, particularly with
regard to modifications that may be required for certain natural gas compressor
stations of Southern to reduce their emissions of oxides of nitrogen.
In the opinion of Sonat's management, based on information currently
possessed by Sonat, the probability is remote that Sonat or any of its
subsidiaries will incur a liability as a result of the presently identified
environmental contingencies described above in an amount material to Sonat.
While the nature of environmental contingencies makes complete evaluation
impractical, Sonat is currently aware of no other environmental matter that
could reasonably be expected to have a material impact on its results of
operations
I-25
<PAGE> 29
or financial condition. Sonat has an active and ongoing environmental program at
all levels of its organization and believes responsible environmental management
is integral to its business. Sonat believes that its subsidiaries have conducted
their operations in substantial compliance with applicable environmental laws
and regulations governing their activities.
For a discussion of the environmental matters affecting Offshore, see
"Governmental Regulation -- Contract Drilling" above.
STOCK SALE BY SUBSIDIARY
On June 4, 1993, the initial public offering of Offshore's Common Stock at
$22.00 per share was closed. Prior to the offering, Sonat owned 100 percent of
Offshore. Offshore issued 15.5 million shares and Sonat sold 1.448 million of
its shares resulting in a combined pretax gain of $155.8 million. Net proceeds
from the combined transactions after underwriting commissions, expenses, and tax
provisions totaled approximately $340 million. Sonat retained ownership of
approximately 11.3 million or 39.9 percent of Offshore's outstanding shares and
recognized an after-tax gain of $99.7 million or $1.15 per share from the
combined transactions.
DISCONTINUED OPERATIONS
On April 23, 1992, Sonat completed the sale of Teleco Oilfield Services
Inc., which had been acquired by Sonat in 1984, to Baker Hughes Incorporated
("Baker Hughes"). Sonat received $200 million in cash and four million shares of
Baker Hughes convertible preferred stock. The convertible preferred stock has a
liquidation preference of $200 million, a dividend rate of six percent per
annum, and is convertible at $32.50 per share into Baker Hughes common stock.
The cash proceeds were used to reduce Sonat's debt and the dividends paid on the
convertible preferred stock had a positive impact on 1993 earnings.
ITEM 2. PROPERTIES
A description of Sonat's and its subsidiaries' properties is included under
Item 1. Business above and is hereby incorporated by reference herein.
ITEM 3. LEGAL PROCEEDINGS
For information regarding certain proceedings pending before federal
regulatory agencies, see Note 9 of the Notes to Consolidated Financial
Statements in Part II of this report.
Arcadian Corporation v. Southern Natural Gas Company and Atlanta Gas Light
Company was filed in January 1992 in the U.S. District Court for the Southern
District of Georgia. In this lawsuit against Southern and Atlanta Gas Light
Company for alleged violation of the antitrust laws in connection with
Southern's refusal to provide direct service to the Plaintiff, Arcadian
Corporation ("Arcadian"), Arcadian claims actual damages of at least $15
million, which could be trebled under the antitrust laws. Southern and Arcadian
executed an agreement settling this lawsuit on November 30, 1993. The settlement
provides that the lawsuit will be dismissed with prejudice upon final,
nonappealable approval by the FERC of the direct connection and transportation
service requested by Arcadian. Pending such approval, the lawsuit has been
stayed. While management believes it has meritorious defenses and intends to
defend the suit vigorously if the stay were to be lifted, given the inherently
unpredictable nature of litigation and the relatively early state of discovery
in the case, management is unable to predict the ultimate outcome of the
proceeding if it were to go forward, but believes that it will not have a
material adverse effect on Southern's financial position.
Exxon Corporation v. Southern Natural Gas Company was filed in February
1994 in the U.S. District Court for the Southern District of Texas. Exxon
Corporation ("Exxon"), the plaintiff in this suit, asked the court to declare
that Southern has no right to terminate a gas purchase contract with Exxon
providing for the sale and purchase of gas produced from Mississippi Canyon and
Ewing Bank Area Blocks, offshore Louisiana (the "Contract"), which Southern gave
notice of termination effective March 1, 1994. In the alternative, Exxon alleged
that Southern has repudiated and breached the Contract and asked for an
unspecified amount
I-26
<PAGE> 30
of monetary damages. Management is unable to predict the outcome of this
litigation and whether its position that it has the right to terminate this
contract will be sustained.
Sonat and its subsidiaries are involved in a number of other lawsuits, all
of which have arisen in the ordinary course of business. Sonat does not believe
that any ultimate liability resulting from any of these other pending lawsuits
will have a material adverse effect on the financial position or results of
operations of Sonat.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Sonat did not submit any matter to a vote of its security holders during
the fourth quarter of 1993.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
OFFICER OFFICE AGE
- ------------------------------------------- ------------------------------------------- ---
<S> <C> <C>
Ronald L. Kuehn, Jr....................... Chairman of the Board, President and Chief 58
Executive Officer
Donald G. Russell......................... Executive Vice President 62
William A. Smith.......................... Executive Vice President 49
Thomas W. Barker, Jr...................... Vice President -- Finance and Treasurer 49
Beverley T. Krannich...................... Vice President -- Human Resources and 43
Secretary
*Ronald B. Pruet........................... Vice President and Controller 41
James A. Rubright......................... Vice President and General Counsel 47
*James E. Moylan, Jr....................... President of Southern 43
Richard B. Bates.......................... President of Energy Services 40
</TABLE>
- ---------------
* Effective April 1, 1994.
There is no family relationship between any of the above-named executive
officers.
The officers of Sonat are elected annually by the Board of Directors. The
identification of an individual as an executive officer in this report does not
constitute a determination by Sonat or its Board of Directors that such
individual is an officer of Sonat for purposes of Section 16 of the Securities
Exchange Act of 1934.
Ronald L. Kuehn, Jr. was elected Chairman of the Board of Sonat effective
March 28, 1986. Mr. Kuehn has served as Director of Sonat since April 30, 1981,
as President of Sonat since January 1, 1982, and as Chief Executive Officer of
Sonat since June 1, 1984, and currently serves in those capacities. Mr. Kuehn
also serves as Director of various Sonat subsidiaries. During the past five
years Mr. Kuehn has served as a senior executive officer of Sonat.
Donald G. Russell was elected Executive Vice President of Sonat effective
January 1, 1991, and currently serves in that capacity. Mr. Russell also serves
as Chairman and Chief Executive Officer of Exploration. During the past five
years Mr. Russell has served as an officer of Sonat and Exploration.
William A. Smith was elected Executive Vice President of Sonat effective
March 1, 1991, and currently serves in that capacity. Mr. Smith also serves as
Chairman and President of Southern and Chairman of Energy Services until April
1, 1994, when he will become Vice Chairman of Exploration. During the past five
years, Mr. Smith has served as an officer of Sonat, Southern, and Energy
Services.
Thomas W. Barker, Jr. was elected Vice President -- Finance of Sonat
effective June 15, 1984, and Treasurer of Sonat effective January 1, 1990, and
currently serves in those capacities. Mr. Barker also serves as Vice
President -- Finance and Assistant Treasurer of Exploration and Treasurer of
Southern and Energy Services. During the past five years Mr. Barker has served
as an officer of Sonat, Southern, Exploration, and Energy Services.
I-27
<PAGE> 31
Beverley T. Krannich was elected Vice President-Human Resources of Sonat
effective June 1, 1987, and Secretary of Sonat effective May 11, 1984, and
currently serves in those capacities. Ms. Krannich also serves as Vice
President-Human Resources of Exploration. During the past five years Ms.
Krannich has served as an officer of Sonat and Exploration.
Ronald B. Pruet was elected Vice President and Controller of Sonat
effective April 1, 1994, and will serve in that capacity beginning on such date.
Mr. Pruet also serves as Senior Vice President and Treasurer of Exploration.
During the past five years Mr. Pruet has served as an officer of Exploration.
James A. Rubright was elected Vice President and General Counsel of Sonat
effective February 15, 1994, and currently serves in that capacity. Mr. Rubright
also serves as Executive Vice President and General Counsel of Exploration,
Southern, and Energy Services. During the past five years until his election as
Vice President and General Counsel of Sonat, Mr. Rubright had been a member of
the Atlanta, Georgia law firm of King & Spalding.
James E. Moylan, Jr. was elected Vice President and Controller of Sonat
effective June 15, 1984, and will serve in that capacity until April 1, 1994,
when he will become President of Southern. During the past five years Mr. Moylan
has served as an officer of Sonat and Southern.
Richard B. Bates was elected President of Energy Services effective January
1, 1994, and currently serves in that capacity. Mr. Bates also serves as
President of Marketing. During the past five years Mr. Bates has served as an
officer of Exploration, Energy Services, and Marketing.
I-28
<PAGE> 32
PART II
<TABLE>
<CAPTION>
ITEM PAGE
- -------- -----
<S> <C> <C>
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.... II-27
Item 6. Selected Financial Data...................................................... II-36
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ II-2
Item 8. Financial Statements and Supplementary Data.................................. II-14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................... II-38
</TABLE>
---------------------
The financial data following on pages II-2 through II-37 is reproduced
from, and the Table of Contents below is taken from, the Sonat Inc. Annual
Report to Stockholders for 1993. An index to the financial statements and
financial statement schedules may be found under Item 14. "EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K" in Part IV of this report.
---------------------
FINANCIAL INFORMATION CONTENTS
<TABLE>
<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 28
Report of Management 38
Report of Ernst & Young,
Independent Auditors 39
Consolidated Financial Statements 40
Consolidated Balance Sheets 40
Consolidated Statements
of Income 42
Consolidated Statements
of Changes in Stockholders' Equity 43
Consolidated Statements of Cash Flows 44
Notes to Consolidated Financial Statements 45
Selected Consolidated Financial Data 62
</TABLE>
II-1
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OPERATING INCOME
Sonat Inc. and its subsidiaries (the Company) operate in the energy industry
through three business segments: Exploration and Production, Natural Gas
Transmission and Marketing, and Offshore Drilling.
Segment Operating Income (Loss)
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Exploration and Production $ 86 $ 54 $ 45
Natural Gas Transmission
and Marketing 144 151 140
Offshore Drilling 2 7 22
Other 1 (1) (4)
---- ---- ----
Consolidated Operating Income $233 $211 $203
==== ==== ====
</TABLE>
EXPLORATION AND PRODUCTION
The Company participates in the exploration and production business in the
United States through Sonat Exploration Company. Beginning in 1988, Sonat
Exploration implemented a strategy to acquire gas properties with significant
development potential. As a result of this strategy, Sonat Exploration has more
than quintupled its proved reserves. At the end of 1993, the Company had proved
reserves totaling more than 1.3 trillion cubic feet of natural gas equivalent,
including a portion that qualifies for tax credits authorized by Congress in
1991 (Section 29 tax credits). The Section 29 tax credits were $19 million in
1993; however, production from wells that qualify for these credits will begin
to decline in 1994 as these wells follow their normal decline pattern.
Sonat Exploration is continuing its strategy of aggressively acquiring
domestic gas properties with significant development potential. During 1993
Sonat Exploration acquired oil and gas interests and properties totaling $266
million, which increased proved reserves by approximately 313 billion cubic
feet of natural gas equivalent. The largest transaction was the third quarter
acquisition of 34 producing wells on 21 lease blocks in the Gulf of Mexico from
Mobil Exploration and Producing U.S., Inc. Sonat Exploration plans to drill
eight wells on these properties in 1994 and up to 13 wells in 1995. During the
fourth quarter, oil and gas properties in south Texas were acquired from Tri-C
Resources, Inc. The properties include 87 producing wells located in 18 fields
<PAGE> 34
and approximately 40,000 gross acres. In December 1993, Sonat Exploration began
a significant drilling program on the properties to hold lease acreage under
the terms of a farmout agreement. As of February 1, 1994, Sonat Exploration had
drilled 90 wells on these properties and plans to drill 46 additional wells
during 1994. Another significant 1993 transaction was the acquisition of
certain oil and gas properties belonging to Grace Petroleum Corporation located
in eastern Texas and northwestern Louisiana.
Sonat Exploration has a substantial acreage position in the eastern
extension of the Austin Chalk trend in Texas and Louisiana. During 1993 Sonat
Exploration participated in the drilling of 15 wells, all of which were
successful. As of December 31, 1993, Sonat Exploration has participated in the
completion of 25 wells in the Austin Chalk trend, 24 of which are commercial.
On October 4, 1993, Sonat Exploration acquired the limited partnership
interest of Prudential Insurance Company in Sonat/P Anadarko Limited
Partnership (Sonat/P) for $11.5 million cash and the assumption of $4.1 million
of debt pertaining to Prudential's interest in Sonat/P. As part of the
transaction, the Company issued a total of $18.5 million of long-term debt to
purchase all of Sonat/P's outstanding notes. Sonat Exploration was the general
partner of Sonat/P, which acquired oil and gas reserves in the Anadarko Basin
of Oklahoma from Louisiana Land and Exploration Company in the third quarter of
1992.
Total capital expenditures for Sonat Exploration (excluding its share
of Sonat/P's capital expenditures) increased to $431 million in 1993 from $156
million in 1992. Low spot-market natural gas prices in early 1992 reduced cash
flows from operations and resulted in lower capital expenditures in 1992. The
opportunity to continue acquiring properties with value-enhancement potential
by reinvesting proceeds from the Sonat Offshore Drilling Inc. initial public
offering (IPO) and a stronger cash flow from oil and gas operations resulted in
increased capital spending in 1993. Capital spending in 1994 is expected to
approximate $390 million, which includes amounts for increased development
drilling and additional producing property acquisitions.
Sonat Exploration's liquids and natural gas production is marketed in
the spot market almost entirely by Sonat Marketing Company, a subsidiary of
Sonat Energy Services Company operating in the Natural Gas Transmission and
Marketing Segment. Due to the volatility of spot-market prices, part of Sonat
Exploration's production is hedged from time to time through gas futures
transactions and oil price swaps to reduce the effects of spot-market prices on
operating results.
<PAGE> 35
Exploration and Production Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Revenues:
Sales to others $ 198 $ 214 $ 208
Intersegment sales 155 65 62
------- ------- -------
Total Revenues $ 353 $ 279 $ 270
======= ======= =======
Depreciation, Depletion and
Amortization $ 149 $ 108 $ 96
Operating Income 86 54 45
Equity in Earnings of
Unconsolidated Affiliates 5 2 -
======= ======= =======
Proved Reserves: (Includes Sonat/P)
Net gas (Bcf) 1,187 1,028 1,078
Net liquids (MBbls) 27,094 20,144 19,125
Net Sales Volumes: (Includes Sonat/P)
Gas (Bcf) 150 127 116
Oil and condensate (MBbls) 3,052 2,364 2,988
Natural gas liquids (MBbls) 726 733 1,060
======= ======= =======
Average Sales Prices: (Includes Sonat/P)
Gas (Mcf) $ 1.99 $ 1.71 $ 1.58
Oil and condensate (Bbl) 17.42 18.94 20.64
Natural gas liquids (Bbl) 7.96 13.04 10.04
======= ======= =======
</TABLE>
1993 Versus 1992. Operating results for 1993 were up significantly
from 1992, reflecting a 16 percent increase in natural gas prices. Acquisition
activity led to higher oil and gas volumes, which increased by 29 percent and
18 percent over 1992, respectively. Amortization expense also increased due to
higher production volumes as well as higher amortization rates due to increased
Austin Chalk production, which is predominantly oil, recent tight-sands gas
drilling, along with acquisitions which included more proved producing
reserves. General and administrative expense compared favorably to 1992 due to
$4 million of restructuring charges included in 1992.
1992 Versus 1991. Spot-market gas prices for 1992 compared favorably
to 1991, and gas volumes increased 9 percent over 1991. Much of the favorable
gas revenue increase was offset by decreased oil and condensate production,
which was down 21 percent due to the sale of oil properties in the second
quarter of 1991 and to higher amortization costs. A significant decrease in
operating
<PAGE> 36
expenses in 1992 due to lower production was partially offset by a $4 million
increase in stock-based employee compensation.
NATURAL GAS TRANSMISSION AND MARKETING
The Company participates in the natural gas transmission and marketing business
through Southern Natural Gas Company, Citrus Corp. (a 50 percent-owned
company), and Sonat Energy Services. Southern and Florida Gas Transmission
Company (a subsidiary of Citrus), operating in the natural gas transmission
industry, have historically provided customers of their natural gas pipelines
both merchant and transportation services. Effective November 1, 1993, Southern
separated its transportation, storage and merchant services to comply with
Order No. 636. (See following discussion.) Florida Gas also restructured its
services in compliance with Order No. 636 effective on November 1, 1993. As a
result of Order No. 636, both Southern and Florida Gas have essentially become
solely gas transporters, although Southern will continue to make limited sales
until it has exhausted its gas supply remaining under contract. Sonat Energy
Services, through its subsidiaries, manages Sonat's unregulated natural gas
businesses including natural gas marketing and gathering and intrastate natural
gas pipeline services. Natural gas marketing activities for Citrus, primarily
to customers of Florida Gas, are provided by affiliates of Citrus.
The natural gas transmission industry, although regulated, is very
competitive. Even before the Order No. 636 restructuring, customers switched
much of their volumes from a bundled merchant service to transportation
service, reflecting an increased willingness to rely on gas supply under
unregulated arrangements such as those provided by Sonat Marketing and
affiliates of Citrus. Southern competes with several pipelines for the
transportation business of its customers and at times discounts its
transportation rates in order to maintain market share. Although it is now
predominantly a transporter of gas, Southern continues to provide a limited
merchant service with gas supply remaining under contract and, in this
capacity, competes with other suppliers, gas producers, marketers and alternate
fuels.
Southern is pursuing growth opportunities to expand the level of
services in its traditional market area and to connect new gas supplies. On May
13, 1993, approval was received from the Federal Energy Regulatory Commission
(FERC) for expansion of South Georgia Natural Gas Company's pipeline system
into northern Florida and southwestern Georgia that will increase firm daily
capacity by 40 million cubic feet per day. Construction on this project is
under way and should be completed by mid-1994. In May 1993, the Company
announced a proposed intrastate natural gas pipeline to be built in Florida
that would extend from the existing facilities of South Georgia near
Tallahassee to the Tampa area. The size and timing of this project are
uncertain, but projections indicate a substantial need for additional gas
supply in this market later in this decade. Additionally, Southern has entered
<PAGE> 37
into an agreement in principle to expand its system to Chattanooga, Tennessee,
and is meeting with major local distribution companies and other potential
customers, primarily in eastern North Carolina, to discuss expansion
opportunities in the rapidly growing North Carolina market.
Florida Gas, which has a current pipeline system capacity of 925
million cubic feet per day, was granted final certificate authority by the FERC
on September 15, 1993, for the further expansion of its pipeline system. This
expansion will increase system capacity by 530 million cubic feet per day at a
capital cost of approximately $900 million. As part of the expansion project,
Florida Gas contracted with Southern to deliver 100 million cubic feet per day
of new firm transportation. In connection with this expansion, the Company will
advance funds to Citrus and expects to have an equity investment in the project
of $150 million by the end of the construction period. Additionally, Florida
Gas is currently reviewing the prospects for further expansions of its pipeline
system into the Florida market that could be in service in 1996 or 1997.
Sonat Marketing continues to expand its natural gas marketing
business. Prior to 1993, Sonat Marketing's volumes were approximately 500
million cubic feet per day and were primarily on the Southern system. During
the past year, Sonat Marketing assumed responsibility for marketing almost all
of the natural gas and liquids production of Sonat Exploration, including
execution of Sonat Exploration's risk management program. This has allowed
Sonat Marketing to expand its presence in Gulf Coast, Midwest and Northeast
markets and, in turn, provide attractive markets to unaffiliated producers. As
a result of these efforts, Sonat Marketing's average daily sales volumes now
exceed 1.1 billion cubic feet per day, making it one of the largest natural gas
marketers in the country. Competition in the gas marketing business is changing
as Order No. 636 is implemented across the pipeline industry and is expected to
remain intense due to the large number of industry participants.
Sonat Ventures Inc. (a subsidiary of Sonat Energy Services) is focused
primarily on the growing natural gas vehicle (NGV) market and opened an NGV
conversion and emissions testing center in Atlanta in February 1993, along with
Atlanta Gas Light Company and another partner. Separately, Sonat Ventures has
established joint ventures in Alabama and Florida. These joint ventures, which
are partnerships with local distribution companies that are customers of
Southern, generally offer a complete range of services to facilitate the use of
natural gas vehicles in those states. Sonat Ventures is also pursuing
opportunities to own and operate refueling centers elsewhere in the Southeast.
In December 1993, AES/Sonat Power L.L.C. (a 50 percent-owned company),
submitted a successful bid for a 221 megawatt power plant to be constructed
near San Francisco. If a contract is signed, The AES Corporation will handle
the construction and operation of the plant, while the Company will manage the
gas supply requirements. The plant is scheduled to be completed by mid-1997 and
<PAGE> 38
would require an equity investment from the Company of approximately $15
million-$20 million.
Natural Gas Transmission & Marketing Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Revenues:
Gas sold by Southern $ 569 $ 529 $ 574
Gas sold by Sonat Marketing 599 320 270
Other sales 13 12 9
------ ------ ------
Total Gas Sold 1,181 861 853
Market transportation 194 144 136
Supply transportation 51 52 49
Other 11 5 2
------ ------ ------
Total Revenues $1,437 $1,062 $1,040
====== ====== ======
Natural Gas Cost:
Purchased from others $ 846 $ 580 $ 568
Intersegment purchases 155 65 62
------ ------ ------
Total Natural Gas Cost $1,001 $ 645 $ 630
====== ====== ======
Depreciation and Amortization $ 66 $ 76 $ 62
Operating Income 144 151 140
Equity in Earnings (Loss) of
Unconsolidated Affiliates 2 (1) 6
====== ====== ======
(Billion Cubic Feet)
Southern Volumes:
Gas sold (excludes storage gas) 73 109 118
Market transportation 435 391 371
------ ------ ------
Total Market Throughput 508 500 489
Supply transportation 328 342 289
------ ------ ------
Total Volumes 836 842 778
====== ====== ======
Sonat Marketing Sales Volumes 285 178 172
====== ====== ======
Florida Gas Volumes (100%):
Gas sold 15 44 85
Market transportation 269 245 200
------ ------ ------
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Total Market Throughput 284 289 285
Supply transportation 45 53 60
---- ---- ----
Total Volumes 329 342 345
==== ==== ====
</TABLE>
1993 Versus 1992. Southern's operating results for 1993 were down
primarily due to a favorable settlement of $9.6 million in 1992 relating to
Southern Energy Company's idle liquefied natural gas (LNG) facility. A
settlement at Sea Robin Pipeline Company increased 1993 results by $4.5
million. General and administrative expenses were up in 1993 due to a $4
million increase in health insurance expense and an increase in stock-based
employee compensation.
Gas sales revenue and gas cost increased at Southern due to the sale
of $123 million of storage gas inventory pursuant to the implementation of
Order No. 636 on November 1, 1993. Total market throughput increased 2 percent;
however, Order No. 636 resulted in a shift in volumes from sales to market
transportation. Supply transportation volumes decreased due to competition from
other pipelines.
Sonat Marketing's sales volumes increased significantly over last year
as a result of fully integrating the marketing of Sonat Exploration's
production and expanding activities on non-affiliated pipelines through the
purchase of additional third-party volumes.
Equity in earnings of Citrus increased $3 million over 1992.
Operationally, high prices for natural gas relative to competing No. 6 fuel oil
significantly reduced earnings in 1993. However, the decline was offset by
gains from the sale of gas supply contracts at Citrus Marketing in 1993,
decreased depreciation expense resulting from a change in the estimated useful
life of the pipeline system and the recognition of natural gas settlement costs
in 1992. Citrus' results (100 percent) were reduced by $10 million in 1993 by
the recognition of the increase in the U.S. federal income tax rate.
1992 Versus 1991. Operating income for 1992 includes the effect of a
favorable settlement of $9.6 million relating to Southern Energy's LNG
facility, while 1991 was negatively affected by one-time charges totaling $11
million related to a cost-containment program and the cancellation of the
Mobile Bay project. Excluding these items, operating income was lower primarily
as a result of an $8 million increase for stock-based employee compensation.
Southern's total volumes increased 8 percent in 1992. Market
throughput was higher because of colder weather and new markets, offsetting the
loss of a competitive load to coal that was served in 1991 when gas prices were
<PAGE> 40
substantially lower and losses to other pipeline competition. The 18 percent
increase in supply transportation is primarily the result of higher
deliverability and an aggressive program of hooking up new gas supply to the
Sea Robin system.
Sonat Marketing's sales volumes increased 6 billion cubic feet in 1992
due in part to its marketing of Sonat Exploration's production volumes. Net
margins remained relatively flat.
Equity in earnings from Citrus in 1992 decreased from 1991 due
primarily to the recognition of natural gas contract settlement costs and
increased interest expense. Market throughput increased slightly over 1991,
reflecting the increased capacity available to serve the Florida market.
Throughput continued to reflect a shift from sales to market transportation.
ORDER NO. 636
In 1992 the FERC issued its Order No. 636 (the Order). As required by the
Order, interstate natural gas pipeline companies have made significant changes
in the way they operate. The Order required pipelines, among other things, to:
(1) separate (unbundle) their sales, transportation and storage services; (2)
provide a variety of transportation services, including a "no-notice" service
pursuant to which the customer will be entitled to receive gas from the
pipeline to meet fluctuating requirements without having previously scheduled
delivery of that gas; (3) adopt a straight fixed variable (SFV) method for rate
design (which assigns more costs to the demand component of the rates than do
other rate design methodologies previously utilized by pipelines); and (4)
implement a pipeline capacity release program under which firm customers will
have the ability to "broker" the pipeline capacity for which they have
contracted. The Order also authorized pipelines to offer unbundled sales
services at market-based rates and allowed for pregranted abandonment of some
services.
As discussed in Note 9 of the Notes to Consolidated Financial
Statements, Southern is incurring certain transition costs as a result of
implementing Order No. 636, and for Southern, those are primarily gas supply
realignment (GSR) costs relating to existing gas purchase contracts. In its
restructuring settlement discussions, Southern has advised its customers that
the amount of GSR costs that it actually incurs will depend on a number of
variables, including future natural gas and fuel oil prices, future
deliverability under Southern's existing gas purchase contracts and Southern's
ability to renegotiate certain of these contracts. While the level of GSR
costs is impossible to predict with certainty because of these numerous
variables, based on current spot-market prices, a range of estimates of future
oil and gas prices, and recent contract renegotiations, the amount of GSR costs
would be approximately $275 million-$325 million on a present value basis. This
includes the $168 million of settlements discussed below.
<PAGE> 41
In requiring that Southern provide unbundled storage service, the
Order resulted in a substantial reduction of Southern's working storage gas
inventory and consequently a reduction in its rate base. The reduction in rate
base was effective on November 1, 1993, when Southern restructured pursuant to
the Order and sold $123 million of its storage gas inventory to its customers.
The Order also resulted in rates that are less seasonal, thereby shifting
revenues and earnings for Southern out of the winter months.
The FERC issued an order on September 3, 1993 (the September 3 order),
that generally approved a compliance plan for Southern and directed it to
implement restructured services on November 1, 1993. In accordance with the
September 3 order, Southern solicited service elections from its customers in
order to implement its restructured services on November 1, 1993. Southern's
largest customer, Atlanta Gas Light Company and its subsidiary, Chattanooga Gas
Company (collectively Atlanta), bid for firm transportation service on Southern
at prices significantly below Southern's filed tariff rates. Southern rejected
Atlanta's bids. Southern and Atlanta subsequently entered into an interim
agreement under which Atlanta signed firm transportation service agreements
with transportation demands of 582 million cubic feet per day for a minimum
term of four months beginning November 1, 1993, and 118 million cubic feet per
day for a term extending until April 30, 2007, at the maximum FERC-approved
rates. This represented an aggregate reduction of 100 million cubic feet per
day from Atlanta's level of services prior to November 1, 1993. In January
1994, Atlanta provided notice, subject to change, that it had elected to
continue that level of firm service until October 31, 1994. Southern's other
customers elected in aggregate to obtain an amount of firm transportation
services that represented a slight increase from their previous level of firm
sales and transportation services from Southern, at the maximum FERC-approved
tariff rates, for terms ranging from one to 30 years.
Southern is unable to predict all of the elements of the ultimate
outcome of its Order No. 636 restructuring proceeding, its settlement
discussions with Atlanta and its other customers, and the limited rate filings
to recover its transition costs.
NATURAL GAS SALES AND SUPPLY
As a result of Order No. 636, Southern is attempting to terminate its remaining
gas purchase contracts through which it had traditionally obtained its
long-term gas supply. Some of these contracts contain clauses requiring
Southern either to purchase minimum volumes of gas under the contract or to pay
for it (take-or-pay clauses). Although Southern currently is incurring
essentially no take-or-pay liabilities under these contracts, the annual
weighted average cost of gas under these contracts is in excess of current
spot-market prices. Pending the termination of these remaining supply
contracts, Southern has agreed to sell a portion of its remaining gas supply to
a number of its firm transportation customers for a one-year term which began
<PAGE> 42
November 1, 1993. The rest of Southern's remaining supply will be sold on a
month-to-month basis. The difference between the cost associated with the gas
supply contracts and the revenue from the sale agreements and month-to-month
sales should be recoverable as a GSR cost pursuant to Order No. 636. In
addition, any cost to terminate or reduce the price under Southern's remaining
contracts should also be recoverable as a GSR cost pursuant to Order No. 636.
During 1993 Southern reached agreements to reduce significantly the
price payable under a number of high-cost gas purchase contracts in exchange
for payments with a present value of approximately $168 million.
Southern's purchase commitments under its remaining gas supply
contracts for the years 1994 through 1998 are estimated as follows:
<TABLE>
<CAPTION>
Estimated Purchase Commitments
(In Millions)
<S> <C>
1994 $230
1995 150
1996 85
1997 70
1998 65
</TABLE>
These estimates are subject to significant uncertainty due both to the
number of assumptions inherent in these estimates and to the wide range of
possible outcomes for each assumption. None of the three major factors which
determine purchase commitments (underlying reserves, future deliverability and
future price) is known today with certainty. As explained above, Southern
expects to recover all of these costs, including its costs to terminate these
purchase commitments, either through sale of the gas or as a GSR cost.
RATE MATTERS
Several general rate changes have been implemented by Southern and remain
subject to refund. See Note 9 of the Notes to Consolidated Financial Statements
for a discussion of rate matters.
<PAGE> 43
CITRUS CORP.
Citrus' historical losses are mainly due to a high level of depreciation and
interest expense. However, since Citrus was acquired in mid-1986, cash
generated by operations has been sufficient to fund normal capital expenditures
and a portion of major expansion projects. Citrus' restructuring of its
services in 1990 has helped to mitigate the effect of declines in the price of
No. 6 fuel oil on its revenue and margins. However, the results of operations
from Citrus have continued to be strongly influenced by the level of No. 6 fuel
oil prices and the relationship of natural gas prices to fuel oil prices.
Negotiations are under way to amend the gas supply services contract with its
major customer.
Florida Gas has terminated its gas purchase contracts with a weighted
average cost in excess of current spot-market prices and has been negotiating
with its customers and the FERC to recover settlement payments made to
terminate such contracts as a part of its Order No. 636 proceeding. On
September 17, 1993, Florida Gas received approval of its restructuring
settlement proposal (the Restructuring Settlement) with regard to the Order.
The Restructuring Settlement includes a Transition Cost Recovery (TCR)
mechanism that allows Florida Gas, effective November 1, 1993, to recover from
its customers 100 percent of payments above the $106 million level approved in
a previous settlement, up to $160 million. Florida Gas will be allowed to
recover 75 percent of any amounts greater than $160 million. However, Florida
Gas has substantially completed the renegotiation and termination of these
contracts for less than $160 million and therefore expects to recover all of
the amounts spent and not already expensed through its approved TCR mechanism.
Citrus has historically obtained its own financing independent of its
parent companies. Debt financing by Citrus with outside parties is nonrecourse
to its parent companies, and the Company has no contractual or legal
requirement to maintain Citrus' liquidity. Citrus recently obtained a $300
million one-year financing that has support provisions from its parent
companies. In connection with the construction of the Phase III expansion, the
Company will advance Citrus funds and expects to have made an equity investment
of approximately $150 million in 1994.
OFFSHORE DRILLING
The Company participates in the offshore drilling business in markets around
the world through its investment in Sonat Offshore. As a result of the IPO of
Sonat Offshore's common stock on June 4, 1993, the Company currently retains
ownership of approximately 40 percent of Sonat Offshore's outstanding shares.
The offshore drilling market in 1992 and 1993 generally experienced
difficult conditions, although certain geographic areas have performed better
than others. The North Sea market continues to be depressed in comparison with
recent years, primarily due to the recent decline in oil prices and the effects
<PAGE> 44
of changes to the U.K. Petroleum Revenue Tax on exploratory drilling. Despite
the recent awarding of additional licenses by the U.K. and Norwegian
governments providing new drilling prospects and Sonat Offshore's belief that
there has been a permanent reduction in the supply of rigs available to drill
in the North Sea as a result of U.K. safety regulations, Sonat Offshore expects
the North Sea market to remain weak in 1994, especially in the first half of
the year. A strong natural gas price environment continues to support the U.S.
Gulf of Mexico drilling market. As a result of the improved market, several
drilling contractors, including Sonat Offshore, have recently moved rigs back
to the Gulf of Mexico, and additional mobilizations are expected through early
1994. However, the recent influx of rigs and decline in oil prices have
resulted in decreased dayrates over the past few months. Sonat Offshore
believes the market will strengthen after the first quarter and will then
remain strong for the remainder of 1994 as long as gas prices continue to
remain at or above the corresponding 1993 levels.
In 1991 and 1992, Sonat Offshore was awarded three turnkey packages
providing for the drilling of a total of 10 wells offshore Mexico. Two wells
were completed under these three packages in 1992, six wells were completed in
1993 and one other well should be completed by mid-1994. In addition, one
turnkey well was completed in 1993 in the U.S. sector of the Gulf of Mexico.
Under a turnkey contract, Sonat Offshore is paid a fixed fee for drilling a
well to a specified depth. Turnkey contracts generally provide an opportunity
for greater profits than do conventional dayrate contracts, but entail more
financial risk. Revenues and operating costs from turnkey contracts are much
higher than under dayrate contracts since Sonat Offshore provides substantially
more of the material and services necessary to drill the wells. Sonat Offshore
continues to investigate additional turnkey opportunities as they arise, but
there can be no assurance that Sonat Offshore will obtain additional contracts
before the completion of its current projects.
In December 1993, Sonat Offshore entered into agreements with its
partners in the Polar Frontier Drilling joint venture providing for the
purchase of the remaining 52.5 percent interest in the semisubmersible rig,
POLAR PIONEER, by Sonat Offshore for approximately $44.6 million plus certain
adjustments relating to rig upgrades and drydocking estimated at $2.9 million
and limited future consideration (up to $3 million) contingent upon the future
operations of the POLAR PIONEER. The transaction closed on February 18, 1994.
As a result of management's reevaluation of the remaining useful lives
of certain of its drilling units, effective January 1, 1993, Sonat Offshore
adjusted the estimated working lives of these units from periods ranging 16-20
years to 25 years. This adjustment decreased Sonat Offshore's depreciation
expense in 1993 by approximately $7 million.
<PAGE> 45
Offshore Drilling Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Pre-IPO:
Revenues $108 $210 $173
Depreciation 9 28 25
Operating income 2 7 22
---- ---- ----
Post-IPO:
Equity in earnings of
Sonat Offshore 4 - -
---- ---- ----
Drilling rigs available
(at end of year)
Owned directly 18 18 18
Owned by joint ventures 3 3 3
Leased 1 1 2
Drilling rigs on contract
(at end of year) 19 13 14
Drilling rig utilization rates 86% 66% 72%
==== ==== ====
</TABLE>
1993 Versus 1992. The pre-IPO amounts shown above reflect results of
operations from January 1, 1993, through June 4, 1993, the completion date of
the IPO. Amounts shown for 1992 and 1991 are for full years of operations.
Hence, 1993 results are not comparable with the prior years due to the shorter
period. The Company's share of Sonat Offshore's results for the period June 5,
1993, through December 31, 1993, is reflected in the above table as equity in
earnings of Sonat Offshore.
On a 100 percent basis, Sonat Offshore's operating results for 1993
were favorable compared to 1992 due primarily to increased operating margins
offshore Brazil, increased utilization of the Gulf of Mexico jack-up fleet and
lower depreciation expense as mentioned above. General and administrative
expense was also lower in 1993, primarily due to favorable adjustments relating
to certain benefit plans. Operating results for 1993 also included favorable
adjustments related to certain insurance accruals. These favorable results were
partially offset by the recognition in 1992 of $7.7 million of deferred revenue
relating to the termination of the DISCOVERER 534 contract.
1992 Versus 1991. In 1992 operating results for contract drilling
operations were unfavorable primarily due to lower fleet utilization and lower
operating margins per day. Margins from operations in the North Sea declined
from 1991. Results in the Gulf of Mexico jack-up market, though not as
<PAGE> 46
significant to Sonat Offshore as its North Sea operations, showed significant
improvement in the fourth quarter.
Turnkey operations in India contributed significantly to operating
income in 1992. Operating income was otherwise negatively affected by higher
operating expenses, higher depreciation expense and a $3 million increase in
stock-based employee compensation.
----------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
OTHER INCOME-EXCLUDING
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES $170 $ 18 $ 6
</TABLE>
1993 Versus 1992. Other income in 1993 increased primarily due to the
$155.8 million pretax gain on the Sonat Offshore IPO. In addition, dividends
received on the Baker Hughes Incorporated preferred stock received in the sale
of Teleco Oilfield Services Inc. in April 1992 contributed $12 million in 1993
and $7 million in 1992. 1992 included the recognition of a $9 million gain on
the sale of oil and gas assets.
1992 Versus 1991. Other income in 1992 includes $9 million related to
gains on the sale of oil and gas assets and $7 million from dividends received
on the Baker Hughes preferred stock.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
INTEREST INCOME (EXPENSE), NET $ (47) $ (96) $(118)
</TABLE>
1993 Versus 1992. 1993 includes $31 million in net interest income
related to a settlement of an examination of the Company's federal income tax
returns for the years 1983-1985 and certain other tax issues. Interest expense
was lower in 1993 due to decreased debt levels and lower interest rates, in
part due to the refinancing of some higher interest rate debt during 1993.
1992 Versus 1991. Interest on debt decreased $7 million due to a
decrease in average debt outstanding and lower average interest rates. The
remainder is largely due to adjustments related to interest on income taxes.
<PAGE> 47
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
INCOME TAXES $103 $ 36 $ 23
</TABLE>
1993 Versus 1992. Income taxes in 1993 increased due to higher pretax
income including the gain on the Sonat Offshore IPO. The increase in taxes was
partially offset by various tax adjustments, higher Section 29 tax credits and
a settlement of an examination of the Company's federal income tax returns for
the years 1983-1985.
1992 Versus 1991. Income taxes increased due to higher pretax earnings
in 1992 and adjustments to overall tax provisions, partially offset by higher
Section 29 tax credits.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
NET INCOME (LOSS) FROM
DISCONTINUED OPERATIONS $ - $ 111 $ (12)
</TABLE>
1992 includes a $112.8 million gain on the sale of Teleco to Baker
Hughes and a $.8 million loss on the disposal of the Company's insurance
subsidiary.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
EXTRAORDINARY LOSS $ (4) $ - $ -
</TABLE>
In March 1993, the Company recognized a $4 million loss, net of taxes
of $2 million, on the redemption of the Company's 7 1/4 Percent Zero Coupon,
Subordinated Convertible Notes which were due September 6, 2005.
FINANCIAL CONDITION
Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Net Cash Provided by
Operating Activities $ 454 $ 361 $ 344
</TABLE>
<PAGE> 48
1993 Versus 1992. Net cash provided by operating activities increased
due to higher earnings at Sonat Exploration and a $62 million settlement of an
examination of the Company's federal income tax returns for the years
1983-1985. Also contributing to the increase was the sale of storage gas
inventory at Southern pursuant to Order No. 636 and lower cash outflows
relating to gas imbalances. Partially offsetting the increase were GSR payments
of approximately $128 million made by Southern in 1993.
1992 Versus 1991. Net cash provided by operating activities was higher
due to improved operations and a tax refund at Sonat Exploration. Offsetting
the increase was the inclusion of Teleco's operations for a full period in
1991.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Net Cash Used in
Investing Activities $(189) $ (30) $(477)
</TABLE>
1993 Versus 1992. Net cash used in investing activities increased $159
million in 1993. Capital expenditures of $516 million in 1993 were $290 million
over the 1992 expenditures, primarily attributable to oil and gas acquisitions.
A significant source of investing cash flows in 1993 was net cash proceeds of
approximately $340 million from the sale of Sonat Offshore common stock. 1992
included cash proceeds of approximately $188 million from the sale of Teleco.
1992 Versus 1991. The net change in cash used in investing activities
reflects the net cash proceeds from the sale of Teleco mentioned above as well
as lower capital expenditures in 1992.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Net Cash Provided by (Used in)
Financing Activities $(312) $(296) $ 135
</TABLE>
1993 Versus 1992. The net change in cash used in financing activities
reflects a slight increase in debt repayments.
1992 Versus 1991. The change in net cash used in financing activities
reflects the use of the proceeds from the sale of Teleco to pay down debt in
1992 as compared to an increase in borrowings in 1991.
<PAGE> 49
CAPITAL EXPENDITURES
Capital expenditures for the Company's business segments (excluding
unconsolidated affiliates) were as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Exploration and Production $431 $156 $276
Natural Gas Transmission
and Marketing 61 44 112
Offshore Drilling 5 13 21
Measurement-While-Drilling - 11 61
Other 19 2 8
---- ---- ----
Total $516 $226 $478
==== ==== ====
</TABLE>
The Company's share of capital expenditures by its unconsolidated
affiliates were as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Exploration and Production $ 11 $ 37 $ -
Natural Gas Transmission
and Marketing 18 12 57
Offshore Drilling 2 1 4
Other 1 1 1
---- ---- ----
Total $ 32 $ 51 $ 62
==== ==== ====
</TABLE>
The Company's capital expenditures (including its $410 million share
of unconsolidated affiliates' expenditures) for 1994 are expected to be $870
million and will include oil and gas acquisition, exploration and development,
pipeline expansion and other projects.
<PAGE> 50
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, the Company had lines of credit and a revolving credit
agreement with a total capacity of $750 million. Of this, $546 million was
unborrowed and available. The amount available under the lines of credit has
been reduced by the amount of commercial paper outstanding of $60 million to
reflect the Company's policy that credit line and commercial paper borrowings
in the aggregate will not exceed the maximum amount available under its lines
of credit. On July 26, 1993, Sonat filed a shelf registration with the
Securities and Exchange Commission for up to $500 million in debt securities.
The Company may use the proceeds from the sale of its registered debt
securities to refinance the long-term debt redeemed in 1993.
As discussed in Note 3 of the Notes to Consolidated Financial
Statements, the Company holds four million shares of Baker Hughes convertible
preferred stock as well as 11.3 million shares of Sonat Offshore common stock.
These resources, when combined with a strong cash flow and borrowings in the
public or private markets, provide the Company with the means to invest for the
future and continue earnings growth.
Capitalization Information
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operating Activities
to Weighted Average Debt 43% 29% 27%
Debt to Capitalization -
End of Year 42% 50% 57%
Book Value Per Share -
End of Year $15.64 $13.62 $12.14
====== ====== ======
</TABLE>
INFLATION AND THE EFFECT OF CHANGING ENERGY PRICES
Although the rate of inflation in the United States has been moderate over the
past several years, its potential impact should be considered when analyzing
historical financial information. In past times of high general inflation, oil
and gas prices have increased at comparable, and at times, higher rates. The
changing regulatory environment in which the natural gas business operates,
along with other competitive factors, would currently make it difficult to
increase prices enough to recover significantly higher costs of operations. The
results of operations in the Company's two major business segments will be
affected by future changes in domestic and international oil and gas prices,
the interrelationship between oil, gas and other energy prices and the ability
of the Company's natural gas business to purchase gas at competitive prices.
<PAGE> 51
ENVIRONMENTAL ISSUES
The Company's subsidiaries are involved in various environmental compliance and
cleanup activities, and certain of these subsidiaries have been notified that
they are one of many potentially responsible parties at certain federal
Superfund sites. The Company does not expect costs relating to these
activities, including any responsibility for cleanup of such sites, to be
material, taken either separately or in the aggregate, with respect to the
financial position or results of operations of the Company.
In addition, Southern has taken steps to test for the presence of
polychlorinated biphenyls (PCB) at its natural gas compressor stations. A total
of 13 stations evidenced some level of on-site PCB contamination ranging from
low to moderate. Southern has completed the characterization and cleanup of 12
of these sites at a cost of approximately $6 million. Southern has partially
completed the characterization and cleanup of the 13th site and believes that
it should be able to complete the remediation of this site for a total cost of
less than $5 million, approximately half of which had been incurred at December
31, 1993.
Sonat generally considers environmental assessment and remediation
costs and costs associated with compliance with environmental standards for its
regulated companies to be recoverable through rates since they are prudent
costs incurred in the ordinary course of business, and accordingly, will seek
recovery of such costs through rate filings, although no assurance can be given
with regard to their ultimate recovery.
The Company has an active and ongoing environmental program at all
levels of its organization and believes responsible environmental management is
integral to its business.
<PAGE> 52
REPORT OF MANAGEMENT
The management of the Company is responsible for the preparation and integrity
of all financial data included in this annual report. The Consolidated
Financial Statements have been prepared in conformity with generally accepted
accounting principles and necessarily include amounts based on estimates and
judgments of management.
The Company maintains a system of internal accounting controls
designed to provide reasonable assurance that assets are safeguarded against
loss or unauthorized use and that the financial records are adequate and
reliable for preparation of financial statements and other financial data. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal accounting control must not exceed the related benefits. The
systems of internal accounting control are complemented by the selection,
training and development of qualified accounting and internal audit personnel.
The Company engages the firm of Ernst & Young as independent auditors
to audit the Company's financial statements and express their opinion thereon.
Their audits are conducted in accordance with generally accepted auditing
standards and include a review and evaluation of the Company's internal
accounting control systems and tests of transactions as they consider
appropriate. The Report of Ernst & Young, Independent Auditors, appears on the
facing page. Internal audit activities are coordinated with the independent
auditors to maximize audit effectiveness.
The Audit Committee of the Board of Directors is composed solely of
directors who are not active or retired officers or employees of the Company.
It recommends a firm to serve as independent auditors of the Company, subject
to nomination by the Board of Directors and election by the stockholders,
authorizes all audit and other professional services rendered by the
independent auditors and regularly reviews their independence. The Audit
Committee reviews and reports on significant accounting decisions and
transactions and the scope and results of audits by the Company's internal
auditing staff and the independent auditors. It reviews with management and the
independent auditors compliance with the Company's business ethics and conflict
of interest policies and reviews with independent auditors the adequacy of the
Company's system of internal controls. The internal auditors and the
independent auditors have free access to the Audit Committee, without
management's presence, to discuss the Company's internal controls and the
results of their audits.
/s/ James E. Moylan, Jr.
- -------------------------
JAMES E. MOYLAN, JR.
Vice President and Controller
February 24, 1994
<PAGE> 53
REPORT OF ERNST & YOUNG,
Independent Auditors
The Board of Directors and Stockholders
Sonat Inc.
We have audited the accompanying consolidated balance sheets of Sonat Inc. and
Subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sonat
Inc. and Subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young
Birmingham, Alabama
January 20, 1994
<PAGE> 54
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10,822 $ 58,007
Accounts and notes receivable 256,925 273,585
Inventories (Note 4) 29,896 156,525
Gas supply realignment costs (Note 9) 59,862 -
Recoverable natural gas purchase
contract settlement costs (Note 9) 18,535 52,936
Gas imbalance receivables (Note 1) 43,867 69,478
Other 43,953 38,621
------------ -----------
Total Current Assets 463,860 649,152
------------ -----------
Investments and Advances:
Unconsolidated affiliates (Note 5) 295,221 255,687
Other investments (Notes 2 and 3) 214,105 209,111
------------ -----------
509,326 464,798
------------ -----------
Plant, Property and Equipment,
successful efforts method of accounting used
for oil and gas properties (Notes 6 and 13) 4,400,286 4,544,478
Less accumulated depreciation,
depletion and amortization 2,313,168 2,553,864
------------ -----------
2,087,118 1,990,614
------------ -----------
Deferred Charges:
Gas supply realignment costs (Note 9) 119,724 -
Recoverable natural gas purchase
contract settlement costs (Note 9) - 17,546
Other 33,969 43,222
------------ -----------
153,693 60,768
------------ -----------
$ 3,213,997 $ 3,165,332
============ ===========
</TABLE>
See accompanying notes.
<PAGE> 55
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Unsecured notes and long-term debt
due within one year (Note 7) $ 232,929 $ 20,102
Accounts payable 193,383 192,863
Accrued income taxes 55,828 53,930
Accrued interest 49,853 51,942
Gas imbalance payables (Note 1) 59,144 56,574
Other 42,274 72,912
----------- -----------
Total Current Liabilities 633,411 448,323
----------- -----------
Long-Term Debt (Note 7) 741,161 1,175,666
----------- -----------
Deferred Credits and Other:
Deferred income taxes (Note 8) 192,977 207,892
Reserves for regulatory matters (Note 9) 120,801 103,956
Other 162,432 57,175
----------- -----------
476,210 369,023
----------- -----------
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock, $.50 par, 200,000,000 shares
authorized; 87,157,982 and 86,076,654
shares outstanding in 1993 and 1992,
respectively (Note 10) 43,579 43,038
Other capital 79,653 60,378
Retained earnings 1,239,983 1,068,904
------------ -----------
1,363,215 1,172,320
------------ -----------
$ 3,213,997 $ 3,165,332
============ ===========
</TABLE>
See accompanying notes.
<PAGE> 56
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C>
Operating Revenues (Note 12) $1,741,147 $1,484,423 $1,420,963
---------- ---------- ----------
Costs and Expenses:
Natural gas cost 846,081 584,909 572,795
Operating and maintenance 249,801 286,773 278,162
General and administrative 148,738 153,928 141,779
Depreciation, depletion and
amortization 225,989 213,877 186,694
Taxes, other than income 37,623 33,845 38,060
---------- ---------- ----------
1,508,232 1,273,332 1,217,490
---------- ---------- ----------
Operating Income 232,915 211,091 203,473
---------- ---------- ----------
Other Income, Net:
Equity in earnings of unconsolidated
affiliates (Note 5) 12,365 4,132 8,947
Sale of subsidiary -
stock (Note 3) 155,836 -
Other 13,884 17,904 5,744
---------- ---------- ----------
182,085 22,036 14,691
---------- ---------- ----------
Interest Income (Expense):
Interest income 39,331 10,735 11,095
Interest expense (90,704) (115,515) (136,724)
Interest capitalized 4,101 8,422 7,951
---------- ---------- ----------
(47,272) (96,358) (117,678)
---------- ---------- ----------
Income from Continuing Operations before
Extraordinary Item
and Income Taxes 367,728 136,769 100,486
Income Taxes (Note 8) 102,659 35,807 22,605
---------- ---------- ----------
Income from Continuing Operations before
Extraordinary Item 265,069 100,962 77,881
Income (Loss) from
Discontinued Operations (Note 3) - 111,447 (11,893)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C> <C> <C>
Extraordinary Loss, Net of Income
Tax Benefit of $1,972,000 (Note 7) (3,829) - -
------------- -------------- -------------
Net Income $ 261,240 $ 212,409 $ 65,988
============= ============== =============
Earnings Per Share of Common Stock: (Note 10)
Earnings from continuing operations
before extraordinary item $ 3.05 $ 1.17 $ .91
Earnings (loss) from
discontinued operations - 1.30 (.14)
Extraordinary loss (.04) - -
------------- -------------- -------------
Earnings Per Share $ 3.01 $ 2.47 $ .77
============= ============== =============
Weighted Average Shares
Outstanding (Note 10) 86,703 85,945 85,771
Dividends Paid Per Share (Note 10) $ 1.04 $ 1.00 $ 1.00
============= ============== =============
</TABLE>
See accompanying notes.
<PAGE> 58
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
Shares Amount Shares Amount Shares Amount
--------- --------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Common Stock, $.50 Par, 200,000,000
Shares Authorized (Note 10):
Balance at beginning
of year 86,077 $ 43,038 85,878 $ 42,939 85,747 $ 42,874
Issued 1,081 541 199 99 131 65
--------- ---------- --------- ---------- --------- ----------
Balance at end
of year 87,158 43,579 86,077 43,038 85,878 42,939
--------- ---------- --------- ---------- --------- ----------
Other Capital:
Balance at beginning
of year 60,378 57,336 55,432
Benefit plans 19,275 3,042 1,904
--------- ---------- --------- ---------- --------- ----------
Balance at end
of year 79,653 60,378 57,336
--------- ---------- --------- ---------- --------- ----------
Retained Earnings:
Balance at beginning
of year 1,068,904 942,421 962,169
Net income 261,240 212,409 65,988
Cash dividends at $1.04 per share
for 1993 and $1.00 per share
for 1992
and 1991 (90,161) (85,926) (85,736)
--------- ---------- --------- ---------- --------- ----------
Balance at end
of year 1,239,983 1,068,904 942,421
--------- ---------- --------- ---------- --------- ----------
87,158 $1,363,215 86,077 $1,172,320 85,878 $1,042,696
========= ========== ========= ========== ========= ==========
</TABLE>
See accompanying notes.
<PAGE> 59
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 261,240 $ 212,409 $ 65,988
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion
and amortization 225,989 224,691 216,867
Deferred income taxes 49,635 20,479 (7,643)
Equity in earnings of
unconsolidated affiliates,
less distributions 1,532 3,040 (2,197)
(Gain) loss on sale of subsidiary
stock and disposal
of assets (158,592) (191,843) 5,021
Reserves for regulatory
matters 16,845 22,458 24,467
Gas supply realignment
costs (127,986) - -
Natural gas purchase contract
settlement costs 51,947 52,619 68,626
Change in:
Accounts receivable (60,687) (36,302) 21,886
Inventories 50,535 2,473 22,205
Accounts payable 44,921 27,312 (30,887)
Accrued interest and
income taxes, net 5,199 56,214 (58,576)
Other current assets 10,446 (21,243) 13,257
Other current
liabilities (2,325) (7,099) (21,261)
Other 84,823 (4,467) 26,215
---------- ---------- ----------
Net cash provided by
operating activities 453,522 360,741 343,968
---------- ---------- ----------
</TABLE>
<PAGE> 60
<TABLE>
<S> <C> <C> <C>
Cash Flows from Investing Activities:
Plant, property and equipment
additions (516,466) (225,766) (477,825)
Net proceeds from sale of subsidiary
stock and disposal
of assets 343,610 227,842 8,924
Other, net (16,185) (32,114) (8,585)
---------- ---------- ----------
Net cash used in
investing activities (189,041) (30,038) (477,486)
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of
long-term debt 880,676 221,881 873,780
Payments of long-term debt (1,237,694) (379,181) (663,159)
Changes in short-term
borrowings 112,846 (59,792) 8,837
---------- ---------- ----------
Net changes in debt (244,172) (217,092) 219,458
Dividends paid (90,161) (85,926) (85,736)
Other 22,667 6,653 1,581
---------- ---------- ----------
Net cash provided by (used in)
financing activities (311,666) (296,365) 135,303
---------- ---------- ----------
Net Increase (Decrease) in Cash
and Cash Equivalents (47,185) 34,338 1,785
Cash and Cash Equivalents at
Beginning of Year 58,007 23,669 21,884
---------- ---------- ----------
Cash and Cash Equivalents
at End of Year $ 10,822 $ 58,007 $ 23,669
========== ========== ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount
capitalized) $ 66,793 $ 78,555 $ 112,176
Income taxes, net 71,398 16,643 83,705
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-The Consolidated Financial Statements include the
accounts of Sonat Inc. and its subsidiaries (the Company). Intercompany
transactions and accounts have been eliminated in consolidation. The equity
method of accounting is used for investments in affiliates owned 50 percent or
less.
Certain amounts in the 1992 and 1991 Consolidated Financial Statements
have been reclassified to conform with the 1993 presentation.
Cash Equivalents-Cash equivalents are typically money-market investments in the
form of treasury bills, certificates of deposit and time deposits with original
maturities of three months or less. These investments are accounted for at
cost, which approximates market value.
Inventories-At December 31, 1993, inventories consist primarily of materials
and supplies and are carried at cost.
Gas Imbalance Receivables and Payables-Gas imbalances represent the difference
between gas receipts from and gas deliveries to the Company's transportation
and storage customers. Gas imbalances arise when these customers deliver more
or less gas into the pipeline than they take out. Under the provisions of Order
No. 636, these amounts are settled monthly.
Plant, Property and Equipment and Depreciation-Plant, property and equipment is
carried at cost. The Company provides for depreciation on a composite or
straight-line basis, except for oil and gas properties. (See Notes 6 and 13.)
Revenue Recognition-Revenue is recognized in the Exploration and Production
segment when deliveries of oil and natural gas are made. The Company's Natural
Gas Transmission and Marketing segment recognizes revenue from both natural gas
sales and transportation in the period the service is provided. Reserves are
provided on revenues collected subject to refund when appropriate. Revenues
included in the Consolidated Statements of Income for the Offshore Drilling
segment were recognized as earned through June 4, 1993, based on contractual
daily drilling rates, or on a per-well basis. (See Note 3.)
Foreign Currency Translation-For periods in which the Company had foreign
operations, the U.S. dollar was the functional currency. The effect of foreign
currency exchange transactions included in "Other Income" for those periods was
not material. (See Note 3.)
<PAGE> 62
Income Taxes-The Company follows an asset and liability approach in accounting
for income taxes. Deferred tax assets and liabilities are determined using the
tax rate for the period in which those amounts are expected to be received or
paid.
Futures-The Company engages in the gas futures market to lock in natural gas
prices in its exploration and production business and in its gas marketing
business to decrease volatility related to fluctuations in spot-market prices.
Gains or losses resulting from changes in the market value of these
transactions entered into as hedges are deferred until the hedged commodity
transaction occurs. Neither net futures positions nor the unrecognized gain at
December 31, 1993, was material.
Swaps-The Company engages in oil and gas price swap agreements with certain
counterparties to effectively manage a portion of the market risk associated
with fluctuations in the prices of natural gas and crude oil and to provide
risk management services to its customers. The agreements call for the Company
to make payments to (or receive payments from) other parties based upon the
differential between a fixed and a variable price as specified by the contract.
At December 31, 1993, the Company had a price swap agreement having a notional
contract amount of 4,105,000 MMBtu of natural gas equivalent. This agreement
runs for a period of three years.
Issuance of Stock by Subsidiary-The Company follows an accounting policy of
income statement recognition for issuances of stock by a subsidiary. Other than
the initial public offering (IPO) by Sonat Offshore Drilling Inc. (see Note 3)
there have been no issuances of subsidiary stock during the periods presented
in these financial statements.
Earnings Per Share-Earnings per share amounts are computed on the basis of the
weighted average number of common shares outstanding during the periods. (See
Note 10.)
2. FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
Carrying Amounts Fair Value
---------------- ----------
DECEMBER 31, 1993 (In Thousands)
<S> <C> <C>
Cash and Cash Equivalents $ 10,822 $ 10,822
Investment Securities:
Non-current equity securities 180,000 170,000-190,000
Non-current debt securities 30,854 33,469
Gas Supply Realignment Costs 179,586 179,586
Natural Gas Purchase
Contract Settlement Costs 18,535 18,535
Unsecured Notes Payable 112,846 112,846
Long-Term Debt 861,244 945,888
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C>
DECEMBER 31, 1992
Cash and Cash Equivalents $ 58,007 $ 58,007
Investment Securities:
Non-current equity securities 180,000 180,000-200,000
Non-current debt securities 25,725 27,337
Natural Gas Purchase
Contract Settlement Costs 70,482 70,482
Long-Term Debt 1,195,768 1,248,969
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, gas supply realignment costs, natural gas
purchase contract settlement costs and unsecured notes payable: The carrying
amount reported in the balance sheet approximates its fair value.
Investment securities: The fair value for equity securities is
estimated using values obtained from an independent appraisal. The fair values
for marketable debt securities are based on quoted market prices.
Long-term debt: The fair values of the Company's long-term debt are
based on quoted market values or estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
3. CHANGES IN OPERATIONS
Stock Sale by Subsidiary-On June 4, 1993, the IPO of Sonat Offshore's common
stock at $22.00 per share was closed. Prior to the offering, the Company owned
100 percent of Sonat Offshore. Sonat Offshore issued 15.5 million shares, and
the Company sold 1.448 million of its shares resulting in a combined pretax
gain of $155.8 million. Net cash proceeds from the combined transactions after
underwriting commissions, expenses and tax provisions totaled approximately
$340 million. The Company retained ownership of approximately 40 percent of
Sonat Offshore's outstanding shares and recognized an after-tax gain of $99.7
million, or $1.15 per share, from the combined transactions. At December 31,
1993, the Company held 11.3 million shares of Sonat Offshore common stock at a
market value of $180.0 million.
<PAGE> 64
Discontinued Operations-On April 23, 1992, the Company completed the sale of
Teleco Oilfield Services Inc. to Baker Hughes Incorporated. The Company
received $200 million in cash and four million shares of Baker Hughes
convertible preferred stock. The convertible preferred stock has a face amount
of $200 million, a dividend rate of 6 percent per annum, and is convertible at
$32.50 per share into Baker Hughes common stock. The Company attributed a value
of $180 million to the noncash portion of the transaction which is included in
"Other Investments" on the Consolidated Balance Sheets.
Summary operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1992 1991
---- ----
(In Thousands)
<S> <C> <C>
Revenues $ 44,868 $ 148,802
Loss Before Income Taxes $ (472) $ (15,455)
Income Taxes (Benefit) 166 (3,562)
Loss from Discontinued Operations (638) (11,893)
Net Gain on Disposals, Net of Income
Taxes of $70,618,000 112,085 -
--------- ---------
Income (Loss) from
Discontinued Operations $ 111,447 $ (11,893)
========= =========
</TABLE>
<PAGE> 65
4. INVENTORIES
The table below shows the values of various categories of the Company's
inventories by business segment.
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Exploration and Production:
Materials and supplies $ 4,050 $ 5,311
Natural Gas Transmission and Marketing:
Gas stored underground 1,829 120,072
Materials and supplies 23,945 26,448
--------- ---------
25,774 146,520
--------- ---------
Offshore Drilling:
Materials and supplies - 4,637
Other 72 57
--------- ---------
$ 29,896 $ 156,525
========= =========
</TABLE>
Gas stored underground decreased due to the sale of $123 million of
storage gas inventory by Southern pursuant to the implementation of Order No.
636 on November 1, 1993. (See Note 9.)
5. UNCONSOLIDATED AFFILIATES
At December 31, 1993, the Company's investments in unconsolidated affiliates
totaled $295.2 million, and the Company's share of underlying equity in net
assets of the investees was $363.1 million. The difference is primarily due to
the excess over cost of the Company's share of the underlying equity in net
assets of Citrus Corp., which is being amortized over the depreciable life of
Citrus' assets. Through December 31, 1993, the Company's cumulative equity in
earnings of these unconsolidated affiliates was $177.8 million and cumulative
dividends received from them totaled $134.0 million.
<PAGE> 66
The following table presents the components of equity in earnings of
unconsolidated affiliates.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
COMPANY'S SHARE OF
REPORTED EARNINGS (LOSS)
<S> <C> <C> <C>
Exploration and Production:
Sonat/P Anadarko $ 4,163 $ 1,368 $ -
Other exploration and
production affiliates 502 410 151
------- ------- -------
4,665 1,778 151
------- ------- -------
Natural Gas Transmission
and Marketing:
Citrus Corp. (8,066) (11,058) (4,602)
Amortization of Citrus
basis difference 1,738 2,096 2,096
Bear Creek Storage 8,638 8,002 7,822
Other natural gas transmission
and marketing affiliates (121) 332 374
------- ------- -------
2,189 (628) 5,690
------- ------- -------
Offshore Drilling:
Sonat Offshore Drilling 4,497 - -
Other offshore
drilling affiliates (292) 1,750 2,112
------- ------- -------
4,205 1,750 2,112
------- ------- -------
Other 1,306 1,232 994
------- ------- -------
$12,365 $ 4,132 $ 8,947
======= ======= =======
</TABLE>
Exploration and Production Affiliate-Sonat Exploration
Company had an initial 49 percent interest in Sonat/P Anadarko Limited
Partnership (Sonat/P) which acquired oil and gas reserves in the Anadarko Basin
of Oklahoma from Louisiana Land and Exploration Company in the third quarter of
1992. On October 4, 1993, Sonat Exploration acquired the limited partnership
interest of Prudential Insurance Company in Sonat/P. (See Notes 7 and 13.) For
the 1993 period prior to acquisition, Sonat/P had revenues of $16.3 million and
reported earnings of $6.6 million. The Company's investment in Sonat/P at
December 31, 1992, was $19.7 million. Sonat/P had revenues of
<PAGE> 67
$6.1 million and reported earnings of $2.5 million in 1992.
Natural Gas Transmission and Marketing Affiliates- Sonat owns 50 percent of
Citrus, the parent of Florida Gas Transmission Company. Southern Natural Gas
Company owns 50 percent of Bear Creek Storage Company, an underground gas
storage company.
The following is summarized financial information for Citrus:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues $ 574,302 $ 550,139 $ 565,606
Natural Gas Cost 421,148 414,051 427,598
Operating Expenses 71,754 70,170 71,616
Depreciation 44,668 51,502 45,899
Other Expenses, Net 48,223 49,686 36,074
Income Taxes (Benefits) 4,641 (13,153) (6,380)
--------- --------- ---------
Loss Reported $ (16,132) $ (22,117) $ (9,201)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Assets
Current $ 59,872 $ 65,386
Net transmission plant and property 1,396,748 1,330,106
Other 116,650 124,479
---------- ----------
$1,573,270 $1,519,971
========== ==========
Liabilities and Equity
Current $ 417,689 $ 291,557
Long-term debt and other liabilities 815,614 872,315
Stockholders' equity 339,967 356,099
---------- ----------
$1,573,270 $1,519,971
========== ==========
</TABLE>
On December 23, 1993, Citrus entered into a $300 million, 364-day
revolving credit agreement with a group of banks. Advances under the credit
agreement may be used for general corporate purposes, including the interim
<PAGE> 68
construction costs for Florida Gas' Phase III expansion project. The Company is
providing indirect credit support to the extent of up to 50 percent of the
outstanding advances in the form of a standby note purchase agreement for up to
$150 million principal amount plus accrued interest and/or fees if any. At
December 31, 1993, $275 million was outstanding under the credit agreement at a
rate of 3.63 percent.
In connection with the expansion project, the Company expects to make
an equity investment of $150 million in 1994.
The following is summarized financial information for Bear Creek. No
provision for income taxes has been included since its income taxes are paid
directly by the joint-venture participants.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues $ 36,566 $ 36,528 $ 37,067
Operating Expenses 6,137 5,156 9,673
Depreciation 5,397 5,397 857
Other Expenses, Net 7,756 9,971 10,893
--------- --------- ---------
Income Reported $ 17,276 $ 16,004 $ 15,644
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Assets
Current $ 5,916 $ 6,337
Net plant and property 169,521 174,793
Other 594 647
--------- ---------
$ 176,031 $ 181,777
========= =========
Liabilities and Equity
Current $ 8,607 $ 8,700
Long-term debt and
other liabilities 76,517 83,446
Participants' equity 90,907 89,631
--------- ---------
$ 176,031 $ 181,777
========= =========
</TABLE>
<PAGE> 69
Offshore Drilling Affiliate-The Company's investment in Sonat Offshore has been
accounted for on the equity method since June 5, 1993 (see Note 3). The
following is summarized financial information for Sonat Offshore:
<TABLE>
<CAPTION>
Period of June 5-December 31, 1993
----
(In Thousands)
<S> <C>
Revenues $ 164,983
Operating Expenses 132,523
Depreciation 12,082
Other (Income) Expenses, Net (931)
Income Taxes 10,036
---------
Income Reported $ 11,273
=========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----
(In Thousands)
<S> <C>
Assets
Current $ 143,713
Net plant and property 259,527
Other 68,780
---------
$ 472,020
=========
Liabilities and Equity
Current $ 65,427
Long-term debt and
other liabilities 92,287
Stockholders' equity 314,306
---------
$ 472,020
=========
</TABLE>
6. PLANT, PROPERTY AND EQUIPMENT AND DEPRECIATION
Plant, property and equipment, by business segment, is shown in the following
table (see Note 3).
<PAGE> 70
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Exploration and Production $2,077,854 $1,700,594
Natural Gas Transmission
and Marketing 2,261,020 2,147,598
Offshore Drilling - 647,730
Other 61,412 48,556
---------- ----------
$4,400,286 $4,544,478
========== ==========
</TABLE>
Plant, property and equipment includes construction work in progress
of $56.0 million and $49.0 million at December 31, 1993 and 1992, respectively.
The accumulated depreciation, depletion and amortization amounts, by
business segment, are as follows:
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Exploration and Production $ 853,634 $ 776,026
Natural Gas Transmission
and Marketing 1,437,739 1,381,569
Offshore Drilling - 375,971
Other 21,795 20,298
---------- ----------
$2,313,168 $2,553,864
========== ==========
</TABLE>
The annual depreciation rates or useful productive lives, by business
segment, are as follows:
<TABLE>
<S> <C>
Natural Gas Transmission and Marketing:
Mainline transmission property 2.8%
Gas supply 5.1%
Gas gathering 6.25%
Underground storage facilities 3.3%
Liquefied natural gas facilities 3.2%
Other 5-20 yrs.
========
</TABLE>
The successful efforts method of accounting results in the cost of
proved oil and gas properties and development dry holes being capitalized and
amortized on a unit-of-production basis over the life of
<PAGE> 71
remaining proved reserves. Also included in amortization on a
unit-of-production basis are the estimated future dismantlement and abandonment
costs.
7. LONG-TERM DEBT AND LINES OF CREDIT
Long-Term Debt-Long-term debt consisted of:
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Sonat Inc.
Revolving Credit Agreement at rates
based on prime, international or
money-market lending rates due
December 31, 1998 $ 135,000 $ -
9 7/8% Notes due June 1, 1996 - 200,000
9 1/2% Notes due August 15, 1999 100,000 100,000
7 1/4% Zero Coupon, Subordinated
Convertible Notes due September 6,
2005 (face value $661,250,000) - 268,002
9% Term Loan due through
December 1993 - 4,000
8.65% Notes due through July 29, 1997 37,143 46,428
9.41% Notes due July 29, 1997 35,000 35,000
9% Notes due May 1, 2001 100,000 100,000
8.24% Senior Notes due
through December 31, 2000 17,400 -
Southern Natural Gas Company
7.85% Notes due January 15, 2002 100,000 100,000
8 5/8% Notes due May 2, 2002 100,000 100,000
9 5/8% Notes due June 15, 1994 100,000 100,000
8 7/8% Notes due February 15, 2001 100,000 100,000
South Georgia Natural Gas Company
9.85% Term Loan due
through December 31, 1997 3,520 4,400
7.80% Term Loan due
through December 31, 1997 1,600 2,000
Southern Energy Company
Promissory Note (an effective rate of
6.75% at December 31, 1993) due
through April 1999 30,000 35,000
Other Notes and Capital Leases 1,581 938
--------- ----------
Total Outstanding 861,244 1,195,768
Less Long-Term Debt Due Within One Year 120,083 20,102
--------- ----------
$ 741,161 $1,175,666
========= ==========
</TABLE>
<PAGE> 72
Annual maturities of long-term debt at December 31, 1993, are as
follows:
<TABLE>
<S> <C>
Years
(In Thousands)
1994 $ 120,083
1995 18,836
1996 18,359
1997 52,766
1998 142,100
1999-2002 509,100
---------
$ 861,244
=========
</TABLE>
On March 15, 1993, Sonat redeemed all of its outstanding 7 1/4 Percent
Zero Coupon, Subordinated Convertible Notes due September 6, 2005, at a cost of
approximately $272 million. The funds utilized for the redemption consisted of
$52 million of cash on hand and a $220 million borrowing under Sonat's $500
million revolving credit agreement. The Company recognized an extraordinary
noncash loss after income taxes of $3.8 million, or $.04 per share, on the
redemption.
On June 1, 1993, Sonat redeemed all of its outstanding 9 7/8 Percent
Notes due June 1, 1996, at par value plus accrued interest, totaling
approximately $210 million. The funds utilized for the redemption were provided
from cash on hand.
On October 4, 1993, in connection with Sonat Exploration's purchase of
Prudential's interest in Sonat/P, Sonat issued to Prudential $18.5 million of
8.24 Percent Senior Notes dated September 30, 1993, to mature December 31,
2000. Proceeds from the notes were utilized by Sonat to purchase all of
Sonat/P's outstanding notes to Prudential.
On November 23, 1993, in connection with the acquisition of certain
oil and gas properties by Sonat Exploration, Sonat issued a promissory note for
$43.8 million payable in full on January 3, 1994.
Lines of Credit and Credit Agreement-At December 31, 1993, the Company had
available $546 million under short-term lines of credit and a revolving credit
agreement. The amount available under the lines of credit has been reduced by
the amount of commercial paper outstanding to reflect the Company's policy that
credit line and commercial paper borrowings in the aggregate will not exceed
the maximum amount available under its lines of credit. On May 31, 1993, Sonat
and Southern renewed their short-term lines of credit of $200
<PAGE> 73
million and $50 million, respectively, for a period of 364 days.
Borrowings are in the form of unsecured promissory notes and bear interest at
rates based on the banks' prevailing prime, international or money-market
lending rates. On December 15, 1993, Sonat renegotiated and extended its
revolving credit agreement with a group of banks. The revolving credit agreement
will provide for periodic borrowings and repayments of up to $500 million
through December 15, 1998. Borrowings are supported by unsecured promissory
notes that at the option of the Company, will bear interest at the banks'
prevailing prime or international lending rate, or such rates as the banks may
competitively bid. At December 31, 1993, $9 million was outstanding under the
lines of credit at a rate of 3.38 percent, $135 million was outstanding under
the revolving credit agreement at a rate of 3.75 percent, and $60 million in
commercial paper was outstanding at an average rate of 3.64 percent.
8. INCOME TAXES
An analysis of the Company's income tax expense (benefit) on
continuing operations is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 46,230 $ (5,497) $ 19,501
Foreign 3,305 (651) (493)
State 6,446 10,245 5,427
--------- --------- ---------
55,981 4,097 24,435
--------- --------- ---------
Deferred:
Federal 40,435 35,074 815
Foreign 649 (26) 26
State 5,594 (3,338) (2,671)
--------- --------- ---------
46,678 31,710 (1,830)
--------- --------- ---------
Income Tax Expense on
Continuing Operations $ 102,659 $ 35,807 $ 22,605
========= ========= =========
</TABLE>
<PAGE> 74
Net deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation $ 235,490 $ 289,642
Investments 56,383 -
Inventories 10,513 6,979
Natural gas purchase contract
settlement costs 1,234 16,394
Other 2,768 871
--------- ---------
Total deferred tax liabilities 306,388 313,886
--------- ---------
Deferred Tax Assets:
Revenue reserves 45,997 38,978
Non-conventional fuel tax credits 24,856 18,830
Employee benefits 16,604 5,309
Other accounting accruals 1,107 13,056
Interest on income taxes 11,548 9,581
Demand charge 3,103 11,085
Other 10,196 9,155
--------- ---------
Total deferred tax assets 113,411 105,994
--------- ---------
Net Deferred Tax Liabilities $ 192,977 $ 207,892
========= =========
</TABLE>
The Company has not provided a valuation allowance to offset deferred
tax assets because, based on the weight of available evidence, it is more
likely than not that all deferred tax assets will be realized.
Consolidated income tax expense relating to continuing operations is
different from the amount computed by applying the U.S. federal income tax rate
to income from continuing operations before income tax. The reasons for this
difference are as follows:
<PAGE> 75
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Income Tax Expense at Statutory
Federal Income Tax Rates $ 128,705 $ 46,501 $ 34,165
Increases (Decreases) in Tax
Resulting From:
Provisions for state
income taxes 4,899 4,940 4,896
Non-conventional fuel
tax credits (19,242) (13,998) (8,472)
Refunds and adjustment of
accrued tax position (9,319) (2,769) (9,581)
Effect of change in statutory
rate on deferred taxes 1,342 - -
Other (3,726) 1,133 1,597
--------- --------- ---------
Income Tax Expense on
Continuing Operations $ 102,659 $ 35,807 $ 22,605
========= ========= =========
</TABLE>
The effect of the deferred tax rate increase to 35 percent due to the
Omnibus Budget Reconciliation Act of 1993 has been reduced by the effect of the
Company's regulated subsidiaries' reduction of liabilities established for
excess deferred income taxes expected to be returned over future periods to
customers.
The domestic and foreign components of income (loss) from continuing
operations before income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Domestic $ 360,771 $ 119,245 $ 101,495
Foreign 6,957 17,524 (1,009)
--------- --------- ---------
Income from Continuing Operations
before Income Taxes $ 367,728 $ 136,769 $ 100,486
========= ========= =========
</TABLE>
<PAGE> 76
9. COMMITMENTS AND CONTINGENCIES
Leases-The Company has operating lease commitments expiring at various dates,
principally for office space and equipment. The Company has no significant
capital leases.
Rental expense for all operating leases from continuing operations is
summarized below:
<TABLE>
<CAPTION>
Rental Expense
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Non-Affiliated Operating Leases $ 14,816 $ 16,962 $ 17,762
Affiliated Operating Leases 3,589 3,482 2,977
--------- --------- ---------
$ 18,405 $ 20,444 $ 20,739
========= ========= =========
</TABLE>
At December 31, 1993, future minimum payments for non-cancelable
operating leases for the years 1994 through 1998 are less than $7 million per
year.
Rate Matters-Periodically, Southern and its subsidiaries file general rate
filings with the FERC to provide for the recovery of cost of service and a
return on equity. The FERC normally allows the filed rates to become effective,
subject to refund, until it rules on the approved level of rates. Southern and
its subsidiaries provide reserves relating to such amounts collected subject to
refund, as appropriate, and make refunds upon establishment of the final rates.
On September 1, 1989, Southern implemented new rates, subject to
refund, reflecting a general rate decrease of $6 million. In January 1991,
Southern implemented new rates, subject to refund, that restructured its rates
consistent with a FERC policy statement on rate design and increased its sales
and transportation rates by approximately $65 million annually. These two
proceedings have been consolidated for hearing. On October 7, 1993, the
presiding administrative law judge certified to the FERC a contested offer of
settlement pertaining to the consolidated rate cases which (1) resolved all
outstanding issues in the rate decrease proceeding, (2) resolved the cost of
service, throughput, billing determinant and transportation discount issues in
the rate increase proceeding, and (3) provided a method to resolve all other
issues in the latter proceeding, including the appropriate rate design. On
December 16, 1993, the FERC issued an order (December 16 Order) approving the
settlement, but with modifications. On December 22, 1993, Southern filed a
letter with the FERC that outlined certain objections with respect to the
<PAGE> 77
FERC's modifications to the terms and conditions of the settlement.
Southern advised the FERC that the December 16 Order undercut the economic
compromise achieved in the settlement. Southern also filed a request for
rehearing of the December 16 Order but is unable to determine at this time if
or to what extent rehearing will be granted by the FERC.
On September 1, 1992, Southern implemented another general rate
change. The rates reflected the continuing shift in the mix of throughput
volumes away from sales and toward transportation and a $5 million reduction in
annual revenues. On April 30, 1993, Southern submitted a proposed settlement in
the proceeding which, if approved by the FERC, would resolve the throughput and
certain cost of service issues. On June 4, 1993, the presiding administrative
law judge certified the settlement to the FERC. In another order issued on
December 16, 1993, the FERC also approved this settlement, but with
modifications. Southern objects to these modifications and has also requested
rehearing of this order, but is unable to determine at this time if rehearing
will be granted by the FERC.
In 1992 Southern placed in service certain facilities constructed to
connect to its pipeline system gas reserves produced from certain Mississippi
Canyon and Ewing Bank Area Blocks, offshore Louisiana. By order dated May 15,
1991, the FERC had authorized Southern, subject to certain conditions affecting
Southern's ability to include the cost of the facilities in its rates, to
construct and operate the pipeline, compression, and related facilities
necessary to connect these reserves. Southern sought rehearing of the
unacceptable certificate conditions, but in an order issued on January 13,
1993, the FERC left intact the conditions contained in its 1991 order. It
deferred the specific application of the conditions to Southern's pending rate
case implemented September 1, 1992. The certificate order itself is now on
appeal. The Company is unable to predict the ultimate rate treatment of the $45
million cost of these facilities, but does not expect such treatment to have a
material adverse effect on its financial position.
On May 1, 1993, Southern implemented a general rate change, subject to
refund, which increased its sales and transportation rates by approximately $57
million annually. The filing is designed to recover increased operating costs
and to reflect the impact of competition on both Southern's level and mix of
services. A hearing regarding various cost allocation and rate design issues in
this proceeding is set for June 14, 1994.
Sea Robin Pipeline Company has previously filed under the provisions
of Order No. 500 to recover $83.1 million in gas purchase contract settlement
payments from its former pipeline sales customers, Koch Gateway Pipeline
Company, successor to United Gas Pipe Line Company (United), and Southern.
Those filings remain subject to refund pending the outcome of any prudence
challenges in the proceedings. Although the eligibility issues have been
<PAGE> 78
resolved, one party has reserved its rights to challenge prudence until such
time as certain take-or-pay allocation issues are resolved with respect to the
flow-through of costs billed to United.
Southern is authorized to flow through to its jurisdictional customers
$38.1 million of the costs allocated to it by Sea Robin as well as the $32.7
million in Order No. 500 costs allocated to it by United. Southern's
flow-through of United and Sea Robin's costs remains subject to refund pending
the outcome of any challenges to the costs or allocation of the costs in those
pipelines' Order No. 500 proceedings. The Company does not believe that the
outcome of any such challenges will have a material adverse effect on its
financial position.
On July 2, 1993, the FERC issued an order reaffirming its approval of
the non-take-or-pay aspects of a settlement filed by United in 1988, which
included Southern's phased abandonment of its contract demand with United. The
order rejected the take-or-pay aspects of the settlement, including United's
proposed Order No. 528 allocation methodology. As a consequence, various
parties that had originally supported the settlement are now contesting it.
United has evidenced its intention to honor the non-take-or-pay aspects of the
1988 settlement and has induced several of the parties to withdraw their
judicial appeals of the July 2 order. The Company does not believe that the
final resolution of this matter will have a material adverse effect on its
financial position.
Gas Purchase Contracts-Gas purchase contract settlement payments (other than
the gas supply realignment payments discussed below) made by Southern and not
previously recovered or expensed are included on the Consolidated Balance Sheet
at December 31, 1993, in "Current Assets." Pursuant to a final and
nonappealable FERC order, Southern is entitled to collect these amounts from
its customers over the remainder of a five-year period which commenced May 1,
1989. Southern currently is incurring essentially no take-or-pay liabilities
under its gas purchase contracts. Southern regularly evaluates its position
relative to gas purchase contract matters, including the likelihood of loss
from asserted or unasserted take-or-pay claims or above-market prices. When a
loss is probable and the amount can be reasonably estimated, it is accrued.
Order No. 636-In 1992 the FERC issued its Order No. 636 (the Order). The Order
requires significant changes in interstate natural gas pipeline services.
Interstate pipeline companies, including Southern, are incurring certain costs
(transition costs) as a result of the Order, the principal one being costs
related to amendment or termination of existing gas purchase contracts, which
are referred to as gas supply realignment (GSR) costs. The Order provides for
the recovery of 100 percent of the GSR costs and other transition costs arising
out of the implementation of the Order to the extent that the pipeline can
prove that they were prudently incurred. Numerous parties have appealed
<PAGE> 79
the Order to the Circuit Courts of Appeal.
On September 3, 1993, the FERC generally approved a compliance plan
for Southern and directed Southern to implement its restructured services
pursuant to the Order on November 1, 1993 (the September 3 order). Pursuant to
Southern's compliance plan, GSR costs that are eligible for recovery include
payments to reform or terminate gas purchase contracts or, for contracts where
Southern can show that it can minimize transition costs by continuing to
purchase gas under the contract (i.e., it is more economic to continue to
perform), the difference between the contract price and the higher of (a) the
sales price for gas purchased under the contract, or (b) a price established by
an objective index of spot-market prices. Recovery of these latter costs is
permitted for an initial period of two years.
Southern's compliance plan contains two mechanisms pursuant to which
Southern is permitted to recover 100 percent of its GSR costs. The first
mechanism is a monthly fixed charge designed to recover 90 percent of the GSR
costs from Southern's firm transportation customers. The second mechanism is a
volumetric surcharge designed to collect the remaining 10 percent of such costs
from Southern's interruptible transportation customers. This funding will
continue until the GSR costs are fully recovered or funded. The FERC also
permitted Southern to file to recover any GSR costs not recovered through the
volumetric surcharge after a period of two years. In addition, Southern's
compliance plan provides for the recovery of other transition costs as they are
incurred and any remaining transition costs may be recovered through a regular
rate filing.
The September 3 order rejected the argument of certain customers that
a 1988 take-or-pay recovery settlement bars Southern from recovering GSR costs
under gas purchase contracts executed before March 31, 1989. Those customers
have filed motions urging the FERC to reverse its ruling on that issue. On
December 16, 1993, the FERC affirmed its September 3 ruling with respect to the
1988 take-or-pay recovery settlement. The December 16 Order generally approved
Southern's restructuring tariff submitted pursuant to the September 3 order.
Various parties have filed motions urging the FERC to modify the December 16
Order and have sought judicial review of the September 3 order. Southern and
its customers engaged in settlement discussions regarding Southern's
restructuring filing prior to the September 3 order, but the parties were
unable to reach a settlement. Those discussions are continuing.
During 1993 Southern reached agreements to reduce significantly the
price payable under a number of high cost gas purchase contracts in exchange
for payments of approximately $114 million. On December 1, 1993, Southern filed
to recover such costs and approximately $3 million of prefiling interest. On
December 30, 1993, the FERC accepted such filing to become effective January 1,
1994, subject to refund, and subject to a determination that such costs
<PAGE> 80
were prudently incurred and eligible under Order No. 636. The December 30 order
rejected arguments of various parties that a pipeline's payments to affiliates,
which represented approximately $34 million of the December 1, 1993 filing, may
not be recovered under Order No. 636.
In December 1993, Southern reached agreement to reduce the price under
another contract in exchange for payments having a present value of
approximately $52 million which is included in "Deferred Credits and Other" in
the Consolidated Balance Sheet. Payments will be made in equal monthly
installments over an eight-year period ending December 31, 2001. Southern
expects to make a limited rate filing by mid-February 1994 to recover such
costs beginning April 1, 1994. Southern has also incurred approximately $11
million of costs during November and December 1993 from continuing to purchase
gas under contracts that are in excess of current market prices. Southern will
make additional rate filings to recover these costs quarterly. The total costs
of $180 million accrued through December 31, 1993, are included in current and
long-term gas supply realignment costs in the Consolidated Balance Sheet.
Southern is unable to predict all of the elements of the ultimate
outcome of its Order No. 636 restructuring proceeding, its settlement
discussions with its customers, and the limited rate filings to recover its
transition costs.
10. CAPITAL STOCK
On July 22, 1993, the Company's Board of Directors approved a two-for-one stock
split which became effective September 14, 1993, to stockholders of record on
August 31, 1993. All share, per share and dividend amounts reported in the
Consolidated Financial Statements have been restated to reflect the two-for-one
stock split.
Per share prices of the Company's common stock, based on the New York
Stock Exchange listing of composite transactions, and dividends paid per common
share for the last two years are summarized below.
<PAGE> 81
Price Range and Dividends Paid Per Common Share (Unaudited)
<TABLE>
<CAPTION>
Quarter 1993 1992
---- ----
Price Range High-Low
<S> <C> <C>
First $28 11/16 - 21 5/8 $18 1/8 - 14 9/16
Second 33 5/8 - 27 1/8 19 1/4 - 14 15/16
Third 35 13/16 - 32 1/8 22 - 18 5/16
Fourth 36 1/2 - 26 3/8 24 1/8 - 19 9/16
Dividends Paid
First $ .25 $ .25
Second .25 .25
Third .27 .25
Fourth .27 .25
------ ------
$ 1.04 $ 1.00
------ ------
Shareholders of Record
at Year-End 13,040 13,700
====== ======
</TABLE>
The Company had no restrictions on the payment of dividends at
December 31, 1993.
The Company has a Stockholder Rights Plan designed to protect the
interest of stockholders in the event of a hostile attempt to take over the
Company and to make it more difficult for a person to gain control of the
Company in a manner or on terms not approved by the Board of Directors. The
rights under the Plan are redeemable at any time by the Company before the end
of their 10-year term, February 3, 1996, so long as an entity has not acquired
20 percent or more of the Company. As of December 31, 1993, 92,675,535 shares
of common stock were reserved for issuance under this Plan.
The Company has a Restricted Stock Plan for non-employee members of
the Board of Directors of Sonat Inc. Full rights vest over a maximum of five
years. The Company issued 21,200 shares during 1993. At December 31, 1993,
13,860 of the 35,060 cumulative shares granted have vested.
Executive Award Plan-The Company has an Executive Award Plan that provides
awards to certain key employees in the form of stock options, restricted stock,
and stock appreciation rights (SARs) in tandem with any or all stock options.
In years prior to 1991, tax offset payments were generally provided in
conjunction with these awards. SARs permit the holder of an exercisable option
to surrender that option for an amount equal to the excess of the market price
of the common stock on the date of exercise over the option price
<PAGE> 82
(appreciation). The appreciation is payable in cash, common stock, or a
combination of both. SARs are subject to the same terms and conditions as the
options to which they are related. No SARs have been issued since 1990. At
December 31, 1993, 392,134 SARs were outstanding. The Company issued 62,400
shares of restricted stock to employees during 1993. The shares generally vest
10 years from the date of grant, unless the closing price of the Company's
common stock achieves certain specified levels. At December 31, 1993, 33,316 of
the 246,300 cumulative restricted shares issued have vested.
