(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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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TEXAS AND VIRGINIA 75-1743247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
THREE LINCOLN CENTRE, SUITE 1800 75240
5430 LBJ FREEWAY, DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as of August 1, 2003.
CLASS SHARES OUTSTANDING ----- ------------------ No Par Value 51,279,963 |
ITEM 1. FINANCIAL STATEMENTS
JUNE 30, SEPTEMBER 30,
2003 2002
----------- -------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Property, plant and equipment............................... $2,504,655 $2,127,827
Less accumulated depreciation and amortization............ 1,010,210 827,507
---------- ----------
Net property, plant and equipment...................... 1,494,445 1,300,320
Current assets
Cash and cash equivalents................................. 17,321 46,827
Cash held on deposit in margin account.................... -- 10,192
Accounts receivable, net.................................. 251,418 136,227
Inventories............................................... 5,489 3,769
Gas stored underground.................................... 79,485 91,783
Assets from risk management activities.................... 18,646 27,984
Other current assets and prepayments...................... 10,605 13,209
---------- ----------
Total current assets................................... 382,964 329,991
Intangible assets........................................... 5,248 5,365
Goodwill.................................................... 275,021 185,015
Noncurrent assets from risk management activities........... 1,635 5,241
Deferred charges and other assets........................... 219,027 154,289
---------- ----------
$2,378,340 $1,980,221
========== ==========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Common stock.............................................. $ 255 $ 208
Additional paid-in capital................................ 727,686 508,265
Retained earnings......................................... 140,373 106,142
Accumulated other comprehensive loss...................... (40,861) (41,380)
---------- ----------
Shareholders' equity................................... 827,453 573,235
Long-term debt.............................................. 864,348 670,463
---------- ----------
Total capitalization................................... 1,691,801 1,243,698
Current liabilities
Current maturities of long-term debt...................... 9,747 21,980
Short-term debt........................................... 700 145,791
Accounts payable and accrued liabilities.................. 203,588 135,609
Taxes payable............................................. 35,545 15,626
Customers' deposits....................................... 39,221 31,147
Liabilities from risk management activities............... 13,256 18,487
Deferred gas cost......................................... 29,862 21,947
Other current liabilities................................. 50,184 72,520
---------- ----------
Total current liabilities.............................. 382,103 463,107
Deferred income taxes....................................... 163,443 134,540
Noncurrent liabilities from risk management activities...... 549 3,663
Deferred credits and other liabilities...................... 140,444 135,213
---------- ----------
$2,378,340 $1,980,221
========== ==========
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See accompanying notes to condensed consolidated financial statements.
THREE MONTHS ENDED
JUNE 30,
-----------------------
2003 2002
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Operating revenues.......................................... $247,789 $161,800
Purchased gas cost.......................................... 160,583 87,967
-------- --------
Gross profit.............................................. 87,206 73,833
Gas trading margin.......................................... 7,858 12,259
Operating expenses
Operation and maintenance................................. 45,141 37,832
Depreciation and amortization............................. 23,192 20,362
Taxes, other than income.................................. 12,675 8,720
-------- --------
Total operating expenses............................... 81,008 66,914
-------- --------
Operating income............................................ 14,056 19,178
Miscellaneous income (expense).............................. 686 (182)
Interest charges............................................ 16,042 13,823
-------- --------
Income (loss) before income taxes........................... (1,300) 5,173
Income tax expense (benefit)................................ (1,099) 1,919
-------- --------
Net income (loss)...................................... $ (201) $ 3,254
======== ========
Per Share Data
Basic net income (loss) per share......................... $ (0.00) $ 0.08
======== ========
Diluted net income (loss) per share....................... $ (0.00) $ 0.08
======== ========
Cash dividends per share.................................... $ .300 $ .295
======== ========
Weighted average shares outstanding:
Basic..................................................... 45,997 41,265
======== ========
Diluted................................................... 45,997 41,370
======== ========
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See accompanying notes to condensed consolidated financial statements.
NINE MONTHS ENDED
JUNE 30,
-----------------------
2003 2002
----------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Operating revenues.......................................... $1,349,697 $812,623
Purchased gas cost.......................................... 929,300 479,542
---------- --------
Gross profit.............................................. 420,397 333,081
Gas trading margin.......................................... 14,801 29,026
Operating expenses
Operation and maintenance................................. 151,310 122,614
Depreciation and amortization............................. 65,273 60,875
Taxes, other than income.................................. 44,057 29,661
---------- --------
Total operating expenses............................... 260,640 213,150
---------- --------
Operating income............................................ 174,558 148,957
Miscellaneous income (expense).............................. 3,321 (893)
Interest charges............................................ 47,679 44,304
---------- --------
Income before income taxes and cumulative effect of
accounting change......................................... 130,200 103,760
Income tax expense.......................................... 48,303 38,495
---------- --------
Income before cumulative effect of accounting change........ 81,897 65,265
Cumulative effect of accounting change, net of income tax
benefit................................................... (7,773) --
---------- --------
Net income............................................. $ 74,124 $ 65,265
========== ========
Per Share Data
Basic income per share:
Income before cumulative effect of accounting change... $ 1.83 $ 1.59
Cumulative effect of accounting change, net of income
tax benefit........................................... (.17) --
---------- --------
Net income............................................. $ 1.66 $ 1.59
========== ========
Diluted income per share:
Income before cumulative effect of accounting change... $ 1.82 $ 1.59
Cumulative effect of accounting change, net of income
tax benefit........................................... (.17) --
---------- --------
Net income............................................. $ 1.65 $ 1.59
========== ========
Cash dividends per share.................................... $ .900 $ .885
========== ========
Weighted average shares outstanding:
Basic..................................................... 44,679 41,049
========== ========
Diluted................................................... 44,879 41,144
========== ========
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See accompanying notes to condensed consolidated financial statements.
NINE MONTHS ENDED
JUNE 30,
---------------------
2003 2002
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
Cash Flows From Operating Activities
Net income................................................ $ 74,124 $ 65,265
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of accounting change, net of income
tax benefit........................................... 7,773 --
Depreciation and amortization:
Charged to depreciation and amortization............. 65,273 60,875
Charged to other accounts............................ 1,676 1,931
Deferred income tax expense............................ 9,148 18,454
Other.................................................. (5,403) (3,223)
Net assets/liabilities from risk management
activities............................................ (4,200) (10,780)
Net change in operating assets and liabilities......... (31,099) 169,144
--------- ---------
Net cash provided by operating activities............ 117,292 301,666
Cash Flows From Investing Activities
Capital expenditures...................................... (113,452) (89,768)
Acquisitions.............................................. (74,650) (15,747)
Retirements of property, plant and equipment, net......... 315 (1,930)
Assets for leasing activities............................. (185) (6,880)
--------- ---------
Net cash used in investing activities................ (187,972) (114,325)
Cash Flows From Financing Activities
Net decrease in short-term debt........................... (145,091) (155,755)
Cash dividends paid....................................... (39,893) (36,391)
Repayment of long-term debt............................... (72,333) (16,925)
Repayment of Mississippi Valley Gas debt.................. (70,938) --
Net proceeds from issuance of long-term debt.............. 253,267 --
Proceeds from Bridge loan................................. 147,000 --
Repayment of Bridge loan.................................. (147,000) --
Issuance of common stock.................................. 19,336 13,470
Net proceeds from equity offering......................... 96,826 --
--------- ---------
Net cash provided (used) by financing activities..... 41,174 (195,601)
--------- ---------
Net decrease in cash and cash equivalents................... (29,506) (8,260)
Cash and cash equivalents at beginning of period............ 46,827 15,263
--------- ---------
Cash and cash equivalents at end of period.................. $ 17,321 $ 7,003
========= =========
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See accompanying notes to condensed consolidated financial statements.
1. UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim period financial statements. These consolidated interim period financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation ("Atmos" or "the Company") in its Annual Report on Form 10-K for the fiscal year ended September 30, 2002. Because of seasonal and other factors, the results of operations for the nine month period ended June 30, 2003 are not indicative of expected results of operations for the year ending September 30, 2003.
Principles of consolidation -- The accompanying condensed consolidated financial statements include the accounts of Atmos and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated.
Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. We based our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, allowance for doubtful accounts, goodwill and pension and other post retirement plans. Actual results may differ from estimates.
Common stock -- At June 30, 2003, we had 100,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 51,106,074 shares issued and outstanding. At September 30, 2002, we had 41,675,932 shares issued and outstanding.
Goodwill -- The following table summarizes our goodwill balances as of June 30, 2003 and September 30, 2002:
JUNE 30, SEPTEMBER 30,
2003 2002
----------- -------------
(UNAUDITED)
(IN THOUSANDS)
Utility segment............................................. $240,294 $150,287
Natural gas marketing segment............................... 22,600 21,288
Other non-utility segment................................... 12,127 13,440
-------- --------
Total Goodwill............................................ $275,021 $185,015
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The increase in the utility segment's goodwill as of June 30, 2003 is attributable to our acquisition of Mississippi Valley Gas Company on December 3, 2002 as further described in Note 2.
Under the provisions of Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, we annually evaluate our goodwill balances for impairment during our second fiscal quarter or as impairment indicators arise. We use a present value technique based on discounted cash flows to estimate the fair value of our reporting groups. If our projections of estimated future cash flows change, those changes could result in a reduction in the carrying value of our goodwill. Our evaluation performed during the quarter ended March 31, 2003 resulted in no impairment.
Impairment of Long-Lived Assets -- We periodically evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. To date, no such impairment has been recognized.
Asset Retirement Obligations -- Effective October 1, 2002, we adopted SFAS 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this Statement had no material impact to our financial condition or results of operations based on the perpetual nature of our franchise agreements and on our experience in the businesses in which we operate.
Revenue recognition -- Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. We follow the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense.
Accounts receivable and allowance for doubtful accounts -- Accounts receivable consists of natural gas sales to residential, commercial, industrial, agricultural and other customers. For the majority of our receivables, we establish an allowance for doubtful accounts based on an aging of those receivable balances. We apply percentages to each aging category based on our collections experience. On certain other receivables where we are aware of a specific customer's inability or reluctance to pay, we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect. We believe our allowance for doubtful accounts is adequate. However, if circumstances change, our estimate of the recoverability of accounts receivable could be different.
Risk management assets and liabilities, utility segment -- We use a combination of storage and financial hedges to protect us and our customers against unusually large winter period gas price increases. The financial hedges are accounted for under the mark-to-market method pursuant to SFAS 133, Accounting for Derivative Instruments and Hedging Activities. However, because these costs will ultimately be recovered through our rates, current period changes in the assets and liabilities from risk management activities are recorded as a component of deferred gas costs in accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation. Accordingly, there is no earnings impact as a result of the use of these financial instruments. The changes in the assets and liabilities from risk management activities are recognized in purchased gas cost in the income statement when the related costs are recovered through our rates.
Risk management assets and liabilities, natural gas marketing segment -- The principal business of Atmos Energy Marketing, L.L.C. (AEM), including the activities of Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc., is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. AEM also supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis. Because AEM's operations are concentrated in the natural gas industry, its customers and suppliers may be subject to economic risks affecting that industry. Additionally, AEM's credit risk has increased due to higher natural gas prices this year as compared with the prior year. However, this risk is somewhat mitigated because a larger percentage of our business in the current year is with municipal customers as compared with the prior year.
In the management of natural gas requirements for municipalities and other local utilities, AEM sells physical natural gas to customers for future delivery. AEM manages margins and limits risk exposure on the sale of natural gas inventory or the offsetting fixed-price purchase or sale commitments for physical quantities of natural gas through the use of gas futures, including forwards, over-the-counter and exchange-traded options and swap contracts with counterparties. Over-the-counter swap agreements require AEM to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Options held to manage price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. AEM links these gas futures to physical delivery of natural gas and typically balances its futures positions at the end of each trading day. However, at any point in time, AEM may not have completely offset its risk on these activities.
AEM also engages in limited speculative natural gas trading for its own account primarily related to its storage activity. Physical trading involves utilizing physical assets (storage and transportation) to sell and deliver gas to customers or to take a position in the market based on anticipated price movement. In addition to the price risk of any net open position at the end of each trading day, the financial exposure that results from intra-day fluctuations of gas prices and the potential for daily price movements constitutes a risk of loss since the price of natural gas purchased or sold for future delivery at the beginning of the day may not be hedged until later in the day.
These trading activities are subject to a risk management policy which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings, Inc. Compliance with this risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits trading positions that are not closed at the end of the day (open positions) to 5.0 Bcf of natural gas. AEM's open trading positions are monitored daily but are not required to be closed if they remain within the limits set by the bank loan agreement. At June 30, 2003, AEM's net open positions in its trading operations totaled 0.3 Bcf.
Those futures contracts that are designated as fair value hedges are recorded at fair value, on the balance sheet with an offsetting adjustment to the underlying item being hedged. Those financial contracts that are not designated as hedges are recorded on the balance sheet at fair value with current period changes in these contracts recorded as net gains or losses in our gas trading margin on the condensed consolidated statement of income. Any mark-to-market gains or losses on affiliate contracts are eliminated in consolidation.
Changes in the valuation of assets and liabilities arising from risk management activities primarily result from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices and models used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions.
As more fully described in Note 9, on October 25, 2002, the Emerging Issues Task Force (EITF) issued EITF 02-03, Accounting for Contracts Involved in Energy Trading and Risk Management, which rescinded EITF 98-10, Accounting for Energy Trading and Risk Management Activities, and required that all energy trading contracts entered into after October 25, 2002 be accounted for pursuant to the provisions of SFAS 133. Prior to the issuance of EITF 02-03, we accounted for all energy trading contracts under the mark-to-market method in accordance with EITF 98-10. We recognized a cumulative effect of accounting change of $7.8 million, net of income tax benefit, upon the adoption of EITF 02-03 in the second quarter of fiscal 2003.
Comprehensive income -- The following table presents the components of comprehensive income, net of related tax, for the three-month and nine-month periods ended June 30, 2003 and 2002:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
(IN THOUSANDS)
Net income (loss)............................... $ (201) $3,254 $74,124 $65,265
Unrealized holding gains (losses) on
investments, net of tax expense of $808 and
tax benefit of $54 for the three months ended
June 30, 2003 and 2002 and of tax expense of
$319 and $100 for the nine months ended June
30, 2003 and 2002............................. 1,318 (92) 519 169
------ ------ ------- -------
Comprehensive income............................ $1,117 $3,162 $74,643 $65,434
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The only components of accumulated other comprehensive loss relate to unrealized holding gains and losses associated with certain available for sale investments and the minimum pension liability.
Stock-based compensation plans -- We have two stock-based compensation plans that provide for the granting of stock options and restricted stock to officers, key employees and non-employee directors. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire common stock.
In October 1995, SFAS 123, Accounting for Stock-Based Compensation, was issued. This statement established a fair value-based method of accounting for employee stock options or similar equity instruments and encourages, but does not require, all companies to adopt that method of accounting for all of their employee stock compensation plans. SFAS 123 allows companies to continue to measure compensation cost for employee stock options or similar equity instruments using the intrinsic value method of accounting described in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. We have elected to continue using the intrinsic value method as prescribed by APB 25. Under this method, no compensation cost for stock options is recognized for stock option awards granted at or above fair market value.
Prior to the merger with Atmos, certain United Cities Gas Company officers and key employees participated in the United Cities Long-Term Stock Plan implemented in 1989. At the time of the merger on July 31, 1997, we adopted this plan by registering a total of 250,000 shares of our common stock to be issued under the Long-Term Stock Plan for the Mid-States Division. Under this plan, incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock or any combination thereof may be granted to officers and key employees of the Mid-States Division. Options granted under the plan become exercisable at a rate of 20 percent per year and expire 10 years after the date of grant. For the nine months ended June 30, 2003, 13,000 options were exercised under the plan. For the nine months ended June 30, 2002, no options were exercised under the plan. At June 30, 2003, there were 6,300 options outstanding, all of which were fully vested. No incentive stock options, nonqualified stock options, stock appreciation rights or restricted stock have been granted under the plan since 1996. Because of the limited activities of this plan, the pro forma effects of applying SFAS 123 would have less than a $.01 per diluted share effect on earnings per share or $416 and $895 for the three months ended June 30, 2003 and 2002 and $1,922 and $3,277 for the nine months ended June 30, 2003 and 2002.
On August 12, 1998, our Board of Directors approved and adopted the 1998 Long-Term Incentive Plan, which became effective October 1, 1998 after approval by our shareholders. An amendment to this plan increasing the share reserve by 2,500,000 shares was approved by the shareholders at the Company's annual meeting on February 13, 2002. The Long-Term Incentive Plan represents a part of our Total Rewards strategy which we developed as a result of a study we conducted of all employee, executive and non-employee director compensation and benefits. The Long-Term Incentive Plan is a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, restricted stock and performance-based stock to help attract, retain and reward employees and non-employee directors of Atmos and our subsidiaries.
We are authorized to grant awards for up to a maximum of 4,000,000 shares of common stock under the Long-Term Incentive Plan subject to certain adjustment provisions. As of June 30, 2003, only non-qualified stock options, bonus stock and restricted stock have been issued. The option price is equal to the market price of our stock at the date of grant. The stock options expire 10 years from the date of the grant and options vest annually over a service period ranging from one to three years. Awards of restricted stock are generally valued at the market price of the Company's common stock on the date of grant and recorded as unearned compensation within shareholders' equity. The unearned compensation is amortized to operation and maintenance expense over the vesting period of the restricted stock.
At June 30, 2003, we had 1,844,967 options outstanding under the Long-Term Incentive Plan at an exercise price ranging from $14.68 to $25.66. At June 30, 2002, we had 1,557,606 options outstanding under the Long-Term Incentive Plan at an exercise price ranging from $14.68 to $25.66. A summary of activity for grants of stock options under the Long-Term Incentive Plan for the nine months ended June 30, 2003 and 2002 follows:
NUMBER OF OPTIONS
-----------------------------
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
Outstanding -- September 30................................. 1,557,606 1,009,330
Granted................................................... 142,360 148,877
Exercised................................................. -- --
Forfeited................................................. (30,000) (24,499)
--------- ---------
Outstanding -- December 31.................................. 1,669,966 1,133,708
--------- ---------
Granted................................................... 265,300 447,000
Exercised................................................. (333) (10,000)
Forfeited................................................. (2,500) --
--------- ---------
Outstanding -- March 31..................................... 1,932,433 1,570,708
--------- ---------
Granted................................................... 4,200 12,000
Exercised................................................. (74,999) (9,102)
Forfeited................................................. (16,667) (16,000)
--------- ---------
Outstanding -- June 30...................................... 1,844,967 1,557,606
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Restricted stock grants totaled 82,933 shares for the nine months ended June 30, 2003 and have a weighted average intrinsic value of $21.34 per share. Restricted stock grants totaled 22,204 shares for the nine months ended June 30, 2002 and have a weighted average intrinsic value of $21.30 per share.
