UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7179
SONAT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0647939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (205) 325-3800
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE:
86,251,073 SHARES OUTSTANDING ON JULY 31, 1996
<PAGE>
SONAT INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<S> <C>
(Unaudited)--June 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income
(Unaudited)--Three Months and Six Months Ended
June 30, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows
(Unaudited)--Six Months Ended June 30, 1996 and 1995 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 27
PART II. Other Information
Item 5. Legal Proceedings 28
Item 6. Exhibits and Reports on Form 8-K 28
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 13,761 $ 37,289
Accounts receivable 365,639 349,441
Inventories 35,988 23,956
Gas imbalance receivables 16,368 16,556
Federal income taxes 26,324 12,979
Other 38,859 54,210
---------- -------
Total Current Assets 496,939 494,431
-------- --------
Investments in Unconsolidated Affiliates and Other 444,555 432,769
-------- --------
Plant, Property and Equipment 5,048,611 4,822,879
Less accumulated depreciation, depletion
and amortization 2,650,301 2,545,320
---------- ----------
2,398,310 2,277,559
---------- ----------
Deferred Charges and Other:
Gas supply realignment costs 24,126 199,073
Other 92,510 107,609
---------- --------
116,636 306,682
-------- --------
$3,456,440 $3,511,441
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 18,600 $ 18,750
Unsecured notes 256,500 218,900
Accounts payable 343,156 297,660
Accrued state income taxes 7,305 10,579
Accrued interest 26,421 27,115
Gas imbalance payables 18,097 21,444
Other 48,410 45,677
---------- -------
Total Current Liabilities 718,489 640,125
-------- --------
Long-Term Debt 763,324 770,313
---------- --------
Deferred Credits and Other:
Deferred income taxes 277,279 213,122
Reserves for regulatory matters 14,459 181,798
Other 166,263 223,441
---------- --------
458,001 618,361
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock and other 122,529 127,039
Retained earnings 1,426,739 1,387,137
---------- ----------
1,549,268 1,514,176
Less treasury stock (32,642) (31,534)
-------- --------
Total Stockholders' Equity 1,516,626 1,482,642
---------- ----------
$3,456,440 $3,511,441
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C> <C>
Revenues $847,151 $476,344 $1,581,557 $901,378
-------- -------- ---------- --------
Costs and Expenses:
Natural gas cost 438,127 262,014 938,467 452,742
Transition cost recovery 158,519 (12,480) 153,136 8,406
Operating and maintenance 52,120 39,819 96,174 78,166
General and administrative 41,155 32,863 74,113 66,500
Depreciation, depletion
and amortization 71,378 66,660 138,751 141,051
Taxes, other than income 11,611 9,728 23,444 21,653
------- -------- ------- --------
772,910 398,604 1,424,085 768,518
-------- -------- ---------- --------
Operating Income 74,241 77,740 157,472 132,860
Other Income (Loss), Net:
Equity in earnings of
unconsolidated affiliates 7,498 11,930 16,453 24,883
Minority interest (447) - (5,109) -
Other 1,993 (41,232) 1,889 (35,724)
------ -------- ------ --------
9,044 (29,302) 13,233 (10,841)
------ -------- ------- --------
Interest:
Interest income 700 2,840 2,323 3,688
Interest expense (23,916) (29,863) (48,135) (58,402)
Interest capitalized 1,319 1,681 2,678 3,439
------ -------- ------ --------
(21,897) (25,342) (43,134) (51,275)
-------- -------- -------- --------
Income before Income Taxes 61,388 23,096 127,571 70,744
Income Tax Expense 20,793 5,755 41,407 15,786
------- -------- ------- --------
Net Income $ 40,595 $ 17,341 $ 86,164 $ 54,958
======== ======== ======== ========
Earnings Per Share of Common Stock $ .47 $ .20 $ 1.00 $ .64
===== ======== ====== ========
Weighted Average Shares Outstanding 86,208 86,371 86,168 86,361
Dividends Paid Per Share $ .27 $ .27 $ .54 $ .54
===== ======== ===== ========
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 86,164 $ 54,958
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 138,781 141,051
Deferred income taxes 64,173 30,784
Equity in earnings of unconsolidated affiliates,
less distributions (11,292) (17,178)
(Gain) loss on disposal of assets (3,274) 41,772
Reserves for regulatory matters (167,339) (9,487)
Gas supply realignment costs 177,837 (70,482)
Change in:
Accounts receivable (16,198) 49,356
Inventories (12,032) (940)
Accounts payable 45,496 (21,578)
Accrued interest and income taxes, net (17,331) (20,965)
Other current assets and liabilities 14,943 (4,767)
Other (29,757) (47,115)
----------- -----------
Net cash provided by operating activities 270,171 125,409
-------- -----------
Cash Flows from Investing Activities:
Plant, property and equipment additions (271,099) (282,766)
Net proceeds from disposal of assets 4,603 218,540
Advances to unconsolidated affiliates
and other (4,696) (2,142)
----------- -----------
Net cash used in investing activities (271,192) (66,368)
--------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt - 2,953,000
Payments of long-term debt (7,139) (2,835,140)
Changes in short-term borrowings 37,600 (130,000)
------- -----------
Net changes in debt 30,461 (12,140)
Dividends paid (46,562) (46,641)
Other (6,406) (3,339)
----------- -----------
Net cash used in financing activities (22,507) (62,120)
-------- -----------
Net Decrease in Cash and Cash Equivalents (23,528) (3,079)
Cash and Cash Equivalents at Beginning of Period 37,289 9,131
------- -----------
Cash and Cash Equivalents at End of Period $ 13,761 $ 6,052
======== ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 33,924 $ 50,174
Income tax refunds received, net (6,092) (1,685)
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Sonat
Inc. (Sonat) and its subsidiaries (the Company) have been prepared in accordance
with the instructions to Form 10-Q and include the information and footnotes
required by such instructions. In the opinion of management, all adjustments
including those of a normal recurring nature have been made that are necessary
for a fair presentation of the results for the interim periods presented herein.
Certain amounts in the 1995 condensed consolidated financial statements
have been reclassified to conform with the 1996 presentation.
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, became effective for years beginning after
December 15, 1995. SFAS No. 123 allows a choice between either the method
required by Accounting Principles Board (APB) Opinion No. 25 or a new fair-value
based method. Under either method new disclosures will be required. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 for its
stock-based compensation awards.
2. Derivative Financial Instruments
Futures - Natural gas futures contracts and options on natural gas
futures contracts are traded on the New York Mercantile Exchange (NYMEX).
Contracts are for fixed units of 10,000 MMBtu and are available for up to 36
months in the future. NYMEX requires both parties (buyers and sellers) to
futures contracts to deposit cash or other assets (the margin) with a broker at
the time the contract is initiated. Brokers mark open positions to market daily
and require additional assets to be maintained on deposit when significant
unrealized losses are experienced or allow deposits to be reduced when
unrealized gains are experienced. At June 30, 1996, Sonat Marketing Company L.P.
(Sonat Marketing), a 65 percent-owned subsidiary of Sonat, had $0.9 million on
deposit with brokers for margin calls.
Sonat Marketing uses futures contracts to reduce exposure to price risk
when gas is not bought and sold simultaneously. At June 30, 1996, Sonat
Marketing had a total of 95 net contracts open (3,571 long and 3,666 short
futures contracts) and a deferred gain of $2.1 million, representing unrealized
gains on contracts that will mature throughout 1996 and 1997. Option activity
during the second quarter of 1996 was not material.
Sonat's wholly owned subsidiary Sonat Exploration Company, through
Sonat Marketing, may use futures contracts to lock in the price for a portion of
its expected future natural gas production when it believes that prices are at
acceptable levels. Since April 1996, Sonat Exploration has had no futures
contracts open. Sonat Exploration has recognized a loss of $17.6 million
relating to gas futures in the 1996 six-month period.
2. Derivative Financial Instruments (Cont'd)
Swaps - Price swap agreements call for one party to make monthly
payments to (or receive payments from) another party based upon the differential
between a fixed and a variable price (fixed-price swap) or two variable prices
(basis swap) for a notional volume specified by the contr-act. Sonat Exploration
uses swap agreements to hedge exposure to changes in spot-market prices on the
amount of production covered in the agreement. Sonat Marketing uses swaps to
lock in a margin on its gas transactions.
Sonat Exploration has one oil price swap agreement for 1996, hedging
approximately 41 percent of the expected oil production for the remainder of
1996, which sets a fixed price of $18.00 per barrel. This swap is not in effect
during days when the market price falls below $16.39. Oil revenues in the six
month 1996 period were reduced by $4.6 million for the effect of oil swap
transactions. Sonat Exploration has two natural gas price swap agreements that
essentially offset each other. Sonat Exploration has incurred a loss of $1.9
million on gas swap agreements for the current six-month period.