The following table summarizes option activities in the Plan:
<TABLE>
<CAPTION>
Number of Shares Under Option
Years Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Beginning of Year 3,889,154 3,191,082 2,257,050
Granted 989,700 956,200 1,047,800
Exercised (1,332,661) (198,592) (105,768)
Forfeited (27,598) (59,536) (8,000)
--------- --------- ---------
End of Year 3,518,595 3,889,154 3,191,082
========= ========= =========
Exercisable 2,245,556 2,050,612 1,632,478
========= ========= =========
Outstanding
Option
Prices $12.0625-30.00 $11.5625-26.0625 $11.5625-26.0625
============= =============== ===============
Exercised
Option
Prices $12.0625-25.75 $ 11.5625-17.75 $ 19.0625-23.125
============= ============= ==============
Shares Authorized
for Future
Grants at
Year-End 1,999,256 3,009,758 4,082,590
========= ========= =========
</TABLE>
Stock-based employee compensation decreased pretax income by $12.6
million in 1993, decreased pretax income by $9.3 million in 1992 and increased
pretax income by $12.3 million in 1991.
At December 31, 1993 and 1992, there were 10,000,000 shares of
Preference Stock authorized, with none issued.
<PAGE> 83
11. RETIREMENT PLANS AND OTHER POST EMPLOYMENT BENEFITS
Retirement Plans-Sonat Inc. has a trusteed, non-contributory, tax qualified
defined benefit retirement plan (the Retirement Plan) covering substantially
all domestic employees of the Company. A supplemental benefit plan (the
Supplemental Plan) that provides retirement benefits in excess of those allowed
under the Company's tax qualified retirement plan is also in effect for the
Company. Benefits under the plans are based on a combination of years of
service and a percentage of compensation. Benefits are vested over five years.
In connection with the Sonat Offshore divestiture, the qualified
retirement plan assets and liabilities related to Sonat Offshore employees were
transferred to a new, separate qualified retirement plan to be maintained by
Sonat Offshore. As a result of splitting the plans, Sonat recorded a $4 million
prepaid pension asset. For the Supplemental Plan, Sonat has retained the
obligation to pay the supplemental benefit accrued through the date of the IPO
for all of Sonat Offshore's current and retired employees. An additional $2.7
million liability was recorded by Sonat for this obligation. Sonat Offshore
retains responsibility for the obligation to its employees' supplemental
benefits subsequent to the date of the IPO.
The Company determines the amount of funding to the Retirement Plan on
a year-to-year basis, with amounts consistent with minimum and maximum funding
requirements established by various governmental bodies. The trust established
to provide benefits under the Supplemental Plan is being funded; however, this
trust is not subject to any funding requirements. At December 31, 1993, this
trust had assets with a fair market value of $33.5 million to pay benefits
under the Supplemental Plan.
The Company's net periodic pension cost included in continuing
operations consists of the following components:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service Cost-Benefits Earned
during the Period $ 9,722 $ 11,190 $ 13,634
Interest Cost on Projected
Benefit Obligation 25,246 27,101 27,121
Gain on Assets (60,558) (22,495) (68,983)
Net Amortization and Deferral 29,607 (10,004) 35,234
--------- --------- ---------
$ 4,017 $ 5,792 $ 7,006
========= ========= =========
</TABLE>
<PAGE> 84
For a limited period during 1993 and 1991, special early retirement
programs were offered to certain employees. The total cost of the programs was
$5.5 million and $12.2 million, respectively. All of the 1993 costs related to
regulated operations and are deferred to be collected in future rates.
The following table sets forth the assets and liabilities of the plans
and the amount of the net pension liability recognized in the Company's
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
Plans with Obligations Plans with Obligations
Less than Assets (1) in Excess of Assets (2)
December 31, December 31,
1993 1992 1993 1992
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Actuarial Present Value
of Benefit Obligations:
Vested benefit
obligations $ 239,797 $ 264,821 $ 24,604 $ 22,874
Non-vested benefit
obligations 12,848 13,251 491 688
--------- --------- --------- ---------
Accumulated benefit
obligations 252,645 278,072 25,095 23,562
Effect of projected
future salary
increases 76,096 88,099 3,750 4,362
--------- --------- --------- ---------
Projected benefit
obligations 328,741 366,171 28,845 27,924
Plan Assets at
Fair Value (3) 383,000 394,728 - -
--------- --------- --------- ---------
Projected Benefit Obligations
(in Excess of) or Less
than Plan Assets 54,259 28,557 (28,845) (27,924)
Unrecognized Net
(Assets) or Obligations
at Transition (4) (16,416) (29,775) 409 461
Unrecognized Net
(Gain) Loss (50,542) (11,708) 5,740 6,063
Unrecognized Prior
Service Cost 9,150 11,803 2,698 2,959
Net Unamortized Deferred
Charge from Early
Retirement Termination
</TABLE>
<PAGE> 85
<TABLE>
<S> <C> <C> <C> <C>
Benefits (5) 5,401 1,923 984 3,323
----------- --------- ----------- -----------
Net Pension Asset (Liability)
Recognized in
the Consolidated
Balance Sheets $ 1,852 $ 800 $ (19,014) $ (15,118)
=========== ========= =========== ===========
</TABLE>
(1) The Retirement Plan.
(2) The Supplemental Plan.
(3) Plan assets consist of equity securities, commingled funds and debt
securities.
(4) Amortization periods for unrecognized net (asset) or obligation are
16.5 years for the Retirement Plan and 15 years for the
Supplemental Plan.
(5) Amortization periods for early retirement termination benefits are
10 years for the Retirement Plan and five years for the
Supplemental Plan.
Until July 1993, the Company set aside assets in fixed income
securities such that values of those assets equal or exceed the present value
of the Company's benefit obligations to current retirees (immunized
obligations). After that date, a separate immunized portfolio has not been
maintained. The assumed rates used to measure the projected benefit obligations
and the expected earnings of plan assets are:
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Weighted Average Discount Rate:
Immunized obligations - 7.4% 7.4%
Non-immunized obligations 7.0% 7.0% 7.0%
Long-Term Rate of Return:
Immunized assets - 7.4% 7.4%
Non-immunized assets 9.0% 9.0% 9.0%
Increase in Future Compensation Levels:
Retirement and Supplemental Plans 6.0% 6.0% 7.0%
==== ==== ====
</TABLE>
Other Post Employment Benefits-The Company has plans that provide for
postretirement health care and life insurance benefits to substantially all of
its domestic employees when they retire. The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," for all plans as of January 1,
1993. SFAS No. 106 requires companies to accrue the cost of postretirement
health care and life insurance benefits within the employees' active service
periods. The Company has elected to amortize the transition obligation over a
20-year period. The Company previously expensed the cost of its retiree medical
benefits as they were paid. Expense for retiree life insurance
<PAGE> 86
benefits was recognized as the Company funded its Retiree Life Insurance Plan.
With respect to the Sonat Offshore IPO, Sonat Offshore will maintain
responsibility for its retired employees for both health care and life
insurance benefits. The portion of assets held by Sonat in a Continued Life
Insurance Reserve fund that related to Sonat Offshore employees, $1.2 million,
was transferred to Sonat Offshore during 1993.
The annual net periodic cost for postretirement health
care and life insurance benefits for the year ended December 31, 1993, includes
the following components:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Service Cost $ 2,109
Interest Cost 7,567
Return on Plan Assets (219)
Net Amortization and Deferral 3,947
---------
$ 13,404
=========
</TABLE>
Prior to the adoption of SFAS No. 106, the cost of providing health
care and life insurance benefits was $5.1 million and $5.2 million in 1992 and
1991, respectively.
Southern implemented rates effective May 1, 1993, which provide for
the recovery of its $9.7 million share of the 1993 expense. Costs incurred in
1993 prior to that date, amounting to $2.6 million, were deferred to be
amortized over a three-year period commencing when Southern's next rate case
becomes effective.
The Company funds its Retiree Life Insurance Plan with the amount of
funding determined on a year-to-year basis with the objective of having assets
equal plan liabilities. In addition, during 1993 the Company initiated funding
of postretirement health care benefits for employees of its regulated
subsidiaries in an amount generally equal to the subsidiaries' SFAS No. 106
expense.
<PAGE> 87
The following table sets forth the funded status at December 31, 1993,
and at the date of SFAS No. 106 adoption, January 1, 1993, for the Company's
postretirement health care and life insurance plans:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
---- ----
(In Thousands)
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees $ 69,421 $ 56,037
Fully eligible active
plan participants 15,767 12,903
Other active plan participants 23,586 24,145
--------- ---------
108,774 93,085
Plan Assets at Fair Value (1) 11,050 8,100
--------- ---------
Accumulated Postretirement Benefit
Obligation in Excess of Plan Assets (97,724) (84,985)
Unrecognized Transition Obligation 77,899 84,985
Unrecognized Net Loss 15,031 -
--------- ---------
Accrued Postretirement Benefit Cost $ (4,794) $ -
========= =========
</TABLE>
(1) Plan assets are held in a life insurance reserve account and consist
primarily of fixed income securities.
The assumed rates used to measure the projected benefit obligation and
the expected earnings of plan assets are:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
---- ----
<S> <C> <C>
Discount Rate 7.0% 8.0%
Long-Term Rate of Return:
Medical assets 5.5% 6.5%
Life insurance assets 7.0% 7.5%
==== ====
</TABLE>
The rate of increase in the per capita costs of covered health care
benefits is assumed to be 12.3 percent in 1994, decreasing gradually to 6
percent by the year 2002. Increasing the assumed health care cost trend rate
<PAGE> 88
by 1 percentage point would increase the accumulated postretirement benefit
obligation as of December 31, 1993, by approximately $8.9 million and increase
the service cost and interest cost components of the net periodic
postretirement benefit cost by approximately $.7 million.
12. BUSINESS SEGMENT AND GEOGRAPHIC AREA ANALYSIS
The Company's financial statements reflect operations in three segments:
Exploration and Production, Natural Gas Transmission and Marketing, and
Offshore Drilling. The Exploration and Production segment is involved in
exploration, development and production of domestic oil and natural gas. The
principal activity of the Natural Gas Transmission and Marketing segment is the
interstate transmission and sale of natural gas. The Offshore Drilling segment
provides contract drilling services in offshore areas. The Sonat Offshore IPO
closed on June 4, 1993; therefore, the offshore drilling information shown for
1993 reflects results from January 1, 1993, through June 4, 1993. The Company's
share of Sonat Offshore's results for the period June 5, 1993, through December
31, 1993, is shown as equity in earnings of Sonat Offshore. Intersegment sales
are primarily gas sales by the Exploration and Production segment and are
generally priced at rates determined by market forces.
Operating profit is revenues less operating expenses. In determining
operating profit, none of the following items have been included: unallocated
general corporate revenues and expenses, interest, dividend and other income,
interest expense, income taxes and equity in earnings of unconsolidated
affiliates.
<PAGE> 89
Business Segment Analysis
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues:
Exploration and production $ 353,018 $ 279,161 $ 269,628
Natural gas transmission
and marketing 1,437,321 1,061,564 1,039,691
Offshore drilling 108,244 209,694 173,303
Other 5,658 12,711 8,001
Intersegment revenue (163,094) (78,707) (69,660)
---------- ---------- ----------
$1,741,147 $1,484,423 $1,420,963
========== ========== ==========
Depreciation, Depletion and
Amortization Expense:
Exploration and
production $ 149,179 $ 107,537 $ 95,951
Natural gas transmission
and marketing 66,448 76,335 61,854
Offshore drilling 8,903 28,082 24,593
Other, including
depreciation of
corporate equipment 1,459 1,923 4,296
---------- ---------- ----------
$ 225,989 $ 213,877 $ 186,694
========== ========== ==========
Operating Profit:
Exploration and production $ 86,474 $ 54,033 $ 45,200
Natural gas transmission
and marketing 143,461 151,354 140,423
Offshore drilling 2,307 7,293 21,773
Other 2,170 90 2,577
---------- ---------- ----------
Operating profit 234,412 212,770 209,973
Corporate Expenses (1,497) (1,679) (6,500)
---------- ---------- ----------
Operating income 232,915 211,091 203,473
Equity in Earnings of
Unconsolidated Affiliates:
Exploration and
production 4,665 1,778 151
Natural gas transmission
and marketing 2,189 (628) 5,690
Offshore drilling 4,205 1,750 2,112
</TABLE>
<PAGE> 90
<TABLE>
<S> <C> <C> <C>
Other 1,306 1,232 994
Other Income, Net 169,720 17,904 5,744
Interest Expense, Net (47,272) (96,358) (117,678)
---------- ---------- ----------
Income from Continuing Operations
before Extraordinary Item
and Income Taxes $ 367,728 $ 136,769 $ 100,486
========== ========== ==========
</TABLE>
Financial instruments, which potentially subject the Company to
concentration of credit risks, consist principally of accounts receivables.
Customers of the Exploration and Production segment include primarily oil and
gas marketing companies and also pipeline companies. Revenues and accounts
receivable of the Natural Gas Transmission and Marketing segment relate to
business conducted with gas distribution companies, municipalities, gas
districts, industrial customers and other interstate pipeline companies in the
Southeast.
The Company performs ongoing credit evaluations of its customers'
financial condition and, in some circumstances, requires collateral from its
customers.
Revenues from the Major Unaffiliated Customers of the Natural Gas Transmission
& Marketing Segment
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Atlanta Gas Light $ 352,866 $ 312,361 $ 357,731
Alabama Gas Corporation 204,558 161,779 145,698
========== ========== ==========
</TABLE>
Capital expenditures for unconsolidated affiliates are accounted for
on the books of the unconsolidated affiliates and therefore are not reflected
in the totals appearing in the Company's consolidated financial statements.
<PAGE> 91
Capital Expenditures by Business Segment
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Consolidated:
Exploration and production $ 430,852 $ 156,418 $ 275,855
Natural gas transmission
and marketing 61,012 43,796 112,245
Offshore drilling 5,095 12,919 20,381
Measurement-while-drilling - 10,673 61,118
Other 19,507 1,960 8,226
---------- ---------- ----------
516,466 225,766 477,825
---------- ---------- ----------
Unconsolidated Affiliates
(Company's Portion):
Exploration and production 10,559 37,415 60
Natural gas transmission
and marketing 18,516 11,988 56,365
Offshore drilling 1,914 683 4,292
Other 1,166 1,489 1,003
---------- ---------- ----------
32,155 51,575 61,720
---------- ---------- ----------
$ 548,621 $ 277,341 $ 539,545
========== ========== ==========
</TABLE>
Identifiable assets by business and geographic area are those assets
that are used in the Company's operations in each business and location.
Corporate assets are typically investments, cash and equipment.
Assets by Business Segment
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Exploration and production $1,308,189 $1,034,678 $ 994,689
Natural gas transmission
and marketing 1,400,796 1,297,945 1,333,990
Offshore drilling - 350,999 356,509
Measurement-while-drilling - - 250,619
Other 42,640 16,705 25,507
Adjustments and eliminations (86,159) (64,566) (34,995)
---------- ---------- ----------
2,665,466 2,635,761 2,926,319
---------- ---------- ----------
</TABLE>
<PAGE> 92
<TABLE>
<S> <C> <C> <C>
Investments in Unconsolidated
Affiliates:
Exploration and
production 6,345 26,898 4,331
Natural gas transmission
and marketing 150,069 155,526 163,302
Offshore drilling 125,335 61,127 58,771
Other 13,472 12,136 4,448
---------- ---------- ----------
295,221 255,687 230,852
Corporate Assets 253,310 273,884 51,281
---------- ---------- ----------
Total Assets $3,213,997 $3,165,332 $3,208,452
========== ========== ==========
</TABLE>
Revenues and operating profit from continuing operations of domestic
and foreign operations have been computed consistent with the methods
previously discussed. Foreign operations were conducted by the Company's
offshore drilling subsidiary. The following table summarizes by domestic and
foreign areas revenues, operating profit and equity in earnings of
unconsolidated affiliates by year and identifiable assets and investments in
unconsolidated affiliates by domestic and foreign areas at the end of each
year.
Geographic Area Analysis
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues:
Domestic $1,655,380 $1,322,064 $1,329,086
Foreign 85,767 162,359 91,877
---------- ---------- ----------
$1,741,147 $1,484,423 $1,420,963
========== ========== ==========
Operating Profit:
Domestic $ 226,756 $ 202,276 $ 193,496
Foreign 7,656 10,494 16,477
---------- ---------- ----------
Operating profit 234,412 212,770 209,973
Corporate Expenses (1,497) (1,679) (6,500)
---------- ---------- ----------
Operating income 232,915 211,091 203,473
</TABLE>
<PAGE> 93
<TABLE>
<S> <C> <C> <C>
Equity in Earnings (Loss)
of Unconsolidated Affiliates:
Domestic 12,657 2,382 6,835
Foreign (292) 1,750 2,112
Other Income, Net 169,720 17,904 5,744
Interest Expense, Net (47,272) (96,358) (117,678)
---------- ---------- ----------
Income from Continuing
Operations before
Extraordinary Item
and Income Taxes $ 367,728 $ 136,769 $ 100,486
========== ========== ==========
Identifiable Assets:
Domestic $2,665,466 $2,354,875 $2,669,423
Foreign - 280,886 256,896
---------- ---------- ----------
2,665,466 2,635,761 2,926,319
---------- ---------- ----------
Investments in Unconsolidated
Affiliates:
Domestic 295,221 194,560 172,081
Foreign - 61,127 58,771
---------- ---------- ----------
295,221 255,687 230,852
Corporate Assets 253,310 273,884 51,281
---------- ---------- ----------
Total Assets $3,213,997 $3,165,332 $3,208,452
========== ========== ==========
</TABLE>
Foreign cash equivalents amounted to $18.4 million and $9.7 million at
December 31, 1992 and 1991, respectively.
13. OIL AND GAS OPERATIONS (Unaudited)
At December 31, 1993, the Company had interests in oil and gas properties that
are located primarily in Texas, Louisiana, Arkansas, Oklahoma, Alabama, and
offshore Louisiana and Texas, in the Gulf of Mexico. The Company does not own
or lease any oil and gas properties outside the United States.
In October 1993, the Company purchased Prudential Insurance Company's
interest in Sonat/P, whereby the partnership was subsequently dissolved. (See
Note 5.)
<PAGE> 94
Capitalized costs relating to oil and gas producing activities and
related accumulated depreciation, depletion and amortization were as follows:
Capitalized Costs
<TABLE>
<CAPTION>
December 31, 1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Oil and Gas Properties:
Proved properties $1,935,450 $1,602,479
Unproved properties 142,404 98,115
---------- ----------
2,077,854 1,700,594
Less Accumulated Depreciation,
Depletion and Amortization 853,634 776,026
---------- ----------
$1,224,220 $ 924,568
========== ==========
Sonat's Share of Sonat/P's
Net Capitalized Costs $ - $ 34,621
========== ==========
</TABLE>
Costs incurred in oil and gas producing activities were as follows:
<TABLE>
<CAPTION>
Costs Incurred
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Property Acquisition Costs:
Proved properties $ 211,933 $ 14,253 $ 137,697
Unproved properties 62,617 11,975 8,534
Exploration Costs 8,265 7,017 7,408
Development Costs 151,875 126,265 124,225
---------- ---------- ----------
Total Costs $ 434,690 $ 159,510 $ 277,864
========== ========== ==========
Sonat's Share of Sonat/P's
Costs of Property Acquisition,
Exploration, and Development $ 10,432 $ 37,053 $ -
========== ========== ==========
</TABLE>
<PAGE> 95
Net quantities of proved developed and undeveloped reserves
of natural gas and crude oil, including condensate and natural gas liquids, and
changes in such quantities were as follows:
Reserve Data
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
Oil- Gas- Oil- Gas- Oil- Gas-
Thousand Billion Thousand Billion Thousand Billion
Bbls. Cu. Ft. Bbls. Cu. Ft. Bbls. Cu. Ft.
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Proved (Developed
and Undeveloped)
Reserves, Net:
Beginning
of year 19,604 974.9 19,125 1,077.9 18,221 905.2
Revisions of
previous
estimates 2,410 (6.2) 1,987 1.1 2,227 10.3
Transfer of
Sonat/P
reserves 426 39.5 - - - -
Extensions,
discoveries
and other
additions 2,470 68.7 1,790 41.0 631 44.5
Purchases
of reserves
in place 6,396 274.7 525 34.6 3,868 247.8
Sales of reserve
in place (468) (18.9) (735) (54.0) (1,774) (13.5)
Production (3,744) (146.1) (3,088) (125.7) (4,048) (116.4)
------ ------- ------- ------- ------ -------
End of Year 27,094 1,186.6 19,604 974.9 19,125 1,077.9
====== ======= ======= ======= ====== =======
Proved Developed Reserves
Beginning of year 15,304 696.5 15,745 658.7 13,382 540.4
End of year 19,776 899.6 15,304 696.5 15,745 658.7
====== ======= ======= ======= ====== =======
Sonat's Proportional Intet in:
Proved reserves
Sonat/P
end of year - - 540 53.1 - -
Production
of Sonat/P 34 4.2 9 1.3 - -
====== ======= ======= ======= ====== =======
</TABLE>
<PAGE> 96
The significant changes to reserves, other than acquisitions,
dispositions or production, are due to reservoir performance in existing
fields, drilling of additional wells in existing fields and development of new
fields. No major discovery or other event, favorable or adverse, that may be
considered to have caused a significant change in the estimated proved
reserves, has occurred since December 31, 1993.
Results of operations from producing activities by fiscal year were as
follows:
Results of Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net Revenues:
Sales $ 200,143 $ 211,339 $ 201,725
Transfers to affiliates 151,987 62,095 58,880
--------- --------- ---------
Total 352,130 273,434 260,605
Production Costs (64,548) (55,565) (62,978)
Exploration Expenses (6,678) (5,125) (4,400)
Depreciation, Depletion
and Amortization (149,179) (107,537) (95,951)
--------- --------- ---------
131,725 105,207 97,276
Income Tax Expense (27,066) (21,839) (24,581)
--------- --------- ---------
Results of Operations from
Producing Activities (Excluding
Corporate Overhead and
Interest Costs) $ 104,659 $ 83,368 $ 72,695
========= ========= =========
Sonat's Share of Sonat/P's Results
of Operations for Producing
Activities (before Tax) $ 4,900 $ 1,689 $ -
========= ========= =========
</TABLE>
<PAGE> 97
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves follows:
Standardized Measure of Discounted Future Net Cash Flows
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Future Cash Inflows $3,051,484 $2,483,976 $2,514,200
Future Production and
Development Costs (1,044,410) (816,706) (867,646)
Future Income Tax Expenses (236,632) (180,754) (233,328)
Future Net Cash Flows 1,770,442 1,486,516 1,413,226
10% Annual Discount
for Estimated Timing
of Cash Flows (477,824) (489,043) (409,111)
---------- ---------- ----------
Standardized Measure of
Discounted Future
Net Cash Flows $1,292,618 $ 997,473 $1,004,115
========== ========== ==========
Sonat's Share of Sonat/P's
Standardized Measure of
Discounted Future Net
Cash Flows (before Tax) $ - $ 48,677 $ -
========== ========== ==========
</TABLE>
For the calculations in the preceding table, estimated future cash
inflows from estimated future production of proved reserves were computed using
average year-end oil and gas prices.
<PAGE> 98
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
Changes in Standardized Measure of Discounted Future Net Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Sales and Transfers of Oil
and Gas Produced, Net
of Production Costs $(287,583) $(217,869) $(202,485)
Net Changes in Prices and
Production Costs (25,100) 81,509 (352,132)
Extensions, Discoveries
and Improved Recovery,
Less Related Costs 87,185 44,226 40,181
Transfer of Sonat/P Reserves 44,209 - -
Changes in Estimated Future
Development Costs (17,179) (527) (25,370)
Development Costs Incurred
During the Period 47,278 52,817 53,000
Revisions of Previous
Quantity Estimates 8,572 13,973 23,408
Accretion of Discount 103,689 102,663 120,375
Net Change in Income Taxes (34,751) 13,767 126,302
Purchases of Reserves in Place 317,764 31,791 242,411
Sales of Reserves in Place (17,159) (55,606) (26,490)
Changes in Production
Rates (Timing) and Other 68,220 (73,386) (49,955)
--------- --------- ---------
$ 295,145 $ (6,642) $ (50,755)
========= ========= =========
</TABLE>
<PAGE> 99
14. QUARTERLY RESULTS (Unaudited)
Shown below are selected unaudited quarterly data.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C> <C>
1993 (1)
Revenues $ 496,913 $ 356,492 $ 324,546 $ 563,196
Operating Income 83,102 43,682 44,273 61,858
Income from Continuing
Operations before
Extraordinary Item 68,923 125,865 20,294 49,987
Loss from
Extraordinary Item (3,829) - - -
Net Income 65,094 125,865 20,294 49,987
========= ========= ========= =========
Earnings Per Share:
Earnings from continuing
operations before
extraordinary item $ .80 $ 1.45 $ .23 $ .57
Loss from
extraordinary item (.04) - - -
--------- --------- --------- ---------
Earnings Per Share $ .76 $ 1.45 $ .23 $ .57
========= ========= ========= =========
1992 (2)
Revenues $ 419,977 $ 295,586 $ 299,662 $ 469,198
Operating Income 78,437 15,509 51,525 65,620
Income (Loss) from
Continuing Operations 42,944 (4,165) 21,252 40,931
Income (Loss) from
Discontinued Operations 292 111,915 - (760)
Net Income 43,236 107,750 21,252 40,171
========= ========= ========= =========
Earnings Per Share:
Earnings (loss) from continuing
operations $ .50 $ (.05) $ .25 $ .48
Earnings (loss)
from discontinued
operations - 1.30 - (.01)
--------- --------- --------- ---------
Earnings Per Share $ .50 $ 1.25 $ .25 $ .47
========= ========= ========= =========
</TABLE>
<PAGE> 100
(1) Net income for the second quarter of 1993 includes a gain of $99.7 million,
or $1.15 per share, from the closing of the initial public offering of Sonat
Offshore Drilling Inc. common stock. Net income also includes a net gain of $21
million, or $.24 per share, related to the settlement of an examination of the
Company's federal income tax returns from 1983 through 1985 and other tax
issues.
The third quarter of 1993 includes a loss of $12 million, or $.14 per
share, due to the Omnibus Budget Reconciliation Act of 1993 which increased
corporate and personal income tax rates. Net income also included favorable
income tax adjustments of $4 million, or $.05 per share. Net income for the
fourth quarter of 1993 includes favorable income tax adjustments of $3 million,
or $.03 per share.
(2) Income from discontinued operations for the second quarter of 1992 includes
the gain on the sale of Teleco Oilfield Services Inc. of $112.8 million or
$1.30 per share. Also, net income includes a loss of $3 million, or $.03 per
share, relating to restructuring charges.
Net income for the third quarter of 1992 includes favorable adjustments
of $6 million related to a settlement regarding Southern Energy Company's idle
liquefied natural gas facilities and a loss for the Company's share of Citrus
Corp.'s recognition of natural gas purchase contract settlement costs of $3.4
million, for a total favorable impact of $.04 per share.
Net income for the fourth quarter of 1992 includes a loss for the
Company's share of Citrus Corp.'s recognition of natural gas purchase contract
settlement costs of $1.3 million or $.01 per share.
<PAGE> 101
SELECTED CONSOLIDATED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ----
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,741.1 $1,484.4 $1,421.0 $1,356.9 $1,659.2 $1,277.3 $1,344.9 $1,628.6
Costs and
Expenses 1,508.2 1,273.3 1,217.5 1,192.2 1,481.4 1,142.4 1,176.5 1,929.3
-------- -------- -------- -------- -------- -------- -------- --------
Operating Income
(Loss) 232.9 211.1 203.5 164.7 177.8 134.9 168.4 (300.7)
Other Income
(Expense), Net 182.1 22.0 14.7 69.8 47.1 12.5 41.5 118.1
Interest Expense, Net (47.3) (96.3) (117.7) (102.6) (75.2) (54.4) (54.6) (77.9)
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations before
Extraordinary Item
and Income Taxes 367.7 136.8 100.5 131.9 149.7 93.0 155.3 (260.5)
Income Taxes (Benefits) 102.7 35.8 22.6 40.7 54.1 40.5 85.2 (144.7)
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations before
Cumulative Effect of
Accounting Changes 265.0 101.0 77.9 91.2 95.6 52.5 70.1 (115.8)
Income (Loss) from
Discontinued
Operations (2) - 111.4 (11.9) 2.7 (2.0) 2.2 24.9 (73.6)
Loss from Extraordinary
Item (3) (3.8) - - - - - - -
Cumulative Effect of Change
in Method of Accounting
for Investment Tax
Credits - - - - - - - -
Cumulative Effect of Change
in Method of Accounting
for Income Taxes - - - - - 13.1 - -
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) $ 261.2 $ 212.4 $ 66.0 $ 93.9 $ 93.6 $ 67.8 $ 95.0 $ (189.4)
======== ======== ======== ======== ======== ======== ======== =========
<CAPTION>
1985 1984 1983
---- ---- ----
<S> <C> <C> <C>
Revenues $2,258.6 $2,380.9 $2,549.1
Costs and
Expenses 2,225.2 2,050.8 2,205.2
-------- -------- --------
Operating Income
(Loss) 33.4 330.1 343.9
Other Income
(Expense), Net 5.2 (1.3) 18.7
Interest Expense, Net (47.9) (30.0) (47.5)
--------- -------- --------
Income (Loss) from Continuing
Operations before
Extraordinary Item
and Income Taxes (9.3) 298.8 315.1
Income Taxes (Benefits) (13.0) 136.9 136.4
-------- -------- --------
Income (Loss) from Continuing
Operations before
Cumulative Effect of
Accounting Changes 3.7 161.9 178.7
Income (Loss) from
Discontinued
Operations (2) (14.1) 35.1 9.1
Loss from Extraordinary
Item (3) - - -
Cumulative Effect of Change
in Method of Accounting
for Investment Tax
Credits 62.4 - -
Cumulative Effect of Change
in Method of Accounting
for Income Taxes - - -
-------- -------- --------
Net Income (Loss) $ 52.0 $ 197.0 $ 187.8
======== ======== ========
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (Loss) Per Share from
Continuing Operations before
Extraordinary Item $ 3.05 $ 1.17 $ .91 $ 1.07 $ 1.17
Earnings (Loss)
Per Share $ 3.01 $ 2.47 $ .77 $ 1.10 $ 1.15
Weighted Average Shares
Outstanding
(thousands) 86,703 85,945 85,771 85,612 81,682
Dividends Paid
Per Share $ 1.04 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Assets $ 3,214.0 $ 3,165.3 $ 3,208.5 $ 3,045.1 $ 2,892.3
Debt Maturing within
One Year $ 232.9 $ 20.1 $ 79.2 $63.1 $ 155.9
Long-Term Debt 741.2 1,175.7 1,315.1 1,094.0 929.5
Stockholders' Equity 1,363.2 1,172.3 1,042.7 1,060.5 1,035.3
--------- --------- --------- --------- ---------
Total Capitalization $ 2,337.3 $ 2,368.1 $ 2,437.0 $ 2,217.6 $ 2,120.7
========= ========= ========= ========= =========
<CAPTION>
1988 1987 1986 1985 1984 1983
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Per Share from
Continuing Operations before
Extraordinary Item $ .65 $ .87 $ (1.43) $ .05 $ 2.00 $ 2.21
Earnings (Loss)
Per Share $ .83 $ 1.17 $ (2.34) $ .64 $ 2.44 $ 2.32
Weighted Average Shares
Outstanding
(thousands) 81,238 80,912 80,948 80,916 80,902 80,896
Dividends Paid
Per Share $ 1.00 $ 1.00 $ 1.00 $ .9625 $ .85 $ .7125
========= ========= ========= ========= ========= =========
Assets $ 2,969.5 $ 3,074.4 $ 3,288.8 $ 3,413.2 $ 3,392.5 $ 3,010.0
Debt Maturing within
One Year $ 50.4 $225.6 $ 104.6 $ 150.7 $ 20.1 $ 27.6
Long-Term Debt 859.4 824.8 1,336.3 996.2 810.8 630.3
Stockholders' Equity 1,010.2 1,023.0 1,005.9 1,276.3 1,301.5 1,173.3
--------- --------- --------- --------- --------- ---------
Total Capitalization $ 1,920.0 $ 2,073.4 $ 2,446.8 $ 2,423.2 $ 2,132.4 $ 1,831.2
========= ========= ========= ========= ========= =========
</TABLE>
Notes:
(1) All earnings per share amounts and dividend amounts reflect a two-for-one
stock split effective September 14, 1993.
(2) Discontinued operations include the measurement-while-drilling businesses
as of 1991, the marine transportation and underwater services businesses
as of 1986, and the forest products business as of 1984.
(3) In March 1993, the Company recognized a loss on the redemption of the
Company's 7 1/4 Percent Zero Coupon, Subordinated Convertible Notes which
were due September 6, 2005.
<PAGE> 103
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Sonat has not had a change in accountants within twenty-four months prior
to the date of its most recent financial statements or in any period subsequent
to such date.
II-38
<PAGE> 104
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Directors and nominees for Director of Sonat
required by Item 401 of Regulation S-K is presented under the heading "Election
of Directors" in the Proxy Statement of Sonat Inc. dated as of March 16, 1994
(the "Proxy Statement"), which information is hereby incorporated by reference
herein. A copy of the Proxy Statement is filed as an exhibit to this report on
Form 10-K. Information regarding the executive officers of Sonat is presented
following Item 4 of this report, as permitted by General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Compensation of Outside Directors"
and "Compensation of Executive Officers" in the Proxy Statement, which
information is hereby incorporated by reference herein. Notwithstanding the
foregoing, the information provided under the headings "Report of the Executive
Compensation Committee" and "Performance Graph" in the Proxy Statement are not
incorporated by reference herein. A copy of the Proxy Statement is filed as an
exhibit to this report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Ownership of Common Stock by Directors and Executive Officers" and
"Institutional Ownership of Common Stock" in the Proxy Statement, which
information is hereby incorporated by reference herein. A copy of the Proxy
Statement is filed as an exhibit to this report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by Item 404 of Regulation S-K is presented under the heading "Certain
Business Relationships and Transactions" in the Proxy Statement, which
information is hereby incorporated by reference herein. A copy of the Proxy
Statement is filed as an exhibit to this report on Form 10-K.
III-1
<PAGE> 105
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Financial Statements, Financial Statement Schedules, and
Exhibits
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Included in Part II of this report:
Report of Ernst & Young, Independent Auditors...................................... II-13
Consolidated Balance Sheets at December 31, 1993 and 1992.......................... II-14
Consolidated Statements of Income for the years ended December 31, 1993, 1992, and
1991............................................................................ II-16
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1992, and 1991............................................... II-17
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992,
and 1991........................................................................ II-18
Notes to Consolidated Financial Statements......................................... II-19
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Included in Part IV of this report:
Consolidated Schedules for each of the three years in the period ended December 31,
1993:
V -- Plant, Property and Equipment.............................................. IV-8
VI -- Accumulated Depreciation, Depletion and Amortization of Plant, Property
and Equipment.................................................................. IV-11
IX -- Short-Term Borrowings..................................................... IV-14
X -- Supplementary Income Statement Information................................. IV-15
Consolidated Financial Statements and Financial Statement Schedules of Citrus Corp.
(50-percent-owned joint venture) at December 31, 1993, listed on Page IV-17..... IV-17
</TABLE>
All other schedules have been omitted as the subject matter is either not
present or is not present in amounts sufficient to require submission of the
schedule, in accordance with the instructions contained in Regulation S-X, or
the required information is included in the financial statements or notes
thereto.
Financial statements of 50-percent or less owned companies and joint
ventures, other than Citrus Corp., are not presented herein because such
companies and joint ventures do not meet the significance test.
3. EXHIBITS (1)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------- ---------------------------------------------------- ----------------------------
<C> <S> <C>
RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
3-(a) Restated Certificate of Incorporation of Sonat Inc. Filed as Exhibit 3-(1) to
dated May 1, 1987 Form 10-K of Sonat Inc. for
the year 1992
</TABLE>
- ---------------
(1) Sonat will furnish to requesting security holders any exhibit on this list
upon the payment of a fee of 10 cents per page up to a maximum of $5.00 per
exhibit. Requests must be made in writing and should be addressed to
Beverley T. Krannich, Secretary, Sonat Inc., P.O. Box 2563, Birmingham,
Alabama 35202.
IV-1
<PAGE> 106
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------- ---------------------------------------------------- ----------------------------
<C> <S> <C>
3-(b) By-Laws of Sonat Inc. as amended and in effect Filed as Exhibit 3-(2) to
January 1, 1987 Form 10-K of Sonat Inc. for
year 1992
INSTRUMENTS DEFINING THE
RIGHTS OF SECURITY HOLDERS
4-(1) Rights Agreement dated January 23, 1986 between Filed as Exhibit 4-(1) to
Sonat Inc. and Manufacturers Hanover Trust Company, Form 10-K of Sonat Inc. for
as Rights Agent, with exhibits, as amended by year 1992
Amendment dated July 28, 1988
4-(2) Form of Indenture dated June 1, 1986 from Sonat Inc. Filed as Exhibit 4-(1) to
to Manufacturers Hanover Trust Company, Trustee Amendment No. 1 to
Registration No. 33-5947,
dated June 4, 1986
4-(3) Form of Indenture dated June 1, 1987 from Southern Filed as Exhibit 4-(1) to
Natural Gas Company to Manufacturers Hanover Trust Registration No. 33-47266 of
Company, Trustee Southern Natural Gas Company
dated April 16, 1992
4-(4) $400 Million Note Agreement dated November 3, 1986 Filed as Exhibit 4-(5) to
between Citrus Corp. and the Purchasers named Form 10-K of Sonat Inc. for
therein the year 1990
4-(5) Credit Agreement dated as of December 15, 1993 among Filed herewith
Sonat Inc., the Banks named therein, and The Chase
Manhattan Bank (National Association), Chemical Bank
and Morgan Guaranty Trust Company of New York as
Co-Agents
PRINCIPAL SERVICE AGREEMENTS
OF SOUTHERN NATURAL GAS COMPANY
10-(1) Form of Service Agreements, Nos. 866940, 866941 and Filed as Exhibit 10-(2) to
S10710, between Southern Natural Gas Company and Form 10-Q of Sonat Inc. for
Alabama Gas Corporation, effective November 1, 1993 the quarter ended September
30, 1993
10-(2) Form of Service Agreements, Nos. 868005, 868006 and Filed as Exhibit 10-(1) to
S10730, between Southern Natural Gas Company and Form 10-Q of Sonat Inc. for
Atlanta Gas Light Company, effective November 1, the quarter ended September
1993 30, 1993
10-(3) Form of Service Agreements, Nos. 867660, 867661 and Filed as Exhibit 10-(3) to
S10019, between Southern Natural Gas Company and Form 10-Q of Sonat Inc. for
South Carolina Pipeline Corporation, effective the quarter ended September
November 1, 1993 30, 1993
COMPENSATION PLANS AND
MANAGEMENT CONTRACTS
10-(4) Supplemental Benefit Plan of Sonat Inc. as Amended Filed herewith
and Restated effective February 25, 1993
10-(5) Executive Award Plan of Sonat Inc. as Amended and Filed herewith
Restated as of December 3, 1993
10-(6) Restricted Stock Plan for Directors of Sonat Inc. Filed herewith
(as Amended and Restated as of September 15, 1993)
</TABLE>
IV-2
<PAGE> 107
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------- ---------------------------------------------------- ----------------------------
<C> <S> <C>
10-(7) Performance Award Plan of Sonat Inc. effective as of Filed herewith
January 27, 1994
10-(8) Cash Bonus Plan of Sonat Inc. effective as of Filed herewith
January 27, 1994
10-(9) Sonat Inc. Retirement Plan for Directors as Amended Filed as Exhibit 19-(2) to
and Restated as of April 25, 1991 Form 10-Q of Sonat Inc. for
the quarter ended March 31,
1991
10-(10) Executive Severance Agreement dated April 27, 1989 Filed as Exhibit 10-(14) to
between Sonat Inc. and Ronald L. Kuehn, Jr. and (1) Form 10-K of Sonat Inc. for
schedule identifying substantially identical the year 1989 except (1),
Executive Severance Agreements between Sonat Inc. which is filed herewith
and other parties
10-(11) Directors' Fees Deferral Plan of Sonat Inc. Filed as Exhibit 10-(14) to
effective as of August 15, 1985 Form 10-K of Sonat Inc. for
the year 1990
10-(12) Indemnity Agreement dated December 4, 1987 between Filed as Exhibit 10-(11) to
Sonat Inc. and Ronald L. Kuehn, Jr. and schedule Form 10-K of Sonat Inc. for
identifying substantially identical indemnity the year 1992
agreements between Sonat Inc. and other directors of
Sonat Inc.
10-(13) Trust Agreement dated December 19, 1986 between Filed as Exhibit 10-(15) to
Sonat Inc. and AmSouth Bank N.A. for Section 415 Form 10-K of Sonat Inc. for
Retirement Plan Benefits and Vesting Benefits under the year 1991
the Supplemental Benefit Plan and Early Retirement
Benefits under the Executive Severance Agreements
10-(14) Trust Agreement dated December 19, 1986 between Filed as Exhibit 10-(16) to
Sonat Inc. and AmSouth Bank N.A. for Section 415 Form 10-K of Sonat Inc. for
Stock Purchase Plan Benefits under the Supplemental the year 1991
Benefit Plan
10-(15) Trust Agreement dated December 19, 1986 between Filed as Exhibit 10-(17) to
Sonat Inc. and AmSouth Bank N.A. for Benefits under Form 10-K of Sonat Inc. for
the Retirement Plan for Directors the year 1991
10-(16) Form of Sonat Inc. Executive Life Insurance Program Filed as Exhibit 10-(20) to
Split Dollar Agreement, Collateral Assignment Form 10-K of Sonat Inc. for
Agreement and Program Description, each dated as of the year 1990 except (1)
July 1, 1990, with (1) schedule identifying the which is filed herewith
persons participating in such Programs
OTHER MATERIAL CONTRACTS
10-(17) Service Agreement dated January 26, 1978 with Filed as Exhibit 10-(20) to
Southern Energy Company Form 10-K of Sonat Inc. for
the year 1991
10-(18) FERC Gas Tariff of Southern Energy Company, Filed as Exhibit 10-(21) to
effective July 7, 1978 Form 10-K of Sonat Inc. for
the year 1991
10-(19) Restated and Amended Joint Venture Agreement dated Filed as Exhibit 10-(22) to
September 1, 1981 between Tennessee Storage Company Form 10-K of Sonat Inc. for
and Southern Gas Storage Company forming Bear Creek the year 1991
Storage Company (with Appendices A-G)
</TABLE>
IV-3
<PAGE> 108
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------- ---------------------------------------------------- ----------------------------
<C> <S> <C>
10-(20) Service Agreement dated June 1, 1981 with Bear Creek Filed as Exhibit 10-(23) to
Storage Company, and FERC Gas Tariff of Bear Creek Form 10-K of Sonat Inc. for
Storage Company, effective July 1, 1981 the year 1991
10-(21) Parents Agreement dated September 15, 1981 from Filed as Exhibit 10-(25) to
Southern Natural Gas Company and Tenneco Inc. in Form 10-K of Sonat Inc. for
favor of Manufacturers Hanover Trust Company and T. the year 1991
C. Crane
10-(22) Capital Stock Agreement among Sonat Inc., Enron Filed as Exhibit 10-(26) to
Corp., Houston Natural Gas Corporation and Citrus Form 10-K of Sonat Inc. for
Corp. dated June 30, 1986 the year 1991
10-(23) Standby Note Purchase Agreement among Sonat Inc., Filed herewith
Credit Lyonnais New York Branch, as Administrative
Agent for the Banks party to the Revolving Credit
Agreement with Citrus Corp., and Citrus Corp. dated
December 23, 1993, and the $300 Million Revolving
Credit Agreement dated as of December 23, 1993,
among Citrus Corp., as Borrower, and The Banks named
therein, as Banks, and Credit Lyonnais New York
Branch and The Toronto-Dominion Bank, as Managing
Agents, to which the Standby Note Purchase Agreement
applies
11-(1) Sonat Inc. and Subsidiaries Computation of Earnings Filed herewith
Per Share
21-(1) Subsidiaries of Sonat Inc. Filed herewith
22-(1) Proxy Statement of Sonat Inc. dated as of March 16, Filed herewith
1994 (which is not to be deemed "filed" as part of
the Form 10-K, except to the extent incorporated by
reference under Items 10, 11, 12 and 13 of Part III
of the Form 10-K of Sonat Inc. for the year 1993)
23-(1) Consent of Ernst & Young, Independent Auditors dated Filed herewith
March 25, 1994
24-(1) Powers of Attorney authorizing Ronald L. Kuehn, Jr.; Filed herewith
Thomas W. Barker, Jr.; James A. Rubright; James E.
Moylan, Jr.; and John C. Griffin to sign the Sonat
Inc. Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 on behalf of certain
directors and officers of the registrant
</TABLE>
IV-4
<PAGE> 109
Exhibits listed above which have heretofore been filed with the Securities
and Exchange Commission, which were physically filed as noted above, are hereby
incorporated herein by reference pursuant to Rule 12b-32 under the Securities
Exchange Act of 1934 and made a part hereof with the same effect as if filed
herewith.
Certain instruments relating to long-term debt of Sonat and its
subsidiaries have not been filed as exhibits since the total amount of
securities authorized under any such instrument does not exceed 10 percent of
the total assets of Sonat and its subsidiaries on a consolidated basis. Sonat
agrees to furnish a copy of each such instrument to the Commission upon request.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended December
31, 1993.
(c) Exhibits
Exhibits required by Item 601 of Regulation S-K and filed with this report
on Form 10-K accompany this report in a separate exhibit volume.
IV-5
<PAGE> 110
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.
SONAT INC.
By /s/ RONALD L. KUEHN, JR.
-----------------------------
RONALD L. KUEHN, JR.
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: March 25, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
(i) Principal Executive Officer:
Chairman of the Board March 25, 1994
/s/ RONALD L. KUEHN, JR. President and
- ----------------------------------------------- Chief Executive Officer
RONALD L. KUEHN, JR.
(ii) Principal Financial Officer:
/s/ THOMAS W. BARKER, JR. Vice President -- Finance March 25, 1994
- ----------------------------------------------- and Treasurer
THOMAS W. BARKER, JR.
Principal Accounting Officer:
/s/ JAMES E. MOYLAN, JR. Vice President and March 25, 1994
- ----------------------------------------------- Controller
JAMES E. MOYLAN, JR.
(iii) Directors:
RONALD L. KUEHN, JR.* March 25, 1994
- -----------------------------------------------
RONALD L. KUEHN, JR.
WILLIAM O. BOURKE* March 25, 1994
- -----------------------------------------------
WILLIAM O. BOURKE
JOHN J. CREEDON* March 25, 1994
- -----------------------------------------------
JOHN J. CREEDON
ROBERTO C. GOIZUETA* March 25, 1994
- -----------------------------------------------
ROBERTO C. GOIZUETA
</TABLE>
IV-6
<PAGE> 111
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
ROBERT J. LANIGAN* March 25, 1994
- -----------------------------------------------
ROBERT J. LANIGAN
HENRY R. LINDEN* March 25, 1994
- -----------------------------------------------
HENRY R. LINDEN
CHARLES MARSHALL* March 25, 1994
- -----------------------------------------------
CHARLES MARSHALL
BENJAMIN F. PAYTON* March 25, 1994
- -----------------------------------------------
BENJAMIN F. PAYTON
JOHN J. PHELAN, JR.* March 25, 1994
- -----------------------------------------------
JOHN J. PHELAN, JR.
JEROME J. RICHARDSON* March 25, 1994
- -----------------------------------------------
JEROME J. RICHARDSON
L. EDWIN SMART* March 25, 1994
- -----------------------------------------------
L. EDWIN SMART
JAMES B. WILLIAMS* March 25, 1994
- -----------------------------------------------
JAMES B. WILLIAMS
JOE B. WYATT* March 25, 1994
- -----------------------------------------------
JOE B. WYATT
*By /s/ JAMES A. RUBRIGHT
- -----------------------------------------------
JAMES A. RUBRIGHT
VICE PRESIDENT AND GENERAL COUNSEL
AS AUTHORIZED BY CERTAIN
POWERS OF ATTORNEY DATED
FEBRUARY 24, 1994, AND ONE DATED
FEBRUARY 27, 1994, ALL OF WHICH
ARE FILED HEREWITH AS EXHIBIT 24-(1)
</TABLE>
IV-7
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated financial statements of Sonat
Inc. and Subsidiaries as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, and have issued our report
thereon dated January 20, 1994 (included elsewhere in this Annual Report). Our
audits also included the financial statement schedules listed in Item 14(a)2 of
this Annual Report. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young
ERNST & YOUNG
Birmingham, Alabama
January 20, 1994
<PAGE> 113
SONAT INC. AND SUBSIDIARIES
SCHEDULE V - PLANT, PROPERTY AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Other
Changes
Balance at Additions Retirements Debit or Balance at
Classification Jan. 1, 1993 at Cost(a) or Sales (Credit) Dec. 31, 1993
-------------- ------------ ------------ ----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Exploration and Production:
Plant, property and equipment $1,656,134 $442,872 $100,263 $ 46,671(c) $2,045,414
Construction work in progress 44,460 (12,020) - - 32,440
---------- -------- -------- -------- ----------
Total Exploration and Production 1,700,594 430,852 100,263 46,671 2,077,854
---------- -------- -------- -------- ----------
Natural Gas Transmission and Marketing:
Plant, property and equipment 2,076,782 35,965 18,126 1,156 2,095,777
Gas stored underground - noncurrent 66,681 5,631 - 69,380(d) 141,692
Construction work in progress 4,135 19,416 - - 23,551
---------- -------- -------- -------- ----------
Total Natural Gas Transmission
and Marketing 2,147,598 61,012 18,126 70,536 2,261,020
---------- -------- -------- -------- ----------
Offshore Drilling:
Plant, property and equipment 647,316 2,543 649,859(b) - -
Construction work in progress 414 2,552 2,966 - -
---------- -------- -------- -------- ----------
Total Offshore Drilling 647,730 5,095 652,825 - -
---------- -------- -------- -------- ----------
Other 48,556 19,507 5,772 (879) 61,412
---------- -------- -------- -------- ----------
Total Plant, Property and
Equipment $4,544,478 $516,466 $776,986 $116,328 $4,400,286
========== ======== ======== ======== ==========
</TABLE>
(a) Additions include $4,516,000 of funds capitalized.
(b) Reflects the removal of fixed assets due to the Initial Public Offering of
Sonat Offshore Drilling Inc. common stock. (See Note 3 of the Notes to
Consolidated Financial Statements located in Item 8.)
(c) Reflects the acquisition of the remaining interest in Sonat/P Anadarko
Limited Partnership. (See Note 5 of the Notes to Consolidated Financial
Statements located in Item 8.)
(d) Reflects the transfer of current working storage to noncurrent pursuant to
Order No. 636. (See Notes 4 and 9 of the Notes to Consolidated Financial
Statements located in Item 8.)
<PAGE> 114
SONAT INC. AND SUBSIDIARIES
SCHEDULE V - PLANT, PROPERTY AND EQUIPMENT - (CONTINUED)
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
Other
Changes
Balance at Additions Retirements Debit or Balance at
Classification Jan. 1, 1992 at Cost(a)(b) or Sales (Credit)(d) Dec. 31, 1992
-------------- ------------ ------------- ----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Exploration and Production:
Plant, property and equipment $1,683,508 $125,035 $152,908 $ 499 $1,656,134
Construction work in progress 13,077 31,383 - - 44,460
---------- -------- -------- -------- ----------
Total Exploration and Production 1,696,585 156,418 152,908 499 1,700,594
---------- -------- -------- -------- ----------
Natural Gas Transmission and Marketing:
Plant, property and equipment 2,042,056 47,044 18,321 6,003 2,076,782
Gas stored underground - noncurrent 63,808 2,873 - - 66,681
Construction work in progress 10,256 (6,121) - - 4,135
---------- -------- -------- -------- ----------
Total Natural Gas Transmission
and Marketing 2,116,120 43,796 18,321 6,003 2,147,598
---------- -------- -------- -------- ----------
Offshore Drilling:
Plant, property and equipment 638,790 12,852 4,326 - 647,316
Construction work in progress 347 67 - - 414
---------- -------- -------- -------- ----------
Total Offshore Drilling 639,137 12,919 4,326 - 647,730
---------- -------- -------- -------- ----------
Measurement-While-Drilling:
Plant, property and equipment 241,299 46,196 287,495(c) - -
Construction work in progress 35,523 (35,523) - - -
---------- -------- -------- -------- ----------
Total Measurement-While Drilling 276,822 10,673 287,495 - -
---------- -------- -------- -------- ----------
Other 46,944 1,960 918 570 48,556
---------- -------- -------- -------- ----------
Total Plant, Property and
Equipment $4,775,608 $225,766 $463,968 $ 7,072 $4,544,478
========== ======== ======== ======== ==========
</TABLE>
(a) Additions include $8,941,000 of funds capitalized.
(b) Additions include purchases of assets as described in the Notes to
Consolidated Financial Statements located in Item 8.
(c) Reflects the sale of Teleco Oilfield Services Inc. (See Note 3 of the
Notes to Consolidated Financial Statements located in Item 8.)
(d) Other changes include transfers and reclassifications between plant and
property and other accounts.
<PAGE> 115
SONAT INC. AND SUBSIDIARIES
SCHEDULE V - PLANT, PROPERTY AND EQUIPMENT - (CONTINUED)
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Other
Changes
Balance at Additions Retirements Debit or Balance at
Classification Jan. 1, 1991 at Cost(a)(b) or Sales (Credit)(c) Dec. 31, 1991
-------------- ------------ ------------- ----------- -------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Exploration and Production:
Plant, property and equipment $1,414,046 $350,420 $ 78,771 $(2,187) $1,683,508
Construction work in progress 87,642 (74,565) - - 13,077
---------- -------- -------- ------- ----------
Total Exploration and Production 1,501,688 275,855 78,771 (2,187) 1,696,585
---------- -------- -------- ------- ----------
Natural Gas Transmission and Marketing:
Plant, property and equipment 1,929,298 114,672 6,756 4,842 2,042,056
Gas stored underground - noncurrent 61,875 1,933 - - 63,808
Construction work in progress 14,616 (4,360) - - 10,256
---------- -------- -------- ------- ----------
Total Natural Gas Transmission
and Marketing 2,005,789 112,245 6,756 4,842 2,116,120
---------- -------- -------- ------- ----------
Offshore Drilling:
Plant, property and equipment 622,291 23,897 6,941 (457) 638,790
Construction work in progress 3,863 (3,516) - - 347
---------- -------- -------- ------- ----------
Total Offshore Drilling 626,154 20,381 6,941 (457) 639,137
---------- -------- -------- ------- ----------
Measurement-While-Drilling:
Plant, property and equipment 199,269 70,362 27,233 (1,099) 241,299
Construction work in progress 44,767 (9,244) - - 35,523
---------- -------- -------- ------- ----------
Total Measurement-While-Drilling 244,036 61,118 27,233 (1,099) 276,822
---------- -------- -------- ------- ----------
Other 39,714 8,226 1,276 280 46,944
---------- -------- -------- ------- ----------
Total Plant, Property and
Equipment $4,417,381 $477,825 $120,977 $ 1,379 $4,775,608
========== ======== ======== ======= ==========
</TABLE>
(a) Additions include $10,251,421 of funds capitalized.
(b) Additions include purchases of assets as described in the Notes to
Consolidated Financial Statements located in Item 8.
(c) Other changes include transfers and reclassifications between plant and
property and other accounts.
<PAGE> 116
SONAT INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PLANT, PROPERTY AND EQUIPMENT (a)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Additions
------------------------
Charged to Other
Charged Clearing Changes
Balance at to Accounts, Retirements (Debit) or Balance at
Classification Jan.1, 1993 Income etc. or Sales Credit(c) Dec. 31, 1993
-------------- ----------- -------- ---------- ----------- ---------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production $ 776,026 $149,179 $ 3,799 $ 82,605 $7,235 $ 853,634
Natural Gas Transmission and Marketing 1,381,569 66,448 3,425 15,807 2,104 1,437,739
Offshore Drilling 375,971 8,903 - 384,874(b) - -
Other 20,298 1,459 4,278 3,882 (358) 21,795
---------- -------- ------- -------- ------ ----------
Total Accumulated Depreciation,
Depletion and Amortization $2,553,864 $225,989 $11,502 $487,168 $8,981 $2,313,168
========== ======== ======= ======== ====== ==========
</TABLE>
(a) Depreciation, depletion and amortization is provided as described in Note
1 and Note 6 of the Notes to Consolidated Financial Statements located in
Item 8.
(b) Reflects the removal of depreciation, depletion and amortization balances
due to the Initial Public Offering of Sonat Offshore Drilling Inc. common
stock. (See Note 3 of the Notes to Consolidated Financial Statements
located in Item 8.)
(c) Other changes are either transfers or amounts received as reimbursement
for alterations of facilities.
<PAGE> 117
SONAT INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PLANT, PROPERTY AND EQUIPMENT (a) - (CONTINUED)
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
Additions
------------------------
Charged to Other
Charged Clearing Changes
Balance at to Accounts, Retirements (Debit) or Balance at
Classification Jan.1, 1992 Income etc. or Sales Credit(d) Dec. 31, 1992
-------------- ----------- -------- --------- ----------- ---------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production $ 798,157 $107,537 $ 2,032 $128,041 $(3,659) $ 776,026
Natural Gas Transmission and Marketing 1,299,030 76,335 11,776(b) 14,024 8,452 1,381,569
Offshore Drilling 351,397 28,082 - 3,508 - 375,971
Measurement-While-Drilling 113,540 10,814 - 124,354(c) - -
Other 15,894 1,923 3,535 62 (992) 20,298
---------- -------- ------- -------- ------- ----------
Total Accumulated Depreciation,
Depletion and Amortization $2,578,018 $224,691 $17,343 $269,989 $ 3,801 $2,553,864
========== ======== ======= ======== ======= ==========
</TABLE>
(a) Depreciation, depletion and amortization is provided as described in Note
1 and Note 6 of the Notes to Consolidated Financial Statements located in
Item 8.
(b) Includes an adjustment of $9.6 million for a settlement relating to
Southern Energy Company's idle liquefield natural gas facilities.
(c) Reflects the sale of Teleco Oilfield Services Inc. (See Note 3 of the
Notes to Consolidated Financial Statements located in Item 8.)
(d) Other changes are either transfers or amounts received as reimbursement
for alterations of facilities.
<PAGE> 118
SONAT INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PLANT, PROPERTY AND EQUIPMENT (a) - (CONTINUED)
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Additions
---------------------------
Charged to Other
Charged Clearing Changes
Balance at to Accounts, Retirements (Debit) or Balance at
Classification Jan.1, 1991 Income etc. or Sales Credit(b) Dec. 31, 1991
-------------- ----------- -------- --------- ----------- ---------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production $ 776,752 $ 95,951 $ 830 $ 74,201 $(1,175) $ 798,157
Natural Gas Transmission and
Marketing 1,236,993 61,854 2,305 4,607 2,485 1,299,030
Offshore Drilling 332,672 24,593 - 5,411 (457) 351,397
Measurement-While-Drilling 99,309 30,173 - 14,330 (1,612) 113,540
Other 12,209 4,296 284 685 (210) 15,894
---------- -------- ------ -------- ------- ----------
Total Accumulated Depreciation,
Depletion and Amortization $2,457,935 $216,867 $3,419 $ 99,234 $ (969) $2,578,018
========== ======== ====== ======== ======= ==========
</TABLE>
(a) Depreciation, depletion and amortization is provided as described in Note
1 and Note 6 of the Notes to Consolidated Financial Statements located in
Item 8.
(b) Other changes are either transfers or amounts received as reimbursement
for alterations of facilities.
<PAGE> 119
SONAT INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Maximum Amount Weighted
Balance Weighted Average Outstanding Average Daily Weighted Average
at Interest Rate at at Any Outstanding Interest Rate
December 31 Balance Sheet Date Month-End Balance for the Year(1)
----------- ------------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Sonat Inc. U.S. Dollar Borrowings
from Bank Lines of Credit
1993 $ 9,040 3.38% $25,679 $10,103 3.73%
1992 $ - - % $62,015 $18,764 5.99%
1991 $48,719 5.08% $68,945 $46,609 6.27%
Sonat Inc. Foreign Currency
Borrowings from Bank
Lines of Credit
1993 $ - - % $ 2,295 $ 352 7.10%
1992 $ - - % $ 9,830 $ 2,892 10.97%
1991 $11,073 11.44% $13,430 $10,580 11.62%
Sonat Inc.
Commercial Paper Borrowings
1993 $60,000 3.64% $60,000 $15,148 3.31%
1992 $ - - % $70,000 $13,769 4.52%
1991 $ - - % $78,870 $24,739 6.07%
Southern Natural Gas Company
Borrowings from Bank
Lines of Credit
1993 - - - - -
1992 - - - - -
1991 - - - - -
</TABLE>
(1) Total interest paid divided by weighted average daily balance.
<PAGE> 120
SONAT INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Charged to Costs and Expenses
----------------------------------------------
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Maintenance and Repairs $41,073 $52,569 $50,710
======= ======= =======
</TABLE>
Other information required to be disclosed has been omitted because amounts are
less than 1% of consolidated revenues or the information required has been
included elsewhere herein.
<PAGE> 121
CITRUS CORP.
(AN INCORPORATED JOINT VENTURE)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES COVERED BY
REPORT OF INDEPENDENT AUDITORS
(Item 14(a)2)
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Operations and Retained Earnings
for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Schedules for the years ended December 31, 1993, 1992 and
1991:
V - Property, Plant and Equipment
VI - Accumulated Depreciation of Property, Plant
and Equipment
IX - Short-Term Borrowings
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the schedule
or because the information required is included in the financial statements
including the notes thereto.
<PAGE> 122
Report of Ernst & Young, Independent Auditors
Board of Directors
Citrus Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Citrus Corp.
and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations and retained earnings and cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included
the financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial position of Citrus
Corp. and Subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young
ERNST & YOUNG
Birmingham, Alabama
February 25, 1994
<PAGE> 123
CITRUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31,
-------------------------------
(In Thousands) 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 9,455 $ 936
Trade and other receivables
Customers, net 42,869 49,101
Affiliated companies 2,017 2,987
Refundable income taxes 250 2,811
Materials and supplies 5,281 9,551
------------------------------
Total Current Assets 59,872 65,386
------------------------------
Deferred Charges
Unamortized debt expense 3,243 2,841
Contract reformation costs, net 88,331 84,757
Other 25,076 36,881
------------------------------
Total Deferred Charges 116,650 124,479
------------------------------
Property, Plant and Equipment, at cost 1,731,456 1,622,708
Less-accumulated depreciation and amortization 334,708 292,602
------------------------------
Net Property, Plant and Equipment 1,396,748 1,330,106
------------------------------
TOTAL ASSETS $ 1,573,270 $ 1,519,971
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 124
CITRUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31,
----------------------------------
(In Thousands) 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks and current
maturities of long-term debt $ 305,000 $ 185,000
Accounts payable
Trade 44,383 64,136
Affiliated companies 48,071 17,278
Accrued liabilities
Interest 9,951 9,492
Other taxes 1,358 1,046
Overrecovered purchased gas costs 3,664 6,168
Other current liabilities 5,262 8,437
-------------------------------
Total Current Liabilities 417,689 291,557
-------------------------------
Long-Term Debt 395,000 425,000
Deferred Credits
Deferred income taxes 418,673 414,979
Other 1,941 32,336
-------------------------------
Total Deferred Credits 420,614 447,315
-------------------------------
Commitments and Contingencies (Notes 8 and 9)
Stockholders' Equity
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 316,271 316,271
Retained earnings 23,695 39,827
-------------------------------
Total Stockholders' Equity 339,967 356,099
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,573,270 $ 1,519,971
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 125
CITRUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gas sales $ 407,977 $ 434,153 $ 476,703
Gas transportation 141,725 115,986 88,903
Other 24,600 - -
------------------------------------------
574,302 550,139 565,606
------------------------------------------
Costs and Expenses
Natural gas purchased 421,148 414,051 427,598
Operations and maintenance 63,228 62,016 65,150
Depreciation and amortization 44,668 51,502 45,899
Taxes-other than income taxes 8,526 8,154 6,466
------------------------------------------
537,570 535,723 545,113
------------------------------------------
Operating Income 36,732 14,416 20,493
------------------------------------------
Other Income (Expense)
Interest expense, net (50,779) (50,417) (46,550)
Other, net 2,556 731 10,476
------------------------------------------
(48,223) (49,686) (36,074)
------------------------------------------
Loss Before Income Tax (11,491) (35,270) (15,581)
Income Tax Expense (Benefit) 4,641 (13,153) (6,380)
------------------------------------------
Net Loss (16,132) (22,117) (9,201)
Retained Earnings, Beginning of Year 39,827 61,944 71,145
------------------------------------------
Retained Earnings, End of Year $ 23,695 $ 39,827 $ 61,944
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 126
CITRUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (16,132) $ (22,117) $ (9,201)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 44,668 51,502 45,899
Deferred income taxes 4,641 (9,941) (10,509)
Changes in assets and liabilities
Trade and other receivables 9,763 (4,196) 28,482
Materials and supplies 4,270 2,859 (8,858)
Accounts payable 11,040 (41,116) (33,522)
Accrued liabilities 771 (93) 3,406
Over (under) recovered purchased gas costs (2,504) (1,859) 10,303
Other current assets and liabilities (3,175) (1,357) 649
Contract reformation costs, net (3,574) (57,411) (9,008)
Other, net (19,938) 7,400 5,829
-------------------------------------------
Net Cash Provided by (Used in) Operating Activities 29,830 (76,329) 23,470
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (110,615) (23,731) (112,346)
Disposition of property, plant and equipment (696) 491 150
-------------------------------------------
Net Cash Used in Financing Activities (111,311) (23,240) (112,196)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank borrowings, net 120,000 129,800 (3,320)
Proceeds from issuance of long-term debt - - 160,000
Payment of long-term debt (30,000) (30,000) (68,750)
------------------------------------------
Net Cash Provided by Financing Activities 90,000 99,800 87,930
------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 8,519 231 (796)
Cash and Cash Equivalents, Beginning of Year 936 705 1,501
------------------------------------------
Cash and Cash Equivalents, End of Year $ 9,455 $ 936 $ 705
- ------------------------------------------------------------------------------------------------------------------------
Additional cash flow information
The Company made the following interest and income tax payments:
Interest (net of amounts capitalized) $ 54,510 $ 55,377 $ 45,091
Income taxes paid (received) (2,149) (2,064) 3,887
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 127
CITRUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) REPORTING ENTITY
Citrus Corp. (the Company), a holding company formed during 1986, owns
100% of the stock of Florida Gas Transmission Company (Transmission),
Citrus Trading Corp. (Trading), Citrus Industrial Sales Company, Inc.
(Industrial) and Citrus Marketing, Inc. (Marketing). The stock of the
Company is owned 50% by Sonat Inc. (Sonat) and 50% by Houston Pipe Line
Company, a subsidiary of Enron Corp. (Enron).
Transmission, an interstate gas pipeline, is engaged in the interstate
transmission and sale of natural gas, and is subject to the jurisdiction
of the Federal Energy Regulatory Commission (FERC).
Trading is engaged in the sale of natural gas primarily to Florida
Power and Light, a large electric utility in the state of Florida.
Industrial is engaged in the sale of natural gas to local distribution
customers and end users.
Marketing specializes in supply acquisition, nontraditional gas sales
and purchases, and gas related financial instrument transactions (see
Note 7).
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers as cash equivalents
all highly liquid short-term investments with original maturities of
three months or less. These investments are accounted for at cost, which
approximates estimated fair value.
MATERIALS AND SUPPLIES - Materials and supplies are valued at actual
cost. Materials transferred out of warehouses are priced out at average
cost.
OVERRECOVERED PURCHASED GAS COSTS - For the portion of gas costs that
are applicable to regulated revenues, the FERC requires Transmission to
defer the overrecovery or underrecovery of gas costs. Pursuant to
Transmission's Order No. 636 settlement, Transmission will flowthrough
the overrecovery or underrecovery of gas costs on or before November 1,
1995.
<PAGE> 128
(2) SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES - To manage the risks
of price fluctuations, Marketing follows the practice of entering into
swap agreements in certain energy products. All related gains and losses
are recognized currently in income as adjustments to costs and expenses.
DEPRECIATION, AMORTIZATION AND MAINTENANCE POLICIES - The Company
amortizes that portion of its investment in Transmission and other
subsidiaries which is in excess of historical cost (acquisition
adjustment) on a straight-line basis at an annual rate of 1.9% based upon
the estimated remaining useful life of the pipeline system.
During the third quarter of 1993, the Company changed its depreciation
rate applicable to the acquisition adjustment to better reflect its
remaining useful life. The effect of the change was a reduction in
depreciation and amortization expense of $5.6 million in 1993.
Transmission has provided for depreciation of assets on a straight-line
basis at an annual composite rate of 3.06%, 3.16% and 2.45% for 1993,
1992 and 1991, respectively. Depreciation rates are based on the
estimated useful lives of the individual assets and are subject to
approval by the FERC.
The Company charges to maintenance the costs of repairs and renewal of
items determined to be less than units of property. Costs of
replacements and renewals of units of property are capitalized. The
original costs of units of property retired are charged to the
depreciation reserves, net of salvage and removal costs.
INCOME TAXES - The Company and its subsidiaries file a consolidated
federal income tax return. Pursuant to a tax allocation agreement
between the Company and its subsidiaries, the Company will pay to each
subsidiary an amount equal to the tax benefits realized in the
consolidated federal income tax return resulting from the utilization of
the subsidiary's net operating losses and tax credits. Conversely, each
subsidiary will pay to the Company an amount equal to the federal income
tax computed on its separate company taxable income, less the tax
benefits associated with the net operating losses and tax credits
generated by the subsidiary which are utilized in the consolidated
federal income tax return.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109 - "Accounting for Income Taxes" effective
January 1, 1993, and applied the provisions of the statement
retroactively. The Company previously accounted for income taxes under
the provisions of SFAS No. 96 which was superseded by SFAS No. 109. Both
SFAS No. 96 and SFAS No. 109
<PAGE> 129
(2) SIGNIFICANT ACCOUNTING POLICIES (continued)
utilize the asset and liability approach for accounting for income taxes.
Under this approach, deferred tax assets and liabilities are recognized
based on anticipated future tax consequences attributable to differences
between financial statement carrying amounts of assets and liabilities
and their respective tax bases. The adoption of SFAS No. 109 did not
have a material impact on the Company's results of operations or
financial position.
RECLASSIFICATIONS - Certain items on the Consolidated Statements of
Operations and Retained Earnings have been reclassified in 1992 and 1991
to conform with the 1993 presentation.
(3) LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1993 and 1992 was as
follows (in thousands):
Citrus Corp. 1993 1992
------------ --------- ---------
9.70% Notes due 1994-1996 $ 90,000 $120,000
11.10% Notes due 1999-2006 175,000 175,000
-------- --------
265,000 295,000
-------- --------
Transmission
------------
9.30% Notes due 1998 25,000 25,000
9.75% Notes due 1999-2008 65,000 65,000
10.11% Notes due 2009-2013 70,000 70,000
-------- --------
160,000 160,000
-------- --------
Total Long-Term Debt 425,000 455,000
Less Current Maturities 30,000 30,000
-------- --------
Total Long-Term Debt,
Net of Current Maturities $395,000 $425,000
======== ========
Annual maturities and sinking fund requirements on long-term debt
outstanding as of December 31, 1993 were as follows (in thousands):
Year Amount
---- ------
1994 $ 30,000
1995 30,000
1996 30,000
1997 -
1998 44,250
Thereafter 290,750
--------
$425,000
========
The Company has a note agreement that contains certain restrictions
which, among other things, limits the incurrence of additional debt, the
sale of assets and the payment of dividends. The agreements relating to
Transmission's promissory notes include, among other things, restrictions
as to the payment of dividends. As of December 31, 1993, the Company is
restricted in its ability to
<PAGE> 130
(3) LONG-TERM DEBT (continued)
incur any additional long-term debt other than for the addition,
expansion or modification of the gas transmission system or to extend,
renew or refund its outstanding debt.
The Company has committed lines of credit of $300.0 million with $275.0
million outstanding at December 31, 1993. Transmission has committed
lines of credit of $175.0 million which was all available at December
31, 1993. Transmission also has uncommitted bid note facilities for up
to $45.0 million. At December 31, 1993, there were no amounts
outstanding under these facilities.
(4) INCOME TAXES
In August 1993, the corporate federal income tax rate increased from
34% to 35% retroactive to January 1, 1993. Under the provisions of SFAS
No. 109, the effect of a change in the tax rate is recognized in income
in the period of enactment.
The principal components of the Company's net deferred income tax
liability at December 31, 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- ---------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryforward $ 24,928 $ 18,262
Regulatory and other reserves - 8,328
Other 5,568 1,983
-------- --------
30,496 28,573
-------- --------
Deferred income tax liabilities
Depreciation and amortization 420,155 416,080
Gas contract reformation costs 25,713 22,042
Other 3,301 5,430
-------- --------
449,169 443,552
-------- --------
Net deferred income tax liabilities $418,673 $414,979
======== ========
</TABLE>
Total income tax expense (benefit) for the years ended December 31,
1993, 1992 and 1991 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Payable currently
Federal $ - $ (2,758) $ 3,553
State - - 576
--------- --------- ---------
- (2,758) 4,129
--------- --------- ---------
Payment deferred
Federal (5,091) (8,604) (8,675)
State (347) (1,791) ( 1,834)
--------- --------- ---------
(5,438) (10,395) (10,509)
--------- --------- ---------
Effect of tax rate increase on
deferred tax liability 10,079 - -
--------- --------- ---------
Total income tax expense (benefit) $ 4,641 $ (13,153) $ (6,380)
========= ========= =========
</TABLE>
<PAGE> 131
(4) INCOME TAXES (continued)
The differences between income taxes computed at the U.S. federal
statutory rate and the Company's effective tax rate for the years
ended December 31, 1993, 1992 and 1991 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Statutory federal income
tax provision $ (4,022) $(11,992) $(5,298)
Net state income taxes (226) (1,183) (81)
Tax rate increase 10,079 - -
Revision of prior years'
tax estimates (1,200) - (749)
Other 10 22 (252)
--------- --------- --------
Income tax expense
(benefit) $ 4,641 $(13,153) $(6,380)
========= ========= ========
</TABLE>
The Company has a consolidated net operating loss carryforward for
tax purposes of approximately $62 million. This loss carryforward
will be available until 2006, at which time it will begin to expire.
For financial statement purposes, the Company has recognized the
benefit of this loss carryforward as a reduction of deferred tax
liabilities.
(5) EMPLOYEE BENEFIT PLANS
Employees of the Company participate in a defined benefit pension
plan maintained by Enron. Employees with five years or more of
service are entitled to retirement benefits based upon a formula that
uses a percentage of final average pay and years of service. It is
Enron's policy to fund pension costs to the minimum legal amount
required by federal tax regulations. Pension expenses charged by
Enron were $.4 million, $.3 million and $.5 million for 1993, 1992 and
1991, respectively.
During 1986, Enron formed a new employee stock ownership plan
(ESOP). Concurrent with the establishment of the ESOP, Enron amended
its retirement plan to provide that the value of stock allocated to an
employee's account in the ESOP will be utilized to partially fund the
employee's retirement benefits accrued subsequent to the date of the
amendment.
As of September 30, 1993, the most recent valuation date, the
actuarial present value of projected plan benefit obligations for the
Enron Corp. Retirement Plan in which the employees of the Company
participate was less than the plan net assets by approximately $25.3
million. The assumed discount rate and rate of return on plan assets
used in determining the actuarial present value of projected plan
benefits were 7.0% and 10.5%. The assumed rate of increase in wages
was 4.0%.
<PAGE> 132
(5) EMPLOYEE BENEFIT PLANS (continued)
In addition to providing pension benefits, Enron also provides
certain health care and life insurance benefits to eligible employees
(and their eligible surviving spouses) who retire under the Enron
Corp. Retirement Plan. Benefits are provided under the provisions of
a contributory defined dollar benefit plan.
Effective January 1, 1993, the Company adopted the provisions of
SFAS No. 106 "Employers Accounting for Postretirement Benefits Other
Than Pensions" (SFAS 106). SFAS 106 requires that employers providing
postretirement benefits accrue those costs over the service lives of
the employees expected to be eligible to receive such benefits. The
Company has elected the prospective transition approach and is
amortizing the transition obligation which existed at January 1, 1993,
over a period of approximately 19 years. The Company's net periodic
postretirement benefit cost for 1993 totaled approximately $.8
million, substantially all of which relates to Transmission and is
expected to be recovered through rates, while the accumulated
postretirement benefit obligation exceeded plan assets by $6.1 million
as of December 31, 1993.
(6) MAJOR CUSTOMERS
Revenues from individual customers exceeding 10% of total revenues
for the years ended December 31, 1993, 1992 and 1991 were
approximately as follows (in thousands):
<TABLE>
Customers 1993 1992 1991
--------- ---- ---- ----
<S> <C> <C> <C>
Florida Power & Light Company $263,000 $269,000 $275,000
Peoples Gas System, Inc. 55,000 65,000 81,000
</TABLE>
At December 31, 1993, the Company's subsidiaries had receivables of
approximately $14.7 and $4.0 million from Florida Power and Light and
Peoples Gas System, Inc., respectively.
(7) RELATED PARTY TRANSACTIONS
The Company incurred corporate administrative expenses including
employee benefit costs from Enron and its affiliates. The
Company was charged approximately $14.8, $12.1 and $15.9 million for
these expenses for the years ended December 31, 1993, 1992 and 1991,
respectively.
The Company's subsidiaries provide natural gas sales and
transport services to Enron and Sonat affiliates at rates equal to
rates charged to non-affiliated customers in the same class of
service. Revenues related to these services amounted to approximately
$13.0, $4.3 and $13.1 million for the years ended December 31, 1993,
1992 and 1991, respectively. The Company's subsidiaries purchased gas
from affiliates of Sonat of approximately $10.8, $8,8 and $11.9.
<PAGE> 133
RELATED PARTY TRANSACTIONS (continued)
million for the years ended December 31, 1993, 1992 and 1991,
respectively. The Company's subsidiaries also purchased gas from
affiliates of Enron of approximately $31.1, $41.4 and $53.7 million
for the years ended December 31, 1993, 1992 and 1991, respectively.
In 1993 Marketing sold certain gas purchase and sales contracts to
Enron Gas Marketing, Inc. The combined proceeds of the sales, $24.6
million, are included in other revenues.
On November 1, 1993, the Company, Marketing, Trading and Industrial
(collectively the Citrus Marketing Group) entered into an Operating
and Marketing Agreement (Agreement) with Enron Gas Services Corp.
(EGS). Under the terms of the Agreement, EGS provides certain
marketing and operating services to the Citrus Marketing Group,
including administration of existing and new contracts. EGS also
performs marketing functions on behalf of the Citrus Marketing Group
for its customers taking natural gas deliveries in Florida on
Transmission's pipeline.
(8) RATE MATTERS AND CONTINGENCIES
On January 15, 1993, the FERC approved Transmission's rate case
settlement which resolved all issues of cost of service, volumes and
rates pending in the July 1991 rate case filing. Transmission made
refunds by April 30, 1993, and with the acceptance of Transmission's
refund report by the FERC all matters related to the rate case are
closed.
Transmission has been authorized by the FERC to recover certain
take-or-pay costs billed to Transmission by Southern Natural Gas
Company through a flowthrough billing mechanism similar to, but
separate from, the PGA mechanism. The FERC authorization requires a
cap be placed on the liability of customers based on some measure of
historical purchases. Deferred settlement charges in the balance
sheets at December 31, 1993 and 1992 include approximately $3.4 and
$10.5 million, respectively, related to this matter.
In April 1992, the FERC issued Order No. 636 (Order 636). Among
other features, Order 636 requires pipelines to eliminate their
bundled city-gate sales service by separating (or unbundling) their
sales services from their transportation services, requires an
expanded capacity relinquishment program and adopts a straight fixed
variable rate design methodology. Order 636 also provides for the
recovery of transition costs. In a series of orders issued in 1993,
the FERC approved most aspects of Transmission's June 16, 1993
settlement of all Order 636 issues including the recovery of
transition payments.
<PAGE> 134
(8) RATE MATTERS AND CONTINGENCIES (continued)
Transmission has been authorized by the FERC to recover certain
transition costs incurred through the reformation of gas supply
contracts related to Transmission's jurisdictional sales services. On
November 1, 1993, Transmission's Order 636 restructuring settlement
went into effect. In addition to the existing recovery mechanism, the
settlement allows Transmission to recover 100% of any transition
payments from $106 million up to $160 million and 75% of payments
after the $160 million level.
Transmission has certain gas purchase contracts which provide for
take-or-pay obligations. Certain suppliers have made claims for
payment under the take-or-pay provision of these contracts. Thus far,
Transmission has made payments totaling $129.6 million as
consideration for modifying claims or other gas purchase contract
terms.
As Transmission completes the transition to a transportation only
function and terminates all of its remaining gas purchase contracts,
it is possible that additional payments to suppliers may be made to
resolve contract issues. To the extent additional payments are made,
Management believes that these costs will be 100% recoverable through
existing tariff mechanisms.
Transmission has received authority for an expansion of its
pipeline system (Phase III Expansion) with an estimated cost of
approximately $908 million. On August 25, 1992, Transmission filed a
settlement (Phase III Settlement) that covers the expansion facilities
needed to provide an additional firm transportation service that will
average approximately 530,000 MMBtu per day. This settlement amended
Transmission's previous filings for an expansion of its facilities for
approximately 825,000 MMBtu per day and was agreed to by all
customers. Service on Phase III Expansion facilities is to be
provided under a new firm transportation rate schedule which calls for
payment of incremental rates based upon a levelized rate methodology.
On September 15, 1993, the FERC issued Transmission a certificate of
public convenience and necessity approving the Phase III settlement
and authorizing Transmission to construct and operate the Phase III
Expansion facilities. Transmission accepted the certificate on
October 14, 1993. On February 2, 1994, the FERC denied rehearing on
an environmental issue but granted Transmission's request for
clarification on a rate issue.
<PAGE> 135
(9) COMMITMENTS AND CONTINGENCIES
In August 1990, Marketing entered into a price swap agreement to
effectively manage a portion of the market risk caused by fluctuations
in the price of natural gas and residual fuel oil. The agreement
provides a hedge on 41,000 MMBtu of natural gas and 5,000 barrels of
residual fuel oil per day. The agreement requires Marketing to make
payments to (or receive payments from) the other party based upon the
differential between a fixed and a floating price for natural gas and
residual fuel oil as specified in the agreement. The current swap
agreement is effective for a period of five years beginning August 1,
1990. The Company's after-tax results of operations for the years
ended December 31, 1993 and 1992, included net gains of $4.6 and $1.1
million, respectively, and a net loss for the year ended December 31,
1991 of $1.6 million, related to this agreement.
(10) CONCENTRATIONS OF CREDIT RISK AND OTHER FINANCIAL INSTRUMENTS
The Company and its subsidiaries have a concentration of customers
in the electric and gas utility industries. These concentrations of
customers may impact the Company's overall exposure to credit risk,
either positively or negatively, in that the customers may be
similarly affected by changes in economic or other conditions. Credit
losses incurred on receivables in these industries compare favorably
to losses experienced in the Company's receivable portfolio as a
whole. The Company and its subsidiaries also have a concentration of
customers located in the southeastern United States, primarily within
the state of Florida. Receivables are generally not collateralized.
The Company's management believes that the portfolio of receivables,
which includes local distribution companies and municipalities, is
well diversified and that such diversification minimizes any potential
credit risk.
The carrying amounts and fair value of the Company's financial
instruments at December 31, 1993 and 1992, are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
--------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Contract reformation
costs $ 88,331 $ 88,331 $ 84,757 $ 84,757
Notes payable to banks 275,000 275,000 155,000 155,000
Long-term debt
(including current) 425,000 512,532 455,000 528,171
maturities)
</TABLE>
The carrying amount of contract reformation costs and notes
payable reasonably approximate their fair value. The fair value of
long-term debt is based upon market quotations of similar debt at
interest rates currently available.
<PAGE> 136
CITRUS CORP. AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
==============================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
==============================================================================================================================
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
- ----------------------------- ---------------- ----------- -------------- ------------ ----------
1993
<S> <C> <C> <C> <C> <C>
NATURAL GAS PIPELINE SYSTEM
Intangible $ 277 $ 67 $ - $ - $ 344
Transmission plant 713,997 11,280 1,464 - 723,813
General plant 14,203 1,668 403 - 15,468
Construction work in progress 7,096 97,600 - - 104,696
Acquisition adjustment (3) 887,135 - - - 887,135
---------- ---------- -------- -------- ----------
$1,622,708 $ 110,615(1) $ 1,867 $ - $1,731,456
========== ========== ======== ======== ==========
1992
NATURAL GAS PIPELINE SYSTEM
Intangible $ 145 $ 132 $ - $ - 277
Transmission plant 695,200 25,163 6,366 - 713,997
General plant 14,006 970 773 - 14,203
Construction work in progress 9,630 (2,534) - - 7,096
Acquisition adjustment (3) 887,135 - - - 887,135
---------- ---------- -------- -------- ----------
$1,606,116 $ 23,731(2) $ 7,139 $ - $1,622,708
========== ========== ======== ======== ==========
1991
NATURAL GAS PIPELINE SYSTEM
Intangible $ 145 $ - $ - $ - 145
Transmission plant 573,260 127,190 5,451 201 695,200
General plant 12,901 1,132 27 - 14,006
Construction work in progress 25,606 (15,976) - - 9,630
Acquisition adjustment (3) 887,135 - - - 887,135
---------- ---------- -------- -------- ----------
$1,499,047 $ 112,346(2) $ 5,478 $ 201 $1,606,116
========== ========== ======== ======== ==========
</TABLE>
(1) Additions in 1993 primarily relate to expansion of transmission plant
commonly referred to as Phase III.
(2) Additions in 1992 and 1991 primarily relate to Phase II expansion.
(3) Acquisition adjustment includes the effect of Statement of Financial
Accounting Standards No.96. "Accounting for Income Taxes". Reference is
made to Note 2 to the financial statements.
<PAGE> 137
CITRUS CORP. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
=========================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
=========================================================================================================================
DEDUCTIONS
ADDITIONS TO RESERVES FROM RESERVES
------------------------------------ ------------------------
CHARGED TO
BALANCE AT OPERATING RETIREMENTS, BALANCE AT
BEGINNING REVENUE SALVAGE RENEWALS AND COST OF END OF
DESCRIPTION OF PERIOD DEDUCTIONS RECOVERIES OTHER REPLACEMENTS REMOVAL PERIOD
- ---------------- ----------- ---------- ---------- ------- ------------ ------- ----------
1993
<S> <C> <C> <C> <C> <C> <C> <C>
Natural gas
pipeline system $ 454,353 $ 18,976 $ 444 $ 159 $ 1,912 $ 1,253 $ 470,767
Acquisition
adjustment (161,751) 25,692 - - - - (136,059)
---------- --------- -------- ------ --------- ------- ----------
$ 292,602 $ 44,668 $ 444 $ 159 $ 1,912 $ 1,253 $ 334,708
========== ========= ======== ====== ========= ======= ==========
1992
Natural gas
pipeline system $ 440,819 $ 20,182 $ 662 $ 200 $ 7,139 $ 371 $ 454,353
Acquisition
adjustment (193,071) 31,320 - - - - (161,751)
---------- --------- -------- ------ --------- ------- ----------
$ 247,748 $ 51,502 $ 662 $ 200 $ 7,139 $ 371 $ 292,602
========== ========= ======== ====== ========= ======= ==========
1991
Natural gas
pipeline system $ 431,367 $ 14,579 $ 990 $ 384 $ 5,478 $ 1,023 $ 440,819
Acquisition
adjustment (224,391) 31,320 - - - - (193,071)
---------- --------- -------- ------ --------- ------- ----------
$ 206,976 $ 45,899 $ 990 $ 384 $ 5,478 $ 1,023 $ 247,748
========== ========= ======== ====== ========= ======= ==========
</TABLE>
<PAGE> 138
CITRUS CORP. AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
====================================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
====================================================================================================================================
MAXIMUM AVERAGE WEIGHTED
CATEGORY OF BALANCE AT END WEIGHTED AMOUNT AMOUNT AVERAGE
AGGREGATE OF PERIOD AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM INTEREST DURING THE DURING THE DURING THE
BORROWINGS RATE PERIOD PERIOD (1) PERIOD (1)
------------------ ------------------- ----------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1993
NOTES PAYABLE TO
BANKS $ 275,000 0.0368 $ 275,000 $ 157,720 0.0382
YEAR ENDED
DECEMBER 31, 1992
NOTES PAYABLE TO
BANKS $ 155,000 0.0507 $ 155,000 $ 92,475 0.0485
YEAR ENDED
DECEMBER 31, 1991
NOTES PAYABLE TO
BANKS $ 25,200 0.0536 $ 31,600 $ 11,775 0.0676
</TABLE>
(1) Computations based on daily outstanding balances and applicable rates
during the period.
<PAGE> 139
APPENDIX TO ANNUAL REPORT ON FORM 10-K
OF SONAT INC. FOR THE YEAR ENDED DECEMBER 31, 1993
In compliance with Section 304 of Regulation S-T, the following information
describes pictorial and/or graphic materials contained herein:
<TABLE>
<CAPTION>
PAGE DESCRIPTION
------------------------------------- -------------------------------------
<S> <C>
I-5.................................. Map of the Southwestern and
Southcentral United States (Texas,
Oklahoma, Arkansas, Louisiana,
Mississippi, and Alabama) generally
showing the gas reserve basins and
areas in which Exploration has
significant lease interests. These
leases are described in the charts on
page I-4.
I-17................................. Map of the Southeastern United States
showing the approximate location of
the pipeline systems of Southern,
SIA, and Florida Gas (as described on
pages I-8, I-14, and I-15), the
underground storage facilities of
Southern (as described on page I-8),
and Southern Energy's LNG terminal
(as discussed on page I-13).