Had compensation expense for our stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS 123, our net income(loss) and earnings (loss) per share for the three and nine months ended June 30, 2003 and 2002 would have been impacted as shown in the following table:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
(IN THOUSANDS)
Net income (loss) -- as reported........................ $ (201) $3,254 $74,124 $65,265
Restricted stock compensation expense included in
income, net of tax.................................... 14 117 187 378
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of taxes.................................. (271) (349) (884) (915)
------ ------ ------- -------
Net income (loss) -- pro forma.......................... $ (458) $3,022 $73,427 $64,728
====== ====== ======= =======
Earnings per share:
Basic earnings per share -- as reported............... $(0.00) $ 0.08 $ 1.66 $ 1.59
====== ====== ======= =======
Basic earnings per share -- pro forma................. $(0.01) $ 0.07 $ 1.64 $ 1.58
====== ====== ======= =======
Diluted earnings per share -- as reported............. $(0.00) $ 0.08 $ 1.65 $ 1.59
====== ====== ======= =======
Diluted earnings per share -- pro forma............... $(0.01) $ 0.07 $ 1.64 $ 1.57
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Recent Accounting Developments -- In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entities, An Interpretation of Accounting Research Bulletin No. 51. The primary objectives of FIN 46 are to provide guidance on how to identify entities for which control is achieved through means other than through voting rights (variable interest entities (VIE)) and how to determine when and which business enterprises should consolidate the VIE. This new model for consolidation applies to an entity in which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 applies immediately to VIEs created after January 31, 2003 or to VIEs obtained after that date. For variable interest held in VIEs acquired prior to February 1, 2003, FIN 46 is effective July 1, 2003. We believe that the adoption of this interpretation will not have a material impact on our financial position, results of operations or net cash flows because Atmos currently does not have any interests in VIEs.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the accounting and reporting for derivative instruments, including hedges. This statement amends SFAS 133 for decisions made by the Derivatives Implementation Group and by the FASB in connection with other projects dealing with financial instruments, and clarifies other implementation issues. SFAS 149 is effective for the Company on a prospective basis for contracts entered into or modified after June 30, 2003. We believe that the adoption of this statement will not have a material impact on our financial position, results of operations or net cash flows.
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Under SFAS 150, mandatorily redeemable financial instruments, obligations to repurchase the issuer's shares by transferring assets and certain obligations to issue a variable number of shares to settle that obligation must be classified as liabilities on the balance sheet and initially recorded at fair value. SFAS 150 is effective for the Company for financial instruments entered into or modified after May 31, 2003, and on July 1, 2003 for previously existing financial instruments. The adoption of SFAS 150 will not impact our financial position, results of operations or net cash flows as we currently do not use any of the financial instruments subject to this statement.
Reclassifications -- Certain prior period amounts have been reclassified to conform with the current year presentation.
2. ACQUISITION OF MISSISSIPPI VALLEY GAS COMPANY
On December 3, 2002, we completed the acquisition of Mississippi Valley Gas Company (MVG), Mississippi's largest natural gas utility. We paid approximately $74.7 million in cash and $74.7 million in Atmos Energy common stock consisting of 3,386,287 unregistered shares. We also repaid approximately $70.9 million of MVG's outstanding debt. Beginning in December 2002, the results of operations of MVG have been consolidated with our results of operations.
The following table summarizes the fair values of the assets acquired and liabilities assumed, in thousands:
Net property, plant and equipment........................... $156,516
Current assets.............................................. 43,838
Other intangible assets..................................... 11,746
Goodwill.................................................... 90,007
Deferred charges and other assets........................... 10,670
--------
Total assets acquired..................................... 312,777
Current liabilities......................................... (47,637)
Noncurrent liabilities...................................... (92,613)
Other acquisition related costs............................. (23,227)
--------
Purchase price............................................ $149,300
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Other intangible assets represent the fair value of rights-of-way. The value assigned to goodwill was based on our belief that the acquisition of MVG will enable us to leverage our existing technology in order to add value to Atmos. We expect that the goodwill amount will not be deductible for tax purposes. Other acquisition-related costs consist of $13.1 million of make-whole premiums related to the repayment of MVG's debt and other costs including termination benefits.
The table below reflects the unaudited pro forma results of the Company and MVG for the three months ended June 30, 2002 as if the acquisition had taken place at the beginning of fiscal 2002.
THREE MONTHS ENDED
JUNE 30, 2002
------------------
(IN THOUSANDS)
Operating revenue........................................... $201,452
Net income.................................................. 3,976
Net income per diluted share................................ $ .09
|
The table below reflects the unaudited pro forma results of the Company and MVG for the nine months ended June 30, 2003 and 2002 as if the acquisition had taken place at the beginning of fiscal 2002.
NINE MONTHS ENDED
JUNE 30,
-----------------------
2003 2002
---------- ----------
(IN THOUSANDS)
Operating revenue........................................... $1,385,454 $1,003,049
Income before cumulative effect of accounting change........ 78,729 78,361
Net income.................................................. 70,956 78,361
Income before cumulative effect of accounting change per
diluted share............................................. $ 1.75 $ 1.76
Net income per diluted share................................ $ 1.58 $ 1.76
|
3. CONTINGENCIES
On September 23, 1999, a suit was filed in the District Court of Stevens County, Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto, against more than 200 companies in the natural gas industry including us and our Colorado-Kansas Division. The plaintiffs, who purport to represent a class consisting of gas producers, royalty owners, overriding royalty owners, working interest owners and state taxing authorities, allege the defendants have underpaid royalties on gas taken from wells situated on non-federal and non-Indian lands throughout the United States and offshore waters predicated upon allegations that the defendants' gas measurements are simply inaccurate and that the defendants failed to comply with applicable regulations and industry standards over the last 25 years. Although the plaintiffs do not specifically allege an amount of damages, they contend that this suit is brought to recover billions of dollars in revenues that the defendants have allegedly unlawfully diverted from the plaintiffs to themselves. On April 10, 2000, this case was consolidated for pre-trial proceedings with other similar pending litigation in federal court in Wyoming in which we are also a defendant along with over 200 other defendants in the case of In Re Natural Gas Royalties Qui Tam Litigation. In January 2001, the federal court elected to remand this case back to the Kansas state court. A reconsideration of remand was filed, but it was denied. The state court now has jurisdiction over this proceeding and has issued a preliminary case management order. On April 10, 2003, the court denied the plaintiffs' motion to certify this proceeding as a class action, which ruling was appealed by the plaintiffs. The plaintiffs have filed a motion with the court for leave to amend their pleadings to which the defendants have filed an objection. Oral arguments were held on July 8, 2003, at which time the court indicated that it will make a ruling on the plaintiffs' motion in due course. We believe that the plaintiffs' claims are lacking in merit, and we intend to vigorously defend this action. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
On February 13, 2002, a suit was filed in the 287th District Court of Parmer County, Texas by Anderson Brothers, a Partnership, against Atmos Energy Corporation, et al. The plaintiffs' claims arise out of an alleged breach of contract by us and by a number of our divisions and subsidiaries concerning the sale of natural gas used in irrigation activities since 1998 and an alleged violation of the Texas Agricultural Gas Users Act of 1985. The court has ruled proper venue to be in Parmer County, Texas. We have been responding to numerous discovery requests from the plaintiffs. We also filed suit in Travis County, Texas to have the Texas Agricultural Gas Users Act of 1985 declared unconstitutional. The court denied our motion for summary judgment which we have appealed. The plaintiffs seek class action status and to recover unspecified damages plus attorneys' fees. We have denied any liability and intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
We are a plaintiff in a case styled Energas Company, a Division of Atmos Energy Corporation v. ONEOK Energy Marketing and Trading Company, L.P., ONEOK Westex Transmission, Inc. and ONEOK Energy Marketing and Trading Company II, filed in December 2001, pending in the District Court of Lubbock County, Texas, 72nd Judicial District. In this case, we are seeking to collect our receivable related to approximately 5.0 Bcf of natural gas that we believe was not delivered. We have signed a definitive purchase agreement that will allow us to receive certain distribution assets in exchange for a partial reduction of the outstanding receivable. We continue to seek collection of the remaining outstanding balance and believe this amount is fully recoverable.
United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a party to an action filed in June 2000 which is pending in the Circuit Court of Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged to have been caused by a low-level propane explosion. The plaintiffs seek to recover damages of $13.0 million. Discovery activities have begun in this case. We have denied any liability, and we intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
We are a party to other litigation and claims that arise in the ordinary course of our business. While the results of such litigation and claims cannot be predicted with certainty, we believe the final outcome of such litigation and claims will not have a material adverse effect on our financial condition, results of operations or net cash flows.
We are the owner or previous owner of manufactured gas plant sites in Johnson City and Bristol, Tennessee and Hannibal, Missouri which were used to supply gas prior to the availability of natural gas. The gas manufacturing process resulted in certain by-products and residual materials including coal tar. The manufacturing process used by our predecessors was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, we may be responsible for response actions with respect to such materials if response actions are necessary.
United Cities Gas Company and the Tennessee Department of Environment and Conservation (TDEC) entered into a consent order effective January 23, 1997, to facilitate the investigation, removal and remediation of the Johnson City site. Prior to our merger with United Cities Gas Company in July 1997, United Cities Gas Company began the implementation of the consent order in the first quarter of 1997 which we have continued through June 30, 2003. The investigative phase of the work at the site has been completed and an interim removal action was completed in June 2001. We installed four groundwater monitoring wells at the site in 2002 and have submitted the analytical results to the TDEC. We have completed a risk assessment report which is currently under review by the TDEC. The Tennessee Regulatory Authority granted us permission to defer, until our next rate case in Tennessee, all costs incurred in Tennessee in connection with state and federally mandated environmental control requirements.
In March 2002, the TDEC contacted us about conducting an investigation at a former manufactured gas plant located in Bristol, Tennessee. We agreed to perform a preliminary investigation at the site which was completed in June 2002. The investigation identified manufactured gas plant residual materials in the soil beneath the site and we have proposed performing a focused removal action to remove any such residuals. The TDEC has requested that the focused removal action be conducted pursuant to a voluntary agreement. We are in the process of negotiating the voluntary agreement with TDEC and hope to conduct the focused removal action later this year.
On July 22, 1998, we entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. We agreed to perform a removal action, a subsequent site evaluation and to reimburse the response costs incurred by the state of Missouri in connection with the property. The removal action was conducted and completed in August 1998, and the site evaluation field work was conducted in August 1999. A risk assessment for the site has been completed and is currently under review by the Missouri Department of Natural Resources. In preparation for the risk assessment, we executed and recorded certain site use limitations including restricting use of the site to commercial and industrial purposes and prohibiting the withdrawal of groundwater for use as drinking water.
As of June 30, 2003, we had incurred costs of approximately $1.1 million for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites and had a remaining accrual relating to these sites of $0.8 million.
We have completed investigation and remediation activities pursuant to Consent Orders between the Kansas Department of Health and Environment (KDHE) and United Cities Gas Company. The Orders provided for the investigation and remediation of mercury contamination at gas pipeline sites which utilize or formerly utilized mercury meter equipment in Kansas. The Final Interim Characterization and Remediation Report has been submitted to the KDHE. We amended the Orders with the KDHE to include all mercury meters that belonged to our Colorado-Kansas Division before the merger with United Cities Gas Company on July 31, 1997. All work on these sites has been completed. A report describing the results of the work has been submitted to the KDHE. As of June 30, 2003, we had incurred costs of $0.3 million for these sites and had a remaining accrual of $0.2 million for recovery.
We are a party to other environmental matters and claims that arise out of our ordinary business. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, we believe the final outcome of such response actions will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that the expenditures related to such response actions will either be recovered through rates, shared with other parties or are adequately covered by insurance.
The limited partnership agreement of U.S. Propane, L.P., an entity in which we own an approximate 19 percent membership interest, requires that in the event of liquidation, all limited partners would be required to restore capital account deficiencies, including any unsatisfied obligations of the partnership. Under the agreement, our maximum capital account restoration is $4.7 million. As of June 30, 2003, our capital account was positive.
4. EQUITY OFFERING
On June 23, 2003, we completed a public offering of 4,000,000 shares of our common stock. The offering was priced at $25.31 per share and generated net proceeds of approximately $96.8 million. The proceeds were used to partially fund our pension plan, to repay short-term debt and to fund general corporate purposes including the purchase of natural gas for storage. We sold an additional 100,000 shares of our common stock in July 2003 when our underwriters exercised their overallotment option, which generated net proceeds of approximately $2.4 million.
5. PENSION PLAN CONTRIBUTION
In June 2003, we contributed into the Atmos Master Retirement Trust for the benefit of the Atmos Energy Corporation Pension Account Plan $48.6 million in cash and 1,169,700 shares of Atmos restricted common stock with a value of $28.8 million. Of the total cash contributed, $26.1 million represented a fiscal 2002 contribution, which was deducted on our 2002 tax return. The cash contribution was financed through a combination of cash on hand and a portion of the net proceeds received from our June 2003 public offering discussed above.
6. SHORT-TERM DEBT
At June 30, 2003, short-term debt consisted of $0.7 million of commercial paper.
We have two short-term committed credit facilities totaling $318.0 million. The first short-term unsecured credit facility is for $300.0 million and serves as a backup liquidity facility for our commercial paper program. Our commercial paper is rated A-2 by Standard and Poor's, P-2 by Moody's and F-2 by Fitch. At June 30, 2003, $0.7 million of commercial paper was outstanding. We have a second unsecured facility in place for $18.0 million. At June 30, 2003, there were no borrowings under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes. In July 2003, we successfully negotiated a renewal of the first credit facility and increased the level of commitment to $350.0 million. The new facility contains substantially the same terms as those of the prior facility and will expire in July 2004.
On October 7, 2002, we entered into a $150.0 million short-term unsecured committed credit facility. This credit facility was used to provide initial funding for the cash portion of the MVG acquisition and to repay MVG's existing debt. A total of $147.0 million was borrowed under this credit facility during the first quarter. This amount was refinanced in January 2003 with a portion of the proceeds of our $250.0 million debt offering, as discussed in Note 7.
Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand working capital credit facility. Atmos Energy Holdings, Inc. (AEH) and Atmos Energy Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all amounts outstanding under this facility. At June 30, 2003, no amount was outstanding under this credit facility, although letters of credit totaling $99.2 million reduced the amount available. The amount available under this credit facility is also limited by various covenants, including covenants based on working capital. Under the most restrictive covenant, the amount available to Woodward Marketing under this credit facility at June 30, 2003 was $64.4 million. This credit facility expires on March 31, 2004.
We also have an unsecured short-term uncommitted credit line for $20.0 million. There were no borrowings under this uncommitted credit facility at June 30, 2003. This uncommitted line is renewed or renegotiated at least annually with varying terms and we pay no fee for the availability of the line. Borrowings under this line are made on a when- and as-available basis at the discretion of the bank. This facility is also used for working capital purposes.
In addition, Woodward Marketing has a $100.0 million intercompany credit facility with AEH for its non-utility business. Any outstanding amounts under this facility are subordinated to Woodward Marketing's $210.0 million uncommitted demand credit facility described above. At June 30, 2003, $50.0 million was outstanding under this facility. In July 2003, Woodward and AEH agreed to increase the interest rate on the intercompany credit facility from LIBOR plus 1.25 percent to LIBOR plus 2.75 percent.
7. LONG-TERM DEBT
On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due 2013 under our existing $600.0 million shelf registration statement. The net proceeds of $249.3 million were used to repay $147.0 million borrowed under a short-term acquisition credit facility used to provide the initial financing of our acquisition of MVG, as well as for general corporate purposes.
In addition, we repaid $54.0 million in unsecured senior notes held by institutional lenders and short-term debt under our commercial paper program with a portion of the net proceeds received from the debt offering. The repayment of the unsecured senior notes resulted in a make-whole premium of $9.3 million.
8. EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share has been computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period adjusted for restricted stock and other contingently issuable shares of common stock. Net income (loss) for basic and diluted earnings per share are the same, as there is no income impact from assumed conversions of potentially dilutive securities. A reconciliation between basic and diluted weighted average common shares outstanding follows:
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
(IN THOUSANDS)
Weighted average common shares -- basic.......... 45,997 41,265 44,679 41,049
Effect of dilutive securities:
Restricted stock............................... -- 67 122 67
Stock options.................................. -- 38 78 28
------ ------ ------ ------
Weighted average common shares -- assuming
dilution....................................... 45,997 41,370 44,879 41,144
====== ====== ====== ======
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There were approximately 84,000 options and approximately 122,000 shares of restricted stock excluded from the computation of diluted earnings per share for the three months ended June 30, 2003 as their inclusion in the computation would be anti-dilutive. There were no options or shares of restricted stock excluded from the computation of diluted earnings per share for the remaining periods presented above.
9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We conduct our risk management activities through both our utility and natural gas marketing segments. The following table shows our risk management assets and liabilities by segment at June 30, 2003.
NATURAL GAS
UTILITY MARKETING TOTAL
------- ----------- --------
(IN THOUSANDS)
Assets from risk management activities, current...... $ 1,039 $ 17,607 $ 18,646
Assets from risk management activities, noncurrent... -- 1,635 1,635
Liabilities from risk management activities,
current............................................ (1,837) (11,419) (13,256)
Liabilities from risk management activities,
noncurrent......................................... -- (549) (549)
------- -------- --------
Net assets (liabilities)............................. $ (798) $ 7,274 $ 6,476
======= ======== ========
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For the 2002-2003 heating season, we covered approximately 51 percent of our anticipated flowing gas requirements through a combination of storage, financial hedges and fixed forward contracts at a weighted average cost of less than $4.00 per Mcf. This provided a measure of protection to us and our customers against potential sharp increases in the price of natural gas during the 2002-2003 heating season.
Our non-utility hedging activities are conducted through AEM, which include the activities of Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc. AEM manages margins and limits risk exposure on the sale of natural gas inventory or the offsetting fixed-price purchase or sale commitments for physical quantities of natural gas through the use of gas futures, including forwards, over-the-counter and exchange-traded options and swap contracts with counterparties. At the close of business on June 30, 2003, we had outstanding contracts representing 0.3 Bcf of net notional volumes with average contract maturities of less than three years. As of June 30, 2003, contracts representing 99 percent of the fair value of these contracts are scheduled to mature within three years.
AEM also engages in limited speculative natural gas trading for its own account primarily related to its storage activity. These trading activities are subject to a risk management policy which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings. Compliance with this risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits trading positions that are not closed at the end of the day (open positions) to 5.0 Bcf of natural gas. AEM's open trading positions are monitored daily but are not required to be closed if they remain within the limits set by the bank loan agreement. At June 30, 2003, AEM's net open positions in its trading operations totaled 0.3 Bcf.
For the three months ended June 30, 2003, our gas trading margin consisted of an $11.9 million realized trading gain and a $4.1 million unrealized trading loss. For the three months ended June 30, 2002, our gas trading margin consisted of a $2.8 million realized trading gain and a $9.5 million unrealized trading gain.
For the nine months ended June 30, 2003, our gas trading margin consisted of a $7.6 million realized trading gain and a $7.2 million unrealized trading gain. For the nine months ended June 30, 2002, our gas trading margin consisted of a $37.1 million realized trading gain and an $8.1 million unrealized trading loss.
On October 25, 2002, through the issuance of EITF 02-03, Accounting for Contracts Involved in Energy Trading and Risk Management, the EITF rescinded EITF 98-10, Accounting for Energy Trading and Risk Management Activities, thereby precluding the use of mark-to-market accounting for inventory and energy trading contracts that are not derivatives. During the quarter ended December 31, 2002, energy trading contracts entered into on or before October 25, 2002 were marked to market pursuant to the provisions of EITF 98-10. Energy trading contracts entered into after October 25, 2002 have been prospectively accounted for pursuant to the provisions of SFAS 133.
Prior to December 31, 2002, we had recorded $12.9 million of unrealized income related to our storage contracts and certain full requirements contracts in accordance with EITF 98-10. On January 1, 2003, we reversed this unrealized income, which was reported as a cumulative effect of a change in accounting principle in accordance with APB 20, Accounting Changes.