Sonat Marketing had a total of 23 fixed-price swap agreements and 52
variable-price swap agreements at June 30, 1996, to exchange payments based on a
total notional volume of 48 TBtu of natural gas over periods ranging from one
month to seven years. Sonat Marketing also has a gas price collar agreement
which provides it a floor price of $1.80 on notional volumes of 42 TBtu and sets
a ceiling price of $2.56 on notional volumes of 34 TBtu. In the first six-months
of 1996, a loss of $2.5 million was recognized under these agreements.
The Company's credit exposure on swaps is limited to the value of swaps
that are in a favorable position to the Company. At June 30, 1996, the market
value of the Company's fixed-price favorable swaps was $7.7 million. The net
position of all fixed-price swaps, both favorable and unfavorable, was $2.9
million favorable. The market value of the basis swaps is not material. The
market value of the gas price collar agreement is $1.8 million unfavorable.
Financial Risk - On January 22, 1996, Southern Natural Gas Company
(Southern) entered into a forward rate agreement to hedge the interest rate risk
of an anticipated future borrowing under an existing shelf registration
statement. The base treasury rate for this future borrowing has been hedged at
approximately 5.78 percent on a notional amount of $97 million. At June 30,
1996, this agreement had a fair market value of $6.6 million.
<PAGE>
3. Unconsolidated Affiliates
The following table presents the components of equity in earnings of
unconsolidated affiliates.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
Company's Share of Reported Earnings (Losses):
<S> <C> <C> <C> <C>
Exploration and Production $ 146 $ 149 $ 188 $ 335
----- ------- ----- -------
Natural Gas Transmission:
Citrus Corp. 4,365 5,803 10,009 12,185
Amortization of Citrus basis
difference 345 345 692 692
Bear Creek Storage Company 2,411 2,391 5,029 4,922
Other (87) (101) (135) (78)
---- ------- ----- -------
7,034 8,438 15,595 17,721
------ ------- ------- -------
Energy Marketing - (2) - (8)
--- --- --- ---
Other:
Sonat Offshore Drilling - 3,245 - 6,129
Other affiliates 318 100 670 706
---- ------- ---- -------
318 3,345 670 6,835
---- ------- ---- -------
$7,498 $11,930 $16,453 $24,883
====== ======= ======= =======
</TABLE>
Natural Gas Transmission Affiliates - Sonat owns 50 percent of Citrus
Corp., the parent of Florida Gas Transmission Company (Florida Gas). A
subsidiary of Southern owns 50 percent of Bear Creek Storage Company (Bear
Creek), an underground gas storage company.
<PAGE>
3. Unconsolidated Affiliates (Cont'd)
The following is summarized income statement information for Citrus:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $193,300 $194,691 $377,382 $319,855
Expenses (Income):
Natural gas cost 106,355 106,287 204,028 169,550
Operating expenses 35,466 34,544 66,354 63,461
Depreciation and amortization 11,738 11,501 23,459 19,597
Allowance for funds used
during construction 15 (86) (146) (20,297)
Interest and other 25,437 23,533 50,994 47,856
Income taxes 5,558 7,306 12,675 15,318
------ -------- ------- --------
Income Reported $ 8,731 $ 11,606 $ 20,018 $ 24,370
======= ======== ======== ========
</TABLE>
Florida Gas' Phase III expansion, which began in 1994, was completed
during February 1995. Income for the first six months of 1995 reflects
significant allowance for funds used during construction attributable to the
Phase III expansion.
The following is summarized income statement 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>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $8,952 $8,906 $18,193 $18,228
Expenses:
Operating expenses 1,370 1,251 2,535 2,526
Depreciation 1,353 1,349 2,707 2,699
Other expenses, net 1,408 1,525 2,894 3,158
------ ------ ------ -------
Income Reported $4,821 $4,781 $10,057 $ 9,845
====== ====== ======= =======
</TABLE>
<PAGE>
4. Debt and Lines of Credit
Long-Term Debt - On June 4, 1996, 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 June 30, 2001. 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. During the first half of 1996, there was no activity under
the revolving credit agreement, resulting in $500 million available at June 30,
1996.
Unsecured Notes - Loans outstanding under all short-term credit facilities
are for a duration of less than three months.
On May 28, 1996, Sonat and Southern renewed their short-term lines of
credit of $200 million and $50 million, respectively, for a period of 364 days.
Borrowings are available through May 27, 1997, and are in the form of unsecured
promissory notes that bear interest at rates based on the banks' prevailing
prime, international or money-market lending rates. At June 30, 1996, $6.5
million was outstanding under Sonat's agreement at a rate of 5.92 percent, and
no amounts were outstanding under Southern's agreement.
Sonat had $250 million in commercial paper outstanding at an average
rate of 5.61 percent at June 30, 1996.
5. Commitments and Contingencies
Rate Matters - Periodically, Southern and its subsidiaries make general
rate filings with the Federal Energy Regulatory Commission (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. At June 30, 1996, Southern's rates are
established by the Customer Settlement and a FERC order effective for parties
contesting the Customer Settlement and are not subject to refund (see discussion
below).
Customer Settlement - In 1992 the FERC issued its Order No. 636 (the
Order). The Order required 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, or purchasing
gas at above-market prices under, existing gas purchase contracts, which are
referred to as gas supply realignment (GSR) costs.
In an order issued on September 29, 1995, (the Settlement Order), the
FERC approved a comprehensive settlement (the Customer Settlement) that Southern
had
<PAGE>
5. Commitments and Contingencies (Cont'd)
filed on March 15, 1995. The Customer Settlement, which is supported by
customers representing approximately 97 percent of the firm transportation
capacity on Southern's system, resolves, as to the parties supporting the
settlement, all of Southern's pending rate proceedings and proceedings to
recover GSR and other transition costs associated with the implementation of
Order No. 636. The four major rate cases resolved by the Customer Settlement
cover consecutive periods beginning September 1, 1989. In May 1996, the
Settlement became final and Southern credited in the aggregate the full amount
of Southern's rate reserves as of February 28, 1995, plus interest, less certain
amounts withheld for potential refunds to contesting parties, to reduce the GSR
costs borne by Southern's customers. The total credit recorded in May 1996
amounted to $164 million. Southern implemented reduced settlement rates for
parties that supported the Customer Settlement effective March 1, 1995. The
Customer Settlement provides that, except in certain limited circumstances,
Southern will not file a general rate case to be effective prior to March 1,
1998. The Settlement also provides for Southern to recover $363 million of GSR
costs incurred or reserved as of June 30, 1996, and 50 percent of future GSR
costs that Southern may incur thereafter, which the Company believes will not be
material to its financial position or results of operations.
Several parties that opposed the Customer Settlement had filed with the
FERC requests for rehearing of the Settlement Order. On April 11, 1996, the FERC
denied those requests for rehearing of the Settlement Order and also decided
certain issues in prior rate proceedings that affect the contesting parties to
the Customer Settlement (April 11 Order). Pursuant to the April 11 Order,
Southern made refunds to the contesting parties in May 1996 covering various
rate periods from January 1, 1991, through December 31, 1995. Southern was
adequately reserved for these refunds. The only issues remaining to be litigated
at the FERC by the contesting parties concern the recoverability of certain GSR
and other transition costs under Order No. 636, which would not be material even
if such issues were determined adversely to Southern. The three remaining
contesting parties have each appealed the April 11 Order and the Settlement
Order to the D.C. Circuit Court of Appeals. Although there can be no assurances,
the Company believes that the Settlement Order and the April 11 Order should be
upheld on appeal.
Sea Robin - In January 1995, Sea Robin Pipeline Company, a subsidiary
of Southern, filed with the FERC a petition for a declaratory ruling that the
Sea Robin pipeline system is engaged in the gathering of natural gas and is,
therefore, exempt from FERC regulation under the Natural Gas Act. In June 1995,
the FERC denied Sea Robin's petition on the basis that the primary function of
the Sea Robin system is the interstate transportation of gas. Sea Robin's
request for rehearing of that ruling was denied by the FERC on June 26, 1996.
Sea Robin plans to file for judicial review of the orders denying its petition.