</TABLE>
<PAGE> 1
EXHIBIT 4-(5)
________________________________________________________________
CREDIT AGREEMENT
dated as of December 15, 1993
among
SONAT INC.,
THE BANKS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
CHEMICAL BANK
and
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
as Co-Agents
________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
I. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Syndicated Loans . . . . . . . . . . . . . 1
Section 1.02 Money Market Loans . . . . . . . . . . . . 1
Section 1.03 Commitment Fee . . . . . . . . . . . . . . 5
Section 1.04 Change of Commitments. . . . . . . . . . . 6
Section 1.05 Borrowings of Syndicated Loans . . . . . . 7
Section 1.06 Several Commitments; Remedies
Independent. . . . . . . . . . . . . . . 9
Section 1.07 Availability of Funds. . . . . . . . . . . 9
Section 1.08 Extension of Commitment
Termination Date . . . . . . . . . . . . 10
Section 1.09 Lending Offices. . . . . . . . . . . . . . 10
Section 1.10 Notes. . . . . . . . . . . . . . . . . . . 10
II. PAYMENTS, INTEREST AND CERTAIN FEES. . . . . . . . . . . . . . 11
Section 2.01 Repayment of Loans . . . . . . . . . . . . 11
Section 2.02 Interest . . . . . . . . . . . . . . . . . 11
Section 2.03 Interest Periods . . . . . . . . . . . . . 12
Section 2.04 Prepayments. . . . . . . . . . . . . . . . 13
Section 2.05 Payments, etc. . . . . . . . . . . . . . . 14
Section 2.06 Pro Rata Treatment; Sharing. . . . . . . . 14
Section 2.07 Computations . . . . . . . . . . . . . . . 16
Section 2.08 Facility Fee . . . . . . . . . . . . . . . 16
Section 2.09 Administration Fee . . . . . . . . . . . . 16
III. PROVISIONS RELATING TO FIXED RATE LOANS . . . . . . . . . . . 16
Section 3.01 Additional Costs . . . . . . . . . . . . . 17
Section 3.02 Limitation on Types of Loans . . . . . . . 20
Section 3.03 Illegality . . . . . . . . . . . . . . . . 21
Section 3.04 Treatment of Affected Loans. . . . . . . . 21
Section 3.05 Compensation . . . . . . . . . . . . . . . 21
Section 3.06 Survival . . . . . . . . . . . . . . . . . 22
IV. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.01 Conditions to Effectiveness. . . . . . . . 22
Section 4.02 Conditions Precedent to Loans. . . . . . . 24
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
V. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.01 Financial Statements . . . . . . . . . . . 24
Section 5.02 Access to Books and Inspection . . . . . . 25
Section 5.03 Litigation . . . . . . . . . . . . . . . . 26
Section 5.04 Maintenance of Existence . . . . . . . . . 26
Section 5.05 Merger; Sale of Assets . . . . . . . . . . 26
Section 5.06 Default; Investment Rating . . . . . . . . 28
Section 5.07 ERISA . . . . . . . . . . . . . . . . . . 28
Section 5.08 Liens. . . . . . . . . . . . . . . . . . . 29
Section 5.09 Total Indebtedness to Consolidated
Capitalization . . . . . . . . . . . . . 30
Section 5.10 Subsidiary Indebtedness Limitations. . . . 30
Section 5.11 Insurance. . . . . . . . . . . . . . . . . 30
Section 5.12 Maintenance of Properties. . . . . . . . . 31
Section 5.13 Public Utility Holding Company Act . . . . 31
VI. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 31
Section 6.01 Corporate Existence and Powers . . . . . . 31
Section 6.02 Corporate Authority, etc.. . . . . . . . . 31
Section 6.03 Financial Condition. . . . . . . . . . . . 32
Section 6.04 Litigation . . . . . . . . . . . . . . . . 32
Section 6.05 Taxes. . . . . . . . . . . . . . . . . . . 33
Section 6.06 Approvals. . . . . . . . . . . . . . . . . 33
Section 6.07 ERISA. . . . . . . . . . . . . . . . . . . 33
Section 6.08 Regulation U . . . . . . . . . . . . . . . 33
Section 6.09 Certain Subsidiaries . . . . . . . . . . . 33
Section 6.10 Investment Company Act . . . . . . . . . . 34
Section 6.11 Environmental Laws . . . . . . . . . . . . 34
VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 34
VIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.01 Waiver . . . . . . . . . . . . . . . . . . 37
Section 8.02 Notices and Delivery of Documents. . . . . 37
Section 8.03 Governing Law. . . . . . . . . . . . . . . 37
Section 8.04 Offsets, etc . . . . . . . . . . . . . . . 37
Section 8.05 Disposition of Loans . . . . . . . . . . . 38
Section 8.06 Expenses . . . . . . . . . . . . . . . . . 38
Section 8.07 Amendments, Waivers, etc.. . . . . . . . . 39
Section 8.08 Definitions. . . . . . . . . . . . . . . . 39
Section 8.09 Successors and Assigns . . . . . . . . . . 40
Section 8.10 Counterparts . . . . . . . . . . . . . . . 40
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
IX. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.01 Appointment, Power and Immunities. . . . . 40
Section 9.02 Reliance by Agents . . . . . . . . . . . . 40
Section 9.03 Default. . . . . . . . . . . . . . . . . . 41
Section 9.04 Rights as a Lender . . . . . . . . . . . . 41
Section 9.05 Indemnification. . . . . . . . . . . . . . 42
Section 9.06 Reports. . . . . . . . . . . . . . . . . . 42
Section 9.07 Non-Reliance on Agents and Other Banks . . 42
Section 9.08 Failure to Act . . . . . . . . . . . . . . 43
Section 9.09 Resignation or Removal of Agents . . . . . 43
SCHEDULE 1 Definitions
SCHEDULE 2 Lending Offices and/or Addresses for Notices
EXHIBIT A-1 - Form of Note for Syndicated Loans
EXHIBIT A-2 - Form of Note for Money Market Loans
EXHIBIT B - Form of Opinion of Counsel to the Company
EXHIBIT C - Form of Opinion of Special New York Counsel to the Banks
EXHIBIT D - Form of Money Market Quote Request
EXHIBIT E - Form of Money Market Quote
</TABLE>
(iii)
<PAGE> 5
CREDIT AGREEMENT dated as of December 15, 1993 among SONAT INC., a
Delaware corporation (the Company"); the undersigned banks (each herein called
a "Bank"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), CHEMICAL BANK
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, each as agent for the Banks
under this Agreement (in such capacity, each such agent being herein called an
"Agent" and collectively the "Agents").
The Company has requested the Banks to extend credit to the Company
for the general corporate purposes of the Company. The Banks are prepared to
do so on the terms hereof.
Accordingly, the Company, each Bank and the Agents hereby agree as
follows:
I. LOANS
Section 1.01 Syndicated Loans. Each Bank severally agrees, on the
terms of this Agreement, to make loans to the Company in Dollars during the
period from and including the date hereof to but not including the Commitment
Termination Date in an aggregate principal amount at any one time outstanding
up to but not exceeding the amount of such Bank's Commitment as then in effect.
Subject to the terms of this Agreement, during such period the Company may
borrow, repay and reborrow the amount of the Commitments; provided that the
aggregate principal amount of all Money Market Loans, together with the
aggregate principal amount of all Syndicated Loans, at any one time outstanding
shall not exceed the aggregate amount of the Commitments at such time except
that, notwithstanding the foregoing, Money Market Loans outstanding at the time
of any termination or reduction of the Commitments pursuant to Section 1.04
hereof need not be prepaid on account of this proviso.
Section 1.02 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, the Company may,
as set forth in this Section 1.02, request the Banks to make offers to make
Money Market Loans to the Company in Dollars. The Banks may, but shall have no
obligation to, make such offers and the Company may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section
1.02. Money Market Loans may be LIBOR Market Loans or Set Rate Loans (each a
"type" of Money Market Loan), provided that:
(i) there may be no more than fifteen different
Interest Periods for both Syndicated Loans (other than Domestic Loans)
and Money Market Loans outstanding at the same time (for which purpose
Interest Periods described in different lettered clauses of the
definition of the term "Interest Period" in Section 2.03 hereof shall
be deemed to be different Interest Periods even if they are
coterminous); and
<PAGE> 6
2
(ii) the aggregate principal amount of all Money
Market Loans, together with the aggregate principal amount of all
Syndicated Loans, at any one time outstanding shall not exceed the
aggregate amount of the Commitments at such time except that,
notwithstanding the foregoing, Money Market Loans outstanding at the
time of any termination or reduction of the Commitments pursuant to
Section 1.04 hereof need not be prepaid on account of this proviso.
(b) When the Company wishes to request offers to make Money
Market Loans, it shall give each Bank notice (a "Money Market Quote Request")
so as to be received no later than 11:00 a.m. New York time on (x) the fourth
Business Day prior to the date of borrowing proposed therein, in the case of a
LIBOR Auction or (y) the Business Day next preceding the date of borrowing
proposed therein, in the case of a Set Rate Auction (or, in any such case, such
other time and date as the Company and the Majority Banks may agree). The
Company may request offers to make LIBOR Market Loans and/or Set Rate Loans for
up to three different Interest Periods for all Money Market Loans in a single
notice (for which purpose Interest Periods in different lettered clauses of the
definition of the term "Interest Period" shall be deemed to be different
Interest Periods even if they are coterminous); provided that the request for
each separate Interest Period shall be deemed to be a separate Money Market
Quote Request for a separate borrowing (a "Money Market Borrowing"). Each such
notice shall be substantially in the form of Exhibit D hereto and shall specify
as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Money Market Borrowing, which
shall be at least $25,000,000 (or in larger multiples of $5,000,000)
but shall not cause the limits specified in Section 1.02 hereof to be
violated (without giving effect to any other Money Market Borrowing
subject to a simultaneous Money Market Quote Request);
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the Money Market Quotes requested for a particular
Interest Period are to set forth a Money Market Margin or a Money
Market Rate; and
(v) if the Money Market Quotes requested are to set forth a
Money Market Rate, the date on which the Money
<PAGE> 7
3
Market Quotes are to be submitted if it is before the proposed date of
borrowing (the date on which such Money Market Quotes are to be
submitted is called the "Quotation Date").
Except as otherwise provided in this Section 1.02, no Money Market Quote
Request shall be given within five Business Days (or such other number of days
as the Company and the Majority Banks may agree) of any other Money Market
Quote Request.
(c) (i) Each Bank may submit one or more Money Market Quotes,
each containing an offer to make a Money Market Loan in response to any Money
Market Quote Request; provided that, if the Company's request under Section
1.02(b) hereof specified more than one Interest Period, such Bank may make a
single submission containing one or more Money Market Quotes for each such
Interest Period. Each Money Market Quote must be submitted to the Company not
later than (x) 2:00 p.m. New York time on the fourth Business Day prior to the
proposed date of borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m.
New York time on the Quotation Date, in the case of a Set Rate Auction (or, in
any such case, such other time and date as the Company and the Majority Banks
may agree). Subject to Section 3.02(b), Section 3.03, Section 4.02 and Article
VII hereof, any Money Market Quote so made shall be irrevocable except with the
written consent of the Company.
(ii) Each Money Market Quote shall be substantially in the form
of Exhibit E hereto and shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
shall be at least $5,000,000 or a larger multiple of $1,000,000;
provided that the aggregate principal amount of all Money Market
Loans for which a Bank submits Money Market Quotes (x) may be
greater or less than the Commitment of such Bank but (y) may not
exceed the principal amount of the Money Market Borrowing for a
particular Interest Period for which offers were requested;
(C) in the case of a LIBOR Auction, the margin above
or below the applicable LIBO Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a
percentage (rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from the
applicable LIBO Rate;
<PAGE> 8
4
(D) in the case of a Set Rate Auction, the rate of
interest per annum (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) offered for each such Money Market
Loan (the "Money Market Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Company, no Money Market Quote shall contain
qualifying, conditional or similar language or propose terms other than or in
addition to those set forth in the applicable Money Market Quote Request and,
in particular, no Money Market Quote may be conditioned upon acceptance by the
Company of all (or some specified minimum) of the principal amount of the Money
Market Loan for which such Money Market Quote is being made.
(d) Not later than 11:30 a.m. New York time on (x) the third
Business Day prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) the Quotation Date, in the case of a Set Rate Auction (or, in
any such case, such other time and date as the Company and the Majority Banks
may agree), the Company shall notify each Bank of its acceptance or
nonacceptance of the offers so notified to it pursuant to Section 1.02(c)(i)
hereof (and the failure of the Company to give such notice by such time shall
constitute nonacceptance). In the case of acceptance, such notice shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Company may accept any Money Market Quote in whole or in
part (provided that any Money Market Quote accepted in part shall be at least
$5,000,000 or in larger multiples of $1,000,000); provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request;
(ii) the aggregate principal amount of each Money Market
Borrowing shall be at least $25,000,000 (or in larger multiples of
$5,000,000) but shall not cause the limits specified in Section 1.02
hereof to be violated;
(iii) acceptance of offers may be made only in ascending order
of Money Market Margins or Money Market Rates, as the case may be, in
each case commencing with the lowest rate so offered; and
(iv) the Company may not accept any offer that fails to comply
with Section 1.02(c)(ii) hereof or otherwise fails to comply with the
requirements of this Agreement (including, without limitation, Section
1.02(a) hereof).
<PAGE> 9
5
If offers are made by two or more Banks with the same Money Market Margins or
Money Market Rates, as the case may be, for a greater aggregate principal
amount than the amount in respect of which offers are accepted for the related
Interest Period, the principal amount of Money Market Loans in respect of which
such offers are accepted shall be allocated by the Company among such Banks as
nearly as possible (in multiples of $1,000,000) in proportion to the aggregate
principal amount of such offers. Determinations by the Company of the amounts
of Money Market Loans shall be conclusive in the absence of manifest error.
Promptly after the acceptance by the Company of any Money Market Quote, the
Company shall give Chase notice of the principal amount of each Money Market
Loan to be made pursuant to such Money Market Quote, the rate of interest per
annum and the duration of the Interest Period applicable thereto and the name
of the Bank making such Loan.
(f) Any Bank whose offer to make any Money Market Loan has been
accepted shall, not later than 1:00 p.m. New York time on the date specified
for the making of such Loan, make the amount of such Loan available to Chase at
account number NYAO-DI-900-9-000002 maintained by Chase with The Chase
Manhattan Bank (National Association) at its Principal Office in immediately
available funds, for account of the Company. The amount so received by Chase
shall, subject to the terms and conditions of this Agreement, be made available
to the Company on such date by depositing the same, in immediately available
funds, in an account of the Company maintained with The Chase Manhattan Bank
(National Association) at its Principal Office designated by the Company.
(g) Except for the purpose and to the extent expressly stated
in Section 1.03 hereof, the amount of any Money Market Loan made by any Bank
shall not constitute a utilization of such Bank's Commitment.
Section 1.03 Commitment Fee. The Company shall pay to Chase
for account of each Bank a commitment fee on the daily average unused amount of
such Bank's Commitment (solely for which purpose the amount of any Money Market
Loans outstanding shall be deemed to be a pro rata (based on the Commitments)
utilization of each Bank's Commitment) for the period commencing on the
Effective Date and ending on the Commitment Termination Date (or such earlier
date on which such Bank's Commitment shall have terminated in full pursuant to
Section 1.04 hereof) at a rate per annum for each day during such period equal
to the Applicable Commitment Fee Rate in effect on such day. Accrued
commitment fees shall be payable quarterly on the last Business Day in March,
June, September and December in each year, commencing on the first such date
after the
<PAGE> 10
6
Effective Date, and on the date the Commitments are terminated in full.
Section 1.04 Change of Commitments.
(a) The Company shall have the right at any time or from time
to time upon not less than three Business Days' prior notice to Chase
(specifying the date and the aggregate amount of each such reduction or
termination) to terminate in whole, or to reduce in part, the aggregate unused
amount of the Commitments (and, in accordance with Section 1.02(g) hereof,
outstanding Money Market Loans shall not constitute a utilization of the
Commitments). Each such reduction shall be in an aggregate amount of at least
$25,000,000 and a multiple of $1,000,000. Chase shall promptly notify each
Bank of its proportionate share and the date of each such reduction.
(b) If either (i) during any period of 12 consecutive months,
individuals who were directors of the Company at the beginning of such period
cease to constitute a majority of the board of directors of the Company (except
for changes due to the retirement or death of any such individuals) or (ii) any
Person (or group of Persons which has an agreement, arrangement or
understanding for the purpose of acquiring the shares of the Company) shall
acquire, directly or indirectly, beneficial ownership or control of more than
50% of the then outstanding voting shares of the Company (either such event
being hereinafter referred to as a "Change in Control"), then each Bank
(through Chase) may, by notice to the Company not later than the date 20
Business Days after the Company shall have notified the Agents of any such
Change in Control, reduce the Commitment of such Bank in an amount equal to the
unused amount of such Bank's Commitment (and, in accordance with Section
1.02(g) hereof, outstanding Money Market Loans shall not constitute a
utilization of such Bank's Commitment). The Company agrees, as soon as it
shall become known to one of its senior officers, to notify the Agents of any
such Change in Control (and the Agents shall promptly notify the Banks
thereof), but the failure to so notify shall not preclude any Bank from
reducing the unused amount of such Bank's Commitment as aforesaid.
(c) Provided that no Default shall have occurred and be
continuing, the Company may at any time terminate the Commitment of any Bank
that has claimed any compensation under Section 3.01(a) or Section 3.01(c)
hereof at any time during the preceding one-month period, in whole but not in
part, by (i) giving Chase (which shall promptly notify such Bank) not less than
five Business Days' prior notice thereof, which notice shall be irrevocable and
effective only upon receipt by Chase and shall specify the identity of such
Bank and the effective date of
<PAGE> 11
7
such termination, and (ii) paying to such Bank (and there shall become due and
payable) on such date the outstanding principal amount of all Loans made by
such Bank, interest on such principal amount accrued to such date, any amounts
payable to such Bank pursuant to Article III hereof in connection therewith and
all other amounts owing to such Bank by the Company hereunder (provided that
the obligations of the Company under Article III and Section 8.06 hereof to
such Bank shall survive such termination).
(d) Provided that no Default shall have occurred and be
continuing, the Company may at any time replace any Bank that has claimed any
compensation under Section 3.01(a) or Section 3.01(c) hereof at any time during
the preceding one-month period, in whole but not in part, by giving Chase not
less than five Business Days' prior notice (and Chase shall promptly notify
such Bank), that it intends to replace such Bank with one or more banks (which
may include any other Bank under this Agreement) selected by the Company and
acceptable to Chase (which shall not unreasonably withhold its consent). Any
such replacement shall be accomplished pursuant to documentation in form and
substance satisfactory to Chase. Upon the effective date of any replacement
under this Section 1.04(d) (and as a condition thereto), the Company shall
repay to the Bank being replaced the principal of and interest on each Loan
then outstanding from such Bank together with all other amounts owing to such
Bank hereunder and such replacement bank (or banks, as the case may be) shall
make a loan (or loans) to the Company in the (aggregate) principal amount of
each such Loan so repaid which loan (or loans) shall be of the same type and
have the same maturity and interest rate as the respective Loan so repaid),
whereupon such replacement bank (or banks) shall become a "Bank" (or "Banks")
for all purposes of this Agreement having a Commitment (or Commitments in the
aggregate) in the amount of such Bank being replaced and such loan (or loans)
shall be deemed a Loan (or Loans) hereunder.
(e) The Commitments once terminated or reduced may not be
reinstated.
Section 1.05 Borrowings of Syndicated Loans.
(a) Each Syndicated Loan shall be either a Domestic Loan or
Eurodollar Loan. Syndicated Loans on the occasion of any borrowing thereof
hereunder may be Domestic Loans or Eurodollar Loans (each a "type" of Loan) or
any combination thereof; provided that there may be no more than ten Interest
Periods for Eurodollar Loans outstanding at the same time; and provided,
further, that there may be no more than fifteen different Interest Periods for
both Eurodollar Loans and Money
<PAGE> 12
8
Market Loans outstanding at the same time (for which purpose Interest Periods
described in different lettered clauses of the definition of the term "Interest
Period" in Section 2.03 hereof shall be deemed to be different Interest Periods
even if they are coterminous).
(b) The Company shall give Chase (which shall promptly notify
the Banks) notice of each borrowing hereunder of Syndicated Loans, which notice
shall be irrevocable and effective only upon receipt by Chase, shall specify
with respect to the Syndicated Loans to be borrowed (i) the aggregate amount
(which shall be at least $10,000,000 or a multiple of $1,000,000 in excess
thereof), (ii) the type or types of Loans to be borrowed and the aggregate
amount of each type, (iii) the date of such borrowing (which shall be a
Business Day), and (iv) (in the case of Eurodollar Loans) the duration of the
Interest Period therefor and shall be given not later than 11:00 a.m. New York
time, in the case of Domestic Loans, on the same day as the date of such
borrowing and, in the case of Eurodollar Loans, on the day which is not less
than three Business Days prior to the date of such borrowing.
(c) If at any time during which Syndicated Loans are
outstanding under this Agreement the Company shall fail to give a notice of the
type referred to in Section 1.05(b) or otherwise to advise Chase in writing by
11:00 a.m. New York time on the day which is not less than one Business Day
prior to the maturity date of any such Syndicated Loans that it does not intend
to reborrow an amount at least equal to the aggregate amount of such Syndicated
Loans (or, if less, the aggregate amount of the Commitments) on such maturity
date, the Company shall be deemed to have given on such first Business Day
preceding such maturity date a notice of borrowing hereunder for Domestic Loans
to be made on such date in an amount equal to the lesser of (i) the aggregate
principal amount of the Syndicated Loans which are maturing on such date or
(ii) the aggregate amount of the Commitments to be outstanding on such date
(after giving effect to any reductions of the Commitments to be effected on
such date), and Chase shall notify the Banks of such borrowing.
(d) Subject to Chase's receipt or deemed receipt of a notice of
borrowing as provided in Section 1.05(b) or Section 1.05(c) hereof, Chase shall
give each Bank not less than three Business Days' prior notice (with respect to
each borrowing of Eurodollar Loans) or same-day notice by noon (with respect to
each borrowing of Domestic Loans), as the case may be, of each such borrowing
specifying (i) the aggregate amount to be borrowed, (ii) the date of borrowing,
(iii) the type or types of Loans to be borrowed, (iv) in the case of any Fixed
Rate Loans to be
<PAGE> 13
9
borrowed, the duration of the Interest Period therefor and (v) such Bank's pro
rata portion thereof.
(e) Not later than 1:00 p.m. New York time on the date
specified for each borrowing of Syndicated Loans, each Bank shall make
available to Chase, at account number NYAODI-900-9-000002 maintained by The
Chase Manhattan Bank (National Association) at its Principal Office in
immediately available funds the amount of the Syndicated Loan or Syndicated
Loans to be made by it on such date. If any Bank shall (i) be obligated but
fail to make available the amount of the Syndicated Loan to be made by it on
the date specified for a borrowing hereunder and (ii) have any Syndicated Loans
which are maturing on such date, such maturing Syndicated Loans shall
automatically be extended in an amount equal to (but not in excess of) the
amount of the Syndicated Loan to be made and in the type and for the Interest
Period of such Loan to be made (and such Loan which would otherwise mature on
such date shall not be considered to be past due hereunder).
Section 1.06 Several Commitments; Remedies Independent. The
failure of any Bank to make any Loan to be made by it shall not relieve any
other Bank of its obligation to make its Loan on such date, but neither any
other Bank nor any Agent shall be responsible for such failure. The amounts
payable at any time by the Company hereunder and under the Notes to each Bank
shall be a separate and independent debt and each Bank shall be entitled to
protect and enforce its rights arising out of this Agreement and the Notes, and
it shall not be necessary for any other Bank or any Agent to consent to, or to
be joined as an additional party in, any proceedings for such purposes.
Section 1.07 Availability of Funds. Unless Chase shall have
been notified by a Bank prior to the date of any borrowing hereunder that such
Bank does not intend to make available to Chase such Bank's Loans to be made on
such day, Chase may assume that such Bank has made the amount of such Loans to
be made available to Chase on such date and Chase may in reliance upon such
assumption (but shall not be required to) make available to the Company a
corresponding amount. If such proceeds are not in fact made available to Chase
by such Bank, Chase shall be entitled to recover such corresponding amount on
demand from such Bank (or, if such Bank fails to pay such corresponding amount
forthwith upon such demand, from the Company) together with interest thereon in
respect of each day during the period commencing on the date such corresponding
amount was made available to the Company and ending on (but excluding) the date
Chase recovers such corresponding amount at a rate per annum equal to the
Federal Funds Rate for such day
<PAGE> 14
10
(or if such day is not a Business Day, the next preceding Business Day).
Section 1.08 Extension of Commitment Termination Date. The
Company may, by notice to the Agents not less than 60 days and not more than 90
days prior to the Commitment Termination Date, request that the Banks extend
the Commitment Termination Date to the Annual Date in the calendar year next
succeeding the calendar year in which the Commitment Termination Date then
falls. The Agents shall promptly notify each Bank of such request. Upon the
receipt by Chase of the agreement in writing of each Bank to such extension not
less than 30 days prior to the Commitment Termination Date then in effect,
Chase shall notify the Company and each Bank that all of the Banks have agreed
to such extension, which extension shall become effective upon the receipt by
Chase (with sufficient copies for each Bank) not less than five Business Days
prior to such Commitment Termination Date of an opinion of counsel to the
Company, satisfactory to each Bank and special counsel to the Banks, as to the
due authorization, execution and delivery by the Company of such notice of
extension, the validity and binding effect as regards the Company of this
Agreement and the Notes as so extended, and there being no necessity for any
authorization or approval by, or any filing or registration with, any public
regulatory body for such extension and for the performance of this Agreement
and the Notes as so extended (or, if any such action is necessary or required,
that the same has been duly obtained or effected, is valid and sufficient for
the purpose and a true copy thereof is attached to such opinion) and covering
such other matters relating to such extension as any Agent or Bank may
reasonably request.
Section 1.09 Lending Offices. The Loans of each type made by
each Bank shall be made and maintained at such Bank's Applicable Lending Office
for Loans of such type.
Section 1.10 Notes.
(a) The Syndicated Loans made by each Bank shall be evidenced
by a single promissory note (a "Syndicated Note") of the Company substantially
in the form of Exhibit A-1 hereto, dated the Effective Date, payable to such
Bank in a principal amount equal to the amount of its Commitment as originally
in effect and otherwise duly completed. The date, amount, type, interest rate
and maturity date of each Syndicated Loan made by each Bank to the Company, and
each payment made on account of the principal thereof, shall be recorded by
such Bank on its books and, prior to any transfer of such Note held by it,
endorsed by such Bank on the schedule attached to such Note or any continuation
thereof. The failure of any Bank to make any
<PAGE> 15
11
notation or entry or any error in such a notation or entry shall not, however,
limit or otherwise affect any obligation of the Company under this Agreement or
the Notes.
(b) The Money Market Loans made by any Bank shall be evidenced
by a single promissory note (a "Money Market Note") of the Company
substantially in the form of Exhibit A-2 hereto, dated the date of the delivery
of such Note to Chase under this Agreement, payable to such Bank and otherwise
duly completed. The date, amount, type, interest rate and maturity date of
each Money Market Loan made by each Bank to the Company, and each payment made
on account of the principal thereof, shall be recorded by such Bank on its
books and, prior to any transfer of such Note held by it, endorsed by such Bank
on the schedule attached to such Note or any continuation thereof. The failure
of any Bank to make any notation or entry or any error in such a notation or
entry shall not, however, limit or otherwise affect any obligation of the
Company under this Agreement or the Notes.
II. PAYMENTS, INTEREST AND CERTAIN FEES
Section 2.01 Repayment of Loans. The Company hereby promises
to pay to Chase for account of each Bank the principal amount of each Loan made
by such Bank, and such Loan shall mature, on the last day of the Interest
Period therefor.
Section 2.02 Interest. The Company hereby promises to pay to
Chase for account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period from and including the date of such Loan
to but excluding the date such Loan shall be paid in full, at the following
rates per annum:
(a) if such Loan is a Domestic Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin (if any);
(b) if such Loan is a Eurodollar Loan, the Fixed Rate for such
Loan for the Interest Period for such Loan plus the Applicable Margin
(as in effect from time to time during the Interest Period for such
Loan);
(c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such
Loan for the Interest Period therefor plus (or minus) the Money Market
Margin quoted by the Bank making such Loan and accepted by the Company
in accordance with Section 1.02 hereof; and
<PAGE> 16
12
(d) if such Loan is a Set Rate Loan, the Money Market Rate for
such Loan for the Interest Period therefor quoted by the Bank making
such Loan and accepted by the Company in accordance with Section 1.02
hereof.
Notwithstanding the foregoing, the Company hereby promises to pay to Chase for
account of each Bank interest at the applicable Post-Default Rate on any
principal of any Loan made by such Bank, and on any other amount payable by the
Company hereunder or under the Notes held by such Bank to or for account of
such Bank, which shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and including the
due date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable on each Interest Payment Date for such
Loan, except that interest payable at the Post-Default Rate shall be payable
from time to time on demand and interest on any Eurodollar Loan or LIBOR Market
Loan that is converted into a Domestic Loan (pursuant to Section 3.04 hereof)
shall be payable on the date of conversion (but only to the extent so
converted). Promptly after the determination of any interest rate provided for
herein or any change therein, Chase shall give notice thereof to the Banks to
which such interest is payable and to the Company.
Section 2.03 Interest Periods. As used in this Agreement,
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period commencing
on the date such Eurodollar Loan is made and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Company may select as provided in Section 1.05(b)
hereof, except that each Interest Period which commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate
subsequent calendar month;
(b) With respect to any Domestic Loan, the period commencing on
the date such Domestic Loan is made and ending on the date such Loan
is repaid;
(c) With respect to any Set Rate Loan, the period commencing on
the date such Set Rate Loan is made and ending on any Business Day up
to 180 days thereafter, as the Company may select as provided in
Section 1.02(b) hereof; and
<PAGE> 17
13
(d) With respect to any LIBOR Market Loan, the period
commencing on the date such LIBOR Market Loan is made and ending on
the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in
Section 1.02(b) hereof, except that each Interest Period which
commences on the last Business Day of a calendar month (or any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may commence before and
end after the Commitment Termination Date; (ii) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for Eurodollar
Loans or LIBOR Market Loans, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period for any Eurodollar Loans
or LIBOR Market Loans shall have a duration of less than one month and, if the
Interest Period for any Eurodollar Loans or LIBOR Market Loans would otherwise
be a shorter period, such Loans shall not be available hereunder.
Section 2.04 Prepayments. (a) The Company shall have the
right, at any time or from time to time, to prepay Syndicated Loans in whole or
in part, provided that (i) the Company shall give Chase notice of each such
prepayment not less than three Business Days' prior to the date of such
prepayment (which notice shall be effective upon receipt), (ii) each partial
prepayment shall be in an aggregate principal amount which is at least
$1,000,000 or a multiple thereof, (iii) interest on the principal prepaid,
accrued to the prepayment date, shall be paid on the prepayment date and (iv)
in the case of prepayment of a Eurodollar Loan other than on the last day of
the Interest Period applicable thereto, the Company shall pay compensation, if
any, due in accordance with Section 3.05(a) with respect thereto. The Company
may not prepay any Money Market Loans. Notwithstanding the foregoing, upon not
less than four Business Days' prior notice (which shall be effective upon
receipt) the Company may simultaneously prepay all Loans then outstanding
hereunder and terminate in whole the Commitments (in which case interest on the
principal prepaid, accrued to the prepayment date, together with all other
amounts owing hereunder, including without limitation under Section 3.05, shall
be paid on such prepayment date).
<PAGE> 18
14
(b) If, after giving effect to any termination or reduction of
the Commitment of any Bank pursuant to Section 1.04(a) or (b) hereof, the
outstanding aggregate principal amount of the Syndicated Loans held by such
Bank exceeds the amount of such Bank's Commitment, the Company shall prepay or
pay such Syndicated Loans (of a type to be designated by the Company by notice
to Chase not less than four Business Days prior to the date of such termination
or reduction and, failing such notice, such prepayment or repayment shall be
applied, first, to the outstanding Domestic Loans and, next, to the extent
necessary, to the outstanding Fixed Rate Loans with the fewest number of days
remaining in the Interest Periods therefor on such termination or reduction
date) in an aggregate principal amount equal to such excess, together with
interest thereon accrued to the date of such prepayment or payment and any
other amounts payable pursuant to Section 3.05 hereof in connection therewith.
Section 2.05 Payments, etc.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to Chase at its
Principal Office, not later than 11:00 a.m. New York time on the date on which
such payment shall become due; provided that, if a new Loan is to be made by
any Bank on a date the Company is to repay any principal of an outstanding Loan
of such Bank, such Bank shall apply the proceeds of such new Loan to the
payment of the principal to be repaid and only an amount equal to the
difference (if any) between the principal to be borrowed and the principal to
be repaid shall be made available by such Bank to Chase as provided in Section
1.02 or Section 1.05 hereof (if such principal to be borrowed exceeds such
principal to be repaid) or paid by the Company to Chase pursuant to this
Section 2.05 (if such principal to be repaid exceeds such principal to be
borrowed).
(b) Each payment received by Chase under this Agreement or any
Note for account of a Bank shall be paid promptly to such Bank, in immediately
available funds, for account of such Bank's Applicable Lending Office for the
Loan in respect of which such payment is made.
(c) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day which is not a Business Day such date shall
be extended to the next succeeding Business Day and interest shall be payable
for any principal so extended for the period of such extension.
<PAGE> 19
15
Section 2.06 Pro Rata Treatment; Sharing.
(a) Except to the extent otherwise provided herein: (i) each
borrowing from the Banks under Section 1.01 hereof shall be made from the
Banks, each payment of commitment fee under Section 1.03 hereof shall be made
for account of the Banks, and each termination or reduction of the amount of
the Commitments under Section 1.04 hereof shall be applied to the Commitments
of the Banks, pro rata according to the amounts of their respective
Commitments; (ii) each payment of principal of Syndicated Loans by the Company
shall be made for account of the Banks pro rata in accordance with the
respective unpaid principal amounts of the Syndicated Loans held by the Banks;
and (iii) each payment of interest on Syndicated Loans by the Company shall be
made for account of the Banks pro rata in accordance with the amounts of
interest on Syndicated Loans due and payable to the respective Banks.
(b) If any Bank shall obtain payment of any principal of or
interest on any Loan made by it to the Company under this Agreement through the
exercise of any right of set-off, banker's lien or counterclaim or similar
right or otherwise, and, as a result of such payment, such Bank shall have
received a greater percentage of the principal or interest then due to such
Bank hereunder than the percentage received by any other Banks, it shall
promptly purchase from such other Banks participations in (or, if and to the
extent specified by such Bank, direct interests in) the Loans made by such
other Banks (or in interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall be equitable, to the
end that all the Banks shall share the benefit of such excess payment (net of
any expenses which may be incurred by such Bank in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid principal of and/or
interest on the Loans held by each of the Banks before giving effect to such
payment. To such end all the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
(c) The Company agrees that any Bank so purchasing a
participation (or direct interest) in the Loans made by other Banks (or in
interest due thereon, as the case may be) may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Bank were a direct holder of Loans in the
amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise
any such right or shall affect the right of any
<PAGE> 20
16
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the Company.
(e) If, under any applicable bankruptcy, insolvency or other
similar law, any Bank receives a secured claim in lieu of a set-off to which
this Section 2.06 applies, such Bank shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Banks entitled under this Section 2.06 to share in the benefits
of any recovery on such secured claim.
Section 2.07 Computations. Interest on Money Market Loans and
Eurodollar Loans shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable, and interest on Domestic Loans and
commitment, facility and supplemental fees shall be computed on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable.
Section 2.08 Facility Fee. The Company shall pay to Chase for
account of each Bank a facility fee on such Bank's Commitment (whether used or
not) for the period commencing on the Effective Date and ending on the
Commitment Termination Date (or such earlier date on which such Bank's
Commitment shall have terminated in full pursuant to Section 1.04 hereof) at a
rate per annum for each day during such period equal to the Applicable Facility
Fee Rate in effect on such day. Accrued facility fees shall be payable
quarterly on the last Business Day in March, June, September and December in
each year, commencing the first such date after the Effective Date and on the
date the Commitments are terminated in full.
Section 2.09 Administration Fee. The Company agrees to pay to
Chase for its own account a non-refundable fee in the amount of $5,000 for each
Quarterly Period commencing on or prior to the date on which the Commitments
are terminated in full. Such fee shall not be pro-rated and shall be paid in
arrears on the last Business Day of each Quarterly Period in each year,
commencing with the first such Business Day after the Effective Date, and on
the date the Commitments are terminated in full.
III. PROVISIONS RELATING TO FIXED RATE LOANS. The following
provisions shall apply to all Fixed Rate Loans:
<PAGE> 21
17
Section 3.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to
time on request pursuant to paragraph (d) of this Section 3.01 such amounts as
such Bank may determine to be necessary to compensate it for any costs which
such Bank determines are attributable to its making or maintaining of any Fixed
Rate Loans or its obligation to make any Fixed Rate Loans hereunder, or any
reduction in any amount receivable by such Bank hereunder in respect of any of
such Loans or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Notes in respect of any of such
Loans (other than taxes imposed on or measured by the overall net
income of such Bank or of its Applicable Lending Office for any of
such Loans by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than in the case of any Bank for any
period as to which the Company is required to pay any amount under
paragraph (e) below, the reserves against "Eurocurrency liabilities"
under Regulation D therein referred to) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities
of, such Bank (including any of such Loans or any deposits referred to
in the definition of "Fixed Base Rate" in Schedule 1 hereof), or any
commitment of such Bank (including the Commitment of such Bank
hereunder); or
(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from the Company under this Section 3.01(a),
the Company may, by notice to such Bank (with a copy to Chase), suspend the
obligation of such Bank to make additional Loans of the type with respect to
which such compensation is requested (in which case the provisions of Section
3.04 hereof shall be applicable) until either (A) the Regulatory Change giving
rise to such request ceases to be in effect or (B) such Bank gives notice to
the Company that it will no longer require the Company to pay Additional Costs
arising from such Regulatory Change.
<PAGE> 22
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(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 3.01, in the event that, by reason of any Regulatory
Change, any Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Bank which
includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount
of such a category of liabilities or assets which it may hold, then, if such
Bank so elects by notice to the Company (with a copy to Chase), the obligation
of such Bank to make additional Loans of such type hereunder shall be suspended
until such Regulatory Change ceases to be in effect (in which case the
provisions of Section 3.04 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of
this Section 3.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on request pursuant to paragraph (d) of this
Section 3.01 such amounts as such Bank may determine to be necessary to
compensate such Bank for any costs which it determines are attributable to the
maintenance by such Bank (or any Applicable Lending Office), pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law) of any court or governmental or monetary authority (i)
following any Regulatory Change or (ii) implementing any risk-based capital
guideline or requirement (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) heretofore or hereafter
issued by any government or governmental or supervisory authority implementing
at the national level the Basle Accord (including, without limitation, the
Final Risk Based Capital Guidelines of the Board of Governors of the Federal
Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and
the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 CFR Part 3, Appendix A)), of capital in respect of its Commitment
or Loans (such compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of such Bank (or any
Applicable Lending Office) to a level below that which such Bank (or any
Applicable Lending Office) could have achieved but for such law, regulation,
interpretation, directive or request). For purposes of this Section 3.01(c),
"Basle Accord" shall mean the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, modified and
<PAGE> 23
19
supplemented and in effect from time to time or any replacement thereof.
(d) Each Bank will notify the Company of any event occurring
after the date of this Agreement that will entitle such Bank to compensation
under paragraph (a) or (c) of this Section 3.01 as promptly as practicable, but
in any event within 150 days, after such Bank obtains actual knowledge thereof;
provided, however, that if any Bank fails to give such notice within 150 days
after it obtains actual knowledge of such an event, such Bank shall, with
respect to compensation payable pursuant to this Section 3.01 in respect of any
costs resulting from such event, only be entitled to payment under this Section
3.01 for costs incurred from and after the date 150 days prior to the date that
such Bank does give such notice; and provided, further, that each Bank will
designate a different Applicable Lending Office for the Loans of such Bank
affected by such event or by the matters requiring compensation pursuant to
paragraph (e) of this Section 3.01, and take other measures in its sole
discretion, if such designation or other measures will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole opinion of
such Bank, result in a material cost to, or be otherwise disadvantageous to,
such Bank, except that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Bank
will furnish to the Company a certificate setting forth the basis and amount of
each request by such Bank for compensation under paragraph (a) or (c) of this
Section 3.01. Determinations and allocations by any Bank for purposes of this
Section 3.01 of the effect of any Regulatory Change pursuant to paragraph (a)
or (b) of this Section 3.01, or of the effect of capital maintained pursuant to
paragraph (c) of this Section 3.01, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable by
it in respect of Loans, and of the amounts required to compensate such Bank
under this Section 3.01, shall be conclusive, provided that such determinations
and allocations are made on a reasonable basis.
(e) Without limiting the effect of the foregoing (but without
duplication), the Company shall pay to each Bank on the last day of each
Interest Period so long as such Bank is maintaining reserves against
"Eurocurrency liabilities" under Regulation D (or, unless the provisions of
paragraph (b) above are applicable, so long as such Bank is, by reason of any
Regulatory Change, maintaining reserves against any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Loans or LIBOR Market Loans is determined as provided in this
Agreement or against any category of extensions of credit or other assets of
such
<PAGE> 24
20
Bank which includes any Eurodollar Loans or LIBOR Market Loans) an additional
amount (determined by such Bank and notified, not less than five Business Days
prior to the end of the applicable Interest Period, to the Company through
Chase) equal to the product of the following for each Eurodollar Loan or LIBOR
Market Loan made by such Bank for each day during such Interest Period:
(i) the principal amount of such Eurodollar Loan or LIBOR
Market Loan outstanding on such day; and
(ii) the remainder of (x) a fraction the numerator of which is
the annual rate (expressed as a decimal) at which interest accrues on
such Eurodollar Loan or LIBOR Market Loan for such Interest Period as
provided in this Agreement (less the Applicable Margin) and the
denominator of which is one minus the effective annual rate (expressed
as a decimal) at which such reserve requirements are imposed on such
Bank on such day minus (y) such numerator; and
(iii) 1/360.
Section 3.02 Limitation on Types of Loans. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any Fixed
Base Rate for any Interest Period in accordance with the terms hereof:
(a) Chase determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred
to in the definition of "Fixed Base Rate" in Schedule 1 hereof are not
being provided in the relevant amounts or for the relevant maturities
for purposes of determining rates of interest for any type of Fixed
Rate Loans as provided herein; or
(b) the Majority Banks determine (or any Bank that has
outstanding a Money Market Quote with respect to a LIBOR Market Loan
determines), which determination shall be conclusive, and notify (or
notifies, as the case may be) Chase that the relevant rates of
interest referred to in the definition of "Fixed Base Rate" in
Schedule 1 hereof upon the basis of which the rate of interest for
Eurodollar Loans or LIBOR Market Loans, as the case may be, for such
Interest Period is to be determined are not likely adequately to cover
the cost to such Banks (or to such quoting Bank) of making or
maintaining such type of Loans;
<PAGE> 25
21
then Chase shall give the Company and each Bank prompt notice thereof, and so
long as such condition remains in effect, the Banks (or such quoting Bank)
shall be under no obligation to make additional Loans of such type.
Section 3.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to honor its obligation to make or maintain
Eurodollar Loans or LIBOR Market Loans hereunder, then such Bank shall promptly
notify the Company thereof (with a copy to Chase) and such Bank's obligation to
make Eurodollar Loans shall be suspended until such time as such Bank may again
make and maintain Eurodollar Loans (in which case the provisions of Section
3.04 hereof shall be applicable), and such Bank shall no longer be obligated to
make any LIBOR Market Loan that it has offered to make.
Section 3.04 Treatment of Affected Loans. If the obligation of
any Bank to make a particular type of Fixed Rate Loans shall be suspended
pursuant to Section 3.01 or Section 3.03 hereof (Loans of such type being
herein called "Affected Loans" and such type being herein called the "Affected
Type"), all Loans (other than Money Market Loans) which would otherwise be made
by such Bank as Loans of the Affected Type shall be made instead as Domestic
Loans and, if an event referred to in Section 3.01(b) or Section 3.03 hereof
has occurred and such Bank so requests by notice to the Company with a copy to
Chase, all Affected Loans of such Bank then outstanding shall be automatically
converted into Domestic Loans on the date specified by such Bank in such notice
and, to the extent that Affected Loans are so made (or converted), all payments
of principal which would otherwise be applied to such Bank's Affected Loans
shall be applied instead to such Loans.
Section 3.05 Compensation. The Company shall pay to Chase for
account of each Bank, upon the request of such Bank through Chase, such amount
or amounts (the basis for which shall be set forth in reasonable detail in such
request) as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense which such Bank determines is
attributable to:
(a) any payment or conversion of a Fixed Rate Loan or a Set
Rate Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Article VII
hereof) on a date other than the last day of the Interest Period for
such Loan; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Article IV hereof to be
<PAGE> 26
22
satisfied, but excluding the failure of such Bank to make a Loan when
so obligated hereunder) to borrow a Fixed Rate Loan or a Set Rate Loan
(with respect to which, in the case of a Money Market Loan, the
Company has accepted a Money Market Quote) from such Bank on the date
for such borrowing specified in the relevant notice of borrowing given
pursuant to Section 1.05 or Section 1.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or converted
or not borrowed for the period from the date of such payment, conversion or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein minus the Applicable Margin for
such Loan over (ii) the interest component of the amount such Bank would have
bid in the London interbank market (if such Loan is a Eurodollar Loan or a
LIBOR Market Loan) or the United States secondary certificate of deposit market
(if such Loan is a Set Rate Loan) for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by such Bank).
Section 3.06 Survival. The obligations of the Company under
this Article III shall survive the repayment of the Loans and the cancellation
of the Notes.
IV. CONDITIONS
Section 4.01 Conditions to Effectiveness. (a) The Agreement
herein contemplated shall become effective on the date (the "Effective Date")
on which each Agent has received each of the following documents (with a copy
for each Bank delivered to Chase), in form and substance satisfactory to each
Agent:
(i) one or more counterparts of this Agreement executed by
each of the parties hereto;
(ii) certified copies of all corporate action taken by the
Company to authorize the execution and delivery of this Agreement and
the Notes and the borrowings hereunder;
(iii) a certificate of a duly authorized officer of the Company
as to the incumbency, and setting forth a specimen signature, of each
of the persons (a) who has
<PAGE> 27
23
signed this Agreement on behalf of the Company, (b) who will sign the
Notes on behalf of the Company, and (c) who will, until replaced by
other persons duly authorized for that purpose, act as the
representatives of the Company for the purpose of signing documents in
connection with this Agreement and the transactions contemplated
hereby;
(iv) the Syndicated Note and the Money Market Note for each
Bank as provided in Section 1.10 hereof, in each case duly completed
and executed by the Company;
(v) an opinion of Hughes Hubbard & Reed, counsel for the
Company, substantially in the form of Exhibit B hereto, which (except
as to matters of New York or Federal law) may rely as to certain
matters upon an opinion of the Vice President and Secretary of the
Company substantially in the form attached to said Exhibit B;
(vi) an opinion of Vinson & Elkins, L.L.P., special counsel to
the Banks and the Agents, substantially in the form of Exhibit C
hereto; and
(vii) such other statements, documents, reports or certificates
as any Bank or Agent may reasonably request.
(b) On the Effective Date, (i) the Company shall repay the
principal of and interest on the loan outstanding under the Existing Agreement
made by Continental Bank N.A., (ii) the Company shall pay all accrued and
unpaid commitment fees outstanding under the Existing Agreement to Chase for
account of each "Bank" under the Existing Agreement, (iii) each loan
outstanding under the Existing Agreement other than the loan referred to in
clause (i) of this sentence shall be deemed a Money Market Loan hereunder in
the amount, with the same rate of interest and maturity date as such loan under
the Existing Agreement, and the obligations of the Company with respect to such
loan under the Existing Agreement including accrued and unpaid interest shall
be deemed renewed and carried forward hereunder and (iv) the Existing Agreement
and the "Commitments" thereunder shall be terminated. On or promptly after the
Effective Date, the Banks that are "Banks" under the Existing Agreement shall
return to the Company the "Notes," as defined in the Existing Agreement (the
"Existing Notes"), issued to such Banks thereunder, marked "paid in full," and
the Agents shall not deliver to any Bank the Notes issued by the Company under
this Agreement to which such Bank would otherwise be entitled until such Bank
has so returned its Existing Notes unless the Company shall consent in writing
thereto.
<PAGE> 28
24
Section 4.02 Conditions Precedent to Loans. The obligation of
any Bank to make any Loan hereunder (including any Money Market Loan and such
Bank's initial Syndicated Loan on or after the Effective Date) is subject to
the further conditions precedent that, both immediately prior to such Loan and
also after giving effect thereto: (a) either (i) if such borrowing is a Money
Market Loan or will increase the outstanding aggregate principal amount of the
Syndicated Loans, no Default shall have occurred and be continuing or (ii) in
the case of any other borrowing, no Event of Default shall have occurred and be
continuing; and (b) the representations and warranties made by the Company in
Article VI (other than, if such borrowing is not a Money Market Loan and will
not increase the outstanding aggregate principal amount of the Syndicated
Loans, the last sentence of Section 6.03, Section 6.04, Section 6.05, Section
6.07, Section 6.09 and Section 6.11 hereof) shall be true on and as of the
date of the notice or deemed notice of borrowing for such Loans and on the date
of the making of such Loans with the same force and effect as if made on and as
of each such date. The obligation of any Bank to make a Eurodollar Loan
hereunder is subject to the further condition precedent that, both immediately
prior to such Loan and also after giving effect thereto, no Default shall have
occurred and be continuing. Each notice or deemed notice of borrowing by the
Company hereunder shall constitute a certification by the Company to the effect
set forth in the two preceding sentences to the extent applicable to the
borrowing that is the subject of such notice (both as of the date of such
borrowing notice and, unless the Company otherwise notifies Chase in such
borrowing notice or prior to the date of such borrowing, as of the date of such
borrowing).
V. COVENANTS. So long as any Loan or any other amount owing by
the Company to any Agent or Bank hereunder remains outstanding or any Bank's
Commitment remains in effect:
Section 5.01 Financial Statements. The Company shall deliver
to each Bank:
(a) As soon as available and in any event within 60 days after
the end of each of the first three quarterly accounting periods in
each fiscal year, the 10-Q report of the Company for such period;
(b) As soon as available and in any event within 120 days after
the end of each fiscal year, the 10-K report of the Company for such
fiscal year, accompanied by (A) an opinion as to the financial
statements contained in such 10-K report of independent certified
public accountants of recognized national standing, (B) a statement by
said accountants that in the course of their
<PAGE> 29
25
regular examination of the Company and its Consolidated Subsidiaries
for purposes of their opinion they obtained no knowledge, except as
specifically stated, of the occurrence and continuance of any Default,
and (C) a statement of an Appropriate Officer of the Company that such
officer has no knowledge, except as specifically stated, of the
occurrence and continuance of any Default.
(c) With the report delivered under Section 5.01(b) hereof, a
statement signed by an Appropriate Officer of the Company certifying
and, where calculations are necessary, demonstrating compliance by the
Company and (if applicable) its Restricted Subsidiaries with the
provisions of Section 5.09 and Section 5.10 hereof.
(d) Promptly after their becoming available:
(i) Copies of all financial statements, reports and proxy
statements which the Company shall have sent to its stockholders
generally.
(ii) Copies of all regular and periodic reports, if any,
which the Company or any Restricted Subsidiary shall have filed with
the Securities and Exchange Commission, or any governmental agency
substituted therefor, or with any national securities exchange.
(e) From time to time, with reasonable promptness, such further
information regarding the business, affairs and financial position of
the Company and each Subsidiary as any Bank may reasonably request.
Section 5.02 Access to Books and Inspection. The Company
shall, upon reasonable request by any Bank, give any representative of such
Bank access, at the Company's principal office, during normal business hours
to, and permit such representative to examine, copy or make excerpts from, any
and all books, records and documents in the possession of the Company relating
to its affairs and the affairs of its Subsidiaries, excluding, however, any
privileged and confidential communications or other materials, and to inspect
any of the properties of the Company or such Subsidiaries; provided that all
information (other than publicly available information) delivered by the
Company to any Bank pursuant to this Section 5.02 is strictly confidential, and
each Bank agrees that it shall (or shall cause the persons referred to in
clause (ii) below to) maintain the confidentiality of any such information,
subject to: (i) the obligation to disclose such information pursuant to
subpoena or other legal process, or to regulatory or examining authorities or
other governmental agencies having
<PAGE> 30
26
jurisdiction, or otherwise as may be required by law; (ii) the right to
disclose such information to the independent auditors and counsel of such Bank,
or to the Agents or any other Bank; and (iii) the right to disclose such
information to assignees and participants (including prospective assignees and
participants) as provided in Section 8.05 hereof.
Section 5.03 Litigation. Notwithstanding any other provision
of this Agreement, the Company shall, promptly after its becoming available,
furnish to each Bank a copy of any report filed by the Company with the
Securities and Exchange Commission which contains a statement, description or
disclosure as to any litigation or proceeding before any governmental or
regulatory agencies affecting the Company or any of its Subsidiaries.
Section 5.04 Maintenance of Existence. The Company will
preserve and maintain, and cause each of its Restricted Subsidiaries to
preserve and maintain, its corporate existence, provided that the foregoing
shall not prevent a merger or consolidation, or sale or other disposition of
assets, of the Company or any Restricted Subsidiary unless otherwise prohibited
by this Agreement.
Section 5.05 Merger; Sale of Assets. The Company shall not:
(a) merge into or consolidate with any corporation if (i) the
Company is not the surviving corporation, (ii) the Company is the
surviving corporation and a majority of the board of directors of the
Company for a period of three months after the effective date of such
merger does not consist of individuals who were directors of the
Company 12 months prior to such effective date (except for changes due
to the retirement or death of any such individuals) or (iii) after
giving effect to such merger or consolidation, a Default has occurred
and is continuing; or
(b) permit any Restricted Subsidiary to be a party to any
merger or consolidation, except that any such Restricted Subsidiary
may merge or consolidate with the Company or any of the Company's
other Subsidiaries provided that (i) the surviving entity of such
merger or consolidation (if it is not the Company or another
Restricted Subsidiary) shall thereafter be treated as a Restricted
Subsidiary for all purposes of this Agreement and (ii) after giving
effect to such merger or consolidation, no Default shall have occurred
and be continuing; or
<PAGE> 31
27
(c) from and after the Effective Date, sell, assign, transfer
or otherwise dispose of any of the Company's assets, or permit any
Restricted Subsidiary to sell, assign, transfer or otherwise dispose
of any of the assets of such Restricted Subsidiary, if the sum of (A)
the net book value of such assets measured at the time of the
disposition thereof, plus (B) the net book value of all other such
assets of the Company and the Restricted Subsidiaries measured at the
time of the disposition thereof which have been sold, assigned,
transferred or otherwise disposed of subsequent to the Effective Date,
minus (C) the aggregate net book value of all assets useful in the
ordinary course of the business of the Company and its Consolidated
Subsidiaries as conducted on the Effective Date purchased or otherwise
acquired by the Company and its Consolidated Subsidiaries subsequent
to the Effective Date, would exceed $500,000,000; provided that (1)
the Company may sell, assign or transfer any of its assets to any such
Restricted Subsidiary, (2) any such Restricted Subsidiary may sell,
assign or transfer any of its assets to the Company or another such
Restricted Subsidiary, (3) the Company or any Restricted Subsidiary
may sell any of its marketable securities, (4) the Company or any
Restricted Subsidiary may sell, assign or transfer any assets that
are, in the good faith judgment of the Company or such Restricted
Subsidiary, worn-out or obsolete and no longer useful in the business
of the Company or such Restricted Subsidiary, (5) the Company or any
Restricted Subsidiary may sell inventories and oil and gas produced in
the ordinary course of business, (6) the Company may, to the extent
permitted by clause (d) of this Section 5.05, sell, assign, transfer
or otherwise dispose of the stock of or other equity interest in any
Restricted Subsidiary, (7) the Company may sell, assign, transfer or
otherwise dispose of capital stock of Sonat Offshore Drilling Inc., a
Delaware corporation, and capital stock of Baker Hughes Inc. and (8)
the Company or any Restricted Subsidiary may assign, transfer or
otherwise dispose of cash, and the transactions referred to in this
proviso shall be excluded from the calculations referred to in this
clause (c); and provided, further that, as used in this clause (c),
references to the assets of the Company shall be deemed to be
references to assets held directly by the Company and references to
the assets of, or to any sale, assignment, transfer or other
disposition to or by, any Restricted Subsidiary shall be deemed to be
references to the assets of, or to a sale, assignment, transfer or
other disposition to or by, such Restricted Subsidiary and its
Subsidiaries; or
<PAGE> 32
28
(d) sell, assign, transfer or otherwise dispose of any stock of
or other equity interest in any of the Restricted Subsidiaries, except
that (i) stock of or other equity interest in any such Restricted
Subsidiary may be sold, assigned or transferred by the Company to any
of its wholly-owned Subsidiaries provided that thereafter such
Subsidiary shall be treated as a Restricted Subsidiary for all
purposes of this Agreement and the Company shall not permit such
Subsidiary to sell, assign, transfer or otherwise dispose of any such
stock or other equity interest except to the Company or otherwise in
accordance with this clause (d), (ii) stock of or other equity
interest in any Restricted Subsidiary may be sold, assigned,
transferred or disposed of (whether by the Company or any of its
wholly-owned Subsidiaries) so long as immediately after giving effect
to such transaction the Company and/or one or more of its wholly-owned
Subsidiaries owns stock of or other equity interests in such
Restricted Subsidiary (x) representing, in the case of a partnership,
not less than 80% of the outstanding capital and profit interests in
such partnership or, in the case of any other entity, not less than
80% of the fair market value of the outstanding stock of or other
equity interests in such Restricted Subsidiary (excluding Mandatory
Preferred Stock of such Restricted Subsidiary) and (y) representing
not less than 80% of the ordinary voting power for the election of
directors or other persons performing similar functions of such
Restricted Subsidiary (other than stock or other equity interests
having such power only by reason of the happening of a contingency)
and (iii) Mandatory Preferred Stock of any Restricted Subsidiary may
be sold, assigned, transferred or disposed of (whether by the Company
or any of its Subsidiaries).
Section 5.06 Default; Investment Rating. The Company shall:
(a) as soon as it shall become known to a senior officer of
the Company, forthwith notify each Agent if any Default shall have
occurred; and
(b) if Moody's or S&P (or any successor thereto) shall have
assigned a new rating to the senior debt securities of the Company,
notify each Agent of such new rating within 30 days after it is first
announced by the applicable rating agency.
Section 5.07 ERISA. The Company will furnish to the Banks:
<PAGE> 33
29
(a) as soon as possible and in any event within 15 days after
the Company knows or has reason to know that any Termination Event has
occurred, a statement of a senior officer of the Company describing
such Termination Event and the action, if any, which the Company
proposes to take with respect thereto;
(b) from time to time promptly after the request of any Bank,
copies of each annual report filed pursuant to Section 104 of ERISA
with respect to each Plan (including, to the extent required by
Section 103 of ERISA, the related financial and actuarial statements
and opinions and other supporting statements, certifications,
schedules and information referred to in Section 103) and each annual
report filed with respect to each Plan under Section 4065 of ERISA;
(c) promptly after receipt thereof by the Company from the
PBGC, copies of each notice received by the Company of PBGC's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan; and
(d) promptly after such request, such other documents and
information relating to Plans as any Bank may reasonably request from
time to time.
Section 5.08 Liens. The Company will not, and will not permit
any Subsidiary to, grant a security interest in any stock of any of the
Restricted Subsidiaries or Citrus Corp. The Company will not grant a security
interest in any of its other assets to secure Indebtedness (except as provided
in the next sentence) unless the Company simultaneously grants to any Agent for
the benefit of the Banks an equal and ratable security interest in the assets
subject to such security interest. The provisions of the preceding sentence
shall not apply to the grant by the Company of:
(a) Any purchase money mortgage or purchase money security
interest created to secure all or part of the purchase price of any
property (or to secure a loan made to enable the Company to acquire
the property described in such mortgage or in any applicable security
agreement); provided that such mortgage or security interest shall
extend only to the property so acquired, fixed improvements thereon,
replacements thereof and the income and profits therefrom;
(b) Any security interest on any property acquired or
constructed by the Company, and created not later than twelve months
after (i) such acquisition or completion of
<PAGE> 34
30
such construction or (ii) commencement of operation of such property,
whichever is later; provided that such security interest shall extend
only to the property so acquired or constructed, fixed improvements
thereon, replacements thereof and income and profits therefrom;
(c) Any security interest deemed to be created as a result of
the deposit of cash or securities for the purpose of defeasance of
Indebtedness; and
(d) Any security interest not otherwise permitted under the
preceding clauses (a) through (c) in any of its assets created by the
Company for the purpose of securing Indebtedness of the Company,
provided that the aggregate amount of all Indebtedness of the Company
secured by security interests permitted by this clause (d) shall not
exceed $1,000,000.
Section 5.09 Total Indebtedness to Consolidated Capitalization.
The Company will not at any time permit Total Indebtedness of the Company to
exceed 60% of the Consolidated Capitalization of the Company.
Section 5.10 Subsidiary Indebtedness Limitations. The Company
shall not permit any Restricted Subsidiary (other than SNG and its
Subsidiaries), or any of their respective Subsidiaries, to incur or have
outstanding any Indebtedness except for:
(a) in the case of Sonat Exploration and its Subsidiaries,
Indebtedness in an aggregate principal amount up to but not exceeding
$15,000,000 at any one time outstanding; and
(b) any Indebtedness of any Subsidiary to the Company or to
another Subsidiary of the Company, provided that such Indebtedness
shall not have a final maturity of more than one year after the date
of creation thereof or be extendible or renewable at the option of
such Subsidiary for more than one year from such date.
Section 5.11 Insurance. The Company will, and will cause each
of its Subsidiaries to, keep insured with financially sound and reputable
insurers or through self-insurance conforming with practices of similar
corporations maintaining systems of self-insurance all property of a character
usually insured by corporations engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations
<PAGE> 35
31
and carry such other insurance as is usually carried by such corporations.
Section 5.12 Maintenance of Properties. The Company will, and
will cause each of its Subsidiaries to, keep all of its material properties
necessary in its business in good working order and condition appropriate for
the use being made thereof, ordinary wear and tear excepted; except, in every
case, as and to the extent that the Company or its Subsidiaries may be
prevented from maintaining their respective properties by fire, strikes,
lockouts, acts of God, inability to obtain labor or materials, governmental
(including judicial) restrictions, enemy action, civil commotion or unavoidable
casualty or similar causes beyond the control of the Company; provided,
however, that nothing in this Section 5.12 shall prevent the Company or any of
its Subsidiaries from discontinuing the use, operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company or
its applicable Subsidiary, desirable in the conduct of the business of the
Company or such Subsidiary and if such discontinuance is not disadvantageous in
any material respect to the Banks; and provided, further, that nothing in this
Section 5.12 shall prohibit any sale, assignment, transfer or other disposition
permitted by Section 5.05 hereof.
Section 5.13 Public Utility Holding Company Act. The Company
will not, and will not permit any of its Subsidiaries to, be subject to
regulation under the Public Utility Holding Company Act of 1935, as amended.
VI. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants as follows:
Section 6.01 Corporate Existence and Powers. The Company and
each of its Restricted Subsidiaries is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation (or, in case of any Restricted Subsidiary not a corporation, such
Restricted Subsidiary is duly organized and validly existing under the laws of
the jurisdiction of its organization) and is duly licensed or qualified to do
business and is in good standing in all states in which the Company believes
the conduct of its business or the ownership of its assets requires such
qualification, and the Company has corporate power to make this Agreement and
the Notes and to borrow hereunder.
Section 6.02 Corporate Authority, etc. The making and
performance by the Company of this Agreement and the Notes and each borrowing
hereunder have been duly authorized by all
<PAGE> 36
32
necessary corporate action and do not and will not contravene any provision of
law applicable to the Company or of the certificate of incorporation or by-laws
of the Company or result in the material breach of, or constitute a material
default or require any consent under, or result in the creation of any material
lien, charge or other security interest or encumbrance not permitted by Section
5.08 hereof upon any property or assets of the Company or any of its Restricted
Subsidiaries pursuant to, any indenture or other agreement or instrument to
which the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries or any of their respective
properties may be bound or affected (or, if any such consent is so required,
the Company has obtained such consent, which is sufficient for the purpose and
remains in full force and effect, and copies thereof have been furnished to
Chase). This Agreement has been duly and validly executed and delivered by the
Company and constitutes, and each of the Notes when executed and delivered will
constitute, its legal, valid and binding obligation, enforceable in accordance
with its terms.
Section 6.03 Financial Condition. The consolidated balance
sheets of the Company and its Consolidated Subsidiaries as at December 31, 1992
and September 30, 1993 and the related statements of consolidated income and
cash flows of the Company and its Consolidated Subsidiaries for the 12 months
and nine months ended on said dates, respectively, heretofore furnished by the
Company to the Banks, fairly present in all material respects the financial
condition of the Company and its Consolidated Subsidiaries as at said dates and
the results of their operations and cash flows for the 12 months and nine
months, respectively, then ended in accordance with generally accepted
accounting principles (except that the financial statements as of September 30,
1993 and for the nine months then ended were prepared in accordance with the
rules of the Securities and Exchange Commission applicable to interim financial
statements and they are subject to normal year-end audit adjustments). Except
as disclosed in a letter dated December 22, 1993, from the Treasurer of the
Company, a copy of which has been furnished to each Bank, since December 31,
1992 there has heretofore been no material adverse change in the financial
condition or operating results of the Company and its Consolidated
Subsidiaries, taken as a whole, from that set forth in the consolidated balance
sheet and related statements as at and for the period ended on said date.
Section 6.04 Litigation. Except as disclosed in a letter dated
December 22, 1993, from the Vice President and Secretary of the Company, a copy
of which has heretofore been furnished to each Bank, there are no actions,
suits or proceedings, and
<PAGE> 37
33
no proceedings before any arbitrator or by or before any governmental
commission, board, bureau or other administrative agency, pending, or to the
knowledge of the Company threatened, against or affecting the Company or any
Subsidiary which are reasonably likely to have a material adverse effect on the
financial condition, properties or operations of the Company and its
Subsidiaries, taken as a whole.
Section 6.05 Taxes. Each of the Company and each Restricted
Subsidiary has filed all material tax returns required to be filed and paid all
material taxes shown thereon to be due, including interest and penalties, or
provided adequate reserves for payment thereof, except to the extent the same
have become due and payable but are not yet delinquent, and except for any
taxes and assessments of which the amount, applicability or validity is
currently being contested in good faith by appropriate proceedings.
Section 6.06 Approvals. No approval, license or consent of any
governmental regulatory body is requisite to the making and performance by the
Company of this Agreement, or the execution, delivery and payment of the Notes
(or, if any such approval, license or consent is so requisite, the Company has
obtained the same, which is sufficient for the purpose and remains in full
force and effect, and copies thereof have been furnished to Chase).
Section 6.07 ERISA. The Company, and each Subsidiary, has met
its minimum funding requirements under ERISA with respect to all its Plans and
has not incurred any material liabilities to PBGC or to such Plan under ERISA
in connection with any such Plan.
Section 6.08 Regulation U. The Company is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan will be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
Section 6.09 Certain Subsidiaries. Except as a consequence of
a transaction or transactions permitted by this Agreement, the Company directly
or indirectly owns all of the outstanding shares of common stock of each of the
Restricted Subsidiaries (except for directors' qualifying shares), and all
shares of stock of such corporations are validly issued, fully paid and
non-assessable.
<PAGE> 38
34
Section 6.10 Investment Company Act. The Company is not an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
Section 6.11 Environmental Laws. The Company and its
Subsidiaries are in compliance in all material respects with the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air
Act, as amended, the Clean Water Act, as amended, and each other federal, state
or local statute, law, ordinance, code, rule or regulation, regulating or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, except for any noncompliance that is
not reasonably likely to have a material adverse effect on the financial
condition, properties or operations of the Company and its Subsidiaries, taken
as a whole.
All representations and warranties made herein
shall survive the making of the Loans and the delivery of the Notes hereunder.
VII. EVENTS OF DEFAULT. If any of the following "Events of
Default" shall occur and shall not have been remedied:
A. default by the Company in the payment of any principal of
any of the Notes when the same becomes due and payable;
B. default by the Company in the payment of interest on any of
the Notes or any other amounts payable under Section 1.03 or Section
2.08 hereof which shall remain unremedied for ten days after the same
becomes due and payable;
C. any representation or warranty made by the Company in
Article VI hereof or in any certificate furnished to the Agents or to
the Banks hereunder (or deemed to have been given at the time of any
borrowing hereunder) shall prove to have been incorrect when made or
deemed made, in any material respect;
D. default by the Company in the due performance or observance
of Section 5.05, Section 5.08 or Section 5.09 hereof;
<PAGE> 39
35
E. default by the Company in the due performance or observance
of Section 5.06(a) or Section 5.10 hereof which shall remain
unremedied for a period of ten days;
F. default by the Company in the due performance or observance
of Section 5.03 or Section 5.06(b) hereof which shall remain
unremedied for a period of 30 days after such default shall have
become known to an executive officer of the Company;
G. default by the Company in the due performance or observance
of any other covenant or agreement herein contained which shall remain
unremedied for a period of 30 days after written notice thereof shall
have been given to the Company by any Bank (through any Agent);
H. default by the Company or any Restricted Subsidiary (i) in
the payment of any Indebtedness of the Company and/or one or more
Restricted Subsidiaries in an aggregate unpaid principal amount of at
least $10,000,000, beyond the period or periods of grace (if any)
provided with respect thereto, or (ii) in the performance or
observance of any other provisions in indentures, credit or loan
agreements or other agreements or instruments under which such
Indebtedness in such aggregate unpaid principal amount of the Company
and/or one or more Restricted Subsidiaries is outstanding or by which
such Indebtedness is evidenced and, in the case of clause (ii) only,
if the effect of such default is to cause, or permit the holder or
holders of such Indebtedness (or a trustee or an agent on behalf of
such holder or holders) to cause, such Indebtedness to become due
prior to its stated maturity;
I. any Termination Event shall have occurred and shall have
continued under circumstances which result in an uninsured payment or
repayment liability of the Company or any of its Subsidiaries to PBGC
in an amount which is material in relation to the financial position
of the Company and its Subsidiaries, on a consolidated basis;
J. either the Company or one or more Restricted Subsidiaries
(taken as a group) with total assets of at least $10,000,000 in the
aggregate (such Restricted Subsidiary or Subsidiaries being
hereinafter called the "Restricted Group") shall (1) apply for or
consent to the appointment of, or taking possession by, a receiver,
trustee, custodian, liquidator or other similar official of itself or
of all or a substantial part of its assets, (2) admit in writing its
inability to pay its debts, or
<PAGE> 40
36
generally become unable to pay its debts, as they become due, (3) make
a general assignment for the benefit of its creditors, (4) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (5) file a petition seeking to take advantage of any other
laws relating to bankruptcy, reorganization, insolvency, winding-up or
composition or readjustment of debts, or (6) acquiesce in writing to,
or fail to controvert in a timely and appropriate manner, any petition
filed against it or in any involuntary case under the aforesaid
federal bankruptcy laws; or corporate action shall be taken by the
Company or the Restricted Group for the purpose of effecting any of
the foregoing; or
K. a proceeding or case shall be commenced, without the
application or consent of the Company or the Restricted Group (as
defined in paragraph J above), in any court of competent jurisdiction,
seeking (1) its liquidation, reorganization, dissolution, winding-up,
or composition or readjustment of debts, (2) the appointment of a
receiver, trustee, custodian, liquidator or any similar official of
itself of all or a substantial part of its assets, (3) similar action
with respect to the Company or the Restricted Group under the federal
bankruptcy laws (as now or hereafter in effect) or any other laws
relating to bankruptcy, insolvency, reorganization, liquidation or
winding-up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and
continued unstayed and in effect, for any period of 60 consecutive
days; or an order for relief against the Company or the Restricted
Group shall be entered in an involuntary case under such federal
bankruptcy laws,
THEREUPON, (1) in the case of any of the Events of Default specified in
paragraphs A through I above, (i) any Agent may and, upon being directed so to
do by the Majority Banks, shall, by notice to the Company, terminate all
Commitments hereunder and they shall thereupon terminate, and (ii) any Agent
may and, upon being directed by Banks holding at least 66-2/3% of the aggregate
unpaid principal amount of the Loans shall, by notice to the Company, declare
all outstanding Loans and Notes and all other obligations of the Company
thereunder to be due and payable, whereupon the same shall become forthwith due
and payable, without further protest, presentment, notice or demand, all of
which are expressly waived by the Company, and (2) in case of any of the Events
of Default specified in paragraph J or K above, without any notice to the
Company or any act by any Agent or the Majority Banks or any Bank, all
<PAGE> 41
37
Commitments hereunder shall terminate forthwith and the principal of and
interest accrued on all the Loans and the Notes and all other obligations of
the Company thereunder shall become and be due and payable.
VIII. MISCELLANEOUS
Section 8.01 Waiver. No failure on the part of any Agent, Bank
or holder of a Note to exercise and no delay in exercising and no course of
dealing with respect to any right, power or privilege under this Agreement or
the Notes shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power, or privilege under this Agreement or the Notes
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
Section 8.02 Notices and Delivery of Documents. Except as
otherwise specified herein, all notices and other communications hereunder
shall be in writing or by telex or telecopy, and shall be deemed to have been
duly given when transmitted by telex or telecopier or personally delivered or,
in the case of a mailed notice or other communication, three Business Days
after the date deposited in the mails, certified and postage prepaid, addressed
to any party hereto at its address given on Schedule 2 hereto or on the
signature pages of, or any schedule to, any amendment hereto, or at such other
address of which any party hereto shall have notified in writing the party
giving such notice or (in the case of a telex message) addressed to any party
at any telex number which is published as belonging to the addressee. Except
as otherwise expressly provided herein, all Notes and other documents to be
delivered to any Agent under this Agreement shall be delivered to it at its
Principal Office.
Section 8.03 Governing Law. This Agreement and the Notes
hereunder shall be construed in accordance with and governed by the law of the
State of New York.
Section 8.04 Offsets, etc. Upon the occurrence and during the
continuance of an Event of Default, each Bank is hereby authorized at any time
and from time to time, without notice to the Company except as required by law
(any such notice being expressly waived by the Company), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Bank to or
for the credit or the account of the Company against any and all of the
obligations of the Company
<PAGE> 42
38
now or hereafter existing under this Agreement and the Notes held by such Bank.
Each Bank agrees promptly to notify the Company after any such set-off and
application made by such Bank, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
the Banks under this Section 8.04 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Banks may
have.
Section 8.05 Disposition of Loans. Each Bank may at any time,
at its own expense, assign (but only with the prior written consent of the
Company, which it may refuse or grant in its sole discretion), or sell
participations in, all or any portion of any Loans made by it to another bank
or other entity; provided that no such assignment shall be in a principal
amount less than $10,000,000. Any Bank making an assignment hereunder shall
pay to Chase an administrative fee of $2,500 with respect to each assignment.
In the case of an assignment, upon notice thereof by such Bank to the Company
and the Agents, to the extent of such assignment and the Loans so assigned, the
assignee shall have the same rights and benefits as it would have if it were a
Bank hereunder and the assignor shall cease to have the rights and benefits of
a Bank hereunder (provided that the obligations of the Company under Article
III to such Bank shall survive such assignment). In the case of a
participation, except as otherwise provided in Section 2.06(c) hereof, the
participant shall not have any rights under this Agreement or such Bank's Notes
(the participant's rights against such Bank in respect of such participations
to be those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Company under
Article III hereof shall be determined as if such Bank had not sold such
participation. The granting of any such participation shall not relieve the
grantor of its Commitment hereunder. Each Bank may furnish any information
concerning the Company or any of its Subsidiaries in the possession of such
Bank from time to time to assignees and participants (including prospective
assignees and participants) under this Section 8.05, provided that, if any such
information is confidential information consisting of or based upon information
provided by the Company, prior to furnishing any such information such Bank
shall obtain the agreement of any such assignee or participant, in favor of the
Company, to maintain the confidentiality of such information, subject to the
same requirements and exceptions as specified in Section 5.02 hereof (and such
Bank shall promptly furnish a copy of each such agreement to the Company).
Section 8.06 Expenses. All statements, reports, certificates,
opinions and other documents or information furnished by the Company to the
Agents or the Banks under this
<PAGE> 43
39
Agreement shall be supplied without cost to the Agents or the Banks. Further,
the Company hereby agrees that it shall pay, on demand, whether or not any Loan
is made hereunder, (a) all reasonable out-of-pocket costs and expenses of the
Banks and the Agents incurred in connection with the preparation, execution and
delivery of this Agreement, or any amendment or supplement thereto, and the
Notes and the making of the Loans hereunder, (b) the reasonable fees and
disbursements of Vinson & Elkins, L.L.P., special counsel to the Banks, in
connection therewith, and (c) all costs and expenses of collection (including,
without limitation, reasonable legal fees) incident to the enforcement,
protection or preservation of any right of any Bank under this Agreement or the
Notes.
Section 8.07 Amendments, Waivers, etc. This Agreement and the
Notes may not be amended, supplemented or modified, nor any of its terms be
waived, except by written instruments signed by the Company and the Majority
Banks (and, in the case of any amendment, supplement, modification or waiver
affecting Article IX hereof, each of the Agents); provided, however, that no
such amendment, supplement, modification or waiver shall, without the written
consent of all of the Banks: (i) extend the term of, or change the amount of,
or change any of the provisions of Section 1.04 hereof with respect to the
reduction or increase of, the Commitment of any Bank, or change the rate at
which commitment or facility fees accrue hereunder or extend the time for
payment thereof, (ii) extend the maturity of any Loan, change the rate of
interest thereon, or affect in any way the terms of payment thereof, (iii)
alter the definition of "Majority Banks", (iv) affect any provisions relating
to Fixed Rate Loans, (v) alter this Section 8.07, (vi) waive any condition
specified in Article IV, (vii) waive an Event of Default under paragraph J or K
of Article VII or modify the effect thereof or (viii) waive or amend any
representation contained in Article VI. Any such amendment, supplement,
modification or waiver so entered into shall apply equally to all of the Banks
and any holder of the Notes and shall be binding upon all parties hereto. Any
waiver hereunder shall be for such period and subject to such conditions as
shall be specified in such written instrument. In the case of any waiver of an
Event of Default, such Event of Default shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Event of
Default or any right, power or privilege of the Banks hereunder in connection
therewith.
Section 8.08 Definitions. Certain terms are defined in
Schedule 1 hereto and as used herein shall have meanings as so defined.
<PAGE> 44
40
Section 8.09 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Banks, the Agents, the Company and
their respective successors and assigns, except that Company may not assign or
transfer any of its respective rights or obligations hereunder without the
prior written consent of all the Banks.
Section 8.10 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IX. THE AGENTS
Section 9.01 Appointment, Power and Immunities. Each Bank
hereby irrevocably appoints and authorizes each Agent to act as its agent
hereunder with such powers as are specifically delegated to such Agent by the
terms of this Agreement, together with such other powers as are reasonably
incidental thereto. No Agent shall have any duties or responsibilities except
those expressly set forth in this Agreement, nor shall any Agent, by reason of
this Agreement, have a fiduciary relationship with any Bank. No Agent shall be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or in any information memorandum
pertaining to the Company or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement, for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or the Notes or any other document referred to or provided for
herein or for any failure by the Company to perform its obligations under any
thereof. Each Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Agents nor
any of their directors, officers, employees or agents shall be liable or
responsible for any action taken or omitted to be taken by them hereunder or in
connection herewith, except for their own gross negligence or willful
misconduct.
Section 9.02 Reliance by Agents. Each Agent shall be entitled
to rely upon any certificate, notice or other document (including any cable,
telegram, telecopy or telex) believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper person or persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by Chase. Chase may deem and treat the
<PAGE> 45
41
payee of any Note as the owner thereof for all purposes hereof unless and until
a notice of the assignment thereof satisfactory to Chase signed by such payee
shall have been filed with it. As to any matters not expressly provided for by
this Agreement, each Agent shall in all cases be fully protected in acting, or
in refraining from acting, hereunder in accordance with written instructions
signed by the Majority Banks, and such instructions of the Majority Banks and
any action taken or failure to act pursuant thereto shall be binding on all of
the Banks.
Section 9.03 Default. No Agent shall be deemed to have
knowledge of the occurrence of a Default or an Event of Default (other than
nonpayment of principal, interest or commitment or other fees) unless such
Agent has received written notice from a Bank or the Company specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default". In the event that any Agent receives such a notice of the occurrence
of a Default or an Event of Default, such Agent shall give prompt written
notice thereof to the other Agents and the Banks. The Agents shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed in writing by the Majority Banks provided that (i) unless and until
the Agents shall have received such directions, the Agents may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as they shall deem advisable in the best interests of the
Banks and (ii) in no event shall any Agent be required to institute any action,
suit or other proceeding in connection herewith.
Section 9.04 Rights as a Lender. With respect to its
Commitment and the Loans made by it or any collateral therefor, each of Chase,
Chemical and Morgan (and any successor Agent hereunder) in its capacity as a
Bank under this Agreement shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as an
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include each of Chase, Chemical and Morgan (and any successor Agent
hereunder) in its individual capacity. Each of Chase, Chemical and Morgan (and
any successor Agent hereunder) and their affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with the Company (and
any of its related companies) as if it were not acting as an Agent and may
accept fees and other consideration from the Company for services in connection
with this Agreement and otherwise without having to account for the same to the
other Agent and the Banks.
<PAGE> 46
42
Section 9.05 Indemnification. The Banks severally agree to
indemnify each Agent (to the extent requested by such Agent as provided in
Section 9.08 hereof and/or to the extent not reimbursed by the Company), pro
rata according to the amounts of their respective Commitments, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever which
may be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of this Agreement or any other documents referred to
herein or the transactions contemplated hereby (including, without limitation,
the costs and expenses which the Company is obligated to pay under Section 8.06
hereof but excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other documents, provided that (a) such Agent shall have given the Banks notice
thereof and an opportunity to defend against the same at the expense of the
Banks and with counsel selected by the Majority Banks, (b) no Bank shall be
liable to an Agent for any of the foregoing to the extent they arise from such
Agent's gross negligence or willful misconduct and (c) no Bank shall be liable
for any amount in respect of any compromise or settlement of any of the
foregoing unless such compromise or settlement is approved by the Majority
Banks.
Section 9.06 Reports. Promptly after its receipt thereof, each
Agent (or, if all Agents shall have received the same, Chase) will forward to
each Bank a copy of each report, notice or other document required by this
Agreement to be delivered to such Agent for such Bank.
Section 9.07 Non-Reliance on Agents and Other Banks. Each Bank
agrees that it has, independently and without reliance on any Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and decision to enter
into this Agreement and that it will, independently and without reliance upon
any Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking such action under this Agreement. No Agent
shall be required to keep itself informed as to the performance or observance
by the Company of this Agreement or any other document referred to or provided
for herein or to make inquiry of or to inspect the properties or books of the
Company. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by any Agent hereunder, no
Agent shall have any duty or responsibility to provide any Bank with any credit
or other information
<PAGE> 47
43
concerning the affairs, financial condition or business of the Company (or any
of its related companies) which may come into the possession of such Agent or
any of its affiliates.
Section 9.08 Failure to Act. Except for action expressly
required of any Agent under this Agreement, such Agent shall in all cases be
fully justified in failing or refusing to act unless it shall be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action.
Section 9.09 Resignation or Removal of Agents. Subject to the
appointment and acceptance of a successor Agent as provided below, any Agent
may resign at any time by giving written notice thereof to the Banks and the
Company and any Agent may be removed at any time with or without cause by the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Majority Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a bank which has an office (or an affiliate or a Subsidiary with an
office) in New York, New York. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Agreement shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
SONAT INC.
By /s/ Thomas W. Barker, Jr.
-------------------------
Title: Vice President -
Finance and Treasurer
<PAGE> 48
44
<TABLE>
<CAPTION>
Commitment
- ------------
<S> <C>
$ 60,000,000 THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By /s/ Bettylou J. Roleert
------------------------------
Title: Vice President
$ 60,000,000 CHEMICAL BANK
By /s/ R. C. Wilson III
------------------------------
Title: Vice President
$ 55,000,000 THE TORONTO-DOMINION BANK
By /s/ Lisa Allison
------------------------------
Title: Manager, Credit
Administration
$ 45,000,000 THE BANK OF NOVA SCOTIA
By /s/ Patrick M. Brown
------------------------------
Title: Representative
$ 45,000,000 CIBC INC.
By /s/ Alice E. Davidson
------------------------------
Title: Vice President
$ 20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Steven Tulip
------------------------------
Title: Vice President
</TABLE>
<PAGE> 49
45
<TABLE>
<S> <C>
$ 35,000,000 TRUST COMPANY BANK
By /s/ James O. Clarke III
------------------------------
Title: Group Vice President
$ 25,000,000 CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ Xavier Ratouis
------------------------------
Title: Authorized Signature
$ 25,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ H. Gene Shiels
------------------------------
Title: Vice President
$ 20,000,000 MELLON BANK, N.A.
By /s/ Mary Ellen Usher
------------------------------
Title: Vice President
$ 40,000,000 J.P. MORGAN DELAWARE
By /s/ Philip S. Detjens
------------------------------
Title: Vice President
$ 20,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Nicholi T. Weaver
-------------------------------
Title: Assistant Vice President
$ 10,000,000 AMSOUTH BANK N.A.
By /s/ John M. Kettig
------------------------------
Title: Senior Vice President
</TABLE>
<PAGE> 50
46
<TABLE>
<S> <C>
$ 10,000,000 THE MITSUBISHI BANK LIMITED -
NEW YORK BRANCH
By /s/ Yukuo Ashida
------------------------------
Title: Joint General Manager
$ 10,000,000 NBD BANK, N.A.
By /s/ James L. Caldwell
--------------------------------
Title: First Vice President
$ 10,000,000 PNC BANK, NATIONAL ASSOCIATION
By /s/ William S. Bennett
--------------------------------
Title: Assistant Vice President
$ 10,000,000 THE SANWA BANK, LIMITED, ATLANTA
AGENCY
By /s/ Virginia C. Simpson
--------------------------------
Title: Assistant Vice President
- ------------
$500,000,000
</TABLE>
<PAGE> 51
47
Agents
THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION)
as Agent
By /s/ Bettylou J. Roleert
------------------------------
Title: Vice President
CHEMICAL BANK
as Agent
By /s/ R. C. Wilson III
------------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
as Agent
By /s/ Steven Tulip
------------------------------
Title: Vice President
<PAGE> 52
SCHEDULE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Additional Costs" shall have the meaning attributed thereto in
Section 3.01(a) hereof.
"Affected Loans" shall have the meaning attributed thereto in
Section 3.04 hereto.
"Affected Type" shall have the meaning attributed thereto in
Section 3.04 hereto.
"Agents" shall have the meaning attributed thereto in the
preamble to this Agreement.
"Annual Dates" shall mean the Quarterly Date in December of each
year.
"Applicable Commitment Fee Rate" shall mean, with respect to any
day, the percentage indicated below opposite the Rating Level in effect on such
day:
<TABLE>
<CAPTION>
Rating Level Percentage
------------ ----------
<S> <C>
I 0.050%
II 0.060%
III 0.065%
IV 0.070%
V 0.100%
VI 0.000%
</TABLE>
"Applicable Facility Fee Rate" shall mean, with respect to any
day, the percentage indicated below opposite the Rating Level in effect on such
day:
<TABLE>
<CAPTION>
Rating Level Percentage
------------ ----------
<S> <C>
I 0.1000%
II 0.1150%
III 0.1225%
IV 0.1300%
V 0.1500%
VI 0.3000%
</TABLE>
"Applicable Lending Office" shall mean, with respect to each
Bank, with respect to each type of Loan, the Lending Office designated for such
type of Loan on Schedule 2 hereof, or on the signature pages of, or any
schedule to, any amendment hereto, or such other office or affiliate of such
Bank as such
<PAGE> 53
2
Bank may from time to time specify to Chase and the Company as the office at
which its Loans of such type are to be made and maintained.
"Applicable Margin" shall mean: (a) with respect to Domestic
Loans, zero; and (b) with respect to any Eurodollar Loan on any day, the
percentage indicated below opposite the Rating Level in effect on such day:
<TABLE>
<CAPTION>
Rating Level Percentage
------------ ----------
<S> <C>
I 0.30%
II 0.40%
III 0.45%
IV 0.50%
V 0.55%
VI 0.60%
</TABLE>
"Appropriate Officer" shall mean the chief executive officer,
the chief operating officer, the chief financial officer, the Vice President -
Comptroller, the Vice President-Finance or the Treasurer.
"Banks" shall have the meaning attributed thereto in the
preamble to this Agreement.
"Base Rate" shall mean, for any day, the higher of (a) the
Federal Funds Rate for such day plus 1/2 of 1% per annum and (b) the Prime Rate
for such day. Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"Basle Accord" shall have the meaning attributed thereto in
Section 3.01(c) hereto.
"Business Day" shall mean any day on which commercial banks are
not authorized or required to close in New York City and, if such day relates
to the giving of notices or quotes in connection with a LIBOR Auction or to a
borrowing of, a payment or prepayment of principal of or interest on, or the
Interest Period for, a Eurodollar Loan or a LIBOR Market Loan or a notice by
the Company with respect to any such borrowing, payment, prepayment or Interest
Period, which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Change in Control" shall have the meaning attributed thereto in
Section 1.04(b) hereto.
<PAGE> 54
3
"Chase" shall mean The Chase Manhattan Bank (National
Association) in its capacity as one of the Agents.
"Chemical" shall mean Chemical Bank in its capacity as one of
the Agents.
"Commitment" shall mean, as to each Bank, the obligation of such
Bank to make Syndicated Loans pursuant to Section 1.01 hereof in an aggregate
amount at any one time outstanding up to but not exceeding the amount set
opposite such Bank's name on the signature pages hereto under the caption
"Commitment" (as the same may be reduced at any time or from time to time
pursuant to Section 1.04 hereof).
"Commitment Termination Date" shall mean the Annual Date in 1998
or any subsequent Annual Date to which the Commitment Termination Date shall
have been extended pursuant to Section 1.08 hereof.
"Company" shall have the meaning attributed thereto in the
preamble to this Agreement.
"Consolidated Capitalization" shall mean, for any Person, the
sum of Total Indebtedness and Equity of such Person and its Consolidated
Subsidiaries.
"Consolidated Subsidiary" shall mean any Subsidiary of a Person
which was or shall be consolidated with such Person in any consolidated
financial statement furnished to the Banks under this Agreement.
"Default" shall mean an Event of Default or an event which, with
the notice or lapse of time or both specified in Article VII hereof, would
become such an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Domestic Loans" shall mean Syndicated Loans which bear interest
at rates based upon the Base Rate.
"Effective Date" shall have the meaning attributed thereto in
Section 4.01(a) hereof.
"Equity" means at any time the sum of the following, for any
Person and its Consolidated Subsidiaries:
(i) the amount of share capital liability, including
common and preferred shares (less cost of treasury shares), plus
<PAGE> 55
4
(ii) the amount of surplus and retained earnings
(or, in the case of a surplus or retained earnings deficit minus
the amount of such deficit).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"Eurodollar Loans" shall mean Syndicated Loans the interest
rates on which are determined on the basis of rates referred to in the
definition of "Fixed Base Rate".