Additionally, beginning January 1, 2003, all energy trading contracts are being accounted for pursuant to the provisions of SFAS 133. As a result, many of our index priced contracts qualify for the normal purchases and sales exception under SFAS 133 and are not marked to market for changes in value subsequent to December 31, 2002.
Finally, effective January 1, 2003, we designated a portion of our futures contracts as fair value hedges of the natural gas marketing segment's gas inventory. Accordingly, the inventory was adjusted to cost as of January 1, 2003 as part of the cumulative effect adjustment, but subsequent changes in fair value will be recognized as an adjustment to the carrying value of the hedged inventory.
The cumulative noncash charge in the second quarter of fiscal 2003 was $7.8 million, net of $5.1 million of applicable income tax benefit. As performance under these inventory, storage and transportation contracts is completed, the applicable income is recognized. Originally, $6.0 million was expected to be realized in net income in fiscal 2003, $1.2 million in fiscal 2004 and $0.6 million thereafter. However, actual results to date are less than originally estimated, due to the extreme market volatility.
From time to time, Woodward Marketing borrows money to fund its natural gas purchases and to fulfill its obligations to maintain deposit accounts with its counterparties. See Note 6 to the condensed consolidated financial statements.
Financial instruments, which subject AEM to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities that are not insured. Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Exchange-traded future and option contracts are generally guaranteed by the exchanges.
In June 2001, we purchased a three year weather insurance policy with an option to cancel the third year of coverage. The insurance was designed for our Texas and Louisiana operations to protect against weather that was at least seven percent warmer than normal for the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was $13.2 million, which was prepaid and was amortized over the appropriate heating seasons based on degree days. Because weather was not at least seven percent warmer than normal, no income was recognized under this insurance policy during the nine months ended June 30, 2003 and 2002. Amortization expense of $5.0 million and $4.4 million was recognized during the nine months ended June 30, 2003 and 2002. Included in the amortization expense for the nine months ended June 30, 2003 was a third quarter charge of $0.6 million, net of cash received, related to the cancellation of the third year of coverage on our weather insurance policy primarily as a result of rate relief in Louisiana and prospects for weather normalization adjustments in Texas.
10. SEGMENT INFORMATION
Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended September 30, 2002. All intersegment sales prices are market based. We evaluate performance based on net income or loss of the respective operating units.
In accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information, we have identified the Utility, Natural Gas Marketing and Other Non-Utility segments. For an expanded description of these segments, please refer to Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended September 30, 2002. We consider each division within our utility segment to be a reporting unit of the utility segment and not a reportable segment. The individual operations that comprise the other non-utility segment are not currently material to our consolidated financial position or results of operations and therefore do not require separate reporting. Income from our other non-utility segment is generated primarily from pipeline and storage operations.
Included in purchased gas cost for the utility segment were purchases from AEM of $80.2 million and $51.0 million for the three months ended June 30, 2003 and 2002 and $272.2 million and $157.2 million for the nine months ended June 30, 2003 and 2002. Volumes purchased were 14.7 Bcf and 14.8 Bcf for the three months ended June 30, 2003 and 2002 and 50.5 Bcf and 56.7 Bcf for the nine months ended June 30, 2003 and 2002. These purchases were made in a competitive open bidding process and reflect market prices. Average prices per Mcf for gas purchased from AEM were $5.45 and $3.45 for the three months ended June 30, 2003 and 2002 and $5.38 and $2.77 for the nine months ended June 30, 2003 and 2002. In addition, our regulated utility divisions have entered into contracts with AEM to manage a significant portion of our regulated utility divisions' underground storage facilities. AEM has acted as agent in placing financial instruments for the various regulated utility divisions that partially protect us and our customers from unusually large winter period gas price increases.
Summarized financial information concerning our reportable segments for the three and nine months ended June 30, 2003 and 2002 are shown in the following table:
NATURAL GAS OTHER
UTILITY MARKETING NON-UTILITY TOTAL
---------- ----------- ----------- ----------
(IN THOUSANDS)
For the three months ended June 30,
2003:
Operating revenues for reportable
segments............................ $ 245,998 $ 152 $ 3,685 $ 249,835
Elimination of intersegment
revenues............................ (257) (152) (1,637) (2,046)
---------- -------- ------- ----------
Total operating revenues......... 245,741 -- 2,048 247,789
Gas trading margin.................... -- 7,858 -- 7,858
Net income (loss)..................... (4,617) 3,516 900 (201)
For the three months ended June 30,
2002:
Operating revenues for reportable
segments............................ $ 159,493 $ 169 $ 3,889 $ 163,551
Elimination of intersegment
revenues............................ (271) -- (1,480) (1,751)
---------- -------- ------- ----------
Total operating revenues......... 159,222 169 2,409 161,800
Gas trading margin.................... -- 12,259 -- 12,259
Net income (loss)..................... (1,954) 5,167 41 3,254
As of and for the nine months ended
June 30, 2003:
Operating revenues for reportable
segments............................ $1,342,527 $ 468 $16,242 $1,359,237
Elimination of intersegment
revenues............................ (969) (468) (8,103) (9,540)
---------- -------- ------- ----------
Total operating revenues......... 1,341,558 -- 8,139 1,349,697
Gas trading margin.................... -- 14,801 -- 14,801
Cumulative effect of accounting
change, net of income tax benefit... -- (7,773) -- (7,773)
Net income (loss)..................... 70,494 (4,563) 8,193 74,124
Total assets.......................... 2,192,316 299,148 96,652 2,588,116
As of and for the nine months ended
June 30, 2002:
Operating revenues for reportable
segments............................ $ 801,460 $ 509 $20,848 $ 822,817
Elimination of intersegment
revenues............................ (1,219) -- (8,975) (10,194)
---------- -------- ------- ----------
Total operating revenues......... 800,241 509 11,873 812,623
Gas trading margin.................... -- 29,026 -- 29,026
Net income............................ 51,567 9,726 3,972 65,265
Total assets.......................... 1,748,231 237,292 73,383 2,058,906
|
A reconciliation of total assets for the reportable segments to total consolidated assets for June 30, 2003 and 2002 is presented below:
JUNE 30,
-----------------------
2003 2002
---------- ----------
(IN THOUSANDS)
Total assets for reportable segments........................ $2,588,116 $2,058,906
Elimination of intercompany accounts........................ (209,776) (137,934)
---------- ----------
Total consolidated assets................................. $2,378,340 $1,920,972
========== ==========
|
11. SUPPLEMENTAL DISCLOSURES
The following supplemental condensed financial statements show our three operating segments and the elimination of material intercompany transactions. The following supplemental condensed balance sheet is as of June 30, 2003.
NATURAL GAS OTHER
UTILITY MARKETING NON-UTILITY ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(IN THOUSANDS)
ASSETS
Property, plant and equipment,
net............................. $1,426,975 $ 9,267 $ 58,203 $ -- $1,494,445
Investment in subsidiaries........ 127,664 (2,669) -- (124,995) --
Current assets
Cash and cash equivalents....... 86 17,495 (260) -- 17,321
Accounts receivable, net........ 102,670 182,398 50,894 (84,544) 251,418
Inventories..................... 5,271 -- 218 -- 5,489
Gas stored underground.......... 45,439 32,478 1,568 -- 79,485
Assets from risk management
activities................... 1,039 17,844 -- (237) 18,646
Other current assets and
prepayments.................. (390) 7,443 3,552 -- 10,605
Intercompany receivables........ 76,827 2,812 (79,639) -- --
---------- -------- -------- --------- ----------
Total current assets......... 230,942 260,470 (23,667) (84,781) 382,964
Intangible assets................. -- 5,248 -- -- 5,248
Goodwill.......................... 240,294 22,600 12,127 -- 275,021
Noncurrent assets from risk
management activities........... -- 1,635 -- -- 1,635
Deferred charges and other
assets.......................... 166,441 2,597 49,989 -- 219,027
---------- -------- -------- --------- ----------
$2,192,316 $299,148 $ 96,652 $(209,776) $2,378,340
========== ======== ======== ========= ==========
SHAREHOLDERS' EQUITY AND
LIABILITIES
Shareholders' equity.............. $ 827,453 $ 71,166 $ 56,498 $(127,664) $ 827,453
Long-term debt.................... 858,720 -- 5,628 -- 864,348
---------- -------- -------- --------- ----------
Total capitalization......... 1,686,173 71,166 62,126 (127,664) 1,691,801
Current liabilities
Current maturities of long-term
debt......................... 8,227 -- 1,520 -- 9,747
Short-term debt................. 700 -- -- -- 700
Liabilities from risk management
activities................... 1,837 11,419 -- -- 13,256
Deferred gas cost............... 19,351 9,586 925 -- 29,862
Other current liabilities....... 187,550 207,881 15,219 (82,112) 328,538
---------- -------- -------- --------- ----------
Total current liabilities.... 217,665 228,886 17,664 (82,112) 382,103
Deferred income taxes............. 159,623 (3,228) 7,048 -- 163,443
Noncurrent liabilities from risk
management activities........... -- 549 -- -- 549
Deferred credits and other
liabilities..................... 128,855 1,775 9,814 -- 140,444
---------- -------- -------- --------- ----------
$2,192,316 $299,148 $ 96,652 $(209,776) $2,378,340
========== ======== ======== ========= ==========
|
The following supplemental condensed statement of income is for the three months ended June 30, 2003.
NATURAL GAS OTHER
UTILITY MARKETING NON-UTILITY ELIMINATIONS CONSOLIDATED
-------- ----------- ----------- ------------ ------------
(IN THOUSANDS)
Operating revenues.................. $245,998 $377,766 $3,685 $(379,660) $247,789
Purchased gas cost.................. 161,426 367,395 467 (368,705) 160,583
-------- -------- ------ --------- --------
Gross profit...................... 84,572 10,371 3,218 (10,955) 87,206
Gas trading margin.................. -- (2,795) -- 10,653 7,858
Operating expenses.................. 78,306 1,375 1,490 (163) 81,008
-------- -------- ------ --------- --------
Operating income (loss)............. 6,266 6,201 1,728 (139) 14,056
Miscellaneous income (expense)...... 1,347 430 662 (1,753) 686
Interest charges.................... (16,235) (662) (898) 1,753 (16,042)
-------- -------- ------ --------- --------
Income (loss) before income taxes... (8,622) 5,969 1,492 (139) (1,300)
Income tax expense (benefit)........ (4,005) 2,370 592 (56) (1,099)
-------- -------- ------ --------- --------
Net income (loss).............. $ (4,617) $ 3,599 $ 900 $ (83) $ (201)
======== ======== ====== ========= ========
|
The following supplemental condensed statement of income is for the nine months ended June 30, 2003.
NATURAL GAS OTHER
UTILITY MARKETING NON-UTILITY ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(IN THOUSANDS)
Operating revenues............... $1,342,527 $1,330,479 $16,242 $(1,339,551) $1,349,697
Purchased gas cost............... 934,649 1,325,655 1,475 (1,332,479) 929,300
---------- ---------- ------- ----------- ----------
Gross profit................... 407,878 4,824 14,767 (7,072) 420,397
Gas trading margin............... -- 6,353 -- 8,448 14,801
Operating expenses............... 248,485 7,366 5,313 (524) 260,640
---------- ---------- ------- ----------- ----------
Operating income................. 159,393 3,811 9,454 1,900 174,558
Miscellaneous income (expense)... (872) 1,703 6,067 (3,577) 3,321
Interest charges................. (47,231) (2,090) (1,935) 3,577 (47,679)
---------- ---------- ------- ----------- ----------
Income before income taxes and
cumulative effect of accounting
change......................... 111,290 3,424 13,586 1,900 130,200
Income tax expense............... 40,796 1,360 5,393 754 48,303
---------- ---------- ------- ----------- ----------
Income before cumulative effect
of accounting change........... 70,494 2,064 8,193 1,146 81,897
Cumulative effect of accounting
change, net of income taxes
(benefit)...................... -- (9,710) -- 1,937 (7,773)
---------- ---------- ------- ----------- ----------
Net income (loss)........... $ 70,494 $ (7,646) $ 8,193 $ 3,083 $ 74,124
========== ========== ======= =========== ==========
|
Organization -- Atmos Energy Corporation distributes natural gas in 12 states through its regulated utility operating divisions -- Colorado-Kansas Division, Kentucky Division, Louisiana Division, Mid-States Division, Mississippi Valley Gas Company Division and Texas Division. Our nonutility operations are organized under Atmos Energy Holdings, Inc., which includes Atmos Energy Marketing, L.L.C., Atmos Pipeline and Storage, Inc., Atmos Power Systems, Inc. and an indirect equity interest in Heritage Propane Partners, L.P. Atmos Energy Marketing includes the operations of Woodward Marketing and Trans Louisiana Industrial Gas Company.
Consolidating Financial Statements -- The column headed "Utility" consists of the operations of Atmos' six utility operating divisions. The column headed "Natural Gas Marketing" consists of Atmos Energy Marketing, Woodward Marketing and Trans Louisiana Industrial Gas Company. The column headed "Other Non-Utility" consists of our nonutility operations excluding natural gas marketing. Operating revenues and purchased gas costs from our natural gas marketing operations are shown on a gross basis in the "Natural Gas Marketing" column. Such natural gas marketing activities are reclassified in the elimination column as gas trading margin.
Current and noncurrent assets and liabilities from risk management activities on the supplemental condensed consolidated balance sheet consist of the fair value, inclusive of future servicing costs and valuation adjustments, of our forwards, over-the-counter and exchange traded options, futures and swap contracts.
The gas trading margin on the supplemental condensed consolidated statement of income consists primarily of the difference between revenue arising from Natural Gas Marketing's sale of physical natural gas to its customers less the cost to purchase natural gas and current period changes in assets and liabilities from risk management activities.
Eliminations -- Included in purchased gas cost in the Utility column are natural gas purchases from Atmos Energy Marketing. These purchases were made in a competitive open bidding process and reflect market prices. In addition, our utility divisions have entered into contracts with Atmos Energy Marketing to manage a significant portion of their underground storage facilities. Atmos Energy Marketing has acted as agent in obtaining hedging agreements for our utility divisions that protect them and our utility customers from unusually large winter period gas price increases.
The Board of Directors
Atmos Energy Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of June 30, 2003 and the related condensed consolidated statements of income for the three-month periods and nine-month periods ended June 30, 2003 and 2002 and the condensed consolidated statements of cash flows for the nine-month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein) and in our report dated November 8, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Dallas, Texas
August 8, 2003
INTRODUCTION
The following discussion should be read in conjunction with the condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2002.
The statements contained in this Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of the Company's documents or oral presentations, the words "anticipate," "expect," "estimate," "plans," "believes," "objective," "forecast," "goal" or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: adverse weather conditions such as warmer than normal weather in the Company's service territories; national, regional and local economic conditions, including competition from other energy suppliers as well as alternative forms of energy; regulatory approvals, including the impact of rate proceedings before various state regulatory commissions; successful completion and integration of future acquisitions; inflation and increased gas costs, including their effect on commodity prices for natural gas; increased competition; further deregulation or "unbundling" of the natural gas distribution industry; hedging and market risk activities and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. A discussion of these risks and uncertainties may be found in the Company's Form 10-K for the year ended September 30, 2002. Accordingly, while the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise.
OVERVIEW
Atmos Energy Corporation and its subsidiaries are primarily engaged in the natural gas utility business as well as certain non-utility businesses. Our operations are divided into three segments: the utility segment, which includes our regulated natural gas distribution and sales operations; the natural gas marketing segment, which includes Atmos Energy Marketing, L.L.C., Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc.; and our other non-utility segment, which includes all of our other non-utility operations.
Our utility business distributes natural gas through sales and transportation arrangements to approximately 1.7 million residential, commercial, public authority and industrial customers. Our utility business is composed of six regulated utility divisions:
- Atmos Energy Colorado-Kansas Division
- Atmos Energy Kentucky Division
- Atmos Energy Louisiana Division
- Atmos Energy Mid-States Division
- Atmos Energy Texas Division
The service areas of our divisions are located in Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, Texas and Virginia. Our utility business is subject to regulation by state and/or local authorities in each of the states in which we operate. We receive gas deliveries in our utility operations through 36 pipeline transportation companies, both interstate and intrastate, to satisfy our sales requirements. The pipeline transportation agreements are uninterruptible and many of them have pipeline no-notice storage service, which provides for daily balancing between system requirements and physical quantities requested by our customers. We also transport natural gas for others through our distribution system.
The effects of weather that is above or below normal are offset partially in the Tennessee and Georgia jurisdictions served by the Mid-States Division, in the Mississippi jurisdiction served by the Mississippi Valley Gas Company Division, in the Kentucky jurisdiction served by the Kentucky Division and, beginning in fiscal 2004, in the Kansas jurisdiction served by the Colorado-Kansas Division, through weather normalization adjustments (WNA). The Tennessee Regulatory Authority, the Georgia Public Service Commission, the Mississippi Public Service Commission and the Kentucky Public Service Commission have approved WNA. WNA, effective from October through May each year in Georgia, November through May each year in Mississippi and November through April of each year in Tennessee and Kentucky, allows us to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. Approximately 659,000 or 39 percent of our meters in service are located in Tennessee, Georgia, Mississippi and Kentucky. In May 2003, we received approval from the Kansas Public Service Commission for WNA in our Kansas jurisdiction served by our Colorado-Kansas Division. The WNA in Kansas will be effective October through May of each year beginning in fiscal 2004. We do not have WNA in our other service areas.
Our natural gas marketing and other non-utility segments, which are organized under Atmos Energy Holdings, Inc., have operations in 18 states. Atmos Energy Marketing, L.L.C. (AEM), together with its wholly-owned subsidiaries Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc., comprise our natural gas marketing segment. AEM provides a variety of natural gas management services to municipalities, natural gas utility systems and industrial natural gas consumers primarily in the southeastern and midwestern states and to our Colorado-Kansas, Kentucky, Louisiana and Mid-States divisions. These services primarily consist of the furnishing of natural gas supplies at fixed and market-based prices, load forecasting and management, gas storage and transportation services, peaking sales and balancing services and gas price hedging through the use of derivative products. In addition, Trans Louisiana Industrial Gas Company markets natural gas primarily to commercial customers in Louisiana.
AEM's management of natural gas requirements involves the sale of natural gas and the management of storage and transportation contracts under contracts with customers generally having one to two year terms. At June 30, 2003, AEM had a total of 589 industrial customers and 140 municipal customers. AEM also sells natural gas to some of its industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In addition, AEM supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis.
We own or have an interest in underground storage fields in Kansas, Kentucky, Louisiana and Mississippi which are used to help meet customer requirements in Kansas, Kentucky, Louisiana, Mississippi, Tennessee and other states during peak demand periods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. The total storage capacity that we own is approximately 30.6 Bcf. However, approximately 14.7 Bcf of gas in the storage facilities must be retained as cushion gas to maintain reservoir pressure. In addition, we have access to additional storage with a total capacity of 6.9 Bcf.
We purchase our gas supply from various producers and marketers. Supply arrangements are contracted on an uninterruptible basis with various terms and at market prices.
We also construct and operate electrical peaking power generating plants and associated facilities and may enter into agreements to either lease or sell such plants.
Finally, we own an approximate 19 percent membership interest in U.S. Propane L.P. (USP), a joint venture formed in February 2000 with other utility companies. As of June 30, 2003, USP owned all of the general partnership interest and approximately 26 percent of the limited partnership interest in Heritage Propane Partners, L.P. a marketer of propane through a nationwide retail distribution network.