<PAGE>
5. Commitments and Contingencies (Cont'd)
Following the filing of Sea Robin's petition for a gathering exemption,
several of the shippers on the Sea Robin system filed with the FERC in February
1995 a complaint against Sea Robin under Section 5 of the Natural Gas Act
claiming that Sea Robin's rates are unjust and unreasonable. In its answer, Sea
Robin asked the FERC to dismiss the complaint or to find that its rates continue
to be just and reasonable based on the data it presented. On July 31, 1996, the
FERC issued an order on the complaint, instituting an investigation and hearing
under Section 5 of the Natural Gas Act. Sea Robin is unable to predict the
outcome of this proceeding, but any reduction in Sea Robin's rates as a result
of this complaint can be implemented only on a prospective basis and any such
change is not expected to be material to the Company's financial position or
results of operations.
Gas Purchase Contracts - Southern currently is incurring 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.
Briggs v. Sonat Exploration - On October 9, 1995, a petition was filed
against Sonat Exploration and its wholly owned subsidiary, Stateline Gas
Gathering Company, by nine royalty interest owners (Plaintiffs) in a lawsuit
styled A. L. Briggs, et al. v. Sonat Exploration Company, et al., in state court
in Panola County, Texas. The petition challenges the appropriateness of certain
post-production charges (e.g., gathering, transportation, and compression) that
had been deducted from Plaintiffs' proportionate share of the amount Sonat
Exploration has realized upon the sale of gas attributable to their royalty
interest and alleges numerous violations of law. Relief sought by Plaintiffs
includes actual damages, damages under the Deceptive Trade Practices Act,
exemplary damages, declaratory relief, an accounting, attorneys' fees, and
prejudgment interest. The petition also requests the court to certify a
nationwide class of plaintiffs. In an amended complaint Plaintiffs have also
asserted that certain marketing fees deducted by Sonat Marketing in calculating
the amount it paid Sonat Exploration for gas volumes purchased by Sonat
Marketing since approximately July 1, 1992, are not authorized by law or the
applicable leases, are not necessary, and have not been disclosed in accordance
with law; and that Sonat Exploration has breached its contractual duties to
royalty owners to obtain the highest sales price and to account to the royalty
owners for their share of the proceeds attributable to the sale of Sonat
Exploration's gas. Plaintiffs demanded that Sonat Exploration pay the proper
amounts allegedly due them according to their respective leases, overriding
royalty assignments, division orders, and operating agreements. Management is
unable to predict the outcome of this litigation or the demands made by
Plaintiffs or to estimate the amount or range of potential loss in the event of
an unfavorable outcome.
<PAGE>
5. Commitments and Contingencies (Cont'd)
FERC Audit of Florida Gas - The FERC's Division of Audits completed a
compliance review of Florida Gas' books and records for the period January 1,
1991, through February 28, 1995. Among other things, the FERC auditors
questioned certain aspects of Florida Gas' procedures for accounting for the
costs of financing Florida Gas' Phase III expansion facilities and have proposed
adjustments to the capitalization by Florida Gas of AFUDC during construction of
its Phase III expansion facilities. Pursuant to an agreement in principle among
Florida Gas, FERC staff and customer intervenors, Florida Gas filed a settlement
agreement on July 30, 1996, which, if approved by the FERC, would result in a
reduction of $18.75 million in its Account No. 101, Gas Plant in Service. The
settlement is without prejudice to Florida Gas seeking Commission approval to
recover in rates in its next general rate proceeding the $18.75 million required
to be removed from its plant account.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
SONAT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Income
Operating results for the Company's business segments follow:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Operating Income (Loss):
<S> <C> <C> <C> <C>
Exploration and production $39.0 $38.4 $ 59.0 $ 40.0
Natural gas transmission 36.4 37.8 84.5 90.0
Energy marketing (0.1) 2.0 12.3 4.1
Other (1.0) (0.5) 1.7 (1.3)
----- ----- ---- ------
Operating Income $74.3 $77.7 $157.5 $132.8
===== ===== ====== ======
</TABLE>
<PAGE>
Unusual Items
The Company's Statements of Income for both 1995 periods reflect the
impact of three unusual items recorded in the second quarter of 1995. These
items are the sale of properties and the termination of long-term gas sales
contracts by Sonat Exploration and the sale of the Company's investment in Baker
Hughes Incorporated Preferred Stock. The table is presented because management
believes this information enhances the analysis of results of operations.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Operating Income
<S> <C> <C> <C> <C>
As Reported $74.3 $ 77.7 $157.5 $132.8
Less Unusual Items:
Exploration and Production
Termination of gas
sales contracts - 37.5 - 37.5
--- ----- --- ------
Operating Income Excluding
Unusual Items $74.3 $ 40.2 $157.5 $ 95.3
===== ====== ====== ======
Net Income As Reported $40.6 $ 17.3 $ 86.2 $ 55.0
Less Unusual Items:
Exploration and Production
Termination of gas
sales contracts - 24.4 - 24.4
Property sales - (20.0) - (20.0)
Other:
Sale of Baker Hughes Stock - (8.2) - (8.2)
--- ----- --- ------
Net Income Excluding
Unusual Items $40.6 $ 21.1 $ 86.2 $ 58.8
===== ====== ====== ======
</TABLE>
EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and the acquisition,
development and production of oil and natural gas in the United States through
Sonat Exploration Company. From 1988 through 1995, Sonat Exploration's reserve
growth strategy has been based on acquiring properties that have additional
exploitation drilling potential, developing those properties and conducting low
risk exploration activities. The Company is now placing more emphasis on
exploration due to the size of the acreage position it has established and its
increased use of technology, such as three-dimensional (3D) seismic surveys.
During the first six months of 1996, Sonat Exploration successfully
completed several exploratory wells. Early in the second quarter of 1996, the
Company had a significant find in Leon County, Texas, where it completed its
first Cotton Valley pinnacle reef discovery, the Fountain No. 1, which tested at
a rate of 30.3 million cubic feet of natural gas per day. Recoverable natural
gas reserves from the Fountain No. 1 are estimated to be in the range of 70 to
80 billion cubic feet. Sonat Exploration has a 64 percent working interest in
this well. Sonat Exploration has an interest in approximately 210,000
prospective acres (including approximately 180,000 acres relating to Sonat
Exploration's joint venture with United Meridian Corporation, Aspect Resources,
and MB Exploration) in the Cotton Valley Pinnacle Reef Trend and plans to start
an additional three exploratory wells there before year end, one of which was
being drilled at June 30, 1996. In addition, Sonat Exploration completed an
important dual-lateral horizontal discovery in the Austin Chalk Trend of west
Louisiana, the Sonat Minerals 1 No. 1, that had an initial production rate of
eight million cubic feet of natural gas and 1,300 barrels of condensate per day.
At the end of the second quarter, Sonat Exploration announced completion of two
significant wells in High Island Block 39 in the Gulf of Mexico with a combined
initial production rate of 85 million cubic feet per day of natural gas and 720
barrels of condensate. These wells demonstrate Sonat Exploration's successful
application of 3D seismic technology to properties that it has acquired, which
has resulted in additional drilling opportunities and higher production.
In addition to its exploratory activity, Sonat Exploration maintained
an active development drilling program in the first half of 1996, participating
in the completion of 170 gross development wells. Also, during the same period,
the Company completed 25 acquisitions at a net cost of $37 million that added 84
billion cubic feet of natural gas equivalent. Proved reserves at June 30, 1996,
were 1.923 trillion cubic feet of natural gas equivalent, up 152 billion cubic
feet of natural gas equivalent from year-end 1995.
Natural gas production is sold by Sonat Exploration to Sonat Marketing,
the Company's affiliate operating in the Energy Marketing segment, and is
marketed primarily in the spot market by Sonat Marketing. Sonat Exploration,
through Sonat Marketing, uses derivative financial instruments to manage the
risks associated with price volatility for both its natural gas production and
its oil production, which it sells in the spot market. (See discussion below,
Market Risk Management and Note 2 of the Notes to Condensed Consolidated
Financial Statements.)