"Event of Default" shall mean any of the Events of Default
specified in Article VII hereof.
"Existing Agreement" shall mean that certain Amended and
Restated Credit Agreement dated as of November 1, 1989, among the Company, the
banks named therein and the agents named therein, as amended by Amendment No. 1
thereto dated as of August 1, 1990, and Amendment No. 2 thereto dated as of
January 9, 1991.
"Existing Note" shall have the meaning attributed thereto in
Section 4.01(b) hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate charged to The Chase Manhattan Bank (National Association) on such
day on such transactions as determined by Chase.
"Fixed Base Rate" shall mean, with respect to any Fixed Rate
Loan, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/100
of 1%), as determined by Chase, of the rate per annum quoted by each Reference
Bank at approximately 11:00 a.m. London time (or as soon thereafter as
practicable) on the date two Business Days prior to the first day of the
Interest Period for such Loan for the offering by such Reference Bank to
leading banks in the London interbank
<PAGE> 56
5
market of Dollar deposits having a term comparable to such Interest Period and
in an amount comparable to the principal amount of the Eurodollar Loan or LIBOR
Market Loan to be made by such Reference Bank for such Interest Period. If any
Reference Bank is not participating in any Fixed Rate Loan, the Fixed Base Rate
for such Loan shall be determined by reference to the amount of the Loan which
such Reference Bank would have made had it been participating in such Loan;
provided that in the case of any LIBOR Market Loan, the Fixed Base Rate for
such Loan shall be determined with reference to deposits of $25,000,000. If
any Reference Bank does not timely furnish such information for determination
of any Fixed Base Rate, Chase shall determine such Fixed Base Rate on the basis
of information timely furnished by the remaining Reference Banks.
"Fixed Rate" shall mean, for any Fixed Rate Loan, a rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
Chase to be equal to the Fixed Base Rate for such Loan for the Interest Period
for such Loan.
"Fixed Rate Loans" shall mean Eurodollar Loans and, for the
purposes of the definition of "Fixed Base Rate" herein and Article III hereof,
LIBOR Market Loans.
"Indebtedness" shall mean, for any Person, all obligations for
borrowed money or purchase money obligations of such Person which in accordance
with generally accepted accounting principles would be shown on the balance
sheet of such Person as a liability; all obligations under leases required to
be capitalized under generally accepted accounting principles at the time of
entering into such lease; all guarantees of such Person in respect of
Indebtedness of others; Indebtedness of others secured by any mortgage, pledge,
security interest, encumbrance, lien or charge upon property owned by such
Person, whether or not assumed; Operating Lease Obligations; and, only as to
any Consolidated Subsidiary of the Company, any Mandatory Preferred Stock of
such Consolidated Subsidiary; provided that Indebtedness shall not include: (i)
any Indebtedness evidence of which is held in treasury (but the subsequent
resale of such Indebtedness shall be deemed to constitute the creation
thereof); or (ii) any particular Indebtedness if, upon or prior to the maturity
thereof, there shall have been deposited with the proper depositary, in trust,
money or United States government securities (or evidences of such Indebtedness
as permitted by the instrument creating such Indebtedness) in the necessary
amount to pay, redeem or satisfy such Indebtedness; or (iii) only as to the
Company, any Indebtedness of the Company to any of its Subsidiaries provided
that such Indebtedness is subordinated in right of payment to the prior payment
in full of the obligations of the Company to
<PAGE> 57
6
the Banks and the Agents under this Agreement and the termination in full of
the Commitments hereunder (including interest accruing on such obligations
after the date of any filing by the Company of any petition in bankruptcy or
the commencement of any bankruptcy, insolvency or similar proceeding with
respect to the Company) in the event that any Default under this Agreement
shall have occurred and be continuing and in the event of any insolvency,
bankruptcy or similar proceeding affecting the Company; or (iv) any indirect
guarantees or other contingent obligations in respect of Indebtedness of other
Persons, including agreements, contingent or otherwise, with such other persons
or with third persons with respect to, or to permit or assure the payment of,
obligations of such other persons, including, without limitation, agreements to
purchase or repurchase obligations of such other persons, to advance or supply
funds to, or to invest in, such other persons (whether or not conveyed,
delivered or rendered); demand charge contracts, through-put, take-or-pay,
keep-well, make-whole or maintenance of working capital or similar agreements;
or guarantees with respect to rental or other similar periodic payments to be
made by such other Persons, including, but without limiting the generality of
the foregoing, the Guaranty Agreement dated as of June 1, 1968, as amended as
of August 1, 1968, May 1, 1970, April 13, 1973, May 26, 1973 and November 30,
1984, between Boise Cascade Corporation, the Company and Parish of Beauregard,
Louisiana; or (v) any capitalized leases for space and/or equipment in respect
of oil and gas production platforms not in excess of $25,000,000 in the
aggregate; or (vi) any Indebtedness of Bear Creek Storage Company or Citrus
Corp. that is shown on the balance sheet of the Company as a liability and
which would not be required to be treated as Indebtedness of the Company or any
of its Subsidiaries under generally accepted accounting principles as in effect
on the date hereof but which is required to be treated as Indebtedness of the
Company or any of its Subsidiaries as a result of a change in generally
accepted accounting principles after the date hereof. For purposes of this
Agreement, the principal amount of any Indebtedness of any Person (excluding
Operating Lease Obligations and Mandatory Preferred Stock of a Consolidated
Subsidiary) shall mean the amount required in accordance with generally
accepted accounting principles to be shown as a liability on the balance sheet
of such Person (or, in the case of Indebtedness of another Person required to
be treated as Indebtedness of such Person under this Agreement, the balance
sheet of such other Person) prepared as of the applicable date.
"Interest Payment Date" shall mean, as to any Loan, the last day
of the Interest Period for such Loan and (i) with respect to a Set Rate Loan
with an Interest Period longer than
<PAGE> 58
7
90 days, the last day of each consecutive 90 day period (other than such last
day if such last day occurs within two Business Days of the last day of such
Interest Period) occurring during such Interest Period commencing with the
first day of such Interest Period, (ii) with respect to a Eurodollar Loan or a
LIBOR Market Loan with an Interest Period longer than three months, the last
day of each consecutive three month period (other than such last day if such
last day occurs within two Business Days of the last day of such Interest
Period) occurring during such Interest Period commencing with the first day of
such Interest Period and (iii) with respect to a Domestic Loan, each Quarterly
Date that occurs prior to the end of the Interest Period for such Loan.
"Interest Period" shall mean, for any Loan, the period provided
for such Loan pursuant to Section 2.03 hereof.
"LIBO Rate" shall mean, for any LIBOR Market Loan, a rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
Chase to be equal to the rate of interest specified in the definition of "Fixed
Base Rate" in this Schedule 1 for the Interest Period for such Loan.
"LIBOR Auction" shall mean a solicitation of Money Market Quotes
setting forth Money Market Margins based on the LIBO Rate pursuant to Section
1.02 hereof.
"LIBOR Market Loans" shall mean Money Market Loans the interest
rates on which are determined on the basis of LIBO Rates pursuant to a LIBOR
Auction.
"Loans" shall mean Money Market Loans and Syndicated Loans.
"Majority Banks" shall mean Banks having at least 66-2/3% of the
aggregate amount of the Commitments; provided that, if the Commitments shall
have terminated, Majority Banks shall mean Banks holding at least 66-2/3% of
the aggregate unpaid principal amount of the Loans.
"Mandatory Preferred Stock" shall mean, for any Person, the
aggregate stated liquidation value of any outstanding preferred stock issued by
such Person which is required to be redeemed, in whole or in part, by sinking
fund or other mandatory payments at any time prior to the Commitment
Termination Date.
"Moody's" shall mean Moody's Investor Service, Inc.
<PAGE> 59
8
"Money Market Borrowing" shall have the meaning assigned to such
term in Section 1.02(b) hereof.
"Money Market Loans" shall mean the loans provided for by
Section 1.02 hereof.
"Money Market Margin" shall have the meaning assigned to such
term in Section 1.02(c)(ii)(C) hereof.
"Money Market Note" shall have the meaning assigned to such term
in Section 1.10(b) hereof.
"Money Market Quote" shall mean an offer in accordance with
Section 1.02(c) hereof by a Bank to make a Money Market Loan with one single
specified interest rate.
"Money Market Quote Request" shall have the meaning assigned to
such term in Section 1.02(b) hereof.
"Money Market Rate" shall have the meaning assigned to such term
in Section 1.02(c)(ii)(D) hereof.
"Morgan" shall mean Morgan Guaranty Trust Company of New York in
its capacity as one of the Agents.
"Note" shall mean a Syndicated Note or a Money Market Note.
"Operating Lease Obligations" shall mean, for the Company at any
date, if the minimum annual rental commitments of the Company and its
Consolidated Subsidiaries as lessee under leases (other than capital leases and
mineral leases) in effect on such date for the fiscal year in which such date
occurs shall exceed $30,000,000, the minimum rental commitments of the Company
and its Consolidated Subsidiaries as lessee over the remaining terms of such
leases that cause such minimum annual rental commitments to exceed $30,000,000,
discounted to present value at the rate of 10% per annum. For purposes of this
definition, rental payments under leases having the longest terms and which
cannot be canceled by the Lessee without the incurrence of a substantial
penalty shall be deemed to be those leases that cause such aggregate minimum
rental commitments to exceed $30,000,000.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, a corporation, a company, a
voluntary association, a partnership, a trust, an
<PAGE> 60
9
unincorporated organization or a government or any agency, instrumentality or
political subdivision thereof.
"Plan" shall mean any employee benefit or other plan maintained
by the Company or any Subsidiary of the Company for its employees and covered
by Title IV of ERISA.
"Post-Default Rate" shall mean, in respect of any amount payable
under this Agreement which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum for each day during the period
from the due date of such amount until such amount shall be paid in full equal
to 2% above the Base Rate in effect on such day (provided that, if the amount
so in default is principal of a Fixed Rate Loan or a Money Market Loan and the
due date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the period
from and including such due date to but excluding the last day of the Interest
Period for such Loan, 2% above the interest rate for such Loan as provided in
Section 2.02 hereof and, thereafter, the rate provided for above in this
definition).
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at its Principal Office as its prime commercial lending
rate.
"Principal Office" shall mean (i) with respect to Chase or The
Chase Manhattan Bank (National Association), its principal office in New York,
New York, presently located at 1 Chase Manhattan Plaza, New York, N.Y., (ii)
with respect to Morgan, its principal office in New York, New York, presently
located at 23 Wall Street, New York, N.Y. and (iii) with respect to Chemical,
its principal office in New York, New York, presently located at 270 Park
Avenue, New York, N.Y.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, commencing on the first such date after the Effective
Date.
"Quarterly Period" shall mean the period of three consecutive
calendar months ending on each Quarterly Date.
"Quotation Date" shall have the meaning attributed thereto in
Section 1.02(b)(v) hereof.
"Rating Level" shall mean, as of any day, the level indicated
below opposite the statement that is correct with respect to the ratings of the
Company's senior unsecured long-term debt securities as of such day:
<PAGE> 61
10
<TABLE>
<CAPTION>
Rating Level
------ -----
<S> <C>
A- or better by S&P and I
A3 or better by Moody's
BBB+ or better by S&P II
and Baa1 or better by
Moody's, but such ratings
do not qualify for a higher
Rating Level
BBB or better by S&P and III
Baa1 or better by Moody's
or
BBB+ or better by S&P
and Baa2 or better by Moody's
but
in either case such ratings
do not qualify for a higher
Rating Level
BBB or better by S&P and IV
Baa2 or better by Moody's,
but such ratings do not
qualify for a higher
Rating Level
BBB- or better by S&P and V
Baa2 or better by Moody's
or
BBB or better by S&P and
Baa3 or better by Moody's
but
in either case such ratings
do not qualify for a higher
Rating Level
BBB- or below by S&P or Baa3 VI
or below by Moody's
but
in either case such ratings
do not qualify for a higher
Rating Level
</TABLE>
For purposes of this definition, "I" shall be the highest level and "VI" shall
be the lowest level. If any rating established or deemed to have been
established by Moody's or S&P shall be changed, such change shall be effective
as of the date on which it is first announced by the applicable rating agency.
Each
<PAGE> 62
11
change in the Rating Level shall apply during the period commencing on the
effective date of such change and ending on the date immediately preceding the
effective date of the next such change. If the rating system of Moody's or S&P
shall change so as to make the above ratings inapplicable, or if either such
rating agency shall cease to be in the business of rating corporate debt
obligations or shall no longer have in effect a rating for any reason, the
Company and the Banks shall negotiate in good faith to amend the references to
specific ratings in this definition to reflect such changed rating system or
the non-availability of ratings from such rating agency or to select a
substitute rating agency (and pending or in the absence of any agreement the
Rating Level will be determined by reference to the single available rating, if
any, or, in the absence of any rating, then such rating agencies will be deemed
to have established a rating in Level VI.
"Reference Banks" shall mean The Chase Manhattan Bank (National
Association), The Bank of Nova Scotia and Morgan Guaranty Trust Company of New
York (or their Applicable Lending Offices, as the case may be).
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
change after the date of this Agreement in United States Federal, state or
foreign law or regulations (including, without limitation, Regulation D) or the
adoption or making after such date of any interpretation, directive or request
applying to a class of banks including such Bank of or under any United States
Federal, state or foreign law or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Restricted Subsidiaries" shall mean SNG, Sonat Exploration, and
any other Subsidiary of the Company which shall acquire or succeed to all or
any substantial part of the assets or the stock of any such Restricted
Subsidiary (in which case any references to any such Restricted Subsidiary in
this Agreement shall, mutatis mutandis, be deemed to refer to such other
Subsidiary).
"Set Rate Auction" shall mean a solicitation of Money Market
Quotes setting forth Money Market Rates pursuant to Section 1.02 hereof.
<PAGE> 63
12
"Set Rate Loans" shall mean Money Market Loans the interest
rates on which are determined on the basis of Money Market Rates pursuant to a
Set Rate Auction.
"SNG" shall mean Southern Natural Gas Company, a wholly-owned
Subsidiary of the Company (except for directors' qualifying shares).
"Sonat Exploration" shall mean Sonat Exploration Company, a
wholly-owned Subsidiary of the Company (except for directors' qualifying
shares).
"S&P" shall mean Standard & Poor's Corporation.
"Subsidiary" shall mean, as to any Person, any corporation,
partnership or other entity at least a majority of whose securities or other
ownership interests having ordinary voting power for the election of directors
or other persons performing similar functions of such corporation, partnership
or entity (other than securities or other ownership interests having such power
only by reason of the happening of a contingency) are at the same time owned by
such Person and/or one or more of its other Subsidiaries.
"Syndicated Loans" shall mean the loans provided for by Section
1.01 hereof.
"Syndicated Note" shall have the meaning assigned to such term
in Section 1.10(a) hereof.
"Termination Event" shall mean any event or condition which
would constitute grounds under Section 4042 of ERISA for the termination of, or
for the appointment of a trustee to administer, any Plan.
"Total Indebtedness" shall mean, for any Person, the aggregate
unpaid principal amount of the Indebtedness of such Person and its Consolidated
Subsidiaries (excluding Indebtedness of any Consolidated Subsidiary to such
Person or another such Consolidated Subsidiary and, except for the Company,
Indebtedness of such Person to any of its Consolidated Subsidiaries).
<PAGE> 64
SCHEDULE 2
LENDING OFFICES
AND/OR
ADDRESSES FOR NOTICES
1. SONAT INC.
Address for Notices:
-------------------
AmSouth-Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35202-2563
Attention: Treasurer
Fax: 205-325-7490
Telex: 4955644
Answerback: SNGC UI
<PAGE> 65
2
2. THE CHASE MANHATTAN BANK, N.A. (AS A BANK AND AS AGENT)
Lending Office for All Types of Loans:
-------------------------------------
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
-------------------
The Chase Manhattan Bank, N.A.
90 William Street New
York, New York 10081
Attention: New York Agency Group
Jeannine Lazzara
Telephone: 212-676-0581
Fax: 212-676-0659
Telex: 6720516
Answerback: CMBNYAUW
With copies to:
--------------
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Global Energy Division
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Financial Products Money Market Management
35th floor
Chase Manhattan Securities
1100 Milan, Suite 2345
Houston, Texas 77002
<PAGE> 66
3
3. MORGAN GUARANTY TRUST COMPANY
OF NEW YORK (AS A BANK AND AS AGENT)
Lending Office for Domestic Loans:
---------------------------------
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Lending Office for Eurodollar Loans:
-----------------------------------
Morgan Guaranty Trust Company of New York
Nassau Bahamas Office
c/o J.P. Morgan Services Inc.
Euro-Loan Servicing Unit - Loan Operations
500 Stanton-Christiana Road - 3rd Fl.
Newark, Delaware 19713
Address for Notices:
-------------------
Morgan Guaranty Trust Company of New York
c/o J.P. Morgan Services Inc.
500 Stanton-Christiana Road
Newark, Delaware 19713
Attention: Multi-Option Unit-Loan Department
Telephone: 302-634-1800
Fax: 302-634-1094
Telex: 177615
Answerback: MGT UT
<PAGE> 67
4
4. CHEMICAL BANK (AS A BANK AND AS AGENT)
Lending Office for All Types of Loans:
-------------------------------------
Chemical Bank
270 Park Avenue 8th Floor
New York, New York 10017
Address for Notices:
-------------------
Chemical Bank
270 Park Avenue
8th Floor
New York, NY 10017
Attention: Sonat Inc.
Telephone: (212) 270-3521
Fax: (212) 270-4016
<PAGE> 68
5
5. THE TORONTO-DOMINION BANK
Lending Office for All Types of Loans:
-------------------------------------
The Toronto-Dominion Bank
909 Fannin Street
17th Floor
Houston, TX 77010
Address for Notices:
-------------------
The Toronto-Dominion Bank
909 Fannin Street
17th Floor
Houston, TX 77010
Attention: Ms. Lisa Allison
Manager, Credit Administration
Telephone: 713-653-8247
Fax: 713-951-9921
<PAGE> 69
6
6. THE BANK OF NOVA SCOTIA
-----------------------
Lending Office for All Types of Loans:
--------------------------------------
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Address for Notices:
-------------------
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Eudia Smith
Telephone: 404-877-1553
Fax: 404-888-8998
<PAGE> 70
7
7. CANADIAN IMPERIAL BANK OF COMMERCE
Lending Office for All Types of Loans:
-------------------------------------
Canadian Imperial Bank of Commerce
2 Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Address for Notices:
--------------------
Canadian Imperial Bank of Commerce
2 Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Attention: Adrienne Burch
Senior Associate
Telephone: 404-319-4835
Fax: 404-319-4950
Telex: 54-2413
Answerback: CANBANK ATL
<PAGE> 71
8
8. TRUST COMPANY BANK
Lending Office for All Types of Loans:
-------------------------------------
Trust Company Bank
25 Park Place
Atlanta, Georgia 30303
Address for Notices:
-------------------
Trust Company Bank
P.O. Box 4418, Mail Code 120
Atlanta, Georgia 30303
Attention: Tanya Van Hoozer
Telephone: 404-581-1612
Fax: 404-588-8833
Telex: 54220
Answerback: TruscoIntAtl
<PAGE> 72
9
9. CREDIT LYONNAIS CAYMEN ISLAND BRANCH
Lending Office for All Types of Loans
-------------------------------------
Credit Lyonnais Cayman Island Branch
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite #5360
Houston, Texas 77002
Address for Notices:
-------------------
Credit Lyonnais Cayman Island Branch
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite #5360
Houston, Texas 77002
Attention: Richard S. Kaufman
Vice President
Telephone: (713) 751-0500
Fax: (713) 751-0307
Telex: 6868674
Answerback: CL HOU UN
<PAGE> 73
10
10. NATIONSBANK OF TEXAS, N.A.
Lending Office for All Types of Loans:
-------------------------------------
NationsBank of Texas, N.A.
700 Louisiana
Houston, TX 77002
Address for Notices:
-------------------
NationsBank of Texas, N.A.
700 Louisiana
Houston, TX 77002
Attention: Energy Group
Telephone: 713-247-6078
Fax: 713-247-6432
Telex: 6829317
Answerback: NationSBk DAL
<PAGE> 74
11
11. MELLON BANK, N.A.
Lending Office for All Types of Loans:
-------------------------------------
Mellon Bank, N.A.
Mellon Financial Services
Suite 3600
1100 Louisiana
Houston, Texas 77002
Address for notices:
--------------------
Mellon Bank, N.A.
Three Mellon Bank Center
Loan Administration
Room 2303
Pittsburgh, PA 15259
Attention: Kristine DiDomenico
Telephone: 412-234-4714
Fax: 412-236-2077
Address for Notices Regarding Money Market Loans
------------------------------------------------
Mellon Bank, N.A.
One Mellon Bank Center
Capital Markets, Room 151-0400
Pittsburgh, PA 15258-0001
Attention: Marilyn Wagner
Telephone: (412) 234-1693
Fax: (412) 234-7834
<PAGE> 75
12
12. J.P. MORGAN DELAWARE
Lending Office for All Types of Loans:
-------------------------------------
J.P. Morgan Services, Inc.
Loan Department
500 Stanton-Christiana Road
Newark, DE 19713-2107
Address for Notices:
-------------------
J.P. Morgan Services, Inc.
Loan Operations
500 Stanton-Christiana Road
Newark, DE 19713-2107
Attention: Joy Murphy Compher
Associate
Telephone: 302-634-1411
Fax: 302-634-1093
<PAGE> 76
13
13. WACHOVIA BANK OF GEORGIA, N.A.
Lending Office for All Types of Loans:
-------------------------------------
Wachovia Bank of Georgia, N.A.
191 Peachtree Street N.E.
29th Floor
Atlanta, Georgia 30303-1757
Address for Notices:
-------------------
Wachovia Bank of Georgia, N.A.
191 Peachtree Street N.E.
29th Floor
Atlanta, Georgia 30303-1757
Attention: Nick Weaver
Assistant Vice President
Telephone: 404-332-4062
Fax: 404-332-5016
<PAGE> 77
14
14. AMSOUTH BANK N.A.
Lending Office for All Types of Loans:
-------------------------------------
AmSouth Bank N.A.
1900 Fifth Avenue North
Birmingham, Alabama 35203
Address for Notices:
-------------------
AmSouth Bank N.A.
1900 Fifth Avenue North
Birmingham, Alabama 35203
Attention: John M. Kettig
Senior Vice President
Telephone: 205-326-5924
Fax: 205-801-0157
<PAGE> 78
15
15. THE MITSUBISHI BANK LIMITED - NEW YORK BRANCH
Lending Office for All Types of Loans:
-------------------------------------
The Mitsubishi Bank Limited - New York Branch
191 Peachtree Street
Suite 1170
Atlanta, GA 30303
Address for Notices:
-------------------
The Mitsubishi Bank Limited - New York Branch
225 Liberty Street
Two World Financial Center
New York, NY 10281
Attention: Frank Conigliaro
Assistant Vice President
Telephone:
Fax: 212-667-3554
Telex: 232328
Answerback: MITUR
<PAGE> 79
16
16. NBD BANK, N.A.
Lending Office for All Types of Loans
-------------------------------------
NBD Bank, N.A.
611 Woodward Avenue
Detroit, Michigan 48226
Address for Notices:
-------------------
NBD Bank, N.A.
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Energy Group
Telephone: 313-225-3191
Fax: 313-225-2649
<PAGE> 80
17
17. PNC BANK, NATIONAL ASSOCIATION
Lending Office for All Types of Loans
-------------------------------------
PNC Bank
Natural Resources Department
3rd Floor
One PNC Plaza
Pittsburgh, PA 15265
Address for Notices:
-------------------
PNC Bank
Natural Resources Department
3rd Floor
One PNC Plaza
Pittsburgh, PA 15265
Attention: William Bennett
Telephone: 412-762-2571
Fax: 412-762-2784
<PAGE> 81
18
18. THE SANWA BANK, LIMITED, ATLANTA AGENCY
Lending Office for All Types of Loans:
-------------------------------------
The Sanwa Bank, Limited, Atlanta
Agency 133 Peachtree Street, N.E.
Suite 4750
Atlanta, GA 30303
Address for Notices:
-------------------
The Sanwa Bank, Limited, Atlanta Agency
133 Peachtree Street, N.E.
Suite 4750
Atlanta, GA 30303
Attention: Kristie Hartrampf
Telephone: 404-586-6893
Fax: 404-589-1629
Telex: 4611830
Answerback: SANWATL
<PAGE> 82
EXHIBIT A-1
(Form of Note for Syndicated Loans)
PROMISSORY NOTE
$________________
____________, 1993
New York, New York
FOR VALUE RECEIVED, SONAT INC., a Delaware corporation (the
"Company"), hereby promises to pay to ____________________ (the "Bank"), for
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at the principal office of The Chase Manhattan
Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York
10081, the principal sum of ___________________ Dollars (or such lesser amount
as shall equal the aggregate unpaid principal amount of the Syndicated Loans
made by the Bank to the Company under the Credit Agreement), in lawful money of
the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Syndicated Loan, at such
office, in like money and funds, for the period commencing on the date of such
Syndicated Loan until such Syndicated Loan shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.
The date, amount, type, interest rate and maturity date of each
Syndicated Loan made by the Bank to the Company, and each payment made on
account of the principal thereof, shall be recorded by the Bank on its books
and, prior to any transfer of this Note, endorsed by the Bank on the schedule
attached hereto or any continuation thereof. The failure of the Bank to make
any notation or entry or any error in such a notation or entry shall not,
however, limit or otherwise affect any obligation of the Company under the
Credit Agreement or this Note.
This Note is one of the Notes referred to in the Credit
Agreement (as modified and supplemented and in effect from time to time, the
"Credit Agreement") dated as of December 15, 1993, among the Company, the banks
named therein and The Chase Manhattan Bank (National Association), Chemical
Bank and Morgan Guaranty Trust Company of New York, as Agents, and evidences
Syndicated Loans made by the Bank thereunder. Capitalized terms used in this
Note have the respective meanings assigned to them in the Credit Agreement.
<PAGE> 83
2
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
SONAT INC.
By
--------------------------
Title:
<PAGE> 84
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Company, on the dates, in the principal amounts, of the types,
bearing interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
---- --------- ---- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 85
EXHIBIT A-2
(Form of Note for Money Market Loans)
PROMISSORY NOTE
____________, 19__
New York, New York
FOR VALUE RECEIVED, SONAT INC., a Delaware corporation (the
"Company"), hereby promises to pay to ___________________ (the "Bank"), for
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at the principal office of The Chase Manhattan
Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York
10081, the aggregate unpaid principal amount of the Money Market Loans made by
the Bank to the Company under the Credit Agreement, in lawful money of the
United States of America and in immediately available funds, on the dates and
in the principal amounts provided in the Credit Agreement, and to pay interest
on the unpaid principal amount of each such Money Market Loan, at such office,
in like money and funds, for the period commencing on the date of such Money
Market Loan until such Money Market Loan shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.
The date, amount, type, interest rate and maturity date of each
Money Market Loan made by the Bank to the Company, and each payment made on
account of the principal thereof, shall be recorded by the Bank on its books
and, prior to any transfer of this Note, endorsed by the Bank on the schedule
attached hereto or any continuation thereof. The failure of the Bank to make
any notation or entry or any error in such a notation or entry shall not,
however, limit or otherwise affect any obligation of the Company under the
Credit Agreement or this Note.
This Note is one of the Notes referred to in the Credit
Agreement (as modified and supplemented and in effect from time to time, the
"Credit Agreement") dated as of December 15, 1993, among the Company, the banks
named therein (including the Bank) and The Chase Manhattan Bank (National
Association), Chemical Bank and Morgan Guaranty Trust Company of New York, as
Agents, and evidences Money Market Loans made by the Bank thereunder.
Capitalized terms used in this Note have the respective meanings assigned to
them in the Credit Agreement.
<PAGE> 86
2
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
SONAT INC.
By
----------------------------
Title:
<PAGE> 87
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Company, on the dates, in the principal amounts, of the types,
bearing interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
---- --------- ---- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 88
EXHIBIT B
(Form of Opinion of Special Counsel to the Company)
December ___, 1993
To the Banks party to the Agreement
referred to below and The Chase
Manhattan Bank (National Association), Chemical Bank
and Morgan Guaranty Trust Company
of New York, as Agents
Dear Sirs:
We have acted as special counsel for Sonat Inc., a Delaware
corporation (the "Company"), in connection with the execution and delivery of
the Credit Agreement (the "Agreement") dated as of December 15, 1993, among the
Company, the Banks named therein and The Chase Manhattan Bank (National
Association), Chemical Bank and Morgan Guaranty Trust Company of New York, as
Agents.
This opinion is delivered to you pursuant to Section 4.01(v) of
the Agreement. All capitalized terms not otherwise defined herein shall have
the meanings attributed to them in the Agreement.
In this connection, and as a basis for the opinions expressed
below, we have examined or relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records, instruments,
certificates and other documents, have made such inquiries as to questions of
fact of officers and representatives of the Company and have made such
examinations of law as we have deemed necessary or appropriate for purposes of
giving the opinions hereinafter expressed. As to certain matters in respect of
the opinions expressed in paragraphs 1 and 2 below, we have relied, with your
permission, solely on the opinion, a copy of which is attached hereto, of
Beverley T. Krannich, Esq., Vice President and Secretary of the Company.
In rendering the opinions expressed below, we have assumed that
the Agreement has been duly authorized, executed and delivered by each party
thereto other than the Company, that each party thereto other than the Company
has the requisite power and authority to execute, deliver and perform the
Agreement, and that such execution, delivery and performance by such other
parties does not and will not breach, conflict with or constitute a violation
of the laws or governmental rules or regulations of any jurisdiction.
<PAGE> 89
2
Each of the opinions expressed below is restricted to matters
controlled or affected by Federal laws, the General Corporation Law of the
State of Delaware and the laws of the State of New York.
On the basis of the foregoing, it is our opinion that:
1. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware and is duly licensed or qualified to do
business and is in good standing in the States of Alabama, Texas
and New York, constituting those states which we have been
advised are the states in which the Company believes the conduct
of its business or the ownership of its assets requires such
qualification, and the Company has the corporate power to make
the Agreement and the Notes and to borrow under the Agreement.
2. The making and performance by the Company of the
Agreement and the Notes and borrowings under the Agreement have
been duly authorized by all necessary corporate action and do
not and will not contravene any provision of law applicable to
the Company or of the certificate of incorporation or by-laws of
the Company or result in the material breach of, or constitute a
material default or require any consent under, or result in the
creation of any material lien, charge or other security interest
or encumbrance (except as may be required by the Agreement) upon
any property or assets of the Company pursuant to, any indenture
or other agreement or instrument to which the Company is a party
or by which the Company or any of its property may be bound or
affected.
3. No approval, license or consent of any governmental
regulatory body is requisite to the making and performance by
the Company of the Agreement or the execution, delivery and
payment of the Notes.
<PAGE> 90
3
4. The Agreement and the Notes have been duly executed
and delivered by the Company and each constitutes a valid and
binding agreement of the Company enforceable in accordance with
its terms (subject to applicable bankruptcy, insolvency,
moratorium and other like laws of general application affecting
creditors' rights and to the application of general principles
of equity), except that we express no opinion as to (i) Section
2.06(c) of the Agreement or (ii) the effect of the law of any
jurisdiction (other than the State of New York) wherein any Bank
(including any of its Applicable Lending Offices) may be located
which limits rates of interest which may be charged or collected
by such Bank or (iii) whether a Federal or state court outside
of the State of New York would give effect to the choice of New
York law provided for in the Agreement and the Notes.
In connection with the above, we wish to point out that
provisions of the Agreement which permit any Agent or any Bank to take action
or make determinations or allocations, or to benefit from indemnities and
similar undertakings of the Company, may be subject to a requirement that such
action be taken or such determinations or allocations be made, and that any
action or inaction by an Agent or a Bank which may give rise to a request for
payment under such an indemnity or similar undertaking be taken or not taken,
on a reasonable basis and in good faith.
Very truly yours,
<PAGE> 91
(ATTACHMENT TO
EXHIBIT B)
(Form of Opinion of Vice President and
Secretary of the Company)
December ___, 1993
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
As Vice President and Secretary of Sonat Inc., a Delaware
corporation (the "Company"), I am familiar with the Credit Agreement (the
"Agreement") dated as of December 15, 1993, among the Company, the Banks named
therein, and The Chase Manhattan Bank (National Association), Chemical Bank and
Morgan Guaranty Trust Company of New York, as Agents.
This opinion is delivered to you in connection with the opinion
which you are rendering pursuant to Section 4.01(v) of the Agreement. You may
rely on this opinion in rendering your opinion, you may attach a copy hereof to
your opinion and the Banks may rely on this opinion as if it were addressed to
them. All capitalized terms not otherwise defined herein shall have the meaning
attributed to them in the Agreement.
In this connection, and as a basis for the opinions expressed
below, I have examined or relied upon originals or copies certified or
otherwise identified to my satisfaction, of such records, instruments,
certificates and other documents, have made inquiries as to questions of fact
of offices and representatives of the Company and have made such examinations
of law as I have deemed necessary or appropriate for purposes of giving the
opinions hereinafter expressed.
On the basis of the foregoing, it is my opinion that:
1. The Company is duly licensed or qualified to do
business and is in good standing in the States of Alabama, Texas
and New York, constituting those states in which the Company
believes the conduct of its business or the ownership of its
assets requires such qualification.
2. The making and performance by the Company of the
Agreement and the Notes and borrowings under the Agreement do
not and will not contravene any provision of law of the State of
Alabama or the United States applicable to the Company by virtue
of the nature of
<PAGE> 92
2
its or any of its Subsidiaries' businesses or of the properties
owned or leased by any of them or result in the material breach
of, or constitute a material default or require any consent
under, or result in the creation of any material lien, charge or
other security interest or encumbrance upon any property or
assets of the Company pursuant to, any indenture or other
agreement or instrument to which the Company is a party or by
which the Company or any of its property may be bound or
affected.
3. The Company is not an "investment company" or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
4. Neither the Company nor any of its Subsidiaries is
subject to regulation under the Public Utility Holding Company
Act of 1935, as amended.
Very truly yours,
<PAGE> 93
EXHIBIT C
(Form of Opinion of Special Counsel
to the Banks and the Agents)
December ___, 1993
To the Banks party to the Credit
Agreement referred to below and
The Chase Manhattan Bank (National Association),
Chemical Bank and Morgan Guaranty
Trust Company of New York, as Agents
Gentlemen:
We have acted as your specialcounsel in connection with the
Credit Agreement (the "Credit Agreement") dated as of December 15, 1993, among
Sonat Inc. (the "Company"), the Banks named therein, and The Chase Manhattan
Bank (National Association), Chemical Bank and Morgan Guaranty Trust Company of
New York, as Agents. Terms defined in the Credit Agreement are used herein as
defined therein.
We have assumed for purposes of our opinion hereinafter set
forth that the Credit Agreement has been duly authorized, executed and
delivered by the Company, each Bank and each Agent, and that the Company is
duly incorporated and validly existing under the laws of the State of Delaware
and has full power, authority and legal right to make and perform the Credit
Agreement and the Notes.
We have examined originals or copies authenticated to our
satisfaction of all such corporate records of the Company, agreements and other
instruments, certificates of public officials and of officers and
representatives of the Company and other documents, as we have deemed necessary
in connection with the opinions hereinafter expressed. In such examination we
have assumed the genuineness of all signatures, the authenticity of documents
submitted to us as originals, the conformity with the originals of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to questions of
fact material to such opinions we have, when relevant facts were not
independently established, relied upon representations and certificates of the
Company and its officers.
<PAGE> 94
2
Based upon the foregoing and subject to the comments and
qualifications set forth below, we are of the opinion that the Credit Agreement
constitutes, and the Notes when executed and delivered for value will
constitute, valid and binding obligations of the Company enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general applicability affecting the enforcement of creditors'
rights and (b) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
and except that we express no opinion as to (i) Section 2.06(c) of the Credit
Agreement or (ii) the effect of the law of any jurisdiction (other than the
State of New York) wherein any Bank (including any of its Applicable Lending
Offices) may be located which limits rates of interest which may be charged or
collected by such Bank. In addition, we express no opinion as to whether a
Federal or state court outside of the State of New York would give effect to
the choice of New York law provided for in the Credit Agreement and the Notes.
In connection with the above, we wish to point out that
provisions of the Credit Agreement which permit either Agent or any Bank to
take action or make determinations, or to benefit from indemnities and similar
undertakings of the Company, may be subject to a requirement that such action
be taken or such determinations be made, and that any action or inaction by an
Agent or a Bank which may give rise to a request for payment under such an
undertaking be taken or not taken, on a reasonable basis and in good faith.
We do not herein intend to express any opinion as to any matters
governed by any laws other than the law of the State of New York and the
Federal law of the United States of America.
Very truly yours,
<PAGE> 95
EXHIBIT D
(Form of Money Market Quote Request)
(Date)
To: (Bank)
From: Sonat Inc.
Re: Money Market Quote Request
Pursuant to Section 1.02 of the Credit Agreement (the "Credit
Agreement") dated as of December 15, 1993, between Sonat Inc., the banks named
therein and The Chase Manhattan Bank (National Association), Chemical Bank and
Morgan Guaranty Trust Company of New York, as Agents, we hereby give notice
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date(*1) Amount(*2) Type(*3) Period(*4)
- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Money Market Quotes responding to this Money Market Quote
Request must be submitted to us not later than (time and date) (*5).
Terms used herein have the meanings assigned to them in the
Credit Agreement.
SONAT INC.
By
---------------------
Title:
___________________
* All numbered footnotes appear on the last page of this Exhibit.
<PAGE> 96
2
____________________
(1) For use if a Money Market Rate in a Set Rate Auction is requested to
be submitted before the Borrowing Date.
(2) Each amount must be $25,000,000 or a larger multiple of $5,000,000.
(3) Insert either "Margin" (in the case of LIBOR Market Loans) or "Rate"
(in the case of Set Rate Loans).
(4) One, two, three or six months, in the case of a LIBOR Market Loan or,
in the case of a Set Rate Loan, a period of up to 180 days after the
making of such Set Rate Loan and ending on a Business Day.
(5) Insert time and date determined pursuant to Section 1.02(c)(i).
<PAGE> 97
EXHIBIT E
(Form of Money Market Quote)
To: Sonat Inc.
Attention:
Re: Money Market Quote to
Sonat Inc. (the "Borrower")
This Money Market Quote is given in accordance with Section
1.02(c) of the Credit Agreement (the "Credit Agreement") dated as of December
15, 1993, between Sonat Inc., the banks named therein and The Chase Manhattan
Bank (National Association), Chemical Bank and Morgan Guaranty Trust Company of
New York, as Agents. Terms defined in the Credit Agreement are used herein as
defined therein.
In response to the Borrower's invitation dated __________, 19__,
we hereby make the following Money Market Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in the
following principal amount(s), for the following
Interest Period(s) and at the following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date(*1) Amount(*2) Type(*3) Period(*4) Rate(*5)
- --------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
____________________
* All numbered footnotes appear on the last page of this Exhibit.
<PAGE> 98
2
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the
Credit Agreement, irrevocably obligate(s) us to make the Money Market Loan(s)
for which any offer(s) (is/are) accepted, in whole or in part (subject to the
third sentence of Section 1.02(d) of the Credit Agreement).
Very truly yours,
(Name of Bank)
By
---------------------
Authorized Officer
Dated:__________, ___
___________________
(1) As specified in the related Money Market Quote Request.
(2) The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000
or a larger multiple of $1,000,000.
(3) Indicate "Margin" (in the case of LIBOR Market Loans) or
"Rate" (in the case of Set Rate Loans).
(4) One, two, three or six months, in the case of a LIBOR Market Loan or,
in the case of a Set Rate Loan, a period of up to 180 days after the
making of such Set Rate Loan and ending on a Business Day, as
specified in the related Money Market Quote Request.
(5) For a LIBOR Market Loan, specify margin over or under the London
interbank offered rate determined for the applicable Interest Period.
Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify
whether "PLUS" or "MINUS". For a Set Rate Loan, specify rate of
interest per annum (rounded to the nearest 1/10,000 of 1%).
<PAGE> 1
EXHIBIT 10-(4)
SONAT INC.
SUPPLEMENTAL BENEFIT PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 25, 1993)
ARTICLE I - PURPOSE AND HISTORY
1.1 PURPOSE
This Supplemental Benefit Plan, as amended and restated herein
(the "Plan"), is adopted by Sonat Inc. (the "Company") on its own behalf and on
behalf of its subsidiaries and affiliates (the "Employers") which are
participating companies in the Sonat Inc. Retirement Plan (the "Retirement
Plan") and/or the Sonat Savings Plan (formerly the Sonat Inc. Stock Purchase
Plan) (the "Savings Plan"). The purposes of this Plan are:
(a) To provide benefits ("Excess Retirement Plan
Benefits") in excess of the limitations imposed by
Sections 401(a)(17) and 415 of the Internal Revenue
Code of 1986, as amended (the "Code"), on the
Retirement Plan.
(b) To provide benefits ("Vesting Benefits") to certain
employees whose rights to Vested Benefits have not
vested under Article 5 of the Retirement Plan in the
event that their employment is terminated after a
Change of Control (as defined in Section 4.3 below).
(c) To provide benefits ("Excess Savings Plan Benefits")
to employees whose ability to make employee
contributions or to receive employer contributions to
the Savings Plan is limited by Sections 401(a)(17),
401(m), and/or 415 of the Code.
1.2 HISTORY OF THE PLAN
The Plan was adopted on July 28, 1983, as an amendment and
restatement of the Company's Supplemental Pension
<PAGE> 2
2
Plan, which was adopted effective January 1, 1976. The Plan was amended and
restated as of January 1, 1985 in order to (1) provide certain "Excess
Disability Benefits", (2) conform the references in the Plan to the provisions
of the Retirement Plan and the Sonat Inc. Stock Purchase Plan as in effect on
the date thereof, and (3) clarify the meaning and intent of the Plan.
The Plan was amended and restated as of January 1, 1987 in
order to (1) provide that Excess Retirement Plan Benefits and Excess Savings
Plan Benefits include benefits in excess of the limitations imposed by Section
401(a)(17) of the Code (as well as Section 415 of the Code) on the Retirement
Plan and Savings Plan, (2) provide as Excess Savings Plan Benefits matching
contributions on amounts an employee is unable to contribute to the Savings
Plan by reason of the limitations imposed by Sections 401(a)(17), 401(m),
and/or 415 of the Code, (3) modify the time of commencement and form in which
Excess Retirement Plan Benefits, Excess Savings Plan Benefits and Vesting
Benefits are paid, (4) provide for the accelerated distribution of Excess
Savings Plan Benefits in the event of a Participant's Termination of Employment
following a Change of Control (as defined herein) and (5) transfer the
provisions and obligations relating to Excess Disability Benefits from this
Plan to the Sonat Inc. Supplemental Disability Plan (the "Supplemental
Disability Plan").
<PAGE> 3
3
The Plan was amended effective as of September 6, 1989 to
reflect an amendment to the Retirement Plan permitting participants to elect
that benefits payable to a child be instead payable to a trust for the benefit
of such child. The Plan was amended and restated as of December 1, 1991 in
order to further modify the time of commencement and form in which Excess
Retirement Plan Benefits, Excess Savings Plan Benefits and Vesting Benefits are
paid.
The Plan is amended and restated as of the date hereof in
order to provide flexibility to participants as to the time of commencement and
form in which Excess Retirement Plan Benefits and Excess Savings Plan Benefits
are paid.
ARTICLE II - EXCESS RETIREMENT PLAN BENEFITS
2.1 ELIGIBILITY
Each employee whose Retirement Benefit or Vested Benefit from
the Retirement Plan is limited by Code Sections 401(a)(17) and/or 415 and the
incorporation of those limitations in the Retirement Plan (a "Participant")
shall be entitled to Excess Retirement Plan Benefits under this Plan,
regardless of whether such Participant has received notice that he or she is so
entitled. All capitalized terms used in this Article II and not defined in
this Plan shall have the meanings ascribed thereto in the Retirement Plan.
<PAGE> 4
4
2.2 DETERMINATION OF APPLICABLE FORM OF BENEFIT
If a Participant's date of Termination of Continuous
Employment occurred prior to December 1, 1991, such Participant's Excess
Retirement Plan Benefits shall be paid in annuity form as provided in Section
2.4 below ("Annuity Form"). If a Participant's date of Termination of
Continuous Employment occurred on or after December 1, 1991, such Participant's
Excess Retirement Plan Benefits shall be paid in lump sum form as provided in
Section 2.3 below ("Lump Sum Form") unless, at least twelve full calendar
months before the date of the Participant's Termination of Continuous
Employment, the Participant filed with the Company an irrevocable written
election to have such benefits paid in Annuity Form, in which case such
benefits shall be paid in Annuity Form. Notwithstanding any other provision of
the Plan, a Participant's election with respect to the portion of his or her
Excess Retirement Plan Benefit attributable to his or her retirement benefit
shall determine the Form in which the portion of such benefit attributable to
any related survivor benefit is paid.
2.3 LUMP SUM FORM
The following provisions of this Section 2.3 apply to Excess
Retirement Plan Benefits which are paid in Lump Sum Form.
(A) BENEFIT UPON TERMINATION OF CONTINUOUS EMPLOYMENT.
Upon the Termination of Continuous Employment
<PAGE> 5
5
(other than death) of a Participant who is entitled to a Retirement Benefit or
a Vested Benefit and whose Excess Retirement Plan Benefits are payable in Lump
Sum Form, such Participant shall be entitled to an Excess Retirement Plan
Benefit, payable in the form of a cash lump sum, that is equal to the sum of:
(1) the "Actuarial Equivalent" (as defined in Section
2.3(d) below) of the excess, if any, of (i) the amount that
hypothetically would have been payable to the Participant as a
Retirement Benefit or a Vested Benefit, as the case may be, under the
Retirement Plan if Sections 401(a)(17) and 415 of the Code were
nonexistent and the provisions of the Retirement Plan incorporating
the limitations contained in Sections 401(a)(17) and 415 of the Code
were inoperative, over (ii) the amount which hypothetically would have
been payable to the Participant as a Retirement Benefit or Vested
Benefit, as the case may be, under the Retirement Plan upon
application of the actual terms of the Retirement Plan, assuming that
for purposes of clauses (i) and (ii) the Participant elected to
receive such Benefit in the form of a single life annuity commencing
on the earliest date on which the Participant may commence receipt of
his Retirement Benefit or Vested Benefit, as the case may be, under
the terms of the Retirement Plan; plus
<PAGE> 6
6
(2) if the Participant is entitled to a Retirement
Benefit and has an Eligible Spouse (as defined in Section 2.3(e)
below) on the date of such Termination of Continuous Employment, the
Actuarial Equivalent of the excess, if any, of (i) the amount that
hypothetically would have been payable to the Eligible Spouse as a
Survivors Benefit under the Retirement Plan upon the death of the
Participant if Sections 401(a)(17) and 415 of the Code were
nonexistent and Section 7.10 and the provisions of the Retirement Plan
incorporating the limitations contained in Sections 401(a)(17) and 415
of the Code were inoperative, over (ii) the amount which
hypothetically would have been payable to the Eligible Spouse as a
Survivors Benefit under the Retirement Plan upon application of the
actual terms of the Retirement Plan, assuming that for purposes of
clauses (i) and (ii) the Participant died at the end of his or her
life expectancy as determined pursuant to the mortality table used to
determine Actuarial Equivalents.
Such cash lump-sum payment shall be paid as soon as practicable (and within 30
days) after the Participant's Termination of Continuous Employment.
(B) CERTAIN SURVIVOR BENEFITS. Upon the death of a
Participant whose Excess Retirement Plan Benefits are payable in Lump Sum Form,
either (1) after the Participant's
<PAGE> 7
7
Termination of Continuous Employment (if such Participant was entitled to a
Retirement Benefit and did not have an Eligible Spouse at the date of such
Termination of Continuous Employment), or (2) prior to the Participant's
Termination of Continuous Employment, his or her Eligible Spouse (or, if the
Participant has no Eligible Spouse at the date of death, each of the
Participant's Eligible Children) shall be entitled to an Excess Retirement Plan
Benefit, payable in the form of a cash lump sum, that is equal to the Actuarial
Equivalent of the excess, if any, of (i) the amount that hypothetically would
have been payable to the Eligible Spouse or such Eligible Child (as the case
may be) as a Survivors Benefit under the Retirement Plan upon the death of the
Participant if Sections 401(a)(17) and 415 of the Code were nonexistent and
Section 7.10 and the provisions of the Retirement Plan incorporating the
limitations contained in Section 401(a)(17) and 415 of the Code were
inoperative, over (ii) the amount actually payable to the Eligible Spouse or
such Eligible Child (as the case may be) as a Survivors Benefit under the
Retirement Plan upon application of the actual terms of the Retirement Plan.
Such lump-sum payment shall be paid as soon as practicable (and within 30 days)
after the Participant's death.
(C) ADDITIONAL SURVIVORS BENEFITS TO ELIGIBLE CHILDREN.
If the Participant's Eligible Spouse dies after the
<PAGE> 8
8
date of death of the Participant, the Participant's Eligible Children shall
each be entitled to an Excess Retirement Plan Benefit, payable in the form of a
cash lump sum, that is equal to the Actuarial Equivalent of the excess, if any,
of (i) the amount that hypothetically would have been payable to such Eligible
Child as a Survivors Benefit under the Retirement Plan if Sections 401(a)(17)
and 415 of the Code were nonexistent and Section 7.10 and the provisions of the
Retirement Plan incorporating the limitations contained in Section 401(a)(17)
and 415 of the Code were inoperative, over (ii) the amount actually payable to
such Eligible Child as a Survivors Benefit under the Retirement Plan. Such
cash lump-sum payment shall be paid as soon as practicable (and within 30 days)
after the Eligible Spouse's death.
(D) DEFINITION OF ACTUARIAL EQUIVALENT. For purposes of
Section 2.3 and Section 4.2, "Actuarial Equivalent" shall mean a benefit
actuarially equal in value to the value of a given benefit in a given form or
schedule, based upon (1) the 1983 Group Annuity Mortality Table (or, if
different, the mortality table or tables used to calculate Actuarial
Equivalents under the Retirement Plan as of the date on which an Actuarial
Equivalent is being determined under this Plan) and (2) an interest rate equal
to the yield on new 10-year AA-rated general obligation tax-exempt bonds as
determined by Merrill Lynch & Co. (or its affiliates) and
<PAGE> 9
9
published in The Wall Street Journal (or other financial publication) on the
business day immediately preceding the date of the Participant's Termination of
Continuous Employment (for calculation of Actuarial Equivalents under Sections
2.3(a) and 4.2 of this Plan), the date of the Participant's death (for
calculation of Actuarial Equivalents under Section 2.3(b) of this Plan), or the
date of the Participant's Eligible Spouse's death (for calculation of Actuarial
Equivalents under Section 2.3(c) of this Plan) (or, if such yield is not so
determined and published on such business day, on the most immediately
preceding day on which such yield was so determined and published); provided,
however, that if such yield has not been so determined and published within 90
days prior to the date of the Participant's Termination of Continuous
Employment or death or the date of the Participant's Eligible Spouse's death
(as the case may be), the interest rate shall be the yield on substantially
similar securities on the business day preceding the applicable date as
determined by AmSouth Bank N.A. upon the request of either the Company or the
Participant, Eligible Spouse or Eligible Child (as the case may be).
Notwithstanding the preceding provisions of this Section 2.3(d), if the only
Survivors Benefit to which an Eligible Spouse is entitled under the Retirement
Plan is an ERISA Preretirement Survivor Annuity, determination of Actuarial
Equivalent under Section 2.3(b) shall be based upon
<PAGE> 10
10
the assumption that payment of the amounts described in clauses (i) and (ii) of
Section 2.3(b) commence on the first day of the month immediately following the
later of the date on which the Participant would have attained age 55 or the
Participant's date of death.
(E) DEFINITION OF ELIGIBLE SPOUSE. For purposes of
Section 2.3, "Eligible Spouse" shall mean the person who was married to the
Participant under the laws of the State where the marriage was contracted
throughout the one year period ending on the earlier of the date on which the
Participant has a Termination of Continuous Employment or the date of the
Participant's death. If the Participant does not have an Eligible Spouse on
the date of Termination of Continuous Employment, the person who was married to
the Participant under the laws of the State where the marriage was contracted
throughout the one year period ending on the date of the Participant's death
shall be the Participant's Eligible Spouse. In no event may a Participant have
more than one Eligible Spouse under this Plan.
2.4 ANNUITY FORM
The following provisions of this Section 2.4 apply to Excess
Retirement Plan Benefits which are paid in Annuity Form.
(A) RETIREMENT ANNUITY. Each Participant who is entitled to a
Retirement Benefit or a Vested Benefit and whose Excess Retirement Plan
Benefits are payable in Annuity Form
<PAGE> 11
11
shall be entitled to Excess Retirement Plan Benefits equal to the excess, if
any, of (i) the amount that hypothetically would have been payable to the
Participant as a Retirement Benefit or a Vested Benefit, as the case may be,
under the Retirement Plan (after any increases in Retirement Benefits or Vested
Benefits payable generally under the Company's retirement program which take
effect after the Participant's Termination of Continuous Employment) if
Sections 401(a)(17) and 415 of the Code were nonexistent and the provisions of
the Retirement Plan incorporating the limitations contained in Sections
401(a)(17) and 415 of the Code were inoperative, over (ii) the amount which
hypothetically would have been payable to the Participant as a Retirement
Benefit or Vested Benefit, as the case may be, under the Retirement Plan upon
application of the actual terms of the Retirement Plan, assuming that for
purposes of clauses (i) and (ii) the Participant elected to receive such
Benefit in the form of a single life annuity commencing on the date on which
the Participant actually commences receipt of his Retirement Benefit or Vested
Benefit, as the case may be, under the Retirement Plan. Excess Retirement Plan
Benefits shall be paid commencing at the time and in the form provided below:
(i) If the Participant is entitled to a
Retirement Benefit under the Retirement Plan, the Participant's Excess
Retirement Plan Benefit shall be payable to the Participant in the
form of a single life
<PAGE> 12
12
annuity, in monthly installments commencing (A) on the Participant's
early or normal retirement date, as the case may be, under the
Retirement Plan; or (B) in the case of a Participant entitled to a
Projected Retirement Benefit, upon his or her Termination of
Continuous Employment.
(ii) If the Participant is entitled to a Vested
Benefit under the Retirement Plan, the amount of the Participant's
Excess Retirement Plan Benefit shall be calculated using the
Retirement Plan's early benefit commencement factors (which are
incorporated in the Retirement Plan's definition of Actuarial
Equivalent) and the Section 415 limits which apply for the benefit
commencement date elected by the Participant under the Retirement
Plan. However, payment of such Excess Retirement Plan Benefit shall
not commence until the first day of the month following the
Participant's attainment of normal retirement age. Such Benefit shall
be payable (1) to the Participant in the form of a single life annuity
if the Participant does not have a Spouse at the time the Excess
Retirement Plan Benefit commences, and (2) to the Participant and his
or her Spouse in the form of a 50% joint and survivor annuity if the
Participant has a Spouse at the time the Excess Retirement Plan
Benefit commences.
<PAGE> 13
13
(iii) If payment of the Participant's Vested Benefit
under the Retirement Plan commences prior to the first day of the
month following the Participant's attainment of normal retirement age,
the Company shall create and maintain on its books an account for such
Participant (the "Vested Benefits Account") to which the Company shall
credit the following amounts. At the beginning of each month
beginning with the first month for which the Participant receives a
Vested Benefit under the Retirement Plan and ending with the month in
which the Participant attains normal retirement age, the Company shall
credit the Vested Benefits Account with an amount equal to the amount
of the Excess Retirement Plan Benefit calculated under Section
2.4(a)(ii) above. At the end of each calendar quarter beginning with
the first calendar quarter in which an amount is credited pursuant to
the preceding sentence and ending with the calendar quarter referred
to in the following sentence, the Company shall also credit to such
Vested Benefits Account a sum which is equal to the product of (i) the
average balance in such Account for the calendar quarter (without
regard to any debits made at the end of the calendar quarter) times
<PAGE> 14
14
(ii) one-fourth of the annual prime rate for corporate borrowers
quoted by The Chase Manhattan Bank, N.A. at the beginning of the
calendar quarter. At the end of the calendar quarter in which occurs
the earlier of the Participant's attainment of normal retirement age
or the Participant's death, the Company shall debit the Participant's
Vested Benefits Account and pay to such Participant (or in the event
of the Participant's death, to his or her Beneficiary) the entire
balance in such Account.
(B) SURVIVOR ANNUITY. Each Eligible Family Member of a
Participant under the Retirement Plan shall be entitled to Excess Retirement
Plan Benefits equal to the excess, if any, of (i) the amount that
hypothetically would have been payable to the Eligible Family Member as a
Survivors Benefit under the Retirement Plan (after any increases in Survivors
Benefits payable generally under the Company's retirement program which take
effect after the Participant's death) if Sections 401(a)(17) and 415 of the
Code were nonexistent and Section 7.10 and the provisions of the Retirement
Plan incorporating the limitations contained in Section 401(a)(17) and 415 of
the Code were inoperative, over (ii) the amount actually payable to the
Eligible Family Member as a Survivors Benefit under the Retirement Plan.
Excess Retirement Plan Benefits shall be paid to the Eligible Family Members,
<PAGE> 15
15
commencing on the first day of the month following the death of the
Participant, as follows:
(i) If the Participant's Eligible Family Members
include an Eligible Spouse (which term, for purposes of this Section
2.4, shall have the meaning set forth in the Retirement Plan), the
Excess Retirement Plan Benefits for such Eligible Family Members shall
be payable to such Eligible Spouse until such person dies or is no
longer an Eligible Spouse.
(ii) If Excess Retirement Plan Benefits cease to
be payable to an Eligible Spouse, or in the event there is no Eligible
Spouse at the date of the Participant's death, the Excess Retirement
Plan Benefits otherwise payable to such Eligible Spouse shall be
payable to an Eligible Child, until the earlier of the death of such
Eligible Child or the date on which he or she ceases to be an Eligible
Child, with such Benefits to be divided equally among the Eligible
Children in the event that there is more than one Eligible Child. In
the event there is more than one Eligible Child and Excess Retirement
Plan Benefits cease with respect to one Eligible Child, each
subsequent payment of Excess Retirement Plan Benefits will be divided
equally among the remaining Eligible Children.
Notwithstanding the preceding provisions of this Section 2.4(b), if the only
Survivor's Benefit to which the Eligible
<PAGE> 16
16
Family Member is entitled under the Retirement Plan is an ERISA Preretirement
Survivor Annuity, (i) payment of the Excess Retirement Plan Benefits shall
commence on the first day of the month immediately following the later of the
date on which the Participant would have attained age 55 or the Participant's
date of death, and (ii) the Excess Retirement Plan Benefits shall cease to be
payable upon the death of the Eligible Spouse.
2.5 DEFINITION OF ELIGIBLE CHILD
For purposes of Section 2.3 and 2.4, the term "Eligible Child"
shall mean the deceased Participant's Eligible Child (as defined in the
Retirement Plan) or, if the Participant has so elected under the Retirement
Plan, an Eligible Trust (as defined in the Retirement Plan) for the benefit of
such Eligible Child. However, if the Administrative Committee of the
Retirement Plan determines that a trust is not an Eligible Trust at the time
payment to such trust is to be made, such payment shall not be made to the
trust and shall instead be made directly to the Participant's Eligible Child,
notwithstanding the Participant's election with respect to the trust.
ARTICLE III - EXCESS SAVINGS PLAN BENEFITS
3.1 ELIGIBILITY
Each employee on whose behalf Employer Contributions to the
Savings Plan are limited by Sections 401(a)(17), 401(m),
<PAGE> 17
17
and/or 415 of the Code and the incorporation of those limitations in the
Savings Plan (a "Participant") shall be entitled to Excess Savings Plan
Benefits under this Plan, regardless of whether such Participant has received
notice that he or she is so entitled. In addition, each Participant whose
ability to make aggregate Deferred and Employee Contributions to the Savings
Plan is limited by Sections 401(a)(17), 401(m), and/or 415 of the Code and the
incorporation of those limitations in the Savings Plan shall be entitled to
Excess Savings Plan Benefits under this Plan, regardless of whether such
Participant has received notice that he or she is so entitled. All capitalized
terms used in this Article III and not defined in this Plan shall have the
meanings ascribed thereto in the Savings Plan.
3.2 CREDITS TO ACCOUNT
The Company shall create and maintain on its books an account for
each Participant (the "Account") to which it shall credit (i) the amount of
any Employer Contributions which are not paid to the Savings Plan by virtue of
the limitations of Sections 401(a)(17), 401(m), and/or 415 of the Code and the
incorporation of those limitations in the Savings Plan, plus (ii) the amount of
any Employer Contributions that would have been made under the Plan (but for
the limitations of Sections 401(a)(17), 401(m), and/or 415 of the Code and the
incorporation of those limitations in the Savings Plan) had the
<PAGE> 18
18
Participant contributed the Deferred and Employee Contributions which he or she
elected to contribute but was precluded from contributing by virtue of the
limitations of Sections 401(a)(17), 401(m), and/or 415 of the Code and the
incorporation of those limitations in the Savings Plan. Such amounts, if any,
shall be credited to the Account at such time after the end of each pay period
as Employer Contributions for such pay period are paid to the Savings Plan. At
the end of each calendar quarter, regardless of whether any other credits are
then made to the Account or whether the Participant is then in the employ of
the Employers, the Company shall also credit to the Account a sum which is
equal to the product of (i) the average balance in the Account for the quarter
(without regard to any debits made at the end of such quarter) times (ii)
one-fourth of the annual prime rate for corporate borrowers quoted by The Chase
Manhattan Bank, N.A. at the beginning of the quarter. The amount of a
Participant's Excess Savings Plan Benefits shall be equal to the balance of his
or her Account.
3.3 PAYMENT OF ACCOUNT
Upon a Participant's Termination of Employment, the Company shall
debit his or her Account and pay to such Participant (or in the event of the
Participant's death, to his or her Beneficiary) amounts at the times
determined pursuant to this Section 3.3.
<PAGE> 19
19
(A) CASH LUMP SUM. Except as provided in Section 3.3(b) or
3.3(c) below, upon a Participant's Termination of Employment, there shall be
paid to the Participant in a cash lump sum as soon as practicable (and within
30 days) after his or her Termination of Employment an amount equal to the sum
of: (i) the balance in the Participant's Account (contributions credited plus
interest thereon) as of the date of Termination of Employment; (ii) interest on
such balance equal to the product of (A) the average balance in the Account for
the period from the end of the previous calendar quarter to the date of
Termination of Employment (without regard to any debits made at the end of such
period), times (B) one-twelfth of the annual prime rate for corporate borrowers
quoted by The Chase Manhattan Bank, N.A. at the beginning of the period, times
(C) the number of full and fractional calendar months in the period; and (iii)
any Employer Contributions that would have been credited to the Account under
Section 3.2 for pay periods beginning before the Participant's Termination of
Employment if such Employer Contributions have not yet been credited at the
time of Termination of Employment.
(B) INSTALLMENTS. If, at least twelve full calendar months
before the date of the Participant's Termination of Employment, the Participant
filed with the Company an irrevocable written election to have all or any
designated portion of such benefits paid in installments, payment of such
Participant's Account shall be made in such number of annual
<PAGE> 20
20
installments (to a maximum of 15) as shall have been designated by the
Participant in the written election referred to above. Payment shall commence
as soon as practicable after the last day of the calendar quarter following the
Participant's Termination of Employment. Each installment shall be in an
amount equal to the quotient of (i) the balance in the Participant's Account at
the time the payment is to be made, divided by (ii) the number of installments
remaining to be paid (including the installment about to be paid).
(C) PRIOR ELECTIONS. Notwithstanding the provisions of
Sections 3.3 (a) and (b), any election made by a Participant prior to February
25, 1993 to have payment of all or a portion of his Account made in
installments shall be irrevocable. In the event that no election is in effect
for a given year after 1983 and prior to 1988, the Participant shall be deemed
to have elected installment payments for such year for purposes of the
preceding sentence. The provisions of Sections 3.3 (a) and (b) shall apply
with respect to any portion of the Participant's Account which was
distributable in the form of a lump sum pursuant to a Participant's election or
Plan provision which became effective prior to February 25, 1993.
3.4 CHANGE OF CONTROL PROVISIONS
Notwithstanding a Participant's election or the provisions of
Section 3.3, in the event of a Participant's
<PAGE> 21
21
Termination of Employment within three years following a Change of Control (as
defined in Section 4.3 below), then the Participant's entire Excess Savings
Plan Benefit shall be paid to the Participant as soon as practicable (and
within 30 days) after his or her Termination of Employment in a cash lump sum
as provided in Section 3.3(a) above.
3.5 BENEFICIARY
For purposes of this Article III, "Beneficiary" shall mean (i)
the person, persons or entity designated by a Participant to receive Excess
Savings Plan Benefits in the event of the Participant's death, or (ii) if the
Participant has made no such designation, his Beneficiary under the Savings
Plan.
ARTICLE IV - VESTING BENEFITS
4.1. ELIGIBILITY
Each employee who has had a Termination of Continuous
Employment and who is a member of the Vesting Group (as defined in Section 4.4
below) (a "Participant") shall be entitled to Vesting Benefits hereunder,
regardless of whether such Participant has received notice that he or she is so
entitled, but only if a Change of Control (as defined in Section 4.3 below) has
occurred while he or she is employed by one of the Employers and is a member of
the Vesting Group. All capitalized terms used in this Article IV and not
defined in
<PAGE> 22
22
this Plan shall have the meanings ascribed thereto in the Retirement Plan.
4.2 AMOUNT AND FORM OF VESTING BENEFIT
Each Participant shall be entitled to a Vesting Benefit,
payable in the form of a cash lump sum, that is equal in amount to the
Actuarial Equivalent (as defined in Section 2.3(d) above) of the excess, if
any, of (i) the amount hypothetically payable to the Participant as a Vested
Benefit under the Retirement Plan if (x) Section 5.01 of the Retirement Plan
were hypothetically amended to provide a Vesting Date based on a period of
Vesting Service equivalent to the actual Vesting Service of the Participant,
and (y) Sections 401(a)(17) and 415 of the Code were nonexistent and the
provisions of the Retirement Plan incorporating the limitations contained in
Sections 401(a)(17) and 415 of the Code were inoperative, over (ii) the amount
payable as a Vested Benefit under the Retirement Plan, assuming for purposes of
clauses (i) and (ii) that the Participant commenced receiving benefits under
such clause in the form of a single life annuity on the earliest date on which
the Participant could have commenced receipt of a Vested Benefit under the
Retirement Plan (had he or she been entitled to such Benefit). The grant of
Vesting Benefits shall not increase the Participant's Credited Service under
the Retirement Plan. Such cash lump-sum payment shall be paid as soon as
practicable (and within 30 days) after the Participant's Termination of
Continuous Employment.
<PAGE> 23
23
4.3 DEFINITION OF CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as in effect as
of May 3, 1984) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as
such Rules were in effect as of May 3, 1984) of securities of the
Company representing 35% or more of the voting power of the
outstanding securities of the Company having the right under ordinary
circumstances to vote at an election of the Board of Directors,
(ii) there shall occur a change in the composition
of a majority of the Board of Directors of the Company within any
period of three consecutive years which change shall not have been
approved by a majority of the Board of Directors of the Company as
constituted immediately prior to the commencement of such period, or
(iii) at any meeting of the stockholders of the
Company called for the purpose of electing directors, all persons
nominated by the Board of Directors for election as directors shall
fail to be elected.
4.4 DEFINITION OF VESTING GROUP
An employee shall be deemed to be a member of the Vesting
Group if, immediately prior to the occurrence of a Change of Control, he or she
(1) is a participant in the Retirement Plan, (2) is employed as an officer by
an Employing Company (as defined in the Retirement Plan) and (3) is not fully
vested under the Retirement Plan.
ARTICLE V - FUNDING
5.1. UNFUNDED PLAN
The Plan shall be unfunded, and the entire cost of
<PAGE> 24
24
the benefits and administration of the Plan shall be borne by
the Company.
ARTICLE VI - MISCELLANEOUS
6.1 EFFECT OF IRS DETERMINATION
If any amounts whose distribution is deferred pursuant to the
Plan are found in a "determination" (within the meaning of Section 1313(a) of
the Code) to have been includible in gross income by a Participant prior to
payment of such amounts under the Plan, such amounts shall be immediately paid
to such Participant notwithstanding the Participant's election or any other
provision of the Plan.
6.2 AMENDMENT
The Company intends to maintain the Plan in force
indefinitely, but necessarily reserves the right by action of its Board of
Directors to amend or discontinue the Plan at any time, provided that (i) no
amendment or discontinuance of the Plan shall diminish in any way payments
under this Plan due thereafter under rights created or grants made before such
amendment or discontinuance and (ii) rights created or grants made before such
amendment or discontinuation shall continue in force and effect and shall
continue to accrue as though no amendment or discontinuation of this Plan had
occurred.
6.3 EXCESS DISABILITY BENEFITS
The Excess Disability Benefits formerly provided under this
Plan are instead payable under the Supplemental
<PAGE> 25
25
Disability Plan to the full extent that they formerly would have been payable
under this Plan. To the extent that abenefit is payable pursuant to the
Supplemental Disability Plan it shall not be payable under this Plan, and to
the extent that a benefit is payable pursuant to this Plan it shall not be
payable under the Supplemental Disability Plan.
6.4 NON-ALIENATION; TAX WITHHOLDING
No benefit payable under this Plan shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
garnishment, encumbrance, or charge; provided, however, that taxes may be
withheld from benefit payments to the extent required by any federal, state or
local law or regulation.
6.5 NO RIGHT TO CONTINUED EMPLOYMENT
Participation in the Plan shall not give any employee the
right to be retained in the employ of the Employers.
6.6 DEFINITION OF PARTICIPANT
Any employee who is a "Participant" under any Section of this
Plan shall not be deemed to be a "Participant" under any other Section unless
he or she also satisfies the definition of "Participant" under such other
Section.
6.7 PLAN ADMINISTRATION AND INTERPRETATION
The administration of the Plan and the exclusive power to
interpret it is vested in the Employee Benefits Committee of the Board of
Directors of the Company. The
<PAGE> 26
26
Employee Benefits Committee may delegate any or all of its duties and
responsibilities hereunder to the Administrative Committee of the Retirement
Plan.
6.8 SUBSIDIARIES AND AFFILIATES
Each subsidiary or affiliate of the Company which the Company
has designated as a participating company in the Retirement Plan and/or the
Savings Plan with respect to its employees shall automatically be deemed to
have adopted this Plan; provided however, that if the terms of the Retirement
Plan or the Savings Plan with respect to such subsidiary or affiliate are
different from those applicable to the Company, such difference or differences
shall be given effect in applying this Plan. References herein to the
Retirement Plan or the Savings Plan shall be in regard to such plan as amended
from time to time.
6.9 MINORS AND INCOMPETENTS
If a person entitled to benefits under this Plan is a minor or
is physically unable or mentally incompetent to receive such benefits and to
execute a valid release therefor, the Plan may pay such benefits to the
guardian or representative of such person or the individual or institution
maintaining custody of such person (provided that such payment shall be made
for and applied to the benefit of the person entitled thereto), and the release
of such guardian,
<PAGE> 27
27
representative, individual or institution shall be a valid and complete
discharge for payment of such benefit.
6.10 CHOICE OF LAW
THIS PLAN SHALL BE INTERPRETED PURSUANT TO THE LAWS OF THE
STATE OF ALABAMA, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, Sonat Inc. has caused this Plan as amended
and restated hereby to be executed as of February 25, 1993.
By: /s/ Ronald L. Kuehn, Jr.
----------------------------------
Ronald L. Kuehn, Jr.,
Chairman, President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10-(5)
EXECUTIVE AWARD PLAN
OF
SONAT INC.
(AS AMENDED AND RESTATED AS OF DECEMBER 3, 1993)
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Executive Award Plan (the "Plan") of Sonat Inc. (the "Company") is
intended to advance the best interests of the Company and its subsidiaries by
providing key employees with additional incentives through the grant of options
("Options") to purchase shares of Common Stock of the Company ("Common Stock")
and through the award of shares of restricted Common Stock ("Restricted
Stock"), thereby increasing the personal stake of such employees in the
continued success and growth of the Company and encouraging them to remain in
the employ of the Company.
The Plan was adopted effective May 1, 1981, and has been amended at
various times. The provisions of the Plan as hereby amended and restated may,
at the discretion of the Committee referred to below, be made available to all
grants outstanding on April 25, 1991, and all awards granted after such date,
except that no such provision shall alter any outstanding grant in a manner
unfavorable to the holder thereof without the written consent of the holder.
1.2 ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Executive Compensation
Committee or other designated committee (the "Committee") of the Board of
Directors of the Company (the "Board of Directors") which shall consist of at
least three Directors all of whom are not eligible to participate in the Plan
and are "disinterested" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934. The Committee shall have authority to interpret
conclusively the provisions of the Plan, to adopt such rules and regulations
for carrying out the Plan as it may deem advisable, to decide conclusively all
questions of fact arising in the application of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions and acts of the Committee shall be final and binding upon all
affected Plan participants.
(b) The Committee shall meet once each fiscal year, and at such
additional times as it may determine or at the request of the chief executive
officer of the
<PAGE> 2
Company, to designate the eligible employees, if any, to be granted awards
under the Plan and the type and amount of such awards and the time when awards
will be granted. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Key employees, including officers, of the Company and its
subsidiaries, and of partnerships or joint ventures in which the Company and
its subsidiaries have a significant ownership interest as determined by the
Committee (all of such subsidiaries, partnerships and joint ventures being
referred to as "Subsidiaries") shall be eligible to participate in the Plan.
Directors who are not employees of the Company or its Subsidiaries shall not be
eligible to participate in the Plan.
1.4 AWARDS UNDER THE PLAN
Awards under the Plan may be in the form of (i) Options to purchase
shares of Common Stock, (ii) Stock Appreciation Rights which may be issued in
tandem with such Options, (iii) shares of Restricted Stock, (iv) Supplemental
Payments which may be awarded with respect to Options, Stock Appreciation
Rights and Restricted Stock, or (v) any combination of the foregoing.
1.5 SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock which may be issued
with respect to Options or Restricted Stock granted after April 24, 1991
(including Stock Appreciation Rights and Supplemental Payments related thereto)
shall not exceed (i) 4,000,000 shares plus (ii) the number of shares previously
authorized for use in the Plan which have not been issued or have again become
available for grants pursuant to the following paragraph. At no time shall the
number of shares issued plus the number of shares subject to outstanding awards
under the Plan exceed the number of shares that may be issued under the Plan.
Options with respect to more than 250,000 shares of Common Stock shall not be
granted to any optionee in any 12-month period. Shares distributed pursuant to
the Plan may consist of authorized but unissued shares or treasury shares of
the Company, as shall be determined from time to time by the Board of
Directors.
If any Option under the Plan shall expire, terminate or be cancelled
(except upon the holder's exercise of a related Stock Appreciation Right) for
any reason without having been exercised in full, or if any shares of
Restricted Stock shall be forfeited to the Company, the unexercised Options and
forfeited shares of Restricted Stock shall not count against the above limit
and shall again become available for grants under the Plan (unless the holder
of such Options or shares received dividends or other economic benefits with
respect to such Options or shares, which dividends or other
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<PAGE> 3
economic benefits are not forfeited). Shares of Common Stock equal in number
to the shares surrendered in payment of the option price, and shares of Common
Stock which are withheld in order to satisfy federal, state or local tax
liability, shall count against the above limit. Notwithstanding the foregoing,
the shares referred to in clause (ii) of the first sentence of this Section 1.5
shall be available for issuance only with respect to Options or Restricted
Stock granted prior to April 24, 1995 and Stock Appreciation Rights and
Supplemental Payments related thereto.
1.6 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of
the Board of Directors in compensating employees of the Company and its
subsidiaries in such other forms and amounts, including compensation pursuant
to any other plans as may be currently in effect or adopted in the future, as
it may determine from time to time.
II. STOCK OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all Options granted under the
Plan shall be in such form and shall have such terms and conditions as the
Committee, in its discretion, may from time to time determine.
(a) Option Price. The option price per share shall not
be less than the fair market value of the Common Stock (as determined
by the Committee) on the date the Option is granted.
(b) Term of Option. The term of an Option shall not
exceed ten years from the date of grant, and, notwithstanding any
other provision of this Plan, no Option shall be exercised after the
expiration of its term.
(c) Exercise of Options. Options shall be exercisable at
such time or times and subject to such terms and conditions as the
Committee shall specify in the Option grant. The Committee shall have
discretion to at any time declare all or any portion of the Options
held by any optionee to be immediately exercisable. An Option may be
exercised in accordance with its terms as to any or all shares
purchasable thereunder.
(d) Payment for Shares. Payment for shares as to which
an Option is exercised shall be made in such manner and at such time
or times as shall be provided by the Committee in the Option grant.
Payment may be made in cash or in such other manner as the Committee
in its discretion may authorize.
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<PAGE> 4
(e) Nontransferability of Options. No Option or any
interest therein shall be transferable by the optionee other than by
will or by the laws of descent and distribution. During an optionee's
lifetime, all Options shall be exercisable only by such optionee or by
the guardian or legal representative of the optionee.
(f) Shareholder Rights. The holder of an Option shall,
as such, have none of the rights of a shareholder.
(g) Termination of Employment. The Committee shall have
discretion to specify in the Option grant or an amendment thereof,
provisions with respect to the period, not extending beyond the term
of the Option, during which the Option may be exercised following the
optionee's termination of employment.
(h) Change of Control. Notwithstanding the
exercisability schedule governing any Option, upon the occurrence of a
Change of Control (as defined in Section 4.9) all Options outstanding
at the time of such Change of Control and held by optionees who are
employees of the Company or its Subsidiaries at the time of such
Change of Control shall become immediately exercisable and, unless the
optionee agrees otherwise in writing, shall remain exercisable for a
period of three years following the optionee's termination of
employment or such longer period as may be provided in the Option.
2.2 STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS
(a) The Committee may, either at the time of grant of an Option or
at any time during the term of the Option, grant Stock Appreciation Rights with
respect to all or any portion of the shares of Common Stock covered by such
Option. A Stock Appreciation Right may be exercised at any time the Option to
which it relates is then exercisable, but only to the extent the Option to
which it relates is exercisable, and shall be subject to the conditions
applicable to such Option. When a Stock Appreciation Right is exercised, the
Option to which it relates shall cease to be exercisable to the extent of the
number of shares with respect to which the Stock Appreciation Right is
exercised. Similarly, when an Option is exercised, the Stock Appreciation
Rights relating to the shares covered by such Option exercise shall terminate.
Any Stock Appreciation Right which is outstanding on the last day of the term
of the related Option (as determined pursuant to Section 2.1(b)) shall be
automatically exercised on such date for cash without any action by the
optionee.
(b) Upon exercise of a Stock Appreciation Right, the holder shall
receive, for each share with respect to which the Stock Appreciation Right is
exercised, an amount (the "Appreciation") equal to the difference between the
option price per share of the Option to which the Stock Appreciation Right
relates and the fair market value (as determined by the Committee) of a share
of Common Stock on the date of
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<PAGE> 5
exercise of the Stock Appreciation Right. The Appreciation shall be payable in
cash, Common stock, or a combination of both, at the option of the Committee,
and shall be paid within 30 days of the exercise of the Stock Appreciation
Right.
(c) Notwithstanding the foregoing, if a Stock Appreciation Right
is exercised within 60 days of the occurrence of a Change of Control, (i) the
Appreciation and any Supplemental Payment (as defined in Section 2.3) to which
the holder is entitled shall be payable solely in cash if the Stock
Appreciation Right has been outstanding at least six months and solely in
Common Stock in all other cases, and (ii) in addition to the Appreciation and
the Supplemental Payment (if any), the holder shall receive (in cash, if the
Stock Appreciation Right has been outstanding for at least six months, and in
Common Stock in all other cases) (1) the amount by which the greater of (a) the
highest market price per share of Common Stock during the 60-day period
preceding exercise of the Stock Appreciation Right or (b) the highest price per
share of Common Stock (or the cash-equivalent thereof as determined by the
Board of Directors) paid by an acquiring person during the 60-day period
preceding a Change of Control, exceeds the Appreciation, plus (2) if the holder
is entitled to a Supplemental Payment, an additional payment, calculated under
the same formula as used for calculating such holder's Supplemental Payment,
with respect to the amount referred to in clause (1) of this sentence.
2.3 SUPPLEMENTAL PAYMENT ON EXERCISE OF OPTIONS OR STOCK APPRECIATION
RIGHTS
The Committee, either at the time of grant or at the time of exercise
of any Option or related Stock Appreciation Right, may provide for a
supplemental payment (the "Supplemental Payment") by the Company to the
optionee with respect to the exercise of any Option or related Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified
by the Committee, which shall not exceed, but may be equal to, the amount
necessary to pay the federal income tax payable with respect to both exercise
of the Option or related Stock Appreciation Right and receipt of the
Supplemental Payment, assuming the optionee is taxed at the maximum effective
federal income tax rate applicable thereto. The Supplemental Payment shall be
paid in cash, Common Stock, or a combination of both, at the option of the
Committee. The Supplemental Payment shall be paid within 30 days of the date
of exercise of an Option or Stock Appreciation Right (or, if later, within 30
days of the date on which income is recognized for federal income tax purposes
with respect to such exercise).
2.4 STATUTORY OPTIONS
Subject to the limitations on Option terms set forth in Section 2.1,
the Committee shall have the authority to grant (i) incentive stock options
within the meaning of Section 422 of the Code and (ii) Options containing such
terms and conditions as shall be required to qualify such Options for
preferential tax treatment
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<PAGE> 6
under the Code as in effect at the time of such grant. Options granted
pursuant to this Section 2.4 may contain such other terms and conditions
permitted by Article II of this Plan as the Committee, in its discretion, may
from time to time determine (including, without limitation, provision for Stock
Appreciation Rights and Supplemental Payments), to the extent that such terms
and conditions do not cause the Options to lose their preferential tax
treatment. To the extent the Code and Regulations promulgated thereunder
require a plan to contain specified provisions in order to qualify options for
preferential tax treatment, such provisions shall be deemed to be stated in
this Plan.
III. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
Subject to the following provisions, all awards of Restricted Stock
shall be in such form and shall have such terms and conditions as the
Committee, in its discretion, may from time to time determine:
(a) The Restricted Stock award shall specify the number
of shares of Restricted Stock to be awarded, the price, if any, to be
paid by the recipient of the Restricted Stock, and the date or dates
on which the Restricted Stock will vest. The vesting of Restricted
Stock may be conditioned upon the completion of a specified period of
service with the Company or its Subsidiaries, upon the attainment of
specified performance goals, or upon such other criteria as the
Committee may determine in its sole discretion.
(b) Stock certificates representing the Restricted Stock
granted to an employee shall be registered in the employee's name.
Such certificates shall either be held by the Company on behalf of the
employee, or delivered to the employee bearing a legend to restrict
transfer of the certificate until the Restricted Stock has vested, as
determined by the Committee. The Committee shall determine whether
the employee shall have the right to vote and/or receive dividends on
the Restricted Stock before it has vested. No share of Restricted
Stock may be sold, transferred, assigned, or pledged by the employee
until such share has vested in accordance with the terms of the
Restricted Stock award. In the event of an employee's termination of
employment before all of his Restricted Stock has vested, or in the
event other conditions to the vesting of Restricted Stock have not
been satisfied prior to any deadline for the satisfaction of such
conditions set forth in the award, the shares of Restricted Stock
which have not vested shall be forfeited and any purchase price paid
by the employee shall be returned to the employee. At the time
Restricted Stock vests (and, if the employee has been issued legended
certificates of Restricted Stock, upon the return of such certificates
to the
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<PAGE> 7
Company), a certificate for such vested shares shall be delivered to
the employee (or the beneficiary designated by the employee in the
event of death), free of all restrictions.
(c) Notwithstanding the vesting conditions set forth in
the Restricted Stock award, (i) the Committee may in its discretion
accelerate the vesting of Restricted Stock at any time, and (ii) all
shares of Restricted Stock shall vest upon a Change of Control of the
Company.
3.2 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or at the time of vesting
of Restricted Stock, may provide for a Supplemental Payment by the Company to
the employee in an amount specified by the Committee which shall not exceed,
but may be equal to, the amount necessary to pay the federal income tax payable
with respect to both the vesting of the Restricted Stock and receipt of the
Supplemental Payment, assuming the employee is taxed at the maximum effective
federal income tax rate applicable thereto and has not elected to recognize
income with respect to the Restricted Stock before the date such Restricted
Stock vests. The Supplemental Payment shall be paid within 30 days of each
date that Restricted Stock vests. The Supplemental Payment shall be paid in
cash or Common Stock, in the discretion of the Committee, except that in the
event of a Change of Control the Supplemental Payment shall be paid in cash.
IV. ADDITIONAL PROVISIONS
4.1 GENERAL RESTRICTIONS
Each award under the Plan shall be subject to the requirement that, if
at any time the Committee shall determine that (i) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by the
recipient of an award with respect to the disposition of shares of Common Stock
is necessary or desirable (in connection with any requirement or interpretation
of any federal or state securities law, rule or regulation) as a condition of,
or in connection with, the granting of such award or the issuance, purchase or
delivery of shares of Common Stock thereunder, such award may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
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<PAGE> 8
4.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution,
merger, consolidation, spin-off, sale of assets, payment of an extraordinary
cash dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate adjustment
in the number and kind of shares authorized by the Plan, in the number, price
or kind of shares covered by the awards and in any outstanding awards under the
Plan.
4.3 AMENDMENTS
(a) The Board of Directors may amend the Plan from time to time.
No such amendment shall require approval by the stockholders unless stockholder
approval is required by applicable law or stock exchange requirements.
(b) The Committee shall have the authority to amend any grant to
include any provision which, at the time of such amendment, is authorized under
the terms of the Plan; however, no outstanding award may be revoked or altered
in a manner unfavorable to the holder without the written consent of the
holder.
4.4 CANCELLATION OF AWARDS
Any award granted under the Plan may be cancelled at any time with the
consent of the holder and a new award may be granted to such holder in lieu
thereof, which award may, in the discretion of the Committee, be on more
favorable terms and conditions than the cancelled award.
4.5 WITHHOLDING
(a) Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the
right to require the holder to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax liability prior to the
delivery of any certificate for such shares. Whenever under the Plan payments
are to be made in cash, such payments shall be net of an amount sufficient to
satisfy any federal, state or local withholding tax liability.
(b) An employee entitled to receive Common Stock under the Plan
who has not received a cash Supplemental Payment may elect to have the federal,
state and local tax liability (or a specified portion thereof) with respect to
such Common Stock satisfied by having the Company withhold from the shares
otherwise deliverable to the employee shares of Common Stock having a value
equal to the amount of the tax liability to be satisfied with respect to the
Common Stock. An election to have all or
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<PAGE> 9
a portion of the tax liability satisfied using Common Stock shall comply with
such requirements as may be imposed by the Committee and shall be subject to
the disapproval of the Committee (expressed either prior to or within two days
after the making of such election).
4.6 NON-ASSIGNABILITY
Except as expressly provided in the Plan, no award under the Plan
shall be assignable or transferable by the holder thereof except by will or by
the laws of descent and distribution. During the life of the holder, awards
under the Plan shall be exercisable only by such holder or by the guardian or
legal representative of such holder.
4.7 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive awards; the form, amount
and timing of such awards; the terms and provisions of such awards and the
agreements evidencing same; and provisions with respect to termination of
employment) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated.
4.8 NO GUARANTEE OF EMPLOYMENT
The grant of an award under the Plan shall not constitute an assurance
of continued employment for any period.
4.9 CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as in effect on March 1, 1985)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 as in effect on March
1, 1985) of securities of the Company representing 35% or more of the
voting power of the outstanding securities of the Company having the
right under ordinary circumstances to vote at an election of the Board
of Directors,
(ii) there shall occur a change in the composition of a
majority of the Board of Directors within any period of three
consecutive years which change shall not have been approved by a
majority of the Board of Directors as constituted immediately prior to
the commencement of such period, or
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<PAGE> 10
(iii) at any meeting of the stockholders of the Company
called for the purpose of electing directors, all persons nominated by
the Board of Directors for election as directors shall fail to be
elected.
4.10 DURATION AND TERMINATION
(a) The Plan shall be of unlimited duration. Notwithstanding the
foregoing, no incentive stock option (within the meaning of Section 422 of the
Code) shall be granted under the Plan after April 24, 2001, but awards granted
prior to such date may extend beyond such date, and the terms of this Plan
shall continue to apply to all awards granted hereunder.
(b) The Board of Directors may discontinue or terminate the Plan
at any time. Such action shall not impair any of the rights of any holder of
any award outstanding on the date of the Plan's discontinuance or termination
without the holder's written consent.
This document (a) incorporates into a single document the provisions
of the Plan as amended and restated as of April 25, 1991 and the provisions of
the amendment to the Plan dated as of May 28, 1992, (b) pursuant to Section
4.2, amends the Plan to reflect the two-for-one split of the Company's Common
Stock that was effective as of September 15, 1993, and (c) amends the Plan to
limit the number of Options that may be granted to any employee in a 12-month
period.
IN WITNESS WHEREOF, this document has been executed as of December 3,
1993.
SONAT INC.
by: /s/ Ronald L. Kuehn, Jr.
----------------------------
Ronald L. Kuehn, Jr.
Chairman of the Board,
President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 10-(6)
RESTRICTED STOCK PLAN
FOR DIRECTORS OF
SONAT INC.
(AS AMENDED AND RESTATED AS OF SEPTEMBER 15, 1993)
1. PURPOSE. This Restricted Stock Plan for Directors of Sonat
Inc. (the "Plan") is hereby established by Sonat Inc. (the "Company"). The
purpose of the Plan is to enable the Company to pay part of the compensation of
its non-employee Directors in shares of the Company's Common Stock, thereby
providing for or increasing such Directors' proprietary interest in the
Company. The Plan provides for the grant of shares of Common Stock of the
Company which are restricted in accordance with the terms and conditions set
forth below ("Restricted Shares").
2. ELIGIBILITY. Each Director of the Company who is not an
officer or employee of the Company or any of its subsidiaries (an "Eligible
Director") shall be eligible for awards under the Plan. Each Eligible Director
to whom Restricted Shares are granted under the Plan is hereinafter referred to
as a "Participant".
3. ADMINISTRATION. The Plan shall be administered by a committee
of at least three Directors (the "Committee") appointed by the Board of
Directors of the Company (the "Board of Directors"). The Committee shall have
authority to interpret the Plan, to adopt, amend and rescind administrative
regulations to further the purposes of the Plan, and to take any other action
necessary to the proper operation of the Plan. All decisions and acts of the
Committee shall be final and binding upon all Plan Participants.