HIGHLIGHTS
- Net loss of $0.2 million or $0.0 per diluted share for the three months ended June 30, 2003, compared to net income of $3.3 million, or $.08 per diluted share for the three months ended June 30, 2002. Net income of $74.1 million or $1.65 per diluted share for the nine months ended June 30, 2003, compared to $65.3 million, or $1.59 per diluted share for the nine months ended June 30, 2002.
- On December 3, 2002, we completed the acquisition of Mississippi Valley Gas Company (MVG), a privately held utility, for approximately $150.0 million, which consisted of approximately $74.7 million in cash and 3,386,287 unregistered shares of our common stock. In addition, we paid approximately $70.9 million to repay outstanding debt of MVG. Our Mississippi Valley Gas Company Division provides natural gas distribution service to approximately 283,000 residential, industrial and other customers located primarily in the northern and central regions of Mississippi.
- In January 2003, as a result of the adoption of EITF 02-03, we recorded a cumulative effect adjustment of $12.9 million ($7.8 million, net of income tax benefit) on the condensed consolidated statements of income.
- On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due 2013. The net proceeds were used to repay debt under a short-term acquisition credit facility used to partially finance the MVG acquisition, to repay $54.0 million in unsecured senior notes held by institutional lenders and short-term debt under our commercial paper program and to provide funds for general corporate purposes.
- On June 23, 2003, we completed a public offering of 4,000,000 shares of our common stock. The offering was priced at $25.31 per share and generated net proceeds of approximately $96.8 million. The proceeds were used to partially fund our pension plan, to repay short-term debt and to fund general corporate purposes including the purchase of natural gas for storage. We sold an additional 100,000 shares of our common stock in July 2003 when our underwriters exercised their overallotment option, which generated net proceeds of approximately $2.4 million.
- In June 2003, we contributed into the Atmos Master Retirement Trust for the benefit of the Atmos Energy Corporation Pension Account Plan $48.6 million in cash and 1,169,700 shares of Atmos restricted common stock with a value of $28.8 million. The cash contribution was financed through a combination of cash on hand and a portion of the net proceeds received from our June 2003 public offering discussed previously.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General -- Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements required us to make estimates and judgments that affected the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, allowance for doubtful accounts, goodwill and pension and other post retirement plans. Actual results may differ from estimates.
Regulation -- Our utility operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Regulated utility operations are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation. This statement requires cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates.
Risk management assets and liabilities, utility segment -- We use a combination of storage and financial hedges to protect us and our customers against unusually large winter period gas price increases. The financial hedges are accounted for under the mark-to-market method pursuant to SFAS 133, Accounting for Derivative Instruments and Hedging Activities. However, because these costs will ultimately be recovered through our rates, current period changes in the assets and liabilities from risk management activities are recorded as a component of deferred gas costs in accordance with SFAS 71. Accordingly, there is no earnings impact as a result of the use of these financial instruments. The changes in the assets and liabilities from risk management activities are recognized in purchased gas cost in the income statement when the related costs are recovered through our rates.
Risk management assets and liabilities, natural gas marketing segment -- The principal business of AEM, including the activities of Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc., is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. AEM also supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis. Because AEM's operations are concentrated in the natural gas industry, its customers and suppliers may be subject to economic risks affecting that industry. Additionally, AEM's credit risk has increased due to higher natural gas prices this year as compared with the prior year. However, this risk is somewhat mitigated because a larger percentage of our business in the current year is with municipal customers as compared with the prior year.
In the management of natural gas requirements for municipalities and other local utilities, AEM sells physical natural gas to customers for future delivery. AEM manages margins and limits risk exposure on the sale of natural gas inventory or the offsetting fixed-price purchase or sale commitments for physical quantities of natural gas through the use of gas futures, including forwards, over-the-counter and exchange-traded options and swap contracts with counterparties. Over-the-counter swap agreements require AEM to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Options held to manage price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. AEM links these gas futures to physical delivery of natural gas and typically balances its futures positions at the end of each trading day. However, at any point in time, AEM may not have completely offset its price risk on these activities.
AEM also engages in limited speculative natural gas trading for its own account primarily related to its storage activity. Physical trading involves utilizing physical assets (storage and transportation) to sell and deliver gas to customers or to take a position in the market based on anticipated price movement. In addition to the price risk of any net open position at the end of each trading day, the financial exposure that results from intra-day fluctuations of gas prices and the potential for daily price movements constitutes a risk of loss since the price of natural gas purchased or sold for future delivery at the beginning of the day may not be hedged until later in the day.
These trading activities are subject to a risk management policy which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings, Inc.
Those futures contracts that are designated as fair value hedges are recorded at fair value on the balance sheet with an offsetting adjustment to the underlying item being hedged. Those financial contracts that are not designated as hedges are recorded on the balance sheet at fair value with current period changes in these contracts recorded as net gains or losses in our gas trading margin on the condensed consolidated statement of income. Any mark-to-market gains or losses on affiliate contracts are eliminated in consolidation.
Changes in the valuation of assets and liabilities arising from risk management activities primarily result from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices and models used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions.
As more fully described in Note 9 to the condensed consolidated financial statements, on October 25, 2002, the Emerging Issues Task Force (EITF) issued EITF 02-03, Accounting for Contracts Involved in Energy Trading and Risk Management, which rescinded EITF 98-10, Accounting for Energy Trading and Risk Management Activities, and required that all energy trading contracts entered into after October 25, 2002 be accounted for pursuant to the provisions of SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Prior to the issuance of EITF 02-03, we accounted for all energy trading contracts under the mark-to-market method in accordance with EITF 98-10. We recognized a cumulative effect of accounting change of $7.8 million, net of income tax benefit, upon the adoption of EITF 02-03 in the second quarter of fiscal 2003.
Allowance for Doubtful Accounts -- For the majority of our receivables, we establish an allowance for doubtful accounts based on an aging of those receivable balances. We apply percentages to each aging category based on our collections experience. On certain other receivables where we are aware of a specific customer's inability or reluctance to pay, we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect. We believe our allowance for doubtful accounts is adequate. However, if circumstances change, our estimate of the recoverability of accounts receivable could be different. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices and general economic conditions.
Goodwill -- We annually evaluate our goodwill balances for impairment during our second fiscal quarter or as impairment indicators arise. We use a present value technique based on discounted cash flows to estimate the fair value of our reporting groups. If our projections of estimated future cash flows change, those changes could result in a reduction in the carrying value of our goodwill. Our evaluation performed during the quarter ended March 31, 2003 resulted in no impairment.
Pension and Other Postretirement Plans -- Pension and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets could have a material effect on the amount of pension expense ultimately recognized. The assumed return on plan assets is based on management's expectation of the long-term return on the portfolio of plan assets. The discount rate used to compute the present value of plan liabilities generally is based on rates of high grade corporate bonds with maturities similar to the average period over which benefits will be paid.
The primary factors that impact our results of utility operations are seasonal weather patterns, competitive factors in the energy industry and economic conditions in our service areas. Natural gas sales to residential, commercial and public authority customers are affected by winter heating season requirements. This generally results in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either lower net income or net losses during the period from April through September of each year. Accordingly, our second fiscal quarter historically has been our most critical earnings quarter with an average of 76 percent of our net income having been earned in the second quarter during the three most recently completed fiscal years. Sales to industrial customers are much less weather sensitive. Sales to agricultural customers, who typically use natural gas to power irrigation pumps during the period from March through September, are primarily affected by rainfall amounts and the price of natural gas. Changes in the cost of gas impact revenue but do not directly affect our gross profit from utility operations because the fluctuations in gas prices are passed through to the customer.
Our non-utility segment generates income from its industrial, utility and municipal customers through negotiated prices based on the volume of gas supplied to the customer. It also generates income by taking advantage of the difference between near-term gas prices and prices for future delivery as well as the daily movement of gas prices by utilizing storage and transportation capacity that it controls.
At times, we maintain a net open position related to our physical storage when we believe that future changes in prices and market conditions may result in profitable positions. Net open positions may result in an adverse impact on our financial condition or results of operations if the market price does not react in the manner or direction that we expected. Our risk management control policy contains limits associated with the overall size of open positions.
The following table presents our financial highlights for the three and nine months ended June 30, 2003 and 2002:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ---------------------
2003 2002 2003 2002
-------- -------- ---------- --------
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
Operating revenues....................... $247,789 $161,800 $1,349,697 $812,623
Gross profit............................. 87,206 73,833 420,397 333,081
Realized margin.......................... 11,921 2,790 7,564 37,147
Unrealized margin........................ (4,063) 9,469 7,237 (8,121)
-------- -------- ---------- --------
Gas trading margin..................... 7,858 12,259 14,801 29,026
Operating expenses....................... 81,008 66,914 260,640 213,150
Miscellaneous income (expense)........... 686 (182) 3,321 (893)
Interest charges......................... 16,042 13,823 47,679 44,304
Income (loss) before income taxes and
cumulative effect of accounting
change................................. (1,300) 5,173 130,200 103,760
Cumulative effect of accounting change,
net of income tax benefit.............. -- -- (7,773) --
Net income (loss)........................ $ (201) $ 3,254 $ 74,124 $ 65,265
Sales Volumes -- MMcf.................... 25,904 22,354 161,654 126,764
Transportation volumes -- MMcf........... 13,902 14,309 50,159 49,560
-------- -------- ---------- --------
Total throughput -- MMcf................. 39,806 36,663 211,813 176,324
======== ======== ========== ========
|
THREE MONTHS ENDED JUNE 30, 2003, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002
Gross profit -- Gross profit primarily consists of gas service margins generated by our six utility operating divisions from the sale of natural gas to approximately 1.7 million residential, commercial, industrial, agricultural and other customers in the twelve states that comprise our utility service areas.
Gross profit increased to $87.2 million for the three months ended June 30, 2003 from $73.8 million for the three months ended June 30, 2002. Total throughput for our utility business was 39.8 billion cubic feet (Bcf) during the current quarter compared to 36.7 Bcf during the same quarter last year. The increase in gross profit and total throughput was primarily attributable to the impact of the MVG acquisition in December 2002, which increased gross profit and total throughput by $9.2 million and 5.7 Bcf. The increase in gross profit was also attributable to a $3.6 million increase in our base charges primarily in Louisiana as a result of our annual rate stabilization clause filing which became effective in November 2002. Also contributing to the increase in gross profit was a $2.1 million increase from WNA as a result of weather in our WNA service areas being warmer than normal for the three months ended June 30, 2003. These increases were partially offset by warmer weather in the current quarter as compared to the same quarter last year and wetter than normal weather in West Texas which adversely impacted our irrigation volumes.
Gas trading margin -- Our gas trading margin represents the realized and unrealized gains and losses on our gas trading activities. Our gas trading margin income was $7.9 million for the three months ended June 30, 2003 compared to income of $12.3 million for the three months ended June 30, 2002. Our gas trading margin included a realized gain of $11.9 million from the sale of 65.0 Bcf of natural gas to our customers compared with a realized gain of $2.8 million from the sale of 64.7 Bcf of natural gas for the three months ended June 30, 2002. The decrease in our gas trading margin was primarily attributable to unfavorable differences between our physical inventory and financial contract valuations during the current quarter as compared with the prior year quarter and the recognition of smaller gains from inventory sales as compared with the same quarter last year.
Operating expenses -- Operating expenses, which include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes other than income taxes, increased 21 percent to $81.0 million for the three months ended June 30, 2003 from $66.9 million for the three months ended June 30, 2002. Operation and maintenance expense increased primarily due to the addition of $11.7 million relating to the MVG acquisition in December 2002 partially offset by a $3.2 million reduction in labor costs attributable to lower incentive payment accruals and a $1.5 million decrease in the provision for doubtful accounts attributable to improved cash collections as compared with the prior year quarter. Taxes other than income taxes increased $4.0 million primarily due to additional franchise, payroll and property taxes associated with the MVG assets acquired in December 2002.
Miscellaneous income (expense) -- Miscellaneous income for the three months ended June 30, 2003 was $0.7 million, compared with expense of $0.2 million for the three months ended June 30, 2002. The $0.9 million change primarily was attributable to higher equity earnings from our indirect equity interest in Heritage Propane Partners, L.P. partially offset by a $0.6 million charge associated with the cancellation of our weather insurance policy during the quarter.
Interest charges -- Interest charges increased 16 percent for the three months ended June 30, 2003 to $16.0 million from $13.8 million for the three months ended June 30, 2002. The increase was primarily attributable to a higher average outstanding debt balance resulting from the financing obtained to fund the acquisition of MVG.
Gross profit -- Gross profit increased to $420.4 million for the nine months ended June 30, 2003 from $333.1 million for the nine months ended June 30, 2002. Total throughput was 211.8 Bcf during the nine months ended June 30, 2003 compared to 176.3 Bcf during the same period last year. The increase in gross profit and total throughput was primarily attributable to the impact of the MVG acquisition in December 2002, which increased gross profit and total throughput by $59.3 million and 27.4 Bcf. The increase in gross profit was also attributable to a $13.6 million net increase resulting from increased throughput and rates (excluding MVG) and a $10.4 million increase in our base charges primarily in Louisiana as a result of our annual rate stabilization clause filing which became effective in November 2002. These increases were partially offset by a $3.9 million decrease in revenues from WNA as a result of weather in our WNA service areas being colder than normal for the nine months ended June 30, 2003.
Gas trading margin -- Our gas trading margin represents the realized and unrealized gains and losses on our gas trading activities. Our gas trading margin income was $14.8 million for the nine months ended June 30, 2003 compared to income of $29.0 million for the nine months ended June 30, 2002. Our gas trading margin included a realized gain of $7.6 million from the sale of 234.5 Bcf of natural gas to our customers for the nine months ended June 30, 2003 compared with a realized gain of $37.1 million from the sale of 211.0 Bcf of natural gas for the nine months ended June 30, 2002.
We were required to buy gas during a period of rising prices to meet our contractual requirements with our customers due to several factors, which decreased our gas trading margin for the nine months ended June 30, 2003. First, we anticipated a decline in natural gas prices during the period December 2002 through March 2003; therefore, we elected to keep gas in storage and to buy flowing gas to meet our customer needs. We were also unable to withdraw planned volumes from storage due to contractual and regulatory limitations relating to our storage facilities to meet our non-utility customer needs. Additionally, we experienced situations of open short positions and were not sufficiently hedged on other transactions, which contributed to the decrease in our gas trading margin. Finally, we recognized smaller gains from inventory sales in the current quarter as compared with the same quarter last year.
We continue to take steps to eliminate or minimize any future negative impact of the events that caused the lower-than-expected earnings from our natural gas marketing segment during the nine months ended June 30, 2003. In July 2003, we entered into a leasing arrangement for a 1 Bcf salt storage facility that will help us to manage our price risk related to customer demand volatility. This facility provides increased flexibility because it allows us to inject and withdraw gas on a monthly basis. The lease will commence in November 2003 and will remain in effect for the next five heating seasons. Annual lease payments will approximate $2.0 million. We continue to evaluate new contracts which transfer the risk of volatile gas prices to our customers and provide higher margins and additional storage to increase supply during sustained periods of cold weather.
Operating expenses -- Operating expenses, which include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes other than income taxes, increased 22 percent to $260.6 million for the nine months ended June 30, 2003 from $213.2 million for the nine months ended June 30, 2002. Operation and maintenance expense increased primarily due to the addition of $26.2 million related to the MVG acquisition in December 2002 and a $5.1 million increase in the provision for doubtful accounts as a result of higher revenues. This increase was partially offset by a $3.2 million reduction in labor costs attributable to lower incentive payment accruals. Taxes other than income taxes increased $14.4 million primarily due to additional franchise, payroll and property taxes associated with the MVG assets acquired in December 2002.
Miscellaneous income (expense) -- Miscellaneous income for the nine months ended June 30, 2003 was $3.3 million, compared with an expense of $0.9 million for the nine months ended June 30, 2002. The $4.2 million change was primarily attributable to a $3.9 million gain associated with a sales-type lease of a distributed electric generation plant which was recognized in the first quarter of 2003 and improved earnings from our indirect investment in Heritage Propane L.P. partially offset by a $0.6 million charge associated with the cancellation of our weather insurance policy during the third quarter.
Interest charges -- Interest charges increased 8 percent for the nine months ended June 30, 2003 to $47.7 million from $44.3 million for the nine months ended June 30, 2002. The increase was primarily attributable to a higher average outstanding debt balance resulting from the financing obtained to fund the acquisition of MVG.
CONSOLIDATED OPERATING STATISTICS
The following table shows our consolidated operating statistics for the three-month and nine-month periods ended June 30, 2003 and 2002. See Note 10 to the interim condensed consolidated financial statements for additional information regarding the operating results of our segments.
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
METERS IN SERVICE, end of period
Residential........................ 1,499,780 1,246,111 1,499,780 1,246,111
Commercial......................... 151,601 122,414 151,601 122,414
Public authority and other......... 9,955 7,342 9,955 7,342
Industrial (including
agricultural)................... 12,640 12,949 12,640 12,949
---------- ---------- ---------- ----------
Total meters.................... 1,673,976 1,388,816 1,673,976 1,388,816
========== ========== ========== ==========
HEATING DEGREE DAYS(1)
Actual (weighted average).......... 218 258 3,437 3,351
Percent of normal.................. 86% 96% 101% 95%
SALES VOLUMES -- MMcf(2)
Residential........................ 10,543 9,344 90,444 71,634
Commercial......................... 6,057 4,956 40,142 31,696
Public authority and other......... 1,176 727 8,396 5,372
Industrial (including
agricultural)................... 8,128 7,327 22,672 18,062
---------- ---------- ---------- ----------
Total........................... 25,904 22,354 161,654 126,764
Transportation volumes -- MMcf(2).... 13,902 14,309 50,159 49,560
---------- ---------- ---------- ----------
Total throughput -- MMcf(2).......... 39,806 36,663 211,813 176,324
========== ========== ========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential........................ $ 118,061 $ 80,029 $ 782,382 $ 476,019
Commercial......................... 55,180 33,956 320,716 192,297
Public authority and other......... 8,269 4,223 59,327 28,585
Industrial (including
agricultural)................... 54,130 31,997 143,952 76,851
---------- ---------- ---------- ----------
Total gas sales revenues........ 235,640 150,205 1,306,377 773,752
Transportation revenues.............. 5,566 6,772 22,871 23,334
Other revenues....................... 6,583 4,823 20,449 15,537
---------- ---------- ---------- ----------
Total operating revenues............. $ 247,789 $ 161,800 $1,349,697 $ 812,623
========== ========== ========== ==========
Cost of gas (excluding
non-utility)....................... $ 161,426 $ 89,088 $ 934,649 $ 480,693
========== ========== ========== ==========
Average gas sales revenues per Mcf... $ 9.10 $ 6.72 $ 8.08 $ 6.10
Average transportation revenue per
Mcf................................ $ .40 $ .47 $ .46 $ .47
Average cost of gas per Mcf sold..... $ 6.23 $ 3.99 $ 5.78 $ 3.79
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(1) Adjusted for weather normalized operations.
(2) Volumes are reported as metered in million cubic feet (MMcf).