<PAGE>
EXPLORATION AND PRODUCTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Revenues:
<S> <C> <C> <C> <C>
Sales to others $ 41.3 $ 69.2 $ 57.1 $108.6
Intersegment sales 97.8 54.8 193.6 109.4
----- ------ ------ ------
Total Revenues 139.1 124.0 250.7 218.0
------ ------ ------ ------
Costs and Expenses:
Operating and maintenance 15.3 16.3 30.8 33.5
Exploration expense 5.1 2.0 8.6 3.5
General and administrative 14.1 10.9 26.0 21.4
Depreciation, depletion and
amortization 59.2 52.2 114.1 110.0
Taxes, other than income 6.4 4.2 12.2 9.6
---- ------ ----- ------
100.1 85.6 191.7 178.0
------ ------ ------ ------
Operating Income $ 39.0 $ 38.4 $ 59.0 $ 40.0
====== ====== ====== ======
Net Sales Volumes:
Gas (Bcf) 51 44 98 94
Oil and condensate (MBbls) 1,304 888 2,382 1,961
Natural gas liquids (MBbls) 550 418 936 856
- ---------------------------------------------------------------------------------------------------------------------
Average Sales Prices:
Gas ($/Mcf) $ 2.19 $ 1.52 $ 2.06 $ 1.48
Oil and condensate ($/Bbl) 19.61 17.54 18.93 17.33
Natural gas liquids ($/Bbl) 11.31 8.59 10.54 8.66
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Quarter-to-Quarter Analysis
Operating income for the second quarter of 1996 was up $38 million
compared with the same 1995 period, excluding the recognition of $37 million of
operating revenue from the termination of two long-term gas sales contracts in
the 1995 period. Natural gas production rose 16 percent to 51 billion cubic
feet, while realized natural gas prices for the second quarter of 1996 were
$2.19 per thousand cubic feet compared with $1.52 per thousand cubic feet last
year. The increase in natural gas production reflects successful exploration and
development programs throughout the Company's areas of operations. Oil and
condensate production rose 47 percent to 1.3 million barrels for the second
quarter of 1996, primarily due to growing production in the eastern Austin Chalk
Trend where the Company recently increased its drilling program from three to
seven rigs. Realized oil prices rose to $19.61 per barrel from $17.54 per barrel
in 1995.
Although amortization rates declined from $1.01 to $.96 per thousand
cubic feet of natural gas equivalent depreciation, depletion and amortization
expense for the current period increased 13 percent compared with the same 1995
period due to higher production volumes in 1996. General and administrative
expense increased $3.2 million compared with the second quarter of 1995,
primarily due to stock-based employee compensation expense which is a result of
a significant increase in the Company's stock price in the second quarter of
1996. Exploration expenses increased $3.1 million due to more exploration
activity in 1996. Other tax expense increased by $2.2 million, primarily due to
higher severance taxes resulting from higher revenues.
Year-to-Date Analysis
Operating income for the first six months of 1996 was up $56 million
compared with the same period of 1995, excluding the recognition of $37 million
of operating revenue from the termination of two long-term gas sales contracts
in the 1995 period. The increase was due to both higher prices and increased
production. Average realized natural gas prices increased to $2.06 per thousand
cubic feet in 1996 from $1.48 per thousand cubic feet in 1995, a 39 percent
increase. Gas revenues in the 1996 period were reduced by $19.5 million for the
effect of gas hedging transactions. Since April 1996, Sonat Exploration has had
no natural gas futures hedges in place with respect to future production.
Realized oil prices rose to an average of $18.93 per barrel in 1996 from $17.33
per barrel in 1995. Oil revenues in the 1996 period were reduced by $4.6 million
for the effect of oil swap transactions. Sonat Exploration has hedged
approximately 41 percent of expected oil production for the remainder of 1996 at
an $18 per barrel West Texas Intermediate index price (see Note 2 of the Notes
to Condensed Consolidated Financial Statements).
Oil and condensate production increased by 21 percent.
Costs and expenses were higher in the first six months of 1996 compared
with the same 1995 period due to several factors. Exploration expense increased
$5.1 million due to more exploration activity in 1996. General and
administrative expenses increased $4.6 million, primarily due to stock-based
employee compensation expense. Depreciation, depletion and amortization expense
increased $4.1 million due to higher production levels partially offset by lower
amortization rates. Other tax expense increased $2.6 million due to higher
severance taxes related to higher revenues. Operating and maintenance expenses
were $2.7 million lower for the first six months of 1996 compared with 1995,
primarily due to reduced levels of workovers in 1996, which partially offset the
higher expenses mentioned above.
NATURAL GAS TRANSMISSION
The Company is engaged in the natural gas transmission business through
Southern and its subsidiaries, and Citrus Corp. (a 50 percent-owned company).
Southern continues to pursue opportunities to expand its pipeline
system in its traditional market area and to connect new gas supplies. Southern
filed an application on January 24, 1996, with the FERC seeking approval to
extend its pipeline system to provide firm gas transportation service to
customers in North Alabama. The proposed 76-million-cubic-feet-per-day expansion
is supported by long-term firm transportation agreements with five customers,
including the cities of Huntsville and Decatur, which have executed 20-year
service agreements for 40 million cubic feet per day and 25 million cubic feet
per day, respectively. The $53 million project includes 118 miles of new
pipeline and additional compression on Southern's existing system. The proposed
expansion, which requires FERC approval, is scheduled to be in service by
November 1997. The company that currently provides transportation service to the
city of Huntsville has filed suit against Southern and Huntsville seeking to
have Southern's service agreement with Huntsville set aside as violative of
Alabama's competitive bid laws and the Alabama Constitution. This company has
also opposed the system expansion application at the FERC. In July 1996 the FERC
approved the non-environmental aspects of this project and denied the
non-environmental portions of the protests to the project, including the
opposition of Huntsville's current transportation provider. Environmental issues
will be reviewed later by the FERC and a certificate issued, if warranted,
following the environmental review. Southern cannot predict the outcome of this
litigation or the FERC proceeding.
In May 1996, Southern filed an application with the FERC to expand its
pipeline system in its market area. This $36 million expansion will enable
Southern to provide additional firm transportation services totaling 46 million
cubic feet per day to 11 customers in Georgia and Tennessee. If FERC approval is
received, the in-service date for this firm transportation service is expected
to be November 1997.
In July 1996, Destin Pipeline Company Inc., a wholly owned subsidiary
of Southern, filed an application with the FERC seeking authorization to
construct, own, and operate a large-diameter interstate pipeline system to
transport approximately one billion cubic feet of gas per day from the deepwater
and corridor areas being developed in the eastern Gulf of Mexico for delivery to
pipeline interconnections in central Mississippi. The proposed 207 miles of pipe
and related compression facilities include a 36-inch pipeline extending from a
gathering platform to be constructed in the Main Pass Block 248 Area to a point
near Pascagoula, Mississippi, and a 36-inch and 30-inch pipeline from there to
interconnections or exchange points with five other interstate pipelines in
Mississippi. The estimated capital cost of the facilities is $294 million. In
addition to FERC authorization, the project will require firm, long-term
contracts from prospective customers. Destin Pipeline has requested preliminary
regulatory approval for the project by January 1997 so that commercial
agreements can be entered into in early 1997. Engineering would be completed
during 1997, and construction would begin in 1998. The projected in-service date
is scheduled for January 1999. There is no assurance that the FERC will approve
this application or that Destin Pipeline will be successful in securing the
necessary long-term contracts.
<PAGE>
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Operating Income (Loss):
Southern Natural Gas Company
<S> <C> <C> <C> <C>
and subsidiaries $ 36.5 $ 38.2 $ 84.7 $ 90.8
Other (0.1) (0.4) (0.2) (0.8)
----- ------ ----- ------
Total Operating Income $ 36.4 $ 37.8 $ 84.5 $ 90.0
====== ====== ====== ======
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
Revenues:
Gas sales $ 54.4 $ 47.3 $114.6 $ 94.0
Market transportation and
storage 76.1 75.0 160.5 168.5
Supply transportation 12.1 13.2 23.3 25.9
Other 166.3 (4.6) 167.8 21.7
------ ------ ------ ------
Total Revenues 308.9 130.9 466.2 310.1
------ ------ ------ ------
Costs and Expenses:
Natural gas cost 54.4 47.2 112.0 92.4
Transition cost recovery 158.5 (12.5) 153.1 8.4
Operating and maintenance 22.4 21.0 42.3 40.3
General and administrative 20.5 19.8 40.0 40.6
Depreciation and amortization 12.4 12.7 24.8 27.5
Taxes, other than income 4.2 4.5 9.3 10.1
---- ------ ---- ------
272.4 92.7 381.5 219.3
------ ------ ------ ------
Operating Income $ 36.5 $ 38.2 $ 84.7 $ 90.8
====== ====== ====== ======
Equity in Earnings of
Unconsolidated Affiliates $ 2.3 $ 2.3 $ 4.9 $ 4.8
===== ====== ===== ======
(Billion Cubic Feet)
Volumes:
Intrastate gas sales 2 2 4 4
Market transportation 142 127 350 305
--- --- --- ---
Total Market Throughput 144 129 354 309
Supply transportation 80 100 165 187
--- --- --- ---
Total Volumes 224 229 519 496
=== === === ===
Transition gas sales 18 23 35 49
=== === === ===
</TABLE>
<PAGE>
CITRUS CORP.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Equity in Earnings of
<S> <C> <C> <C> <C>
Citrus Corp. $4.7 $6.1 $10.7 $12.9
==== ==== ===== =====
(Billion Cubic Feet)
Florida Gas Volumes (100%):
Market transportation 114 126 205 219
Supply transportation 8 6 16 14
-- --- --- ---
Total Volumes 122 132 221 233
=== === === ===
</TABLE>
Quarter-to-Quarter Analysis
Southern Natural Gas Company and Subsidiaries - Operating income for
the second quarter declined $1.7 million compared with the 1995 period primarily
due to lower supply-area transportation volumes and slightly higher operating
and maintenance expenses and general and administrative expenses. Higher market
transportation revenues resulting from higher volumes related to the East
Tennessee expansion partially offset this decline.