4. GRANT OF RESTRICTED SHARES.
(a)(1) Each Eligible Director who is a member of the Board of
Directors on the commencement date of the Initial Plan Period (as defined
below) and whose Retirement Date (as defined below) will occur after the
termination date of such Initial Plan Period shall be granted 600 Restricted
Shares, effective as of the commencement date of the Initial Plan Period. Each
Eligible Director who is a member of the Board of Directors on the commencement
date of the Initial Plan Period and whose Retirement Date will occur prior to
the termination date of such Initial Plan Period shall be granted, effective as
of the commencement date of the Initial Plan Period, 10 Restricted Shares for
every calendar month or fraction thereof between the commencement date of the
Initial Plan Period and the March 31 coincident with or immediately preceding
the Participant's Retirement Date.
(2) Each person who becomes an Eligible Director after the
commencement date of the Initial Plan Period shall be granted, effective as of
the date such person
<PAGE> 2
becomes an Eligible Director, 10 Restricted Shares for every calendar month or
fraction thereof between the date of such person's election as an Eligible
Director and the earlier of March 31, 1993 or the March 31 coincident with or
immediately preceding the Participant's Retirement Date.
(b)(1) Each Eligible Director who is a member of the Board of
Directors on the commencement date of the Second Plan Period (as defined below)
and whose Retirement Date will occur after the termination date of such Second
Plan Period shall be granted 2,000 Restricted Shares, effective as of the
commencement date of the Second Plan Period. Each Eligible Director who is a
member of the Board of Directors on the commencement date of the Second Plan
Period and whose Retirement Date will occur prior to the termination date of
such Second Plan Period shall be granted, effective as of the commencement date
of the Second Plan Period, 400 Restricted Shares for every full Plan Year (as
defined below) in the period commencing April 1, 1993 and ending on the March
31 coincident with or immediately preceding the Participant's Retirement Date.
(2) Each person who becomes an Eligible Director after the
commencement date of the Second Plan Period shall be granted, effective as of
the date such person becomes an Eligible Director, a number of Restricted
Shares equal to the sum of (i) the product of 33.33 multiplied by the number of
full and partial calendar months between the date of such person's election as
an Eligible Director through the March 31 following such election, with such
product rounded up or down to the nearest whole share; plus (ii) 400 Restricted
Shares for every full Plan Year in the period commencing on the April 1
following such election and ending on the earlier of March 31, 1998 or the
March 31 coincident with or immediately preceding the Participant's Retirement
Date.
(c) The Initial Plan Period shall mean the period commencing on
April 28, 1988 and terminating on April 1, 1993. The Second Plan Period shall
mean the period commencing on April 22, 1993 and terminating on April 1, 1998.
Plan Year shall mean the period April 1 through the following March 31.
(d) For purposes of this Section 4, a Participant's Retirement
Date shall mean the date on which the Participant shall be required to retire
from the Board of Directors under the retirement policies of the Board of
Directors as in effect on the date of grant of Restricted Shares to such
Participant.
(e) Awards under the Plan shall be made from shares held in the
Company's treasury.
5. TERMS AND CONDITIONS OF RESTRICTED SHARES. Stock certificates
representing the Restricted Shares granted to a Participant shall be registered
in the Participant's name and shall be held by the Company on behalf of the
Participant. The
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<PAGE> 3
Participant shall have the right to vote and receive dividends on such
Restricted Shares. The Participant shall not be entitled to delivery of the
stock certificates, and no Restricted Share may be sold, transferred, assigned,
or pledged by the Participant, until such Restricted Share has vested, as
provided in Section 6. In the event a Participant ceases to be a Director of
the Company before all of his Restricted Shares have vested, any of such
Participant's Restricted Shares which have not vested shall be forfeited. At
the time Restricted Shares vest, a certificate for such shares shall be
delivered to the Participant (or the Participant's Beneficiary (as defined in
Section 10) in the event of the Participant's death), free of all restrictions.
6. VESTING OF RESTRICTED SHARES.
(a) With respect to Restricted Shares granted as of the
commencement date of the Initial Plan Period, 120 shares shall vest on April 1
of each of the years 1989 through and including 1993. With respect to
Restricted Shares granted during the Initial Plan Period but after the
commencement date of such Initial Plan Period, (i) on the April 1 following
such grant there shall vest a number of shares equal to the product of 10
multiplied by the number of full or partial calendar months from the date of
such person's election as an Eligible Director through the March 31 following
such election, and (ii) on each April 1 thereafter through the April 1 of the
year in which such Initial Plan Period terminates there shall vest 120 shares.
(b) With respect to Restricted Shares granted as of the
commencement date of the Second Plan Period, 400 shares shall vest on April 1
of each of the years 1994 through and including 1998. With respect to
Restricted Shares granted during the Second Plan Period but after the
commencement date of such Second Plan Period, (i) on the April 1 following such
grant there shall vest a number of shares equal to the product of 33.33
multiplied by the number of full or partial calendar months from the date of
such person's election as an Eligible Director through the March 31 following
such election, with such product rounded up or down to the nearest whole share,
and (ii) on each April 1 thereafter through the April 1 of the year in which
such Second Plan Period terminates there shall vest 400 shares.
(c) Notwithstanding the provisions of Sections 5, 6(a) and 6(b),
all Restricted Shares granted to a Participant shall vest immediately upon the
Participant's death or disability.
(d) Notwithstanding the provisions of Sections 5, 6(a) and 6(b),
in the event of a "Change of Control" (as defined in Section 13), all
Restricted Shares shall vest immediately; however, stock certificates for such
shares shall be delivered to the Participants, and the restrictions on transfer
of the shares shall lapse, in the amounts and at the times set forth in
Sections 6(a) and 6(b), regardless of whether the Participant is then serving
as a Director of the Company.
-3-
<PAGE> 4
7. SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED SHARES. Within
30 days of each date that Restricted Shares vest, a Supplemental Payment shall
be paid to the Participant (or to the Participant's Beneficiary in the event of
death), in cash, in an amount equal to the amount necessary to pay the federal
income tax payable with respect to both the vesting of the Restricted Shares
and receipt of the Supplemental Payment, assuming the Participant is taxed at
the maximum effective federal income tax rate applicable thereto and has not
elected to recognize income with respect to the Restricted Shares before the
date such Restricted Shares vest.
8. REGULATORY COMPLIANCE. The Company shall not be obligated to
issue or deliver any Restricted Shares or certificates for Common Stock if (i)
the issuance or delivery of such shares shall constitute a violation of any
provision of any law or any regulation of any governmental authority or any
national securities exchange, or (ii) the Company determines that an agreement
by a Participant with respect to the disposition of shares of Common Stock is
necessary or desirable (in connection with any requirement or interpretation of
any federal or state securities law, rule or regulation) and such agreement has
not been obtained.
9. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, rights offer, liquidation, dissolution, merger, consolidation,
spin-off, sale of assets, payment of an extraordinary cash dividend, or any
other change in or affecting the corporate structure or capitalization of the
Company, each Restricted Share then outstanding shall be converted into or
exchanged for the number and kind of securities or property into which each
outstanding share of Common Stock of the Company shall be converted as a result
of such event, and the provisions of this Plan shall continue to apply to such
substituted securities or property.
10. BENEFICIARY. A Participant may file with the Company a
written designation of Beneficiary, on such form as may be prescribed or
permitted by the Committee, to receive any Restricted Shares and Supplemental
Payments that become deliverable to the Participant pursuant to the Plan after
the Participant's death. A Participant may, from time to time, amend or revoke
a designation of Beneficiary. If no designated Beneficiary survives the
Participant, the Participant's estate shall be deemed to be the Participant's
Beneficiary.
11. AMENDMENT TO PLAN. The Board of Directors may amend the Plan
from time to time, provided that the Plan provisions with respect to
eligibility and the amount, price and timing of awards under the Plan shall not
be amended more than once every six months (other than to comport with changes
in the Internal Revenue Code of 1986 (as amended), the Employee Retirement
Income Security Act of 1974 (as amended), or the rules thereunder). No
amendment, without approval by stockholders, may (i) increase the total number
of Restricted Shares that may be awarded under the Plan to any individual, or
(ii) extend the term of the Plan. No
-4-
<PAGE> 5
amendment shall adversely affect a Participant's right to receive Restricted
Shares granted under the Plan without the written consent of the affected
Participant.
12. NO GUARANTY OF DIRECTORSHIP. Nothing in this Plan shall be
deemed to create any obligation on the part of the Board to nominate any
Director for re-election by the Company's stockholders.
13. CHANGE OF CONTROL. A "Change of Control" shall be deemed to
have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as in effect on March
1, 1985) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in
effect on March 1, 1985) of securities of the Company representing 35%
or more of the voting power of the outstanding securities of the
Company having the right under ordinary circumstances to vote at an
election of the Board of Directors,
(ii) there shall occur a change in the composition of a
majority of the Board of Directors within any period of three
consecutive years which change shall not have been approved by a
majority of the Board of Directors as constituted immediately prior to
the commencement of such period, or
(iii) at any meeting of the stockholders of the Company
called for the purpose of electing Directors, all persons nominated by
the Board of Directors for election as Directors shall fail to be
elected.
14. WITHHOLDING. Whenever the Company proposes or is required to
deliver shares of Common Stock under the Plan, the Company shall have the right
to require the Participant to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax liability prior to the
delivery of any certificate or certificates for such shares. Supplemental
Payments under the Plan shall be net of an amount sufficient to satisfy any
federal, state and local withholding tax liability on both the vesting of
Restricted Shares and receipt of the Supplemental Payment.
15. EFFECTIVE DATE AND TERMINATION DATE. This Plan became
effective April 28, 1988, upon the approval of the Plan by the stockholders of
the Company at the Company's 1988 Annual Meeting. The termination date of the
Initial Plan Period shall be April 1, 1993. The amendment adding the Second
Plan Period shall be effective April 22, 1993, upon the approval of such
amendment by the stockholders of the Company at the Company's 1993 Annual
Meeting. The Plan's termination date shall be April 1, 1998. The Board of
Directors may terminate the Plan prior to its termination date, but such action
shall have no effect on Restricted Shares granted prior to such action.
-5-
<PAGE> 6
Pursuant to Section 9, this document amends and restates the Plan to
reflect the two-for-one split of the Company's Common Stock that was effective
as of September 15, 1993.
SONAT INC.
by: /s/ Ronald L. Kuehn, Jr.
-------------------------------------
Ronald L. Kuehn, Jr.
Chairman of the Board,
President and Chief Executive Officer
-6-
<PAGE> 1
EXHIBIT 10-(7)
PERFORMANCE AWARD PLAN OF SONAT INC.
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Performance Award Plan (the "Plan") of Sonat Inc. (the "Company")
is intended to advance the best interests of the Company and its subsidiaries
by providing officers with additional incentives through the payment of bonuses
based on the performance of the Company relating to specified objective
financial and business criteria, thereby increasing the personal stake of such
officers in the continued success and growth of the Company and encouraging
them to remain in the employ of the Company. Awards under the Plan are
intended to qualify as "performance-based compensation" for purposes of Section
162(m) of the Internal Revenue Code ("Section 162(m)").
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Executive Compensation Committee
or other designated Committee (the "Committee") of the Board of Directors of
the Company (the "Board of Directors") which shall consist solely of two or
more Directors, each of whom qualifies as an "outside director" for purposes of
Section 162(m). The Committee shall have authority, subject to the provisions
of the Plan, in its discretion, to grant awards ("Awards") under the Plan, to
interpret conclusively the provisions of the Plan, to adopt such rules and
regulations for carrying out the Plan as it may deem advisable, to decide
conclusively all questions of fact arising in the application of the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. All decisions and acts of the Committee shall be final and
binding upon all affected Plan participants. No member of the Committee shall
be liable for any action taken, or determination made, in good faith.
1.3 ELIGIBLE PARTICIPANTS
All officers of the Company and its Subsidiaries shall be eligible to
participate in the Plan. For purposes of the Plan the term "Subsidiaries"
shall mean subsidiaries, partnerships and joint ventures in which the Company
and its subsidiaries have at least a 50% ownership interest. Directors who are
not officers of the Company or its Subsidiaries shall not be eligible to
participate in the Plan.
<PAGE> 2
1.4 AWARDS UNDER THE PLAN
The Committee shall designate the eligible employees, if any, to be
granted Awards under the Plan. All Awards granted under the Plan shall be on
the terms and subject to the conditions hereinafter provided.
1.5 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of
the Board of Directors in compensating employees of the Company and its
Subsidiaries in such other forms and amounts, including compensation pursuant
to any other plans as may be currently in effect or adopted in the future, as
it may determine from time to time.
II. TERMS AND CONDITIONS OF AWARDS
2.1 ESTABLISHMENT OF PERFORMANCE OBJECTIVES AND BONUS OPPORTUNITY
Prior to the commencement of each Performance Year (or such later time
as may be permitted for performance-based compensation under Section 162(m)),
the Committee shall establish written Performance Objectives and a Bonus
Opportunity for each eligible employee chosen to receive an Award for such
Performance Year. The Performance Objectives shall be based on one or more of
the following criteria: Company earnings per share; Company or Subsidiary
earnings before interest and taxes or earnings before interest, taxes and
corporate charges; Company or Subsidiary net income; Company or Subsidiary
revenues, pipeline throughput, oil and gas production volumes, or oil and gas
marketing volumes; Company or Subsidiary unit revenues minus unit variable
costs; Company or Subsidiary return on capital, return on equity, return on
assets, or return on invested capital; Company or Subsidiary cash flow return
on assets or cash flows from operating activities; Company or Subsidiary
capital expenditures; Company or Subsidiary operations and maintenance expense
or general and administrative expense; Company or Subsidiary oil and gas unit
operating income or oil and gas unit lifting costs; Company or Subsidiary
reserve replacement, reserve replacement costs and reserve acquisition costs;
and Company or Subsidiary debt-equity ratios and key profitability ratios. At
the time of setting the Performance Objectives, the Committee shall specify the
formula to be used in calculating each of the criteria on which an Award is
based and their relative weights. The Bonus Opportunity shall be expressed as
an amount of cash. The Committee may also specify a minimum acceptable level
of achievement of the relevant Performance Objectives, as well as one or more
additional levels of achievement, and a formula to determine the percentage of
the Bonus Opportunity deemed to have been earned by the employee upon
attainment of each such level of achievement, which percentage may exceed 100%.
The Performance Objectives and Bonus Opportunity relating to any particular
Award need not be the same as those relating to any other Award, whether made
at the same or a different time.
2
<PAGE> 3
2.2 PERFORMANCE YEAR
The Performance Year with respect to an Award shall be the calendar
year within which the Performance Objectives relating to that Award are to be
achieved.
2.3 EARNING OF AWARD
Promptly after the date on which the necessary information for a
particular Performance Year becomes available, the Committee shall determine,
and certify in writing, the extent to which the Bonus Opportunity for such
Performance Year has been earned, through the achievement of the relevant
Performance Objectives, by each employee who was granted an Award for such
Performance Year. Notwithstanding the terms of any Award, the maximum payout
under this Plan to any individual for any Performance Year shall not exceed
$1.5 million.
2.4 DISCRETIONARY DOWNWARD ADJUSTMENTS
Notwithstanding the terms of any Award, the Committee, in its sole and
absolute discretion, may reduce the amount of the Award payable to any employee
for any reason, including the Committee's judgment that the Performance
Objectives have become an inappropriate measure of achievement, a change in the
employment status, position or duties of the employee, unsatisfactory
performance of the employee, or the employee's service for less than the entire
Performance Year.
2.5 DISTRIBUTIONS
Promptly after the Committee has determined the extent to which an
Award has been earned, such Award shall be distributed in cash in a lump sum,
unless the Committee determines, either at the time of grant or the time of
distribution, to distribute all or a portion of such Award in installments or
as deferred compensation. The Committee, in its discretion, may adopt a
program to permit employees to defer all or a portion of their Award.
2.6 CHANGE OF CONTROL
Notwithstanding any other provision of this Plan or contained in any
Award granted hereunder (including any provision for deferred payment thereof),
upon the occurrence of a Change of Control (as defined in Section 3.6), a
participant shall be deemed to have fully earned the Bonus Opportunities
contained in his outstanding Awards, and the amount of such Bonus Opportunities
shall be paid promptly (and no later than 30 days after the Change of Control)
in a cash lump sum. Notwithstanding the provisions of Section 2.4, following a
Change of Control the Committee shall not adjust the Bonus Opportunity
specified in an Award from that in effect immediately prior to the Change of
Control in a manner adverse to the participant.
3
<PAGE> 4
III. ADDITIONAL PROVISIONS
3.1 AMENDMENTS
The Board of Directors may, in its sole discretion, amend the Plan
from time to time. Any such amendment may be made without stockholder approval
unless required to satisfy Section 162(m).
3.2 WITHHOLDING
Payments under the Plan shall be net of an amount sufficient to
satisfy any federal, state or local withholding tax liability.
3.3 NON-ASSIGNABILITY; DEATH OF PARTICIPANT
No Award under the Plan shall be assignable or transferable by the
holder thereof except by will or by the laws of descent and distribution. In
the event of the death of a participant, any payments due to such participant
shall be paid to his beneficiary designated in writing to the Committee, or, if
none has been designated, to his estate.
3.4 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive Awards; the terms and
provisions of such Awards; the relevant Performance Objectives; the amount of
Bonus Opportunity; and the amount of any downward adjustment) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
3.5 NO GUARANTEE OF EMPLOYMENT
The grant of an Award under the Plan shall not constitute an assurance
of continued employment for any period.
3.6 CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as in effect on March 1, 1985)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934 as in effect on March 1, 1985) of
securities of the Company representing 35% or more of the voting power of the
outstanding securities of the
4
<PAGE> 5
Company having the right under ordinary circumstances to vote at an election of
the Board of Directors,
(ii) there shall occur a change in the composition of a
majority of the Board of Directors within any period of three consecutive years
which change shall not have been approved by a majority of the Board of
Directors as constituted immediately prior to the commencement of such period,
or
(iii) at any meeting of the stockholders of the Company
called for the purpose of electing directors, all persons nominated by the
Board of Directors for election as directors shall fail to be elected.
3.7 UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS
The Plan is intended to constitute an "unfunded" plan. With respect
to any amounts payable to a participant pursuant to an Award, nothing contained
in the Plan (or in any documents related thereto), nor the creation or adoption
of the Plan, the grant of any Award, or the taking of any other action pursuant
to the Plan, shall give any such participant any rights that are greater than
those of a general creditor of the Company. The Committee may authorize the
creation of trusts or make other arrangements to meet the Company's obligations
under the Plan, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan.
3.8 EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on January 27, 1994 subject to the
approval thereof by stockholders of the Company at the 1994 annual meeting.
Awards may be granted under the Plan for calendar years 1994 through 1998,
unless the Plan is terminated earlier by the Board of Directors, in its sole
discretion. The Plan shall remain in effect for purposes of administering the
payment of Awards granted under the Plan until such payments have been
completed.
SONAT INC.
By: /s/ Ronald L. Kuehn, Jr.
-------------------------------------
Ronald L. Kuehn, Jr.
Chairman of the Board,
President and Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10-(8)
CASH BONUS PLAN OF SONAT INC.
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Cash Bonus Plan (the "Plan") of Sonat Inc. (the "Company") is
intended to advance the best interests of the Company and its subsidiaries by
providing officers with additional incentives through the payment of cash
bonuses based on company or individual performance, thereby increasing the
personal stake of such employees in the continued success and growth of the
Company and encouraging them to remain in the employ of the Company. Such
bonuses shall be in addition to any bonuses paid under the Performance Award
Plan.
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Executive Compensation Committee
or other designated committee (the "Committee") of the Board of Directors of
the Company (the "Board of Directors") which shall consist solely of two or
more Directors who are not eligible to participate in the Plan. The Committee
shall have authority, subject to the provisions of the Plan, in its discretion,
to grant awards under the Plan, to interpret conclusively the provisions of the
Plan, to adopt such rules and regulations for carrying out the Plan as it may
deem advisable, to decide conclusively all questions of fact arising in the
application of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. All decisions and acts of the
Committee shall be final and binding upon all affected Plan participants. No
member of the Committee shall be liable for any action taken, or determination
made, in good faith.
1.3 ELIGIBLE PARTICIPANTS
All officers of the Company and its Subsidiaries shall be eligible to
participate in the Plan. For purposes of the Plan, the term "Subsidiaries"
shall mean subsidiaries, partnerships and joint ventures in which the Company
and its subsidiaries have at least a 50% ownership interest. Directors who are
not officers of the Company or its Subsidiaries shall not be eligible to
participate in the Plan.
1.4 AWARDS UNDER THE PLAN
The Committee shall designate the eligible employees, if any, to be
granted awards under the Plan
<PAGE> 2
2
(collectively, "Awards"). Awards may be in the form of (i) Annual
Bonus Awards pursuant to Article II, or (ii) other bonuses and awards pursuant
to Article III. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.5 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of
the Board of Directors in compensating employees of the Company and its
Subsidiaries in such other forms and amounts, including compensation pursuant
to any other plans as may be currently in effect or adopted in the future, as
it may determine from time to time.
II. ANNUAL BONUS AWARDS
2.1 ESTABLISHMENT OF PERFORMANCE OBJECTIVES AND BONUS OPPORTUNITY
At the time of each grant of an Annual Bonus Award (an "Annual Bonus
Award"), the Committee shall establish written Performance Objectives for a
specified Performance Period and a Bonus Opportunity for each eligible employee
chosen to receive such Annual Bonus Award. The Performance Objectives shall be
based on one or more criteria specified by the Committee in the Annual Bonus
Award. Such Performance Objectives may be described in terms of Company-wide
objectives or of objectives which are related to performance of the employee or
of the division, Subsidiary, department or function within the Company in which
the employee is employed. The Bonus Opportunity shall be expressed as an
amount of cash. The Committee may also specify a minimum acceptable level of
achievement of the relevant Performance Objectives, as well as one or more
additional levels of achievement, and a formula to determine the percentage of
the Bonus Opportunity deemed to have been earned by the employee upon
attainment of each such level of achievement, which percentage may exceed 100%.
The Performance Objectives and Bonus Opportunity relating to any particular
Annual Bonus Award need not be the same as those relating to any other Annual
Bonus Award, whether made at the same or a different time. If during the
Performance Period relating to any Annual Bonus Award events or transactions
occur which, in the sole judgment of the Committee, cause the Performance
Objectives or levels of achievement relating to such Annual Bonus Award to be
an inappropriate measure of achievement, the
<PAGE> 3
3
Committee may adjust such Performance Objectives or levels of achievement.
2.2 PERFORMANCE PERIOD
The Performance Period with respect to an Annual Bonus Award shall be
the period specified by the Committee within which the Performance Objectives
relating to that Annual Bonus Award are to be achieved.
2.3 EARNING OF AWARD
Promptly after the date on which the necessary information for a
particular Performance Period becomes available, the Committee shall determine
the extent to which the Bonus Opportunity for such Performance Period has been
earned, through the achievement of the relevant Performance Objectives, by each
employee who was granted an Annual Bonus Award for such Performance Period.
2.4 DISCRETIONARY DOWNWARD ADJUSTMENTS
Notwithstanding the terms of any Annual Bonus Award, the Committee, in
its sole and absolute discretion, may reduce the amount of the Annual Bonus
Award payable to any employee for any reason, including the Committee's
judgment that the Performance Objectives have become an inappropriate measure
of achievement, a change in the employment status, position or duties of the
employee, unsatisfactory performance of the employee, or the employee's service
for less than the entire Performance Period.
2.5 DISTRIBUTIONS
Promptly after the Committee has determined the extent to which an
Annual Bonus Award has been earned, such Annual Bonus Award shall be
distributed in cash in a lump sum, unless the Committee determines, either at
the time of grant or the time of distribution, to distribute all or a portion
of such Annual Bonus Award in installments or as deferred compensation. The
Committee, in its discretion, may adopt a program to permit employees to defer
all or a portion of their Annual Bonus Award.
2.6 CHANGE OF CONTROL
Notwithstanding any other provision of this Plan or contained in any
Annual Bonus Award granted hereunder (including any provision for deferred
payment thereof), upon the occurrence
<PAGE> 4
4
of a Change of Control (as defined in Section 4.6), a participant shall be
deemed to have fully earned the Bonus Opportunities contained in his
outstanding Annual Bonus Awards, and the amount of such Bonus Opportunities
shall be paid promptly (and no later than 30 days after theChange of Control)
in a cash lump sum. Notwithstanding the provisions of Sections 2.1 and 2.4,
following a Change of Control the Committee shall not adjust the Bonus
Opportunity specified in an Annual Bonus Award from that in effect immediately
prior to the Change of Control in a manner adverse to the participant.
III. OTHER CASH BONUSES AND AWARDS
3.1 CASH BONUSES AND AWARDS
The Committee, from time to time, may make other cash bonuses and
other cash awards to eligible employees. All such awards shall be subject to
such terms and conditions, including deferred payment, as the Committee, in its
discretion, may determine from time to time.
3.2 CHANGE OF CONTROL
Notwithstanding any provision for deferred payment of any bonus or
award granted under Section 3.1, upon the occurrence of Change of Control (as
defined in Section 4.6), the full amount of such bonus or award shall be paid
promptly (and no later than 30 days after the Change of Control) in a cash lump
sum.
IV. ADDITIONAL PROVISIONS
4.1 AMENDMENTS
The Board of Directors may, in its sole discretion, terminate the Plan
at any time, or amend it from time to time. Any such amendment may be made
without stockholder approval.
4.2 WITHHOLDING
Payments under the Plan shall be net of an amount sufficient to
satisfy any federal, state or local withholding tax liability.
4.3 NON-ASSIGNABILITY
<PAGE> 5
5
No Award under the Plan shall be assignable or transferable by
the holder thereof except by will or by the laws of descent and
distribution. In the event of the death of a participant, any
payments due to such participant shall be paid to his beneficiary
designated in writing to the Committee, or, if none has been
designated, to his estate.
4.4 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including,
without limitation, determinations of the persons to receive Awards;
the terms and provisions of such Awards; the applicable Performance
Objectives and Bonus Opportunity; and the amount of any downward
adjustment) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated.
4.5 NO GUARANTEE OF EMPLOYMENT
The grant of an Award under the Plan shall not constitute an
assurance of continued employment for any period.
4.6 CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as in effect on March 1, 1985)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 as in effect on March
1, 1985) of securities of the Company representing 35% or more of the
voting power of the outstanding securities of the Company having the
right under ordinary circumstances to vote at an election of the Board
of Directors,
(ii) there shall occur a change in the composition of a majority of the Board
of Directors within any period of three consecutive years which
change shall not have been approved by a majority of the Board of
Directors as constituted immediately prior to the commencement of such
period, or
(iii) at any meeting of the stockholders of the Company called for the purpose
of electing directors, all persons nominated by the Board of
Directors for election as directors shall fail to be elected.
<PAGE> 6
6
4.7 UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS
The Plan is intended to constitute an "unfunded" plan. With respect
to any amounts payable to a participant pursuant to an Award, nothing contained
in the Plan (or in any documents related thereto), nor the creation or adoption
of the Plan, the grant of any Award, or the taking of any other action pursuant
to the Plan, shall give any such participant any rights that are greater than
those of a general creditor of the Company. The Committee may authorize the
creation of trusts or make other arrangements to meet the Company's obligations
under the Plan, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan.
4.8 EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on January 27, 1994 and shall remain
in effect until such time as it has been terminated by the Board of Directors.
SONAT INC.
By: /s/ Ronald L. Kuehn, Jr.
------------------------
<PAGE> 1
EXHIBIT 10-(10)
SCHEDULE
EXECUTIVE SEVERANCE AGREEMENTS
The following Executive Severance Agreements are substantially
identical to the Executive Severance Agreement dated April 27, 1989 between
Sonat Inc. and Ronald L. Kuehn, Jr. which was filed as Exhibit 10-(14) to the
Sonat Inc. Annual Report on Form 10-K for the year ended December 31, 1989:
Executive Severance Agreement dated April 27, 1989, between Sonat Inc.
and Donald G. Russell.
Executive Severance Agreement dated April 27, 1989, between Sonat Inc.
and William A. Smith.
Executive Severance Agreement dated February 24, 1994, between Sonat
Inc. and James A. Rubright.
<PAGE> 1
EXHIBIT 10-(16)
SCHEDULE OF PARTICIPANTS
SONAT INC. EXECUTIVE LIFE INSURANCE PROGRAMS
The following are participants in the Sonat Inc. Executive
Life Insurance Programs, form of which is filed as Exhibit 10-(20) to the Sonat
Inc. Annual Report on Form 10-K for the year ended December 31, 1990:
Thomas W. Barker, Jr.
Richard B. Bates
Beverley T. Krannich
Ronald L. Kuehn, Jr.
James E. Moylan, Jr.
Ronald B. Pruet, Jr.
James A. Rubright
Donald G. Russell
William A. Smith
<PAGE> 1
EXHIBIT 10-(23)
STANDBY NOTE PURCHASE AGREEMENT
among
SONAT INC.
and
CREDIT LYONNAIS NEW YORK BRANCH
as Administrative Agent for the Banks party to
the Revolving Credit Agreement with
Citrus Corp. dated as of the date hereof
and
Citrus Corp.
Joining for Purposes of
Acknowledging and Consenting
Dated as of December 23, 1993
Relating to
$150,000,000
Revolving Credit Agreement
Series B Notes
of
Citrus Corp.
<PAGE> 2
<TABLE>
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TABLE OF CONTENTS
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<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Terms Defined in Revolving Credit Agreement . . . . . . . . . . . . . 1
SECTION 1.02. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
PURCHASE OF NOTES; PAYMENTS AND FEES
SECTION 2.01. Purchases of the Series B Notes . . . . . . . . . . . . . . . . . . . 4
SECTION 2.02. Sonat's Status After Purchase of the Series B Notes . . . . . . . . . 6
SECTION 2.03. Returned Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.04. Amendments and Modifications . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
OBLIGATIONS ABSOLUTE
SECTION 3.01. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.02. Additional Consents and Agreements . . . . . . . . . . . . . . . . . . 9
SECTION 3.03. No Duty to Pursue Others . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.04. Waiver of Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Sonat . . . . . . . . . . . . . . . 10
SECTION 4.02. Survival of Representations; Deemed Representations . . . . . . . . . 12
ARTICLE V
COVENANTS OF SONAT
SECTION 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.02. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.03. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.04. Continuing Obligation . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.05. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.06. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7.07. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7.08. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 7.09. Transfer of Borrower Obligations . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.11. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.13. Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Exhibit A - Terms of Subordination A-1
</TABLE>
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<PAGE> 4
This STANDBY NOTE PURCHASE AGREEMENT ("this Agreement") is made and
entered into this 23rd day of December, 1993 by and among SONAT INC., a
Delaware corporation ("Sonat"), Credit Lyonnais New York Branch, a duly
licensed branch under the New York Banking Law of a foreign banking corporation
organized under the laws of the Republic of France, as Administrative Agent for
the Banks party to the Revolving Credit Agreement with Citrus Corp., a Delaware
corporation, dated of even date herewith, and Citrus Corp. joining for purposes
of acknowledging and consenting to the terms hereof.
PRELIMINARY STATEMENTS
A. Citrus Corp. ("Citrus" or the "Borrower") has entered into that
certain Revolving Credit Agreement of even date herewith with the Banks party
thereto, and The Toronto-Dominion Bank and Credit Lyonnais New York Branch, as
Managing Agents, and with Credit Lyonnais New York Branch, as Administrative
Agent for the Banks thereunder (such agreement, as it may from time to time be
amended or supplemented, the "Revolving Credit Agreement").
B. The Banks will, subject to the terms and conditions of the
Revolving Credit Agreement, make Advances to the Borrower.
C. One of the conditions under the Revolving Credit Agreement to
the Banks' making Advances to the Borrower is the execution and delivery of
this Agreement by Sonat.
D. To induce the Banks to enter into the Revolving Credit Agreement
and make Advances to the Borrower subject to the terms and conditions thereof,
Sonat desires to execute and deliver this Agreement to the Administrative Agent
for the benefit of Citrus and each Bank.
NOW, THEREFORE, in consideration of the premises, the parties agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Terms Defined in Revolving Credit Agreement.
Capitalized terms which are defined in the Revolving Credit Agreement have the
same meaning herein, except as otherwise defined herein.
SECTION 1.02. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and the plural forms of the terms defined):
<PAGE> 5
"Accrued Interest" means, with respect to the Series B Notes, the
interest from time to time accrued thereon (including, without limitation,
interest accruing or becoming owing both prior to and subsequent to the
commencement of any proceeding against or with respect to the Borrower under
any chapter of the Bankruptcy Code) and, with respect to any Tendered Series B
Notes to be purchased hereunder, the accrued interest on such Tendered Series B
Notes to but not including the date on which such Tendered Series B Notes are
purchased, in all cases determined in accordance with the Revolving Credit
Agreement and to the extent not previously paid by the Borrower (subject to
Section 2.03(c)).
"Additional Interest" has the meaning assigned to that term in Section
2.03(a).
"Borrower Obligations" means all payment obligations of the Borrower
under the Revolving Credit Agreement and the Notes, including, without
limitation, all obligations in respect to principal of and interest on the
Notes, fees, expenses and other amounts (whether due to increased cost, taxes,
indemnification or otherwise) which may be due under such Loan Documents.
"Change in Control" means
(a) the failure of Enron and Sonat collectively to own, directly
or indirectly, 51% of the outstanding Voting Stock of Citrus free and
clear of all Liens (other than Liens for so long as the ability of
Enron and Sonat, collectively, to fully exercise voting rights with
respect to such shares remains unaffected); or
(b) the failure of Citrus to own, directly or indirectly,
51% of the outstanding Voting Stock of FGT free and clear of all Liens
(other than Liens permitted pursuant to Section 5.02(d) of the
Revolving Credit Agreement).
"Debt" of any Person means, at any date, without duplication, (i)
obligations for the repayment of money borrowed which are or should be shown on
a balance sheet as debt in accordance with GAAP, (ii) obligations as lessee
under leases which, in accordance with GAAP, are capital leases, and (iii)
guaranties of payment or collection of any obligations described in clauses (i)
and (ii) of other Persons, provided, that clauses (i) and (ii) include, in the
case of obligations of the Borrower or any Subsidiary, only such obligations as
are or should be shown as debt or capital lease liabilities on a Consolidated
balance sheet in accordance with GAAP; provided, further, that none of the
following shall constitute Debt: (A) the liability of any Person as a general
partner of a partnership for Debt of such partnership, if the partnership is
not a Subsidiary of such Person, and (B) obligations (other than borrowings,
capital leases or financial guaranties by the Borrower or any Subsidiary)
related to the sale, purchase or delivery of
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<PAGE> 6
hydrocarbons in respect of production payments conveyed in transfers
constituting sales under GAAP.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 7.15.
"Event of Default" has the meaning assigned to that term in Section
6.01.
"Expiration Date" means the first date on which all the Series B Notes
have been paid in full (except for Tendered Series B Notes purchased under this
Agreement) and no Bank has any further Commitment.
"Indemnified Party" has the meaning assigned to that term in Section
7.05(b).
"Moody's" means Moody's Investors Service, Inc.
"Note Purchase Event" means
(a) the failure of Citrus to pay any or all of the Notes on the
Termination Date, or
(b) an Event of Default has occurred and is continuing, or
(c) an Enron Event of Default has occurred and is continuing.
"Other Accrued Obligations" means at any time one-half of the then
unpaid Borrower Obligations that have become due and payable, except for
principal and interest on the Notes.
"Other Loan Documents" means all Loan Documents other than this
Agreement.
"Principal Subsidiary" means Southern Natural Gas Company and Sonat
Exploration Company and any other Subsidiary of Sonat which shall acquire or
succeed to all or any substantial part of the assets or stock of either such
Principal Subsidiary, in which case all references to such Principal Subsidiary
shall mutatis mutandi be deemed to refer to such other Subsidiary.
"Purchase Date" means, with respect to any Tendered Series B Note, the
date on which such Tendered Series B Note is to be purchased in accordance with
Section 2.01.
"Related Indemnified Party" has the meaning assigned to that
term in Section 7.05(b).
"Remaining Purchase Commitment" means, as of any date of
determination, the Standby Purchase Commitment minus the principal
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amount of all Series B Notes purchased theretofore in accordance with Section
2.01.
"Return Date" has the meaning assigned to that term in Section
2.03(a).
"Returned Payment" has the meaning assigned to that term in Section
2.03(a).
"SEC" means the Securities and Exchange Commission.
"Standard & Poor's" means Standard & Poor's Corporation.
"Standby Purchase Commitment" means the obligation of Sonat to
purchase Tendered Series B Notes in the principal amount up to, but not
exceeding at any time, the lesser of (i) the aggregate principal amount of
Series B Notes then outstanding and (ii) $150,000,000.
"Tendered Series B Note" means any Series B Note which has been
tendered for purchase in accordance with this Agreement.
"Voting Stock" means securities (as such term is defined in Section
2(1) of the Securities Act of 1933, as amended) of any class or classes of a
Person, the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the corporate directors (or Persons performing
similar functions) of such Person.
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, except
as otherwise stated herein.
ARTICLE II
PURCHASE OF NOTES; PAYMENTS AND FEES
SECTION 2.01. Purchases of the Series B Notes.
(a) The Administrative Agent may at any time (or from time to time)
while a Note Purchase Event shall have occurred and be continuing, deliver
written notice to Sonat requiring Sonat to purchase Tendered Series B Notes on
the Purchase Date specified in such notice which shall be at least ten Business
Days after the date of such notice, which notice shall (1) state that a Note
Purchase Event has occurred and is continuing, (2) demand that Sonat purchase
Series B Notes hereunder, (3) specify the Purchase Date, (4) specify the
principal amount of each Tendered Series B Note and of the aggregate amount of
Tendered Series B Notes to be purchased by Sonat on such Purchase Date and (5)
specify the Accrued Interest to be paid on each such Tendered Series B Note and
in the aggregate for all such Tendered Series B Notes by Sonat on such Purchase
Date, assuming, for the purposes of such notice, that
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<PAGE> 8
Sonat makes such purchase on such Purchase Date and that the applicable rate or
rates of interest do not change. In the event of a change in such rate or
rates of interest after the date of the Administrative Agent's notice pursuant
to Section 2.01(a) or in the event that Sonat makes the required purchase on a
date other than the Purchase Date specified in such notice, the Accrued
Interest will be adjusted accordingly.
(b) On or before each Purchase Date notified to Sonat by the
Administrative Agent in accordance with Section 2.01(a), Sonat agrees to
purchase Series B Notes tendered by the Banks in a principal amount not greater
than the Remaining Purchase Commitment in effect on such Purchase Date at a
purchase price equal to 100% of the aggregate principal amount of such Tendered
Series B Notes then outstanding plus Accrued Interest thereon, subject,
however, to the provisions of Section 2.03.
(c) Upon receipt of written demand in accordance with Section
2.01(a), Sonat will honor its purchase obligations under Section 2.01(b) by
transferring the purchase price in same day funds to the Administrative Agent,
for the account of the Banks, not later than 11:00 a.m. New York time, on the
Purchase Date. Payment by Sonat of the purchase price, as set forth in this
subsection (c), shall completely satisfy Sonat's obligations with respect to
such payment (subject to any adjustment in the Accrued Interest as provided in
the last sentence of Section 2.01(a)), and it shall be the obligation of the
Administrative Agent to transmit such funds to the Banks in accordance with
their respective interests.
(d) Pending payment thereof to the Banks, the Administrative Agent
shall hold all funds paid by Sonat hereunder in trust for the benefit of Sonat.
The Administrative Agent shall not disburse such funds to any Bank until the
Series B Note held by such Bank (the aggregate unpaid principal of which shall
be at least equal to the aggregate principal portion of the purchase price
thereof) has been indorsed without recourse or warranty (except as provided in
Section 2.01(g)) to the order of Sonat and delivered by such Bank to the
Administrative Agent for delivery to Sonat against such Bank's receipt of the
purchase price thereof; provided, however, in the event any Bank has lost its
Series B Note, such Bank may, in lieu of delivering such original Series B Note
endorsed to Sonat as required above, deliver an affidavit of lost note with a
photocopy of such lost Series B Note attached together with an indemnity by
such Bank indemnifying Sonat for any loss Sonat may experience resulting from
the loss of such Series B Note. After payment by Sonat of the purchase price
for Tendered Series B Notes, the Tendered Series B Notes delivered to the
Administrative Agent shall promptly thereafter be delivered to Sonat.
(E) EACH PURCHASE OF A SERIES B NOTE HEREUNDER SHALL BE ON A
NON-RECOURSE BASIS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED THAT NO BANK SHALL
AT ANY TIME OR UNDER ANY CIRCUMSTANCE HAVE ANY
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<PAGE> 9
RESPONSIBILITY OR LIABILITY WITH RESPECT TO THE VALUE, GENUINENESS, VALIDITY,
ENFORCEABILITY OR COLLECTABILITY OF, OR AS TO THE VALIDITY OR SUFFICIENCY OF
ANY GUARANTY OR SECURITY FOR, ANY SERIES B NOTE. EACH SUCH PURCHASE SHALL BE
MADE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE ADMINISTRATIVE AGENT
OR ANY BANK WITH RESPECT TO THE MATTERS DISCUSSED IN THE PRECEDING SENTENCE OR
ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER (EXPRESS OR IMPLIED) BY ANY
BANK EXCEPT AS TO THE MATTERS STATED IN SECTION 2.01(G) WITH RESPECT TO SUCH
BANK'S TENDERED SERIES B NOTE AND BY THE ADMINISTRATIVE AGENT ON BEHALF OF SUCH
BANK AS TO THE STATEMENTS MADE IN CLAUSES (1), (4) AND (5) OF SECTION 2.01(A)
AND IN CLAUSE (1) OF SECTION 2.03(A) (WHICH IN EACH CASE ARE DEEMED TO BE
SUBJECT TO THE MATTERS DISCUSSED IN THE PRECEDING SENTENCE), IT BEING THE
INTENTION OF THE PARTIES HERETO THAT ALL RISKS INCIDENT TO THE MATTERS
DISCUSSED IN THE PRECEDING SENTENCE, AS BETWEEN SONAT AND THE BORROWER, ON THE
ONE HAND, AND THE ADMINISTRATIVE AGENT OR ANY BANK, ON THE OTHER HAND, SHALL BE
BORNE BY SONAT AND THE BORROWER.
(f) On each Purchase Date, the Administrative Agent will make each
tender of Series B Notes to Sonat under this Agreement concurrently with a
tender of Series A Notes to Enron under the Enron Note Purchase Agreement in
equal amounts of principal and interest accrued thereon, except to the extent
that injunctions, stay orders or other legal requirements would operate to
prevent or delay such equal tenders, in which case they may be made unequally.
(g) Each Bank that sells a Tendered Series B Note hereunder shall be
deemed to warrant to Sonat that on each Purchase Date
(i) such Bank has good title to such Tendered Series B Note
and has the right to sell and transfer such Tendered Series B Note,
and upon conveyance of such Tendered Series B Note to Sonat in
accordance with this Agreement Sonat will receive good title thereto,
free and clear of Liens attributable to such Bank,
(ii) the unpaid principal balance of such Tendered Series B
Note has been correctly stated by the Administrative Agent pursuant to
Section 2.01(a)(4) and is correctly stated on the grid attached to
such Tendered Series B Note, and
(iii) the Accrued Interest on such Tendered Series B Note has
been correctly stated by the Administrative Agent pursuant to Section
2.01(a)(5) (subject to any adjustment in the Accrued Interest as
provided in the last sentence of Section 2.01(a)).
SECTION 2.02. Sonat's Status After Purchase of the Series B Notes.
Each Tendered Series B Note, upon purchase by Sonat, shall automatically (i.e.,
without the necessity of execution and delivery of any further instruments or
agreements) become subordinated in right of payment to any and all Notes held
by the Banks from time to time, in accordance with the terms of
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<PAGE> 10
subordination in Exhibit A (which exhibit is a part of this Agreement and is
incorporated herein by reference). The purchase by Sonat of Tendered Series B
Notes hereunder shall not cause Sonat to be a "Bank" under the Revolving Credit
Agreement or obligate Sonat to make Advances to Citrus thereunder.
SECTION 2.03. Returned Payments.
(a) If any payment made by the Borrower with respect to any Series B
Notes other than any Series B Notes which have been purchased by Sonat is
rescinded or must otherwise be returned by the Administrative Agent or any Bank
upon or as the result of the insolvency, bankruptcy or reorganization of the
Borrower (a "Returned Payment"), the Administrative Agent may deliver written
notice to Sonat requiring Sonat to pay to the Administrative Agent the amount
of any Returned Payment (together with "Additional Interest" as provided
below), subject to the provisions of Section 2.03(b), which notice shall (1)
state the amount of such Returned Payment and that it has been returned on a
date which shall be specified in such notice (the "Return Date"), (2) demand
that Sonat pay an amount equal to such Returned Payment to the Administrative
Agent, (3) specify in reasonable detail the amount of such Returned Payment
attributable to (i) the principal amount of the Series B Notes and (ii) the
Accrued Interest thereon to the Return Date, (4) specify the date (which shall
be at least ten Business Days after the date of such notice) upon which such
amount shall be paid and (5) specify the amount of interest on such Returned
Payment at a rate equal to the Base Rate plus 2% per annum (but not in excess
of the highest lawful rate, if any) from the Return Date to the date on which
the amount of such Returned Payment is paid by Sonat (the "Additional
Interest"), assuming, for the purposes of such notice, that Sonat makes such
payment on the date for payment specified in such notice.
(b) Upon receipt of any written demand in accordance with Section
2.03(a), Sonat will pay an amount equal to the sum of (i) the amount of such
Returned Payment attributable to the principal amount of the Series B Notes not
in excess of the Remaining Purchase Commitment in effect on the date such
payment will be required pursuant to Section 2.03(a) and (ii) the Accrued
Interest thereon to the Return Date and (iii) the Additional Interest, in each
case, by transferring the amount thereof in same day funds to the
Administrative Agent for the account of any Bank that has returned such
Returned Payment, not later than 11:00 a.m. New York time, on the date
specified in such demand. Payment by Sonat of the amount of any Returned
Payment together with Additional Interest in accordance with this Section
2.03(b) shall completely satisfy Sonat's obligations with respect to such
Returned Payment and such Additional Interest, and it shall be the obligation
of the Administrative Agent to transmit such funds to the Bank entitled to
receive such amount. In the event of a change in the Base Rate after the date
of the Administrative Agent's notice pursuant to
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<PAGE> 11
Section 2.03(a) or in the event that Sonat makes the required payment on a date
other than the date for payment specified in such notice, the Additional
Interest will be adjusted accordingly.
(c) If any payment made by the Borrower with respect to any Series B
Notes other than Series B Notes which have been purchased by Sonat is rescinded
or must otherwise be returned by the Administrative Agent or any Bank upon or
as the result of the insolvency, bankruptcy or reorganization of the Borrower,
such Series B Notes shall be deemed for all purposes of this Agreement to have
been restored or reinstated to the principal amounts that would have been
outstanding, as if such payment had never been made, and Accrued Interest shall
be re-computed accordingly, net of interest not rescinded or required to be
returned and any interest for periods prior to the actual return of such
principal payment.
SECTION 2.04. Amendments and Modifications. All amendments or
modifications of the Loan Documents shall require the written consent of Sonat,
the Borrower, the Administrative Agent and the Majority Banks (or, where
required under the express terms of the Loan Documents, all the Banks). This
Section 2.04 shall not apply to waivers of compliance with the Loan Documents
by the Borrower or (subject to Section 2.01(f)) Enron that might (contrary to
the express provisions of Section 7.02 or of similar provisions of the Other
Loan Documents) have the effect of amending or modifying the terms and
provisions of the Loan Documents. Any purported amendment or modification to
any Loan Document that does not meet the requirements of this Section 2.04
shall be deemed ineffective and to have no effect whatsoever for the purposes
of this Agreement or otherwise.
ARTICLE III
OBLIGATIONS ABSOLUTE
SECTION 3.01. Obligations Absolute. Sonat's obligation under Article
II shall be absolute, unconditional (other than conditions to purchase or
payment expressly stated therein) and irrevocable, and shall be paid and
performed strictly in accordance with the terms of this Agreement, including,
without limitation, under the following circumstances:
(a) any lack of validity or enforceability of any of the Other Loan
Documents;
(b) subject to Section 2.04, any amendment or waiver of or any
consent to departure from the terms of any of the Other Loan Documents;
(c) the existence of any claim, set-off, defense or other right
which the Borrower or Enron may have at any time against Sonat or any of the
Banks or the Administrative Agent, whether in connection with this Agreement or
any of the Other Loan Documents
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<PAGE> 12
or any unrelated transaction (except payment with respect to the Tendered
Series B Notes, subject, however, to Section 2.03);
(d) the existence of any claim, set-off, defense or other right
which Sonat may have at any time against (i) the Borrower or Enron whether in
connection with this Agreement or any of the Other Loan Documents or any
unrelated transaction or (ii) the Administrative Agent, any Bank or any other
Person arising out of any unrelated transaction; and
(e) (i) any voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, proceeding for relief, assignment for
benefit of creditors, reorganization, composition or readjustment of, or the
marshalling of the assets and liabilities of the Borrower or Enron or (ii) any
merger, consolidation, or sale or other disposition of all or substantially all
of the assets of the Borrower, Enron or Sonat.
SECTION 3.02. Additional Consents and Agreements. Sonat consents and
agrees that the Administrative Agent and the Banks (or any of them) may, from
time to time, in their sole discretion and without notice to the Borrower or
Sonat (or either of them), except as expressly provided in Article II of this
Agreement or Section 8.02 of the Revolving Credit Agreement, take any or all of
the following actions:
(a) exercise or refrain from exercising any rights against
the Borrower, Enron or any other Person;
(b) consent to or waive any breach of, or any act, omission
or default by the Borrower, Enron or Sonat under, any of the Loan
Documents; and
(c) fail to notify or timely notify, Sonat of any default,
event of default or similar event under any of the Loan Documents.
SECTION 3.03. No Duty to Pursue Others. Except as expressly provided
in Section 2.01(f), it shall not be necessary for the Administrative Agent or
any Bank (and, to the fullest extent permitted by applicable law, Sonat hereby
waives any rights which Sonat may have to require the Administrative Agent or
any Bank), in order to enforce payment by Sonat hereunder, first to (i)
institute suit or exhaust its remedies against the Borrower, Enron or any other
Person, (ii) enforce the rights of the Administrative Agent or any Bank under
any Loan Document, (iii) join Enron or any others liable on or with respect to
the Borrower Obligations in any action seeking to enforce this Agreement, or
(iv) resort to any other means of obtaining payment of the Borrower
Obligations.
SECTION 3.04. Waiver of Notices, etc. Except as expressly provided
in Article II of this Agreement or Section 8.02 of the Revolving Credit
Agreement, Sonat consents, with respect to its
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<PAGE> 13
obligations under Article II, to the provisions of the Loan Documents and, to
the fullest extent permitted by applicable law, hereby waives
(a) notice of (i) any Advances made by the Banks to the Borrower,
(ii) the acceptance of this Agreement, (iii) the execution and delivery by the
Borrower, Enron, the Administrative Agent and any Bank of any Other Loan
Documents, (iv) the occurrence of any breach by the Borrower or any "Event of
Default" under the Revolving Credit Agreement or any Enron Event of Default,
(v) any transfer or disposition by a Bank of the Borrower Obligations or any
part thereof or any interest therein, (vi) protest, presentment, demand for
payment and proof of nonpayment, (vii) dishonor or nonpayment, intent to
accelerate, acceleration, and default by the Borrower or any other Person and
(viii) any other action at any time taken or omitted by or on behalf of the
Administrative Agent or any Bank pursuant to or in connection with any of the
Other Loan Documents, except to the extent that notice thereof is expressly
required by the provisions of this Agreement; and
(b) (i) any requirement that any Person proceed against the Borrower
or any other Person (subject to Section 2.01(f)) primarily or secondarily
obligated with respect to any of the Borrower Obligations, or exercise any
other right or remedy against the Borrower or any other Person, (ii) any right
to require marshaling of assets and liabilities of the Borrower, and (iii) all
diligence in collection or protection of or realization upon the Borrower
Obligations or any thereof, or any obligation under the Other Loan Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Sonat. Sonat
represents and warrants to the Banks as follows:
(a) Sonat and each Principal Subsidiary are corporations duly
incorporated, validly existing and in good standing in each case under the laws
of its jurisdiction of incorporation. Sonat and each of its Principal
Subsidiaries have all corporate powers and all governmental licenses,
authorizations, consents and approvals required in each case to carry on its
business as now conducted, except where all failures to have such licenses,
authorizations, consents and approvals would not, in the aggregate, have a
material adverse effect on Sonat and its Subsidiaries taken as a whole.
(b) The execution, delivery and performance by Sonat of this
Agreement are within Sonat's corporate powers, have been duly authorized by all
necessary corporate action of Sonat, require no action by or in respect of, or
filing with, any governmental body, agency or official and do not contravene,
or constitute a default under, any provision of law or regulation (including,
without
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<PAGE> 14
limitation, Regulation X issued by the Federal Reserve Board) applicable to
Sonat or Regulation U issued by the Federal Reserve Board or the restated
certificate of incorporation or by-laws of Sonat or any judgment, injunction,
order, decree or material ("material" for the purposes of this representation
meaning creating a liability of $50,000,000 or more) agreement binding upon
Sonat.
(c) This Agreement constitutes the legal, valid and binding
obligation of Sonat enforceable against Sonat in accordance with its terms,
except as the enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of equity.
(d) Except as disclosed in Sonat's Form 10-K for the year ended
December 31, 1992 or Sonat's Form 10-Q for the quarters ended March 31, 1993,
June 30, 1993 or September 30, 1993, which were delivered to the Banks prior to
the date hereof, there is no action, suit or proceeding pending against Sonat
or any of its Subsidiaries, or to the knowledge of Sonat threatened against
Sonat or any of its Subsidiaries, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable likelihood
of any adverse decision which would materially adversely affect the business,
Consolidated financial position or Consolidated results of operations of Sonat
and its Subsidiaries taken as a whole or which in any manner draws into
question the validity of this Agreement.
(e) The audited Consolidated balance sheet of Sonat and its
Subsidiaries as of December 31, 1992, and the related audited Consolidated
statements of income, cash flows and changes in stockholders' equity accounts
for the fiscal year then ended, and the unaudited Consolidated balance sheet of
Sonat and its Subsidiaries as at September 30, 1993, and the related unaudited
Consolidated statements of income and cash flows for the fiscal quarter (in the
case of the statement of income) and the nine months then ended, copies of
which have been delivered to each Bank, fairly present in all material respects
in conformity with GAAP, except as otherwise expressly noted therein and except
that such unaudited financial statements were prepared in accordance with SEC
rules applicable to interim financial statements, the Consolidated financial
position of Sonat and its Subsidiaries as of such dates and their Consolidated
results of operations and cash flows for such fiscal periods, subject (in the
case of the unaudited balance sheet and related statements) to changes
resulting from audit and normal year-end adjustments.
(f) Since December 31, 1992, there has been no material adverse
change in the business, Consolidated financial condition or Consolidated
results of operations of Sonat and its Subsidiaries, considered as a whole.
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<PAGE> 15
(g) Sonat is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(h) Sonat is not a "holding company" under the Public Utility
Holding Company Act of 1935, as amended.
(i) Sonat has received true and accurate copies of, and is familiar
with, the Revolving Credit Agreement, the Notes dated the date hereof and each
Note Purchase Agreement. Sonat is familiar with, and has independently
reviewed books and records regarding, the financial condition of the Borrower
and is aware that no collateral will secure the payment of the Borrower
Obligations; provided however, Sonat is not relying on such financial condition
as an inducement to enter into this Agreement.
(j) Sonat has independent means of obtaining information concerning
the affairs, financial condition and business of the Borrower. Sonat
understands that neither the Administrative Agent nor any Bank will have any
duty or responsibility to provide any credit or other information concerning
the affairs, financial condition or business of the Borrower which may come
into their possession.
(k) Sonat has not relied upon any representation, warranty or
statement of the Administrative Agent, any Bank or any other Person in order to
induce Sonat to enter into this Agreement.
(l) Sonat is duly qualified to do business as a foreign corporation
in the State of New York. Sonat has appointed Prentice-Hall Corporation
System, Inc. as its registered agent for receipt of service of process in the
State of New York.
SECTION 4.02. Survival of Representations; Deemed Representations.
All representations and warranties made by Sonat in this Agreement shall
survive the execution and delivery of this Agreement. The acceptance of an
Advance by Citrus (prior to the Termination Date) pursuant to the Revolving
Credit Agreement, shall be deemed to constitute a representation and warranty
by Sonat that on the date of such Advance
(a) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such Advance, as though made on and as of such
date (except for those expressly made as of an earlier date), and
(b) no event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse, or both.
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ARTICLE V
COVENANTS OF SONAT
SECTION 5.01. Affirmative Covenants. From the date hereof until the
Expiration Date Sonat shall, unless the Majority Banks shall otherwise consent
in writing:
(a) Reporting Requirements. Furnish to the Administrative Agent
with a copy for each Bank:
(i) (1) promptly after the filing thereof with the SEC, a
copy of each of Sonat's reports on Form 8-K (or any
successor form), (2) promptly after the filing thereof
with the SEC, and in any event within 75 days after the
end of each of the first three fiscal quarters of each
fiscal year of Sonat, a copy of Sonat's report on Form
10-Q (or any successor form) for such quarter, which
report will include Sonat's quarterly unaudited
Consolidated financial statements as of the end of and
for such quarter, and (3) promptly after the filing
thereof with the SEC, and in any event within 135 days
after the end of each fiscal year of Sonat, a copy of
Sonat's annual report which it sends to its public
security holders, and a copy of Sonat's report on Form
10-K (or any successor form) for such year, which
annual report will include Sonat's annual audited
Consolidated financial statements as of the end of and
for such year;
(ii) simultaneously with the delivery of each of the annual
or quarterly reports referred to in clause (i) above, a
certificate of the chief financial officer or the chief
accounting officer of Sonat in a form reasonably
acceptable to the Administrative Agent stating whether
there exists on the date of such certificate any Event
of Default or event which, with the giving of notice or
lapse of time, or both, would constitute an Event of
Default, and, if so, setting forth the details thereof
and the action which Sonat has taken and proposes to
take with respect thereto;
(iii) as soon as possible and in any event within five days
after an executive officer of Sonat having obtained
knowledge thereof, notice of the occurrence of any
Event of Default or any event which, with the giving of
notice or lapse of time, or both, would constitute an
Event of Default, continuing on the date of such
notice, and a statement of the chief financial officer
of Sonat setting forth details of such Event of Default
or
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<PAGE> 17
event and the action which Sonat has taken and proposes
to take with respect thereto; and
(iv) such other information respecting the condition or
operations, financial or otherwise of Sonat as any Bank
through the Administrative Agent may from time to time
reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, with all applicable laws, rules, regulations and orders
to the extent non-compliance therewith would have a material adverse effect on
Sonat and its Subsidiaries taken as a whole, such compliance to include,
without limitation, compliance with environmental laws and the paying before
the same become delinquent of all taxes, assessments and governmental charges
imposed upon Sonat or upon Sonat's property except to the extent contested in
good faith.
(c) Maintenance of Insurance. Maintain, and cause each of its
Principal Subsidiaries to maintain, insurance with insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies of comparable size engaged in similar businesses and owning similar
properties as Sonat or such Principal Subsidiary, provided, that self-insurance
by Sonat or any such Principal Subsidiary shall not be deemed a violation of
this covenant to the extent that companies engaged in similar businesses and
owning similar properties as Sonat or such Principal Subsidiary self-insure.
Sonat may maintain its Principal Subsidiaries' insurance on behalf of them.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Principal Subsidiaries to preserve and
maintain, its corporate existence; provided, however, that this Section 5.01(d)
shall not apply to any transactions permitted by Section 5.02(b) and shall not
prevent the termination of existence of any Principal Subsidiary pursuant to
any merger or consolidation to which such Principal Subsidiary is a party.
(e) Visitation Rights. At any reasonable time and from time to
time, after reasonable notice, permit the Administrative Agent or any of the
Banks or any agents or representatives thereof, to examine the records and
books of account of, and visit the properties of Sonat and any of its Principal
Subsidiaries and to discuss the affairs, finances and accounts of Sonat and any
of its Principal Subsidiaries with any of their respective officers or
directors.
(f) Borrower's Performance of Revolving Credit Agreement. Use best
efforts to cause the Borrower to perform all its obligations under the
Revolving Credit Agreement; provided, that Sonat's only monetary obligations in
respect of this Agreement are as stated in Article II and in Section 7.05.
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<PAGE> 18
SECTION 5.02. Negative Covenants. From the date hereof until the
Expiration Date Sonat shall not, without the written consent of the Majority
Banks:
(a) Change in Control. Permit or suffer to exist a Change in
Control.
(b) Mergers, Etc. Merge or consolidate with or into, any Person,
unless (i) Sonat is the survivor or (ii) the surviving Person, if not Sonat, is
organized under the laws of the United States or a state thereof and assumes
all obligations of Sonat under this Agreement, provided, in each case that
immediately after giving effect to such proposed transaction, (x) no Event of
Default or event which, with the giving of notice or the lapse of time, or
both, would constitute an Event of Default would exist or result and (y) the
senior unsecured long-term debt of the surviving Person, if not Sonat, is
classified either Baa3 or better by Moody's or BBB- or better by Standard &
Poor's.
(c) Qualification and Service Agent in New York. (i) Cease to be
duly qualified to do business in the State of New York, or (ii) cease to have
Prentice-Hall Corporation System, Inc. as its duly appointed registered agent
for the receipt of service of process in the State of New York, except upon 30
days' prior written notice to the Administrative Agent accompanied by a
certificate of Sonat in a form reasonably acceptable to the Administrative
Agent stating the name and address of any Person appointed as registered agent
for the receipt of service of process in the State of New York, for purposes of
Section 7.11.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Event of Default") shall occur and be continuing:
(a) Sonat shall fail to make any payment required under Section
2.01(c) or Section 2.03(b) when due and payable; or
(b) Any representation or warranty made by Sonat (or any of its
officers) in Article IV or in any certificate or other document delivered
pursuant hereto (or deemed made pursuant to Section 4.02) shall prove to have
been incorrect in any material respect when made or deemed made and such
materiality is continuing; or
(c) Sonat shall fail to perform or observe in any material respect
any term or covenant contained in Section 5.02 or shall fail to perform or
observe in any material respect any other term or covenant contained in this
Agreement on its part to be performed or observed if, in the case of any such
other term or covenant, such failure shall remain unremedied for 30 days after
receipt of
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<PAGE> 19
written notice thereof given by the Administrative Agent to Sonat, at the
request of any Bank; or
(d) (1) Sonat or any of its Principal Subsidiaries shall fail to pay
any principal of or premium or interest on any Debt (other than Debt described
in clause (iii) of the definition of Debt) which is outstanding in the
principal amount of at least $50,000,000 in the aggregate, of Sonat or such
Principal Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to such
Debt; or (2) any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such event or condition is to accelerate the maturity of such
Debt, or any such Debt shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment or as a
result of the giving of notice of a voluntary prepayment), prior to the stated
maturity thereof; or (3) with respect to Debt described in clause (iii) of the
definition of Debt, Sonat or any of its Principal Subsidiaries shall fail to
pay any such Debt which is outstanding in the principal amount of at least
$50,000,000 in the aggregate, of Sonat or such Principal Subsidiary (as the
case may be), when the same becomes due and payable and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or
(e) Sonat or any of its Principal Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against Sonat or any
of its Principal Subsidiaries seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), shall remain undismissed or unstayed for a period of 60
consecutive days; or Sonat or any of its Principal Subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) Any judgment, decree or order for the payment of money in excess
of $50,000,000 shall be rendered against Sonat or any of its Principal
Subsidiaries and remains unsatisfied and there shall be any period of 60
consecutive days during which a stay of
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enforcement of such judgment, decree or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) Any material provision of this Agreement, after execution and
delivery hereof, shall for any reason cease to be valid and binding on Sonat,
or Sonat shall contest the validity or enforceability of this Agreement or so
state in writing;
then, and in any such event, an Event of Default shall also exist under Section
6.01 of the Revolving Credit Agreement and the Administrative Agent and Banks
may exercise the rights and remedies provided in the Revolving Credit Agreement
as a result thereof, including, without limitation, such rights and remedies in
respect of this Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices. All notices and other communications provided
for hereunder shall:
(a) be in writing (including telecopier communication);
(b) be (i) sent by registered or certified mail, postage prepaid,
return receipt requested, (ii) sent by overnight courier service, such as
Federal Express, or (iii) be sent by telecopy, or (iv) delivered by hand;
(c) be addressed to the following respective addresses:
(i) If to the Borrower at:
Citrus Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Vice President and
Chief Financial Officer
TELEPHONE: (713) 853-6178
FAX: (713) 646-3201
with a copy to Sonat at the address provided for
Sonat below;
(ii) If to Sonat at:
Sonat Inc.
1900 5th Avenue North
Birmingham, Alabama 35203
Attention: Treasurer
TELEPHONE: (205) 325-3528
FAX: (205) 325-7490
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<PAGE> 21
(iii) if to the Administrative Agent or the Banks, to the
address specified for each in Section 8.02 of the
Revolving Credit Agreement;
(iv) in any of the foregoing cases, at such other address
or telecopy number as the addressee may hereafter
specify for such purpose in a notice to the other
parties hereto specifically captioned Notice of
Change of Address Pursuant to Section 7.01 and
(d) All such notices, consents and communications shall be
effective, if mailed, five Business Days after deposit in the mails; if sent by
overnight courier service, one Business Day after delivery to the courier
company; and if delivered by hand, when so delivered; and if sent by
telecopier, when received by the receiving telecopier equipment, respectively;
provided, however, that telecopied notices received by any party after its
normal business hours (or on a day other than a Business Day) shall be
effective on the next Business Day.
SECTION 7.02. Waivers; Amendments. No failure to exercise, and no
delay in exercising, on the part of the Administrative Agent or any Bank, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights of the Administrative Agent and the
Banks hereunder shall be in addition to all other rights provided by law or by
the Loan Documents. Any term, covenant, agreement or condition of this
Agreement may be amended or waived, and any departure therefrom may be
consented to, if, but only if, such amendment, waiver or consent is in writing
and is signed by Sonat and the Majority Banks, provided, however, that no
amendment, waiver or consent shall, unless in writing and signed by Sonat and
all the Banks, do any of the following: (a) decrease the Standby Purchase
Commitment or Remaining Purchase Commitment of Sonat, (b) reduce the purchase
price for any Tendered Series B Notes, (c) postpone any Purchase Date or the
date when any other amounts become payable hereunder, (d) release Sonat from
its obligations under this Agreement or (e) amend this Section 7.02 or Section
7.05. Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific instance and
for the specific purpose for which given. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
SECTION 7.03. Rights Cumulative. The rights and remedies of the
Administrative Agent and the Banks under this Agreement shall be cumulative and
not exclusive of any rights or remedies which they would otherwise have. No
failure or delay by the Administrative Agent or the Banks in exercising any
right or remedy shall operate as a waiver thereof, nor shall any single or
partial
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<PAGE> 22
exercise of any remedy or right preclude their other or further exercise or the
exercise of any other remedy or right.
SECTION 7.04. Continuing Obligation. This Agreement is a
continuing obligation and shall (i) be binding upon the parties and their
successors and assigns, and (ii) inure to the benefit of and be enforceable by
the parties and their successors, transferees and assigns; provided, that Sonat
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of all Banks (other than an assignment
effectuated by a merger or consolidation permitted by Section 5.02 to the
surviving Person referred to therein). Each Bank shall be an express third
party beneficiary of this Agreement.
SECTION 7.05. Costs, Expenses and Taxes.
(a) Sonat agrees to pay on demand,
(i) all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and
delivery of this Agreement or the modification, amendment or waiver of
this Agreement at the request of Sonat, including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto, and
(ii) for any period an Event of Default has occurred and
is continuing, all reasonable costs and expenses (including, without
limitation, reasonable counsel fees and out-of-pocket expenses of
counsel) of each Bank in connection with the enforcement (whether
through negotiations, legal proceedings or otherwise) of this
Agreement.
(b) SONAT AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW, TO
INDEMNIFY AND HOLD HARMLESS THE ADMINISTRATIVE AGENT AND EACH BANK
(COLLECTIVELY, "THE INDEMNIFIED PARTIES") AND EACH OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (COLLECTIVELY WITH RESPECT TO EACH
INDEMNIFIED PARTY, THE "RELATED INDEMNIFIED PARTIES") FROM AND AGAINST ONE-HALF
(ENRON BEING RESPONSIBLE FOR THE OTHER ONE-HALF UNDER ITS NOTE PURCHASE
AGREEMENT) OF ANY AND ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES (INCLUDING,
WITHOUT LIMITATION, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL) ARISING UNDER
LAWS RELATING TO THE PROTECTION OF HUMAN HEALTH AND THE PRESERVATION OF
ENVIRONMENTAL QUALITY (INCLUDING, WITHOUT LIMITATION, FINES, PENALTIES,
POLLUTION CLEANUP COSTS, ENVIRONMENTAL RESTORATION OBLIGATIONS, AND OTHER
SIMILAR LIABILITIES ARISING UNDER SUCH LAWS) FOR WHICH ANY OF THEM MAY BECOME
LIABLE OR WHICH MAY BE INCURRED BY OR ASSERTED AGAINST AN INDEMNIFIED PARTY OR
RELATED INDEMNIFIED PARTY (OTHER THAN BY THE ADMINISTRATIVE AGENT OR ANOTHER
BANK OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS), IN EACH CASE IN
CONNECTION WITH OR ARISING OUT OF OR BY REASON OF ANY INVESTIGATION, LITIGATION
OR PROCEEDING, WHETHER OR NOT SUCH INDEMNIFIED PARTY OR RELATED INDEMNIFIED
PARTY
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<PAGE> 23
IS A PARTY THERETO, ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THIS
AGREEMENT OR THE REVOLVING CREDIT AGREEMENT OR ANY TRANSACTION IN WHICH ANY
PROCEEDS OF ALL OR ANY PART OF THE ADVANCES ARE APPLIED BY OR ON BEHALF OF
CITRUS OR FGT, AND EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LIABILITY OR
EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
INDEMNIFIED PARTY OR RELATED INDEMNIFIED PARTY (BUT EXCLUDING ANY SUCH CLAIM,
DAMAGE, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PARTY OR RELATED INDEMNIFIED PARTY). IT IS THE
INTENT OF THE PARTIES HERETO THAT EACH INDEMNIFIED PARTY AND RELATED
INDEMNIFIED PARTY SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 7.05(B), BE
INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE.
(c) If any payment by Sonat attributable to principal of any
Adjusted CD Rate Advance or LIBOR Advance with respect to any Series B Note is
made other than on the last day of an Interest Period relating to such Advance
as a result of a purchase pursuant to Section 2.01 or a payment pursuant to
Section 2.03, Sonat shall, upon demand by any Bank (with a copy of such demand
to the Administrative Agent), pay to the Administrative Agent for the account
of such Bank any amounts required to compensate such Bank for any additional
losses, costs or expenses which it may reasonably incur as a result of any such
payment or purchase, including, without limitation, any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund or
maintain such Advance.
(d) If there exists any Other Accrued Obligations (other than as
determined pursuant to Sections 7.05(a), 7.05(b) or 7.05(c)), then Sonat shall,
upon demand by any Bank (with a copy of such demand to the Administrative
Agent) or upon demand by the Administrative Agent, pay to the Administrative
Agent for the account of such Bank or the Administrative Agent, as the case may
be, the amount of such Other Accrued Obligations; provided, however, Sonat's
obligations under this Section 7.05(d) shall not at any time be increased as a
result of Enron's failure to pay its portion of the unpaid Borrower Obligations
pursuant to Section 7.05(d) of the Enron Note Purchase Agreement.
(e) Any amount payable under Sections 7.05(a), 7.05(b), 7.05(c)
and 7.05(d) shall be paid by Sonat to the Administrative Agent for the account
of the appropriate Indemnified Party or Related Indemnified Party within ten
Business Days following an Indemnified Party's demand therefor given in writing
to Sonat with a copy to the Administrative Agent (which demand shall set forth
in reasonable detail the basis and calculation of such amount). The
obligations of Sonat pursuant to Sections 7.05(a), 7.05(b), 7.05(c) and 7.05(d)
shall survive the termination of the Revolving Credit Agreement, the Expiration
Date, the purchase of all Tendered Series B Notes, and any payment of the
obligations under the Loan Documents.
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<PAGE> 24
(f) Any Indemnified Party that proposes to assert the right to
reimbursement under Section 7.05(b) with respect to any claim asserted against
such Indemnified Party or a Related Indemnified Party will, promptly after
receipt of notice of commencement of any action, suit or proceeding against
such Indemnified Party or Related Indemnified Party in respect of which a claim
is to be made against Sonat under Section 7.05(b), notify Sonat of the
commencement of such action, suit or proceeding, enclosing a copy of all papers
served. However, the failure of an Indemnified Party to notify Sonat of any
such action, suit or proceeding shall not relieve Sonat from any liability that
it may have to any Indemnified Party or Related Indemnified Party, except to
the extent that Sonat may have been prejudiced by the failure of such
Indemnified Party to so notify Sonat in which case Sonat's obligations to
indemnify such Indemnified Party or Related Indemnified Party shall be
discharged to the extent that Sonat has been prejudiced thereby.
(g) In case any such action, suit or proceeding shall be brought
against any Indemnified Party or any of its Related Indemnified Parties and it
shall notify Sonat of the commencement thereof, then Sonat shall be entitled to
participate in the defense of any such investigation, litigation or proceeding
on terms reasonably acceptable to Sonat and the Indemnified Parties involved
therein (whether or not as a party).
SECTION 7.06. Right of Set-off. Upon (i) the occurrence and during
the continuance of any Event of Default and the written approval of the
Majority Banks, (ii) the failure of Sonat on any Purchase Date to purchase any
Tendered Series B Notes pursuant to Section 2.01(c) or (iii) the failure of
Sonat to pay the amount of any Returned Payment when due and payable pursuant
to Section 2.03(b) each Bank is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the credit
or the account of Sonat against any and all of the obligations of Sonat then
existing under this Agreement owing to or for the benefit of such Bank,
irrespective of whether or not the Administrative Agent or any Bank shall have
made any demand under this Agreement (except as expressly required herein).
Each Bank agrees promptly to notify Sonat after such set-off and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may have.
SECTION 7.07. Termination. The rights and obligations of the
parties hereunder shall continue until the Expiration Date, provided that
Sonat's obligations under Article II and Section 7.05 shall survive the
Expiration Date.
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SECTION 7.08. Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
SECTION 7.09. Transfer of Borrower Obligations. Each Bank may, from
time to time, without notice to Sonat, assign or transfer all or a part of the
Borrower Obligations or any interest therein in accordance with the terms and
provisions of the Revolving Credit Agreement. Notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Borrower Obligations shall be and remain Borrower Obligations for purposes of
this Agreement. Each and every immediate and successive assignee or transferee
of any of the Borrower Obligations or of any interest therein in accordance
with the terms and provisions of the Revolving Credit Agreement shall, to the
extent of the interest of such assignee or transferee in the Borrower
Obligations and to the extent so provided in the Revolving Credit Agreement, be
entitled to the benefit of this Agreement to the same extent as if such
assignee or transferee were a Bank; provided, that neither Sonat nor Enron, as
purchasers under their respective Note Purchase Agreements, shall be a "Bank"
or entitled to the benefits provided by this Agreement in favor of the
Administrative Agent and the Banks.
SECTION 7.10. Governing Law. Pursuant to Section 5-1401 of the
New York General Obligations Law, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. This
Agreement constitutes the entire understanding among the parties hereto with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.
SECTION 7.11. Submission to Jurisdiction.
(a) Any legal action or proceeding with respect to this Agreement,
the Series B Notes or any Other Loan Document may be brought in the courts of
the State of New York sitting in New York City or of the United States of
America for the Southern District of New York, and, by execution and delivery
of this Agreement, Sonat irrevocably submits itself to the nonexclusive
jurisdiction of such New York State or Federal courts to the extent permitted
by law. Sonat hereby irrevocably waives any objection to the laying of venue
in such courts based on the grounds of forum non conveniens.
(b) Sonat has designated Prentice-Hall Corporation System, Inc.,
15 Columbus Circle, New York, New York 10023, as the
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designee, appointee and agent of Sonat to receive, for and on behalf of Sonat,
service of copies of the summons and complaint and any other process in such
action or proceeding with respect to this Agreement, the Series B Notes or any
Other Loan Document. It is understood that a copy of such process served on
such agent (or on a successor agent permitted by Section 5.02(c)) will be
promptly forwarded by overnight courier to Sonat at its address set forth in
Section 7.01(c), but the failure of Sonat to receive such copy shall not affect
in any way the service of such process. Sonat further irrevocably consents to
the service of process of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Sonat at its said address, such service to become effective
30 days after such mailing.
(c) Nothing in this Section 7.11 shall affect (i) the right of the
Administrative Agent or any Bank to serve process in any other manner permitted
by law or to commence legal proceedings or otherwise proceed against Sonat in
any other jurisdiction or (ii) the right of Sonat to commence legal proceedings
or otherwise proceed against the Administrative Agent or any Bank in any proper
jurisdiction.
SECTION 7.12. Headings. Article and section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose. References to
Articles and Sections are to this Agreement unless otherwise provided.
SECTION 7.13. Business Days. If any payment under this Agreement
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next Business Day, provided, in the case of Tendered Series B
Notes with one or more Interest Periods for LIBOR Advances, if such extension
would cause the purchase price to be paid after the last day of any such
Interest Period and in the next following calendar month, then the purchase
price shall be paid on the next preceding Business Day.
SECTION 7.14. Confidentiality. Each Bank, by accepting the
benefits of this Agreement, agrees that it will use reasonable efforts not to
disclose without the prior consent of Sonat (other than to its employees,
auditors or counsel or to the Administrative Agent or another Bank if the
disclosing Bank or such Bank's holding or parent company in its sole discretion
determines that any such party should have access to such information) any
information with respect to Sonat which is furnished pursuant to this Agreement
and which is designated by Sonat to the Administrative Agent or the Banks in
writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to any
municipal, state or federal regulatory body having or claiming to have
jurisdiction over such Bank or to the Federal Reserve Board, the FDIC or
similar
-23-
<PAGE> 27
organizations (whether in the United States or elsewhere), (c) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to such Bank, (e) to the prospective transferee in connection
with any contemplated transfer of any of the Notes or any interest therein by
such Bank, provided, that such prospective transferee executes an agreement
with Sonat or the transferor containing provisions substantially identical to
those contained in this Section, or (f) to the extent reasonably necessary to
disclose in connection with the exercise of any remedy hereunder and under the
Revolving Credit Agreement and the Series B Notes.
SECTION 7.15. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement. This Agreement shall
become effective when the Administrative Agent shall have received counterparts
hereof executed on behalf of Sonat and the Borrower.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective, duly authorized officers, all as
of the date first above written.
CITRUS CORP.
By: /s/ Kurt S. Huneke
--------------------------------------
Title: Vice President, Finance and Treasurer
SONAT INC.
By: /s/
--------------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
as Administrative Agent
By: /s/ Ratouis
--------------------------------------
Title: Senior Vice President
-24-
<PAGE> 28
EXHIBIT A
TERMS OF SUBORDINATION
The Series B Notes purchased by Sonat pursuant to the terms of the
Standby Note Purchase Agreement dated as of December 23, 1993 among Sonat Inc.
and Credit Lyonnais New York Branch as Administrative Agent (the "Subordinated
Debt"), including principal and interest, shall be subordinate and junior in
right of payment to the extent and in the manner set forth below, to all
Superior Indebtedness (as hereinafter defined) of the Borrower. The term
"Superior Indebtedness" shall mean any and all Series A Notes and Series B
Notes held by the Banks and their respective successors and assigns pursuant to
the Revolving Credit Agreement, except for Notes that are Tendered Series A
Notes or Tendered Series B Notes which are purchased by Enron or Sonat under
their respective Note Purchase Agreements.
1. All Superior Indebtedness shall first be paid in full before
any payment on account of the principal or interest is paid on any Subordinated
Debt.
2. Unless and until the Superior Indebtedness shall be paid in
full, Sonat will not ask or sue for, take, demand, receive or accept from
Borrower, by set-off or in any other manner, any payment or distribution on
account of Subordinated Debt, nor present any instrument evidencing
Subordinated Debt for payment, nor shall any property of Borrower be applied to
the purchase or other acquisition or retirement of any Subordinated Debt.
3. In the event of any receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization or arrangement with
creditors, adjustment of debt (whether or not pursuant to bankruptcy laws),
sale of all or substantially all of the assets, dissolution, liquidation or any
other marshalling of the assets and liabilities of the Borrower, then the
holders of the Superior Indebtedness shall be entitled to receive payment in
full of all Superior Indebtedness before Sonat shall be entitled to receive any
payment on account of principal of the Subordinated Debt or interest due
thereon, and to that end the holders of Superior Indebtedness shall be entitled
to receive for application in payment thereof any payment or distribution of
any kind or character, whether in cash, property or securities, which may be
payable or deliverable in any such proceedings in respect of the terms of
subordination, except securities which are subordinated and junior in right of
payment to the payment of all Superior Indebtedness then outstanding.
4. In case cash, securities or other property otherwise payable
or deliverable to Sonat shall have been applied, pursuant to paragraph 3, to
the payment of Superior Indebtedness, then and in such case, upon the payment
in full of all Superior
A-1
<PAGE> 29
Indebtedness, Sonat shall be subrogated to the rights of the holders of
Superior Indebtedness to receive payments and distributions made on the
Superior Indebtedness until all principal of and interest shall have been
paid in full, and no such payments or distributions to Sonat by reason of such
subrogation, of cash, securities and other property which otherwise would be
payable or distributable to the holders of Superior Indebtedness, shall, as
between the Borrower and its creditors (other than the holders of Superior
Indebtedness), on the one hand, and Sonat, on the other, be deemed to be a
payment by the Borrower on account the Subordinated Debt.
5. No present or future holder of any Superior Indebtedness shall
be prejudiced in any way in the right to enforce the terms of subordination by
any act or failure to act on the part of the Borrower. The holders of the
Superior Indebtedness may, at any time and from time to time, without (i) any
consent of or notice to Sonat, (ii) incurring any responsibility to Sonat, or
(iii) impairing or releasing any of the rights of holders of the Superior
Indebtedness or the obligations of Sonat under these terms of subordination:
(a) change the amount, manner, place or terms of the payment of,
or change or extend for any period the time of payment of, or renew or
otherwise alter, Superior Indebtedness, the Revolving Credit Agreement
or any Other Loan Document in any manner consistent with the
provisions of such document;
(b) release any Person liable in any manner for payment or
collection of Superior Indebtedness;
(c) exercise or refrain from exercising any rights or remedies
against the Borrower or others (including Enron or Sonat); and
(d) apply any sums received, by whomsoever paid and however
realized, to payment of Superior Indebtedness in such a manner as such
holders, in their sole discretion, may deem appropriate;
provided, however, that no amendment of or addition or supplement to any
Superior Indebtedness or any instrument or agreement relating thereto shall be
effective to change the extent or the terms of the subordination effected
hereby without the consent of Sonat. Nothing contained herein shall impair, as
between the Borrower and Sonat, the obligation of the Borrower, which is
absolute and unconditional, to pay to the holder the principal and interest as
and when the same becomes due and payable, all subject to the rights, if any,
of the holders of Superior Indebtedness to receive cash, property or securities
otherwise payable or deliverable by the Borrower to Sonat.
A-2
<PAGE> 30
6. All payments or distributions upon or with respect to the
Subordinated Debt which are received by Sonat contrary to these terms of
subordination shall be received in trust for the benefit of the holders of
Superior Indebtedness, shall be segregated from other funds and property held
by Sonat and shall be immediately paid over to the Administrative Agent (with
any necessary endorsement) to be applied (in the case of cash) to or held as
collateral (in the case of non-cash property or securities) for the payment of
the Superior Indebtedness in accordance with the terms of the Revolving Credit
Agreement.
7. Sonat and the Borrower will cause each Series B Note that
becomes Subordinated Debt promptly to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is subordinated to the
prior payment in full of the Superior Indebtedness (as defined in the
Terms of Subordination hereinafter referred to) pursuant to and to the
extent provided in the Terms of Subordination attached as Exhibit A to
the Standby Note Purchase Agreement dated December 23, 1993 among
Sonat Inc., Credit Lyonnais New York Branch, as Administrative Agent
for the Banks party to the Revolving Credit Agreement of even date
therewith, and Citrus Corp."
8. These terms of subordination shall (i) remain in effect until
the Superior Indebtedness shall either have been paid in full or entirely sold
under the Note Purchase Agreements, (ii) be binding on Sonat, the Borrower and
their respective successors and assigns, and (iii) inure to the benefit of and
be enforceable by the Administrative Agent, the Banks and their respective
successors, transferees and assigns.
A-3
<PAGE> 31
U.S. $300,000,000
REVOLVING CREDIT AGREEMENT
Dated as of December 23, 1993
Among
CITRUS CORP.
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CREDIT LYONNAIS NEW YORK BRANCH
and
THE TORONTO-DOMINION BANK
as Managing Agents
<PAGE> 32
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . 1
1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES . . . . . . . . . . . . . . 10
2.01. The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.02. Making the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.04. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.05. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.06. Additional Interest on LIBOR Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.07. Interest Rate Determination and Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.08. Voluntary Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.09. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.10. Increased Costs; Capital Adequacy, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.12. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.14. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.15. Ratable Reduction or Termination of the Commitments . . . . . . . . . . . . . . . . . . . . . . 22
2.16. Replacement of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.17. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
CONDITIONS TO ADVANCES . . . . . . . . . . . . . . . . 23
3.01. Initial Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.02. Additional Conditions Precedent to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 26
4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
-i-
<PAGE> 33
<TABLE>
<S> <C>
ARTICLE V
COVENANTS OF THE BORROWER . . . . . . . . . . . 28
5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI
EVENTS OF DEFAULT . . . . . . . . . . . . . 31
6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII
THE ADMINISTRATIVE AGENT . . . . . . . . . . . . 33
7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.03. Administrative Agent and Its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 34
7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.05. Certain Rights of the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 35
7.06. Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.07. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.08. Resignation by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . 37
7.09. No Duty of Managing Agents or Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . 37
8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.05. Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.06. Binding Effect; Assignments; Participations . . . . . . . . . . . . . . . . . . . . . . 41
8.07. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.09. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.10. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.12. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.13. Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
-ii-
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit 1.01 Form of Series A and Series B Note
Exhibit 2.02 Notice of Borrowing
Exhibit 3.01-A Opinion of Vinson & Elkins L.L.P., Counsel to Borrower
Exhibit 3.01-B Opinion of Vinson & Elkins L.L.P., Counsel to Enron
Exhibit 3.01-C Opinion of Senior Vice President and General Counsel of Enron
Exhibit 3.01-D Opinion of Vinson & Elkins L.L.P., Counsel to Sonat
Exhibit 3.01-E Opinion of Vice President and Secretary of Sonat
Exhibit 3.01-F Opinion of Andrews & Kurth L.L.P., Counsel to Managing Agents
Exhibit 8.06 Transfer Agreement
</TABLE>
-iii-
<PAGE> 35
REVOLVING CREDIT AGREEMENT
Dated as of December 23, 1993
CITRUS CORP., a Delaware corporation, the lenders party hereto (the
"Banks") and Credit Lyonnais New York Branch and The Toronto-Dominion Bank, as
managing agents (in such capacities the "Managing Agents"), with Credit
Lyonnais New York Branch acting as administrative agent (in such capacity, the
"Administrative Agent") for the Banks hereunder, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and the plural forms of the terms
defined):
"Address For Notices" means, with respect to any Bank, the
office of such Bank specified as its "Address For Notices" on such Bank's
signature page to this Agreement or, as to any Person who becomes a Bank after
the date hereof, in the Transfer Agreement executed by such Person pursuant to
Section 8.06 or the document pursuant to which such Person became a party
pursuant to Section 2.16, as the case may be, or such other office of such Bank
as such Bank may from time to time specify to the Borrower and the
Administrative Agent.
"Adjusted CD Rate" means, for any Interest Period for each
Adjusted CD Rate Advance comprising part of the same Borrowing, an interest
rate per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate
of interest determined by the Administrative Agent to be the average
(rounded upward to the nearest whole multiple of 1/100 of 1% per
annum, if such average is not such a multiple) of the consensus bid
rate determined by each of the Reference Banks for the bid rates per
annum, at 12:00 P.M. (noon) (or as soon thereafter as practicable)
one Business Day before the first day of such Interest Period, of New
York certificate of deposit dealers of recognized standing selected by
such Reference Bank for the purchase at face value of certificates of
deposit of such Reference Bank in an amount substantially equal to
such Reference Bank's Adjusted CD Rate Advance comprising part of such
Borrowing and with a maturity equal to such Interest Period (provided
that, if bid rate quotes from such dealers are not available to any
Reference Bank, such Reference Bank shall notify the Administrative
Agent of a reasonably equivalent rate determined by it on the basis of
another source or sources
<PAGE> 36
selected by it), by (ii) a percentage equal to 100% minus the Adjusted
CD Rate Reserve Percentage for such Interest Period, plus
(b) the Assessment Rate for such Interest Period.
The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Advance
comprising part of the same Borrowing shall be determined by the Administrative
Agent on the basis of applicable rates furnished to and received by the
Administrative Agent from the Reference Banks one Business Day before the first
day of such Interest Period, subject however, to the provisions of Section
2.07.
"Adjusted CD Rate Advance" means an Advance which bears
interest as provided in Section 2.05(b).
"Adjusted CD Rate Reserve Percentage" for any Interest Period
for each Adjusted CD Rate Advance comprising part of the same Borrowing means
the reserve percentage applicable one Business Day before the first day of such
Interest Period under regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve requirement (including, but
not limited to, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York City
with deposits exceeding one billion dollars with respect to liabilities
consisting of or including (among other liabilities) Dollar nonpersonal time
deposits in the United States with a maturity equal to such Interest Period.
"Administrative Agent" shall have the meaning specified in the
first paragraph of this Agreement, together with any successor thereto pursuant
to Section 7.08.
"Advance" means an advance by a Bank to the Borrower pursuant
to Article II, and refers to an Adjusted CD Rate Advance, a Base Rate Advance
or a LIBOR Advance (each of which shall be a "Type" of Advance).
"Agreement" means this Revolving Credit Agreement, as same may
be amended, supplemented or modified from time to time in the future.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance, such
Bank's CD Lending Office in the case of an Adjusted CD Rate Advance and such
Bank's Eurodollar Lending Office in the case of a LIBOR Advance.