NINE MONTHS ENDED
JUNE 30,
-------------------
2003 2002
-------- --------
(IN THOUSANDS)
Colorado-Kansas............................................. $ 26,049 $ 21,415
Kentucky.................................................... 20,704 20,029
Louisiana................................................... 37,378 24,344
Mid-States.................................................. 40,019 38,907
Mississippi Valley Gas Company.............................. 18,254 --
Texas....................................................... 18,714 19,810
Other....................................................... (1,725) 802
-------- --------
Total utility operating income............................ $159,393 $125,307
======== ========
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LIQUIDITY AND CAPITAL RESOURCES
Our working capital and liquidity for capital expenditures and other cash needs are provided from internally generated funds, borrowings under our credit facilities and commercial paper program and funds raised from the public debt and equity capital markets. We believe that these sources of funds will provide the necessary working capital and liquidity for capital expenditures and other cash needs for the remainder of fiscal 2003.
Our internally generated funds may change in the future due to a number of factors, some of which we cannot control. These include regulatory changes, the price for our products and services, the demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.
For the nine months ended June 30, 2003, we generated operating cash flow of $117.3 million compared with $301.7 million during the nine months ended June 30, 2002. The decrease in operating cash flow was primarily attributable to increases in accounts receivable and deferred gas costs coupled with lower cash receipts in margin accounts and decreases in other current liabilities as compared with the prior year period. These factors were partially offset by a decrease in gas stored underground, an increase in accounts payable and higher net income.
For the nine months ended June 30, 2003, we invested $188.0 million compared with $114.3 million for the nine months ended June 30, 2002. Capital expenditures were $113.5 million during the nine months ended June 30, 2003 compared to $89.8 million for the nine months ended June 30, 2002. Capital projects for fiscal 2003 include expenditures for additional mains, services, meters and equipment and approximately $24.0 million for Mississippi Valley Gas Company Division capital expenditures. Capital expenditures for fiscal 2003, excluding acquisitions, are expected to be approximately $150.0 million to $160.0 million compared to actual capital expenditures of $132.3 million for fiscal 2002.
Our cash flows used for investing activities for the nine months ended June 30, 2003 included $74.7 million for the cash portion of the Mississippi Valley Gas Company acquisition completed in December 2002. Cash flows used for investing activities for the nine months ended June 30, 2002 included $15.7 million for the acquisition of Kentucky-based market area storage and associated pipeline facility assets, certain natural gas purchase and sales contracts and the outstanding common stock of Southern Resources, Inc. In addition, cash flows used for investing activities for the nine months ended June 30, 2002 included expenditures for the acquisition of assets to be leased of $6.9 million.
- We received $147.0 million from a short-term acquisition credit facility which was used to fund the $74.7 million cash portion of the purchase price for MVG in December 2002 and to repay $70.9 million of MVG's outstanding debt.
- On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due 2013. The net proceeds of $249.3 million were used to refinance the short-term acquisition credit facility of $147.0 million, to repay $54.0 million in unsecured senior notes held by institutional lenders and short-term debt under our commercial paper program and to provide funds for general corporate purposes.
- On June 23, 2003, we sold 4,000,000 shares of our common stock in a public offering. The offering was priced at $25.31 per share and generated net proceeds of approximately $96.8 million. The net proceeds were used to finance a portion of our pension plan contribution, repay short-term debt and to provide for general corporate purposes. We sold an additional 100,000 shares of our common stock in July 2003 when our underwriters exercised their overallotment option, which generated net proceeds of approximately $2.4 million.
- During the nine months ended June 30, 2003 total short-term debt decreased by $145.1 million as compared with a decrease of $155.8 million for the nine months ended June 30, 2002.
- We repaid $72.3 million of long-term debt during the nine months ended June 30, 2003 as compared with $16.9 million for the nine months ended June 30, 2002.
- We paid $39.9 million in cash dividends during the nine months ended June 30, 2003 compared with dividends of $36.4 million during the nine months ended June 30, 2002. This change reflects increases in the quarterly dividend rate and in the number of shares outstanding.
During the nine months ended June 30, 2003, we issued 9,430,142 shares of common stock. Of these shares, 3,386,287 shares were issued in December 2002 for the stock portion of the MVG acquisition, 4,000,000 shares were issued in June 2003 related to our equity offering and 1,169,700 shares were issued in June 2003 for the stock contribution to our pension plan. The following table shows the number of shares issued for the nine month periods ended June 30, 2003 and 2002:
NINE MONTHS ENDED
JUNE 30,
-------------------
2003 2002
--------- -------
Shares issued:
Retirement Savings Plan................................... 275,222 232,191
Direct Stock Purchase Plan................................ 419,223 369,596
Outside Directors Stock-for-Fee Plan...................... 2,178 1,832
Long-Term Stock Plan for Mid-States Division.............. 13,000 --
Long-Term Incentive Plan.................................. 164,532 50,465
Pension account plan funding.............................. 1,169,700 --
Acquisition of MVG........................................ 3,386,287 --
Equity Offering(1)........................................ 4,000,000 --
--------- -------
Total shares issued.................................... 9,430,142 654,084
========= =======
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(1) We issued an additional 100,000 common shares in July 2003 when our underwriters exercised their overallotment option.
In December 2001, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) to issue, from time to time, up to $600.0 million in new common stock and/or debt. The registration statement was declared effective by the SEC on January 30, 2002. As discussed above, on January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due 2013 under the registration statement. The net proceeds of $249.3 million were used to repay debt under an acquisition credit facility used to finance our acquisition of MVG, to repay $54.0 million in unsecured senior notes held by institutional lenders and short-term debt under our commercial paper program and to provide funds for general corporate purposes. Additionally, as noted above, we sold 4,000,000 shares of our common stock in June 2003 and an additional 100,000 shares of our common stock in July 2003 under the registration statement. After the debt offering and these common stock sales, approximately $246.0 million remains available under the shelf registration statement.
We maintain both committed and uncommitted credit facilities. Our credit capacity and the amount of unused borrowing capacity are affected by the seasonal nature of the natural gas business and our short-term borrowing requirements, which are typically highest during colder months. Our working capital needs can vary significantly due to changes in the price of natural gas charged by suppliers and the increased gas supplies required to meet customers' needs during periods of cold weather.
We have two short-term committed credit facilities totaling $318.0 million. The first short-term unsecured credit facility is for $300.0 million and serves as a backup liquidity facility for our commercial paper program. At June 30, 2003, $0.7 million of commercial paper was outstanding. We have a second unsecured facility in place for $18.0 million. At June 30, 2003, there were no borrowings under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes. In July 2003, we successfully negotiated a renewal of the first credit facility and increased the level of commitment to $350.0 million. The new facility contains substantially the same terms as those of the prior facility and will expire in July 2004.
On October 7, 2002, we entered into a $150.0 million short-term unsecured committed credit facility. This credit facility was used to provide initial funding for the cash portion of the MVG acquisition and to repay MVG's existing debt. A total of $147.0 million was borrowed under this credit facility during the first quarter. This amount was refinanced in January 2003 with a portion of the proceeds of our $250.0 million debt offering, as discussed above.
The availability of funds under our credit facilities is subject to conditions specified therein, which we currently meet. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in our $300.0 million credit facility to maintain a ratio of total debt to total capitalization, as defined therein, of no greater than 70 percent. At June 30, 2003, our total debt to total capitalization ratio as defined was 56 percent.
Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand working capital credit facility. Atmos Energy Holdings, Inc. (AEH) and Atmos Energy Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all amounts outstanding under this facility. At June 30, 2003, no amount was outstanding under this credit facility, although letters of credit totaling $99.2 million reduced the amount available. The amount available under this credit facility is also limited by various covenants, including covenants based on working capital. Under the most restrictive covenant, the amount available to Woodward Marketing under this credit facility at June 30, 2003 was $64.4 million. This credit facility expires on March 31, 2004.
In addition, Woodward Marketing has a $100.0 million intercompany credit facility with AEH for its non-utility business. Any outstanding amounts under this facility are subordinated to Woodward Marketing's $210.0 million uncommitted demand credit facility described above. At June 30, 2003, $50.0 million was outstanding under this facility. In July 2003, Woodward and AEH agreed to increase the interest rate on the intercompany credit facility from LIBOR plus 1.25 percent to LIBOR plus 2.75 percent.
Our credit ratings directly affect our ability to obtain short-term and long-term financing, in addition to the cost of such financing. In determining our credit ratings, the rating agencies consider a number of quantitative factors, including debt to total capitalization, operating cash flow relative to outstanding debt, operating cash flow coverage of interest and pension liabilities and funding status. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the quality of our management and business strategy, the risk associated with our utility and non-utility businesses and the regulatory structures that govern our rates in the states where we operate.
Our debt is rated by three rating agencies: Standard & Poor's Corporation (S&P), Moody's Investors Service (Moody's) and Fitch Ratings, Inc. (Fitch). Our current debt ratings are as follows:
S&P MOODY'S FITCH
--- ------- -----
Long-term debt.............................................. A- A3 A-
Commercial paper............................................ A-2 P-2 F-2
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Our credit ratings may be revised or withdrawn at any time by the rating agencies, and each rating should be evaluated independently of any other rating. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, or withdrawn entirely, by a rating agency if, in its judgment, circumstances so warrant.
On January 10, 2003, S&P changed the outlook on our long-term debt rating from "stable" to "negative." In its press release explaining this action, S&P cited, among other factors, their concern that we have not made significant progress in reducing our debt to total capitalization ratio. Since S&P changed its outlook, we have issued equity and substantially reduced our leverage. Moody's and Fitch each continue to maintain a "stable" outlook for our ratings.
We do not have any trigger events in our debt instruments that are tied to changes in specified credit ratings or stock price, and we have not entered into any transactions that would require us to issue equity based on our credit rating or other trigger events.
The following tables provide information about contractual obligations and commercial commitments at June 30, 2003.
PAYMENTS DUE BY PERIOD
-------------------------------------------------------
LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
-------- --------- --------- --------- --------
(IN THOUSANDS)
CONTRACTUAL OBLIGATIONS
Long-Term Debt..................... $874,095 $ 9,747 $11,092 $12,840 $840,416
Capital Lease Obligations.......... 5,806 876 1,719 867 2,344
Operating Leases................... 68,296 9,825 19,013 15,968 23,490
-------- ------- ------- ------- --------
Total Contractual Obligations.... $948,197 $20,448 $31,824 $29,675 $866,250
======== ======= ======= ======= ========
OTHER COMMERCIAL COMMITMENTS
Lines of Credit.................... $ 700 $ 700 $ -- $ -- $ --
======== ======= ======= ======= ========
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AEM has commitments to purchase physical quantities of natural gas under contracts indexed to the forward Nymex strip or under fixed price contracts. AEM is committed to purchase 61.6 Bcf within one year and 4.7 Bcf within 1 to 3 years under indexed contracts. AEM is committed to purchase 2.6 Bcf within one year and 0.1 Bcf within 1 to 3 years under fixed price contracts with prices ranging from $3.00 to $6.70.
Our Pension Account Plan was underfunded at September 30, 2002 primarily due to negative investment returns from plan assets during fiscal 2002, lump sum distributions to participants and a decrease in interest rates. A minimum pension liability of $63.6 million before applicable income taxes was recorded as of September 30, 2002, which decreased shareholders' equity by $39.4 million.
In June 2003, we contributed into the Atmos Master Retirement Trust for the benefit of the Atmos Energy Corporation Pension Account Plan $48.6 million in cash and 1,169,700 shares of Atmos restricted common stock with a value of $28.8 million. Of the total cash contributed, $26.1 million represented a 2002 contribution, which was deducted on our 2002 tax return. The cash contribution was financed through a combination of cash on hand and a portion of the net proceeds received from the sale of 4,000,000 shares of our common stock in our June 2003 public offering as discussed previously. As a result of this contribution and improved investment returns during fiscal 2003, we anticipate that the plan will be adequately funded as of September 30, 2003. At this time, we anticipate that additional contributions approximating $10-$15 million will be required for fiscal 2004.
The projected pension liability and future funding requirements for the Plan are subject to change, depending upon the actuarial value of plan assets from time to time and future benefit obligations as of each subsequent actuarial calculation date.
RECENT ACCOUNTING DEVELOPMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entities, An Interpretation of Accounting Research Bulletin No. 51. The primary objectives of FIN 46 are to provide guidance on how to identify entities for which control is achieved through means other than through voting rights (variable interest entities (VIE)) and how to determine when and which business enterprises should consolidate the VIE. This new model for consolidation applies to an entity in which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 applies immediately to VIEs created after January 31, 2003 or to VIEs obtained after that date. For variable interests held in VIEs acquired prior to February 1, 2003, FIN 46 is effective July 1, 2003. We believe that the adoption of this interpretation will not have a material impact on our financial position, results of operations or net cash flows because Atmos currently does not have any interests in VIEs.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the accounting and reporting for derivative instruments, including hedges. This statement amends SFAS 133 for decisions made by the Derivatives Implementation Group and by the FASB in connection with other projects dealing with financial instruments, and clarifies other implementation issues. SFAS 149 is effective for the Company on a prospective basis for contracts entered into or modified after June 30, 2003. We believe that the adoption of this statement will not have a material impact on our financial position, results of operations or net cash flows.
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Under SFAS 150, mandatorily redeemable financial instruments, obligations to repurchase the issuer's shares by transferring assets and certain obligations to issue a variable number of shares to settle that obligation must be classified as liabilities on the balance sheet and initially recorded at fair value. SFAS 150 is effective for the Company for financial instruments entered into or modified after May 31, 2003, and on July 1, 2003 for previously existing financial instruments. The adoption of SFAS 150 will not impact our financial position, results of operations or net cash flows as we currently do not use any of the financial instruments subject to this statement.
We conduct our risk management activities through both our utility and natural gas marketing segments. Our utility segment hedging activities are designed to protect us and our customers against unusually large winter period gas price increases and include the use of financial hedges and fixed forward contracts. Our natural gas marketing segment hedging activities are designed to manage margins on the sale of natural gas inventory or the offsetting fixed-price purchase or sale commitments for physical quantities of natural gas through the use of gas futures, including forwards, over-the-counter and exchange-traded options and swap contracts with counterparties. The following table shows our risk management assets and liabilities by segment at June 30, 2003.
NATURAL GAS
UTILITY MARKETING TOTAL
------- ----------- --------
(IN THOUSANDS)
Assets from risk management activities, current...... $ 1,039 $ 17,607 $ 18,646
Assets from risk management activities, noncurrent... -- 1,635 1,635
Liabilities from risk management activities,
current............................................ (1,837) (11,419) (13,256)
Liabilities from risk management activities,
noncurrent......................................... -- (549) (549)
------- -------- --------
Net assets (liabilities)............................. $ (798) $ 7,274 $ 6,476
======= ======== ========
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On October 25, 2002, through the issuance of EITF 02-03, the EITF rescinded EITF 98-10, Accounting for Energy Trading and Risk Management Activities, thereby precluding mark-to-market accounting for our natural gas marketing segment inventory and energy trading contracts that are not derivatives. Beginning January 1, 2003, energy trading contracts are being accounted for pursuant to the provisions of SFAS 133, Accounting for Derivative Instruments and Hedging Activities. The cumulative effect of the change in accounting principle was reported in accordance with APB Opinion 20, Accounting Changes. The cumulative noncash charge recorded in the second quarter of fiscal 2003 was $7.8 million, net of tax benefit. As performance under these inventory, storage and transportation contracts is completed, the applicable income is recognized. Originally, $6.0 million was expected to be realized in net income in fiscal 2003, $1.2 million in fiscal 2004 and $0.6 million thereafter. However, actual results to date are less than originally estimated, due to the extreme market volatility.
Fair value of contracts at March 31, 2003................... $ 8,262
Contracts realized/settled................................ (6,667)
Fair value of new contracts............................... 630
Other changes in value.................................... 5,049
-------
Fair value of contracts at June 30, 2003.................... $ 7,274
=======
|
The following table shows the components of the change in fair value of our natural gas marketing energy trading contract activities for the nine months ended June 30, 2003 (in thousands).
Fair value of contracts at September 30, 2002............... $ 6,651
Contracts realized/settled................................ 4,910
Fair value of new contracts............................... 5,261
Other changes in value.................................... (749)
Cumulative effect of accounting change.................... (8,799)
-------
Fair value of contracts at June 30, 2003.................... $ 7,274
=======
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The fair value of our natural gas marketing energy trading contracts at June 30, 2003, is segregated below, by time period and fair value source.
FAIR VALUE OF CONTRACTS AT JUNE 30, 2003
---------------------------------------------
MATURITY IN YEARS
--------------------------------
LESS GREATER TOTAL FAIR
THAN 1 1-3 4-5 THAN 5 VALUE
------- ------ --- ------- ----------
(IN THOUSANDS)
SOURCE OF FAIR VALUE
Prices actively quoted.................... $11,561 $ 121 $-- $ -- $11,682
Prices provided by other external
sources................................. (5,150) 1,088 71 -- (3,991)
Prices based on models and other valuation
methods................................. (223) (194) -- -- (417)
------- ------ --- ----- -------
Total Fair Value.......................... $ 6,188 $1,015 $71 $ -- $ 7,274
======= ====== === ===== =======
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Atmos Energy Marketing also engages in limited speculative natural gas trading for its own account primarily related to its storage activity. Physical trading involves utilizing physical assets (storage and transportation) to sell and deliver gas to customers or to take a position in the market based on anticipated price movement. In addition to the price risk of any net open position at the end of each trading day, the financial exposure that results from intra-day fluctuations of gas prices and the potential for daily price movements constitutes a risk of loss since the price of natural gas purchased or sold for future delivery at the beginning of the day may not be hedged until later in the day.
These trading activities are subject to a risk management policy which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings. Compliance with this risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits trading positions that are not closed at the end of the day (open positions) to 5.0 Bcf of natural gas. AEM's open trading positions are monitored daily but are not required to be closed if they remain within the limits set by the bank loan agreement. At June 30, 2003, AEM's net open positions in its trading operations totaled 0.3 Bcf.
In June 2001, we purchased a three year weather insurance policy with an option to cancel the third year of coverage. The insurance was designed for our Texas and Louisiana operations to protect against weather that was at least seven percent warmer than normal for the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was $13.2 million, which was prepaid and was amortized over the appropriate heating seasons based on degree days. Because weather was not at least seven percent warmer than normal, no income was recognized under this insurance policy during the nine months ended June 30, 2003 and 2002. Amortization expense of $5.0 million and $4.4 million was recognized during the nine months ended June 30, 2003 and 2002. Included in the amortization expense for the nine months ended June 30, 2003 was a third quarter charge of $0.6 million, net of cash received, related to the cancellation of the third year of coverage on our weather insurance policy primarily as a result of rate relief in Louisiana and prospects for weather normalization adjustments in Texas.
Other than the changes in our risk management activities and weather insurance, there have been no significant changes in our market risks since September 30, 2002.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(a). Based upon that evaluation, the Chairman, President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer have concluded that our disclosure controls and procedures continue to be effective.
Such disclosure controls and procedures are controls and procedures designed to ensure that all information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods set forth in applicable Securities and Exchange Commission forms, rules and regulations. In addition, we have reviewed our internal controls over financial reporting and have concluded that there has been no change in such internal control during the third quarter of 2003 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
See Note 3 of notes to condensed consolidated financial statements herein for a description of legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On June 30, 2003, we issued to the Company's Master Retirement Trust for the benefit of the Company's Pension Account Plan, a total of 1,169,700 shares of our common stock, which shares were unregistered. We issued the shares under an exemption from registration under Section 4(2) of the Securities Act of 1933 and Regulation D thereunder. The shares are subject to a registration rights agreement between the Company and the Asset Manager for the Directed Fund in the Master Retirement Trust, a copy of which is attached hereto as Exhibit 4.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits.