Gas sales revenues and natural gas cost increased compared with the
1995 second quarter reflecting higher gas prices on transition gas sales from
supply remaining under contract. Both other revenue and transition cost recovery
in the 1996 period include $164 million as a result of Southern's Customer
Settlement becoming final. Other revenue and transition cost recovery in the
1995 period were reduced by an adjustment of approximately $25 million to
reflect the terms of the Customer Settlement agreement, which was implemented
March 1, 1995. The adjustment did not impact operating income. General and
administrative expenses for the second quarter of 1996 were slightly higher
compared with the second quarter of 1995, primarily due to higher stock-based
employee compensation expense.
Citrus - Equity in earnings of Citrus declined $1.4 million to $4.7
million. The decline is primarily due to lower interruptible transportation
volumes and higher operating expenses in 1996.
Year-to-Date Analysis
Southern Natural Gas Company and Subsidiaries - Operating income for
the six-month period decreased $6.1 million primarily because incremental
revenues from the sale of firm transportation capacity were collected in the
1995 period prior to revised rates going into effect on March 1, 1995. The 1995
period also included positive adjustments to reflect actual interruptible
transportation revenue and cost recovery in the first year of post Order No. 636
operations and the reduction of a take-or-pay liability.
Gas sales revenues and natural gas cost increased compared with the
1995 period reflecting higher gas prices on transition gas sales from supply
remaining under contract. Both other revenue and transition cost recovery in the
1996 period include $164 million as a result of Southern's Customer Settlement
becoming final. Other revenue and transition cost recovery in the 1995 period
were reduced by an adjustment of approximately $25 million to reflect the terms
of the Customer Settlement. Depreciation and amortization decreased in the 1996
period due to lower rates implemented March 1, 1995.
Citrus - Equity in earnings of Citrus were $2.2 million lower than in
1995. 1996 results reflect revenues and operating costs relating to the
operations of the Phase III expansion project while 1995 results include AFUDC
related to Phase III which was placed in service on March 1, 1995. Also
contributing to the decline were lower margins primarily due to lower
interruptible transportation volumes.
Natural Gas Sales and Supply
Sales by Southern of natural gas 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
supply 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 the cost of gas under some of these contracts is in excess of
current spot-market prices, Southern currently is incurring no take-or-pay
liabilities under any of these contracts. Two market-priced contracts entered
into with Exxon Corporation in 1995 as part of a settlement of certain other gas
purchase contracts account for 85 percent in 1996 and 1997 of the purchase
commitments described below. Of such purchase commitments, the percent that is
priced in excess of current spot-market prices is 2 percent in 1996, 2 percent
in 1997, 12 percent in 1998, and substantially all of the volumes for years
thereafter. (See Note 5 of the Notes to Condensed Consolidated Financial
Statements for a discussion of price differential GSR costs.) Pending the
termination of these remaining supply contracts, Southern has sold a portion of
its remaining gas supply to a number of its firm transportation customers under
contracts that have been extended through November 30, 1997. The remainder of
Southern's gas supply will continue to be sold on a month-to-month basis.
<PAGE>
Southern's purchase commitments under its remaining gas supply
contracts for the remainder of 1996 and years 1997 through 2000 are estimated as
follows:
Estimated
Purchase
Commitments
(In Millions)
1996 $ 83
1997 135
1998 22
1999 22
2000 19
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 that
determine purchase commitments (underlying reserves, future deliverability and
future price) is known today with certainty.
See Note 5 of the Notes to Condensed Consolidated Financial Statements
for a discussion regarding Southern's rate proceedings to recover its GSR costs.
Rate Matters
The Customer Settlement resolves, as to the parties supporting the
settlement, all of Southern's pending rate proceedings and proceedings to
recover GSR and other transition costs associated with the implementation of
Order No. 636. See Note 5 of the Notes to Condensed Consolidated Financial
Statements for a discussion of the Customer Settlement and other rate matters.
ENERGY MARKETING
Sonat Energy Services, through its subsidiaries, Sonat Marketing Company
L.P. and Sonat Power Marketing L.P., conducts marketing business in the natural
gas and electric industries.
Sonat Marketing has experienced rapid growth as reflected by average
daily sales volumes of 2.4 billion cubic feet during the second quarter of 1996.
For the current three-month period, total sales volumes grew from 176 billion
cubic feet to 214 billion cubic feet compared with the 1995 period. Sonat
Marketing purchases and resells substantially all of Sonat Exploration Company's
natural gas production.
Sonat Marketing uses natural gas futures contracts, options, and gas
price swap agreements to hedge the effects of spot-market price volatility on
its operating results. These instruments are used to lock in margins on Sonat
Marketing's gas transactions. Sonat Marketing also uses futures derivatives to
enable it to offer fixed-price contracts to its suppliers and customers. (See
Market Risk Management and Note 2 of the Notes to Condensed Consolidated
Financial Statements.)
Sonat Power Marketing has executed power purchase, sales and
transmission agreements with numerous U.S. utilities. It is focusing on
expanding its wholesale business. Sonat and AGL Resources Inc., which has a 35
percent ownership interest in Sonat Marketing, completed an agreement in the
second quarter of 1996 whereby AGL Resources Inc. also acquired a 35 percent
interest in Sonat Power Marketing. The transaction resulted in a $.5 million
gain, which is included in other income.
ENERGY MARKETING
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C>
Revenues $526.3 $299.5 $1,123.1 $528.4
====== ====== ======== ======
Operating Income (Loss) $ (0.1) $ 2.0 $ 12.3 $ 4.1
====== ====== ====== ======
Sonat Marketing Gas Sales
Volumes (100%)
(Billion Cubic Feet) 214 176 423 318
=== === === ===
Sonat Power Marketing Sales
Volumes (100%)
(Thousands of Megawatt Hours) 473 - 649 -
=== == === ==
</TABLE>
Quarter-to-Quarter Analysis
Although revenues increased 76 percent due to both higher volumes and
higher gas prices, operating results for the energy marketing segment decreased
$2.1 million in the second quarter of 1996 compared with the 1995 period. While
natural gas marketing operations were profitable and sales volumes increased 22
percent, unit trading margins were lower. Energy marketing results were also
adversely affected by higher expenses, including stock-based employee
compensation expense, and start-up costs associated with the development of its
electric power marketing operations.
Year-to-Date Analysis
Revenues increased for the six-month period for the same reasons
mentioned above. Operating results for the energy marketing segment for the six
months ended June 30, 1996, were up substantially over 1995 levels, as operating
income increased to $12.3 million from $4.1 million primarily due to much higher
unit trading margins and to higher volumes. Unusually cold weather in early 1996
in certain of Sonat Marketing's markets created intense demand for natural gas
during peak periods resulting in a volatile price environment which created
exceptional trading opportunities for Sonat Marketing in the first quarter of
1996.
Other Income Statement Items
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In Millions)
Other Income (Loss), Net:
Equity in earnings of
<S> <C> <C> <C> <C>
unconsolidated affiliates $ 7.4 $ 11.9 $16.4 $ 25.0
Minority interest (0.4) - (5.1) -
Other 2.0 (41.2) 1.9 (35.8)
---- ------ ---- ------
$ 9.0 $(29.3) $13.2 $(10.8)
===== ====== ===== ======
</TABLE>
The decrease in equity in earnings of unconsolidated affiliates in both
of the 1996 periods primarily reflects the absence of earnings from the
Company's investment in Sonat Offshore Drilling Inc. which was sold in July
1995. Minority interest is AGL Resources Inc.'s 35 percent shares of Sonat
Marketing and Sonat Power Marketing's earnings (losses). Other increased due to
a $30.8 million loss on the sale of oil and gas properties and a $13 million
loss on the sale of the Company's investment in Baker-Hughes Incorporated
convertible preferred stock in the 1995 periods. Slightly offsetting these
losses were $3 million and $6 million of dividends on the Baker Hughes stock in
the three-month and six-month periods of 1995, respectively.