"Applicable Margin" means, (a) 1/2 of 1% for any Interest
Period for each Adjusted CD Rate Advance comprising part of the same Borrowing,
and (b) 3/8 of 1% for any Interest Period for each LIBOR Advance comprising
part of the same Borrowing.
"Assessment Rate" for any Interest Period for each Adjusted CD
Rate Advance comprising part of the same Borrowing means the annual assessment
rate
-2-
<PAGE> 37
estimated by the Bank which is the Administrative Agent one Business Day before
the first day of such Interest Period for determining the then current annual
assessment payable by such Bank to the FDIC for insuring dollar deposits of
such Bank at its principal office in the United States.
"Bankruptcy Code" means Title 11 of the United States Code, as
now or hereafter in effect, or any successor thereto.
"Banks" has the meaning specified in the first paragraph of
this Agreement, and shall include any financial institution which becomes a
Bank pursuant to Section 2.16 or Section 8.06.
"Base Rate" means as determined by the Bank which is the
Administrative Agent on a daily basis, the higher of (a) the overnight cost of
funds of such Bank as determined solely by such Bank plus a margin of 1/2% per
annum, or (b) the rate per annum established by such Bank from time to time as
the reference rate for short term commercial loans in Dollars to domestic
corporate borrowers (which the Borrower acknowledges is not necessarily such
Bank's lowest rate).
"Base Rate Advance" means an Advance which bears interest as
provided in Section 2.05(a).
"Borrower" means Citrus Corp., a Delaware corporation, and any
successor thereto pursuant to Section 5.02(a).
"Borrowing" means a borrowing hereunder consisting of Advances
of the same Type made on the same day by the Banks.
"Business Day" means (i) any day of the year except Saturday,
Sunday and any day on which banks are required or authorized to close in New
York City and (ii) if the applicable Business Day relates to any LIBOR
Advances, any day which is a "Business Day" described in clause (i) and which
is also a day for trading by and between banks in the London interbank
Eurodollar market.
"CD Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "CD Lending Office" on such Bank's
signature page to this Agreement, or as to any Person who becomes a Bank after
the date hereof, in the Transfer Agreement executed by such Person pursuant to
Section 8.06 or the document pursuant to which such Person became a party
pursuant to Section 2.16, as the case may be (or, if no such office is
specified, its Domestic Lending Office), or such other office of such Bank as
such Bank may from time to time specify to the Borrower and the Administrative
Agent.
"Co-Agents" means those Banks whose names appear on the
signature pages of this Agreement under the heading "Co-Agents".
-3-
<PAGE> 38
"Code" means the Internal Revenue Code of 1986 as amended from
time to time, or any successor Federal tax code, and any reference to any
statutory provision of the Code shall be deemed to be a reference to any
successor provision or provisions.
"Commitment" has the meaning specified in Section 2.01.
"Consolidated" as to any Person refers to the consolidation of
the accounts of such Person and its Subsidiaries in accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type pursuant to
Section 2.07, Section 2.08 or Section 2.10(b).
"Credit Lyonnais" means Credit Lyonnais New York Branch.
"Dollar" and the sign "$" mean lawful money of the United
States.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" on such Bank's
signature page to this Agreement or, as to any Person who becomes a Bank after
the date hereof, in the Transfer Agreement executed by such Person pursuant to
Section 8.06 or the document pursuant to which such Person became a party
pursuant to Section 2.16, as the case may be, or such other office of such Bank
as such Bank may from time to time specify to the Borrower and the
Administrative Agent.
"Enron" means Enron Corp., a Delaware corporation.
"Enron Event of Default" means an "Event of Default" as
defined in the Enron Note Purchase Agreement.
"Enron Note Purchase Agreement" means the Standby Note
Purchase Agreement dated as December 23, 1993 among Enron, the Administrative
Agent, and the Borrower joining therein for purposes of acknowledging the
consenting thereto, as the same now exists or may hereafter be amended from
time to time.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Federal Reserve Board, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending Office" on such
Bank's signature page to this Agreement or, as to any Person who becomes a Bank
after the date hereof, in the Transfer Agreement executed by such Person
pursuant to Section 8.06 or the document pursuant to which such Person became a
party hereto pursuant to Section 2.16, as the case may be (or if no such office
is specified, its Domestic Lending Office), or such other office of such
-4-
<PAGE> 39
Bank as such Bank may from time to time specify to the Borrower and the
Administrative Agent.
"Events of Default" has the meaning specified in Section 6.01.
"Excepted Liens" means (a) legal or equitable encumbrances
deemed to exist by reason of negative pledge covenants and other covenants or
undertakings of like nature; (b) legal or equitable Liens deemed to exist by
reason of the existence of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an appeal is being or will
timely be prosecuted, in each case securing indebtedness for money borrowed;
(c) Liens on defeasance deposits to secure indebtedness for money borrowed,
which is being or will be defeased, in whole or in part, out of the moneys
constituting such defeasance deposits; and (d) Liens encumbering cash or
securities securing the obligations of the Borrower to reimburse draws made by
the Borrower under letters of credit or obligations of the Borrower with
respect to bankers acceptances, so long as such cash or securities are
encumbered for the purpose of being used promptly after the payment of the
letter of credit or bankers acceptance to pay such obligations of the Borrower
secured by such cash or securities.
"FDIC" means the Federal Deposit Insurance Corporation, or any
federal agency or authority of the United States from time to time succeeding
to its function.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any federal agency or authority of the United States
from time to time succeeding to its function.
"FERC" means the Federal Energy Regulatory Commission, or any
federal agency or authority of the United States from time to time succeeding
to its function.
"FGT" means Florida Gas Transmission Company, a Delaware
corporation.
"GAAP" has the meaning specified in Section 1.03.
"Indemnified Party" has the meaning specified in Section
8.04(c).
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"Interest Period" means, with respect to each Adjusted CD Rate
Advance or LIBOR Advance, in each case comprising part of the same Borrowing,
the period commencing on the date of such Advance or the date of the Conversion
of any Advance into such an Advance and ending on the last day of the period
selected by the Borrower pursuant to the provisions below and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the
Borrower pursuant to the provisions below. The duration of each such Interest
Period shall be (a) in the case of an Adjusted CD Rate Advance, 30, 60, 90 or
180 days (including the day on which such Interest Period commences) and (b) in
the case of a LIBOR Advance, the period beginning on (and including) the date
on which such Interest Period commences and ending on (but excluding) the day
which numerically corresponds to such date one, two, three or six months
thereafter (or, if such month has no numerically corresponding day, on the last
Business Day of such month), in each case as the Borrower may, upon notice
received by the Administrative Agent not later than 11:00 A.M. on the third
Business Day (first Business Day in the case of an Adjusted CD Rate Advance)
prior to the first day of such Interest Period, select; provided, however,
that:
(i) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same
duration;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day,provided, in the case of any Interest
Period for a LIBOR Advance, that if such extension would cause
the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day; and
(iii) no Interest Period may end after the Termination Date.
"LIBO Rate" means, for any Interest Period for each LIBOR
Advance comprising part of the same Borrowing, an interest rate per annum
determined by the Administrative Agent and equal to (a) an interest rate per
annum shown on page 3750 of the Dow Jones & Company Telerate screen or any
successor page as the composite offered rate for London interbank deposits with
a period equal to such Interest Period, as shown under the heading "USD", as of
11:00 A.M. (London time) two Business Days prior to the first day of such
Interest Period, (b) if the rate specified in clause (a) of this definition
does not appear, an interest rate per annum based on the rates at which Dollar
deposits with a period equal to such Interest Period are displayed on page
"LIBO" of the Reuters Monitor Money Rates Service or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks as of 11:00 A.M. (London time) two
Business Days prior to the first day of such Interest Period, it being
understood that if two or more such rates appear on such page, the rate will be
the arithmetic average of such displayed rates and if fewer than two such rates
are displayed, this clause (b) of this definition shall not be applicable, (c)
if the rate specified in clause (a) of this definition does not appear and if
clause (b) of this definition is not applicable, an
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interest rate per annum equal to the average of the rates at which deposits in
Dollars are offered by the Reference Banks at approximately 11:00 A.M. (London
time) two Business Days prior to the first day of such Interest Period to prime
banks in the London interbank market in an amount approximately equal to such
LIBOR Advance with a period equal to such Interest Period, it being understood
that if two such quotations are provided, the rate shall be the arithmetic
average of such provided rates and if only one such rate is provided, this
clause (c) of this definition shall not be applicable, and (d) if the rate
specified in clause (a) of this definition does not appear and if clauses (b)
and (c) of this definition are not applicable, an interest rate per annum that
is the arithmetic average of the rates quoted by major banks in New York City,
selected by the Administrative Agent, at approximately 11:00 A.M. on the first
day of such Interest Period to leading European banks in an amount
approximately equal to such LIBOR Advance with a period equal to such Interest
Period; provided, that the applicable rate determined pursuant to clause (a),
(b), (c) or (d), as the case may be, of this definition shall be rounded upward
to the nearest whole multiple of 1/16 of 1%, if such rate is not such a
multiple.
"LIBOR Advance" means an Advance which bears interest as
provided in Section 2.05(c).
"Lien" means a mortgage, pledge, security interest or other
charge or encumbrance, including any conditional sale or title retention
agreement.
"Loan Document" means this Agreement, each Note, each Notice
of Borrowing, each Note Purchase Agreement and each other document or
instrument executed and delivered in connection with this Agreement.
"Majority Banks" means at any time Banks holding at least 66
2/3% of the then aggregate unpaid principal amount of the Notes held by Banks,
or, if no such principal amount is then outstanding, Banks having at least 66
2/3% of the Commitments.
"Managing Agents" has the meaning specified in the first
paragraph of this Agreement.
"Notes" means the Series A Notes and the Series B Notes.
"Note Purchase Agreements" means the Enron Note Purchase
Agreement and the Sonat Note Purchase Agreement.
"Note Purchase Event" has the meaning ascribed to such term in
the Enron Note Purchase Agreement and the Sonat Note Purchase Agreement.
"Notice of Borrowing" has the meaning specified in Section
2.02.
"Other Taxes" has the meaning specified in Section 2.13(c).
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"Payment Office" means the office of the Administrative Agent
located at 1301 Avenue of the Americas, New York, New York 10019, or such other
office as the Administrative Agent may designate by written notice to the other
parties hereto.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, firm or other entity, or a
government or any political subdivision or agency, department or
instrumentality thereof.
"Phase III Expansion" means the proposed expansion to FGT's
existing pipeline system described and approved by FERC in that certain Order
Issuing Certificates, Authorizing Abandonments, and Clarifying Prior Order
issued September 15, 1993 in Docket Nos. CP 92-182-004 and 005 and CP
92-415-002 and 003.
"Prescribed Forms" shall mean such duly executed form(s) or
statement(s), and in such number of copies, which may, from time to time, be
prescribed by law and which, pursuant to applicable provisions of (a) an income
tax treaty between the United States and the country of residence of the Bank
providing the form(s) or statement(s), (b) the Code, or (c) any applicable rule
or regulation under the Code, permit the Borrower to make payments hereunder
for the account of such Bank free of deduction or withholding of income or
similar taxes (except for any deduction or withholding of income or similar
taxes as a result of any change in or in the interpretation of any such treaty,
the Code or any such rule or regulation).
"Reference Banks" means Credit Lyonnais New York Branch and
The Toronto-Dominion Bank.
"Related Indemnified Party" has the meaning specified in
Section 8.04(c).
"Series A Note" means a promissory note of the Borrower
payable to the order of any Bank, in substantially the form of Exhibit 1.01
hereto, evidencing fifty percent (50%) of the aggregate indebtedness of the
Borrower to such Bank resulting from the Advances owed to such Bank.
"Series B Note" means a promissory note of the Borrower
payable to the order of any Bank, in substantially the form of Exhibit 1.01
hereto, evidencing fifty percent (50%) of the aggregate indebtedness of the
Borrower to such Bank resulting from the Advances owed to such Bank.
"Sonat" means Sonat Inc., a Delaware corporation.
"Sonat Event of Default" means an "Event of Default" as
defined in the Sonat Note Purchase Agreement.
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"Sonat Note Purchase Agreement" means the Standby Note
Purchase Agreement dated as of December 23, 1993, among Sonat, the
Administrative Agent, and the Borrower joining therein for purposes of
acknowledging and consenting thereto, as the same now exists or may hereafter
be amended from time to time.
"Subsidiary" means, as to any Person, any corporation,
partnership, joint venture or other entity of which more than 50% of the
outstanding capital stock or other equity interests having ordinary voting
power (irrespective of whether or not at the time capital stock or other equity
interest of any other class or classes of such corporation, partnership, joint
venture or other entity shall or might have voting power upon the occurrence of
any contingency) is at the time directly or indirectly owned by such Person.
"Taxes" has the meaning specified in Section 2.13(a).
"Termination Date" means the earliest to occur of (a) December
22, 1994, (b) termination in whole of the Commitments pursuant to Section 2.15
or 6.01, or (c) the Notes and all other amounts under this Agreement becoming
due and payable pursuant to the final clause (ii) of Section 6.01.
"Transfer Agreement" has the meaning specified in Section
8.06(a).
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding". Unless otherwise indicated, all
references to a particular time are references to New York City time.
SECTION 1.03. Accounting Terms. Unless otherwise specified,
all accounting terms used herein or in any other Loan Document shall be
interpreted, all accounting determinations and computations hereunder or
thereunder shall be made, and all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with, those generally
accepted accounting principles ("GAAP") in effect at the time of application of
such accounting terms for purposes of this Agreement or of such other Loan
Document.
SECTION 1.04. Miscellaneous. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section and Exhibit references are to Articles and
Sections of and Exhibits to this Agreement, unless otherwise specified. The
term "including" shall mean "including, without limitation,".
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ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make one or more Advances to
the Borrower from time to time on any Business Day during the period from the
date hereof until the Termination Date in an aggregate amount not to exceed at
any time outstanding the amount set opposite such Bank's name on the signature
pages hereof (as such pages are deemed modified pursuant to this Article II or
Section 8.06) (as such amount may be reduced pursuant to Section 2.10(e),
Section 2.15 or Section 6.01, such Bank's "Commitment"). Each Borrowing shall
be in an aggregate amount not less than (x) in the case of a Borrowing
comprised of LIBOR Advances, $25,000,000 and (y) in the case of a Borrowing
comprised of Base Rate Advances or Adjusted CD Rate Advances, $15,000,000, and
shall consist of Advances of the same Type having (in the case of a Borrowing
comprised of Adjusted CD Rate Advances or LIBOR Advances) the same Interest
Period, made on the same day by the Banks ratably according to their respective
Commitments. Within the limits of each Bank's Commitment, the Borrower may
borrow, prepay pursuant to Section 2.09 and reborrow under this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall
be made on notice, (x) in the case of a proposed Borrowing comprised of LIBOR
Advances, given not later than 11:00 A.M. at least three Business Days prior to
the date of the proposed Borrowing, (y) in the case of a proposed Borrowing
comprised of Adjusted CD Rate Advances, given not later than 11:00 A.M. at
least one Business Day prior to the date of the proposed Borrowing, and (z) in
the case of a proposed Borrowing comprised of Base Rate Advances, given not
later than 10:00 A.M. on the day of the proposed Borrowing, by the Borrower to
the Administrative Agent, which shall give to each Bank prompt notice thereof
by telecopy. Each such notice of a Borrowing (a "Notice of Borrowing") shall
be by telecopy, confirmed immediately in writing, in substantially the form of
Exhibit 2.02 hereto, specifying therein the requested (i) date of such
Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate
amount of such Borrowing, and (iv) in the case of a Borrowing comprised of
Adjusted CD Rate Advances or LIBOR Advances, initial Interest Period for each
such Advance, provided that the Borrower may not specify LIBOR Advances for any
Borrowing if, after giving effect to such Borrowing, LIBOR Advances having more
than four different Interest Periods shall be outstanding and the Borrower may
not specify Adjusted CD Rate Advances for any Borrowing if, after giving effect
to such Borrowing, Adjusted CD Rate Advances having more than four different
Interest Periods shall be outstanding. In the case of a proposed Borrowing
comprised of Adjusted CD Rate Advances or LIBOR Advances, the Administrative
Agent shall promptly notify each Bank of the applicable interest rate under
Section 2.05(b) or (c). Each Bank shall, before 11:00 A.M. (2:00 P.M. in the
case of a Borrowing comprised of Base Rate Advances) on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at its Payment Office, in same day funds, such Bank's
ratable portion of such Borrowing. After the Administrative Agent's receipt of
such funds and upon
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fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower at the
Administrative Agent's aforesaid address.
(b) Each Notice of Borrowing shall be irrevocable and binding on
the Borrower. In the case of any Borrowing which the related Notice of
Borrowing specifies is to be comprised of Adjusted CD Rate Advances or LIBOR
Advances, the Borrower shall indemnify each Bank against any loss, cost or
expense incurred by such Bank as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss (excluding loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund the Advance to be made by such Bank as part of such
Borrowing when such Advance, as a result of such failure, is not made on such
date.
(c) Unless the Administrative Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
available to the Administrative Agent such Bank's ratable portion of such
Borrowing, the Administrative Agent may assume that such Bank has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Bank shall
not have so made such ratable portion available to the Administrative Agent,
such Bank and the Borrower severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Administrative Agent, at (i) in the case
of the Borrower, the interest rate applicable at the time to Advances
comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds
Rate. If such Bank shall repay to the Administrative Agent such corresponding
amount, such amount so repaid shall constitute such Bank's Advance as part of
such Borrowing for purposes of this Agreement.
(d) The failure of any Bank to make the Advance to be made by it
as part of any Borrowing shall not relieve any other Bank of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Bank
shall be responsible for the failure of any other Bank to make the Advance to
be made by such other Bank on the date of any Borrowing.
(e) Each advance made by each Bank to the Borrower hereunder, and
the indebtedness of the Borrower to such Bank resulting from such Advance,
shall be evidenced 50% by a Series A Note and 50% by a Series B Note.
SECTION 2.03. Fees. (a) Commitment Fee. The Borrower agrees
to pay to each Bank a commitment fee, at a rate per annum of 0.1875 of 1% on
the average daily unused amount of such Bank's Commitment, from the date hereof
until the Termination Date. The commitment fee is payable on the last day of
each March, June, September and
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December during the term of such Bank's Commitment, commencing
December 31, 1993, and on the date such Bank's Commitment is terminated.
(b) Agents' Fees. The Borrower shall pay to the Managing Agents
and the Administrative Agent, at or prior to the time this Agreement becomes
effective pursuant to Section 8.06 hereof, such fees as may have been
separately agreed to by the Borrower and the Managing Agents and the Borrower
and the Administrative Agent.
SECTION 2.04. Repayment. The Borrower shall repay the unpaid
principal amount of each Advance owed to each Bank in accordance with the
Series A Note and the Series B Note to the order of such Bank evidencing such
Advance. All Advances shall be due and payable on the Termination Date.
SECTION 2.05. Interest. The Borrower shall pay interest on
the unpaid principal amount of each Advance owed to each Bank from the date of
such Advance until such principal amount shall be paid in full, at the
following rates per annum:
(a) Base Rate Advances. During such periods as such
Advance is a Base Rate Advance, a rate per annum equal at all times to
the Base Rate in effect from time to time, payable quarterly on the
last day of each March, June, September and December during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full; provided that any amount of principal (other than
principal of Adjusted CD Rate Advances bearing interest pursuant to
the proviso to Section 2.05(b) and principal of LIBOR Advances bearing
interest pursuant to the proviso to Section 2.05(c)) which is not paid
when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until
such amount is paid in full, payable on demand, at a rate per annum
equal at all times to 2% per annum above the Base Rate in effect from
time to time.
(b) Adjusted CD Rate Advances. During such periods as
such Advance is an Adjusted CD Rate Advance, a rate per annum equal at
all times during each Interest Period for such Advance to the sum of
the Adjusted CD Rate for such Interest Period for such Advance plus
the Applicable Margin per annum for such Interest Period, payable on
the last day of such Interest Period and, if such Interest Period has
a duration of more than 90 days, on the day which occurs during such
Interest Period 90 days from the first day of such Interest Period;
provided that any amount of principal of any Adjusted CD Rate Advance
which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x)
2% per annum above the Base Rate in effect from time to time and (y)
2% per annum above the rate per annum required to be paid on such
Advance immediately prior to the date on which such amount became due.
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(c) LIBOR Advances. During such periods as such Advance
is a LIBOR Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of the LIBO Rate for such
Interest Period for such Advance plus the Applicable Margin per annum
for such Interest Period, payable on the last day of such Interest
Period and, if such Interest Period has a duration of more than three
months, on the day which occurs during such Interest Period three
months from the first day of such Interest Period; provided that any
amount of principal of any LIBOR Advance which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear
interest, from the date on which such amount is due until such amount
is paid in full, payable on demand, at a rate per annum equal at all
times to the greater of (x) 2% per annum above the Base Rate in effect
from time to time and (y) 2% per annum above the rate per annum
required to be paid on such Advance immediately prior to the date on
which such amount became due.
SECTION 2.06. Additional Interest on LIBOR Advances. If any
Bank is required under regulations of the Federal Reserve Board to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, and if as a result thereof there is an increase in
the cost to such Bank of agreeing to make or making, funding or maintaining
LIBOR Advances, then the Borrower shall from time to time, upon demand by such
Bank (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Bank additional amounts, as
additional interest hereunder, sufficient to compensate such Bank for such
increased cost. A certificate in reasonable detail as to the basis for and the
amount of such increased cost, submitted to the Borrower and the Administrative
Agent by such Bank, shall be conclusive and binding for all purposes, absent
manifest error.
SECTION 2.07. Interest Rate Determination and Protection.
(a) Each Reference Bank agrees to furnish to the Administrative Agent timely
information for the purpose of determining each Adjusted CD Rate and, when
applicable, for the purpose of determining each LIBO Rate.
(b) The Administrative Agent shall give prompt notice to the
Borrower and the Banks of the applicable interest rate determined by the
Administrative Agent for purposes of Section 2.05(a), (b) or (c), and the
applicable rate, if any, furnished by each Reference Bank for the purpose of
determining the applicable interest rate under Section 2.05(b) or (c).
(c) If only one Reference Bank furnishes timely information to the
Administrative Agent for determining the Adjusted CD Rate for any Adjusted CD
Rate Advances, or if the Administrative Agent is not able to ascertain the LIBO
Rate for any LIBOR Advances as contemplated in the definition of "LIBO Rate",
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(i) the Administrative Agent shall forthwith notify the
Borrower and the Banks that the interest rate cannot be determined for
such LIBOR Advances or Adjusted CD Rate Advances, as the case may be,
(ii) each such Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base
Rate Advance (or if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance), and
(iii) the obligation of the Banks to make, or to Convert
Advances into, Adjusted CD Rate Advances or LIBOR Advances, as the
case may be, shall be suspended until the Administrative Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist.
(d) If, with respect to any Adjusted CD Rate Advances or LIBOR
Advances, the Majority Banks notify the Administrative Agent that the
applicable interest rate for any Interest Period for such Advances will not
adequately reflect the cost to such Majority Banks of making, funding or
maintaining their respective Adjusted CD Rate Advances or LIBOR Advances, as
the case may be, for such Interest Period, the Administrative Agent shall
forthwith so notify the Borrower and the Banks, whereupon
(i) each such Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base
Rate Advance (or, if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance), and
(ii) the obligation of the Banks to make, or to Convert
Advances into, Adjusted CD Rate Advances or LIBOR Advances, as the
case may be, shall be suspended until the Administrative Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist.
(e) If the Borrower shall fail to select the duration of any
Interest Period for any Adjusted CD Rate Advances or LIBOR Advances in
accordance with the provisions contained in the definition of "Interest Period"
in Section 1.01, the Administrative Agent will forthwith so notify the Borrower
and the Banks and such Advances will automatically, on the last day of the then
existing Interest Period therefor, Convert into Base Rate Advances.
(f) (i) On the date on which the aggregate unpaid principal amount
of Advances comprising any Borrowing of LIBOR Advances shall be reduced, by
payment or prepayment or otherwise, to less than $25,000,000, such Advances
shall automatically Convert into Base Rate Advances, and on and after such date
the right of the Borrower to Convert such Advances into LIBOR Advances shall
terminate; provided, however, that if and so long as each such Advance shall be
of the same Type and have the same Interest Period as Advances comprising
another Borrowing or other Borrowings, and the aggregate unpaid principal
amount of all such Advances of all such Borrowings shall equal or exceed
$25,000,000, the Borrower shall have the right to continue all such Advances
as, or to Convert all such Advances into, Advances of such Type having such
Interest Period.
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(ii) On the date on which the aggregate unpaid principal
amount of Advances comprising any Borrowing of Adjusted CD Rate Advances shall
be reduced, by payment or prepayment or otherwise, to less than $15,000,000,
such Advances shall automatically Convert into Base Rate Advances, and on and
after such date the right of the Borrower to Convert such Advances into
Adjusted CD Rate Advances shall terminate; provided, however, that if and so
long as each such Advance shall be of the same Type and have the same Interest
Period as Advances comprising another Borrowing or other Borrowings, and the
aggregate unpaid principal amount of all such Advances of all such Borrowings
shall equal or exceed $15,000,000, the Borrower shall have the right to
continue all such Advances as, or to Convert all such Advances into, Advances
of such Type having such Interest Period.
SECTION 2.08. Voluntary Conversion of Advances. The Borrower
may on any Business Day, upon notice given to the Administrative Agent not
later than 11:00 A.M. (x) in the case of a proposed Conversion into LIBOR
Advances, on the third Business Day prior to the date of the proposed
Conversion, (y) in the case of a proposed Conversion into Adjusted CD Rate
Advances, on the first Business Day prior to the date of the proposed
Conversion, and (z) in the case of a proposed Conversion into Base Rate
Advances, on the date of the proposed Conversion and subject to the limitations
in Section 2.02(a) as to the number of permitted Interest Periods and subject
to the provisions of Sections 2.07 and 2.11, Convert all Advances of one Type
comprising the same Borrowing into Advances of another Type; provided, however,
that any Conversion of any LIBOR Advances shall be made on, and only on, the
last day of an Interest Period for such LIBOR Advances and that any Conversion
of any Adjusted CD Rate Advances shall be made on, and only on, the last day of
an Interest Period for such Adjusted CD Rate Advances. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted and the Type into which
they are to be Converted, and (iii) if such Conversion is into Adjusted CD Rate
Advances or LIBOR Advances, the duration of the Interest Period for each such
Advance.
SECTION 2.09. Prepayments. The Borrower may (x) in respect
of Adjusted CD Rate Advances, upon at least one Business Day's notice, (y) in
respect of LIBOR Advances, upon at least three Business Days' notice, and, (z)
in respect of Base Rate Advances, upon notice by 11:00 A.M. on the day of the
proposed prepayment, to the Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment and the Types of Advances to be
prepaid, and in the case of LIBOR Advances or Adjusted CD Rate Advances, the
specific Borrowing or Borrowings pursuant to which made, and if such notice is
given the Borrower shall, prepay the outstanding principal amounts of the
Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid without premium or penalty; provided, however, that (i) each
partial prepayment shall be in an aggregate principal amount not less than
$10,000,000, and (ii) if the Borrower prepays any Adjusted CD Rate Advance or
any LIBOR Advance on any day other than the last day of an Interest Period
therefor, the Borrower shall compensate the Banks pursuant to Section 8.04(b).
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SECTION 2.10. Increased Costs; Capital Adequacy, Etc. (a)
If, due to either (i) the introduction of or any change (other than any change
by way of imposition or increase of reserve requirements included in the
Adjusted CD Rate Reserve Percentage) in or in the interpretation of any law or
regulation by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof or (ii) the
compliance with any guideline or request from any governmental authority,
central bank or comparable agency (whether or not having the force of law),
there shall be any increase in the cost to any Bank of agreeing to make or
making, funding or maintaining Adjusted CD Rate Advances or LIBOR Advances
(other than increased costs described in Section 2.06 or in clause (c) below),
then the Borrower shall from time to time, upon demand by such Bank (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Bank additional amounts sufficient to compensate
such Bank for such increased cost. A certificate in reasonable detail as to
the basis for and the amount of such increased cost, submitted to the Borrower
and the Administrative Agent by such Bank, shall be conclusive and binding for
all purposes, absent manifest error. Promptly after any Bank becomes aware of
any such introduction, change or proposed compliance, such Bank shall notify
the Borrower thereof. No Bank shall be permitted to recover increased costs
incurred or accrued more than 90 days prior to such notice to the Borrower.
(b) If the Borrower so notifies the Administrative Agent within
five Business Days after any Bank notifies the Borrower of any increased cost
pursuant to the provisions of Section 2.10(a), the Borrower shall Convert all
Advances of the Type affected by such increased cost of all Banks then
outstanding into Advances of another Type in accordance with Section 2.08 and,
additionally, reimburse such Bank for such increased cost in accordance with
Section 2.10(a).
(c) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its lending office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency (except to the extent such request
or directive arises as a result of the individual creditworthiness of such
Bank), has the effect of increasing the amount of capital required or expected
to be maintained as a result of its Commitment hereunder, such Bank shall have
the right to give prompt written notice thereof to the Borrower with a copy to
the Administrative Agent, which notice shall show in reasonable detail the
calculation of such additional amounts as shall be required to compensate such
Bank for the increased cost to such Bank as a result of such increase in
capital and shall certify that such costs are generally being charged by such
Bank to other similarly situated borrowers under similar credit facilities,
which notice shall be conclusive and binding for all purposes, absent manifest
error, although the failure to give any such notice shall not, unless such
notice fails to set forth the information required above or except as otherwise
expressly
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provided in Section 2.10(d), release or diminish any of the Borrower's
obligations to pay additional amounts pursuant to Section 2.10(d).
(d) Each Bank agrees that, upon giving notice specified in Section
2.10(c), at the request of the Borrower, it will promptly enter into good faith
negotiations with the Borrower with respect to the method of reimbursement for
the additional costs specified in such notice. No later than 15 days after the
date of the giving of any such notice, and assuming the Bank giving same has
made itself available for the aforesaid good faith negotiations, the Borrower
shall have the option, to be exercised in writing, to (i) compensate such Bank
for the specified additional costs on the basis, if any, negotiated between
such Bank and the Borrower or (ii) terminate such Bank's Commitment to the
extent, and on the terms and conditions, specified in Section 2.10(e), provided
that if the Borrower fails to so exercise such option, it shall be deemed to
have agreed to reimburse such Bank from time to time on demand the additional
costs specified in the Bank's notice delivered pursuant to Section 2.10(c).
Notwithstanding the foregoing, the Borrower shall not be obligated to reimburse
any Bank pursuant to this Section 2.10(d) or Section 2.10(e) or Section 2.16
for any additional costs under Section 2.10(c) incurred or accruing more than
90 days prior to the date on which such Bank gave the written notice specified
in Section 2.10(c).
(e) In the event that the Borrower has given notice to a Bank
pursuant to Section 2.10(d) that it elects to terminate such Bank's Commitment
(a copy of which notice shall be sent to the Administrative Agent), such
termination shall become effective 15 days thereafter unless such Bank
withdraws its request for additional compensation. On the date of the
termination of the Commitment of any Bank pursuant to this Section 2.10(e), (x)
the Borrower shall deliver notice of the effectiveness of such termination to
such Bank and to the Administrative Agent, (y) the Borrower shall pay all
amounts owed by the Borrower to such Bank under this Agreement or under the
Notes payable to such Bank (including principal of and interest on the Advances
owed to such Bank, accrued commitment fees and amounts specified in such Bank's
notice delivered pursuant to Section 2.10(c) with respect to the period prior
to such termination) and (z) upon the occurrence of the events set forth in (x)
and (y), such Bank shall cease to be a "Bank" hereunder for all purposes
(except for its obligations under Section 7.07 hereof and the obligations of
the Borrower to such Bank under Sections 8.04(a)(ii) and 8.04(c) hereof). The
Borrower may elect to terminate a Bank's Commitment pursuant to Section 2.10(d)
only if at such time:
(i) no Event of Default is then in existence or would be
in existence but for requirement that notice be given or time elapse
or both;
(ii) the Borrower has elected, or is then electing, to
terminate the Commitments of all Banks which have made similar
requests for increased compensation under Section 2.10(c), which
requests have not been withdrawn, provided, that requests may be
determined by the Borrower to be dissimilar based on the negotiation
of materially dissimilar rates of compensation under clause (i) of
Section 2.10(d); and
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(iii) after giving effect to such termination, there would
not have been terminated pursuant to this Section 2.10(e), and not
replaced pursuant to Section 2.16, Commitments aggregating more than
$100,000,000.
(f) Each Bank shall use its best efforts (consistent with its
internal policies and legal and regulatory restrictions) to select a
jurisdiction for its Applicable Lending Office or change the jurisdiction of
its Applicable Lending Office, as the case may be, so as to avoid the
imposition of any increased costs under this Section 2.10 or to eliminate the
amount of any such increased cost which may thereafter accrue; provided that no
such selection or change of the jurisdiction for its Applicable Lending Office
shall be made if, in the reasonable judgment of such Bank, such selection or
change would be disadvantageous to such Bank.
SECTION 2.11. Illegality. Notwithstanding any other
provision of this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any
governmental authority, central bank or comparable agency shall assert that it
is unlawful, for any Bank or its Eurodollar Lending Office to perform its
obligations hereunder to make LIBOR Advances or to continue to fund or maintain
LIBOR Advances hereunder, then, on notice thereof and demand therefor by such
Bank to the Borrower through the Administrative Agent, (i) the obligation of
the Banks to make LIBOR Advances and to Convert Advances into LIBOR Advances
shall terminate and (ii) the Borrower shall forthwith Convert all LIBOR
Advances of all Banks then outstanding into Advances of another Type in
accordance with Section 2.08.
SECTION 2.12. Payments and Computations. (a) The Borrower
shall make each payment under any Loan Document not later than 11:00 A.M. on
the day when due in Dollars to the Administrative Agent at its Payment Office
in same day funds. The Administrative Agent will promptly thereafter cause to
be distributed like funds relating to the payment of principal or interest or
commitment fees ratably (other than amounts payable pursuant to Section 2.06,
2.10, 2.13, 2.16 or 8.04(b)) to the Banks (decreased, as to any Bank, for any
taxes withheld in respect of such Bank as contemplated by Section 2.13(b)) for
the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Bank to such Bank
for the account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement.
(b) All computations of interest based on the Base Rate and of
commitment fees shall be made by the Administrative Agent on the basis of a
year of 365 or 366 days, as the case may be, and all computations of interest
based on the Adjusted CD Rate, the LIBO Rate, or the Federal Funds Rate shall
be made by the Administrative Agent, and all computations of interest pursuant
to Section 2.06 shall be made by a Bank, on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest or commitment
fees are payable. Each determination by the Administrative Agent (or, in the
case of
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Section 2.06, by a Bank) of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee,
as the case may be; provided, however, if such extension would cause payment of
interest on or principal of LIBOR Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent
the Borrower shall not have so made such payment in full to the Administrative
Agent, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date such amount is distributed to such Bank until the date such
Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.
(e) Each repayment by the Borrower of the unpaid principal of and
accrued interest on each Advance owing to each Bank (including any prepayment
pursuant to Section 2.09) shall, if such repayment is a repayment of less than
all of the unpaid principal of and accrued interest on such Advance, be applied
50% to the Series A Note evidencing such Advance and 50% to the Series B Note
evidencing such Advance.
SECTION 2.13. Taxes. (a) Any and all payments by the
Borrower hereunder or under the Notes shall be made, in accordance with Section
2.12, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges, fees, duties or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Administrative Agent, (1) taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof and (2) any
taxes imposed by the United States of America by means of withholding at the
source if and to the extent that such taxes shall be in effect and shall be
applicable, on the date hereof, to payments to be made to such Bank or the
Administrative Agent (all such non-excluded taxes, levies, imposts, deductions,
charges, fees, duties, withholdings and liabilities being hereinafter referred
to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under any Note to any Bank
or the Administrative Agent, (i) the sum payable shall be increased as may be
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necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.13) such Bank or the
Administrative Agent (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) Notwithstanding anything to the contrary contained in this
Agreement, each of the Borrower and the Administrative Agent shall be entitled,
to the extent it is required to do so by law, to deduct or withhold income or
other similar taxes imposed by the United States of America from interest, fees
or other amounts payable hereunder for the account of any Bank (without the
payment by the Borrower of increased amounts to such Bank pursuant to clause
(a) above) other than a Bank (i) which is a domestic corporation (as such term
is defined in Section 7701 of the Code) for federal income tax purposes or (ii)
which has the Prescribed Forms on file with the Borrower and the Administrative
Agent for the applicable year to the extent deduction or withholding of such
taxes is not required as a result of the filing of such Prescribed Forms,
provided that if the Borrower shall so deduct or withhold any such taxes, it
shall provide a statement to the Administrative Agent and such Bank, setting
forth the amount of such taxes so deducted or withheld, the applicable rate and
any other information or documentation which such Bank or the Administrative
Agent may reasonably request for assisting such Bank or the Administrative
Agent to obtain any allowable credits or deductions for the taxes so deducted
or withheld in the jurisdiction or jurisdictions in which such Bank is subject
to tax.
(c) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(d) The Borrower, to the fullest extent permitted by law, will
indemnify each Bank and the Administrative Agent for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.13) paid by such
Bank or the Administrative Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto except as a result of the gross negligence or willful misconduct of
such Bank or Administrative Agent, whether or not such Taxes or Other Taxes
were correctly or legally asserted. This indemnification shall be made within
30 days from the date such Bank or the Administrative Agent (as the case may
be) makes written demand therefor. No Bank nor the Administrative Agent shall
be indemnified for Taxes incurred or accrued more than 90 days prior to the
date that such Bank or the Administrative Agent notifies the Borrower thereof.
(e) Within 30 days after the date of any payment of Taxes by or at
the direction of the Borrower, the Borrower will furnish to the Administrative
Agent, at its address
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referred to in Section 8.02, the original or a certified copy of a receipt
evidencing payment thereof. Should any Bank or the Administrative Agent ever
receive any refund, credit or deduction from any taxing authority to which such
Bank or the Administrative Agent would not be entitled but for the payment by
the Borrower of Taxes as required by Section 2.13 (it being understood that the
decision as to whether or not to claim, and if claimed, as to the amount of any
such refund, credit or deduction shall be made by such Bank or the
Administrative Agent in its sole discretion), such Bank or the Administrative
Agent, as the case may be, thereupon shall repay to the Borrower an amount with
respect to such refund, credit or deduction equal to any net reduction in taxes
actually obtained by such Bank or the Administrative Agent, as the case may be,
and determined by such Bank or the Administrative Agent, as the case may be, to
be attributable to such refund, credit or deduction.
(f) Each Bank shall use its best efforts (consistent with its
internal policies and legal and regulatory restrictions) to select a
jurisdiction for its Applicable Lending Office or change the jurisdiction of
its Applicable Lending Office, as the case may be, so as to avoid the
imposition of any Taxes or Other Taxes or to eliminate the amount of any such
additional amounts which may thereafter accrue; provided that no such selection
or change of the jurisdiction for its Applicable Lending Office shall be made
if, in the reasonable judgment of such Bank, such selection or change would be
disadvantageous to such Bank.
(g) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.13 shall survive the payment in full of principal
and interest hereunder and under the Notes.
SECTION 2.14. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances made by it (other
than pursuant to Section 2.06, 2.10, 2.13, 2.16 or 8.04(b)) in excess of its
ratable share of payments on account of the Advances obtained by all the Banks,
such Bank shall forthwith purchase from the other Banks such participations in
the Advances made by them as shall be necessary to cause such purchasing Bank
to share the excess payment ratably with each of them, provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and such Bank
shall repay to the purchasing Bank the purchase price to the extent of its
ratable share (according to the proportion of (i) the amount of the
participation purchased from such Bank as a result of such excess payment to
(ii) the total amount of such excess payment) of such recovery together with an
amount equal to such Bank's ratable share (according to the proportion of (i)
the amount of such Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
The Borrower agrees that any Bank so purchasing a participation from another
Bank pursuant to this Section may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct creditor
of the Borrower in the amount of such participation.
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SECTION 2.15. Ratable Reduction or Termination of the
Commitments. The Borrower shall have the right, upon at least three Business
Days' notice to the Administrative Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective Commitments of the Banks
(with the signature pages hereto deemed amended to reflect same), provided that
each partial reduction shall be in the aggregate amount of at least $10,000,000
and shall be in integral multiples of $5,000,000.
Section 2.16. Replacement of Bank. In the event that any
Bank shall claim payment of any increased costs pursuant to Section 2.10 or any
Taxes, Other Taxes or additional amounts pursuant to Section 2.13, the Borrower
shall have the right, if no Event of Default then exists or would exist but for
the requirement that notice be given or time elapse or both, to replace such
Bank with another commercial bank or other financial institution; provided that
such replacement commercial bank or other financial institution, (i) if it is
not a Bank, shall be reasonably acceptable to the Administrative Agent, (ii)
shall unconditionally offer in writing (with a copy to the Administrative
Agent) to purchase all of such Bank's rights hereunder and interest in the
Advances owing to such Bank and the Notes held by such Bank without recourse or
warranty (other than a warranty as to the outstanding principal amount of such
Notes and the amount of interest and fees accrued thereon) at the principal
amount of such Notes plus interest and fees accrued thereon to the date of such
purchase on a date therein specified, and (iii) shall execute and deliver to
the Administrative Agent a document satisfactory to the Administrative Agent
pursuant to which such replacement commercial bank or other financial
institution becomes a party hereto with a Commitment equal to that of the Bank
being replaced, which document, if such replacement commercial bank or other
financial institution is not already a Bank, shall (among other matters)
specify the Address For Notices, CD Lending Office, Domestic Lending Office and
Eurodollar Lending Office of such replacement commercial bank or other
financial institution. Upon satisfaction of the requirements set forth in the
first sentence of this Section 2.16, acceptance of such offer to purchase by
the Bank to be replaced, payment to such Bank of the purchase price in
immediately available funds, and the payment by the Borrower of all requested
costs accruing to the date of purchase which the Borrower is obligated to pay
under Section 8.04 and all other amounts owed by the Borrower to such Bank
(other than the principal of and interest on the Advances of such Bank
purchased by the replacement commercial bank or other financial institution),
the replacement commercial bank or other financial institution shall constitute
a "Bank" hereunder with a Commitment as so specified and the Bank being so
replaced shall no longer constitute a "Bank" hereunder (with the signature
pages being amended to reflect same). If, however, (x) a Bank accepts such an
offer and such commercial bank or other financial institution fails to purchase
such rights and interest on such specified date in accordance with the terms of
such offer, the Borrower shall continue to be obligated to pay the increased
costs to such Bank pursuant to Section 2.10 or the Taxes, Other Taxes or
additional amounts pursuant to Section 2.13, as the case may be, or (y) the
Bank proposed to be replaced fails to accept such purchase offer, the Borrower
shall not be obligated to pay to such Bank such increased costs or additional
amounts incurred or accrued from and after the date of such purchase offer.
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Section 2.17. Survival. This Agreement and the Notes shall
be reinstated with respect to the Borrower if at any time payment by the
Borrower with respect to any Notes is rescinded or must otherwise be returned
by the Administrative Agent, any of the Banks, Enron or Sonat, as the case may
be, upon the insolvency, bankruptcy or reorganization of Enron, Sonat or the
Borrower, all as though such payment had not been made.
ARTICLE III
CONDITIONS TO ADVANCES
SECTION 3.01. Initial Conditions Precedent. The obligation
of each Bank to make Advances pursuant to the terms and conditions of this
Agreement is subject to the conditions precedent that the fees provided for in
Section 2.03(b) hereof shall have been paid and that the Administrative Agent
shall have received the following, each dated on or before the date of the
initial Advance hereunder (unless otherwise specified below), in form and
substance satisfactory to the Administrative Agent:
(a) The Notes, dated the date of this Agreement, to the
order of the Banks, respectively.
(b) Each Note Purchase Agreement, dated the date of this
Agreement, executed by each party thereto (which execution may be in
counterparts).
(c) Certified copies of the resolutions of the Board of
Directors of the Borrower approving this Agreement, each Note and each
Notice of Borrowing, each Note Purchase Agreement, and of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to each such Loan Document and
certified copies of the restated certificate of incorporation and
bylaws of the Borrower.
(d) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to sign each Loan Document to
which it is a party and the other documents to be delivered by the
Borrower hereunder.
(e) Certified copies of the resolutions of the Board of
Directors of Enron approving the Enron Note Purchase Agreement and of
all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Enron Note
Purchase Agreement, and certified copies of the restated certificate
of incorporation and bylaws of Enron.
(f) A certificate of the Secretary or an Assistant
Secretary of Enron certifying the names and true signatures of the
officers of Enron authorized to sign
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the Enron Note Purchase Agreement, and other documents to be delivered
by Enron hereunder.
(g) Certified copies of the resolutions of the Board of
Directors of Sonat approving the Sonat Note Purchase Agreement and of
all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Sonat Note
Purchase Agreement, and certified copies of the restated certificate
of incorporation and bylaws of Sonat.
(h) A certificate of the Secretary or an Assistant
Secretary of Sonat certifying the names and true signatures of the
officers of Sonat authorized to sign the Sonat Note Purchase
Agreement, and other documents to be delivered by Sonat hereunder.
(i) A favorable opinion of Vinson & Elkins L.L.P.,
counsel for the Borrower, dated the date of the initial Advance, to be
delivered to, and for the benefit of, the Banks, the Managing Agents
and the Administrative Agent, at the express instruction of the
Borrower, substantially in the form of Exhibit 3.01-A hereto and as to
such other matters as any Bank through the Administrative Agent may
reasonably request.
(j) A favorable opinion of Vinson & Elkins L.L.P.,
counsel for Enron in connection with the Enron Note Purchase
Agreement, dated the date of the initial Advance, to be delivered to,
and for the benefit of, the Banks, the Managing Agents and the
Administrative Agent, at the express instruction of Enron, in
substantially the form of Exhibit 3.01-B hereto and as to such other
matters as any Bank through the Administrative Agent may reasonably
request.
(k) A favorable opinion of James V. Derrick, Jr., Senior
Vice President and General Counsel of Enron, dated the date of the
initial Advance, to be delivered to, and for the benefit of, the
Banks, the Managing Agents and the Administrative Agent, at the
express instruction of Enron, in substantially the form of Exhibit
3.01-C hereto and as to such other matters as any Bank through the
Administrative Agent may reasonably request.
(l) A favorable opinion of Vinson & Elkins L.L.P.,
counsel for Sonat in connection with the Sonat Note Purchase
Agreement, dated the date of the initial Advance, to be delivered to,
and for the benefit of, the Banks, the Managing Agents and the
Administrative Agent, at the express instruction of Sonat, in
substantially the form of Exhibit 3.01-D hereto and as to such other
matters as any Bank through the Administrative Agent may reasonably
request.
(m) A favorable opinion of Beverley T. Krannich, Vice
President and Secretary of Sonat, as counsel for Sonat, dated the date
of the initial Advance, to be delivered to, and for the benefit of,
the Banks, the Managing Agents and the
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Administrative Agent, at the express instruction of Sonat, in
substantially the form of Exhibit 3.01-E hereto and as to such other
matters as any Bank through the Administrative Agent may reasonably
request.
(n) A favorable opinion of Andrews and Kurth L.L.P.,
counsel for the Managing Agents, dated the date of the initial
Advance, to be delivered to, and for the benefit of, the Banks, and
the Administrative Agent and the Managing Agents, at the express
instruction of the Managing Agents, substantially in the form of
Exhibit 3.01-F hereto.
(o) A budget prepared by the Borrower or FGT for the
Phase III Expansion construction program.
(p) A letter from CT Corporation System accepting
appointment as the designee, appointee and agent of the Borrower and
Enron pursuant to, respectively, (i) Section 8.10 hereof, and (ii)
Section 7.11 of the Enron Note Purchase Agreement.
SECTION 3.02. Additional Conditions Precedent to Each
Advance. The obligation of each Bank to make any Advance shall be subject to
the additional conditions precedent that on the date of such Advance (a) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing and the acceptance by the Borrower of the proceeds of such
Advance shall constitute a representation and warranty by the Borrower that on
the date of such Advance such statements are true):
(i) The representations and warranties contained in
Section 4.01 of this Agreement are correct on and as of the date of
such Advance (unless stated to relate solely to an earlier date, in
which case such representations are true and correct as of such
earlier date), before and after giving effect to such Advance and the
Borrowing of which such Advance is a part and to the application of
the proceeds therefrom, as though made on and as of such date, and
(ii) No event has occurred and is continuing, or would
result from such Advance or the Borrowing of which such Advance is a
part or from the application of the proceeds therefrom, which
constitutes an Event of Default (other than an Enron Event of Default
or a Sonat Event of Default) or would constitute an Event of Default
(other than an Enron Event of Default or a Sonat Event of Default) but
for the requirement that notice be given or time elapse or both,
(b) the following statements shall be true (and the acceptance by the Borrower
of the proceeds of such Advance shall constitute a representation and warranty
of Enron and Sonat pursuant to their respective Note Purchase Agreements that
on the date of such Advance such statements are true):
(i) The representations and warranties contained in
Section 4.01 of the Sonat Note Purchase Agreement, in the case of
Sonat, and in Section 4.01 of the
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Enron Note Purchase Agreement, in the case of Enron, are correct on
and as of the date of such Advance (unless stated to relate solely to
an earlier date, in which case such representations are true and
correct as of such earlier date), before and after giving effect to
such Advance and the Borrowing of which such Advance is a part and to
the application of the proceeds therefrom, as though made on and as of
such date, and
(ii) No event has occurred and is continuing, or would
result from such Advance or the Borrowing of which such Advance is
part or from the application of the proceeds therefrom, which
constitutes an Enron Event of Default, in the case of Enron, or a
Sonat Event of Default, in the case of Sonat, or would constitute an
Enron Event of Default or a Sonat Event of Default but for the
requirement that notice be given or time elapse or both, and
(c) the Administrative Agent shall have received such other approvals, opinions
or documents as any Bank through the Administrative Agent may reasonably
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower and each of its Subsidiaries are
corporations duly incorporated, validly existing and in good standing
in each case under the laws of its jurisdiction of incorporation. The
Borrower and each of its Subsidiaries have all corporate powers and
all material governmental licenses, authorizations, consents and
approvals required in each case to carry on its business as now
conducted.
(b) The execution, delivery and performance by the
Borrower of each Loan Document to which it is or will be a party are
within the Borrower's corporate powers, have been duly authorized by
all necessary corporate action of the Borrower, require, in respect of
the Borrower, no action by or in respect of, or filing with, any
governmental body, agency or official and do not contravene, or
constitute a default under, any provision of law or regulation
(including, without limitation, Regulation X issued by the Federal
Reserve Board) applicable to the Borrower or any of its Subsidiaries
or Regulation U issued by the Federal Reserve Board or the restated
certificate of incorporation or bylaws of the Borrower or any
judgment, injunction, order, decree or material ("material" for the
purposes of this representation meaning creating a liability of
$15,000,000 or more) agreement binding upon the Borrower or any of its
Subsidiaries or result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Subsidiaries.
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(c) This Agreement and each Note are, and each other Loan
Document to which the Borrower is or will be a party, when executed
and delivered in accordance with this Agreement will be legal, valid
and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as the
enforceability thereof may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of
equity.
(d) The audited Consolidated balance sheet of each of the
Borrower and FGT as of December 31, 1992 and the related audited
Consolidated statements of income, cash flows and changes in
stockholders' equity accounts of each of the Borrower and FGT for the
fiscal year then ended and the unaudited Consolidated balance sheet of
each of the Borrower and FGT as of September 30, 1993 and the related
unaudited Consolidated statements of income, cash flows and changes in
stockholders' equity accounts of each of the Borrower and FGT for the
fiscal quarter then ended, certified by the respective chief financial
or accounting officer of the Borrower or FGT, copies of which have
been delivered to each of the Banks, fairly present, in conformity
with GAAP except as otherwise expressly noted therein, the
Consolidated financial position of each of the Borrower and FGT as of
such dates and their respective Consolidated results of operations and
changes in financial position for such fiscal periods, subject (in the
case of the unaudited balance sheet and statements) to changes
resulting from audit and normal year-end adjustments.
(e) Since December 31, 1992 there has been no material
adverse change in the business, Consolidated financial position or
Consolidated results of operations of the Borrower and its
Subsidiaries, considered as a whole.
(f) Except as disclosed in a letter dated the date hereof
from the Vice President and General Counsel of the Borrower to the
Banks, the Managing Agents and the Administrative Agent, there is no
action, suit or proceeding pending against the Borrower or any of its
Subsidiaries, or to the knowledge of the Borrower threatened against
the Borrower or any of its Subsidiaries, before any court or
arbitrator or any governmental body, agency or official in which there
is a reasonable possibility of an adverse decision which could
materially adversely affect the business, Consolidated financial
position or Consolidated results of operations of the Borrower and its
Consolidated Subsidiaries taken as a whole or which in any manner
draws into question the validity of this Agreement or any other Loan
Document to which the Borrower is or will be a party.
(g) United States federal income tax returns of the
Borrower and its Subsidiaries have been examined and closed through
the fiscal year ended December 31, 1989. The Borrower and its
Subsidiaries have filed or caused to be filed all United States
federal income tax returns and all other material domestic tax returns
which to the knowledge of the Borrower are required to be filed by
them and have paid or provided for the payment, before the same become
delinquent, of all
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taxes due pursuant to such returns or pursuant to any assessment
received by the Borrower or any Subsidiary of the Borrower, other than
those taxes contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of taxes are, in the opinion of the Borrower,
adequate to the extent required by GAAP.
(h) Neither the Borrower nor any of its Subsidiaries is
an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(i) Neither the Borrower nor any of its Subsidiaries is a
"holding company", a "subsidiary company" of a "holding company", an
"affiliate" of a "holding company", or an "affiliate" of a "subsidiary
company" of a "holding company", in each case as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
(j) Following application of the proceeds of each
Advance, not more than 25 percent of the value of the assets (either
of the Borrower only or of the Borrower and its Subsidiaries on a
Consolidated basis), which are subject to any arrangement with the
Administrative Agent or any Bank (herein or otherwise) whereby the
Borrower's or any Subsidiary's right or ability to sell, pledge or
otherwise dispose of assets is in any way restricted, will be margin
stock (within the meaning of Regulation U issued by the Federal
Reserve Board).
(k) On the date of this Agreement, the Borrower is the
owner beneficially and of record directly or indirectly of 100% of the
outstanding capital stock having ordinary voting power of FGT and its
other Subsidiaries.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. The Borrower covenants
and agrees that so long as any Note shall remain unpaid or any Bank shall have
any Commitment hereunder, the Borrower will, unless the Majority Banks shall
otherwise consent in writing:
(a) Reporting Requirements. Furnish to the
Administrative Agent (with a copy for each Bank):
(i) as soon as available and in any event within
60 days after the end of each of the first three fiscal
quarters of each fiscal year of each of the Borrower and FGT,
Consolidated balance sheets of each of the Borrower and FGT as
of the end of such fiscal quarter and Consolidated statements
of income and retained earnings and cash flow of each of the
Borrower and FGT for such fiscal quarter and for the period
commencing at the end of the previous fiscal year and ending
with the end of such fiscal quarter, certified
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by the respective chief financial or accounting officer of the
Borrower and FGT;
(ii) as soon as available and in any event within
120 days after the end of each fiscal year of each of the
Borrower and FGT, a copy of the Consolidated balance sheets of
each of the Borrower and FGT as at the end of such fiscal year
and Consolidated statements of income and retained earnings
and cash flow of each of the Borrower and FGT for such fiscal
year, in each case audited by independent public accountants
of recognized national standing;
(iii) simultaneously with the delivery of the
financial statements referred to in clauses (i) and (ii)
above, (x) a quarterly management discussion and analysis of
the Borrower, and (y) a quarterly management report prepared
by the Borrower or FGT describing the progress of the Phase
III construction program;
(iv) simultaneously with the delivery of the
financial statements referred to in clauses (i) and (ii)
above, a certificate of the respective chief financial or
accounting officer of the Borrower or FGT, in a form
acceptable to the Administrative Agent, stating whether there
exists on the date of such certificate any Event of Default
(other than an Enron Event of Default or a Sonat Event of
Default) or event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default (other
than an Enron Event of Default or a Sonat Event of Default),
and, if so, setting forth the details thereof and the action
which the Borrower has taken and proposes to take with respect
thereto;
(v) as soon as possible and in any event within
five days after an executive officer of the Borrower having
obtained knowledge thereof, notice of the occurrence of any
Event of Default (other than an Enron Event of Default or a
Sonat Event of Default) or any event which, with the giving of
notice or lapse of time, or both, would constitute an Event of
Default (other than an Enron Event of Default or a Sonat Event
of Default), continuing on the date of such notice, and a
statement of the chief financial officer of the Borrower
setting forth details of such Event of Default or event and
the action which the Borrower has taken and proposes to take
with respect thereto;
(vi) promptly after the sending or filing thereof,
copies of all reports and registration statements, if any,
which the Borrower files with the Securities and Exchange
Commission or any national securities exchange; and
(vii) such other material information respecting
the condition or operations, financial or otherwise, of the
Borrower and its Consolidated
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Subsidiaries as any Bank through the Administrative Agent may
from time to time reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, with all applicable laws, rules, regulations and orders
to the extent noncompliance therewith would have a material adverse effect on
the Borrower and its Subsidiaries taken as a whole, such compliance to include,
without limitation, compliance with environmental laws and the paying before
the same become delinquent of all taxes, assessments and governmental charges
imposed upon it or upon its property except to the extent contested in good
faith.
(c) Use of Proceeds. Use the proceeds of each Advance (either
directly or by making such proceeds available to or for the use of FGT), solely
to provide for interim construction and bridge financing of the Phase III
Expansion and for the general corporate purposes of FGT related thereto.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence, rights (charter and statutory), and franchises; provided,
however, that this Section 5.01(d) shall not apply to any transactions
permitted by Section 5.02(a) and shall not prevent the termination of
existence, rights and franchises of any Subsidiary of the Borrower pursuant to
any merger or consolidation to which such Subsidiary is a party, and provided,
further, that the Borrower or any of its Subsidiaries shall not be required to
preserve any right or franchise if the Borrower or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Borrower or such Subsidiary as the case may be, and that
the loss thereof is not disadvantageous in any material respect to the Banks.
(e) Ownership of FGT. Own at all times at least 51% of the
outstanding capital stock of FGT having ordinary voting power free and clear of
all Liens other than Liens permitted pursuant to Section 5.02(d) hereof.
(f) Visitation Rights. At any reasonable time and from time to
time, after reasonable notice, permit the Administrative Agent or any of the
Banks or any agents or representatives thereof, to examine the records and
books of account of and visit the properties of, the Borrower and its
Subsidiaries and to discuss the affairs, finances and accounts of the Borrower
and any of its Subsidiaries with any of their respective officers or directors.
SECTION 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment hereunder, the Borrower
will not at any time, without the written consent of the Majority Banks:
(a) Mergers, Etc. Merge or consolidate with or into, any Person,
unless (i) the Borrower is the survivor or (ii) the surviving Person, if not
the Borrower, is organized under the laws of the United States or a state
thereof and assumes all obligations of the Borrower
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under the Agreement, provided, in each case that immediately after giving
effect to such proposed transaction, no Event of Default or event which, with
the giving of notice or the lapse of time, or both, would constitute an Event
of Default would exist or result.
(b) Restricted Payments. During any period of time that an Enron
Event of Default or a Sonat Event of Default is continuing, pay or declare any
dividend on any class of its stock or make any other distribution on any class
of its stock, or redeem, purchase or otherwise acquire, directly or indirectly,
any class of its stock.
(c) Business Activities. Engage in any business (or permit any of
its Subsidiaries to engage in any business) except the general lines of
business the Borrower and its Subsidiaries, collectively, are engaged in on the
date hereof, and such activities as may be incidental or related thereto.
(d) Liens. Create, incur, or assume any Lien upon any of its
properties or assets, whether now or hereafter acquired, in each case to secure
the payment of money borrowed, unless (x) the prior written consent of the
Majority Banks has been obtained to the creation, incurrence, or assumption of
such Lien, or (y) the Borrower shall have made effective provision whereby the
Notes will be secured by such Lien equally and ratably with any and all other
indebtedness for money borrowed thereby secured as long as such other
indebtedness for money borrowed shall be so secured; provided, however, this
Section 5.02(d) shall not apply to Excepted Liens. This Section 5.02(d) shall
apply only to Liens on the property or assets of the Borrower, and shall not
apply to Liens on the property or assets of FGT, any other Subsidiary of the
Borrower or any other Person.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay (i) any principal on any Note
when due and payable or (ii) any interest on any Note for more than five days
after such interest becomes due and payable or (iii) the commitment fee set
forth in Section 2.03(a) herein for more than 15 days after such fee becomes
due and payable; or
(b) Any representation or warranty made by the Borrower (or any of
its officers) (including representations and warranties deemed made pursuant to
Section 3.02) under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made or deemed made and such
materiality is continuing; or
(c) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.02 or shall fail to perform or
observe any other term,
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covenant or agreement contained in any Loan Document on its part to be
performed or observed if, in the case of such other term, covenant or
agreement, such failure shall remain unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Administrative
Agent at the request of any Bank; or
(d) (i) The Borrower or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any indebtedness for money borrowed
which is outstanding in the principal amount of at least $15,000,000 in the
aggregate, of the Borrower or such Subsidiary (as the case may be), when the
same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such indebtedness, (ii) any other event shall occur or
condition shall exist under any agreement or instrument relating to
indebtedness for money borrowed of the Borrower or any of its Subsidiaries
outstanding in the principal amount of at least $15,000,000 in the aggregate,
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate the maturity of such indebtedness, or (iii) any indebtedness for
money borrowed of the Borrower or any of its Subsidiaries outstanding in the
principal amount of at least $15,000,000 in the aggregate, shall be declared to
be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment or as a result of the giving of notice of a
voluntary prepayment), prior to the stated maturity thereof; or
(e) The Borrower or any of its Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against the Borrower
or any of its Subsidiaries seeking to adjudicate it as bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
shall remain undismissed or unstayed for a period of 60 consecutive days; or
the Borrower or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (e); or
(f) Any judgment, decree or order for the payment of money in
excess of $15,000,000 shall be rendered against the Borrower or any of its
Subsidiaries and remains unsatisfied and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment, decree or order
or (ii) there shall be any period of 60 consecutive days during which a stay of
enforcement of such judgment, decree or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) Any material provision of this Agreement, the Notes or the
other Loan Documents to which the Borrower is a party, after execution and
delivery hereof, shall for any reason cease to be valid and binding on the
Borrower, or the Borrower shall contest the
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validity or enforceability of this Agreement, the Notes or such other Loan
Documents or so state in writing; or
(h) The Enron Note Purchase Agreement ceases to be in effect or
the validity or enforceability thereof is contested by any Person or the Sonat
Note Purchase Agreement ceases to be in effect or the validity or
enforceability thereof is contested by any Person; or
(i) an Enron Event of Default; or
(j) a Sonat Event of Default;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Banks, by notice to the Borrower,
declare the obligation of each Bank to make Advances to be terminated,
whereupon the same shall forthwith terminate, (ii) shall at the request, or may
with the consent, of the Majority Banks, by notice to the Borrower, declare the
Notes, all interest thereon and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without
presentment, demand, protest, notice of intent to accelerate or further notice
of any kind, all of which are hereby expressly waived by the Borrower, (iii)
shall at the request, or may with the consent, of the Majority Banks exercise
all remedies available to the Banks hereunder, and (iv) further, if such event
constitutes a Note Purchase Event under either the Enron Note Purchase
Agreement or the Sonat Note Purchase Agreement, shall at the request, or may
with the consent, of the Majority Banks exercise all remedies available to the
Banks under the Enron Note Purchase Agreement or the Sonat Note Purchase
Agreement or both, in accordance with the provisions of such Note Purchase
Agreements; provided, however, that in the event of an actual or deemed entry
of an order for relief with respect to the Borrower, Enron, or Sonat under the
Bankruptcy Code, (A) the obligation of each Bank to make its Advances shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts due under such Notes and under this Agreement shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower;
and provided, further that upon the tender of any Series A Notes to Enron for
purchase in accordance with the provisions of the Enron Note Purchase Agreement
or the tender of any Series B Notes to Sonat for purchase in accordance with
the provisions of the Sonat Note Purchase Agreements, the obligation of each
Bank to make Advances hereunder shall automatically terminate.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under the Loan Documents as are
delegated to the Administrative
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Agent, by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
the Loan Documents (including, without limitation, enforcement or collection of
the Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of holders of the Majority Banks, and such instructions
shall be binding upon all Banks and all holders of Notes; provided, however,
that the Administrative Agent shall not be required to take any action which
exposes the Administrative Agent to personal liability or which is contrary to
any Loan Document or applicable law and shall not be required to initiate or
conduct any litigation or other proceedings. The Administrative Agent agrees
to give to each Bank prompt notice of each notice given to it by the Borrower,
Enron or Sonat pursuant to the terms of this Agreement or any other Loan
Document.
SECTION 7.02. Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with any Loan Document, except for its or their own gross
negligence or willful misconduct. The duties of the Administrative Agent shall
be mechanical and administrative in nature; the Administrative Agent shall not
have, by reason of this Agreement or any other Loan Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Loan Document, expressed or implied, is intended or
shall be so construed as to impose upon the Administrative Agent any
obligations in respect of this Agreement or any other Loan Document except as
expressly set forth herein. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as
the holder thereof until the Administrative Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form
satisfactory to the Administrative Agent; (ii) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations made in or in connection with any Loan Document; (iv) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of any Loan Document on the part of
the Borrower or to inspect the property (including the books and records) of
the Borrower; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Loan Document or any other instrument or document furnished pursuant hereto;
and (vi) shall incur no liability under or in respect of any Loan Document by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
SECTION 7.03. Administrative Agent and Its Affiliates. With
respect to its Commitment, the Advances made by it and the Notes issued to it,
each Bank which is also
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the Administrative Agent or a branch or affiliate of the Administrative
Agent shall have the same rights and powers under the Loan Documents as any
other Bank and may exercise the same as though it were not the Administrative
Agent or such branch or affiliate; and the term "Bank" or "Banks" shall, unless
otherwise expressly indicated, include any Bank serving as the Administrative
Agent in its individual capacity. Any Bank serving as the Administrative Agent
and its affiliates may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with, the
Borrower, Enron, Sonat, or any of their respective Subsidiaries or affiliates,
and any Person who may do business with or own securities of the Borrower,
Enron, Sonat, or any of their respective Subsidiaries or affiliates, all as if
such Bank were not the Administrative Agent and without any duty to account
therefor to the Banks.
SECTION 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Administrative Agent
or any other Bank and based on the financial statements referred to in Section
4.01(d) and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon
the Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents. The Administrative Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Bank
or the holder of any Note with any credit or, except as expressly provided
herein, other information with respect thereto, whether coming into its
possession before the making of the Advances or at any time or times
thereafter. The Administrative Agent shall not be responsible to any Bank or
the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, priority or sufficiency
of this Agreement or any other Loan Document or the financial condition of the
Borrower or be required to make any inquiry concerning either the performance
or observance of any of the terms, provisions or conditions of this Agreement
or any other Loan Document, or the financial condition of the Borrower or the
existence or possible existence of any Event of Default or event of which would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
SECTION 7.05. Certain Rights of the Administrative Agent. If
the Administrative Agent shall request instructions from the Majority Banks
with respect to any act or action (including failure to act) in connection with
this Agreement or any other Loan Document, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from Majority Banks; and
it shall not incur liability to any Person by reason of so refraining. Without
limiting the foregoing, no Bank or the holder of any Note shall have any right
of action whatsoever against the Administrative Agent as a result of its acting
or refraining from acting hereunder or under any other Loan Document in
accordance with the instructions of the Majority Banks or all of the Banks, as
the case may be. Furthermore,
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except for action expressly required of the Administrative Agent hereunder, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall be specifically indemnified to its
satisfaction by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
SECTION 7.06. Holders. Any request, authority or consent of
any Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of
such Note or of any Note or Notes issued in exchange therefor.
SECTION 7.07. INDEMNIFICATION. THE BANKS AGREE TO INDEMNIFY
THE ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER),
RATABLY ACCORDING TO THE RESPECTIVE PRINCIPAL AMOUNTS OF THE NOTES THEN HELD BY
EACH OF THEM (OR IF NO PRINCIPAL OF THE NOTES IS AT THE TIME OUTSTANDING OR IF
ANY PRINCIPAL OF THE NOTES IS HELD BY PERSONS WHICH ARE NOT BANKS, RATABLY
ACCORDING TO THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS THEN EXISTING, OR, IF
NO SUCH PRINCIPAL AMOUNTS ARE THEN OUTSTANDING AND NO COMMITMENTS ARE THEN
EXISTING, RATABLY ACCORDING TO THE RESPECTIVE AMOUNTS OF THE COMMITMENTS
EXISTING IMMEDIATELY PRIOR TO THE TERMINATION THEREOF), FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE
ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT UNDER THE
LOAN DOCUMENTS, PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE ADMINISTRATIVE
AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IT IS THE INTENT OF THE BANKS
THAT THE ADMINISTRATIVE AGENT SHALL, TO THE EXTENT PROVIDED IN SECTION 7.07
HEREOF, BE INDEMNIFIED FOR ITS ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE.
WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR SUCH BANK'S RATABLE SHARE OF ANY
REASONABLE OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE COUNSEL FEES) INCURRED
BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION,
DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER
THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN
RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, OR ANY OF
THEM, TO THE
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<PAGE> 71
EXTENT THAT THE ADMINISTRATIVE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
SECTION 7.08. Resignation by the Administrative Agent. (a)
The Administrative Agent may resign from the performance of all its functions
and duties hereunder and under the other Loan Documents at any time by giving
15 Business Days' prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor
Administrative Agent pursuant to clauses (b) and (c) below or as otherwise
provided below.
(b) Upon any such notice of resignation, the Majority
Banks shall have the right to appoint a successor Administrative Agent
which shall be a commercial bank or trust company reasonably
acceptable to the Borrower.
(c) If a successor to a resigning Administrative Agent
shall not have been so appointed within such 15 Business Day period,
the resigning Administrative Agent, with the consent of the Borrower
(which consent will not be unreasonably withheld), shall have the
right to then appoint a successor Administrative Agent who shall serve
as Administrative Agent until such time, if any, as the Majority Banks
appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been
appointed pursuant to clauses (b) or (c) above and shall have accepted
such appointment by the 20th Business Day after the date such notice
of resignation was given by the resigning Administrative Agent, the
resigning Administrative Agent's resignation shall become effective
and the Banks shall thereafter perform all the duties of the resigning
Administrative Agent hereunder and under any other Loan Document until
such time, if any, as the Majority Banks appoint a successor
Administrative Agent as provided above.
SECTION 7.09. No Duty of Managing Agents or Co-Agents.
Neither theManaging Agents nor any Co-Agents shall have any duties,
responsibilities or liabilities with respect to the administration of this
Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment, modification or
waiver of any provision of any Loan Document, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Majority Banks, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that (a) no amendment, modification, waiver
or consent shall, unless in writing and signed by all the
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Banks, do any of the following: (i) waive any of the conditions specified in
Article III, (ii) increase the Commitments of the Banks or subject the Banks to
any additional obligations, (iii) forgive or reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (iv)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (v) take any action which
requires the signing of all the Banks pursuant to the terms of any Loan
Document, (vi) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes which shall be required for the Banks or
any of them to take any action under any Loan Document, (vii) release Enron or
Sonat from any obligation under its respective Note Purchase Agreement or any
other matter set forth in clauses (a) through (e) of the proviso to Section
7.02 of either Note Purchase Agreement, or (viii) amend this Section 8.01; (b)
no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Banks required above to take such
action, affect the rights or duties of the Administrative Agent under any Loan
Document; and (c) no such amendment or modification shall be effective unless
approved or consented to in writing by both Enron and Sonat, but no approval or
consent of either Enron or Sonat shall be required for any waiver of compliance
by the Borrower with the terms hereof or for any consent to departure by the
Borrower from the terms hereof.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier
communication) and mailed, telecopied, sent by overnight courier service (such
as Federal Express), or delivered by hand, if to the Borrower, at its address
or telecopier number set forth below:
Citrus Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Vice President and Chief Financial
Officer
Telecopier No.: 713-646-3201
if to any Bank, at its Address for Notices; if to the Administrative Agent, at
its address or telecopier number set forth below:
Credit Lyonnais New York Branch
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana
Suite 5360
Houston, Texas 77002
Attention: Richard S. Kaufman
Vice President
Telecopier No.: (713) 751-0307
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<PAGE> 73
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties. A
copy of each notice and communication provided for hereunder sent to or by the
Borrower or to or by the Administrative Agent shall be sent to Enron and Sonat
at their respective addresses or telecopier numbers set forth below, or at such
other addresses as shall be designated by Enron or Sonat, as the case may be,
to the parties hereto:
Enron
1400 Smith Street
Houston, Texas 77002
Attention: Vice President, Finance and Treasurer
Telecopier No.: (713) 646-3422
Sonat Inc.
1900 5th Avenue North
Birmingham, Alabama 35203
Attention: Treasurer
Telecopier No.: (205) 325-7490
All such notices and communications shall be effective, if mailed, five
Business Days after deposit in the mails; if sent by overnight courier, one
Business Day after delivery to the courier company; if delivered by hand, when
so delivered; and if sent by telecopier, when received by the receiving
telecopier equipment, respectively; provided, however, that (i) notices and
communications to the Administrative Agent shall not be effective until
received by the Administrative Agent and (ii) telecopied notices received by
any party after its normal business hours (or on a day other than a Business
Day) shall be effective on the next Business Day.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Administrative Agent to exercise, and no delay in exercising,
any right under any Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
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SECTION 8.04. Costs, Expenses and Taxes. (a) The Borrower
agrees to pay on demand, (i) all reasonable costs and expenses in connection
with the preparation, execution, delivery, administration, modification and
amendment of the Loan Documents and the other documents to be delivered under
the Loan Documents, including, without limitation, the reasonable fees and
out-of- pocket expenses of one law firm as counsel for both the Managing Agents
and the Administrative Agent with respect to preparation, execution and
delivery of the Loan Documents and the satisfaction of the matters referred to
in Section 3.01, and (ii) all reasonable legal and other costs and expenses, if
any, of the Managing Agents, the Administrative Agent and each Bank in
connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of the Loan Documents and the other documents to be
delivered under the Loan Documents or incurred in connection with any workout,
restructuring or bankruptcy.
(b) If any payment or purchase of principal of, or Conversion of,
any Adjusted CD Rate Advance or LIBOR Advance is made other than on the last
day of an Interest Period relating to such Advance, as a result of a payment,
purchase or Conversion pursuant to Sections 2.07(f), 2.08, 2.09, 2.10, 2.11,
2.13 or 2.16 or acceleration of the maturity of the Notes pursuant to Section
6.01 or for any other reason, the Borrower shall, upon demand by any Bank (with
a copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Bank any amounts required to compensate such Bank
for any additional losses, costs or expenses which it may reasonably incur as a
result of such payment, purchase or Conversion, including, without limitation,
any loss (excluding loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund or maintain such Advance.
(c) THE BORROWER AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW,
TO INDEMNIFY AND HOLD HARMLESS THE ADMINISTRATIVE AGENT AND EACH BANK
(COLLECTIVELY, THE "INDEMNIFIED PARTIES") AND EACH OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (COLLECTIVELY, THE "RELATED
INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES
AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL) ARISING UNDER LAWS RELATING TO THE PROTECTION OF HUMAN HEALTH AND
THE PRESERVATION OF ENVIRONMENTAL QUALITY (INCLUDING, WITHOUT LIMITATION,
FINES, PENALTIES, POLLUTION CLEANUP COSTS, ENVIRONMENTAL RESTORATION
OBLIGATIONS, AND OTHER SIMILAR LIABILITIES ARISING UNDER SUCH LAWS) FOR WHICH
ANY OF THEM MAY BECOME LIABLE OR WHICH MAY BE INCURRED BY OR ASSERTED AGAINST
AN INDEMNIFIED PARTY OR RELATED INDEMNIFIED PARTY (OTHER THAN BY THE
ADMINISTRATIVE AGENT OR ANOTHER BANK OR ANY OF THEIR RESPECTIVE SUCCESSORS OR
ASSIGNS), IN EACH CASE IN CONNECTION WITH OR ARISING OUT OF OR BY REASON OF ANY
INVESTIGATION, LITIGATION, OR PROCEEDING, WHETHER OR NOT SUCH INDEMNIFIED PARTY
OR RELATED INDEMNIFIED PARTY IS
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<PAGE> 75
A PARTY THERETO, ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY TRANSACTION IN WHICH ANY PROCEEDS
OF ALL OR ANY PART OF THE ADVANCES ARE APPLIED BY OR ON BEHALF OF THE BORROWER
OR FGT, AND EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LIABILITY OR EXPENSE
ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
INDEMNIFIED PARTY OR RELATED INDEMNIFIED PARTY (BUT EXCLUDING ANY SUCH CLAIM,
DAMAGE, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PARTY). IT IS THE INTENT OF THE PARTIES HERETO
THAT EACH INDEMNIFIED PARTY AND RELATED INDEMNIFIED PARTY SHALL, TO THE EXTENT
PROVIDED IN THIS SECTION 8.04(c), BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR
CONTRIBUTORY NEGLIGENCE.
SECTION 8.05. Right of Set-Off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Notes held by such Bank, irrespective of whether or not such Bank shall
have made any demand under this Agreement or such Notes and although such
obligations may be unmatured. Each Bank agrees promptly to notify the Borrower
after any such set-off and application made by such Bank, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
Section 8.06. Binding Effect; Assignments; Participations.
(a) This Agreement shall become effective when it shall have been executed by
the Borrower and the Administrative Agent and when the Administrative Agent
shall have, as to each Bank, either received a copy of the signature page
hereof executed by such Bank or been notified by such Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of
and be enforceable by the Borrower, the Administrative Agent and each Bank and
their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Banks (other than an assignment effectuated by
a merger or consolidation permitted by Section 5.02(a) to the surviving Person
referred to therein). Each Bank may assign to one or more banks or other
Persons all or any part of, or may grant participations to one or more banks or
other Persons, in each case in accordance with applicable law, in or to all or
any part of, the Advances owing to such Bank and the Notes held by such Bank
and all or any portion of such Bank's Commitment (except as otherwise stated
herein), and
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<PAGE> 76
to the extent of any such assignment or participation (unless otherwise stated
therein) the assignee or purchaser of such assignment or participation shall,
to the fullest extent permitted by law, have the same rights and benefits
hereunder and under such Notes as it would have if it were such Bank hereunder,
provided that, except in the case of an assignment meeting the requirements of
the next sentence hereof, (i) such Bank's obligations under this Agreement,
including, without limitation, its Commitment to the Borrower hereunder, shall
remain unchanged, such Bank shall remain responsible for the performance
thereof, such Bank shall remain the holder of any such Notes for all purposes
under this Agreement, and the Borrower, the Administrative Agent and the other
Banks shall continue to deal solely with and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement; (ii)
no such assignee or participant shall be entitled to receive any greater
payment pursuant to Sections 2.06, 2.10 and 2.13 hereof than such Bank would
have been entitled to receive with respect to the rights assigned except as a
result of circumstances arising after the date of such assignment or
participation to the extent that such circumstances affect other Banks and
participants generally; and (iii) no Bank shall assign or grant a participation
that conveys to the assignee or participant the right to vote or consent under
this Agreement, other than the right to vote upon or consent to (A) any
increase in the amount of such Bank's Commitment; (B) any reduction of the
principal amount of, or interest to be paid on, such Bank's Advances or Notes;
(C) any reduction of the commitment fee; (D) any postponement of any date for
the payment of any amount payable in respect of such Bank's Advances or Notes;
or (E) the release of Sonat or Enron from any obligation under its respective
Note Purchase Agreement or any other matter set forth in clauses (a) through
(e) of the proviso to Section 7.02 of either Note Purchase Agreement. If the
assignee of any Bank is either another Bank or is approved in writing by the
Administrative Agent and the Borrower (which approval will not be unreasonably
withheld), and if such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
assigned, whether all or a portion, shall be in a minimum amount of $5,000,000
and in integral multiples of $1,000,000 and, if such assignee is not already a
Bank hereunder, the remaining Commitment of the assigning Bank following such
assignment shall not be less than $10,000,000) of such assigning Bank's
Commitment by document in the form of Exhibit 8.06 (or in substantially the
form of Exhibit 8.06, if all changes to such form have been approved in writing
by the Administrative Agent in its sole discretion as evidenced by its
execution thereof) duly executed by the Administrative Agent, the Borrower,
such assigning Bank and such assignee and delivered to the Administrative Agent
("Transfer Agreement"), then upon such delivery and to the extent set forth in
the Transfer Agreement, (i) such assigning Bank shall be released from its
obligations under this Agreement with respect to all or such portion, as the
case may be, of its Commitment, (ii) such assignee shall become obligated for
all or such portion, as the case may be, of such Commitment and all other
obligations of such assigning Bank hereunder with respect to or arising as a
result of all or such portion, as the case may be, of such Commitment, (iii)
such assignee shall be assigned the right to vote or consent under this
Agreement, to the extent of all or such portion of such Commitment, as the case
may be, (iv) the Borrower shall deliver, in replacement of the Notes of such
assigning Bank then outstanding (X) to such assignee, new Notes in the amount
of all or such portion of such Commitment, as the case may be, plus, in the
case
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<PAGE> 77
of any assignee which is already a Bank hereunder, the amount of such
assignee's Commitment immediately prior to such assignment (any such assignee
which is already a Bank hereunder agrees to cancel and return to the Borrower,
with reasonable promptness following the delivery of such new Notes, the Notes
being replaced thereby), (Y) to such assigning Bank (if the assigning Bank has
retained any portion of its Commitment), new Notes in the amount of the balance
of the Commitment of such assigning Bank retained by such assigning Bank (and
the assigning Bank agrees to cancel and return to the Borrower, with reasonable
promptness following delivery of such new Notes, the Notes being replaced
thereby), and (Z) to the Administrative Agent, photocopies of such new Notes,
(v) if such assignment is of all of such assigning Bank's Commitment, all of
the outstanding Advances made by such assigning Bank shall be transferred to
such assignee, (vi) if such assignment is not of all of such Commitment, a part
of each Advance equal to the amount of such Advance multiplied by a fraction,
the numerator of which is the amount of such portion of such Commitment so
assumed and the denominator of which is the amount of the Commitment of such
assigning Bank immediately prior to such assumption, shall be transferred to
such assignee and evidenced by such assignee's Notes, and the balance of such
Advance shall be evidenced by such assigning Bank's new Notes delivered
pursuant to clause (iv)(Y) of this sentence, (vii) if such assignee is not a
"Bank" hereunder prior to such assignment, such assignee shall become a party
to this Agreement as a Bank and shall be deemed to be a "Bank" hereunder,
(viii) if such assignee is not a Bank hereunder prior to such assignment, such
assignee shall be deemed to have specified the offices of such assignee named
in the respective Transfer Agreement as its "Address For Notices", "Domestic
Lending Office", "CD Lending Office" and "Eurodollar Lending Office" for all
purposes of this Agreement, and (ix) the signature pages to this Agreement
shall be deemed to be modified to reflect the Commitments of such assignee,
such assignor and the other Banks; and the Administrative Agent shall promptly
after execution of any Transfer Agreement by the Administrative Agent and the
other parties thereto notify the Banks and the Borrower of the parties to such
Transfer Agreement and the amount of the assigning Bank's Commitment assumed
thereby; provided that the Administrative Agent shall receive at the time of
such transfer, from the assigning or assignee Bank, a non-refundable assignment
fee of $2,000.
(b) In addition to the assignments and participations permitted
under subsection (a) of this Section 8.06, any Bank may assign, as collateral
or otherwise, any of its rights (including, without limitation, rights to
payments of principal of and/or interest on the Notes) under any Loan Document
to any Federal Reserve Bank without notice to or consent of the Borrower or the
Administrative Agent; provided, that no such assignment under this subsection
(c) shall release the assigning Bank from its obligations hereunder.
(c) Notwithstanding anything in this Section 8.06 to the contrary,
each Advance made to the Borrower hereunder, and the indebtedness of the
Borrower resulting from such Advance, shall always be evidenced 50% by a Series
A Note and 50% by a Series B Note. Each assignment or grant of a participation
by any Bank hereunder shall be made in accordance with the provisions of the
preceding sentence.
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(d) Each Bank that tenders its Series A Note to Enron for purchase
by Enron pursuant to the Enron Note Purchase Agreement shall tender and assign
such Series A Note to Enron in accordance with the provisions of the Enron Note
Purchase Agreement. Each Bank that tenders its Series B Note to Sonat for
purchase by Sonat pursuant to the Sonat Note Purchase Agreement shall tender
and assign such Series B Note to Sonat in accordance with the provisions of the
Sonat Note Purchase Agreement. Upon the purchase by Enron of a Series A Note
pursuant to the Enron Note Purchase Agreement, the Borrower shall make all
payments of amounts then or thereafter due on such Series A Note to Enron.
Upon the purchase by Sonat of a Series B Note pursuant to the Sonat Note
Purchase Agreement, the Borrower shall make all payments of amounts then or
thereafter due on such Series B Note to Sonat. Notwithstanding the foregoing,
(i) the Borrower shall make payments under each Series A Note purchased by
Enron, only in compliance with the subordination provisions set forth in
Exhibit A to the Enron Note Purchase Agreement, and (ii) the Borrower shall
make payments under each Series B Note purchased by Sonat, only in compliance
with the subordination provisions set forth in Exhibit A to the Sonat Note
Purchase Agreement. The purchase by Enron of Series A Notes under the Enron
Note Purchase Agreement and the purchase by Sonat of Series B Notes under the
Sonat Note Purchase Agreement shall not cause Enron or Sonat to be a Bank
hereunder and shall not obligate Enron or Sonat to make Advances to the
Borrower hereunder.
SECTION 8.07. Governing Law; Entire Agreement. Pursuant to
Section 5-1401 of the New York General Obligations Law, this Agreement and the
Notes shall be governed by, and construed in accordance with, the laws of the
State of New York. This Agreement, the Notes, the other Loan Documents and any
fee letter to the Administrative Agent or the Managing Agents signed by the
Borrower constitute the entire understanding among the parties hereto with
respect to the subject matter hereof and supersede any prior agreements,
written or oral, with respect thereto.
SECTION 8.08. Interest. It is the intention of the parties
hereto that the Administrative Agent and each Bank shall conform strictly to
usury laws applicable to it, if any. Accordingly, if the transactions with the
Administrative Agent or any Bank contemplated hereby would be usurious under
applicable law, if any, then, in that event, notwithstanding anything to the
contrary in the Notes, this Agreement or any other agreement entered into in
connection with this Agreement or the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is contracted for, taken, reserved, charged or received by the
Administrative Agent or such Bank, as the case may be, under the Notes, this
Agreement or under any other agreement entered into in connection with this
Agreement or the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law and any excess shall be cancelled automatically
and, if theretofore paid, shall at the option of the Administrative Agent or
such Bank, as the case may be, be applied on the principal amount of the
obligations owed to the Administrative Agent or such Bank, as the case may be,
by the Borrower or refunded by the Administrative Agent or such Bank, as the
case may be, to the Borrower, and (ii) in the event that the maturity of any
Note or other obligation payable to the Administrative Agent or such Bank, as
the case may be, is accelerated or in
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the event of any permitted prepayment, then such consideration that constitutes
interest under law applicable to the Administrative Agent or such Bank, as the
case may be, may never include more than the maximum amount allowed by such
applicable law and excess interest, if any, to the Administrative Agent or such
Bank, as the case may be, provided for in this Agreement or otherwise shall be
cancelled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall, at the option of the Administrative Agent or such
Bank, as the case may be, be credited by the Administrative Agent or such Bank,
as the case may be, on the principal amount of the obligations owed to the
Administrative Agent or such Bank, as the case may be, by the Borrower or
refunded by the Administrative Agent or such Bank, as the case may be, to the
Borrower. All sums paid, or agreed to be paid, to the Administrative Agent or
any Bank for the use, forbearance or detention of the indebtedness of the
Borrower to the Administrative Agent or any Bank evidenced by this Agreement
and each Note and the other Loan Documents shall, to the fullest extent
permitted by applicable law, be amortized, pro rated, allocated and spread
throughout the full term of the indebtedness evidenced by this Agreement, such
Note and such other Loan Documents.
SECTION 8.09. Confidentiality. Each Bank agrees that it will
use reasonable efforts not to disclose without the prior consent of the
Borrower (other than to its employees, auditors or counsel or to the
Administrative Agent or another Bank if the disclosing Bank or the disclosing
Bank's holding or parent company in its sole discretion determines that any
such party should have access to such information) any information with respect
to the Borrower or its Subsidiaries which is furnished pursuant to this
Agreement or any other Loan Document and which is designated by the Borrower to
the Banks in writing as confidential, provided that any Bank may disclose any
such information (a) as has become generally available to the public, (b) as
may be required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank or to the Federal Reserve Board, or the FDIC or
similar organizations (whether in the United States or elsewhere), (c) as may
be required or appropriate in response to any summons or subpoena or in
connection with any litigation, (d) in order to comply with any law, order,
regulation or ruling applicable to such Bank, (e) to the prospective transferee
in connection with any contemplated transfer of any of the Notes or any
interest therein by such Bank, provided, that such prospective transferee
executes an agreement with the Borrower or the transferor containing provisions
substantially identical to those contained in this Section, or (f) to the
extent reasonably necessary to disclose in connection with the exercise of any
remedy hereunder and under the Notes.
SECTION 8.10. Submission to Jurisdiction.
(a) Any legal action or proceeding with respect to this Agreement,
any Notes or any other Loan Document may be brought in the courts of the State
of New York sitting in New York City or of the United States of America for the
Southern District of New York, and, by execution and delivery of this
Agreement, the Borrower irrevocably submits itself to the nonexclusive
jurisdiction of such New York State or Federal courts to the extent
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permitted by law. The Borrower hereby irrevocably waives any objection, to the
laying of venue based on the grounds of forum non conveniens.
(b) The Borrower hereby irrevocably designates CT Corporation
System, 1633 Broadway, New York, New York 10019 as the designee, appointee and
agent of the Borrower to receive, for and on behalf of the Borrower, service of
copies of the summons and complaint and any other process in such action or
proceeding with respect to this Agreement, any Note or any other Loan Document.
It is understood that a copy of such process served on such agent will be
promptly forwarded by overnight courier to the Borrower at its address set
forth in Section 8.02, but the failure to the Borrower to receive such copy
shall not affect in any way the service of such process. The Borrower further
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Borrower at its said
address, such service to become effective 30 days after such mailing.