(b) Reports on Form 8-K
The Company filed a Form 8-K Current Report, Item 9 and Item 12, dated May 5, 2003, stating that the Company announced in a news release that members of its leadership team would speak at the American Gas Association Financial Forum in Scottsdale, Arizona on May 5, 2003. In the release, the Company also
The Company filed a Form 8-K Current Report, Item 9 and Item 12, dated May 13, 2003, stating that the Company announced in a news release concerning financial results for the fiscal 2003 second quarter and six month period ended March 31, 2003, that its officers would discuss such financial results on May 14, 2003 at 7:00 a.m. CDT. In the release, the Company also announced that the presentation would be webcast live and that slides for the broadcast would also be available on its website.
The Company filed a Form 8-K Current Report, Item 5, Other Events, dated June 18, 2003 that the Company and Merrill Lynch, Pierce Fenner & Smith Incorporated, executed a Purchase Agreement in connection with the sale of a total of 4,000,000 shares of the Company's common stock, a copy of which was attached to the Form 8-K as Exhibit 1.1. Under Item 7, Financial Statements and Exhibits, the following were attached as exhibits: Purchase Agreement dated June 18, 2003, Opinion of Gibson, Dunn & Crutcher LLP, Dallas, Texas, Opinion of Hunton & Williams, Richmond, Virginia, Consent of Gibson, Dunn & Crutcher LLP, Dallas, Texas, Consent of Hunton & Williams, Richmond, Virginia and the news release dated June 18, 2003.
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.
By: /s/ JOHN P. REDDY
------------------------------------
John P. Reddy
Senior Vice President
and Chief Financial Officer
(Duly authorized signatory)
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Date: August 14, 2003
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
4.1 Registration Rights Agreement, dated as of June 30, 2003,
between Atmos Energy Corporation and Gary A. Morris, as
Asset Manager
10.1 364-Day Revolving Credit Agreement, dated as of July 29,
2003, among Atmos Energy Corporation, Bank One, NA, Suntrust
Bank and Bank of America, N.A. and the lenders identified
therein.
12 Computation of ratio of earnings to fixed charges
15 Letter regarding unaudited interim financial information
31 Certifications by the Company's Chief Executive Officer and
Chief Financial Officer required by Rule 13a-14(a) Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
the Company's Chief Executive Officer*
32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
the Company's Chief Financial Officer*
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* These certifications pursuant to 18 U.S.C. Section 1350 by the Company's Chief Executive Officer and Chief Financial Officer, furnished as Exhibits 32.1 and 32.2, respectively, to this Quarterly Report on Form 10-Q, will not be deemed to be filed with the Commission or incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such certifications by reference.
This Registration Rights Agreement, dated as of June 30, 2003 (this "Agreement"), is entered into by and between Atmos Energy Corporation, a Texas and Virginia corporation ("Issuer"), and Gary A. Morris, as Asset Manager (the "Asset Manager").
A. WHEREAS, in connection with its funding of the Atmos Energy Corporation Pension Account Plan (the "Plan"), on or about the date hereof, Issuer will issue to the Atmos Energy Corporation Master Retirement Trust (the "Trust") for the benefit of the Plan, shares of common stock, no par value, of Issuer (the "Common Stock"); and
B. WHEREAS, the Asset Manager is an investment adviser satisfying the requirements of Section 3(38) of the Employee Retirement Income Security Act of 1974, as amended, duly appointed pursuant to the Trust Agreement, dated as of January 2, 1998, for the Plan (the "Trust Agreement") to act as Asset Manager (as defined in the Trust Agreement) with respect to such shares of Common Stock, which will be held in a segregated investment fund account in the Trust for the benefit of the Plan (the "Directed Fund"); and
C. WHEREAS, in connection with such issuance of the Common Stock, Issuer has agreed to grant to the Asset Manager certain registration rights, as set forth herein, with respect to Registrable Securities held in the Directed Fund.
NOW, THEREFORE, in consideration of the premises, and the mutual representations, warranties, covenants, and agreements hereinafter set forth, the parties hereto agree as follows:
1. Definitions.
(a) "Registrable Securities" means (i) all of the Common Stock issued in connection with the funding of the Plan on or about the date hereof, plus (ii) all other securities of Issuer issued in respect of such Common Stock, by way of a stock split, stock dividend, recapitalization, merger or consolidation, or otherwise, but exclusive of (iii) any securities described in clause (i) or (ii) above (x) that are sold by the Asset Manager in a public offering registered under the Securities Act or any private transaction exempt from registration under the Securities Act or (y) that can be sold pursuant to Rule 144(k) (or any successor provision thereto) promulgated under the Securities Act.
(b) "Registration Expenses" means all expenses incident to Issuer's performance of or compliance with this Agreement, including all registration, filing, listing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and expenses of counsel for Issuer and of its independent public accountants, including the expenses of any audits or "comfort" letters required by or incident to such performance and compliance and any fees and disbursements of underwriters customarily paid by issuers of securities, but excluding underwriting discounts and commissions, transfer taxes, if any, and the fees and expenses of any counsel retained by the Asset Manager.
2. Demand Registration Rights.
(a) Demand. At any time prior to June 30, 2005, the Asset Manager may make a request in writing (a "Demand Request") that Issuer register all or part of the Registrable Securities under the Securities Act for the purpose of effecting an underwritten offering thereof (a "Demand Offering"); provided, however, that the Registrable Securities proposed to be sold by the Asset Manager in such Demand Offering have an aggregate offering price of at least $10 million (unless all remaining Registrable Securities are to be sold, in which case such request may relate to Registrable Securities having an aggregate offering price of less than $10 million). Each Demand Request shall specify the number of Registrable Securities proposed to be sold. Subject to the terms and provisions of this Agreement, Issuer shall prepare and file, within 60 days after receiving a Demand Request, a registration statement under the Securities Act required to permit the offering of such Registrable Securities (provided, that Issuer shall in no event be required to file any such registration statement prior to September 30, 2003 and may delay the filing as provided in the last sentence of this Section 2(a)) and shall use all commercially reasonable efforts to cause any such registration statement to be declared effective by the SEC as promptly as practicable after any such filing; provided, that Issuer need register only three Demand Offerings and Issuer need not file more than one such registration statement in any 12-month period. If at the time of a Demand Request Issuer has initiated bona fide discussions with an underwriter regarding the sale by Issuer of securities in a registered public offering and, in the opinion of such underwriter, the filing of a registration statement under this Section 2(a) would adversely affect such offering, Issuer may delay such filing for up to 90 days from the date of such offering, but not more than 120 days after the receipt of the Demand Request; provided, that only one such delay shall be permitted in any 12-month period.
(b) Underwriting Requirements in Demand Registration; Selection of Underwriters. The offering of Registrable Securities pursuant to a Demand Offering shall be in the form of a "firm commitment" underwritten offering. Issuer shall select the investment banking firm or firms to manage the underwritten offering, subject to the reasonable approval of the Asset Manager.
(c) Underwriting Agreement. If the Asset Manager proposes to distribute Registrable Securities pursuant to a Demand Offering, the Asset Manager shall, together with Issuer, enter into an underwriting agreement in customary form with the investment banking firm or firms selected by Issuer to manage the underwritten offering.
3. "Piggy-Back" Registration Rights.
(a) Right to Include Registrable Securities. If, at any time prior to June 30 2005, Issuer proposes to register any shares of Common Stock under the Securities Act in connection with an underwritten public offering of such shares of Common Stock solely for cash (other than a registration (i) on Form S-8 or any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, (ii) with respect to an employee benefit plan, (iii) solely in connection with a Rule 145 transaction under the Securities Act, or (iv) of convertible debt), whether or not for sale for its own account (a "Proposed Registration"), Issuer will give prompt written notice (which shall be at least 20 days prior to filing) to the Asset Manager of its intention to do so, and the Asset Manager's rights under this Section 3. Upon the written request of the Asset Manager made within ten days after the receipt of any such notice, Issuer will use reasonable efforts to include in such registration the Registrable Securities then held by the Trust that the Asset Manager so requests; provided, however, that Issuer shall not be obligated to register such Registrable Securities if or to the extent, at any time after receiving written notice of a Proposed Registration and prior to the effective date of the registration statement filed in connection with such Proposed Registration, Issuer shall determine for any reason not to register Common Stock or to delay the Proposed Registration.
Notwithstanding anything in this Section 3(a) to the contrary, Issuer shall be under no obligation to provide written notice to the Asset Manager with respect to, and the Asset Manager will have no rights to register the Registrable Securities under this Section 3(a) as a result of, any registration statement filed prior to the date hereof (including any supplement or amendment filed with respect thereto).
(b) Delayed Offerings. If a Proposed Registration contemplates future delayed offerings of shares of Common Stock for cash by the Company pursuant to Rule 415 under the Securities Act (a "Rule 415 Registration"), the Asset Manager shall not be entitled to participate in any such delayed offering unless the Asset Manager has duly requested, pursuant to Section 3(a), and has, named the Trust as a selling shareholder in a registration statement filed in connection with such Rule 415 Registration prior to its effectiveness, and then only in respect of the number of Registrable Securities included therein. The Trust being named as a selling shareholder in a registration statement filed in connection with a Rule 415 Registration shall not entitle the Asset Manager to sell any Registrable Securities under such registration statement, except in connection with an underwritten public offering of shares of Common Stock for cash by the Company. The participation in any delayed offering of Common Stock by the Company shall be conditioned upon the requirements of this Section 3(b), and the notices, possible cutbacks and other terms and conditions applicable to Proposed Registrations set forth in this Agreement shall apply thereto.
(c) Underwriting Requirements in Piggy-back Registration; Selection of Underwriters. The right of the Asset Manager to include Registrable Securities in a Proposed Registration shall be conditioned upon the Asset Manager's participation in the related underwriting and the inclusion of Registrable Securities in such underwriting to the extent provided herein. The selection of the underwriter or underwriters for the public offering to be made pursuant to a registration statement filed in connection with a Proposed Registration shall be made by Issuer, in its sole discretion.
(d) Underwriting Agreement. The Asset Manager shall become a party to the underwriting agreement between Issuer and the underwriter or underwriters selected by Issuer.
(e) Priority. If, in connection with a Proposed Registration, the managing underwriter advises Issuer in writing that, in its opinion, the number of Registrable Securities requested by the Asset Manager to be included pursuant to Section 3(a) exceeds the number which can be sold without the reasonable likelihood of a Material Adverse Effect, then the number of Registrable Securities to be registered shall be limited by withdrawing from registration the shares of: first, the Trust and any other Persons then holding piggy-back registration rights with respect to such registration pro rata; then, Issuer; and then, any Person then holding demand registration rights with respect to such registration.
4. Registration Procedures. If and whenever Issuer is required to use reasonable efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2 or Section 3, Issuer will, subject to the terms and conditions of this Agreement:
(a) prepare and file with the SEC a registration statement to effect such registration and use reasonable efforts to cause such registration statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition or the expiration of 90 days after such registration statement becomes effective;
(c) furnish to the Asset Manager such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as the Asset Manager may reasonably request;
(e) furnish, at the request of the Asset Manager, on the date that such Registrable Securities are delivered to the underwriters for sale, (i) a copy of any opinion of counsel to Issuer addressed to the underwriters or Issuer and (ii) a copy of any letters from the independent accountants of Issuer, addressed to the underwriters or Issuer;
(f) (i) immediately notify the Asset Manager, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event or the existence of any condition as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or, if in the opinion of counsel for Issuer, it is necessary to supplement or amend such prospectus to comply with law and, after such notice,
(ii) at the request of the Asset Manager, promptly prepare and furnish to the Asset Manager and his counsel a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or such prospectus, as supplemented or amended, shall comply with law;
(g) use reasonable efforts to list or admit all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed or any other trading market on which any of the Registrable Securities are then admitted for trading;
(h) promptly notify the Asset Manager and the underwriter or underwriters, if any, of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of, or of the issuance by the SEC of, any stop order suspending the effectiveness of such registration statement; and
(i) pay all Registration Expenses relating to any such registration.
5. Asset Manager Obligations.
(a) Issuer may require the Asset Manager, in connection with any registration is being effected pursuant to Section 2 or Section 3, to furnish Issuer with such information and undertakings regarding the distribution of such securities as Issuer may from time to time reasonably request in writing.
(i) that upon receipt of any notice from Issuer of the happening of any event of the kind described in Section 4(f), the Asset Manager will forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until the Asset Manager's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(f) and, if so directed by Issuer, will deliver to Issuer all copies, other than permanent file copies, then in the Asset Manager's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice, and
(ii) that the Asset Manager will immediately notify Issuer, at any time when a prospectus relating to the registration of such Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which information previously furnished by the Asset Manager to Issuer in writing for inclusion in such prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made.
In the event Issuer or the Asset Manager shall give any such notice, the period referred to in Section 4(b) shall be extended by a number of days equal to the number of days during the period from and including the giving of notice pursuant to Section 4(f) to and including the date when the Asset Manager shall have received the copies of the supplemented or amended prospectus contemplated by Section 4(f).
6. Holdback Agreement.
The Asset Manager agrees, if reasonably required by a managing underwriter of any offering referred to in Section 2 or Section 3, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Registrable Securities pursuant to Section 2 or Section 3, enter into any transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such securities, however any such transaction is to be settled, or publicly disclose any intention to do so, during the seven days prior to and for up to 90 days after the date of such offering, except as part of such offering (to the extent the Asset Manager may participate therein as provided herein), whether or not the Asset Manager participates or is permitted to participate in the registration for such offering.
7. Certain Rights of Asset Manager. Issuer will not file any registration statement under the Securities Act which refers to the Asset Manager by name or the Trust otherwise as a selling shareholder without the prior written approval of the Asset Manager, which may not be unreasonably withheld or delayed. Issuer will furnish drafts of any such registration statement to the Asset Manager and his counsel as soon as reasonably practicable prior to the anticipated filing date in order to provide the Asset Manager and his counsel a reasonably adequate period for review.
In the event of any registration of any Registrable Securities under the Securities Act, Issuer will, and hereby does, to the full extent permitted by law indemnify and hold harmless the Asset Manager and each other Person, if any, who controls the Asset Manager within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof, whether or not the Asset Manager is a party thereto, and including reasonable costs of investigation and legal expenses) (collectively, "Claims"), to which the Asset Manager may become subject under the Securities Act or otherwise, insofar as such Claims arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto (if used during the period Issuer is required to keep the registration statement current) or any documents incorporated therein (collectively, "Registration Documents"), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of a prospectus or preliminary prospectus, in light of the circumstances in which they were made), or any violation by Issuer of the Securities Act or any state securities law, or any rule or regulation promulgated under the Securities Act or any state securities law, or any other law applicable to Issuer relating to any such registration, and Issuer will reimburse the Asset Manager for any legal or any other expenses reasonably incurred by the Asset Manager in connection with investigating or defending any such Claim; provided, however, that Issuer shall not be liable in any such case to the extent that any such Claim or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such Registration Document in reliance upon and in conformity with written information furnished to Issuer through an instrument duly executed by the Asset Manager stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Asset Manager and shall survive the transfer of such securities by the Asset Manager.
9. Representations, Warranties and Covenants.
(a) Investment Purposes. The Asset Manager understands that the shares of Common Stock to be issued to the Trust on or about the date hereof (the "Shares") will be issued without registration under the Securities Act, in reliance upon an exemption from registration under the Securities Act. The Asset Manager hereby represents and warrants that the Shares will be acquired for the account of the Trust for investment purposes only and not with a view to resale or other distribution thereof, in whole or in part, except as contemplated by this Agreement; provided, however, that, subject to the terms hereof, the disposition of the property in the Directed Fund shall at all times be within the control of the Asset Manager. The Asset Manager will not assign, sell, hypothecate or otherwise transfer the Shares unless (i)(a) a registration statement is in effect under the Securities Act with respect to such shares or (b) a written opinion of counsel acceptable to Issuer is obtained to the effect that no such registration is required, and (ii) the Asset Manager has complied with all applicable holding periods imposed by the Securities Act (and the regulations thereunder). The Asset Manager acknowledges that a restrictive legend to such effect will be placed on the certificates representing the Shares and a notation will be made in the appropriate records of Issuer indicating that the Shares are subject to such restrictions on transfer.
(b) Future Agreements. For so long as the Trust owns any Registrable Securities, Issuer shall not hereafter agree with any purchaser of any securities to be issued by Issuer to register such securities under the Securities Act unless the rights so granted, if exercised, would not conflict with, be inconsistent with or violate any provision of this Agreement, including the provisions of Section 2(d) and 3(e). The grant of demand registration rights shall be deemed not to be inconsistent with the provisions of this Agreement.
10. Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers:
If to Atmos, to:
Atmos Energy Corporation
1800 Three Lincoln Centre 5430 LBJ Freeway
Dallas, TX 75240
Attn: General Counsel
Facsimile No.: (972) 855-3080
If to the Asset Manager, to:
Gary A. Morris
Registered Investment Adviser
5310 Harvest Hill Road
Suite 192
Dallas, Texas 75230
Facsimile No.: (972) 991-5055
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 10, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 10, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 10, be deemed given upon receipt. Any party from time to time may change its or his address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.
12. Assignment; Binding Effect. No party hereto may assign either this Agreement or any of its or his rights, interests or obligations hereunder without the prior written approval of each other party. This Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and permitted assigns.
13. Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws (without reference to choice or conflict of laws that would apply any other law) of the State of Texas.
14. Counterparts. This Agreement may be signed in any number of counterparts and the signatures delivered by telecopy, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
15. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement.
16. Severability. If any provision of this Agreement, or the application thereof to any Person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other Persons, places and circumstances shall remain in full force and effect only if, after excluding the portion deemed to be unenforceable, the remaining terms shall provide for the consummation of the transactions contemplated hereby in substantially the same manner as originally set forth at the later of the date this Agreement was executed or last amended.
17. Third Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person; provided that the Asset Manager may enforce the provisions of Section 8 for the benefit of each other Person, if any, who is entitled to indemnification under Section 8.