<TABLE>
<S> <C> <C> <C> <C>
Interest Expense, Net $21.9 $ 25.3 $43.1 $ 51.2
</TABLE>
Interest expense on debt decreased compared with the three-month and
six-month periods of 1995 due to much lower average debt levels, slightly offset
by higher interest rates. Debt levels were lower due to proceeds from the Sonat
Offshore stock sale and the Baker Hughes stock sale in 1995 being used to repay
debt. Interest income decreased in both 1996 periods compared with the 1995
periods due to much lower GSR interest income.
<TABLE>
<S> <C> <C> <C> <C>
Income Taxes $20.8 $ 5.8 $41.4 $ 15.8
</TABLE>
The increase in income taxes in both 1996 periods resulted from an
increase in pre-tax income and a higher effective tax rate. The higher effective
tax rate reflects lower levels of non-conventional fuel tax credits and other
tax preference items.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
(In Millions)
<S> <C> <C>
Operating Activities $270.2 $125.4
</TABLE>
Cash flow from operations increased $144.8 million compared with the
1995 period primarily due to improved operating results at both Sonat
Exploration and Sonat Marketing, which were discussed earlier. At Southern, cash
flow from operations improved, primarily due to higher GSR payments in the 1995
period.
Other than the GSR payments discussed above, both the change in gas
supply realignment costs and the change in reserves for regulatory matters were
attributable to recognition of the Customer Settlement becoming final in the
second quarter of 1996 (see earlier discussion). The change in deferred income
taxes reflects Southern's settlement accounting and the disposal of the
Company's investment in Baker Hughes preferred stock in the 1995 period. The
change in both accounts receivable and accounts payable is primarily
attributable to the expanding business of Sonat Exploration and Sonat Marketing.
Other includes $32.9 million of accrual reversals related to the Customer
Settlement in the current period. In addition, the 1995 period includes $37
million from the termination of long-term gas sales contracts, as well as
transition costs deferred at Southern.
<TABLE>
<S> <C> <C>
Investing Activities $(271.2) $(66.4)
</TABLE>
Net cash used in investing activities was $204.8 million higher in the
1996 period compared to the 1995 period, which included sources of cash from
unusual items. In 1995, the Company received $167.0 million from the sale of
four million shares of Baker Hughes convertible preferred stock, and $51.3
million in proceeds from the sale of Sonat Exploration oil and gas properties.
Capital expenditures were slightly lower in the 1996 period compared to the 1995
period.
<TABLE>
<S> <C> <C>
Financing Activities $ (22.5) $(62.1)
</TABLE>
Net cash used in financing activities was $39.6 million less in the
1996 period compared to the 1995 period. Proceeds from the unusual transactions
discussed above were used in part to repay borrowings under Sonat's floating
rate facilities in the 1995 period.
<PAGE>
Capital Expenditures
Capital expenditures for the Company's business segments (excluding
unconsolidated affiliates) were as follows:
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
(In Millions)
<S> <C> <C>
Exploration and Production $ 214.7 $262.0
Natural Gas Transmission 51.9 16.8
Energy Marketing 1.9 1.3
Other 2.6 2.7
---- ------
Total $ 271.1 $282.8
======= ======
</TABLE>
The Company's share of capital expenditures by its unconsolidated
affiliates was $4.9 million and $77.7 million in the first six months of 1996
and 1995, respectively. The 1995 period included spending at Florida Gas on the
Phase III expansion project placed in service on March 1, 1995.
Capital Resources
At June 30, 1996, the Company had lines of credit and a revolving
credit agreement with a total capacity of $750 million. Of this, $493.5 million
was available. At June 30, 1996, $6.5 million was outstanding under Sonat's line
of credit. The amount available under the lines of credit has also been reduced
by the amount of commercial paper outstanding of $250 million to reflect the
Company's policy that bank and commercial paper borrowings in the aggregate will
not exceed the maximum amount available under its lines of credit and revolving
credit agreement.
Sonat has a shelf registration with the Securities and Exchange
Commission (SEC) that provides for issuance of up to $500 million in debt
securities of which $300 million is unissued. Southern also has a shelf
registration with the SEC for up to $200 million in debt securities, of which
$100 million has been issued. Southern expects to issue the $100 million
remaining under its shelf registration in either late 1996 or early 1997 to fund
planned expansion of its pipeline system.
The Company has a stock repurchase program through April 30, 1997,
which authorizes the purchase of approximately three million shares of the
Company's common stock. Through June 30, 1996, the Company has purchased
2,059,260 shares and will continue to purchase shares from time-to-time on the
open market or in privately negotiated transactions. Shares purchased under the
authorization are being reissued in connection with employee stock options and
restricted stock programs.
Cash flow from operations and borrowings in the public or private
markets provide the Company with the means to fund operations and currently
planned investment and capital expenditures.
MARKET AND FINANCIAL RISK MANAGEMENT
The Company's primary market risk exposure is the volatility of
spot-market natural gas and oil prices, which affects operating results of Sonat
Exploration and Sonat Marketing.
Sonat Exploration, through Sonat Marketing, uses futures contracts,
options, and oil and natural gas price swap agreements to hedge its commodity
price risk. Sonat Exploration's hedging objective is to lock in the price of a
portion of its expected oil and gas production when it believes that prices are
at an acceptable level.
Sonat Marketing uses derivative instruments to reduce the risk of price
changes and location differences when it buys or sells natural gas. For example,
Sonat Marketing may purchase certain natural gas volumes before a customer has
been identified, then sell an equivalent volume in natural gas futures contracts
or options on futures contracts to match the cash transaction.
The Company also has exposure to financial market risks. In
anticipation of a future borrowing under its shelf registration, Southern
entered into a forward rate agreement to hedge its interest rate risk in January
1996 (see Note 2 of the Notes to Condensed Consolidated Financial Statements).
The Company's use of these derivative instruments is implemented under
a set of policies approved by the Board of Directors. These policies prohibit
speculative transactions not matched by physical commodity positions in the case
of Sonat Exploration or corresponding trading positions in the case of Sonat
Marketing and determine approval levels for each transaction. For commodity
price hedges, these policies set limits regarding volumes relative to budgeted
production or sales levels. All swap counterparties are approved by the Board,
and volume limits are set for any single counterparty. Reports detailing each
transaction are distributed to management. In addition, all hedge activities are
internally reviewed to ensure compliance with all policies. (See Note 2 of the
Notes to Condensed Consolidated Financial Statements.)
FORWARD LOOKING STATEMENTS
Disclosures provided in this Quarterly Report contain forward looking
statements regarding the Company's future plans, objectives, and expected
performance. These statements are based on assumptions that the Company believes
are reasonable, but are subject to a wide range of risks, and there is no
assurance that actual results may not differ materially. Important factors that
could cause actual results to differ include changes in oil and gas prices and
underlying demand, which would affect profitability and might cause the Company
to alter its plans, the timing and results of oil and gas drilling and
acquisition programs, which determine production levels and reserves, the
results of the Company's hedging activities, and the success of management's
cost reduction activities. Realization of the Company's objectives and expected
performance can also be adversely affected by the actions of customers and
competitors, changes in governmental regulation of the Company's businesses, and
changes in general economic conditions and the state of domestic capital
markets.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Legal Proceedings
Southern Natural Gas Company and its wholly owned subsidiary, Sea Robin
Pipeline Company, are two of seventy defendants named in Jack J. Grynberg, ex
rel. v. Alaska Pipeline Company, et al., which was filed in the United States
District Court for the District of Columbia. The defendants include
substantially all of the interstate pipelines in the United States. Grynberg
filed suit on behalf of the United States Government under 31 U.S.C. ss. 3729,
et seq., commonly known as the False Claims Act, alleging that the methods used
by the defendants to measure the heating content and volume of natural gas
purchased by them have caused producers of natural gas to underpay royalties
owed by the producers to the United States. The complaint seeks recovery of
actual damages based upon the unpaid royalties, the amount of which is not
specified in the complaint. Such damages may be trebled under Section 3729.
Southern and Sea Robin intend to defend the suit vigorously.
See Note 5 of the Notes to the Consolidated Financial Statements in
this report for a description of the FERC's Division of Audits proposed
adjustments to the capitalization by Florida Gas of AFUDC during construction of
its Phase III expansion facilities and the settlement in principle that has been
reached regarding those proposed adjustments.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits1
Exhibit
Number Exhibits
4* Credit Agreement dated as of June 1, 1996, among Sonat
Inc., and the Banks named therein, and The Chase Manhattan
Bank (National Association) and Morgan Guaranty Trust
Company of New York, as Co-Agents
11* Computation of Earnings per Share
12* Computation of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule for the period ended June 30, 1996
* Filed with this Report
(b) Reports on Form 8-K
The Company did not file any Report on Form 8-K during the quarter ended June
30, 1996.