(c) Nothing in this Section 8.10 shall affect (i) the right of the
Administrative Agent, the Managing Agents or any Bank to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Borrower in any other jurisdiction or (ii) the right of the
Borrower to commence legal proceedings or otherwise proceed against the
Administrative Agent, the Managing Agents or any Bank in any other
jurisdiction.
SECTION 8.11. Severability. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall
be fully severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
SECTION 8.12. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 8.13. Domicile of Loans. Each Bank may transfer and
carry its loans at, to or for the account of any office, subsidiary or
affiliate of such Bank provided that no Bank shall be relieved of its
Commitment as a result thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
--------
CITRUS CORP.
By: /s/ Kurt S. Huneke
-------------------
Name: Kurt S. Huneke
Title: Vice President, Finance and Treasurer
ADMINISTRATIVE AGENT:
----------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/Ratouis
-------------------
Authorized Officer
MANAGING AGENTS:
----------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/Ratouis
-------------------
Authorized Officer
THE TORONTO-DOMINION BANK
By: /s/
-------------------
Authorized Officer
CO-AGENTS
---------
CIBC, Inc.
The Fuji Bank, Limited, Houston Agency
Mellon Bank, N.A.
NationsBank of Texas, N.A.
The Bank of Nova Scotia
Shawmut Bank, N.A.
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Banks
-----
Commitment: $20,000,000 THE BANK OF NOVA SCOTIA
By: /s/ A.S. Norsworthy
--------------------
Name: A.S. Norsworthy
Title: Assistant Agent
Address: The Bank of Nova Scotia
600 Peachtree Street N.E., Suite 2700
Atlanta, Georgia 30308
Telecopy No.: (404) 888-8998
Domestic lending Office
-----------------------
The Bank of Nova Scotia
600 Peachtree Street N.E., Suite 2700
Atlanta, Georgia 30308
CD Lending Office
-----------------
The Bank of Nova Scotia
600 Peachtree Street N.E., Suite 2700
Atlanta, Georgia 30308
Eurodollar Lending Office
-------------------------
600 Peachtree Street N.E., Suite 2700
Atlanta, Georgia 30308
With a copy to:
1100 Louisiana, Suite 3000
Houston, Texas 77002
-48-
<PAGE> 83
Banks
-----
Commitment: $10,000,000 BAYERISCHE VEREINSBANK AG, LOS ANGELES AGENCY
By: /s/ Christine Taylor
--------------------
Name: Christine Taylor
Title: Vice President
By: /s/ John Carlson
-----------------
Name: John Carlson
Title: Assistant Vice President
Address: 800 Wilshire Blvd., Suite 1600
Los Angeles, California 90017-2620
Telecopy No.: (213) 622-6341
Domestic Lending Office
-----------------------
Bayerische Vereinsbank AG, Los Angeles Agency
800 Wilshire Blvd., Suite 1600
Los Angeles, California 90017-2620
CD Lending Office
-----------------
Bayerische Vereinsbank AG, Los Angeles Agency
800 Wilshire Blvd., Suite 1600
Los Angeles, California 90017-2620
Eurodollar Lending Office
-------------------------
Bayerische Vereinsbank AG, Cayman Island Branch
c/o Bayerische Vereinsbank AG, Los Angeles Agency
800 Wilshire Blvd., Suite 1600
Los Angeles, California 90017-2620
-49-
<PAGE> 84
Banks
-----
Commitment: $10,000,000 CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ Dean Balige
----------------
Name: Dean Balige
Title: Senior Vice President and Branch Manager
Address: 55 East Monroe, Suite 4700
Chicago, Illinois 60603
Attn: Wilma Persenaire
Telecopy No.: (312) 372-4421
Domestic Lending Office
-----------------------
Caisse Nationale de Credit Agricole
55 East Monroe, Suite 4700
Chicago, Illinois 60603
Attn: Wilma Persenaire
CD Lending Office
-----------------
Caisse Nationale de Credit Agricole
55 East Monroe, Suite 4700
Chicago, Illinois 60603
Attn: Wilma Persenaire
Eurodollar lending Office
-------------------------
Caisse Nationale de Credit Agricole
55 East Monroe, Suite 4700
Chicago, Illinois 60603
Attn: Wilma Persenaire
-50-
<PAGE> 85
Banks
-----
Commitment: $20,000,000 CIBC, INC.
By: /s/ M.A.G. Corkum
-----------------
Name: M.A.G. Corkum
Title: Vice President
Address: Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Telecopy No.: (404) 319-4950
Domestic Lending office
-----------------------
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Attn: Adrienne Burch
CD Lending Office
-----------------
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Attn: Adrienne Burch
Eurodollar Lending Office
-------------------------
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Attn: Adrienne Burch
-51-
<PAGE> 86
Banks
-----
Commitment: $40,000,000 CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Ratouis
-------------------------
Name: Ratouis
Title: Authorized Signature
Address: 1301 Avenue of the Americas
New York, New York 10019
Telecopy No.: (212) 261-7368
With a copy to:
Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Richard S. Kaufman
Telecopy No.: (713) 751-0307
Domestic Lending Office
-----------------------
Credit Lyonnais Cayman Island Branch
c/o Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
CD Lending Office
-----------------
Credit Lyonnais Cayman Island Branch
c/o Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Eurodollar Lending Office
-------------------------
Credit Lyonnais Cayman Island Branch
c/o Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
-52-
<PAGE> 87
Banks
-----
Commitment: $20,000,000 THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: /s/Toyohiro Nakamari
-------------------------
Name: Toyohiro Nakamari
Title: Joint General Manager
Address: Two Houston Center
909 Fannin Street, Suite 2800
Houston, Texas 77010
Telecopy No.: (713) 759-0048
Domestic Lending Office
-----------------------
The Fuji Bank, Limited
Two Houston Center
909 Fannin Street, Suite 2800
Houston, Texas 77010
CD Lending Office
-----------------
The Fuji Bank, Limited
Two Houston Center
909 Fannin Street, Suite 2800
Houston, Texas 77010
Eurodollar Lending Office
-------------------------
The Fuji Bank, Limited
Two Houston Center
909 Fannin Street, Suite 2800
Houston, Texas 77010
-53-
<PAGE> 88
Banks
-----
Commitment: $20,000,000 MELLON BANK, N.A.
By: /s/ Mary Ellen Usher
--------------------
Name: Mary Ellen Usher
Title: Vice President
Address: Roger Howard/Janet O. Jenkins
Mellon Financial Services
1100 Louisiana, Suite 3600
Houston, Texas 77002
Telecopy No.: (713) 650-3409
Domestic Lending Office
-----------------------
Mellon Bank, N.A.
Three Mellon Bank Center, Room 2305
Pittsburgh, Pennsylvania 15259-0003
Attn: Sue Cooke
CD Lending Office
-----------------
Mellon Bank, N.A.
Three Mellon Bank Center, Room 2305
Pittsburgh, Pennsylvania 15259-0003
Attn: Sue Cooke
Eurodollar Lending Office
-------------------------
Mellon Bank, N.A.
Three Mellon Bank Center, Room 2305
Pittsburgh, Pennsylvania 15259-0003
Attn: Sue Cooke
-54-
<PAGE> 89
Banks
-----
Commitment: $20,000,000 NATIONSBANK OF TEXAS, N.A.
By: /s/ Jo A. Tamalis
-----------------
Name: Jo A. Tamalis
Title: Senior Vice President
Address: 700 Louisiana, 8th Floor
Houston, Texas 77002
Telecopy No.: (713) 247-6432
Domestic lending Office
-----------------------
NationsBank of Texas, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002
Attn: Amy McGilvra
CD Lending Office
-----------------
NationsBank of Texas, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002
Attn: Amy McGilvra
Eurodollar Lending Office
-------------------------
NationsBank of Texas, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002
Attn: Amy McGilvra
-55-
<PAGE> 90
Banks
-----
Commitment: $15,000,000 THE SAKURA BANK, LIMITED
HOUSTON AGENCY
By: /s/ Akira Hara
--------------
Name: Akira Hara
Title: General Manager
Address: 1100 Louisiana, Suite 2900
Houston, Texas 77002
Telecopy No.: (713) 659-1404
Domestic Lending Office
-----------------------
The Sakura Bank, Limited
Houston Agency
1100 Louisiana, Suite 2900
Houston, Texas 77002
CD Lending Office
-----------------
The Sakura Bank, Limited
Houston Agency
1100 Louisiana, Suite 2900
Houston, Texas 77002
Eurodollar Lending Office
-------------------------
The Sakura Bank, Limited
Houston Agency
1100 Louisiana, Suite 2900
Houston, Texas 77002
-56-
<PAGE> 91
Banks
-----
Commitment: $15,000,000 THE SANWA BANK LIMITED
By: /s/ Robert J. Jelnick
---------------------
Name: Robert J. Jelnick
Title: Vice President
Address: 901 Main Street, Suite 2830, LB165
Dallas, Texas 75202
Telecopy No.: (214) 741-6535
Domestic Lending Office
-----------------------
The Sanwa Bank Limited, Dallas Agency
901 Main Street, Suite 2830, LB165
Dallas, Texas 75202
CD Lending Office
-----------------
The Sanwa Bank Limited, Dallas Agency
901 Main Street, Suite 2830, LB165
Dallas, Texas 75202
Eurodollar Lending Office
-------------------------
The Sanwa Bank Limited, Dallas Agency
901 Main Street, Suite 2830, LB165
Dallas, Texas 75202
-57-
<PAGE> 92
EXHIBIT 1.01
SERIES (A)(B) PROMISSORY NOTE
U.S. $________________
Dated: ________ ___, 199__
FOR VALUE RECEIVED, the undersigned, Citrus Corp., a Delaware corporation
(the "Borrower"), HEREBY PROMISES TO PAY to the order of
_______________________________________________________________________________
(the "Bank") for the account of its Applicable Lending Office (as defined in
the Revolving Credit Agreement referred to below) on the Termination Date (as
defined in the Revolving Credit Agreement referred to below) the principal sum
of ____________________ U.S. dollars (U.S. $__________________) (which is fifty
percent of the Bank's Commitment as defined in the Revolving Credit Agreement
referred to below) or, if less, fifty percent of the aggregate unpaid principal
amount of the Advances (as defined in the Revolving Credit Agreement dated as
of December ___, 1993 among the Borrower, the Bank, certain other lenders
parties thereto, Credit Lyonnais New York Branch and The Toronto-Dominion Bank
as Managing Agents and Credit Lyonnais New York Branch as Administrative Agent
for the Bank and such other lenders; such Revolving Credit Agreement, as
amended from time to time being herein referred to as the "Revolving Credit
Agreement") owing to the Bank outstanding on the Termination Date (as defined
in the Revolving Credit Agreement).
The Borrower promises to pay interest on the unpaid principal amount of
this Series (A)(B) Note (such unpaid principal amount being the lesser of $
(amount equal to fifty percent of the Bank's Commitment) or fifty percent of
each Advance owing to the Bank) from the date of such Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Revolving Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Credit Lyonnais New York Branch as Administrative Agent,
at 1301 Avenue of the Americas, New York, New York 10019, in same day funds.
Fifty percent of each Advance owed to the Bank by the Borrower pursuant to the
Revolving Credit Agreement, and fifty percent of all payments made on account
of principal of such Advances, shall be recorded by the Bank and, prior to any
transfer hereof, endorsed on the grid attached hereto which is part of this
Series (A)(B) Note; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Revolving Credit Agreement.
This Series (A)(B) Note is one of the Series (A)(B) Notes referred to in,
and is subject to and is entitled to the benefits of, the Revolving Credit
Agreement. The sum of (a) the principal amount of this Series (A)(B) Note and
(b) the principal amount of the Series (B)(A) Note (as defined in the Revolving
Credit Agreement) payable to order of the Bank, equals one hundred percent of
the principal amount of the Advances owed to the Bank by the Borrower pursuant
to the Revolving Credit Agreement. The Revolving Credit Agreement, among other
<PAGE> 93
things, (i) provides for the making of Advances by the Bank to the Borrower
from time to time in an aggregate amount not to exceed the amount of such
Banks's Commitment, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events, the tender to and
purchase by (Enron Corp.)(Sonat Inc.) pursuant to the (Enron)(Sonat) Note
Purchase Agreement (as defined in the Revolving Credit Agreement) upon the
happening of certain events, and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
Pursuant to Section 5-1401 of the New York General Obligations Law, this
Series (A)(B) Note shall be governed by, and construed in accordance with, the
laws of the State of New York.
CITRUS CORP.
By:
-----------------------------------
Title:
-2-
<PAGE> 94
FIFTY PERCENT OF ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
50% of Principal Unpaid
Amount Paid or Principal
of Type of Prepaid on Balance of Notation
Date Advance Advance This Note This Note Made By
- ---- ------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
-3-
<PAGE> 95
EXHIBIT 2.02
NOTICE OF BORROWING
Credit Lyonnais New York Branch
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana
Suite 5360
Houston, Texas 77002
(Date)
Attention: Richard S. Kaufman
Vice President
Ladies and Gentlemen:
The undersigned, Citrus Corp., refers to the Revolving Credit Agreement,
dated as of December ___, 1993 (such Revolving Credit Agreement, as amended
from time to time being herein referred to as the "Revolving Credit Agreement,"
the terms defined therein being used herein as therein defined), among the
undersigned, certain Banks parties thereto, Credit Lyonnais New York Branch and
The Toronto-Dominion Bank as Managing Agents, and Credit Lyonnais New York
Branch as Administrative Agent for said Banks, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Revolving Credit Agreement that
the undersigned hereby requests a Borrowing under the Revolving Credit
Agreement, and in that connection sets forth below the information relating to
such Borrowing (the "Proposed Borrowing") as required by Section 2.02(a) of the
Credit Agreement.
(i) The Business Day of the Proposed Borrowing is ____________,
199___.
(ii) The Type of Advances comprising the Proposed Borrowing is
(Base Rate Advances) (Adjusted CD Rate Advances) (LIBOR Advances).
(iii) The aggregate amount of the Proposed Borrowing is
$______________.
*((iv) The initial Interest Period for each Advance made as part of
the Proposed Borrowing is _____ (days) (months).)
________________
* To be included for a Proposed Borrowing comprised of Adjusted CD Rate
Advances or LIBOR Advances.
<PAGE> 96
The undersigned hereby certifies that the applicable conditions precedent
set forth in Article III of the Revolving Credit Agreement to the making of the
Proposed Borrowing have been satisfied.
Very truly yours,
CITRUS CORP.
By:
----------------------------
Title:
-2-
<PAGE> 97
EXHIBIT 3.01-A
(Opinion of Borrower's Counsel)
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
(Date)
To each of the Banks parties to the Revolving
Credit Agreement dated as of December 23, 1993
among Citrus Corp., said Banks, Credit Lyonnais
New York Branch and The Toronto-Dominion Bank
as Managing Agents, and Credit Lyonnais New York
Branch, as Administrative Agent for said Banks,
and to such Managing Agents and Administrative
Agent
Re: Citrus Corp.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(i) of the
Revolving Credit Agreement dated as of December 23, 1993 (the "Credit
Agreement"), among Citrus Corp. (the "Borrower"), the Banks parties thereto,
Credit Lyonnais New York Branch and The Toronto-Dominion Bank as Managing
Agents, and Credit Lyonnais New York Branch as Administrative Agent for said
Banks. Except as otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined.
We have acted as counsel for the Borrower in connection with the
preparation, execution, delivery and effectiveness of the Credit Agreement.
In that connection, we have examined:
(1) The Credit Agreement;
(2) The Notes; and
(3) The Note Purchase Agreements.
<PAGE> 98
December __, 1993
Page 2
We have also examined the originals, or copies certified to our
satisfaction, of the documents listed in a certificate of the Vice President
and Chief Financial Officer of the Borrower and FGT dated the date hereof and
attached hereto as Exhibit "A" (the "Officer's Certificate"), certifying that
the documents listed therein are all of the material (meaning for purposes of
this opinion those creating a monetary liability of $10,000,000 or more)
indentures, loan or credit agreements, receivables sale or financing
agreements, lease financing agreements, capital leases, mortgages, security
agreements, bonds and notes (except bonds and notes issued pursuant to the
aforesaid indentures and loan or credit agreements), and guaranties of any such
obligations, to which the Borrower or FGT is subject and to the effect that
there are no orders, writs, judgments, awards, injunctions or decrees which
affect or purport to affect (i) the Borrower's right to borrow money or the
Borrower's obligations under the Credit Agreement or the Notes, or (ii) the
execution, delivery and consent by the Borrower to the terms of the Note
Purchase Agreements. In addition, we have (i) investigated such questions of
law and (ii) relied on such certificates from officers and representatives of
the Borrower, FGT, Enron Corp. and Sonat Inc., and from public officials, as we
have deemed necessary or appropriate for the purposes of this opinion.
In rendering the opinions herein set forth, we have assumed (i) with
respect to our opinions set forth in paragraphs 5 and 6 below, the due
authorization, execution and delivery of the Credit Agreement and the Note
Purchase Agreements by all parties to such documents (other than Enron and
Sonat with respect to their respective Note Purchase Agreements and Citrus with
respect to the Note Purchase Agreements and the Credit Agreement), and that the
Credit Agreement and the Note Purchase Agreements are valid, binding and
enforceable (subject to limitations on enforceability of the types referred to
in paragraphs (a) and (b) below) against all parties to such documents (other
than Enron and Sonat with respect to their respective Note Purchase Agreements
and Citrus with respect to the Note Purchase Agreements and the Credit
Agreement), (ii) the legal capacity of natural persons, (iii) the genuineness
of all signatures, (iv) the authenticity of all documents submitted to us as
originals, and (v) the conformity to original documents of all documents
submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the following opinion:
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
2. The Borrower has the corporate power and authority to enter into
and perform its obligations under each of the Credit Agreement and the
Notes, and to execute, deliver and consent to the terms of the Note
Purchase Agreements. The Borrower's execution, delivery and performance
of its obligations under the Credit Agreement and the Notes, and the
execution, delivery and consent by the Borrower
<PAGE> 99
December __, 1993
Page 3
to the terms of the Note Purchase Agreements, have been duly authorized by
all requisite corporate action. The Credit Agreement has been validly
executed and delivered by the Borrower.
3. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body (including,
without limitation, FERC) is required to be made or obtained by the
Borrower for (i)the execution, delivery and performance by the Borrower of
its obligations under the Credit Agreement and the Notes and (ii) the
execution, delivery and consent by the Borrower to the terms of the Note
Purchase Agreements.
4. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes, and the execution, delivery and consent by
the Borrower to the terms of the Note Purchase Agreements, does not
contravene (i) its Restated Certificate of Incorporation or Bylaws, (ii)
any provision of law or regulation (including, without limitation,
Regulation X issued by the Federal Reserve Board) applicable to the
Borrower or of Regulation U issued by the Federal Reserve Board, or (iii)
any contractual or legal restriction contained in any document listed in
the Officer's Certificate. The execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes, and the execution,
delivery and consent by the Borrower to the terms of the Note Purchase
Agreements, will not result in the imposition of any Lien upon the
property or assets of the Borrower or FGT under any document listed in the
Officer's Certificate.
5. The Credit Agreement and the Notes constitute the legal, valid
and binding obligations of the Borrower enforceable against the Borrower
in accordance with their terms.
6. The consent by the Borrower to the terms of the Note Purchase
Agreements is valid and binding as against the Borrower and enforceable
against the Borrower in accordance with its terms.
7. The Borrower is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
8. The Borrower is not a "holding company", a "subsidiary company"
of a "holding company", an "affiliate" of a "holding company", or an
"affiliate" of a "subsidiary company" of a "holding company", in each case
as such term is defined in the Public Utility Holding Company Act of 1935,
as amended ("PUHCA").
9. The Borrower is duly qualified to transact business as a foreign
corporation and is in good standing in each of the States of Texas,
Georgia, Louisiana, Mississippi, Alabama and Florida.
<PAGE> 100
December __, 1993
Page 4
10. All of the outstanding shares of capital stock of FGT are owned
of record directly by the Borrower.
The opinions set forth above are subject to the following qualifications:
(a) Our opinions in paragraphs 5 and 6 above are subject, as to
enforceability, to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally.
(b) Our opinions in paragraphs 5 and 6 above are subject, as to
enforceability, to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law), including
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing, and also to the possible unavailability of specific
performance or injunctive relief. Such principles of equity are of
general application, and in applying such principles a court, among other
things, might not allow a creditor to accelerate maturity of a debt upon
the occurrence of a default deemed immaterial or might decline to order
the Borrower to perform covenants.
In rendering the opinions expressed in paragraph 4 above we have made no
examination of any accounting or financial matters and express no opinion with
respect thereto.
In rendering the opinions set forth in paragraphs 3, 4, 5, 6 and 8 above,
we call to your attention the fact that on June 1, 1987, the Securities and
Exchange Commission issued an order declaring that FGT is not a "gas utility
company" under PUHCA notwithstanding making a very limited number of "farm tap
sales". Such order has not been modified or rescinded.
In rendering the opinions set forth in paragraphs 3, 4, 5, 6 and 8 above,
we have relied upon the opinions stated respectively in (a) paragraph 5 of the
opinion, dated today of the Vice President and General Counsel of Enron which
is hereby delivered to you pursuant to Section 3.01(k) of the Credit Agreement,
and (b) paragraph 5 of the opinion, dated today, of the Vice President and
Secretary of Sonat which is being delivered to you pursuant to Section 3.01(m)
of the Credit Agreement.
We have not been called upon to, and accordingly do not, express any
opinion as to the various state and Federal laws regulating banks or the
conduct of their business (except Regulation U issued by the Federal Reserve
Board) that may relate to the Loan Documents or the transactions contemplated
thereby. Without limiting the generality of the foregoing, we express no
opinion as to the effect of the law of any jurisdiction other than the State of
Texas and the State of New York wherein any Bank may be located or where any
<PAGE> 101
December __, 1993
Page 5
enforcement of the Loan Documents may be sought which limits the rates of
interest legally chargeable or collectible.
This opinion is limited to the laws of the State of Texas and the State of
New York, the General Corporation Law of the State of Delaware and the Federal
law of the United States.
The opinions herein are solely for the benefit of the Administrative
Agent, the Managing Agents, each Bank and each Person that becomes a Bank
pursuant to the provisions of the Credit Agreement, in connection with the
subject transaction and may not be relied upon by any other person, or by such
beneficiaries or any other person in any other context, without the prior
written consent of the undersigned.
Very truly yours,
Vinson & Elkins L.L.P.
<PAGE> 102
EXHIBIT 3.01-B
(Opinion of Vinson & Elkins L.L.P. --
Enron Standby Note Purchase Agreement)
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
(Date)
To each of the Banks parties to the Revolving
Credit Agreement dated as of December 23, 1993
among Citrus Corp., said Banks, Credit Lyonnais
New York Branch and The Toronto-Dominion
Bank as Managing Agents, and Credit Lyonnais
New York Branch as Administrative Agent for
said Banks, and to such Managing Agents and
Administrative Agent
Re: Enron Corp. Standby Note Purchase Agreement
Ladies and Gentlemen:
We have acted as counsel for Enron Corp., a Delaware corporation
("Enron"), in connection with the preparation, execution and delivery of the
Standby Note Purchase Agreement dated as of December 23, 1993 (the "Enron Note
Purchase Agreement") among Enron, Credit Lyonnais New York Branch as
Administrative Agent, and Citrus Corp. ("Citrus") joining for the purpose of
acknowledging and consenting to the terms thereof. The Enron Note Purchase
Agreement relates to the Series A Notes executed and delivered pursuant to, and
this opinion is furnished to you pursuant to Section 3.01(j) of, the Revolving
Credit Agreement dated as of December 23, 1993 (the "Credit Agreement"), among
Citrus, the Banks parties thereto, Credit Lyonnais New York Branch and The
Toronto-Dominion Bank as Managing Agents, and Credit Lyonnais New York Branch
as Administrative Agent for said Banks. Terms used herein but not defined
herein shall have the meanings ascribed to such terms in the Enron Note
Purchase Agreement, or if not defined in the Enron Note Purchase Agreement, in
the Credit Agreement.
<PAGE> 103
December __, 1993
Page 2
In that connection, we have examined:
(1) The Enron Note Purchase Agreement; and
(2) The Credit Agreement.
We have also examined the originals, or copies certified to our
satisfaction, of the documents listed in a certificate of the Vice President,
Finance and Treasurer of Enron dated the date hereof (the "Officer's
Certificate"), certifying that the documents listed in such certificate are all
of the material (meaning for purposes of this opinion those creating a monetary
liability of $50,000,000 or more) indentures, loan or credit agreements,
receivables sale or financing agreements, lease financing agreements, capital
leases, mortgages, security agreements, bonds and notes (except bonds and notes
issued pursuant to the aforesaid indentures and loan or credit agreements), and
guaranties of any such obligations, to which Enron is subject and to the effect
that there are no orders, writs, judgments, awards, injunctions or decrees
which affect or purport to affect Enron's obligations under the Enron Note
Purchase Agreement. In addition, we have (i) investigated such questions of
law and (ii) relied on such certificates from officers and representatives of
Enron and from public officials, as we have deemed necessary or appropriate for
the purposes of this opinion.
In rendering the opinions herein set forth, we have assumed (i) with
respect to our opinion set forth in paragraph 3 below, the due authorization,
execution and delivery of the Enron Note Purchase Agreement and the Credit
Agreement by all parties to such documents (other than Enron and Citrus with
respect to the Enron Note Purchase Agreement and Citrus with respect to the
Credit Agreement) and that each such document is valid, binding and enforceable
(subject to limitations on enforceability of the types referred to in
paragraphs (a) and (b) below) against the parties thereto (other than Enron and
Citrus with respect to the Enron Note Purchase Agreement and Citrus with
respect to the Credit Agreement), (ii) the legal capacity of natural persons,
(iii) the genuineness of all signatures, (iv) the authenticity of all documents
submitted to us as originals, and (v) the conformity to original documents of
all documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the following opinion:
1. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body (including,
without limitation, FERC) is required to be made or obtained by Enron for
the execution, delivery and performance by Enron of the Enron Note
Purchase Agreement.
<PAGE> 104
December __, 1993
Page 3
2. The execution, delivery and performance by Enron of the Enron
Note Purchase Agreement does not contravene (i) its Restated Certificate
of Incorporation, as amended, or Bylaws, as amended, (ii) any provision of
law or regulation applicable to Enron, or (iii) any contractual or legal
restriction contained in any document listed in the Officer's Certificate.
3. The Enron Note Purchase Agreement constitutes the legal, valid
and binding obligation of Enron enforceable against Enron in accordance
with its terms.
The opinions set forth above are subject to the following qualifications:
(a) Our opinion in paragraph 3 above is subject, as to
enforceability, to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally.
(b) Our opinion in paragraph 3 above is subject, as to
enforceability, to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law), including
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing, and also to the possible unavailability of specific
performance or injunctive relief. Such principles of equity are of
general application, and in applying such principles a court, among other
things, might decline to order Enron to perform covenants.
In rendering the opinions expressed in paragraphs 1, 2 and 3 above, we
have relied upon the opinions stated in paragraphs 1, 2 (so far as such
paragraph 2 relates to the corporate powers of, and due authorization of the
Enron Note Purchase Agreement by, Enron), 4 and 5 of the opinion, dated today,
of the Senior Vice President and General Counsel of Enron Corp. which is being
delivered to you pursuant to Section 3.01(k) of the Credit Agreement.
In rendering the opinions expressed in paragraph 2 above we have made no
examination of any accounting or financial matters and express no opinion with
respect thereto.
This opinion is limited to the laws of the State of Texas and the State of
New York, the General Corporation Law of the State of Delaware and the Federal
law of the United States.
The opinions herein are solely for the benefit of the Administrative
Agent, the Managing Agents, each Bank and each Person that becomes a Bank
pursuant to the provisions of the Credit Agreement, in connection with the
subject transaction and may not
<PAGE> 105
December __, 1993
Page 4
be relied upon by any other person, or by such beneficiaries or any other
person in any other context, without the prior written consent of the
undersigned.
Very truly yours,
Vinson & Elkins L.L.P.
<PAGE> 106
EXHIBIT 3.01-C
(Opinion of Senior Vice President
and General Counsel of Enron Corp. --
Standby Note Purchase Agreement)
Enron Corp.
(Date)
To each of the Banks parties to the
Revolving Credit Agreement dated
as of December 23, 1993 among
Citrus Corp., said Banks, Credit
Lyonnais New York Branch and
The Toronto-Dominion Bank as
Managing Agents, and Credit Lyonnais
New York Branch as Administrative
Agent for said Banks, and to such
Managing Agents and Administrative Agent
Re: Enron Corp. Standby Note Purchase Agreement
Ladies and Gentlemen:
As Senior Vice President and General Counsel of Enron Corp., a Delaware
corporation ("Enron"), I am familiar with the Standby Note Purchase Agreement
dated as of December 23, 1993 (the "Enron Note Purchase Agreement") among
Enron, Credit Lyonnais New York Branch as Administrative Agent, and Citrus
Corp. ("Citrus") joining for the purposes of acknowledging and consenting to
the terms thereof. The Enron Note Purchase Agreement relates to the Series A
Notes executed and delivered pursuant to the Revolving Credit Agreement dated
as of December 23, 1993 (the "Credit Agreement") among Citrus, the Banks
parties thereto, Credit Lyonnais New York Branch and The Toronto-Dominion Bank
as Managing Agents, and Credit Lyonnais New York Branch as Administrative Agent
for said Banks. In such capacities, I am also familiar with the Restated
Certificate of Incorporation, as amended, and Bylaws, as amended, of Enron.
This opinion is being furnished to you pursuant to Section 3.01 (k) of the
Credit Agreement. Terms used herein but not defined herein shall have the same
meaning ascribed to such terms in the Enron Note Purchase Agreement, or if not
defined in the Enron Note Purchase Agreement, in the Credit Agreement.
<PAGE> 107
December __, 1993
Page 2
Before rendering this opinion, I (or other attorneys with Enron's legal
department acting under my direction) have examined the Enron Note Purchase
Agreement and the Credit Agreement, and have examined and relied upon originals
or photostatic or certified copies of such corporate records, certificates of
officers of Enron and of public officials, and such agreements, documents and
instruments, and have made such investigations of law, as I or such other
attorneys have deemed relevant and necessary as the basis for the opinion
hereinafter expressed. In such examination, I or such other attorneys assumed
the genuineness of all signatures (other than signatures of officers of Enron
on the Enron Note Purchase Agreement), the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as photostatic or certified copies.
Upon the basis of the foregoing, I am of the opinion that:
1. Enron is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all
corporate powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted, except
to the extent failure to obtain such licenses, authorizations, consents or
approvals would not materially adversely affect the business, consolidated
financial position or consolidated results of operations of Enron and its
Subsidiaries taken as a whole.
2. The execution, delivery and performance by Enron of the Enron
Note Purchase Agreement are within Enron's corporate powers, have been
duly authorized by all necessary corporate action on the part of Enron,
and do not contravene, or constitute a default under, (a) the Restated
Certificate of Incorporation, as amended, or Bylaws, as amended, of Enron,
(b) any contractual restriction contained in any material (meaning for
the purposes of this opinion those creating a monetary liability of
$50,000,000 or more) indenture, loan or credit agreement, receivables sale
or financing agreement, lease financing agreement, capital lease,
mortgage, security agreement, bond or note, or any guaranty of any of such
obligations to which Enron is a party, or (c) any judgment, injunction,
order or decree known to me to be binding upon Enron. The execution,
delivery and performance by Enron of the Enron Note Purchase Agreement
will not result in the creation or imposition of any lien, security
interest or other charge or encumbrance on any asset of Enron. The Enron
Note Purchase Agreement has been duly executed and delivered by Enron.
3. Except as disclosed in Enron's Form 10-K for the year ended
December 31, 1992, or Enron's Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 or September 30, 1993 there is no action, suit or
proceeding pending or, to my knowledge, threatened against Enron or any of
its Subsidiaries before any
<PAGE> 108
December __, 1993
Page 3
court or arbitrator or any governmental agency, in which there is a
reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or
consolidated results of operations of Enron and its Subsidiaries taken as
a whole or which in any manner draws into question the validity of the
Enron Note Purchase Agreement.
4. Enron is not, and is not directly or indirectly "controlled" by
any Person which is, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5. Enron is not a "holding company", an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", in each case as
such terms are defined in the Public Utility Holding Company Act of 1935,
as amended.
6. Fifty percent of the outstanding shares of capital stock of
Citrus are owned of record, indirectly through a wholly-owned Subsidiary
of Enron, by Enron.
The opinions set forth above are subject to the following qualifications:
1. In rendering the opinions expressed in paragraph 2 above, neither
I nor any other attorney acting under my direction has made any
examination of any accounting or financial matters related to certain of
the covenants contained in certain documents to which Enron may be
subject, and I express no opinion with respect thereto.
2. This opinion is limited in all respects to the laws of the State
of Texas and the General Corporation Law of the State of Delaware and
Federal law.
3. In rendering the opinion expressed in paragraph 3 above, I (or
the other attorneys acting under my direction) have only reviewed the
files and records of Enron and its Subsidiaries, and we have consulted
with such senior officers of Enron and its Subsidiaries as we have deemed
necessary.
This opinion is solely for the benefit of the Administrative Agent, the
Managing Agents, each Bank and each Person that becomes a Bank pursuant to the
provisions of the Credit Agreement, in connection with the subject transaction
and may not be relied upon by any other person, or by such beneficiaries or any
other person in any other context, without the written consent of the
undersigned; provided, however, that Vinson & Elkins L.L.P. may rely on certain
provisions of this opinion to the extent stated in its
<PAGE> 109
December __, 1993
Page 4
opinion for the purposes of rendering its opinion pursuant to Sections 3.01(i)
and 3.01(j) of the Credit Agreement
Very truly yours,
James V. Derrick, Jr.
<PAGE> 110
EXHIBIT 3.01-D
(Form of Opinion of Vinson & Elkins L.L.P. --
Sonat Standby Note Purchase Agreement)
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
(Date)
To each of the Banks parties to the Revolving
Credit Agreement dated as of December 23, 1993
among Citrus Corp., said Banks, Credit Lyonnais
New York Branch and The Toronto-Dominion
Bank as Managing Agents, and Credit Lyonnais
New York Branch as Administrative Agent for
said Banks, and to such Managing Agents and
Administrative Agent
Re: Sonat Inc. Standby Note Purchase Agreement
Ladies and Gentlemen:
We have acted as counsel for Sonat Inc., a Delaware corporation
("Sonat"), in connection with the preparation, execution and delivery of the
Standby Note Purchase Agreement dated as of December 23, 1993 (the "Sonat Note
Purchase Agreement") among Sonat, Credit Lyonnais New York Branch as
Administrative Agent, and Citrus Corp. ("Citrus") joining for the purpose of
acknowledging and consenting to the terms thereof. The Sonat Note Purchase
Agreement relates to the Series B Notes executed and delivered pursuant to, and
this opinion is furnished to you pursuant to Section 3.01(l) of, the Revolving
Credit Agreement dated as of December 23, 1993 (the "Credit Agreement"), among
Citrus, the Banks parties thereto, Credit Lyonnais New York Branch and The
Toronto-Dominion Bank as Managing Agents, and Credit Lyonnais New York Branch
as Administrative Agent for said Banks. Terms used herein but not defined
herein shall have the meanings ascribed to such terms in the Sonat Note
Purchase Agreement, or if not defined in the Sonat Note Purchase Agreement, in
the Credit Agreement.
<PAGE> 111
December __, 1993
Page 2
In that connection, we have examined:
(1) The Sonat Note Purchase Agreement; and
(2) The Credit Agreement.
We have also (i) investigated such questions of law and (ii) relied on
such certificates from officers and representatives of Sonat and from public
officials, as we have deemed necessary or appropriate for the purposes of this
opinion.
In rendering the opinion herein set forth, we have assumed (i) the due
authorization, execution and delivery of the Sonat Note Purchase Agreement and
the Credit Agreement by all parties to such documents (other than Sonat and
Citrus with respect to the Sonat Note Purchase Agreement and Citrus with
respect to the Credit Agreement) and that each such document is valid, binding
and enforceable (subject to limitations on enforceability of the types referred
to in paragraphs (a) and (b) below) against the parties thereto (other than
Sonat and Citrus with respect to the Sonat Note Purchase Agreement and Citrus
with respect to the Credit Agreement), (ii) the legal capacity of natural
persons, (iii) the genuineness of all signatures, (iv) the authenticity of all
documents submitted to us as originals, and (v) the conformity to original
documents of all documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that the Sonat Note Purchase Agreement
constitutes the legal, valid and binding obligation of Sonat enforceable
against Sonat in accordance with its terms.
The opinion set forth above is subject to the following qualifications:
(a) Our opinion above is subject, as to enforceability, to the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally.
(b) Our opinion above is subject, as to enforceability, to the effect
of general principles of equity (regardless of whether considered in a
proceeding in equity or at law), including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and also to the
possible unavailability of specific performance or injunctive relief.
Such principles of equity are of general application, and in applying such
principles a court, among other things, might decline to order Sonat to
perform covenants.
<PAGE> 112
December __, 1993
Page 3
In rendering the opinion expressed above, we have relied upon the opinions
stated in paragraphs 1, 2, 3, 4, 5 and 6 of the opinion, dated today, of the
Vice President and Secretary of Sonat which is being delivered to you pursuant
to Section 3.01(m) of the Credit Agreement.
This opinion is limited to the laws of the State of Texas and the State of
New York, the General Corporation Law of the State of Delaware and the Federal
law of the United States.
The opinions herein are solely for the benefit of the Administrative
Agent, the Managing Agents, each Bank and each Person that becomes a Bank
pursuant to the provisions of the Credit Agreement, in connection with the
subject transaction and may not be relied upon by any other person, or by such
beneficiaries or any other person in any other context, without the prior
written consent of the undersigned.
Very truly yours,
Vinson & Elkins L.L.P.
<PAGE> 113
EXHIBIT 3.01-E
(Opinion of Vice President
and Secretary of Sonat Inc. --
Standby Note Purchase Agreement)
Sonat Inc.
(Date)
To each of the Banks parties to the
Revolving Credit Agreement dated
as of December 23, 1993 among
Citrus Corp., said Banks, Credit
Lyonnais New York Branch and
The Toronto-Dominion Bank as
Managing Agents, and Credit Lyonnais
New York Branch as Administrative
Agent for said Banks, and to such
Managing Agents and Administrative Agent
Re: Sonat Inc. Standby Note Purchase Agreement
Ladies and Gentlemen:
As Vice President and Secretary of Sonat Inc., a Delaware corporation
("Sonat"), and an attorney licensed to practice law under the laws of the State
of Alabama, I am familiar with the Standby Note Purchase Agreement dated as of
December 23, 1993 (the "Sonat Note Purchase Agreement") among Sonat, Credit
Lyonnais New York Branch as Administrative Agent, and Citrus Corp. ("Citrus")
joining for the purposes of acknowledging and consenting to the terms thereof.
The Sonat Note Purchase Agreement relates to the Series B Notes executed and
delivered pursuant to the Revolving Credit Agreement dated as of December 23,
1993 (the "Credit Agreement") among Citrus, the Banks parties thereto, Credit
Lyonnais New York Branch and The Toronto-Dominion Bank as Managing Agents, and
Credit Lyonnais New York Branch as Administrative Agent for said Banks. In
such capacities, I am also familiar with the Restated Certificate of
Incorporation and By-laws of Sonat. This opinion is being furnished to you
pursuant to Section 3.01(m) of the Credit Agreement. Terms used herein but not
defined herein shall have the same meaning ascribed to such terms in the Sonat
Note Purchase Agreement, or if not defined in the Sonat Note Purchase
Agreement, in the Credit Agreement.
<PAGE> 114
December __, 1993
Page 2
Before rendering this opinion, I (or other attorneys with Sonat's legal
department acting under my direction) have examined the Sonat Note Purchase
Agreement and the Credit Agreement, and have examined and relied upon originals
or photostatic or certified copies of such corporate records, certificates of
officers of Sonat and of public officials, and such agreements, documents and
instruments, and have made such investigations of law, as I or such other
attorneys have deemed relevant and necessary as the basis for the opinion
hereinafter expressed. In such examination, I or such other attorneys assumed
the genuineness of all signatures (other than signatures of officers of Sonat
on the Sonat Note Purchase Agreement), the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as photostatic or certified copies.
Upon the basis of the foregoing, I am of the opinion that:
1. Sonat is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
corporate powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted, except
to the extent failure to obtain such licenses, authorizations, consents or
approvals would not materially adversely affect the business, consolidated
financial position or consolidated results of operations of Sonat and its
Subsidiaries taken as a whole.
2. The execution, delivery and performance by Sonat of the Sonat
Note Purchase Agreement are within Sonat's corporate powers, have been
duly authorized by all necessary corporate action on the part of Sonat,
and do not contravene, or constitute a default under, (a) the Restated
Certificate of Incorporation or By-laws of Sonat, (b) any contractual or
legal restriction contained in any material (meaning for the purposes of
this opinion those creating a monetary liability of $50,000,000 or more)
indenture, loan or credit agreement, receivables sale or financing
agreement, lease financing agreement, capital lease, mortgage, security
agreement, bond or note, or any guaranty of any of such obligations to
which Sonat is a party, (c) any provision of any law or regulation
applicable to Sonat or (d) any judgment, injunction, order or decree known
to me to be binding upon Sonat. The execution, delivery and performance by
Sonat of the Sonat Note Purchase Agreement will not result in the creation
or imposition of any lien, security interest or other charge or
encumbrance on any asset of Sonat except as provided in the Sonat Note
Purchase Agreement. The Sonat Note Purchase Agreement has been duly
executed and delivered by Sonat.
3. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body (including,
without
<PAGE> 115
December __, 1993
Page 3
limitation, FERC) is required to be made or obtained by Sonat for the
execution, delivery and performance by Sonat of the Sonat Note Purchase
Agreement.
4. Sonat is not, and is not directly or indirectly "controlled" by
any Person which is, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5. Sonat is not a "holding company", an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", in each case as
such terms are defined in the Public Utility Holding Company Act of 1935,
as amended.
6. Fifty percent of the outstanding shares of capital stock of
Citrus are owned of record directly by Sonat.
The opinions set forth above are subject to the following qualifications:
1. In rendering the opinions expressed in paragraph 2 above, neither
I nor any other attorney acting under my direction has made any
examination of any accounting or financial matters related to certain of
the covenants contained in certain documents to which Sonat may be
subject, and I express no opinion with respect thereto.
2. This opinion is limited in all respects to the laws of the State
of Alabama, the General Corporation Law of the State of Delaware and
Federal law.
In rendering the above opinion, I call to your attention that, except as
disclosed in Sonat's Form 10-K for the year ended December 31, 1992, or Sonat's
Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 or September 30,
1993, to my knowledge there is no action, suit or proceeding pending or overtly
threatened in writing against Sonat or any of its Subsidiaries before any court
or arbitrator or any governmental agency, in which there is a reasonable
likelihood of an adverse decision which would materially adversely affect the
business, consolidated financial position or consolidated results of operations
of Sonat and its Subsidiaries taken as a whole or which in any manner draws
into question the validity of the Sonat Note Purchase Agreement. In calling to
your attention the matters set forth in the preceding sentence, I (or the other
attorneys acting under my direction) have only reviewed the files and records
of Sonat and its Subsidiaries, and we have consulted with such senior officers
of Sonat and its Subsidiaries as we have deemed necessary.
This opinion is solely for the benefit of the Administrative Agent, the
Managing Agents, each Bank and each Person that becomes a Bank pursuant to the
provisions of the
<PAGE> 116
December __, 1993
Page 4
Credit Agreement, in connection with the subject transaction and may not be
relied upon by any other person, or any such person in any other context,
without the prior written consent of the undersigned; provided, however, that
Vinson & Elkins L.L.P. may rely on certain provisions of this opinion to the
extent stated in its opinion for the purposes of rendering its opinion pursuant
to Sections 3.01(i) and 3.01(l) of the Credit Agreement.
Very truly yours,
Beverley T. Krannich
<PAGE> 117
EXHIBIT 3.01-F
(Opinion of Andrews & Kurth L.L.P.)
December _____, 1993
The Banks, the Administrative
Agent and the Managing Agents
Referred to Below
c/o Credit Lyonnais
Ladies and Gentlemen:
We have acted as special counsel to Credit Lyonnais New York Branch and
The Toronto-Dominion Bank, as managing agents (in such capacity, the "Managing
Agents"), in connection with negotiation, execution and delivery by Citrus
Corp., a Delaware corporation (the "Borrower"), of the Revolving Credit
Agreement dated as of December 23, 1993 (the "Credit Agreement") with the banks
party thereto (the "Banks"), Credit Lyonnais New York Branch, as administrative
agent for the Banks (in such capacity, the "Administrative Agent"), and the
Managing Agents, the Series A Notes and the Series B Notes dated the date
hereof and issued by the Borrower to the Banks pursuant to the Credit Agreement
(the "Notes"), the Standby Note Purchase Agreement dated as of December ____,
1993 (the "Enron Note Purchase Agreement") among Enron Corp., a Delaware
corporation, the Administrative Agent and the Borrower and the Standby Note
Purchase Agreement dated as of December 23, 1993 among Sonat Inc., a Delaware
corporation, the Administrative Agent and the Borrower (the "Sonat Note
Purchase Agreement"). This opinion is being delivered pursuant to Section
3.01(m) of the Credit Agreement. The Credit Agreement, the Notes, the Enron
Note Purchase Agreement and the Sonat Note Purchase Agreement are herein
individually referred to as a "Loan Document" and collectively referred to as
the "Loan Documents." The Borrower, Enron and Sonat are herein individually
referred to as a "Loan Party."
In connection with this opinion, we have examined executed originals or
copies, certified or otherwise identified to our satisfaction of the Loan
Documents.
For purposes of this opinion, we have assumed with your permission and
without independent investigation the following:
(a) that each of the parties to the Loan Documents has the requisite
power and authority to execute, deliver and perform its obligations thereunder;
<PAGE> 118
The Banks, the Administrative
Agent and the Managing Agents
Date
Page 2
(b) that the Loan Documents have been duly authorized, executed and
delivered by each of the parties thereto;
(c) the genuineness of all signatures of, and the authority of, all
Persons signing all documents examined by us in connection with this opinion on
behalf of parties thereof;
(d) the capacity of each signing party; and
(e) the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such copies.
Based upon and subject to the foregoing and other qualifications and
assumptions set forth below, and upon such other matters as we have deemed
appropriate, we are of the opinion that each Loan Document constitutes the
valid, binding and enforceable obligation of each Loan Party party thereto
enforceable against such Loan Party in accordance with its terms.
The foregoing opinion is subject to the following qualifications:
The enforceability of the Loan Documents may be limited by the effect of
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether considered in a proceeding in
equity or at law), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and also to the possible
unavailability of specific performance or injunctive relief. Such principles
of equity are of general application, and in applying such principles a court,
among other things, might not allow a creditor to accelerate maturity of a debt
upon the occurrence of a default deemed immaterial or might decline to order a
Loan Party to perform covenants.
We express no opinion as to the effect of the law of any jurisdiction
other than the State of Texas and the State of New York wherein any Bank may
be located or where any enforcement of the Loan Documents may be sought which
limits the rates of interest legally chargeable or collectible.
This opinion is limited in all respects to the laws of the States of Texas
and New York and applicable federal law. This opinion is provided to you
solely for the purpose of complying with a condition set forth in the Credit
Agreement and, without our prior written consent, may not be relied upon in any
manner by any other person (other than a person who becomes a Bank pursuant to
the provisions of the Credit Agreement).
Very truly yours,
<PAGE> 119
EXHIBIT 8.06
TRANSFER AGREEMENT
This Transfer Agreement dated as of ____________________ (this
"Agreement"), is made by and among Citrus Corp., a Delaware corporation (the
"Borrower"), Credit Lyonnais New York Branch as Administrative Agent (under the
Revolving Credit Agreement dated as of December 23, 1993 among the Borrower,
the Managing Agents, the Administrative Agent and the Banks parties thereto,
such Revolving Credit Agreement as amended from time to time being herein
referred to as the "Revolving Credit Agreement"), ________________________
____________________ (the "Assignor") and ________________________ (the
"Assignee"). In consideration of the mutual covenants herein contained, the
parties agree to the following:
1. Transfer. Pursuant to Section 8.06 of the Revolving Credit
Agreement, the Assignor assigns to the Assignee (without representation or
warranty to the Assignee and without the Assignee having recourse against the
Assignor as a result of such assignment), and the Assignee assumes,
$___________ of the Assignor's $____________ Commitment under the Revolving
Credit Agreement. (The Assignee is already a Bank under the Revolving Credit
Agreement with a Commitment of $__________ prior to the assumption contemplated
hereby.) (The Assignee is approved by the Administrative Agent and the
Borrower for purposes of this assignment and assumption.) As contemplated by
Section 8.06, it is agreed that:
(i) the Assignor is released from all of its obligations under the
Revolving Credit Agreement with respect to or arising as a result
of the $______________ portion of its Commitment hereby assigned;
(ii) the Assignee is obligated for such $______________ portion of
such Commitment hereby assigned and all other obligations of the
Assignor (including, without limitation, obligations to the
Administrative Agent under Section 7.05 of the Revolving Credit
Agreement or otherwise) under the Revolving Credit Agreement with
respect to such portion of such Commitment hereby assigned;
(iii) the Assignee is assigned the right to vote or consent under the
Revolving Credit Agreement and all other rights and obligations
of the Assignor under the Revolving Credit Agreement, in each
case to the extent of such portion of such Commitment hereby
assigned;
(iv) the Borrower, contemporaneously (except as stated below) with the
execution and delivery of this Agreement, will deliver, in
replacement of the Series A Note of the Assignor currently
outstanding ((and in replacement of the Assignee's existing
$__________ Series A Note)) (a) to the Assignee, a new Series A
Note in the amount of $_____________, such amount being 50
percent of the Assignee's Commitment
<PAGE> 120
Commitment after giving effect to this Agreement ((and the
Assignee agrees to cancel and return to the Borrower, with
reasonable promptness following such delivery, the Series A Note
of the Assignee being replaced thereby)), (b) to the Assignor, if
the Assignor has a Commitment after giving effect to this
Agreement, a new Series A Note in the amount of $___________,
such amount being 50 percent of the Commitment, if any, of the
Assignor after giving effect to this Agreement (and the Assignor
agrees to cancel and return to the Borrower, with reasonable
promptness following delivery of such new Series A Note, the
Series A Note of the Assignor being replaced thereby, and if the
Assignor has no Commitment after giving effect to this Agreement
the Assignor agrees to cancel and return to the Borrower,
contemporaneously with the execution of this Agreement, the
exiting Series A Note of the Assignor), and (c) to the
Administrative Agent, photocopies of all such new Series A Notes
and, with reasonable promptness after the receipt by the Borrower
of such cancelled Series A Notes, photocopies of all such
cancelled Series A Notes;
(v) the Borrower, contemporaneously (except as stated below) with the
execution and delivery of this Agreement, will deliver, in
replacement of the Series B Note of the Assignor currently
outstanding ((and in replacement of the Assignee's existing
$__________ Series B Note)) (a) to the Assignee, a new Series B
Note in the amount of $_____________, such amount being 50
percent of the Assignee's Commitment after giving effect to this
Agreement ((and the Assignee agrees to cancel and return to the
Borrower, with reasonable promptness following such delivery, the
Series B Note of the Assignee being replaced thereby)), (b) to
the Assignor, if the Assignor has a Commitment after giving
effect to this Agreement, a new Series B Note in the amount of
$__________, such amount being 50 percent of the Commitment, if
any, of the Assignor after giving effect to this Agreement (and
the Assignor agrees to cancel and return to the Borrower, with
reasonable promptness following delivery of such new Series B
Note, the Series B Note of the Assignor being replaced thereby,
and if the Assignor has no Commitment after giving effect to this
Agreement the Assignor agrees to cancel and return to the
Borrower, contemporaneously with the execution of this Agreement,
the exiting Series B Note of the Assignor), and (c) to the
Administrative Agent, photocopies of all such new Series B Notes
and, with reasonable promptness after the receipt by the Borrower
of such cancelled Series B Notes, photocopies of all such
cancelled Series B Notes;
((vi) inasmuch as there are currently no outstanding Advances, no
transfer of Advances is hereby made;)
-2-
<PAGE> 121
((vi) $____________ of the Assignor's outstanding Advances are
transferred to the Assignee, which amount represents (the
aggregate amount of all of the Assignor's outstanding Advances)
(the aggregate amount of the assigned portion of the outstanding
Advances of the Assignor, there being assigned to the Assignee a
portion of each such Advance with the assigned portion of each
such Advance being equal to the amount of such Advance multiplied
by a fraction, the numerator of which is the amount of the
Assignor's Commitment assumed by the Assignee and the denominator
of which is the amount of the Assignor's Commitment immediately
prior to such assumption;)
(vii) the Assignee confirms that it is a party to the Revolving Credit
Agreement as a Bank and agrees that after giving effect to this
Agreement its Commitment will be $_________________; and
(viii) the Assignor agrees that after giving effect to this Agreement
its Commitment will be $__________;
(ix) the Assignee (a) represents and warrants that it is legally
authorized to enter into this Agreement, (b) confirms that it has
received copies of the Revolving Credit Agreement and the Note
Purchase Agreements together with copies of the most recent
financial statements delivered pursuant to Section 5.01 of each
of the Revolving Credit Agreement and the Note Purchase
Agreements and such other Loan Documents and other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement, (c) agrees
that it will, independently and without reliance upon the
Administrative Agent or any other Bank and based upon such
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under the Loan Documents, (d) appoints and
authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Administrative
Agent by the terms thereof, together with such powers as are
reasonably incidental thereto(, AND) (e) agrees that it will
perform in accordance with their respective terms all of the
obligations which by the terms of the Loan Documents are required
to be performed by it as a Bank (AND (F) REPRESENTS THAT IT HAS
DELIVERED TO THE BORROWER AND THE ADMINISTRATIVE AGENT ALL
APPLICABLE PRESCRIBED FORMS);*(and)
__________________________________
( * To be included if Assignee is organized under the laws of a
jurisdiction outside the United States.)
-3-
<PAGE> 122
((x) the Assignee specifies the following offices as its
Applicable Lending Offices and its Address For Notices under
the Revolving Credit Agreement:
<TABLE>
<CAPTION>
<S> <C> <C>
Domestic CD Lending Eurodollar
Lending Office Office Lending Office
------------- ----------- --------------
____________________ ______________________ __________________________
____________________ ______________________ __________________________
Attention:__________ Attention:____________ Attention:________________
Telecopy: __________ Telecopy:_____________ Telecopy:_________________
Address For Notices:
_____________________
_____________________
_____________________
Attention:___________
Telecopy:____________
</TABLE>
; and)
(xi) The Assignor and Assignee have caused a counterpart of this
Agreement to be delivered to the Administrative Agent, together
with the non-refundable assignment fee referred to in Section
8.06 of the Revolving Credit Agreement.
2. Amendments, Etc. This Agreement shall not be amended, waived or
otherwise modified except in writing executed by the parties hereto.
3. Governing Law. Pursuant to Section 5-1401 of the New York
General Obligations Law, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
4. Definitions. Capitalized terms used herein which are defined in
the Revolving Credit Agreement and not defined herein are used herein as
defined in the Revolving Credit Agreement.
5. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
6. Effective Date. This Agreement shall be effective as of the date
first above written for purposes of computation of facility fees under the
Revolving Credit Agreement and for all other relevant purposes.
-4-
<PAGE> 123
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
CITRUS CORP. (NAME OF ASSIGNEE)
________________________ ________________________
By:_____________________ By:_____________________
Title:__________________ Title:__________________
CREDIT LYONNAIS, NEW YORK (NAME OF ASSIGNOR)
BRANCH, as Administrative Agent
________________________ ________________________
By:_____________________ By:_____________________
Title:__________________ Title:__________________
-5-
<PAGE> 124
Banks
Commitment: $20,000,000 SHAWMUT BANK, N.A.
By: /s/ Philip A. Messina
-----------------------
Name: Philip A. Messina
Title: Vice President
Address: Resources & Utilities Group
One Federal Street Boston,
Massachusetts 02211
Telecopy No.: (617) 292-2969
Domestic lending Office
-----------------------------
Shawmut Bank, N.A.
One Federal Street
Boston, Massachusetts 02211
CD Lending Office
-----------------------------
Shawmut Bank, N.A.
One Federal Street
Boston, Massachusetts 02211
Eurodollar Lending Office
-----------------------------
Shawmut Bank, N.A.
One Federal Street
Boston, Massachusetts 02211
-6-
<PAGE> 125
Banks
------
Commitment: $15,000,000 SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Mark A. Cox
-----------------
Name: Mark A. Cox
Title: Vice President
Address: 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Telecopy No.: (214) 979-1104
Domestic Lending Office
-----------------------
Societe Generale, Southwest Agency
Trammel Crow Center
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
CD Lending Office
-----------------
Societe Generale, Southwest Agency
Trammel Crow Center
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Eurodollar Lending Office
-------------------------
Societe Generale, Southwest Agency
Trammel Crow Center
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
-7-
<PAGE> 126
Banks
-----
Commitment: $10,000,000 THE SUMITOMO BANK, LIMITED
HOUSTON AGENCY
By: /s/ H. Kobayashi
-----------------
Name: H. Kobayashi
Title: Joint General Manager
Address: NationsBank Center, Suite
1750 700 Louisiana Street
Houston, Texas 77002
Telecopy No.: (713) 759-0020
Domestic Lending Office
-----------------------
The Sumitomo Bank, Limited Houston
Agency NationsBank Center, Suite 1750
700 Louisiana Street
Houston, Texas 77002
Eurodollar Lending Office
-------------------------
The Sumitomo Bank, Limited Houston
Agency NationsBank Center, Suite 1750
700 Louisiana Street
Houston, Texas 77002
-8-
<PAGE> 127
Banks
-----
Commitment: $40,000,000 TORONTO DOMINION (TEXAS), INC.
By: /s/ Kathy Lynn
----------------
Name: Kathy Lynn
Title: Director
Address: 909 Fannin Street, 17th Floor
Houston, Texas 77010
Telecopy No.: (713) 951-9921
With a copy to:
The Toronto-Dominion Bank
31 W. 52nd Street
New York, New York 10019-6101
Attn: Director Utilities & Project
Finance Telecopy No.: (212)
262-1929
Domestic Lending Office
-----------------------
The Toronto-Dominion Bank
909 Fannin Street, 17th Floor
Houston, Texas 77010
CD Lending Office
-----------------
The Toronto-Dominion Bank
909 Fannin Street, 17th Floor
Houston, Texas 77010
Eurodollar Lending Office
-------------------------
The Toronto-Dominion Bank
909 Fannin Street, 17th Floor
Houston, Texas 77010
-9-
<PAGE> 128
Banks
-----
Commitment: $15,000,000 TRUST COMPANY BANK
By:/s/ James O. Clarke, III
------------------------
Name: James O. Clarke, III
Title: Group Vice President
By: /s/ William J. Bartlett
----------------------------
Name: William J. Bartlett
Title: Banking Officer
Address: Trust Company Bank
P. O. Box 4418
Atlanta, Georgia 30302
Telecopy No.: (404) 588-8833
Domestic Lending Office
-----------------------
Trust Company Bank
Center 120
25 Park Place, N.E.
Atlanta, Georgia 30303
CD Lending Office
-----------------------
Trust Company Bank
Center 120
25 Park Place, N.E.
Atlanta, Georgia 30303
Eurodollar Lending Office
-------------------------
Trust Company Bank
Center 120
25 Park Place, N.E.
Atlanta, Georgia 30303
-10-
<PAGE> 129
Banks
-----
Commitment: $10,000,000 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK AND
CAYMAN ISLANDS BRANCHES
By: /s/ Richard Pearse
--------------------
Name: Richard Pearse
Title: Manager-Director, Credit
By: /s/ Stephen Frey
------------------
Name: S.Frey
Title: Vice President
Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Richard Newman
Telecopy No.: (212) 852-6307
Domestic Lending Office
-----------------------
Westdeutsche Landesbank Girozentrale,
New York Branch
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
Telecopy No.: (212) 852-6300
CD Lending Office
-----------------
Westdeutsche Landesbank Girozentrale,
New York Branch
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
Telecopy No.: (212) 852-6300
Eurodollar Lending Office
-------------------------
Westdeutsche Landesbank Girozentrale,
Cayman Islands Branch
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
Telecopy No.: (212) 852-6300
-11-
<PAGE> 1
Exhibit 11-(1)
SONAT INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
(In Thousands Except
Per-Share Amounts)
<S> <C> <C> <C>
Primary Earnings Per Share (1)
--------------------------
Earnings:
- --------
Income from Continuing Operations
before Extraordinary Item $265,069 $100,962 $ 77,881
Income (Loss) from Discontinued
Operations - 111,447 (11,893)
Extraordinary Loss (3,829) - -
-------- -------- --------
Net Income $261,240 $212,409 $ 65,988
======== ======== ========
Common Stock and Common Stock Equivalents:
- -----------------------------------------
Weighted Average Number of Shares
of Common Stock Outstanding 86,703 85,945 85,771
Common Stock Equivalents Applicable
to Outstanding Stock Options 994 414 454
-------- -------- --------
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalents Outstanding 87,697 86,359 86,225
======== ======== ========
Primary Earnings Per Share:
- --------------------------
Income from Continuing Operations
before Extraordinary Item $ 3.02 $ 1.17 $ .90
Income (Loss) from Discontinued
Operations - 1.29 (.13)
Extraordinary Loss (.04) - -
-------- -------- --------
$ 2.98 $ 2.46 $ .77
======== ======== ========
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%. For
this reason, the primary earnings per share amounts shown above do not
agree with earnings per share shown on the Consolidated Statements of
Income in Part II.
<PAGE> 1
EXHIBIT 21-(1)
SUBSIDIARIES OF SONAT INC.
AS OF JANUARY 1, 1994
<TABLE>
<CAPTION>
Percent of
Country of Voting
Organization Securities
or, if United Owned by
States, State Immediate
Name of Company of Organization Parent
- --------------- --------------- ------------
<S> <C> <C>
SONAT INC.:
CITRUS CORP. (a) Delaware 50%
Florida Gas Transmission Company Delaware 100%
Citrus Industrial Sales Company, Inc. Delaware 100%
Citrus Energy Services, Inc. Delaware 100%
(formerly Citrus Interstate Pipeline Company)
Citrus Marketing Inc. Florida 100%
Citrus Trading Corp. Delaware 100%
SENECA G.P. INC. Delaware 100%
SNT REALTY INC. (b) Alabama 100%
SONAT ENERGY SERVICES COMPANY Delaware 100%
Sonat Marketing Company Delaware 100%
JV Trading Inc. (c) Delaware 100%
Sonat Gathering Company Delaware 100%
Sonat Intrastate-Alabama Inc. Alabama 100%
Sonat Power Inc. (d) Delaware 100%
Sonat Ventures Inc. (e)(f) Delaware 100%
Sonat NGV Technology Inc. (g) Delaware 100%
</TABLE>
______________________________
Indentations indicate subsidiaries of subsidiaries
<PAGE> 2
<TABLE>
<CAPTION>
Percent of
Country of Voting
Organization Securities
or, if United Owned by
States, State Immediate
Name of Company of Organization Parent
- --------------- --------------- ------------
<S> <C> <C>
SONAT EXPLORATION COMPANY Delaware 100%
Crosstex Pipeline, Inc. Texas 100%
Field Gas Gathering Inc. Delaware 100%
Sonat Coal Gas Inc. (h) Delaware 100%
Sonat Minerals Inc. Delaware 100%
Sonat Minerals Leasing Inc. Delaware 100%
Sonat Texas Gathering Company Delaware 100%
Sonat Oil Transmission Inc. Delaware 100%
Stateline Gas Gathering Company Delaware 100%
SONAT INTEROCEAN (TEXAS) INC. Texas 100%
SONAT SERVICES INC. Alabama 100%
Sonat Services (D.C.) Inc. Delaware 100%
SOUTHERN NATURAL GAS COMPANY Delaware 100%
Peninsula Pipeline Company Delaware 100%
South Georgia Natural Gas Company Delaware 100%
Southern Deepwater Pipeline Company Delaware 100%
Sea Robin Pipeline Company (i) Louisiana 50%
Southern Energy Company Delaware 100%
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Percent of
Country of Voting
Organization Securities
or, if United Owned by
States, State Immediate
Name of Company of Organization Parent
- --------------- --------------- ------------
<S> <C> <C>
(Southern Natural Gas Company - cont'd.)
Southern Gas Storage Company Delaware 100%
Bear Creek Storage Company (j) Louisiana 50%
Bear Creek Capital Corporation Delaware 100%
Southern Offshore Pipeline Company Delaware 100%
Sea Robin Pipeline Company (i) Louisiana 50%
</TABLE>
- 3 -
<PAGE> 4
Notes
(a) Houston Natural Gas Company, a subsidiary of Enron Corp., owns
the remaining 50 percent of Citrus Corp.
(b) SNT Realty Inc. has a 50-percent interest in Fifth Avenue Realty
Company, an unincorporated joint venture, the remaining
50-percent of which is owned by AmSouth Bank N.A.
(c) JV Trading Inc. has a 50-percent partnership interest in Seminole
Gas Marketing; the remaining 50-percent partnership interest of
which is held by Suwannee Gas Marketing, Inc., a subsidiary of
Lykes Energy, Inc.
(d) Sonat Power Inc. is a 50-percent participant in AES/Sonat Power,
L.L.C., a limited liability company, the remaining 50-percent
interest of which is held by AES Gas Power, Inc., a wholly owned
subsidiary of The AES Corporation.
(e) Sonat Ventures Inc. is a 50-percent participant in Monarch CNG,
an Alabama general partnership, the remaining 50-percent
interest of which is held by Midtown NGV, Inc., a subsidiary of
Energen Corporation.
(f) Sonat Ventures Inc. is a 50-percent participant in Florida
Natural Fuels, Ltd., a Florida limited partnership, the remaining
50-percent interest of which is held by Suwannee Gas Marketing,
Inc., a subsidiary of Lykes Energy, Inc.
(g) Sonat NGV Technology Inc. is a 50-percent participant in NGV
Southeast Technology Center, the remaining interests of which are
held by Georgia Energy Company, a subsidiary of Atlanta Gas Light
Company, and Natural Gas Vehicles Development Company Southeast,
Inc., a subsidiary of Natural Gas Vehicles Development Company,
Inc.
(h) Sonat Coal Gas Inc. has a 50-percent interest in Black Warrior
Methane Corp. and Black Warrior Transmission Corp., the
remaining 50-percent of each being owned by Jim Walter Resources,
Inc.
(i) Sea Robin Pipeline Company is an unincorporated joint venture in
the state of Louisiana.
(j) Tennessee Storage Company, a subsidiary of Tenneco Inc., owns the
remaining 50-percent interest in Bear Creek Storage Company, an
unincorporated joint venture in the state of Louisiana.
- 4 -
<PAGE> 1
EXHIBIT 22-(1)
SONAT INC.
P. O. BOX 2563, BIRMINGHAM, ALABAMA 35202 TELEPHONE: (205) 325-3800
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1994
To Our Stockholders:
The Annual Meeting of Stockholders of Sonat Inc., a Delaware corporation,
will be held at the AmSouth Upper Lobby Auditorium, AmSouth/Harbert Plaza,
Birmingham, Alabama at 9:00 a.m., local time, on Thursday, April 28, 1994, for
the following purposes:
1. To elect three Directors as members of the Board of Directors of the
Company, to serve until the 1997 Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.
2. To elect an Auditor of the Company for the ensuing year. The Board of
Directors of the Company has recommended Ernst & Young, the present
Auditor, for election as Auditor (Proposal No. 1).
3. To approve the Company's Performance Award Plan (Proposal No. 2).
4. To approve each of the following five proposals to amend the Company's
Restated Certificate of Incorporation ("Charter"):
(a) to increase the number of authorized shares of Common Stock from
200,000,000 shares to 400,000,000 shares (Proposal No. 3);
(b) to delete a Charter provision which provides in certain cases for
minimum price protection or, alternatively, higher stockholder
voting requirements, in connection with certain business
combinations (Proposal No. 4);
(c) to provide that, subject to certain conditions, the Board of
Directors shall call a special meeting of the stockholders at the
request of a person that has owned at least 3% of the Company's
voting stock for at least six months (Proposal No. 5);
(d) to reduce the vote required for stockholders to amend, repeal or
adopt By-Laws from 67% of the outstanding shares to 60% (Proposal
No. 6); and
(e) to reduce the vote required for stockholders to amend, repeal or
adopt any provision inconsistent with certain "anti-takeover"
provisions of the Charter from 67% of the outstanding shares to
60% (Proposal No. 7).
5. To transact such other business as may properly be brought before the
meeting.
Only holders of Common Stock of record at the close of business on March
11, 1994, will be entitled to vote at the meeting.
The meeting may be adjourned from time to time without other notice than by
announcement at the meeting, or any adjournment thereof, and any and all
business for which the meeting is hereby noticed may be transacted at any such
adjournment.
By order of the Board of Directors,
/s/ Beverley T. Krannich
------------------------
BEVERLEY T. KRANNICH
Secretary
Birmingham, Alabama
March 16, 1994
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED RETURN ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 2
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS APRIL 28, 1994
This Proxy Statement is furnished in connection with the solicitation of
proxies by Sonat Inc. on behalf of the Board of Directors of the Company, to be
voted at the Annual Meeting of Stockholders, called to be held on Thursday,
April 28, 1994 at 9:00 a.m. at the AmSouth Upper Lobby Auditorium,
AmSouth/Harbert Plaza, Birmingham, Alabama. Mailing of the Proxy Statement and
the accompanying proxy card to the stockholders is expected to commence on or
about March 21, 1994.
VOTING SECURITIES
As of January 31, 1994, the Company had outstanding 87,172,087 shares of
Common Stock, par value $1.00 per share, which are its only voting securities.
Holders of Common Stock are entitled to one vote for each share held. The Board
of Directors has fixed March 11, 1994, as the record date for the determination
of stockholders entitled to notice of, and to vote at, the Annual Meeting.
All references in this Proxy Statement to shares of the Company's Common
Stock reflect the two-for-one split of the Common Stock which became effective
on September 14, 1993.
THE PROXY
If a proxy is executed properly by a stockholder and is not revoked, it
will be voted at the Annual Meeting in the manner specified on the proxy, or if
no manner is specified, it will be voted "FOR" the election of the three
nominees for Director and "FOR" Proposal No. 1, 2, 3, 4, 5, 6 and 7. The
submission of an executed proxy will not affect a stockholder's right to attend,
and to vote in person at, the Annual Meeting. A stockholder who executes a proxy
may revoke it at any time before it is voted by filing a written revocation with
the Secretary of the Company, executing a proxy bearing a later date or
attending and voting in person at the Annual Meeting.
THE BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for the
classification of the Board of Directors into three classes (Class I, Class II
and Class III). Three Class II Directors are to be elected at the Annual Meeting
of Stockholders to serve for a three-year term and until the election and
qualification of their respective successors in office.
The three nominees for election as Class II Directors are Jerome J.
Richardson, James B. Williams and Joe B. Wyatt. Each of the nominees has been
previously elected as a Director by the stockholders. In the event that any of
the nominees becomes unavailable for any reason, which is not anticipated, the
Board of Directors in its discretion may, unless it has taken appropriate action
to provide for a lesser number of Directors, designate a substitute nominee, in
which event, pursuant to the accompanying proxy, votes will be cast for such
substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" JEROME J. RICHARDSON, JAMES
B. WILLIAMS AND JOE B. WYATT AS CLASS II DIRECTORS.
<PAGE> 3
NOMINEES FOR DIRECTOR -- CLASS II -- TERMS TO EXPIRE 1997
<TABLE>
<S> <C>
- ----------------------- JEROME J. RICHARDSON, age 57, is Chairman of the Board and Chief
Executive Officer of Flagstar Companies, Inc. and Flagstar
Corporation (a wholly-owned subsidiary of Flagstar Companies, Inc.),
the principal business of which is food services. He has served as a
Director of the Company since 1991. Mr. Richardson is also a
Director of NCAA Foundation and Isotechnologies, Inc., General
[Picture] Partner of Richardson Sports (NFL Carolina Panthers), a trustee of
Saint Mary's College and Wofford College, and a Member of the Board
of Visitors of Duke University Medical Center. During the past five
years, Mr. Richardson has served as an executive officer of Flagstar
Companies, Inc. and Flagstar Corporation.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- JAMES B. WILLIAMS, age 60, is Chairman of the Board and Chief
Executive Officer of SunTrust Banks, Inc. He has served as a
Director of the Company since 1987. Mr. Williams is also a Director
of The Coca-Cola Company, Federal Reserve Bank of Atlanta, Genuine
[Picture] Parts Company, Georgia-Pacific Corporation, Rollins, Inc. and RPC
Energy Services, Inc. During the past five years, Mr. Williams has
served as an executive officer of SunTrust Banks, Inc. and certain
of its subsidiaries.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- JOE B. WYATT, age 58, is Chancellor, Chief Executive Officer and
Trustee of Vanderbilt University, a position he has held during the
past five years. He has served as a Director of the Company since
[Picture] 1984. Chancellor Wyatt is also a Director of Advanced Network &
Services, Inc., Ingram Industries, Inc., Reynolds Metals Company and
University Research Association, and a Trustee of EDUCOM, Inc.
- -----------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 4
CONTINUING DIRECTORS -- CLASS I -- TERMS EXPIRING 1996
<TABLE>
<S> <C>
- ----------------------- WILLIAM O. BOURKE, age 66, is Chairman of the Executive Committee of
the Board of Directors and a Director of Reynolds Metals Company, an
aluminum and consumer products company. He has served as a Director
[Picture] of the Company since 1990. Mr. Bourke is also a Director of Merrill
Lynch & Co., Inc. and Premark International Inc. During the past
five years prior to his retirement in April 1992, Mr. Bourke served
as an executive officer of Reynolds Metals Company.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- ROBERTO C. GOIZUETA, age 62, is Chairman of the Board and Chief
Executive Officer of The Coca-Cola Company, the principal business
of which is the manufacture of soft drinks. He has served as a
Director of the Company since 1981. Mr. Goizueta is also a Director
[Picture] of Eastman Kodak Company, Ford Motor Company, SunTrust Banks, Inc.,
Trust Company of Georgia and Trust Company Bank of Georgia, and a
member of the Board of Trustees of Emory University. During the past
five years, Mr. Goizueta has served as an executive officer of The
Coca-Cola Company.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- RONALD L. KUEHN, JR., age 58, is Chairman of the Board, President
and Chief Executive Officer of the Company. He has served as a
Director of the Company since 1981. Mr. Kuehn is also a Director of
[Picture] AmSouth Bancorporation, Praxair, Inc., Protective Life Corporation,
Sonat Offshore Drilling Inc. and Union Carbide Corporation, and a
member of the Board of Trustees of Birmingham-Southern College and
Tuskegee University. During the past five years, Mr. Kuehn has
served as an executive officer of the Company.
- -----------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C>
- ----------------------- ROBERT J. LANIGAN, age 65, is Chairman Emeritus of the Board of
Directors of Owens-Illinois, Inc., the principal business of which
is the manufacture and sale of packaging products. He has served as
[Picture] a Director of the Company since 1983. Mr. Lanigan is also a Director
of Chrysler Corporation, Sonat Offshore Drilling Inc. and The Dun &
Bradstreet Corporation. During the past five years prior to his
appointment to his current position, Mr. Lanigan served as an
executive officer of Owens-Illinois, Inc.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- CHARLES MARSHALL, age 64, is the former Vice Chairman of the Board
of American Telephone and Telegraph Company. He has served as a
Director of the Company since 1982. Mr. Marshall is also a Director
[Picture] of Ceridian Corporation, GATX Corporation, Grumman Corporation,
Hartmarx Corporation, Sundstrand Corporation and Zenith Electronics
Corporation. During the past five years prior to his retirement in
June 1989, Mr. Marshall served as an executive officer of American
Telephone and Telegraph Company.
- -----------------------
CONTINUING DIRECTORS -- CLASS III -- TERMS EXPIRING 1995
- ----------------------- JOHN J. CREEDON, age 69, is the former President and Chief Executive
Officer of Metropolitan Life Insurance Company. He has served as a
Director of the Company since 1987. Mr. Creedon is also a Director
of Melville Corporation, Metropolitan Life Insurance Company, NYNEX
[Picture] Corporation, Praxair, Inc., Rockwell International Corporation and
Union Carbide Corporation. During the past five years, Mr. Creedon
served as Chief Executive Officer and as Chairman of the Executive
Committee of the Board of Directors of Metropolitan Life Insurance
Company.
- -----------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C>
- ----------------------- BENJAMIN F. PAYTON, age 61, is President of Tuskegee University, a
position he has held during the past five years. He has served as a
[Picture] Director of the Company since 1992. Dr. Payton is also a Director of
AmSouth Bancorporation, ITT Corporation, Liberty Corporation,
Morrison's, Inc., Praxair, Inc. and The Sheraton Corporation.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- JOHN J. PHELAN, JR., age 62, is the former Chairman of the Board and
Chief Executive Officer of the New York Stock Exchange. He has
served as a Director of the Company since 1990. Mr. Phelan is also a
[Picture] Director of Avon Products, Inc., Eastman Kodak Company, Merrill
Lynch & Co., Inc. and Metropolitan Life Insurance Company. During
the past five years prior to his retirement in December 1990, Mr.
Phelan served as Chairman of the Board and Chief Executive Officer
of the New York Stock Exchange.
- -----------------------
- ---------------------------------------------------------------------------------------------------
- ----------------------- L. EDWIN SMART, age 70, serves as counsel to the law firm of Hughes
Hubbard & Reed. He has served as a Director of the Company (or its
predecessor, Southern Natural Gas Company, now a wholly-owned
subsidiary of the Company) since 1967. Mr. Smart is also a Director
[Picture] of The Continental Corporation, Flagstar Companies, Inc. and
Flagstar Corporation. Prior to his retirement in April 1987, Mr.
Smart served as an executive officer of Flagstar Corporation (and
its predecessor, Transworld Corporation), Trans World Airlines, Inc.
and Hilton International Co.
- -----------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
Henry R. Linden, who is currently a Class II Director, will retire from the
Board of Directors on April 28, 1994, in accordance with the Board's retirement
policy.
BOARD MEETINGS AND COMMITTEES
During 1993 the Board of Directors held eleven regular and special
meetings. The Board has standing Audit, Employee Benefits, Executive
Compensation, Finance, Nominating and Board Structure, Public Affairs, and
Strategic Planning Committees which assist the Board in the discharge of its
responsibilities. Each Director attended at least 75% of the meetings of the
Board and the Committees on which he served, except Dr. Payton.
Audit Committee. The Audit Committee reviews and reports to the Board the
scope and results of audits by the Auditor and the Company's internal auditing
staff, and reviews with the Auditor the
5
<PAGE> 7
adequacy of the Company's system of internal controls. It reviews transactions
between the Company and its Directors and officers and Company policies with
respect thereto, and compliance with the Company's business ethics and conflict
of interest policies. The Committee also recommends a firm of certified public
accountants to serve as Auditor of the Company (subject to nomination by the
Board and election by the stockholders), authorizes all audit and other
professional services rendered by the Auditor and periodically reviews the
independence of the Auditor.
Membership on the Audit Committee is restricted to those Directors who are
not active or retired officers or employees of the Company. The Company's policy
on Audit Committee membership complies with the Audit Committee Policy Statement
adopted by the New York Stock Exchange. The current members of the Committee are
Mr. Creedon, Chairman, and Messrs. Goizueta, Linden, Phelan and Wyatt. The
Committee met three times during 1993.
Employee Benefits Committee. The Employee Benefits Committee periodically
reviews the status of the Company's employee benefit programs and the
performance of the managers of the funded programs. To assist in its review, the
Committee meets periodically with the chairmen of the administrative and benefit
asset committees of each of the funded plans. The current members of the
Committee are Dr. Linden, Chairman, and Messrs. Marshall, Payton, Williams and
Wyatt. The Committee met four times during 1993.
Executive Compensation Committee. The Executive Compensation Committee
reviews and approves the compensation of the officers of the Company and makes
awards under the Executive Award Plan and the Performance Award and Cash Bonus
Plan. The current members of the Committee are Mr. Goizueta, Chairman, and
Messrs. Lanigan, Linden, Smart and Wyatt. The Committee met seven times during
1993.
Finance Committee. The Finance Committee approves long-term financial
policies and annual financial plans, significant capital expenditures, insurance
programs and investment policies of the Company. It also makes recommendations
to the Board concerning dividend policy, the issuance and terms of debt and
equity securities and the establishment of bank lines of credit. The current
members of the Committee are Mr. Williams, Chairman, and Messrs. Creedon,
Lanigan, Richardson and Smart. The Committee met three times during 1993.
Nominating and Board Structure Committee. The Nominating and Board
Structure Committee makes recommendations to the Board with respect to the size
and composition of the Board and Board retirement and tenure policies. It also
reviews the qualifications of potential candidates for the Board of Directors,
evaluates the performance of incumbent Directors and recommends to the Board
nominees to be elected at the Annual Meeting of Stockholders. The current
members of the Committee are Mr. Marshall, Chairman, and Messrs. Bourke, Payton,
Phelan, Richardson and Williams. The Committee met three times during 1993.
The Nominating and Board Structure Committee will consider nominees for
Director recommended by stockholders. Such recommendations should be submitted
in writing, accompanied by a resume of the nominee's qualifications and business
experience and a signed statement of the proposed candidate consenting to be
named as a candidate and, if nominated and elected, to serve as a Director, and
addressed to the offices of the Company to the attention of Beverley T.
Krannich, Secretary.
Public Affairs Committee. The Public Affairs Committee reviews the
Company's policies and practices which address issues of social and public
concern, such as government affairs, the environment, energy conservation and
charitable contributions. It also reviews stockholder relations and, in
coordination with the Nominating and Board Structure Committee, considers
stockholder proposals and matters of corporate governance. The current members
of the Committee are Mr. Smart, Chairman, and Messrs. Bourke, Creedon, Marshall
and Phelan. The Committee met three times during 1993.
Strategic Planning Committee. The Strategic Planning Committee assists in
the formulation of the business strategies of the Company and its subsidiaries.
The current members of the Committee are
6
<PAGE> 8
Mr. Lanigan, Chairman, and Messrs. Bourke, Creedon, Goizueta, Linden, Marshall,
Payton, Phelan, Richardson, Smart, Williams and Wyatt. The Committee met three
times during 1993.
COMPENSATION OF OUTSIDE DIRECTORS
FEES AND RETAINERS. Each non-employee Director of the Company receives a
quarterly retainer of $7,500 ($8,750 for Committee Chairmen) and a fee of $1,000
for each Board meeting and each Board Committee meeting attended, plus incurred
expenses where appropriate.
Pursuant to the Director's Fees Deferral Plan, a Director may elect to
defer receipt of some or all of his fees and retainer. All amounts deferred are
credited to the Director's account under the Plan, and interest is credited to
the account quarterly. The Director may choose to have the balance in his
account distributed to him in a lump sum or in annual installments, commencing
upon termination of service as a Director or, at his election, attainment of a
specified age.
RETIREMENT PLAN FOR DIRECTORS. Directors of the Company who during some
portion of their service as Directors were not officers of the Company or its
subsidiaries are participants in the Retirement Plan for Directors. An eligible
Director who ceases being a Director after reaching age 70, completing five
years of service as a non-employee Director or as a result of death or permanent
disability, will receive a retirement benefit from the Plan. The Director may
choose to have such benefit paid either in a series of quarterly payments equal
to the retainer (as of the date of the Director's retirement) for the period the
Director served as a non-employee Director of the Company (or its predecessor,
Southern Natural Gas Company) or in a cash lump-sum payment that equals the
present value of such series of payments.
RESTRICTED STOCK PLAN FOR DIRECTORS. Each non-employee Director of the
Company is a participant in the Restricted Stock Plan for Directors. Each such
Director was granted 2,000 shares of restricted stock in 1993, except that each
Director who is scheduled to retire from the Board under the Board's retirement
policy prior to April 1, 1998 (the Plan's termination date) was granted 400
shares of restricted stock for each remaining year of service as a Director. The
Plan provides that 400 shares granted to each Director will vest on April 1 of
each of the years 1994 through 1998.
Each person who first becomes a non-employee Director after April 22, 1993
(the effective date of the Plan, as amended and restated) will be granted 33.33
shares of restricted stock for each calendar month or fraction thereof from the
Director's election as a non-employee Director to the following March 31
(rounded to the nearest whole share), plus 400 shares for each subsequent Plan
Year (April 1 -- March 31) until the earlier of April 1, 1998 or the Director's
scheduled retirement date. The product of 33.33 shares times the number of full
and partial calendar months from the Director's election as a non-employee
Director to the following March 31 (rounded to the nearest whole share) will
vest on the April 1 following such election, and 400 shares will vest on each
April 1 thereafter through April 1, 1998.
All shares of restricted stock will vest immediately upon the Director's
death or disability. At the time his restricted stock vests, the Director will
receive a cash tax-offset "supplemental payment" in an amount equal to the
amount necessary to pay the federal income tax payable with respect to both the
vesting of restricted stock and receipt of the supplemental payment, assuming
the Director is taxed at the maximum effective federal income tax rate. If a
Director leaves the Board of Directors before all of his shares of restricted
stock have vested, the unvested shares will be forfeited.
7
<PAGE> 9
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount and nature of beneficial ownership of
shares of the Common Stock of the Company beneficially owned by the Directors
and certain executive officers of the Company, and by all present Directors and
executive officers of the Company as a group, as of January 31, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)
----------------------------------------------------------- ------------------------
<S> <C>
Thomas W. Barker, Jr. ..................................... 39,079(2)
William O. Bourke.......................................... 5,000(3)
John J. Creedon............................................ 13,700(4)
Roberto C. Goizueta........................................ 3,600
John D. Johns.............................................. 2,817
Ronald L. Kuehn, Jr. ...................................... 593,588(2 and 5)
Robert J. Lanigan.......................................... 6,040(6)
Henry R. Linden............................................ 6,568(7)
Charles Marshall........................................... 7,600
James E. Moylan, Jr. ...................................... 42,121(2)
William C. O'Malley........................................ 155,157(2)
Benjamin F. Payton......................................... 2,373
John J. Phelan, Jr. ....................................... 2,660
Jerome J. Richardson....................................... 4,280
Donald G. Russell.......................................... 137,872(2)
L. Edwin Smart............................................. 3,600
William A. Smith........................................... 187,056(2)
James B. Williams.......................................... 15,200
Joe B. Wyatt............................................... 3,200
All Present Directors and Executive Officers as a Group
(18 persons)............................................. 1,124,609(8)
</TABLE>
NOTE 1: Each Director and executive officer has sole voting power and sole
investment power with respect to all shares beneficially owned by him, unless
otherwise indicated. As of January 31, 1994, each such individual beneficially
owned less than 0.70% of the outstanding shares of Common Stock of the Company,
and all present Directors and executive officers of the Company as a group,
consisting of 18 persons, beneficially owned 1.29% of the outstanding shares of
the Company's Common Stock.
The number of shares shown includes 2,000 shares of restricted stock for
each of Messrs. Bourke, Goizueta, Lanigan, Marshall, Payton, Phelan, Richardson,
Williams and Wyatt, 1,600 shares of restricted stock for Mr. Creedon, 1,200
shares of restricted stock for Mr. Smart, and 400 shares of restricted stock for
Dr. Linden, granted under the Company's Restricted Stock Plan for Directors,
which shares had not vested as of January 31, 1994. Such persons have the power
to vote and receive dividends on such shares, but do not have the power to
dispose of, or to direct the disposition of, such shares until such shares are
vested pursuant to the terms of such plan.
NOTE 2: The number of shares shown for Messrs. Barker, Kuehn, Moylan,
O'Malley, Russell and Smith includes 3,568 shares, 73,400 shares, 4,368 shares,
26,534 shares, 18,534 shares and 12,534 shares, respectively, of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1994. Such persons have the right to vote and receive
dividends on such shares, but do not have the power to dispose of, or to direct
the disposition of, such shares until such shares are vested pursuant to the
terms of such plan. The number of shares shown for Messrs. Barker, Kuehn,
Moylan, O'Malley, Russell and Smith also includes (a) 7,334 shares, 41,078
shares, 8,106 shares, 20,605 shares, 7,969 shares and 13,818 shares,
respectively, held by the Trustee under the Company's Savings Plan (or, with
respect to Mr. O'Malley, the Sonat Offshore Drilling Savings Plan) as of January
31, 1994; and (b) 27,000 shares, 456,266 shares, 27,000 shares, 102,666 shares,
8
<PAGE> 10
107,332 shares and 152,332 shares, respectively, covered by options under the
Company's Executive Award Plan which were exercisable, but had not been
exercised, as of January 31, 1994.
NOTE 3: Mr. Bourke filed a late report to the Securities and Exchange
Commission with respect to one transaction in the Company's Common Stock.
NOTE 4: The number of shares shown for Mr. Creedon includes 3,200 shares
held in trusts for two of his children, of which shares he disclaims any
beneficial ownership.
NOTE 5: The number of shares shown for Mr. Kuehn includes 6,000 shares
owned by his wife and 1,500 shares held in trust for one of his children, of
which shares he disclaims any beneficial ownership.
NOTE 6: Mr. Lanigan filed a late report to the Securities and Exchange
Commission with respect to four transactions in the Company's Common Stock.
NOTE 7: The number of shares shown for Dr. Linden includes 6,168 shares
owned jointly with his wife.
NOTE 8: The number of shares shown includes 115,804 shares of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1994; 86,065 shares held by the Trustee under the
Company's Savings Plan as of January 31, 1994; 808,262 shares covered by options
under the Company's Executive Award Plan which were exercisable, but had not
been exercised, as of January 31, 1994; and 21,200 shares of restricted stock
granted under the Company's Restricted Stock Plan for Directors, which shares
had not vested as of January 31, 1994.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
James B. Williams, a Director of the Company, is Chairman and Chief
Executive Officer of SunTrust Banks, Inc. Trust Company Bank, a subsidiary of
SunTrust Banks, Inc. ("Trust Company"), has extended a line of credit to the
Company permitting the short-term borrowing of $25,000,000. During 1993, there
were periodic borrowings and repayments under this line of credit and, at
December 31, 1993, there was no principal amount outstanding thereunder. In
addition, the Company and one of its wholly-owned subsidiaries were permitted to
borrow an aggregate of $40,120,000 pursuant to long-term loan agreements, and
were indebted to Trust Company in the principal amount thereunder of an
aggregate of $11,120,000 at December 31, 1993. A subsidiary of Trust Company
also serves as investment manager for trusts that fund the Company's retirement,
disability and retiree medical benefits programs.