By: /s/ JOHN P. REDDY
-------------------------------
Name: John P. Reddy
Title: Senior Vice President,
and Chief Financial Officer
/s/ GARY A. MORRIS
------------------------------------
Gary A. Morris, as Asset Manager
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SECTION 1. DEFINITIONS AND ACCOUNTING TERMS......................................... 1
1.1 Definitions................................................................. 1
1.2 Computation of Time Periods................................................. 12
1.3 Accounting Terms............................................................ 12
1.4 Time........................................................................ 12
SECTION 2. LOANS.................................................................... 13
2.1 Aggregate Commitment........................................................ 13
2.2 Method of Borrowing for Loans............................................... 13
2.3 Funding of Loans............................................................ 13
2.4 Continuations and Conversions............................................... 14
2.5 Minimum Amounts............................................................. 14
2.6 Reductions of Aggregate Commitment.......................................... 15
2.7 Notes....................................................................... 15
SECTION 3. PAYMENTS................................................................. 15
3.1 Interest.................................................................... 15
3.2 Prepayments................................................................. 16
3.3 Payment in full at Maturity................................................. 16
3.4 Fees........................................................................ 16
3.5 Place and Manner of Payments................................................ 17
3.6 Pro Rata Treatment.......................................................... 17
3.7 Computations of Interest and Fees........................................... 18
3.8 Sharing of Payments......................................................... 19
3.9 Evidence of Debt............................................................ 19
SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS.................................... 20
4.1 Eurodollar Loan Provisions.................................................. 20
4.2 Capital Adequacy............................................................ 21
4.3 Compensation................................................................ 22
4.4 Taxes....................................................................... 22
SECTION 5. CONDITIONS PRECEDENT..................................................... 25
5.1 Closing Conditions.......................................................... 25
5.2 Conditions to Loans......................................................... 26
SECTION 6. REPRESENTATIONS AND WARRANTIES........................................... 27
6.1 Organization and Good Standing.............................................. 27
6.2 Due Authorization........................................................... 27
6.3 No Conflicts................................................................ 27
6.4 Consents.................................................................... 28
6.5 Enforceable Obligations..................................................... 28
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6.6 Financial Condition......................................................... 28
6.7 No Material Change.......................................................... 28
6.8 No Default.................................................................. 28
6.9 Litigation.................................................................. 29
6.10 Taxes....................................................................... 29
6.11 Compliance with Law......................................................... 29
6.12 Material Agreements......................................................... 29
6.13 ERISA....................................................................... 29
6.14 Use of Proceeds............................................................. 30
6.15 Government Regulation....................................................... 31
6.16 Disclosure.................................................................. 31
6.17 Environmental Matters....................................................... 31
6.18 Insurance................................................................... 32
6.19 Franchises, Licenses, Etc................................................... 32
6.20 Secured Indebtedness........................................................ 32
6.21 Subsidiaries................................................................ 32
SECTION 7. AFFIRMATIVE COVENANTS.................................................... 32
7.1 Information Covenants....................................................... 32
7.2 Debt to Capitalization Ratio................................................ 34
7.3 Preservation of Existence, Franchises and Assets............................ 34
7.4 Books and Records........................................................... 35
7.5 Compliance with Law......................................................... 35
7.6 Payment of Taxes and Other Indebtedness..................................... 35
7.7 Insurance................................................................... 35
7.8 Use of Proceeds............................................................. 35
7.9 Audits/Inspections.......................................................... 35
SECTION 8. NEGATIVE COVENANTS....................................................... 36
8.1 Nature of Business.......................................................... 36
8.2 Consolidation and Merger.................................................... 36
8.3 Sale or Lease of Assets..................................................... 36
8.4 Arm's-Length Transactions................................................... 36
8.5 Fiscal Year; Organizational Documents....................................... 36
8.6 Liens....................................................................... 37
SECTION 9. EVENTS OF DEFAULT........................................................ 38
9.1 Events of Default........................................................... 38
9.2 Acceleration; Remedies...................................................... 40
9.3 Allocation of Payments After Event of Default............................... 41
SECTION 10. AGENCY PROVISIONS........................................................ 42
10.1 Appointment................................................................. 42
10.2 Delegation of Duties........................................................ 42
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10.3 Exculpatory Provisions...................................................... 42
10.4 Reliance on Communications.................................................. 43
10.5 Notice of Default........................................................... 43
10.6 Non-Reliance on Administrative Agent and Other Lenders...................... 44
10.7 Indemnification............................................................. 44
10.8 Administrative Agent in Its Individual Capacity............................. 45
10.9 Successor Agent............................................................. 45
SECTION 11. MISCELLANEOUS............................................................ 45
11.1 Notices..................................................................... 45
11.2 Right of Set-Off............................................................ 46
11.3 Benefit of Agreement........................................................ 46
11.4 No Waiver; Remedies Cumulative.............................................. 49
11.5 Payment of Expenses, etc.................................................... 49
11.6 Amendments, Waivers and Consents............................................ 49
11.7 Counterparts/Telecopy....................................................... 50
11.8 Headings.................................................................... 51
11.9 Defaulting Lender........................................................... 51
11.10 Survival of Indemnification and Representations and Warranties.............. 51
11.11 Governing Law; Venue........................................................ 51
11.12 Waiver of Jury Trial........................................................ 52
11.13 Severability................................................................ 52
11.14 Further Assurances.......................................................... 52
11.15 Entirety.................................................................... 52
11.16 Binding Effect; Continuing Agreement........................................ 52
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SCHEDULES
Schedule 1.1(a) Commitment Percentages Schedule 1.1(b) Pricing Schedule Schedule 6.20 Secured Indebtedness Schedule 6.21 Subsidiaries Schedule 11.1 Notices EXHIBITS Exhibit 2.2 Form of Notice of Borrowing Exhibit 2.4 Form of Notice of Continuation/Conversion Exhibit 2.7 Form of Note Exhibit 7.1(c) Form of Officer's Certificate Exhibit 11.3(b) Form of Assignment Agreement |
THIS 364-DAY REVOLVING CREDIT AGREEMENT (this "Credit Agreement"), dated as of July 29, 2003, is entered into among ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Borrower"), the Lenders (as defined herein) and BANK ONE, NA as agent for the Lenders (in such capacity, the "Administrative Agent").
WHEREAS, the Borrower wishes, from time to time, to obtain loans in the principal sum of up to $350,000,000 and the Lenders are willing to make such loans to the Borrower, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
1.1 DEFINITIONS.
As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage for Eurodollar Loans.
"Administrative Agent" means Bank One, NA and any successors and assigns in such capacity.
"Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such other Person or (b) to direct or cause direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
"Agency Services Address" means 1 Bank One Plaza, 10th Floor, Chicago, IL 60670 or such other address as the Administrative Agent may designate in writing.
"Aggregate Commitment" means three hundred fifty million Dollars
($350,000,000) as such amount may be otherwise reduced in accordance with
Section 2.6.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
"Base Rate" means a fluctuating rate of interest equal to the higher of (a) the Prime Rate and (b) the sum of the Federal Funds Rate most recently determined by the Administrative Agent plus 1/2% per annum. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means a Loan which bears interest based on the Base Rate plus the Applicable Percentage.
"Borrower" means Atmos Energy Corporation, a Texas and Virginia corporation.
"Borrower Obligations" means, without duplication, all of the obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes or any of the other Credit Documents.
"Business Day" means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by law or other governmental action to close in Chicago, Illinois; provided that in the case of Eurodollar Loans, such day is also a day on which dealings between banks are carried on in U.S. dollar deposits in the London interbank market.
"Capital Stock" means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
"Change of Control" means either of the following events:
(a) any "person" or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act) has become, directly or indirectly, the "beneficial owner" (as defined in Rules 13d-3 (other than subsection (d) thereof) and 13d-5 under the Exchange Act), by way of merger, consolidation or otherwise of 40% or more of the voting power of the Borrower on a fully-diluted basis, after giving effect to the conversion and exercise of all outstanding warrants, options and other securities of the Borrower convertible into or exercisable for voting stock of the Borrower (whether or not such securities are then currently convertible or exercisable); or
(b) during any period of two consecutive calendar years, individuals who at the beginning of such period constituted the board of directors of the Borrower together with any new members of such board of directors whose elections by such board or board of directors or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the members of such board of directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority of the directors of the Borrower then in office.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.
"Commitment Percentage" means, for each Lender, the percentage identified as its Commitment Percentage opposite such Lender's name on Schedule 1.1(a), as such percentage may be modified by assignment in accordance with the terms of this Credit Agreement.
"Commitments" means, collectively, each Lender's share of the Aggregate Commitment based upon such Lender's Commitment Percentage, as reflected on Schedule 1.1(a).
"Consolidated Capitalization" means, without duplication, the sum of (a) all of the shareholders' equity or net worth of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP plus (b) the aggregate principal amount of Preferred Securities plus (c) the aggregate Minority Interests in Subsidiaries plus (d) Consolidated Funded Debt.
"Consolidated Funded Debt" means, without duplication, the sum of (a) all indebtedness of the Borrower and its Subsidiaries for borrowed money, (b) all purchase money indebtedness of the Borrower and its Subsidiaries, (c) the principal portion of all obligations of the Borrower and its Subsidiaries under capital leases, (d) all commercial letters of credit and the maximum amount of all performance and standby letters of credit issued or bankers' acceptance facilities created for the account of the Borrower or one of its Subsidiaries, including, without duplication, all unreimbursed draws thereunder, (e) all Guaranty Obligations of the Borrower and its Subsidiaries with respect to funded indebtedness of another Person; provided that neither the indebtedness of Woodward Marketing, LLC ("Woodward") incurred in connection with the purchase of gas by Woodward for resale to the Borrower nor the guaranty by the Borrower or one of its Subsidiaries of such indebtedness shall be included in this definition if such indebtedness has been outstanding for less than two months from the date of its incurrence by Woodward, (f) all indebtedness of another entity secured by a Lien on any property of the Borrower or any of its Subsidiaries whether or not such indebtedness has been assumed by the Borrower or any of its Subsidiaries, (g) all indebtedness of any partnership or unincorporated joint venture to the extent the Borrower or one of its Subsidiaries is legally obligated with respect thereto, net of any assets of such partnership or joint venture, (h) all obligations of the Borrower and its Subsidiaries to advance or provide funds or other support for the payment or purchase of funded indebtedness (including, without limitation, maintenance agreements, comfort letters or similar agreements or arrangements) (other than as may be given in respect of Woodward) and (i) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product of the Borrower or one of its Material Subsidiaries where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.
"Consolidated Net Property" means the Fixed Assets less, without duplication, the amount of accumulated depreciation and amortization attributable thereto.
"Credit Documents" means this Credit Agreement, the Notes, any Notice of Borrowing and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto.
"Debt to Capitalization Ratio" means the ratio of (a) Consolidated Funded Debt to (b) Consolidated Capitalization.
"Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the term of this Credit Agreement, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.
"Dollars" and "$" means dollars in lawful currency of the United States of America.
"Effective Date" means the date on which all of the conditions set forth in Section 5.1 shall have been fulfilled (or waived in the sole discretion of the Lenders).
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; and (c) any other Person approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed); provided that (i) the Borrower's consent is not required during the existence and continuation of a Default or an Event of Default, (ii) approval by the Borrower shall be deemed given if no objection is received by the Administrative Agent from the Borrower within five Business Days after notice of such proposed assignment has been received by the Borrower; and (iii) neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means an entity, whether or not incorporated, which is under common control with the Borrower or any of its Subsidiaries within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower or any of its Subsidiaries and which is treated as a single employer under Sections 414(b), (c), (m), or (o) of the Code.
"Eurodollar Loan" means a Loan bearing interest at the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, with respect to any Interest Period, the applicable London interbank offered rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period, and having a maturity equal to such Interest Period, adjusted for Federal Reserve Board reserve requirements.
"Eurodollar Reserve Percentage" means, for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities, as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not a Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default" has the meaning specified in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Existing Revolving Credit Agreement" means that certain 364-Day Revolving Credit Agreement, dated as of July 31, 2002, among the Borrower, the lenders identified therein and Bank One, NA, as administrative agent, as amended, modified, supplemented or replaced from time to time.
"Federal Funds Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or if such rate is not so published for such day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"Fee Letter" means that certain letter agreement, dated as of June 6, 2003, between the Administrative Agent and the Borrower, as amended, modified, supplemented or replaced from time to time.
"Financial Officer" means any one of the chief financial officer, the controller or the treasurer of the Borrower.
"Fixed Assets" means the assets of the Borrower and its Subsidiaries constituting "net property, plant and equipment" on the consolidated balance sheet of the Borrower and its Subsidiaries.
"GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to Section 1.3.
"Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.
"Guaranty Obligations" means, with respect to any Person, without duplication, any obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing any indebtedness for borrowed money of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such indebtedness or other obligation or any property constituting security therefor, (b) to lease or purchase property, securities or services primarily for the purpose of assuring the owner of such indebtedness or (c) to otherwise assure or hold harmless the owner of such indebtedness or obligation against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount of the indebtedness in respect of which such Guaranty Obligation is made.
"Interest Payment Date" means (a) as to Base Rate Loans, the last day of each fiscal quarter of the Borrower and the Maturity Date, and (b) as to Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date and, in addition, where the applicable Interest Period for a Eurodollar Loan is greater than three months, then also on the last day of each three-month period during such Interest Period.
"Interest Period" means as to Eurodollar Loans, a period of one, two, three or six months' duration, as the Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions of Eurodollar Loans); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Period shall end on the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity Date and (c) with respect to Eurodollar Loans, where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month.
"Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns.
"LGS Purchase and Sale Agreement" means that certain Purchase and Sale Agreement, dated as of April 13, 2000, among Citizens Utilities Company, LGS Natural Gas Company and the Borrower.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing).
"Loan" means a loan made by a Lender to the Borrower pursuant to Section 2.1.
"Material Adverse Effect" means a material adverse effect on (a) the operations, business, assets, liabilities (actual or contingent), financial condition or prospects of the Borrower and its Subsidiaries, taken as a whole (taking into account the value of any indemnifications in favor of the Borrower pursuant to the LGS Purchase and Sale Agreement and the MVG Merger Agreement), (b) the ability of the Borrower to perform its obligations under this Credit Agreement or (c) the validity or enforceability of this Credit Agreement, any of the other Credit Documents, or the rights and remedies of the Lenders hereunder or thereunder.
"Material Subsidiary" means, at any date, a Subsidiary of the Borrower whose aggregate assets properly included under the category "property, plant and equipment" on the balance sheet of such Subsidiary, less the amount of depreciation and amortization attributable thereto, constitutes at least 10% of Consolidated Net Property as of such date; provided that if at any time the Borrower has Subsidiaries that are not Material Subsidiaries whose total aggregate assets under the category "property, plant and equipment" on the balance sheet of such Subsidiaries, less the amount of depreciation and amortization attributable thereto, constitutes more than 20% of Consolidated Net Property as of such date the Borrower shall designate one or more of such Subsidiaries as Material Subsidiaries for the purposes of this Credit Agreement in order that all Subsidiaries of the Borrower, other than Material Subsidiaries, own not more than 20% of Consolidated Net Property.
"Maturity Date" means July 26, 2004.
"Minority Interests" means interests owned by Persons (other than the Borrower or a Subsidiary of the Borrower) in a Subsidiary of the Borrower in which less than 100% of all classes of the voting securities are owned by the Borrower or its Subsidiaries.
"Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities.
"Moody's Rating" - see the Pricing Schedule.
"Multiemployer Plan" means a Plan covered by Title IV of ERISA which is a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan covered by Title IV of ERISA, other than a Multiemployer Plan, which the Borrower or any ERISA Affiliate and at least one employer other than the Borrower or any ERISA Affiliate are contributing sponsors.
"MVG Merger Agreement" means the Agreement and Plan of Merger and Reorganization, dated as of September 21, 2001, by and among Atmos Energy Corporation, Mississippi Valley Gas Company and the Shareholders of the Mississippi Valley Gas Company.
"1957 Indenture" means, collectively, that certain Indenture of Mortgage, dated as of March 1, 1957, granted by Greeley Gas Company (predecessor in interest to the Borrower) to The Central Bank and Trust Company, as original Trustee, and all Supplemental Indentures thereto.
"1959 Indenture" means, collectively, that certain Indenture of Mortgage, dated as of July 15, 1959, granted by United Cities Gas Company (predecessor in interest to the Borrower) to City National Bank and Trust Company of Chicago and R. Emmett Hanley, as the original Trustees, and all Supplemental Indentures thereto, including, without limitation, that certain First Supplemental Indenture, dated as of November 1, 1960; that certain Second Supplemental Indenture, dated as of June 1, 1962; that certain Third Supplemental Indenture, dated as of February 1, 1963; that certain Fourth Supplemental Indenture, dated as of June 15, 1963; that certain Fifth Supplemental Indenture, dated as of November 15, 1964; that certain Sixth Supplemental Indenture, dated as of March 15, 1968; that certain Seventh Supplemental Indenture, dated as of August 1, 1970; that certain Eighth Supplemental Indenture, dated as of September 1, 1972; that certain Ninth Supplemental Indenture, dated as of January 1, 1974; that certain Tenth Supplemental Indenture, dated as of July 1, 1976; that certain Eleventh Supplemental Indenture, dated as of December 1, 1976; that certain Twelfth Supplemental Indenture, dated as of April 1, 1981; that certain Thirteenth Supplemental Indenture, dated as of May 1, 1982; that certain Fourteenth Supplemental Indenture, dated as of March 1, 1987; that certain Fifteenth Supplemental Indenture, dated as of October 1, 1987; that certain Sixteenth Supplemental Indenture, dated as of December 1, 1989; that certain Seventeenth Supplemental Indenture, dated as of April 1, 1990; that certain Eighteenth Supplemental Indenture, dated as of June 1, 1991; that certain Nineteenth Supplemental Indenture, dated as of May 1, 1992; that certain Twentieth Supplemental Indenture, dated as of December 1, 1992; that certain Twenty-First Supplemental Indenture, dated as of February 5, 1997; and that certain Twenty-Second Supplemental Indenture, dated as of July 29, 1997.
"1998 Indenture" means, collectively, that certain Indenture, dated as of July 15, 1998, granted by the Borrower to US Bank Trust National Association, as Trustee, and all Supplemental Indentures thereto.
"Notes" means the promissory notes of the Borrower in favor of each Lender evidencing the Loans and substantially in the form of Exhibit 2.7, as such promissory notes may be amended, modified, supplemented or replaced from time to time.
"Notice of Borrowing" means a request by the Borrower for a Loan in the form of Exhibit 2.2.
"Notice of Continuation/Conversion" means a request by the Borrower for the continuation or conversion of a Loan in the form of Exhibit 2.4.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Person" means any individual, partnership, joint venture, firm, corporation, association, trust, limited liability company or other enterprise (whether or not incorporated), or any government or political subdivision or any agency, department or instrumentality thereof.
"Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pricing Schedule" - See Schedule 1.1(b).
"Prime Rate" means a rate per annum equal to the prime rate of interest announced from time to time by Bank One, NA or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.
"Register" has the meaning set forth in Section 11.3(c).
"Regulation A, D, O, T, U, or X" means Regulation A, D, O, T, U or X, respectively, of the Board of Governors of the Federal Reserve System (or any successor body) as from time to time in effect, any amendment thereto and any successor to all or a portion thereof.
"Reportable Event" means a "reportable event" as defined in Section 4043 of ERISA with respect to which the notice requirements to the PBGC have not been waived.
"Required Lenders" means Lenders whose aggregate Credit Exposure (as hereinafter defined) constitutes more than 51% of the aggregate Credit Exposure of all Lenders at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term "Credit Exposure" as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Commitment Percentage of such Lender multiplied times the Aggregate Commitment and (b) at any time after the termination of the Commitments, the sum of the principal balance of the outstanding Loans of such Lender.
"S&P" means Standard & Poor's Ratings Services, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities.
"S&P Rating" - see the Pricing Schedule.
"Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Special Purpose Financing Subsidiary" means a Subsidiary of the Borrower that has no direct or indirect interest in the business of the Borrower and its other Subsidiaries and was formed solely for the purpose of issuing Preferred Securities.
"Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not, at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture, limited liability company or other entity in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time.
"Termination Event" means (a) with respect to any Single Employer Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA), (b) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan, (c) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA, (d) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA, (e) any event or condition which might reasonably constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (f) the complete or partial withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan.
"Total Assets" means all assets of the Borrower as shown on its most recent quarterly consolidated balance sheet, as determined in accordance with GAAP.
"2001 Indenture" means, collectively, that certain Indenture, dated as of May 22, 2001, granted by the Borrower to SunTrust Bank, Atlanta, as Trustee, and all Supplemental Indentures thereto.
"Unused Aggregate Commitment" means, for any period from the Effective Date to the Maturity Date, the amount by which (a) the then applicable Aggregate Commitment exceeds (b) the daily average sum for such period of the aggregate principal amount of all Loans outstanding.
"Unused Fees" has the meaning set forth in Section 3.4(a).
"Utilization Fees" has the meaning set forth in Section 3.4(b).