- -----------------------
1/ The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of $.10 per page up to a maximum of $5.00
per exhibit. Requests must be in writing and should be addressed to Beverley T.
Krannich, Secretary, Sonat Inc., P. O. Box 2563, Birmingham, Alabama 35202-2563.
<PAGE>
SONAT INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
Date: August 6, 1996 By: /s/ James A. Rubright
------------------------- -----------------------
James A. Rubright
Senior Vice President and
General Counsel
(Principal Accounting Officer)
Date: August 6, 1996 By: /s/ Thomas W. Barker, Jr.
------------------------- ---------------------------
Thomas W. Barker, Jr.
Vice President-Finance and
Treasurer
(Principal Financial Officer)
CONFORMED COPY
EXHIBIT 4
CREDIT AGREEMENT
dated as of June 1, 1996
among
SONAT INC.,
THE BANKS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION)
and
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
as Co-Agents
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Article Page
I. LOANS............................................................. 1
1.01 Syndicated Loans...................................... 1
1.02 Money Market Loans.................................... 1
1.03 Intentionally Omitted................................. 4
1.04 Change of Commitments................................. 4
1.05 Borrowings of Syndicated Loans........................ 6
1.06 Several Commitments; Remedies Independent............. 7
1.07 Availability of Funds................................. 7
1.08 Extension of Commitment Termination Date.............. 7
1.09 Lending Offices....................................... 8
1.10 Notes................................................. 8
II. PAYMENTS, INTEREST AND CERTAIN FEES............................... 8
2.01 Repayment of Loans.................................... 8
2.02 Interest.............................................. 8
2.03 Interest Periods...................................... 9
2.04 Prepayments........................................... 10
2.05 Payments, etc......................................... 10
2.06 Pro Rata Treatment; Sharing........................... 11
2.07 Computations.......................................... 12
2.08 Facility Fee.......................................... 12
2.09 Administration Fee.................................... 12
III. PROVISIONS RELATING TO FIXED RATE LOANS........................... 12
3.01 Additional Costs...................................... 12
3.02 Limitation on Types of Loans.......................... 15
3.03 Illegality............................................ 15
3.04 Treatment of Affected Loans........................... 16
3.05 Compensation.......................................... 16
3.06 Survival.............................................. 17
IV. CONDITIONS........................................................ 17
4.01 Conditions to Effectiveness........................... 17
4.02 Conditions Precedent to Loans......................... 18
V. COVENANTS......................................................... 18
5.01 Financial Statements.................................. 18
5.02 Access to Books and Inspection........................ 19
5.03 Litigation............................................ 19
5.04 Maintenance of Existence.............................. 20
5.05 Merger; Sale of Assets................................ 20
5.06 Default; Investment Rating............................ 21
5.07 ERISA................................................. 21
5.08 Liens................................................. 21
5.09 Total Indebtedness to Consolidated Capitalization..... 22
5.10 Intentionally Omitted................................. 22
5.11 Insurance............................................. 22
5.12 Maintenance of Properties............................. 22
5.13 Public Utility Holding Company Act.................... 23
VI. REPRESENTATIONS AND WARRANTIES.................................... 23
6.01 Corporate Existence and Powers........................ 23
6.02 Corporate Authority, etc.............................. 23
6.03 Financial Condition................................... 23
6.04 Litigation............................................ 24
6.05 Taxes................................................. 24
6.06 Approvals............................................. 24
6.07 ERISA................................................. 24
6.08 Regulation U.......................................... 24
6.09 Certain Subsidiaries.................................. 24
6.10 Investment Company Act................................ 25
6.11 Environmental Laws.................................... 25
VII. EVENTS OF DEFAULT................................................. 25
VIII. MISCELLANEOUS..................................................... 27
8.01 Waiver................................................ 27
8.02 Notices and Delivery of Documents..................... 27
8.03 Governing Law......................................... 28
8.04 Offsets, etc.......................................... 28
8.05 Disposition of Loans.................................. 28
8.06 Expenses.............................................. 28
8.07 Amendments, Waivers, etc.............................. 29
8.08 Definitions........................................... 29
8.09 Successors and Assigns................................ 29
8.10 Counterparts.......................................... 29
IX. THE AGENTS.......................................................... 29
9.01 Appointment, Power and Immunities..................... 29
9.02 Reliance by Agents.................................... 30
9.03 Default............................................... 30
9.04 Rights as a Lender.................................... 30
9.05 Indemnification....................................... 31
9.06 Reports............................................... 31
9.07 Non-Reliance on Agents and Other Banks................ 31
9.08 Failure to Act........................................ 32
9.09 Resignation or Removal of Agents...................... 32
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
CREDIT AGREEMENT dated as of June 1, 1996 among SONAT INC., a
Delaware corporation (the "Company"); the undersigned banks (each herein called
a "Bank"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) 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
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 1.04 hereof need not be prepaid on
account of this proviso.
1.02 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, the Company may,
as set forth in this 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 1.02. Money Market Loans shall
be Set Rate Loans, 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 2.03 hereof shall be deemed to be different
Interest Periods even if they are coterminous); and
(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 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 the Business Day next
preceding the date of borrowing proposed therein or such other time and date as
the Company and the Majority Banks may agree. The Company may request offers to
make Money Market Loans for up to three different Interest Periods 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 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; and
(iv) the date on which the Money 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 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 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 10:00 a.m.
New York time on the Quotation Date or such other time and date as the Company
and the Majority Banks may agree. Subject to 3.02(b), 3.03, 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) the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/10,000th of 1%) offered for each Money
Market Loan (the "Money Market Rate"); and
(D) 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 the Quotation Date or
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 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 1.02 hereof to be
violated;
(iii) acceptance of offers may be made only in ascending order of
Money Market Rates, in each case commencing with the lowest rate so
offered; and
(iv) the Company may not accept any offer that fails to comply
with 1.02(c)(ii) hereof or otherwise fails to comply with the requirements
of this Agreement (including, without limitation, 1.02(a) hereof).
If offers are made by two or more Banks with the same Money Market Rates 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
1.03 hereof, the amount of any Money Market Loan made by any Bank shall not
constitute a utilization of such Bank's Commitment.
1.03 Commitment Fee. Intentionally omitted.
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 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 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 3.01(a) or 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 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 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 3.01(a) or 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 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.
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 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 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 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 1.05(b) or 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
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).
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.
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 (or if such day is not a Business Day, the next preceding Business
Day).
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 Quarterly Date in June of 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.
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.
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 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, 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
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.
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); and
(c) 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 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 that is converted into a
Domestic Loan (pursuant to 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.
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 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 1.02(b) hereof.
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, 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 shall have a
duration of less than one month and, if the Interest Period for any Eurodollar
Loans would otherwise be a shorter period, such Loans shall not be available
hereunder.
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
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 3.05, shall be paid on such prepayment date).
(b) If, after giving effect to any termination or reduction of the
Commitment of any Bank pursuant to 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 3.05 hereof in connection therewith.
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 1.02 or 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 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.
2.06 Pro Rata Treatment; Sharing.
(a) Except to the extent otherwise provided herein: (i) each
borrowing from the Banks under 1.01 hereof shall be made from the Banks, each
payment of commitment fee under 1.03 hereof shall be made for account of the
Banks, and each termination or reduction of the amount of the Commitments under
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 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 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 2.06 to share in the benefits of any recovery on such
secured claim.
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.
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 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.
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:
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 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 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 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.
(b) Without limiting the effect of the provisions of paragraph (a)
of this 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 3.04
hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
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 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 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 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 3.01 as promptly as practicable, but in any event
within 90 days, after such Bank obtains actual knowledge thereof; provided,
however, that if any Bank fails to give such notice within 90 days after it
obtains actual knowledge of such an event, such Bank shall, with respect to
compensation payable pursuant to this 3.01 in respect of any costs resulting
from such event, only be entitled to payment under this 3.01 for costs incurred
from and after the date 90 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 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 ss.3.01. Determinations and allocations by any Bank
for purposes of this 3.01 of the effect of any Regulatory Change pursuant to
paragraph (a) or (b) of this 3.01, or of the effect of capital maintained
pursuant to paragraph (c) of this 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 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 is determined as provided in this Agreement or against any
category of extensions of credit or other assets of such Bank which includes any
Eurodollar 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 made by such Bank for each day during such Interest Period:
(i) the principal amount of such Eurodollar 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 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.