L. Edwin Smart, a Director of the Company, serves as counsel to the law
firm of Hughes Hubbard & Reed. Hughes Hubbard & Reed provides legal services to
the Company and certain of its subsidiaries.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of the Board of Directors of the
Company, which is composed solely of non-employee Directors, administers the
Company's executive compensation program. The Committee's primary responsibility
is to ensure that the executive compensation program furthers the interests of
the Company and its stockholders.
The Company's executive compensation program has three principal
objectives: (1) to attract and retain a highly qualified and motivated
management team; (2) to appropriately reward individual executives for their
contributions to the attainment of the Company's key strategic goals; and (3) to
link the interests of executives and stockholders through stock-based plans and
performance measures.
The Committee meets with outside consultants at least annually to evaluate
the Company's performance against the performance of a peer group of companies
and to review and compare the level of compensation paid or awarded to key
executives to the compensation practices of the peer group. The
9
<PAGE> 11
peer group used for determining compensation for corporate executives consists
of 19 publicly held companies in the Company's key business segments and
investments -- natural gas transmission and sales, domestic oil and gas
exploration and production, and offshore drilling (the "Corporate Peer Group").
The aggregate asset mix of the companies included in the Corporate Peer Group
approximates the Company's asset mix. In comparing the level of the Company's
compensation to that of the companies in the Corporate Peer Group, the Committee
reviews an analysis which "size-adjusts" the compensation paid by a company to
take into account the relative size of the company as measured by its revenues.
The recommended size-adjustment is computed by an independent compensation
consulting firm. The Committee also reviews and may give greater weight to
compensation survey data specific to a particular business segment when
considering the compensation of executive officers whose job is related
primarily to a single business segment. The Standard & Poor's Natural Gas
Distribution/Pipeline Group described in the five-year total stockholder return
comparison on page 18 of this Proxy Statement is not used to determine the
compensation of executives, because that group's aggregate asset mix does not
include an appropriate weighting for exploration and production and offshore
drilling.
The key components of the Company's executive compensation program are base
salary, annual cash bonus incentives, and long-term stock incentives. The
Committee's policies with respect to each component of the program, including
the bases for the compensation of Mr. Kuehn, Chairman of the Board, President
and Chief Executive Officer of the Company, are described below. The Committee
consults with Mr. Kuehn in reviewing the individual performance and compensation
of key executives of the Company (other than Mr. Kuehn). The Committee reviews
Mr. Kuehn's performance and compensation in executive session at least annually.
BASE SALARIES. Base salaries are initially established by an evaluation of
the executive's position, responsibilities and experience and a review of salary
surveys. Each year the Committee reviews the base salaries of key executive
officers of the Company and its subsidiaries and determines whether salaries
should be adjusted, based primarily on the executive's individual performance
and experience and salary survey information. In general, the Committee's
objective is to maintain executive salaries at the median of the salaries for
comparable executives in the Corporate Peer Group or other relevant peer group.
Executive salaries for 1993 were at the median level overall, although some
executives were below and some above the median. Taking into consideration Mr.
Kuehn's individual performance and experience and the salary survey data, Mr.
Kuehn's base salary was increased 7%, effective April 1, 1993. Mr. Kuehn has
been in his current position for approximately 9 1/2 years and his salary for
1993 was slightly above the size-adjusted median for the Corporate Peer Group.
ANNUAL CASH BONUS INCENTIVES. Annual cash bonus incentive opportunities
are awarded each year. The amount of an executive's bonus opportunity (which is
expressed as a percentage of base salary) is dependent primarily upon such
individual's position and responsibilities and bonus opportunities provided to
comparable positions within the Corporate Peer Group or other relevant peer
group. At the beginning of each year, the Committee reviews and approves annual
performance goals. Shortly after the end of the year, the Committee determines
the appropriate bonus payout levels based on the degree to which these goals
have been achieved. The annual incentive program is designed to pay total annual
cash compensation in the upper quartile of the relevant peer group when the
Company meets substantially all of the goals established for an executive's
bonus opportunity. Similarly, when the goals are not achieved, the program is
intended to result in total annual cash compensation below the median of the
relevant peer group.
The payout of an executive's 1993 bonus opportunity was based on the level
of achievement of certain financial goals, corporate and subsidiary goals, and
individual goals, as described below. The goals for each executive's bonus
opportunity were weighted as follows: financial goals -- 40% for Mr. Kuehn and
30% for the other named executive officers; company and subsidiary goals -- 45%
for Mr. Kuehn and 55% for the other named executive officers; and individual
goals -- 15% for all executives.
10
<PAGE> 12
The financial goals included in the 1993 bonus opportunities were the
Company's 1993 earnings per share ("EPS") as compared to the Company's budgeted
EPS, and the Company's five-year average cash flow return on assets as compared
to that of the Corporate Peer Group. In general, these goals were weighted
equally. Payout of the EPS goal was based on minimum, target and maximum levels
of achievement. The payout of the cash flow return on assets goal was based on
the Company's absolute ranking within the Corporate Peer Group and its
performance against the mean of the Corporate Peer Group.
The company and subsidiary goals included in the 1993 bonus opportunities
included operating, marketing and strategic goals relating to each major
business segment, and annual corporate goals relating to safety and the
environment, human resources and customer-focus programs, and corporate
citizenship. Subsidiary goals also included financial goals with respect to
earnings and cash flow. When appropriate, an executive's goals focused on the
company for which he was primarily employed. Achievement of many of the goals
was determined by quantitative or objective measures, while other goals were
subjective in nature.
Each executive's 1993 bonus opportunity included individual goals. Mr.
Kuehn's individual performance is based primarily on the Company's achievement
of its financial and business goals. The Committee also has discretion to make
additional cash bonus awards to recognize exceptional individual performance.
In January 1994, the Committee reviewed in detail the extent to which the
1993 performance goals had been achieved. The Company's EPS was significantly
above the budgeted EPS, and cash flow return on assets was in the upper quartile
of the Corporate Peer Group and significantly above the mean for the Corporate
Peer Group. The payout percentage for these financial goals was 120% of the
bonus opportunity for the EPS goal and 91% of the bonus opportunity for the cash
flow return on assets goal. The Company and its subsidiaries also substantially
achieved the key company and subsidiary goals, including oil and gas production
and reserve replacement goals, pipeline restructuring goals, oil and gas
marketing goals, safety and environmental goals, and subsidiary earnings goals.
In June 1993, the Company also completed a very successful sale of approximately
60% of the common stock of Sonat Offshore Drilling Inc. ("Sonat Offshore"), the
Company's offshore drilling subsidiary. The payout percentages for Company and
subsidiary goals ranged from 75% to 100% of the bonus opportunity for these
goals.
Mr. Kuehn's total bonus payout percentage for 1993 was 105% of his bonus
opportunity.
In connection with the sale of Sonat Offshore's common stock, William C.
O'Malley, Chairman and Chief Executive Officer of Sonat Offshore, resigned as an
officer and Director of the Company. In June 1993, the Committee awarded Mr.
O'Malley a cash bonus equal to and in lieu of the full amount of his 1993 bonus
opportunity, in recognition of his significant contribution to the completion of
the sale.
LONG-TERM STOCK INCENTIVES. The long-term stock incentives component of
the Company's executive compensation program is designed to align executive and
stockholder interests by rewarding executives for the attainment of stock price
appreciation and total stockholder returns.
As a general rule, the Committee administers the long-term stock incentive
program through annual grants of stock options and restricted stock to certain
executive officers of the Company and its major operating subsidiaries. Awards
under the annual grant program were made in December 1993. In addition, the
Committee may make special awards to individual executives during the year on a
discretionary basis.
In 1993, the number of stock options and restricted shares granted to each
executive officer as part of the annual grant program was determined primarily
by individual position and responsibilities, compensation survey data of the
Company's Corporate Peer Group, and the Company's three-year total stockholder
return (considering stock price appreciation and reinvestment of dividends) as
compared to the total stockholder return of the Corporate Peer Group. The amount
of an executive's annual long-term incentive grant was expressed as a percentage
of base salary. The percentage used for each executive
11
<PAGE> 13
was tied to the Company's total stockholder return as compared to that of the
Corporate Peer Group. In 1993, the Company's three-year total stockholder return
ranked in the upper quartile of the Corporate Peer Group, and the December 1993
long-term incentive grants were designed to result in long-term compensation at
that level. For purposes of determining the value of long-term incentive
compensation, an independent compensation consulting firm uses a modified
Black-Scholes option pricing model to value stock options granted by the Company
and the companies in the Corporate Peer Group. Similarly, the consulting firm
values restricted share grants based on the present value of the shares on the
date of grant (taking into account the vesting schedules of the grants and
projected executive turnover). The Committee may adjust the grants to take into
account individual performance and the number of options and restricted shares
previously granted to the executive.
In December 1993, Mr. Kuehn was awarded stock options and restricted stock
as a part of the annual program. As discussed above, the amount of this award
was intended to reward and compensate Mr. Kuehn for the excellent performance of
the Company's stock as compared to the Corporate Peer Group and to result in
long-term compensation in the upper quartile of the Corporate Peer Group.
In connection with the sale of Sonat Offshore's common stock in June 1993,
the Committee amended the stock options and restricted stock previously awarded
to Mr. O'Malley to provide that service by Mr. O'Malley with Sonat Offshore
following the sale will count as service for purposes of satisfying the vesting
requirements for the options and restricted shares. In addition, Mr. O'Malley
may exercise any of his vested options during the remainder of the original
option terms. Mr. O'Malley is no longer eligible for stock awards under the
Company's Executive Award Plan.
STOCK OWNERSHIP GUIDELINES. In 1992 the Committee established guidelines
designed to encourage key executives of the Company and its subsidiaries to
attain specified levels of stock ownership over a five-year period. Stock
ownership goals are based on the value of the Company's stock, and are expressed
as a multiple of the executive's base salary. The Committee periodically reviews
the guidelines and the executives' progress toward attaining the stock ownership
goals.
POLICY WITH RESPECT TO SECTION 162(m). Section 162(m) of the Internal
Revenue Code, which was enacted in August 1993, limits the tax deduction that
the Company or its subsidiaries can take with respect to the compensation of
certain executive officers, unless the compensation is "performance based." The
Committee expects that all income recognized by executive officers upon the
exercise of stock options granted under the Executive Award Plan will qualify as
performance based compensation. The portion of the Company's annual cash bonus
program that is based on objective financial measures, and the restricted stock
grant program, have been modified in an effort to qualify compensation
thereunder as performance based.
The Committee currently intends to continue to make cash bonus payments
that are based on the achievement of subjective, non-quantifiable goals, and
that may therefore not qualify as performance based compensation. The Committee
believes that these Company, subsidiary and individual goals, while not properly
measurable by the kind of quantifiable targets that are required to qualify
compensation as performance based, are important to the long-term financial
success of the Company and to its stockholders.
CONCLUSION. The Committee believes that the executive compensation
philosophy that it has adopted effectively serves the interests of the
stockholders and the Company. It is the Committee's intention that the pay
delivered to executives be commensurate with Company performance.
Roberto C. Goizueta Robert J. Lanigan Henry R. Linden
L. Edwin Smart Joe B. Wyatt
12
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1991,
1992 and 1993, the cash compensation paid by the Company, and a summary of
certain other compensation paid or accrued for such years, to certain of the
Company's executive officers (as determined pursuant to the rules of the
Securities and Exchange Commission) (the "named executive officers") for service
in all capacities with the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
---------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARDS (2), OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) (3) (3) (4)
- ----------------------- ----- --------- --------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr., 1993 $ 590,000 $ 504,600 $300,362 $ 420,000 (5) 110,000 $113,528
Director, Chairman of 1992 $ 560,000 $ 455,000 $ 0 $1,071,100 (6 & 7) 91,600 $117,801
the Board, President 1991 $ 560,000 $ 340,000 $ 0 $ 205,538 (8) 112,000 $124,052
and Chief Executive
Officer
Thomas W. Barker, Jr., 1993 $ 152,675 $ 64,000 $ 58,578 $ 51,000 (5) 13,500 $ 20,353
Vice President -- 1992 $ 145,700 $ 58,700 $ 13,164 $ 29,575 (7) 9,000 $ 18,625
Finance and Treasurer 1991 $ 145,700 $ 45,900 $ 9,519 $ 22,838 (8) 12,000 $ 18,805
John D. Johns, 1993 $ 173,665 $ 91,000 $236,832 $ 0 0 $ 7,601
Vice President and 1992 $ 205,000 $ 95,000 $ 0 $ 229,750 (6 & 7) 15,000 $ 14,955
General Counsel(9) 1991 $ 202,500 $ 90,100 $ 3,656 $ 45,675 (8) 24,600 $ 14,890
James E. Moylan, Jr., 1993 $ 151,875 $ 65,500 $410,888 $ 75,000 (5) 21,000 $ 18,467
Vice President 1992 $ 142,500 $ 59,700 $ 563 $ 29,575 (7) 9,000 $ 16,589
and Controller 1991 $ 142,500 $ 46,500 $ 7,499 $ 22,838 (8) 12,000 $ 16,662
William C. O'Malley, 1993 $ 134,250 $ 216,500 $236,810 $ 0 0 $ 11,411
Director and Executive 1992 $ 315,000 $ 185,000 $ 0 $ 480,625 (6 & 7) 32,000 $ 47,456
Vice President(10) 1991 $ 315,000 $ 173,000 $ 0 $ 75,038 (8) 41,000 $ 48,815
Donald G. Russell, 1993 $ 362,500 $ 250,000 $649,292 $ 300,000 (5) 65,000 $102,687
Executive Vice 1992 $ 340,000 $ 218,000 $ 705 $ 147,875 (7) 40,000 $ 70,240
President
1991 $ 340,000 $ 161,100 $ 0 $ 75,038 (8) 41,000 $ 73,920
William A. Smith, 1993 $ 313,500 $ 200,000 $530,865 $ 180,000 (5) 45,000 $ 41,440
Executive Vice 1992 $ 300,000 $ 180,000 $ 1,339 $ 105,625 (7) 32,000 $ 38,271
President
1991 $ 293,917 $ 160,500 $ 0 $ 75,038 (8) 41,000 $ 38,122
</TABLE>
NOTE 1: With respect to 1993, represents the amount of tax-offset
"supplemental payments" paid upon the exercise of stock options (or tandem stock
appreciation rights) granted under the Company's Executive Award Plan.
NOTE 2: The amount shown represents the dollar value of restricted stock
awards made during the year, calculated by multiplying the closing price of
unrestricted shares of the Company's Common Stock on the date of grant by the
number of shares awarded. Dividends are paid on all shares of restricted stock.
All shares of restricted stock that have not previously vested are
generally forfeited upon termination of employment, unless such termination
occurs either after age 65, by reason of death or disability, or for the
convenience of the Company (as determined by the Executive Compensation
Committee). All shares of restricted stock that have not previously vested will
immediately vest upon a "Change of Control" of the Company, as described under
"Compensation Upon Change of Control" below.
The number of shares of restricted stock held by the named executive
officers as of December 31, 1993, and the value of such shares (calculated by
multiplying the closing price of unrestricted shares of the Company's Common
Stock on December 31, 1993 by the number of shares held on such date) is as
follows: Mr. Kuehn, 73,400 shares, $2,119,425; Mr. Barker, 3,568 shares,
$103,026; Mr. Johns, 0 shares,
13
<PAGE> 15
$0; Mr. Moylan, 4,368 shares, $126,126; Mr. O'Malley, 26,534 shares, $766,169;
Mr. Russell, 18,534 shares, $535,169; and Mr. Smith, 12,534 shares, $361,919.
NOTE 3: The number of shares shown with respect to 1992 and 1991 has been
adjusted to reflect the two-for-one split of the Company's Common Stock which
became effective on September 14, 1993.
NOTE 4: With respect to 1993, represents the following amounts for each of
Messrs. Kuehn, Barker, Johns, Moylan, O'Malley, Russell and Smith, respectively:
(1) Company matching contributions to the trust established under the Company's
Savings Plan -- $6,377, $12,944, $7,387, $12,865, $6,377, $6,377 and $6,377; (2)
Company contributions to the Savings Plan accounts under the Company's
Supplemental Benefit Plan -- $43,773, $0, $0, $0, $5,034, $24,436 and $20,271;
and (3) with respect to premiums paid by the Company under the Company's
"split-dollar" Executive Life Insurance Program, the sum of (a) the value of the
premium payment used to purchase term life insurance plus (b) the value of the
benefit to the executive officer of the remainder of the premium
payment -- $63,378, $7,409, $214, $5,602, $0, $71,874 and $14,792.
NOTE 5: Includes the value of 14,000 shares, 1,700 shares, 2,500 shares,
10,000 shares and 6,000 shares of restricted stock granted on December 2, 1993
to Messrs. Kuehn, Barker, Moylan, Russell and Smith, respectively. Such shares
generally vest 10 years from the date of grant, unless the average closing price
of the Company's Common Stock achieves certain specified levels, in which case
vesting of such shares is accelerated.
NOTE 6: Includes the value of 40,000 shares, 10,000 shares and 20,000
shares of restricted stock granted on May 28, 1992 to Messrs. Kuehn, Johns and
O'Malley, respectively. Such shares were granted to such executive officers in
recognition of their performance with respect to the sale of an oilfield
services subsidiary. Such shares generally vest 10 years from the date of grant.
The shares granted to Mr. Johns were forfeited upon his resignation on October
8, 1993.
NOTE 7: Includes the value of 15,200 shares, 1,400 shares, 2,000 shares,
1,400 shares, 5,000 shares, 7,000 shares and 5,000 shares of restricted stock
granted on December 3, 1992 to Messrs. Kuehn, Barker, Johns, Moylan, O'Malley,
Russell and Smith, respectively. Such shares generally vest 10 years from the
date of grant, unless the average closing price of the Company's Common Stock
achieves certain specified levels, in which case vesting of such shares is
accelerated. The shares granted to Mr. Johns were forfeited upon his resignation
on October 8, 1993.
NOTE 8: Represents the value of 12,600 shares, 1,400 shares, 2,800 shares,
1,400 shares, 4,600 shares, 4,600 shares and 4,600 shares of restricted stock
granted on December 6, 1991 to Messrs. Kuehn, Barker, Johns, Moylan, O'Malley,
Russell and Smith, respectively. Such shares generally vest in equal
installments on each of the first three anniversaries of the date of grant. The
1,868 shares granted to Mr. Johns that had not previously vested were forfeited
upon his resignation on October 8, 1993.
NOTE 9: Mr. Johns resigned from all of his positions with the Company and
its subsidiaries on October 8, 1993.
NOTE 10: On June 4, 1993, Sonat Offshore Drilling Inc. ("Sonat Offshore")
completed an initial public offering (the "Offshore IPO") of its common stock.
As a result of the Offshore IPO, Sonat Offshore is no longer a wholly-owned
subsidiary of the Company. On the effective date of the Offshore IPO, Mr.
O'Malley resigned from all of his positions with the Company.
14
<PAGE> 16
OPTION GRANT TABLE
The following table contains certain information with respect to stock
options granted in 1993 under the Company's Executive Award Plan to the named
executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE APPRECIATION FOR
------------------------------------------------------ OPTION TERM (10 YEARS)
NUMBER OF % OF TOTAL -------------------------------
SECURITIES OPTIONS/SARS 5% (RESULTING 10% (RESULTING
UNDERLYING GRANTED TO EXERCISE COMPANY STOCK COMPANY STOCK
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION PRICE OF PRICE OF
NAME GRANTED (1) IN 1993 ($/SHARE) (2) DATE (3) $48.87) (4) $77.81) (4)
- ----------------------- ------------ ------------ -------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders....... -- -- -- -- $1,644,665,497 $4,167,008,872
Ronald L. Kuehn, Jr. .. 110,000 11.1% $30.00 12/1/03 $ 2,075,700 $ 5,259,100
Thomas W. Barker, Jr. . 13,500 1.4% $30.00 12/1/03 $ 254,745 $ 645,435
John D. Johns.......... 0 0% -- -- $ 0 $ 0
James E. Moylan, Jr. .. 21,000 2.1% $30.00 12/1/03 $ 396,270 $ 1,004,010
William C. O'Malley.... 0 0% -- -- $ 0 $ 0
Donald G. Russell...... 65,000 6.6% $30.00 12/1/03 $ 1,226,550 $ 3,107,650
William A. Smith....... 45,000 4.5% $30.00 12/1/03 $ 849,150 $ 2,151,450
Named Executive Officers' Potential Realizable Value
as a % of All Stockholders' Potential Realizable Value 0.29% 0.29%
</TABLE>
NOTE 1: All stock options shown were granted on December 2, 1993. The
stock options become exercisable in equal installments on each of the first five
anniversaries of the date of grant, provided that the entire option grant will
become immediately exercisable if, during any 10 business day period ending
prior to December 2, 1998, the average of the closing prices of the Company's
Common Stock during such period is at least $45.00. Any stock options that have
not previously become exercisable are generally forfeited upon termination of
employment, unless such termination occurs by reason of death or disability or
for the convenience of the Company (as determined by the Executive Compensation
Committee). Any options held by then-current employees will become immediately
exercisable and will remain exercisable for three years after the employee's
termination of employment (but not beyond December 1, 2003) in the event of a
"Change of Control" of the Company, as described under "Compensation Upon Change
of Control" below.
NOTE 2: The exercise price equals the closing price of the Company's
Common Stock on the date of grant.
NOTE 3: The stock options are subject to termination prior to their
expiration date in the event of termination of employment.
NOTE 4: The Resulting Company Stock Price shown in the table equals the
price the Company's Common Stock would attain at the end of the stock options'
10-year term if the price of the Company's Common Stock appreciated from the
date of stock option grant at a rate of 5% or 10% per year (as the case may be).
The potential realizable values shown represent the difference between the
$48.87 or $77.81 Resulting Company Stock Price (as the case may be) and the
$30.00 exercise price, multiplied by (a) for all stockholders, the number of
outstanding shares of the Company's Common Stock as of December 31, 1993, and
(b) for each named executive officer, the number of options granted.
15
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table shows certain information with respect to the named
executive officers concerning the exercise of stock options (or stock
appreciation rights ("SARs") granted in tandem therewith) during 1993 and
unexercised stock options (and tandem SARs) held as of December 31, 1993.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR END (1) AT FISCAL YEAR END (2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr. .... 37,000 $436,000 456,266 147,334 $ 5,308,517 $ 469,008
Thomas W. Barker, Jr. ... 13,000 $139,406 27,000 17,500 $ 195,750 $ 50,250
John D. Johns............ 54,700 $715,625 0 0 $ 0 $ 0
James E. Moylan, Jr. .... 44,000 $596,437 27,000 25,000 $ 201,500 $ 50,250
William C. O'Malley...... 30,000 $343,750 102,666 13,668 $ 888,452 $ 171,704
Donald G. Russell........ 80,000 $942,500 107,332 78,668 $ 778,359 $ 171,704
William A. Smith......... 47,000 $770,594 152,332 58,668 $ 1,541,109 $ 171,704
</TABLE>
NOTE 1: Certain stock options granted before December 6, 1991, were
granted with tandem SARs. Each stock option granted before December 6, 1991 was
granted with a tax-offset "supplemental payment" payable upon the exercise of
the stock option (or tandem SAR). The amount of the supplemental payment is the
amount necessary to pay the federal income tax payable with respect to both (i)
exercise of the stock option (or tandem SAR) and (ii) receipt of the
supplemental payment, based on the assumption that the participant is taxed at
the maximum effective federal income tax rate applicable to such income.
NOTE 2: The value of each unexercised in-the-money stock option (or tandem
SAR) is equal to the difference between $28.875 (the closing price of the
Company's Common Stock on December 31, 1993) and the exercise price of the stock
option. Such value does not include the value of any tax-offset supplemental
payments.
DEFINED BENEFIT PLANS
Employees and officers of the Company and participating subsidiaries are
participants in the Company's Retirement Plan. In general, annual retirement
benefits are based on average covered compensation for the highest five
consecutive years of the final ten years of employment. Covered compensation
under the Retirement Plan currently includes salaries and amounts paid under the
Performance Award and Cash Bonus Plan (reported in the Summary Compensation
Table) and certain personal benefits; covered compensation does not include
amounts relating to the grant or vesting of restricted stock, the exercise of
stock options and SARs, and receipt of supplemental payments under the Executive
Award Plan, or to employer contributions under the Savings Plan or the
Supplemental Benefit Plan.
The maximum annual retirement benefit is 65% of the participant's average
covered compensation minus 50% of his primary social security benefit.
Participants accrue benefits under the following formula: (a) 2.4% of average
covered compensation minus 2.0% of primary social security benefits for each
year of service prior to January 1, 1992; plus (b) 2.0% of average covered
compensation minus 1.667% of primary social security benefits for each year of
service after January 1, 1992; plus (c) when the total of (a) plus (b) above
equals 60% of average covered compensation minus 50% of primary social security
benefits, 1% of average covered compensation for each year of service after
January 1, 1992, not included in the calculation in (b) above, up to five such
additional years of service. The eligible survivors of a deceased Retirement
Plan participant are entitled to a survivors benefit, which usually equals 75%
of the participant's retirement benefit. Retirement Plan benefits are generally
paid as life annuities.
16
<PAGE> 18
The Supplemental Benefit Plan provides its eligible participants and their
eligible survivors with retirement and survivors benefits which would have been
payable under the Retirement Plan but for the fact that benefits payable under
funded pension plans are limited by federal tax laws. As a general rule, during
1993 the federal tax laws limited annual benefits under the Retirement Plan to
$115,641 (subject to reduction in certain circumstances), and required the
Retirement Plan to disregard any portion of the participant's 1993 compensation
in excess of $235,840. A participant may choose to have benefits under the Plan
paid either as a life annuity or in a cash lump sum upon termination of
employment.
The following table sets forth information with respect to certain named
executive officers concerning the benefits payable under the Retirement Plan and
Supplemental Benefit Plan.
DEFINED BENEFIT PLAN TABLE
<TABLE>
<CAPTION>
CURRENT ESTIMATED ANNUAL
YEARS OF 1993 COVERED RETIREMENT
NAME SERVICE (1) COMPENSATION (2) BENEFIT AT AGE 65 (3)
- ---------------------------------------------- ----------- ---------------- ---------------------
<S> <C> <C> <C>
Ronald L. Kuehn, Jr. ......................... 23.4 $1,048,500 $ 671,040
Thomas W. Barker, Jr. ........................ 24.3 $ 215,565 $ 140,117
James E. Moylan, Jr. ......................... 17.5 $ 214,235 $ 139,253
Donald G. Russell............................. 5.9 $ 582,269 $ 112,960
William A. Smith.............................. 23.7 $ 498,815 $ 324,230
</TABLE>
NOTE 1: The number of years of credited service under the Retirement Plan
as of December 31, 1993.
NOTE 2: The amount of covered compensation under the Retirement Plan
during 1993.
NOTE 3: The estimated annual retirement benefit payable as a single life
annuity at age 65 to the named executive officer (based on the assumptions that
such officer retires at age 65 and has average covered compensation at his
retirement date equal to his 1993 covered compensation, and calculated prior to
the offset for primary social security benefits).
Prior to his resignation on June 4, 1993, from all of his positions with
the Company, Mr. O'Malley accrued an annual benefit under the Retirement Plan
and the Supplemental Benefit Plan of $142,207 (expressed as a single life
annuity payable at age 65). Prior to his resignation on October 8, 1993, from
all of his positions with the Company, Mr. Johns accrued an annual benefit under
such Plans of $28,054 (expressed as a single life annuity payable at age 65).
Mr. O'Malley may begin his benefit on the first day of the month after the date
of his termination of employment with Sonat Offshore (with a reduction for early
retirement if he terminates employment before attaining age 62). Mr. Johns may
begin his benefit on the first day of any month after the date he attains age 55
(with an actuarial reduction to take into account the early commencement of the
benefit).
17
<PAGE> 19
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock for the five-year period ending December 31, 1993, with
the cumulative total return of two indices during such period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
SONAT INC.; STANDARD & POOR'S 500 STOCK INDEX;
STANDARD & POOR'S NATURAL GAS DISTRIBUTION/PIPELINE GROUP(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P NATURAL
(FISCAL YEAR COVERED) SONAT INC. S&P 500 GAS
<S> <C> <C> <C>
12/31/88 100.00 100.00 100.00
12/31/89 177.04 131.59 155.23
12/31/90 177.20 127.49 135.90
12/31/91 131.29 166.17 118.33
12/31/92 201.62 178.81 130.69
12/31/93 250.18 196.75 155.06
</TABLE>
The total returns set forth above assume that $100 was invested in the
Company's Common Stock and each of the indices set forth above on December 31,
1988, and that all dividends were reinvested.
NOTE 1: The Standard & Poor's Natural Gas Distribution/Pipeline Group
consists of the following companies: Arkla, Inc., The Coastal Corporation,
Columbia Gas System, Inc., Consolidated Natural Gas Company, Eastern
Enterprises, Enron Corp., Ensearch Corporation, NICOR Inc., ONEOK Inc., Pacific
Enterprises, Panhandle Eastern Corporation, Peoples Energy Corporation, Sonat
Inc., Transco Energy Company and Williams Companies Inc.
COMPENSATION UPON CHANGE OF CONTROL
Certain of the Company's benefit plans provide for the acceleration of
certain benefits in the event of a "Change of Control" of the Company. Under
such plans, a Change of Control will be deemed to have occurred if (1) any
person or group acquires (or obtains the right to acquire) beneficial ownership
of 35% or more of the Company's voting securities, (2) there is a change in the
composition of a majority of the Company's Board of Directors within any period
of three consecutive years which change was not approved by a majority of the
Board of Directors as constituted immediately prior to the commencement of such
three-year period, or (3) at any meeting of stockholders of the Company called
for the purpose of electing Directors, the entire slate nominated by the Board
of Directors fails to be elected.
Any outside Director who is eligible for a retirement benefit under the
Retirement Plan for Directors will receive such benefit (regardless of whether
he has met the other eligibility requirements of the Plan)
18
<PAGE> 20
in the event he ceases to be a Director following a Change of Control. A
Director who participates in the Director's Fees Deferral Plan may, prior to the
year the fees are earned, elect to have the balance of his account distributed
to him in a lump sum in the event his service as a Director is terminated within
one year following a Change of Control, regardless of any other elections he may
have made with respect to the timing and manner of payment of amounts in his
account. Also, all shares of restricted stock granted under the Restricted Stock
Plan for Directors will vest immediately upon a Change of Control.
Upon the occurrence of a Change of Control, all outstanding shares of
restricted stock under the Executive Award Plan will immediately vest, and all
outstanding options (and tandem SARs) under the Executive Award Plan held by
then-current employees will become immediately exercisable and will remain
exercisable for three years following the employee's termination of employment
(but not beyond their expiration date). If an SAR is exercised within 60 days of
the occurrence of a Change of Control, the holder will receive, in addition to
the amount otherwise due on exercise, a payment equal to the excess over the
amount otherwise due of the highest price per share of Common Stock paid during
the 60-day period prior to exercise of the SAR, plus a supplemental payment on
such excess. Also, upon the occurrence of a Change of Control, the participant
will receive 100% of his bonus opportunities under the Performance Award Plan
(if approved by the stockholders) and the Cash Bonus Plan. Any officer of the
Company or certain of its subsidiaries who at the time of a Change of Control is
not vested under the Retirement Plan will be provided with a vested benefit
under the Supplemental Benefit Plan equal to the benefit that would have been
payable under the Retirement Plan if his actual years of service had been
sufficient for vesting. Following a Change of Control, a participant's Savings
Plan account under the Supplemental Benefit Plan will be distributed within 30
days of his termination of employment.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has Executive Severance Agreements with Messrs. Kuehn, Russell
and Smith. These agreements provide that if the executive officer's employment
is terminated within three years after a Change of Control (as defined above),
either (a) by the Company for reasons other than dishonesty, conviction of a
felony or willful unauthorized disclosure of confidential information or other
than as a consequence of death, disability or retirement at age 65 or (b) by the
executive officer for reasons relating to a diminution of responsibilities or
compensation, or relocation requiring a change in residence or a significant
increase in travel, or a good faith determination by the executive officer that
he can no longer effectively discharge his duties, he will receive: (1) a lump
sum payment equal to three times his highest earnings (defined to include those
items described as covered compensation under the Retirement Plan) during any
12-month period during the three years preceding the termination (such lump sum
payment to be reduced pro rata to the extent there are less than 36 months until
the officer reaches age 65); (2) life, medical, and accident and disability
insurance as provided in the Company's insurance programs or, in certain
circumstances, substantially equivalent insurance to be provided by the Company
for a period of 36 months after termination of employment (or until age 65,
whichever is sooner); and (3) for an executive officer who has reached age 50
and is not otherwise entitled to an early retirement benefit under the terms of
a qualified retirement plan of the Company or its subsidiaries, an annual
benefit equal to the amount such officer would have received had he been
entitled to an early retirement benefit (reduced by any benefits payable to him
under such retirement plan and the Supplemental Benefit Plan), and a 75%
survivors benefit with respect to such early retirement benefit. Assuming that
the executive officers terminated employment on January 31, 1994, in a manner
entitling them to benefits under the Executive Severance Agreements, the
respective executive officers would receive the following lump sum cash payments
pursuant to item (1) above and the following annual retirement benefits pursuant
to item (3) above: Mr. Kuehn, $3,304,300 in cash and $0 in retirement benefits;
Mr. Russell, $1,850,306 in cash and $13,543 in retirement benefits; and Mr.
Smith, $1,560,945 in cash and $0 in retirement benefits.
The Executive Severance Agreements provide that the executive officer may
not voluntarily leave the employ of the Company if a third party attempts to
effect a Change of Control until such third party abandons such attempt or a
Change of Control has occurred. The executive officer is also required to be
19
<PAGE> 21
available for three years after his termination of employment for consultation
with senior officers of the Company. The Agreements renew automatically for
one-year terms unless terminated at the end of any term by the Board of
Directors. The Agreements shall also terminate if the Executive Compensation
Committee determines that the executive officer is no longer a key employee,
unless a Change of Control is threatened at the time or has occurred within the
past three years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
L. Edwin Smart, a member of the Executive Compensation Committee of the
Board of Directors, serves as counsel to the law firm of Hughes Hubbard & Reed.
Hughes Hubbard & Reed provides legal services to the Company and certain of its
subsidiaries.
ELECTION OF AUDITOR (PROPOSAL NO. 1)
Ernst & Young has been nominated for election as Auditor of the Company.
The Restated Certificate of Incorporation provides that no other person shall be
eligible for election as Auditor unless notice of intention to nominate such
person has been given to the Company not less than ten days before the Annual
Meeting.
A representative of Ernst & Young will be present at the Annual Meeting
with the opportunity to make a statement if such representative desires to do so
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ERNST &
YOUNG AS AUDITOR (PROPOSAL NO. 1).
APPROVAL OF PERFORMANCE AWARD PLAN
(PROPOSAL NO. 2)
Since 1981 the Company has had a bonus plan pursuant to which annual cash
bonuses were paid to officers and other employees based on the performance of
the individual, the Company and its subsidiaries. The performance criteria used
have included both objective and subjective measures. In 1993 the Internal
Revenue Code was amended by the addition of Section 162(m), which limits the tax
deduction available with respect to compensation paid to certain executive
officers, unless the compensation qualifies as "performance based" (as defined
for purposes of Section 162(m)). Among the requirements for "performance based"
compensation are that the compensation be paid based solely on the attainment of
objective performance measures established by a committee of outside directors,
and that the plan providing for such compensation be approved by stockholders.
The Board of Directors believes that in light of Section 162(m) it is
desirable to restructure the Company's bonus program to create a separate plan
providing for objective performance goals, and to submit that plan for
stockholder approval. This would enable the portion of an executive's annual
bonus based on objective performance criteria to qualify as "performance based"
for purposes of Section 162(m), and thereby continue to be deductible without
regard to the deduction limit otherwise imposed by Section 162(m). Accordingly,
on January 27, 1994 the Board of Directors took action to adopt, subject to
stockholder approval at the 1994 Annual Meeting of Stockholders, the Company's
Performance Award Plan (the "Plan").
The Board believes that it is important to have a plan which permits the
payment of bonuses based on subjective performance criteria and on a
discretionary basis, even though amounts paid under such a plan may not qualify
as "performance based" compensation under Section 162(m). Therefore, on January
27, 1994, the Board adopted the Company's Cash Bonus Plan, which permits awards
based on any performance criteria established by the Executive Compensation
Committee, as well as bonuses paid on a discretionary basis. The Cash Bonus Plan
is not being submitted for stockholder approval.
20
<PAGE> 22
PRINCIPAL PROVISIONS OF THE PLAN
The following summary of the Plan is qualified by reference to the full
text of the Plan, which is attached as Exhibit A to this Proxy Statement.
The purpose of the Plan is to provide officers of the Company with
additional incentives through the payment of bonuses based on the performance of
the Company relating to specified objective financial and business criteria,
thereby increasing the personal stake of such officers in the continued success
and growth of the Company.
ADMINISTRATION. The Plan is administered by the Executive Compensation
Committee or other designated committee of the Board of Directors consisting
solely of two or more Directors, each of whom qualifies as an "outside director"
for purposes of Section 162(m). The Committee has authority to interpret the
Plan, to adopt rules and regulations for carrying out the Plan, and to take any
other action necessary or advisable for the administration of the Plan.
ELIGIBILITY. All officers of the Company and its "Subsidiaries" are
eligible to participate in the Plan. (For purposes of the Plan, the term
"Subsidiaries" means subsidiaries, partnerships and joint ventures in which the
Company and its subsidiaries have at least a 50% ownership interest.) Directors
who are not officers of the Company or its Subsidiaries are not eligible. As of
January 31, 1994, approximately 42 employees were eligible to participate in the
Plan.
TERMS AND CONDITIONS OF AWARDS. The Committee determines which of the
eligible employees will be granted an award under the Plan for any given year.
At or before the start of each calendar year, the Committee establishes written
Performance Objectives based on one or more of the criteria set forth in the
Plan for each eligible employee chosen to receive an award for that year. At the
same time, the Committee also establishes a Bonus Opportunity for each employee,
which is the amount of the bonus the employee will earn if the Performance
Objectives are fully satisfied. The Committee may specify a minimum acceptable
level of achievement of each Performance Objective below which no bonus is
payable with respect to that Objective, and additional levels above the minimum
(which may also be above the targeted Performance Objective), with a formula to
determine the percentage of the Bonus Opportunity to be earned at each level of
achievement above the minimum. Performance at a level above the targeted
Performance Objective may entitle the employee to earn a bonus in excess of 100%
of the Bonus Opportunity. However, the maximum payout to any individual under
the Plan in any year cannot exceed $1.5 million.
Performance Objectives may be based on one or more of the following
criteria: Company earnings per share; Company or Subsidiary earnings before
interest and taxes or earnings before interest, taxes and corporate charges;
Company or Subsidiary net income; Company or Subsidiary revenues, pipeline
throughput, oil and gas production volumes, or oil and gas marketing volumes;
Company or Subsidiary unit revenues minus unit variable costs; Company or
Subsidiary return on capital, return on equity, return on assets, or return on
invested capital; Company or Subsidiary cash flow return on assets or cash flows
from operating activities; Company or Subsidiary capital expenditures; Company
or Subsidiary operations and maintenance expense or general and administrative
expense; Company or Subsidiary oil and gas unit operating income or oil and gas
unit lifting costs; Company or Subsidiary reserve replacement, reserve
replacement costs and reserve acquisition costs; and Company or Subsidiary
debt-equity ratios and key profitability ratios.
At the end of the year, the Committee determines the extent to which the
Performance Objectives have been attained and the extent to which the Bonus
Opportunity has been earned under the formula previously established by the
Committee. The Committee has discretion to reduce the amount of the bonus
payable to any employee from the amount of the Bonus Opportunity "earned" under
the formula. The Committee may exercise its discretion to reduce the award for
any reason, including its judgment that a Performance Objective has become an
inappropriate measure of achievement, a change in the employment status,
position or duties of the employee, unsatisfactory performance of the employee,
or the employee's service for less than the entire year.
21
<PAGE> 23
Awards under the Plan are paid in cash in a lump sum promptly after the
Committee has determined the amount of bonus to be paid, unless the Committee
determines, either at the time of grant or the time of distribution, to
distribute all or a portion of the award in installments or as deferred
compensation. The Plan also authorizes the Committee, in its discretion, to
adopt a program under which employees may elect to defer all or a portion of
their award.
CHANGE OF CONTROL. In the event of a change of control (as defined in the
Plan), all participants are deemed to have fully earned the Bonus Opportunities
contained in their outstanding awards, and the amount of such Bonus
Opportunities is payable promptly (no later than 30 days) after the change of
control, in a cash lump sum. Following a change of control, the Committee will
have no power to decrease the amount of the Bonus Opportunity payable under an
award.
Under the Plan, a change of control is deemed to have occurred if (i) any
person or group acquires (or obtains the right to acquire) beneficial ownership
of 35% or more of the Company's voting securities, (ii) there is a change in the
composition of a majority of the Company's Board of Directors within any period
of three consecutive years which change was not approved by a majority of the
Board as constituted immediately prior to the commencement of such three-year
period, or (iii) at any meeting of stockholders of the Company called for the
purpose of electing Directors the entire slate nominated by the Board of
Directors fails to be elected.
AMENDMENT AND TERMINATION. The Board of Directors may amend the Plan from
time to time without stockholder approval except as required to satisfy Section
162(m). Awards may be granted under the Plan for calendar years 1994 through
1998, unless the Plan is terminated earlier by the Board of Directors. However,
the Plan will remain in effect until payment has been competed with respect to
all awards granted under the Plan prior to its termination.
BENEFITS UNDER THE PLAN
It is not possible to specify the amount of benefits to be paid to
particular individuals under the Plan, since the amount of each employee's Bonus
Opportunity will be set each year by the Committee in its discretion, subject to
the Plan's limitation that the bonus paid to any employee under the Plan for any
year may not exceed $1.5 million.
In January 1994, the Committee granted awards under the Plan with respect
to 1994 to each eligible employee under the Plan. Such awards are subject to
stockholder approval of the Plan. The following
22
<PAGE> 24
table sets forth the maximum bonus payable under the Plan for such awards for
the persons indicated below.
NEW PLAN BENEFITS
PERFORMANCE AWARD PLAN OF SONAT INC.
<TABLE>
<CAPTION>
1994 MAXIMUM
NAME AND POSITION BONUS
------------------------------------------------------------------- ---------------
<S> <C>
Ronald L. Kuehn, Jr. .............................................. $ 331,200
Chairman of the Board, President and Chief Executive Officer
Thomas W. Barker, Jr. ............................................. $ 20,460
Vice President -- Finance and Treasurer
John D. Johns...................................................... $ 0
Former Vice President and General Counsel
James E. Moylan, Jr. .............................................. $ 28,132
Vice President and Controller
William C. O'Malley................................................ $ 0
Former Executive Vice President
Donald G. Russell.................................................. $ 85,470
Executive Vice President
William A. Smith................................................... $ 68,211
Executive Vice President
Current Executive Officer Group.................................... $ 552,217
(6 persons)
Non-Executive Director Group....................................... $ 0
(12 persons)
Non-Executive Officer Employee..................................... $ 578,054
Group (36 persons)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PERFORMANCE
AWARD PLAN (PROPOSAL NO. 2).
APPROVAL OF PROPOSED AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL NO. 3)
The Board of Directors of the Company believes that it would be in the best
interest of the Company and its stockholders to amend the first paragraph of
Article FOURTH of the Restated Certificate of Incorporation (the "Charter") to
increase the number of shares of Common Stock which the Company is authorized to
issue from 200,000,000 shares to 400,000,000 shares. Accordingly, at a meeting
held on December 3, 1993, the Board of Directors unanimously adopted resolutions
declaring such an amendment to be advisable and voted to recommend that the
Company's stockholders consider and approve the amendment ("Proposal No. 3") at
the Annual Meeting.
Under the present Charter, the total number of shares of all classes of
capital stock which the Company has authority to issue is 210,000,000 shares, of
which 10,000,000 shares are Serial Preference Stock, par value $1.00 per share,
and 200,000,000 shares are Common Stock, par value $1.00 per share.
On January 31, 1994, no shares of Serial Preference Stock were outstanding
and 87,172,087 shares of Common Stock were outstanding. As of such date,
5,503,448 shares of Common Stock were reserved for issuance under certain
benefit plans and 92,675,535 shares of Common Stock were reserved for issuance
in connection with the exercise of rights to purchase the Company's Common Stock
(the
23
<PAGE> 25
"Rights") upon the terms and subject to the conditions set forth in the Rights
Agreement dated as of January 23, 1986, as amended, between the Company and
Chemical Bank, as Rights Agent (the "Rights Agreement"). Accordingly, as of
January 31, 1994, an aggregate of 185,351,070 shares of Common Stock were
outstanding or reserved for issuance, and there remained an aggregate of
14,648,930 shares of Common Stock available for issuance. The number of
available shares, however, may be effectively reduced in half after giving
effect to the requirement of the Rights Agreement that, under certain
circumstances, upon issuance of any shares of Common Stock the Company must
issue one Right for each share issued and must reserve for issuance one
additional share of Common Stock in connection with the exercise of each Right.
The additional shares for which authorization is sought would be part of the
existing class of Common Stock and, if and when issued, would have the same
rights and privileges as the shares of Common Stock presently outstanding.
As with the presently authorized Serial Preference Stock and Common Stock,
the additional authorized Common Stock will not be subject to preemptive rights.
If Proposal No. 3 is adopted, the first paragraph of Article FOURTH will be
amended to delete the language in brackets and to add the language in italics,
as follows:
"FOURTH: The total number of shares which the Corporation shall have
authority to issue is [two hundred ten million (210,000,000)] four hundred
ten million (410,000,000), of which ten million (10,000,000) are to be
Serial Preference Stock of the par value of One Dollar ($1.00) per share
and [two hundred million (200,000,000)] four hundred million (400,000,000)
are to be Common Stock of the par value of One Dollar ($1.00) per share."
PURPOSES AND EFFECTS OF THE AMENDMENT
Although the Company has no agreements, commitments or plans at this time
with respect to the additional shares of Common Stock (other than under the
terms of the Rights Agreement), the Board of Directors believes that it is
desirable to have a sufficient number of additional shares of Common Stock
available for possible future financing and acquisition transactions, stock
dividends or splits, stock issuances pursuant to employee benefit plans and
other proper corporate purposes. Having such additional shares available for
issuance in the future would give the Company greater flexibility and allow
shares of Common Stock to be issued without the expense and delay of a special
stockholders' meeting. The additional shares of Common Stock would be available
for issuance without further action by the stockholders of the Company, unless
such action is required by applicable law or under the rules of any stock
exchange on which the Company's securities may be listed.
While the Company has no knowledge of any pending efforts to obtain control
of the Company, shares of authorized but unissued Common Stock could be issued
in one or more transactions which could make a takeover of the Company more
difficult or costly and, therefore, less likely. Any such additional issuance of
Common Stock could have the effect of diluting earnings and book value per share
of outstanding shares of Common Stock, and issuance of additional shares could
be used to dilute the stock ownership of any person or persons seeking to obtain
control of the Company. The Board does not currently intend to authorize the
issuance of any additional shares of Common Stock which are the subject of this
amendment proposal. As noted above, however, 92,675,535 shares have been
reserved for issuance in connection with the Rights Agreement.
OTHER INFORMATION
The Charter provides that Serial Preference Stock of the Company may be
issued in one or more series and expressly vests in the Board of Directors the
authority to determine the designations, preferences and certain rights of each
such series. Although the Board presently has no intention of doing so, such
shares could be issued with voting rights to a holder that would vote against a
merger, sale of assets or other extraordinary corporate transaction.
24
<PAGE> 26
The Company's Charter has provisions which may affect any possible takeover
attempt by making a change of control of the Company more difficult or costly.
For a description of these provisions and of proposed amendments thereto, see
"Proposed Amendments to the Restated Certificate of Incorporation (Proposal No.
4, 5, 6 and 7)" below. For a description of the Rights and the Rights Agreement,
see "Proposed Amendments to the Restated Certificate of Incorporation (Proposal
No. 4, 5, 6 and 7) -- Description of Proposal No. 4" below. For a description of
certain provisions of the Company's By-Laws which regulate the manner and timing
of stockholder proposals and stockholder nominations for the Board of Directors,
see "Proposals of Stockholders" below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSAL
TO AMEND THE FIRST PARAGRAPH OF ARTICLE FOURTH OF THE CHARTER (PROPOSAL NO. 3).
PROPOSED AMENDMENTS TO THE RESTATED CERTIFICATE OF
INCORPORATION (PROPOSAL NO. 4, 5, 6 AND 7)
The Board of Directors of the Company believes that it would be in the best
interests of the Company and its stockholders to amend the Company's Charter to:
-- delete a Charter provision which provides in certain cases for
minimum price protection or, alternatively, higher stockholder
voting requirements, in connection with certain business
combinations (Proposal No. 4);
-- provide that, subject to the conditions described below, the Board
of Directors shall call a special meeting of stockholders at the
request of a person that has owned at least 3% of the Company's
voting stock for at least six months (Proposal No. 5);
-- reduce the vote required for stockholders to amend, repeal or adopt
By-Laws from 67% of the outstanding shares to 60% (Proposal No. 6);
and
-- reduce the vote required for stockholders to amend, repeal or adopt
any provision inconsistent with certain "anti-takeover" provisions
of the Charter from 67% of the outstanding shares to 60% (Proposal
No. 7).
INTRODUCTION
In 1983 the stockholders of the Company approved amendments to the
Company's Charter (the "1983 Amendments") which may affect any possible takeover
attempt by making a change of control of the Company more difficult. In general,
the purpose of the 1983 Amendments is to deter or delay a potential holder of a
controlling interest in the Company's voting stock from exercising its voting
power in a manner believed by the Board to be detrimental to the interests of
the remaining stockholders.
Pursuant to the 1983 Amendments, the Board of Directors is divided into
three classes, with one class of Directors being elected each year. The Board of
Directors has sole authority to increase or decrease its size and to fill all
vacancies (provided that the Board may have no less than five nor more than
fifteen members). Directors may not be removed without cause. Only the Board of
Directors is authorized to call special meetings of stockholders, and corporate
action may not be taken by written consent of stockholders in lieu of a meeting.
The amendment, repeal or adoption by stockholders of the Company's By-Laws, as
well as the amendment, repeal or adoption of any Charter provision inconsistent
with the foregoing provisions of the Charter, requires the affirmative vote of
the holders of not less than 67% of the voting power of the Company.
The 1983 Amendments also revised the Charter to provide that approval of
certain mergers, consolidations, or other business combinations between the
Company and a holder of at least 10% of the voting power of the Company (a
"related person") must be approved by a "super-majority" vote of the
stockholders (80% of the Company's voting power and 67% of the Company's voting
power held by stockholders other than the related person) unless either (1)
certain Board approvals are obtained or (2) the related person paid all
stockholders a price per share that equalled or exceeded the highest price
25
<PAGE> 27
the related person paid in connection with the business combination. The same
vote is required to amend or repeal the foregoing Charter provision.
In each of the last five years, the Company's proxy statement for its
Annual Meeting of Stockholders has included a stockholder proposal which has
sought the repeal of the 1983 Amendments. The Board of Directors has opposed
each of these stockholder proposals as not being in the best interest of the
Company's stockholders, and the proposal has been rejected by the stockholders
at each Annual Meeting at which it has been presented. In recent years,
representatives of the Company have discussed the 1983 Amendments with many of
the Company's stockholders, including stockholders with significant investments
in the Company's stock. As a result of these discussions, the Board has
conducted a careful review of the 1983 Amendments and of possible changes to the
Amendments.
The Board of Directors believes that the 1983 Amendments have served their
purpose, but believes that the revisions to the 1983 Amendments set forth in
this Proxy Statement are appropriate and advisable. The Board believes that such
revisions will respond to stockholder concerns with respect to certain
provisions of the 1983 Amendments, while preserving the principal protections
established for the Company's stockholders by the 1983 Amendments. The Board of
Directors has therefore determined that the proposed Charter amendments set
forth in Proposal No. 4, 5, 6 and 7 are in the best interest of the Company and
its stockholders, and recommends a vote "FOR" each of Proposal No. 4, 5, 6 and
7.
DESCRIPTION OF PROPOSAL NO. 4
THE TEXT OF CURRENT ARTICLE SEVENTH OF THE CHARTER IS ATTACHED TO THIS
PROXY STATEMENT AS EXHIBIT B. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO EXHIBIT B.
Proposal No. 4 would delete current Article SEVENTH (sometimes referred to
as a "fair price" provision) from the Company's Charter. In general, Article
SEVENTH requires that certain mergers, consolidations, or certain other business
combinations initiated by a related person be approved by the holders of not
less than 80% of the outstanding shares of the Company's capital stock, and by
the holders of not less than 67% of the outstanding shares of capital stock not
held by the related person, unless (a) the acquisition of the capital stock that
caused such related person to become a related person was approved in advance by
at least a majority of the Continuing Directors (as defined in Article SEVENTH),
(b) the business combination was approved by a majority of the Continuing
Directors, or (c) the consideration per share of Common Stock in the business
combination equalled or exceeded the highest price paid by the related person in
acquiring any shares of Common Stock in or subsequent to the transaction in
which it became a related person.
Article SEVENTH was intended to respond to situations in which a
publicly-owned corporation was taken over by a swift purchase of control through
a tender offer, followed by a merger or other transaction between the acquired
corporation and the purchaser, which is not then dealing at arm's length because
of its control and which may then give consideration for the acquired
corporation's shares in the second step that is of substantially less value than
the consideration given in the first step. While such a "two-tier" takeover may
benefit all of the stockholders of the acquired company, it may also be
detrimental to some or all of them, because the terms of an ensuing merger or
other transaction with the purchaser may be less favorable to the remaining
stockholders than is warranted, and the suddenness and relatively short duration
of the offer may leave insufficient time for them to evaluate the merits of the
offer in comparison with other possible alternatives. The coercive nature of a
"two-tier" offer -- a stockholder who fails to tender into the offer runs the
risk that, if the offer succeeds, the stockholder will receive lesser
consideration in the second step than if he had tendered -- may also result in
transactions that do not produce the highest value for stockholders.
The Board of Directors believes that the protections currently provided by
the Rights Agreement, and by Section 203 of the Delaware General Corporation Law
("Section 203"), make the provisions of Article SEVENTH unnecessary at this
time. Accordingly, the Board of Directors recommends that the current provisions
in Article SEVENTH be deleted from the Charter.
26
<PAGE> 28
Section 203, which was enacted after the adoption of Article SEVENTH of the
Company's Charter, generally protects the stockholders against the same types of
activities that the Board considered when it recommended the adoption of Article
SEVENTH, although there are material differences between Section 203 and Article
SEVENTH. Section 203 provides, generally, that subject to certain exceptions
specified therein, a corporation may not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless either (1) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (2) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(3) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock of the corporation which is not owned by
the interested stockholder. In general, an interested stockholder includes (1)
any person that is the owner of 15% or more of the outstanding voting stock of
the corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at any
time within three years immediately prior to the relevant date and (2) the
affiliates and associates of any such person. Section 203 provides that a
corporation may elect to opt out of the restrictions imposed thereunder;
however, the Company has not opted out of these provisions.
On February 3, 1986, the Company issued the Rights as a dividend to the
holders of its Common Stock. The Rights are not exercisable (or transferable
apart from the Common Stock) until the earlier of (i) ten days following the
public announcement that a person or group has acquired 20% or more of the
outstanding Common Stock (an "Acquiring Person") or (ii) ten days following the
commencement of or announcement of an intention to make a tender or exchange
offer upon consummation of which a person or group would own 30% or more of the
outstanding Common Stock.
After the Rights become exercisable, each Right entitles the holder to buy
one share of Common Stock at a price of $50, subject to adjustment (the
"Purchase Price"). In addition, if certain types of mergers or other business
combinations involving the Company occur after the Rights become exercisable,
the Rights will be modified so as to entitle the holder thereof, upon payment of
the then current Purchase Price, to purchase common stock of the acquiring
company which at the time of such transaction would have a value equal to twice
such Purchase Price. Alternatively, if an Acquiring Person acquires the Company
by means of a reverse merger in which the Company and its Common Stock survive,
or engages in certain self-dealing transactions with the Company, or if a person
or group acquires 30% or more of the outstanding Common Stock (except pursuant
to a cash tender offer for all outstanding shares by a bidder owning less than
20% of the outstanding shares that results in the bidder owning at least 85% of
the outstanding shares), each Right not owned by the Acquiring Person would
become exercisable for the number of shares of Common Stock that at that time
have a value of twice the then current Purchase Price. (The Board may reduce the
30% threshold in the preceding sentence to 15%.) The Rights are redeemable, at
the option of the Company, at $.025 per Right at any time prior to the
acquisition by a person or group of ownership of 20% or more of the outstanding
Common Stock (or 15% or more, if the Board has reduced the 30% threshold
described above). The Rights will expire on February 3, 1996, unless previously
redeemed as described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSAL
TO DELETE CURRENT ARTICLE SEVENTH FROM THE CHARTER (PROPOSAL NO. 4).
DESCRIPTION OF PROPOSAL NO. 5
THE TEXT OF SECTION (6) OF ARTICLE FIFTH OF THE CHARTER, AS CURRENTLY IN
EFFECT AND AS PROPOSED TO BE AMENDED, IS ATTACHED TO THIS PROXY STATEMENT AS
EXHIBIT C. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO EXHIBIT C.
27
<PAGE> 29
Currently, Section (6) of Article FIFTH of the Charter ("Section (6)")
provides that, subject to any special rights to call such meetings that may be
granted to the holders of any series of preferred stock, special meetings of
stockholders may be called only by a majority of the Board of Directors.
Proposal No. 5 would amend Section (6) to add a requirement that, subject to
certain conditions, at the request of a "Qualified Holder" the Board of
Directors will call a special meeting of stockholders of the Company. A
"Qualified Holder" would mean a person who, together with all "affiliates" of
such person (as such term is defined in Rule 405 under the Securities Act of
1933 as in effect on December 3, 1993), has owned, for at least six months
before the Company receives the request, at least 3% of the outstanding shares
of capital stock of the Company entitled to vote for the election of directors.
For these purposes, shares shall be considered as "owned" by a person only if
such person has the sole power to both vote and dispose of, or to direct the
voting or disposition of, such shares. A Qualified Holder will not include a
group of persons acting in concert or pursuant to contractual arrangement.
Proposal No. 5 provides that if a request to call a special meeting is
received from a Qualified Holder, the Board of Directors will select a date for
the special meeting not less than 60 nor more than 90 days after receipt of the
request by the Secretary of the Company. However, the Board will not be required
to call a special meeting if the request was received during the 150-day period
immediately preceding the anniversary of the previous year's annual meeting of
stockholders. The Board also will not be required to call a special meeting at
the request of any Qualified Holder that has, within the twelve months preceding
the date the request is received, delivered to the Company a request pursuant to
which a special meeting has been called.
Proposal No. 5 provides that a request to call a special meeting must set
forth (1) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting; (2) the
name and address of the stockholder who intends to propose such business; (3) a
representation that the stockholder is a Qualified Holder, agrees to furnish
such supporting documentation as the Company may request, is entitled to vote at
such meeting and intends to appear in person or by proxy at such meeting to
propose such business; and (4) any material interest of the stockholder in such
business. In addition, only business properly brought before a special meeting
will be able to be transacted at such meeting. Business will be deemed properly
brought only if it is (1) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (2) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (3) brought before the meeting by a Qualified Holder entitled to
vote at such meeting if written notice of such stockholder's intent to bring
such business before such meeting is contained in the request to call a special
meeting.
Proposal No. 5 also provides that if the stockholder intends to present a
proposal at the special meeting and to have the proposal included in the
Company's proxy materials for the meeting, the request must include such
proposal and any supporting statement, and the Company will include the proposal
and supporting statement in its proxy materials if the Qualified Holder complies
with the requirements of Rule 14a-8 (or any successor rule) under the Securities
Exchange Act of 1934 and if the Board of Directors does not determine that such
proposal and supporting statement may be omitted from the Company's proxy
materials pursuant to paragraph (c) of such Rule.
The current provisions of Section (6) would preclude a stockholder from
forcing stockholder consideration of a proposal over the opposition of the Board
of Directors by calling a special meeting of stockholders prior to such time as
the Board believes such consideration to be appropriate. The Board believes that
a stockholder that meets the requirements of a Qualified Holder should generally
be allowed to request that a special meeting be held, provided the Qualified
Holder has furnished the Company with the information described above and the
other requirements of Proposal No. 5 are met. Adoption of Proposal No. 5 would
permit a Qualified Holder to cause the Board of Directors to call a special
meeting of stockholders, regardless of whether the Board of Directors believed
that a special meeting was necessary or appropriate at that time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSAL
TO AMEND SECTION (6) OF ARTICLE FIFTH OF THE CHARTER (PROPOSAL NO. 5).
28
<PAGE> 30
DESCRIPTION OF PROPOSAL NO. 6
THE TEXT OF SECTION (10) OF ARTICLE FIFTH OF THE CHARTER, AS CURRENTLY IN
EFFECT AND AS PROPOSED TO BE AMENDED, IS ATTACHED TO THIS PROXY STATEMENT AS
EXHIBIT D. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO EXHIBIT D.
Proposal No. 6 would amend Section (10) of Article FIFTH of the Company's
Charter to reduce the vote required for stockholders to amend, repeal or adopt
By-laws from 67% of the outstanding shares to 60%. The Board believes that it is
appropriate to reduce the vote necessary for the stockholders to change the
Company's By-Laws. Adoption of Proposal No. 6 would facilitate such changes by
the stockholders, regardless of whether the change was proposed by the Board of
Directors or any stockholder of the Company or whether the Board of Directors
believed the change to be in the best interest of the Company's stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSAL
TO AMEND SECTION (10) OF ARTICLE FIFTH OF THE CHARTER (PROPOSAL NO. 6).
DESCRIPTION OF PROPOSAL NO. 7
THE TEXT OF THE FINAL PARAGRAPH OF ARTICLE FIFTH OF THE COMPANY'S CHARTER,
AS CURRENTLY IN EFFECT AND AS PROPOSED TO BE AMENDED, IS ATTACHED TO THIS PROXY
STATEMENT AS EXHIBIT E. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO EXHIBIT E.
Proposal No. 7 would amend the final paragraph of Article FIFTH of the
Company's Charter to reduce the vote required for stockholders to amend, repeal
or adopt any provision inconsistent with Sections (1), (2), (3), (6), (7), (8),
(9) or (10) of Article FIFTH of the Charter (which Sections include the Charter
provisions adopted by the 1983 Amendments, other than the "fair price" provision
described at "Description of Proposal No. 4" above) from 67% of the outstanding
shares to 60%.
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law, in order for the Charter to be amended, the Board of Directors
must adopt resolutions that set forth the proposed amendment, declare its
advisability, and put the proposed amendment to a vote of the stockholders.
Therefore, action by the Board of Directors approving any Charter amendment must
precede any stockholder vote on such an amendment. If, in the future, the Board
of Directors takes such action with respect to Sections (1), (2), (3), (6), (7),
(8), (9) or (10) of Article FIFTH of the Charter, the adoption of Proposal No. 7
would reduce the vote necessary for adoption of the proposed amendment of such
Sections.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSAL
TO AMEND THE LAST PARAGRAPH OF ARTICLE FIFTH OF THE CHARTER (PROPOSAL NO. 7).
OTHER INFORMATION
Each of Proposal No. 4, 5, 6 and 7 is an independent proposal which, if
approved by the stockholders, will be adopted regardless of whether the
remaining Proposals are so approved. If the proposed amendments are adopted, the
Board will amend the By-Laws to conform them to the adopted Charter amendments.
Approval of Proposal No. 4, 5, 6 and 7 by the stockholders would not
eliminate all "anti-takeover" provisions with respect to the Company. In
particular, the Rights would still be outstanding, and the Charter would retain
the current provisions establishing a classified Board strucuture, permitting
only the Board to increase or decrease the size of the Board and fill vacancies,
and prohibiting removal of Directors without cause and corporate action by
written consent of stockholders in lieu of a meeting. For a description of
certain provisions of the Company's By-Laws which regulate the manner and timing
of stockholder proposals and stockholder nominations for the Board of Directors,
see "Proposals of Stockholders" below.
29
<PAGE> 31
The Company has no current plans to propose any other amendments to its
Charter or to take any other action having a similar effect if any of the
Proposals is not approved. Except as described herein, if all of the Proposals
are approved, the Board does not presently contemplate recommending the adoption
of any further amendments to the Charter or By-Laws of the Company which would
affect the ability of third parties to take over or change control of the
Company. However, the financial markets and the environment for corporate
takeovers are volatile, and the Board may at any time adopt measures designed to
protect against hostile takeovers or other actions that the Board may believe to
be contrary to the best interests of the Company and its stockholders. Such
measures may include actions that do not require the consent of the stockholders
(such as amendment of the Rights Agreement or the issuance of new rights with
respect to the Company's Common Stock).
OTHER MATTERS
PROPOSALS OF STOCKHOLDERS
Stockholder Proposals in the Company's Proxy Statement. In order for
proposals by stockholders to be considered for inclusion in the proxy statement
and form of proxy relating to the 1995 Annual Meeting of Stockholders, such
proposals must be received at the principal executive offices of the Company,
AmSouth-Sonat Tower, Birmingham, Alabama 35203, by no later than November 18,
1994.
Stockholder Proposals to be Presented at Meetings. A stockholder who
desires to propose any business at a meeting of stockholders must give the
Company written notice within ten days following public disclosure by the
Company of the meeting date (by notice to the New York Stock Exchange or
otherwise) or, if the meeting is adjourned and the Company is required by
Delaware law to give notice of the adjourned meeting date, within five days
after the earlier of the date public disclosure is made by the Company of the
adjourned meeting date (by notice to such exchange or otherwise) or the date
notice of the adjourned meeting is given to stockholders. The stockholder's
notice must set forth (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (b) the name and address of the stockholder who intends to propose such
business; (c) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting (or if the record date for
such meeting is subsequent to the date required for such stockholder notice, a
representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at such meeting to propose such
business; and (d) any material interest of the stockholder in such business.
Stockholder Nominations for Directors. A stockholder who desires to
nominate Directors at a meeting of stockholders must give the Company written
notice within the time period described in the preceding paragraph. The
stockholder's notice must set forth (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting (or if the record date for such meeting
is subsequent to the date required for such stockholder notice, a representation
that the stockholder is a holder of record at the time of such notice and
intends to be a holder of record on the record date for such meeting) and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a Director of the Company if so elected.
30
<PAGE> 32
The Chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if a stockholder has failed to comply
with the foregoing procedures.
A copy of the Company's By-Laws may be obtained from the Company upon
written request to the Company at its principal place of business.
INSTITUTIONAL OWNERSHIP OF COMMON STOCK
The table below sets forth, as of January 31, 1994, certain information
with respect to each person or entity known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE OF NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER CLASS BENEFICIALLY OWNED OF CLASS
------------------------------------ ------------- ------------------ --------
<S> <C> <C> <C>
FMR Corp. Common Stock 5,019,174 5.8%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
In a report on Schedule 13G filed with the Securities and Exchange
Commission with respect to the ownership of the Company's Common Stock as of
December 31, 1993, FMR Corp. and certain of its affiliates stated that such
stock was acquired in the ordinary course of business and was not acquired for
the purpose of changing or influencing the control of the Company and was not
acquired in connection with or as a participant in any transaction having such a
purpose or effect.
VOTING AT THE ANNUAL MEETING
The presence, in person or by proxy, of the holders of a majority of the
Company's Common Stock is necessary to constitute a quorum at the Annual Meeting
or any adjournment thereof.
The vote required for the election of Directors and the approval of the
other matters scheduled for a vote at the Annual Meeting is controlled by the
provisions of the Company's Charter and By-Laws and the Delaware General
Corporation Law. Directors are elected by a plurality vote. Approval of Proposal
No. 1 would require a plurality vote. Approval of Proposal No. 2 would require
the affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting and voting either for or against, or
abstaining from voting on, such proposal. Approval of Proposal No. 3 would
require the affirmative vote of a majority of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting. Approval of Proposal No.
4 would require the affirmative vote of 80% of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting. Approval of Proposal No.
5, 6 and 7 would each require the affirmative vote of 67% of the shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. Abstentions
and broker "non-votes" (shares not voted on a matter because a nominee holding
shares for a beneficial owner neither receives voting instructions from such
beneficial owner nor has discretionary voting power with respect thereto) shall
not have an effect on the vote for the election of Directors and on Proposal No.
1, and shall have the effect of a vote against Proposal No. 3, 4, 5, 6 and 7.
Abstentions shall have the effect of a vote against Proposal No. 2. The vote
will be tabulated by an independent tabulator and the results of such vote will
be certified by independent inspectors of election.
SOLICITATION OF PROXIES
The Company will bear the costs of solicitation of proxies. Officers and
regular employees of the Company may solicit proxies by mail, telephone,
telegraph and personal interview. In addition, the Company has retained D. F.
King & Co., Inc. to assist in the solicitation of proxies, and anticipates that
the fees that it will incur for this service, excluding out-of-pocket expenses,
will not exceed $50,000. Arrangements will be made with brokerage houses and
with other custodians, nominees and fiduciaries to forward proxy soliciting
material to beneficial owners. The Company will reimburse persons holding stock
for others in their names or in those of their nominees for their reasonable
out-of-pocket expenses in sending proxy material to their principals and
obtaining their proxies.
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------------------------
The information provided under the headings "Report of the Executive
Compensation Committee" and "Performance Graph" above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulations 14A or 14C, other than as provided in Item
402 of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934 and, unless specific reference is made therein to such
headings, shall not be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
The Company is not aware that any matters other than those mentioned above
will be presented for action at the 1994 Annual Meeting, but if any other
matters do properly come before the meeting, the persons named as proxies will
vote upon such matters in accordance with their best judgment.
Please complete, sign, date and return the enclosed proxy card promptly.
SONAT INC.
Beverley T. Krannich
Secretary
Birmingham, Alabama
March 16, 1994
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<PAGE> 34
EXHIBIT A
PERFORMANCE AWARD PLAN OF SONAT INC.
I. GENERAL
1.1 PURPOSE OF THE PLAN. The Performance Award Plan (the "Plan") of Sonat
Inc. (the "Company") is intended to advance the best interests of the Company
and its subsidiaries by providing officers with additional incentives through
the payment of bonuses based on the performance of the Company relating to
specified objective financial and business criteria, thereby increasing the
personal stake of such officers in the continued success and growth of the
Company and encouraging them to remain in the employ of the Company. Awards
under the Plan are intended to qualify as "performance-based compensation" for
purposes of Section 162(m) of the Internal Revenue Code ("Section 162(m)").
1.2 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Executive Compensation Committee or other designated Committee (the "Committee")
of the Board of Directors of the Company (the "Board of Directors") which shall
consist solely of two or more Directors, each of whom qualifies as an "outside
director" for purposes of Section 162(m). The Committee shall have authority,
subject to the provisions of the Plan, in its discretion, to grant awards
("Awards") under the Plan, to interpret conclusively the provisions of the Plan,
to adopt such rules and regulations for carrying out the Plan as it may deem
advisable, to decide conclusively all questions of fact arising in the
application of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. All decisions and acts of the
Committee shall be final and binding upon all affected Plan participants. No
member of the Committee shall be liable for any action taken, or determination
made, in good faith.
1.3 ELIGIBLE PARTICIPANTS. All officers of the Company and its
Subsidiaries shall be eligible to participate in the Plan. For purposes of the
Plan the term "Subsidiaries" shall mean subsidiaries, partnerships and joint
ventures in which the Company and its subsidiaries have at least a 50% ownership
interest. Directors who are not officers of the Company or its Subsidiaries
shall not be eligible to participate in the Plan.
1.4 AWARDS UNDER THE PLAN. The Committee shall designate the eligible
employees, if any, to be granted Awards under the Plan. All Awards granted under
the Plan shall be on the terms and subject to the conditions hereinafter
provided.
1.5 OTHER COMPENSATION PROGRAMS. The existence and terms of the Plan shall
not limit the authority of the Board of Directors in compensating employees of
the Company and its Subsidiaries in such other forms and amounts, including
compensation pursuant to any other plans as may be currently in effect or
adopted in the future, as it may determine from time to time.
II. TERMS AND CONDITIONS OF AWARDS
2.1 ESTABLISHMENT OF PERFORMANCE OBJECTIVES AND BONUS OPPORTUNITY. Prior
to the commencement of each Performance Year (or such later time as may be
permitted for performance-based compensation under Section 162(m)), the
Committee shall establish written Performance Objectives and a Bonus Opportunity
for each eligible employee chosen to receive an Award for such Performance Year.
The Performance Objectives shall be based on one or more of the following
criteria: Company earnings per share; Company or Subsidiary earnings before
interest and taxes or earnings before interest, taxes and corporate charges;
Company or Subsidiary net income; Company or Subsidiary revenues, pipeline
throughput, oil and gas production volumes, or oil and gas marketing volumes;
Company or Subsidiary unit revenues minus unit variable costs; Company or
Subsidiary return on capital, return on equity, return on assets, or return on
invested capital; Company or Subsidiary cash flow return on assets or cash flows
from operating activities; Company or Subsidiary capital expenditures; Company
or Subsidiary operations and maintenance expense or general and administrative
expense; Company or
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<PAGE> 35
Subsidiary oil and gas unit operating income or oil and gas unit lifting costs;
Company or Subsidiary reserve replacement, reserve replacement costs and reserve
acquisition costs; and Company or Subsidiary debt-equity ratios and key
profitability ratios. At the time of setting the Performance Objectives, the
Committee shall specify the formula to be used in calculating each of the
criteria on which an Award is based and their relative weights. The Bonus
Opportunity shall be expressed as an amount of cash. The Committee may also
specify a minimum acceptable level of achievement of the relevant Performance
Objectives, as well as one or more additional levels of achievement, and a
formula to determine the percentage of the Bonus Opportunity deemed to have been
earned by the employee upon attainment of each such level of achievement, which
percentage may exceed 100%. The Performance Objectives and Bonus Opportunity
relating to any particular Award need not be the same as those relating to any
other Award, whether made at the same or a different time.
2.2 PERFORMANCE YEAR. The Performance Year with respect to an Award shall
be the calendar year within which the Performance Objectives relating to that
Award are to be achieved.
2.3 EARNING OF AWARD. Promptly after the date on which the necessary
information for a particular Performance Year becomes available, the Committee
shall determine, and certify in writing, the extent to which the Bonus
Opportunity for such Performance Year has been earned, through the achievement
of the relevant Performance Objectives, by each employee who was granted an
Award for such Performance Year. Notwithstanding the terms of any Award, the
maximum payout under this Plan to any individual for any Performance Year shall
not exceed $1.5 million.
2.4 DISCRETIONARY DOWNWARD ADJUSTMENTS. Notwithstanding the terms of any
Award, the Committee, in its sole and absolute discretion, may reduce the amount
of the Award payable to any employee for any reason, including the Committee's
judgment that the Performance Objectives have become an inappropriate measure of
achievement, a change in the employment status, position or duties of the
employee, unsatisfactory performance of the employee, or the employee's service
for less than the entire Performance Year.
2.5 DISTRIBUTIONS. Promptly after the Committee has determined the extent
to which an Award has been earned, such Award shall be distributed in cash in a
lump sum, unless the Committee determines, either at the time of grant or the
time of distribution, to distribute all or a portion of such Award in
installments or as deferred compensation. The Committee, in its discretion, may
adopt a program to permit employees to defer all or a portion of their Award.
2.6 CHANGE OF CONTROL. Notwithstanding any other provision of this Plan or
contained in any Award granted hereunder (including any provision for deferred
payment thereof), upon the occurrence of a Change of Control (as defined in
Section 3.6), a participant shall be deemed to have fully earned the Bonus
Opportunities contained in his outstanding Awards, and the amount of such Bonus
Opportunities shall be paid promptly (and no later than 30 days after the Change
of Control) in a cash lump sum. Notwithstanding the provisions of Section 2.4,
following a Change of Control the Committee shall not adjust the Bonus
Opportunity specified in an Award from that in effect immediately prior to the
Change of Control in a manner adverse to the participant.
III. ADDITIONAL PROVISIONS
3.1 AMENDMENTS. The Board of Directors may, in its sole discretion, amend
the Plan from time to time. Any such amendment may be made without stockholder
approval unless required to satisfy Section 162(m).
3.2 WITHHOLDING. Payments under the Plan shall be net of an amount
sufficient to satisfy any federal, state or local withholding tax liability.
3.3 NON-ASSIGNABILITY; DEATH OF PARTICIPANT. No Award under the Plan shall
be assignable or transferable by the holder thereof except by will or by the
laws of descent and distribution. In the event of
A-2
<PAGE> 36
the death of a participant, any payments due to such participant shall be paid
to his beneficiary designated in writing to the Committee, or, if none has been
designated, to his estate.
3.4 NON-UNIFORM DETERMINATIONS. Determinations by the Committee under the
Plan (including, without limitation, determinations of the persons to receive
Awards; the terms and provisions of such Awards; the relevant Performance
Objectives; the amount of Bonus Opportunity; and the amount of any downward
adjustment) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.
3.5 NO GUARANTEE OF EMPLOYMENT. The grant of an Award under the Plan shall
not constitute an assurance of continued employment for any period.
3.6 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as in effect on March 1, 1985) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934 as in effect on March 1, 1985) of
securities of the Company representing 35% or more of the voting power of
the outstanding securities of the Company having the right under ordinary
circumstances to vote at an election of the Board of Directors,
(ii) there shall occur a change in the composition of a majority of
the Board of Directors within any period of three consecutive years which
change shall not have been approved by a majority of the Board of Directors
as constituted immediately prior to the commencement of such period, or
(iii) at any meeting of the stockholders of the Company called for the
purpose of electing directors, all persons nominated by the Board of
Directors for election as directors shall fail to be elected.
3.7 UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended to
constitute an "unfunded" plan. With respect to any amounts payable to a
participant pursuant to an Award, nothing contained in the Plan (or in any
documents related thereto), nor the creation or adoption of the Plan, the grant
of any Award, or the taking of any other action pursuant to the Plan, shall give
any such participant any rights that are greater than those of a general
creditor of the Company. The Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan, which
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan.
3.8 EFFECTIVE DATE AND DURATION OF PLAN. The Plan shall become effective
on January 27, 1994 subject to the approval thereof by stockholders of the
Company at the 1994 annual meeting. Awards may be granted under the Plan for
calendar years 1994 through 1998, unless the Plan is terminated earlier by the
Board of Directors, in its sole discretion. The Plan shall remain in effect for
purposes of administering the payment of Awards granted under the Plan until
such payments have been completed.
A-3
<PAGE> 37
EXHIBIT B
PROPOSAL NO. 4
TEXT OF CURRENT ARTICLE SEVENTH
If Proposal No. 4 is adopted, current Article SEVENTH of the Charter,
bracketed below, will be deleted, and current Article EIGHTH will be renumbered
as Article SEVENTH:
[SEVENTH: Any other provision of this Certificate of Incorporation to the
contrary notwithstanding, the affirmative vote of the holders of not less than
80 percent of the outstanding shares of capital stock of the Corporation
entitled to vote generally (the "Voting Stock") and the affirmative vote of the
holders of not less than 67 percent of the Voting Stock held by stockholders
other than a Related Person (as hereinafter defined) shall be required for the
approval or authorization of any Business Combination (as hereinafter defined)
or of any series of related transactions which, if taken together, would
constitute a Business Combination of the Corporation with any Related Person;
provided, however, that the 80 percent and 67 percent voting requirements shall
not be applicable if:
1. A majority of Continuing Directors (as hereinafter defined) of the
Corporation (a) have expressly approved in advance the acquisition of Voting
Stock of the Corporation that caused the Related Person to become a Related
Person, or (b) have approved the Business Combination; or
2. The Business Combination is a merger or consolidation and the cash or
fair market value of the property, securities or other consideration to be
received per share by holders of Common Stock of the Corporation in the Business
Combination is not less than the highest per share price (with appropriate
adjustments for recapitalizations and for stock splits, stock dividends and like
distributions), in each case determined in good faith by a majority of
Continuing Directors, paid by the Related Person in acquiring any of its
holdings of the Corporation's Common Stock either in or subsequent to the
transaction or series of transactions in which the Related Person became a
Related Person.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
For purposes of this Article SEVENTH:
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation or a Subsidiary (as hereinafter defined) with
or into a Related Person, (ii) any sale, lease, exchange, transfer or other
disposition, including without limitation a pledge, mortgage or any other
security device, of all or any Substantial Part (as hereinafter defined) of the
assets either of the Corporation (including without limitation any voting
securities of a Subsidiary) or of a Subsidiary, or both, to a Related Person,
(iii) any merger or consolidation of a Related Person with or into the
Corporation or a Subsidiary of the Corporation, (iv) any sale, lease, exchange,
transfer or other disposition of all or any Substantial Part of the assets of a
Related Person to the Corporation or a Subsidiary of the Corporation, (v) the
issuance of any securities of the Corporation or a Subsidiary of the Corporation
to a Related Person, (vi) any reclassification of securities (including a
reverse stock split) or any other recapitalization that would have the effect of
increasing the voting power of a Related Person and (vii) any agreement,
contract or other arrangement providing for any of the transactions described in
this definition of Business Combination.
(b) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" (as defined on March 1, 1983 in Rule 12b-2 under
the Securities Exchange Act of 1934), "beneficially owns" (as defined on March
1, 1983 in Rule 13d-3 under the Securities Exchange Act of 1934) in the
aggregate 10 percent or more of the outstanding Voting Stock of the Corporation,
any Affiliate or Associate of any such individual, corporation, partnership or
other person or entity, and any assignee of any of the foregoing.
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(c) Notwithstanding the definition of "beneficially owned" in subparagraph
(b) of this Article SEVENTH, any Voting Stock of the Corporation that any
Related Person has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise, shall be
deemed beneficially owned by the Related Person.
(d) The term "Substantial Part" shall mean more than 20 percent of the fair
market value of the total assets of the corporation in question, as determined
in good faith by a majority of Continuing Directors, as of the end of its most
recent fiscal year ending prior to the time the determination is being made.
(e) For the purposes of subparagraph (a) of this Article SEVENTH, the term
"Subsidiary" means any corporation of which a majority of any class of equity
security is owned directly or indirectly by the Corporation and whose assets
constitute a Substantial Part of the assets of the Corporation, as determined in
good faith by a majority of Continuing Directors.
(f) For the purposes of the first paragraph of this Article SEVENTH, in any
Business Combination of a Subsidiary of the Corporation with a Related Person,
the voting provisions contained therein shall be deemed to be required for the
Corporation to cause the Subsidiary to approve or authorize such Business
Combination.
(g) For the purposes of subparagraph (2) of this Article SEVENTH, the term
"other consideration to be received" shall include, without limitation, Common
Stock of the Corporation retained by its existing public stockholders in the
event of a Business Combination in which the Corporation is the surviving
corporation.
(h) The term "Continuing Director" shall mean a Director who was a member
of the Board of Directors of the Corporation immediately prior to the time that
the Related Person involved in a Business Combination became a Related Person.]
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EXHIBIT C
PROPOSAL NO. 5
AMENDMENT OF SECTION (6) OF ARTICLE FIFTH
If Proposal No. 5 is adopted, the language in Section (6) of Article FIFTH
below in italics will be added:
(6) Except as otherwise provided in Article FOURTH of this certificate with
respect to the holders of any one or more series of Serial Preference Stock,
special meetings of the stockholders for any purpose or purposes shall be called
solely by resolution of the Board of Directors, acting by not less than a
majority of the entire Board, and, except as set forth in this Section (6), the
power of stockholders to call a special meeting is specifically denied.
Notwithstanding the foregoing, and subject to the conditions set forth in this
Section (6), the Board of Directors shall call a special meeting of stockholders
upon the receipt by the Secretary of the Corporation of a Request (as
hereinafter defined) of a Qualified Holder (as hereinafter defined). The place
and notice of any special meeting shall be as set forth below and in the
By-Laws. Only business properly brought before a special meeting shall be
transacted at such meeting. Business shall be deemed properly brought only if it
is (i) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (iii)
brought before the meeting by a Qualified Holder entitled to vote at such
meeting if written notice of such Qualified Holder's intent to bring such
business before such meeting was contained in the Request. The Chairman of the
meeting may refuse to transact any business at any special meeting made without
compliance with the foregoing procedure.
If the Secretary of the Corporation receives a Request from a Qualified
Holder, the Board of Directors shall select a date for the special meeting not
less than 60 nor more than 90 days after the date the Request is received;
provided, however, that (a) the Board shall not be required to call a special
meeting at the request of any Qualified Holder that has, within the twelve
months preceding the date the Request is received, delivered to the Corporation
a Request pursuant to which a special meeting has been called, and (b) the Board
shall not be required to call a special meeting pursuant to a Request received
during the 150-day period preceding the anniversary of the most recent annual
meeting of stockholders.
For the purposes of this Section (6):
(a) The term "Qualified Holder" shall mean any individual, corporation,
partnership or other person or entity (collectively, a "Person") which, together
with all of its "affiliates" (as such term is defined on December 3, 1993 in
Rule 405 under the Securities Act of 1933), has had continuous Ownership (as
hereinafter defined) of at least 3 percent of the outstanding shares of capital
stock of the Corporation entitled to vote for the election of directors ("Voting
Stock") throughout the six-month period prior to the date the Corporation
receives the Request from such Person. A "Qualified Holder" shall not include a
group of Persons acting in concert or pursuant to a contractual arrangement.
(b) The term "Ownership" of Voting Stock shall mean the sole possession of
both the power to vote (or direct the voting of) and the power to dispose of (or
direct the disposition of) such Voting Stock.
(c) The term "Request" shall mean a writing received by the Secretary of
the Corporation at the principal executive offices of the Corporation, which
requests the Board of Directors to call a special meeting of the stockholders
and which sets forth: (1) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (2) the name and address of the Qualified Holder who intends to propose
such business; (3) a representation that the stockholder is a Qualified Holder
of Voting Stock, agrees to furnish such supporting documentation with respect to
such stockholder's status as a Qualified Holder as the Corporation may request,
is entitled to
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vote at such meeting and intends to appear in person or by proxy at such meeting
to propose such business; and (4) any material interest of the stockholder in
such business. If the Qualified Holder intends to present a proposal at the
special meeting and to have such proposal included in the Corporation's proxy
materials for such meeting and the Request includes the proposal and any
supporting statement with respect thereto, the Corporation's proxy materials for
the meeting shall include such proposal and supporting statement, provided (A)
the Qualified Holder complies with the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934, as amended (or any successor rule), and (B) the
Board of Directors does not determine that such proposal and supporting
statement may be omitted from the Corporation's proxy materials pursuant to
paragraph (c) of such Rule 14a-8.
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<PAGE> 41
EXHIBIT D
PROPOSAL NO. 6
If Proposal No. 6 is adopted, the language in Section (10) of Article FIFTH
below in brackets will be deleted and the language in italics will be added:
(10) The stockholders of the Corporation may exercise their power to alter,
amend, change, repeal or adopt By-Laws of the Corporation only by the
affirmative vote of the holders of not less than [67 percent] 60 percent of the
outstanding shares of capital stock of the Corporation entitled to vote for the
election of directors, provided that notice of such proposed alteration,
amendment, repeal or adoption is included in the notice of meeting called for
the taking of such action.
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EXHIBIT E
PROPOSAL NO. 7
If Proposal No. 7 is adopted, the language in the last paragraph of Article
FIFTH below in brackets will be deleted and the language in italics will be
added:
Notwithstanding any other provisions of this Certificate of Incorporation
or the By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws of the Corporation), the affirmative vote of the holders of [67 percent]
60 percent of the outstanding shares of capital stock of the Corporation
entitled to vote for the election of directors shall be required to amend,
repeal or adopt any provision inconsistent with Sections (1), (2), (3), (6),
(7), (8), (9) and (10) of this Article FIFTH.
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<PAGE> 1
EXHIBIT 23-(1)
Consent of Independent Auditors
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8, No. 33-50140) pertaining to the Sonat Inc. Executive Award Plan and
in the related Prospectus and (ii) the Registration Statement (Form S-8, No.
33-50142) pertaining to the Sonat Savings Plan and the related Prospectus of
our report dated January 20, 1994, with respect to the consolidated financial
statements and schedules of Sonat Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1993.
/s/ Ernst & Young
-----------------
ERNST & YOUNG
Birmingham, Alabama
March 25, 1994
<PAGE> 1
EXHIBIT 24-(1)
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ William O. Bourke
---------------------
William O. Bourke
<PAGE> 2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and
director of Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn,
Jr.; Thomas W. Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C.
Griffin, and each of them, his true and lawful attorneys to execute in his name
(whether on behalf of Sonat Inc. or as an officer or director of Sonat Inc.)
the Sonat Inc. Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and any and all amendments thereto to be filed with the Securities
and Exchange Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 and to file the same, with all exhibits thereto, and any
other documents in connection therewith, with the Securities and Exchange
Commission. The undersigned does hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be done by virtue
hereof. Each of such attorneys shall have and may exercise all powers to act
hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Ronald L. Kuehn, Jr.
------------------------
Ronald L. Kuehn, Jr.
<PAGE> 3
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ John J. Creedon
--------------------
John J. Creedon
<PAGE> 4
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Roberto C. Goizueta
-----------------------
Roberto C. Goizueta
<PAGE> 5
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Robert J. Lanigan
---------------------
Robert J. Lanigan
<PAGE> 6
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Henry R. Linden
------------------------
Dr. Henry R. Linden
<PAGE> 7
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Charles Marshall
---------------------
Charles Marshall
<PAGE> 8
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Benjamin F. Payton
-----------------------
Benjamin F. Payton
<PAGE> 9
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 27th day of February, 1994.
/s/ John J. Phelan, Jr.
-----------------------
John J. Phelan, Jr.
<PAGE> 10
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Jerome J. Richardson
------------------------
Jerome J. Richardson
<PAGE> 11
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ L. Edwin Smart
-------------------
L. Edwin Smart
<PAGE> 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ James B. Williams
---------------------
James B. Williams
<PAGE> 13
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
Sonat Inc., does hereby constitute and appoint Ronald L. Kuehn, Jr.; Thomas W.
Barker, Jr.; James E. Moylan, Jr.; James A. Rubright and John C. Griffin, and
each of them, his true and lawful attorneys to execute in his name (whether on
behalf of Sonat Inc. or as a director of Sonat Inc.) the Sonat Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned does
hereby ratify and confirm all that said attorneys and agents, and each of them,
shall do or cause to be done by virtue hereof. Each of such attorneys shall
have and may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
the 24th day of February, 1994.
/s/ Joe B. Wyatt
-----------------
Joe B. Wyatt