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, 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 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;
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.
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
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 3.04 hereof shall be applicable).
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 3.01
or 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 3.01(b) or 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.
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 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 1.05 or 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 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).
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
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 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 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 Simpson Thacher & Bartlett, 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 pay all accrued and
unpaid fees outstanding under the Existing Agreement to Chase for account of
each "Bank" under the Existing Agreement, (ii) each loan outstanding under the
Existing Agreement 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 (iii) 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.
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 6.03, 6.04, 6.05, 6.07, 6.09 and 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:
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 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 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 with
the provisions of 5.09 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.
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 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
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 8.05 hereof.
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.
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.
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 or to transfer all or substantially all of its assets,
except that any such Restricted Subsidiary may merge or consolidate with,
or transfer all or substantially all of its assets to, the Company or any
of the Company's other Subsidiaries provided that (i) the surviving entity
of such merger or consolidation or the transferee of such assets (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, consolidation or transfer of
assets, no Default shall have occurred and be continuing; or
(c) sell, assign, transfer or otherwise dispose of all or
substantially all of its assets or, in any case, 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 (c), (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).
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.
5.07 ERISA. The Company will furnish to the Banks:
(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.
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 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 in any of its cash or cash equivalents
(within the meaning of generally accepted accounting principles) created
by the Company for the purpose of securing Derivative Obligations of the
Company, provided that the aggregate amount of all cash or cash
equivalents secured by security interests permitted by this clause (d)
shall not exceed $25,000,000.
(e) Any security interest not otherwise permitted under the
preceding clauses (a) through (d) 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 (e) shall not exceed
$10,000,000.
5.09 Total Indebtedness to Consolidated Capitalization. The
Company will not at any time permit Total Indebtedness of the Company to
exceed 65% of the Consolidated Capitalization of the Company.
5.10 Subsidiary Indebtedness Limitations. [Intentionally
omitted.]
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 and carry such other insurance as is
usually carried by such corporations.
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 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 5.12 shall
prohibit any sale, assignment, transfer or other disposition permitted by 5.05
hereof.
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:
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.
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 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 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.
6.03 Financial Condition. The consolidated balance sheets of the
Company and its Consolidated Subsidiaries as at December 31, 1995 and March 31,
1996 and the related statements of consolidated income and cash flows of the
Company and its Consolidated Subsidiaries for the 12 months and three 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 three months,
respectively, then ended in accordance with generally accepted accounting
principles (except that the financial statements as of March 31, 1996 and for
the three 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 June 4, 1996, from the Treasurer of the Company, a copy of
which has been furnished to each Bank, since December 31, 1995 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.
6.04 Litigation. Except as disclosed in a letter dated June 4, 1996,
from the Senior Vice President and General Counsel of the Company, a copy of
which has heretofore been furnished to each Bank, there are no actions, suits or
proceedings, and 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.
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.
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).
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.
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.
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.
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.
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 1.03 or 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 5.05, 5.08 or 5.09 hereof;
E. default by the Company in the due performance or
observance of 5.06(a) hereof which shall remain unremedied for a
period of ten days;
F. default by the Company in the due performance or
observance of 5.03 or 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 $25,000,000, 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 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
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
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.
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.
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.
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 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 8.04 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Banks may
have.
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
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 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 5.02 hereof (and
such Bank shall promptly furnish a copy of each such agreement to the Company).
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 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 Simpson Thacher & Bartlett, 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.
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 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 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.
8.08 Definitions. Certain terms are defined in Schedule 1 hereto and
as used herein shall have meanings as so defined.
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.
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
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.
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 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.
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.
9.04 Rights as a Lender. With respect to its Commitment and the
Loans made by it or any collateral therefor, each of Chase 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 and Morgan
(and any successor Agent hereunder) in its individual capacity. Each of Chase
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.
9.05 Indemnification. The Banks severally agree to indemnify each
Agent (to the extent requested by such Agent as provided in 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 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.
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.
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
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.
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.
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
Commitment
$ 67,500,000 THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By /s/ Ronald Potter
Title: Managing Director
$ 67,500,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ John Kowalczuk
Title: Vice President
$ 50,000,000 TORONTO DOMINION (TEXAS), INC.
By /s/ Linda A. Lavin
Title: Director
$ 50,000,000 THE BANK OF NOVA SCOTIA
By /s/ A.S. Norsworthy
Title: Sr. Team Leader - Loan
Operations
$ 50,000,000 CIBC INC.
By /s/ Gary C. Gaskill
Title: Authorized Signatory
$ 40,000,000 SUNTRUST BANK, ATLANTA
By /s/ F. McLellan Deaver
Title: Group Vice President
By /s/ Jennifer L. McClure
Title: Banking Officer
$ 25,000,000 CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Pascal Poupelle
Title: Senior Vice President
$ 30,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ Paul C. Sqires
Title: Senior Vice President
$ 30,000,000 MELLON BANK, N.A.
By /s/ A. Gary Chace
Title: Senior Vice President
$ 30,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ William Nixon
Title: Assistant Vice President
$ 15,000,000 AMSOUTH BANK OF ALABAMA
By /s/ David A. Simmons
Title: Senior Vice President
$ 15,000,000 BANK OF TOKYO - MITSUBISHI, LTD.
By /s/ Nathan Lea
Title: Banking Officer
$ 15,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Leo Loughead
Title: Corporate Banking
Officer
$ 15,000,000 PNC BANK, NATIONAL ASSOCIATION
By /s/ J. Drew Potts
Title: Commercial Banking
Officer
$500,000,000
<PAGE>
Agents
THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION)
as Agent
By /s/ Ronald Potter
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
as Agent
By /s/ John Kowalczuk
Title: Vice President
Exhibit 11
SONAT INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(In Thousands Except Per-Share Amounts)
Primary Earnings Per Share(1)
<S> <C> <C> <C> <C>
Net Income $40,595 $17,341 $86,164 $54,958
======= ======= ======= =======
Common Stock and Common Stock Equivalents:
Weighted Average Number of Shares
of Common Stock Outstanding 86,208 86,371 86,168 86,361
Common Stock Equivalents Applicable
to Outstanding Stock Options 1,492 981 1,247 832
------ ------- ------ -------
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalents Outstanding 87,700 87,352 87,415 87,193
======= ======= ======= =======
Primary Earnings Per Share $ .46 $ .20 $ .99 $ .63
===== ======= ===== =======
</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 may not agree with primary earnings per
share shown on the Condensed Consolidated Statements of Income in Part I.
EXHIBIT 12
SONAT INC. AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $127,571 $ 65,965 $282,497 $154,871 $364,198 $133,728 $ 98,374
Fixed charges (see computation below) 78,993 89,348 165,154 127,909 129,160 156,428 175,980
Less allowance for interest capitalized (2,678) (3,438) (6,540) (6,692) (4,101) (8,422) (7,951)
------- ------- ------- -------- -------- -------- --------
Total Earnings Available for Fixed Charges $203,886 $151,875 $441,111 $276,088 $489,257 $281,734 $266,403
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $ 75,254 $ 85,652 $157,653 $120,295 $122,204 $149,165 $168,510
Rentals(b) 3,739 3,696 7,501 7,614 6,956 7,263 7,470
------ ------ ------ -------- -------- -------- --------
$ 78,993 $ 89,348 $165,154 $127,909 $129,160 $156,428 $175,980
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.6 1.7 2.7 2.2 3.8 1.8 1.5
==== ==== ==== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Amounts include the Company's portion of the captions as they relate
to persons accounted for by the equity method.
(b) These amounts represent 1/3 of rentals which approximate the interest
factor applicable to such rentals of the Company and its subsidiaries and
continuing unconsolidated affiliates.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,761
<SECURITIES> 0
<RECEIVABLES> 365,639
<ALLOWANCES> 0
<INVENTORY> 35,988
<CURRENT-ASSETS> 496,939
<PP&E> 5,048,611
<DEPRECIATION> 2,650,301
<TOTAL-ASSETS> 3,456,440
<CURRENT-LIABILITIES> 718,489
<BONDS> 763,324
0
0
<COMMON> 87,244
<OTHER-SE> 1,429,382
<TOTAL-LIABILITY-AND-EQUITY> 3,456,440
<SALES> 1,177,626
<TOTAL-REVENUES> 1,581,557
<CGS> 938,467
<TOTAL-COSTS> 1,187,777
<OTHER-EXPENSES> 138,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,457
<INCOME-PRETAX> 127,571
<INCOME-TAX> 41,407
<INCOME-CONTINUING> 86,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,164
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