"Woodward Acquisition" means the acquisition by the Borrower on April 1, 2001, of the remaining 55% ownership interest in Woodward Marketing LLC theretofore not owned by the Borrower, pursuant to that certain Asset Purchase Agreement, dated as of August 7, 2000, by and among the Borrower, Atmos Energy Marketing, LLC, a wholly-owned Subsidiary of the Borrower, Woodward Marketing, Inc. and the shareholders of Woodward Marketing, Inc.
1.2 COMPUTATION OF TIME PERIODS.
For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." References in this Credit Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, prior to the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements described in Section 5.1(d)); provided, however, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Administrative Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made.
1.4 TIME.
All references to time herein shall be references to Central Standard Time or Central Daylight time, as the case may be, unless specified otherwise.
2.1 AGGREGATE COMMITMENT.
Subject to the terms and conditions set forth herein, each Lender severally agrees to make Loans to the Borrower in Dollars, at any time and from time to time, during the period from the Effective Date to the Maturity Date (each a "Loan" and collectively the "Loans"); provided, however, that (i) the aggregate amount of Loans outstanding shall not exceed the Aggregate Commitment and (ii) with respect to each individual Lender, the Lender's Commitment Percentage multiplied by the outstanding Loans shall not exceed such Lender's Commitment. Subject to the terms of this Credit Agreement, the Borrower may borrow, repay and reborrow Loans.
2.2 METHOD OF BORROWING FOR LOANS.
By no later than 11:00 a.m. (a) on the date of the requested borrowing of Loans that will be Base Rate Loans or (b) three Business Days prior to the date of the requested borrowing of Loans that will be Eurodollar Loans, the Borrower shall telephone the Administrative Agent as well as submit a written Notice of Borrowing in the form of Exhibit 2.2 to the Administrative Agent setting forth (i) the amount requested, (ii) whether such Loans shall accrue interest at the Base Rate or the Adjusted Eurodollar Rate, (iii) with respect to Loans that will be Eurodollar Loans, the Interest Period applicable thereto and (iv) certification that the Borrower has complied in all respects with Section 5.2.
2.3 FUNDING OF LOANS.
Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each such Lender shall make its Commitment Percentage of the requested Loans available to the Administrative Agent by 1:00 p.m. on the date specified in the Notice of Borrowing by deposit, in Dollars, of immediately available funds at the Agency Services Address. The amount of the requested Loans will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office of the Administrative Agent, to the extent the amount of such Loans are made available to the Administrative Agent.
No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make Loans hereunder; provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Administrative Agent shall have been notified by any Lender prior to 1:00 p.m. on the date specified in the Notice of Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Loans to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the date of such Loans, and the Administrative Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent at a per annum rate equal to (a) from the Borrower at the applicable rate for such Loan pursuant to the Notice of Borrowing and (b) from a Lender at the Federal Funds Rate.
2.4 CONTINUATIONS AND CONVERSIONS.
The Borrower shall have the option, on any Business Day, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans; provided, however, that (a) each such continuation or conversion must be requested by the Borrower pursuant to a written Notice of Continuation/Conversion, in the form of Exhibit 2.4, in compliance with the terms set forth below, (b) except as provided in Section 4.1, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (c) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or Event of Default and (d) any request to extend a Eurodollar Loan that fails to comply with the terms hereof or any failure to request an extension of a Eurodollar Loan at the end of an Interest Period shall constitute a conversion to a Base Rate Loan on the last day of the applicable Interest Period. Each continuation or conversion must be requested by the Borrower no later than 11:00 a.m. (i) on the date for a requested conversion of a Eurodollar Loan to a Base Rate Loan or (ii) three Business Days prior to the date for a requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, in each case pursuant to a written Notice of Continuation/Conversion submitted to the Administrative Agent which shall set forth (A) whether the Borrower wishes to continue or convert such Loans and (B) if the request is to continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan, the Interest Period applicable thereto.
2.5 MINIMUM AMOUNTS.
Each request for a Loan or a conversion or continuation hereunder shall be subject to the following requirements: (a) each Eurodollar Loan shall be in a minimum of $5,000,000 (and in integral multiples of $1,000,000 in excess thereof), (b) each Base Rate Loan shall be in a minimum amount of the lesser of $5,000,000 (and in integral multiples of $1,000,000 in excess thereof) or the remaining amount of the Aggregate Commitment available to be borrowed and (c) no more than five Eurodollar Loans shall be outstanding hereunder at any one time. For the purposes of this Section 2.5, all Eurodollar Loans with the same Interest Periods that begin and end on the same date shall be considered as one Eurodollar Loan, but Eurodollar Loans with different Interest Periods, even if they begin on the same date, shall be considered separate Eurodollar Loans.
Upon at least three Business Days' prior written notice, the Borrower shall have the right to permanently terminate or reduce the aggregate unused amount of the Aggregate Commitment at any time or from time to time; provided that (a) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 and in integral multiples of $1,000,000 above such amount and (b) no reduction shall be made which would reduce the Aggregate Commitment to an amount less than the sum of the then outstanding Loans. Any reduction in (or termination of) the Aggregate Commitment shall be permanent and may not be reinstated.
2.7 NOTES.
The Loans made by any Lender may, at the request of a Lender, be evidenced by a promissory note of the Borrower payable to such Lender in substantially the form of Exhibit 2.7 (the "Notes").
The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Loan made by each Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books; provided that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under any Note in respect of the Loans to be evidenced by such Note, and each such recordation or endorsement shall be conclusive and binding absent manifest error.
SECTION 3.
3.1 INTEREST.
(a) Interest Rate.
(i) All Base Rate Loans shall accrue interest at the Base Rate plus the Applicable Percentage.
(ii) All Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate applicable to each Eurodollar Loan.
(b) Default Rate of Interest. Upon the occurrence, and during the continuation, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate equal to two percent (2%) plus the rate which would otherwise be applicable (or if no rate is applicable, then the rate for Loans that are Base Rate Loans plus two percent (2%) per annum).
3.2 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time without premium or penalty; provided, however, that (i) Eurodollar Loans may only be prepaid on three Business Days' prior written notice to the Administrative Agent and any prepayment of Eurodollar Loans will be subject to Section 4.3; and (ii) each such partial prepayment of Loans shall be in the minimum principal amount of $5,000,000 and in integral multiples of $1,000,000 above such amount. Amounts prepaid hereunder shall be applied as the Borrower may elect; provided that if the Borrower fails to specify the application of a voluntary prepayment then such prepayment shall be applied first to Base Rate Loans, and then to Eurodollar Loans in direct order of Interest Period maturities pro rata among all Lenders holding same.
(b) Mandatory Prepayments. If at any time the amount of Loans outstanding exceeds the Aggregate Commitment, the Borrower shall immediately make a principal payment to the Administrative Agent in the manner and in an amount such that the amount of Loans outstanding is less than or equal to the Aggregate Commitment. Any payments made under this Section 3.2(b) shall be subject to Section 4.3 and shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities pro rata among all Lenders holding same.
3.3 PAYMENT IN FULL AT MATURITY.
On the Maturity Date, the entire outstanding principal balance of all Loans, together with accrued but unpaid interest and all other sums owing under this Credit Agreement and the other Credit Documents, shall be due and payable in full, unless accelerated sooner pursuant to Section 9.2.
3.4 FEES.
(a) Unused Fees.
(i) In consideration of the Aggregate Commitment being made available by the Lenders hereunder, the Borrower agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender, a per annum fee equal to the Applicable Percentage for Unused Fees (as set forth on the Pricing Schedule) on the Unused Aggregate Commitment (the "Unused Fees").
(ii) The accrued Unused Fees shall be due and payable in arrears five Business Days after the end of each fiscal quarter of the Borrower (as well as on the Maturity Date) for the immediately preceding fiscal quarter (or portion thereof), beginning with the first of such dates to occur after the Effective Date.
(c) Administrative Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, an annual fee as agreed to between the Borrower and the Administrative Agent in the Fee Letter.
3.5 PLACE AND MANNER OF PAYMENTS.
All payments of principal, interest, fees, expenses and other amounts to be made by the Borrower under this Credit Agreement shall be made unconditionally and without setoff, deduction, defense, recoupment or counterclaim and received not later than 2:00 p.m. on the date when due, in Dollars and in immediately available funds, by the Administrative Agent at the Agency Services Address. In the event any such payment shall be due on a day that is not a Business Day, the applicable payment date shall be the next succeeding Business Day, except, with respect to Eurodollar Loans, if the next succeeding Business Day shall fall in the next succeeding calendar month, then such payment shall be due on the next preceding Business Day. The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Administrative Agent, the Loans, fees or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Lenders in such manner as it reasonably determines in its sole discretion.)
3.6 PRO RATA TREATMENT.
Except to the extent otherwise provided herein, all Loans, each payment or prepayment of principal of any Loan, each payment of interest on the Loans, each payment of Unused Fees, each payment of Utilization Fees, each reduction of the Aggregate Commitment, and each conversion or continuation of any Loans, shall be allocated pro rata among the Lenders in accordance with the respective Commitment Percentages; provided that, if any Lender shall have failed to pay its applicable pro rata share of any Loan, then any amount to which such Lender would otherwise be entitled pursuant to this Section 3.6 shall instead be payable to the Administrative Agent until the share of such Loan not funded by such Lender has been repaid and any interest owed by such Lender as a result of such failure to fund has been paid; and provided further, that in the event any amount paid to any Lender pursuant to this Section 3.6 is rescinded or must otherwise be returned by the Administrative Agent, each Lender shall, upon the request of the Administrative Agent, repay to the Administrative Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Administrative Agent until the date the Administrative Agent receives such repayment at a rate per annum equal to, during the period to but excluding the date two Business Days after such request, the Federal Funds Rate, and thereafter, the Base Rate plus two percent (2%) per annum.
3.7 COMPUTATIONS OF INTEREST AND FEES.
(a) Except for Base Rate Loans accruing interest at the Prime Rate, which interest shall be computed on the basis of a 365 or 366 day year as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from the date a Loan is made until the date such Loan is repaid or continued or converted pursuant to Section 2.4.
(b) It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this paragraph which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this paragraph and interest owing pursuant to such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum lawful amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other indebtedness evidenced by any of the Credit Documents does not include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of such indebtedness does not exceed the maximum nonusurious amount permitted by applicable law.
Each Lender agrees that, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of set-off, banker's lien, counterclaim or otherwise (including, but not limited to, pursuant to the Bankruptcy Code) in excess of its pro rata share as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Loans and other obligations, in such amounts and with such other adjustments from time to time, as shall be equitable in order that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. Each Lender further agrees that if a payment to a Lender (which is obtained by such Lender through the exercise of a right of set-off, banker's lien, counterclaim or otherwise) shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including set-off, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender shall fail to remit to the Administrative Agent or any other Lender an amount payable by such Lender to the Administrative Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall accrue interest thereon, for each day from the date such amount is due until the day such amount is paid to the Administrative Agent or such other Lender, at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Administrative Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary.
SECTION 4.
4.1 EURODOLLAR LOAN PROVISIONS.
(a) Unavailability. In the event that the Administrative Agent shall have determined in good faith (i) that U.S. dollar deposits in the principal amounts requested with respect to a Eurodollar Loan are not generally available in the London interbank Eurodollar market or (ii) that reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent shall, as soon as practicable thereafter, give notice of such determination to the Borrower and the Lenders. In the event of any such determination under clauses (i) or (ii) above, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any request by the Borrower for Eurodollar Loans shall be deemed to be a request for Base Rate Loans, (B) any request by the Borrower for conversion into or continuation of Eurodollar Loans shall be deemed to be a request for conversion into or continuation of Base Rate Loans and (C) any Loans that were to be converted or continued as Eurodollar Loans on the first day of an Interest Period shall be converted to or continued as Base Rate Loans.
(b) Change in Legality.
(i) Notwithstanding any other provision herein, if any change, after the date hereof, in any law, governmental rule, regulation, guideline or order (including the introduction of any new law, governmental rule, regulation, guideline or order) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent, such Lender may:
(A) declare that Eurodollar Loans, and conversions to or continuations of Eurodollar Loans, will not thereafter be made by such Lender hereunder, whereupon any request by the Borrower for, or for conversion into or continuation of, Eurodollar Loans shall, as to such Lender only, be deemed a request for, or for conversion into or continuation of, Base Rate Loans, unless such declaration shall be subsequently withdrawn; and
(B) require that all outstanding Eurodollar Loans made by it be converted to Base Rate Loans in which event all such Eurodollar Loans shall be automatically converted to Base Rate Loans.
In the event any Lender shall exercise its rights under clause (A) or (B) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the Base Rate Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans.
(c) Requirements of Law. If at any time a Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to the making, the commitment to make or the maintaining of any Eurodollar Loan because of (i) any change after the date hereof, in any law, governmental rule, regulation, guideline or order (including the introduction of any new law, governmental rule, regulation, guideline or order) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, including, without limitation, the imposition, modification or deemed applicability of any reserves, deposits or similar requirements (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Adjusted Eurodollar Rate) or (ii) other circumstances affecting the London interbank Eurodollar market; then (A) the Lender shall promptly notify the Administrative Agent and the Borrower and shall designate a different lending office of such Lender if such designation will avoid or reduce the amount of such increased costs, or reductions in amounts receivable and such designation will not, in such Lender's sole discretion, be otherwise disadvantageous to such Lender and (B) the Borrower shall promptly pay to such Lender such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender may determine in its sole discretion) as may be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder.
Each determination and calculation made by a Lender under this Section 4.1 shall, absent manifest error, be binding and conclusive on the parties hereto. Any conversions of Eurodollar Loans made pursuant to this Section 4.1 shall subject the Borrower to the payments required by Section 4.3. This Section 4.1 shall survive termination of this Credit Agreement and the other Credit Documents and the payment of the Loans and all other amounts payable hereunder.
4.2 CAPITAL ADEQUACY.
If any Lender has determined in good faith that the adoption or effectiveness, after the date hereof, of any applicable law, rule or regulation regarding capital adequacy, or any change therein (after the date hereof), or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its parent corporation) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's (or parent corporation's) capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender (or its parent corporation) could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's (or parent corporation's) policies with respect to capital adequacy), then, upon notice from such Lender, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section 4.2 shall, absent manifest error, be conclusive and binding on the parties hereto. This Section 4.2 shall survive termination of this Credit Agreement and the other Credit Documents and the payment of the Loans and all other amounts payable hereunder.
4.3 COMPENSATION.
The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in the making of a borrowing of, conversion into or continuation of a Eurodollar Loan after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement, (c) the making of a prepayment of a Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto and (d) the payment, continuation or conversion of a Eurodollar Loan on a day which is not the last day of the Interest Period applicable thereto or the failure to repay a Eurodollar Loan when required by the terms of this Credit Agreement. Each determination by any such Lender of amounts owing under this Section 4.3 shall, absent manifest error, be conclusive and binding on the parties hereto. This Section 4.3 shall survive the termination of this Credit Agreement and the other Credit Documents and the payment of the Loans and all other amounts payable hereunder.
4.4 TAXES.
(a) Except as provided below in this Section 4.4, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to an Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this Section 4.4 whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible after requested, the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and any Lender for any incremental Non-Excluded Taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this Section 4.4 shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall:
(i) (A) on or before the date of any payment by the Borrower under this Credit Agreement or the Notes to such Lender, deliver to the Borrower and the Administrative Agent (x) two duly completed copies of United States Internal Revenue Service Form W8-BEN or W8-ECI, or successor applicable form, as the case may be, certifying that it is entitled to receive payments under this Credit Agreement and any Notes without deduction or withholding of any United States federal income taxes and (y) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, certifying that it is entitled to an exemption from United States backup withholding tax;
(B) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and
(ii) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (A) represent to the Borrower (for the benefit of the Borrower and the Administrative Agent) that it is not a bank within the meaning of Section 881 (c)(3)(A) of the Internal Revenue Code, (B) agree to furnish to the Borrower, on or before the date of any payment by the Borrower, with a copy to the Administrative Agent, two accurate and complete original signed copies of Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Internal Revenue Code with respect to payments to be made under this Credit Agreement and any Notes (and to deliver to the Borrower and the Administrative Agent two further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrower or the Administrative Agent for filing and completing such forms), and (C) agree, to the extent legally entitled to do so, upon reasonable request by the Borrower, to provide to the Borrower (for the benefit of the Borrower and the Administrative Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Credit Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Administrative Agent, then such Lender shall be exempt from such requirements. Each Person that shall become a Lender or a participant of a Lender pursuant to Section 11.3 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this subsection (b); provided that in the case of a participant of a Lender, the obligations of such participant of a Lender pursuant to this subsection (b) shall be determined as if the participant of a Lender were a Lender except that such participant of a Lender shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased.
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement is subject to satisfaction (or waiver) of the following conditions:
(a) Executed Credit Documents. Receipt by the Administrative Agent of duly
executed copies of (i) this Credit Agreement, (ii) the Notes and
(iii) all other Credit Documents, each in form and substance acceptable to the
Lenders.
(b) Corporate Documents. Receipt by the Administrative Agent of the following:
(i) Charter Documents. Copies of the articles of incorporation or other charter documents of the Borrower certified to be true and complete as of a recent date by the appropriate Governmental Authorities of the states or other jurisdictions of its incorporation and certified by a secretary or assistant secretary of the Borrower to be true and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of the Borrower certified by a secretary or assistant secretary of the Borrower to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of Directors of the Borrower approving and adopting the Credit Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of the Borrower to be true and correct and in full force and effect as of the Closing Date.
(iv) Good Standing. Copies of certificates of good standing, existence or its equivalent with respect to the Borrower certified as of a recent date by the appropriate Governmental Authorities of the states or other jurisdictions of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing would have a Material Adverse Effect.
(v) Incumbency. An incumbency certificate of the Borrower certified by a secretary or assistant secretary of the Borrower to be true and correct as of the Closing Date.
(c) Opinion of Counsel. Receipt by the Administrative Agent of an opinion, or opinions, from legal counsel to the Borrower addressed to the Administrative Agent on behalf of the Lenders and dated as of the Effective Date, in each case satisfactory in form and substance to the Administrative Agent.
(e) Fees and Expenses. Payment by the Borrower of all fees and expenses owed by it to the Lenders and the Administrative Agent, including, without limitation, payment to the Administrative Agent of the fees set forth in the Fee Letter.
(f) Material Adverse Effect. No event or condition shall have occurred since September 30, 2002 that has had or would be reasonably expected to have a Material Adverse Effect.
(g) Officer's Certificates. The Administrative Agent shall have received a certificate or certificates executed by a Financial Officer of the Borrower as of the Effective Date stating that (i) the Borrower and its Subsidiaries are in compliance with all existing material financial obligations, (ii) no action, suit, investigation or legal, equitable, arbitration or administrative proceeding is pending or, to such officer's knowledge, threatened in any court or before any arbitrator or Governmental Authority that would have or be reasonably expected to have a Material Adverse Effect, (iii) the financial statements and information delivered to the Administrative Agent on or before the Effective Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated herein and therein to occur on such date, (A) no Default or Event of Default exists, (B) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects on and as of the date made and (C) the Borrower is in compliance with the financial covenant set forth in Section 7.2.
(h) Payment of Existing Debt. Receipt by the Administrative Agent of evidence that the Existing Revolving Credit Agreement has been terminated and all amounts owing to the Lenders thereunder have been paid in full.
(i) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.
5.2 CONDITIONS TO LOANS.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make new Loans unless:
(a) Request. The Borrower shall have timely delivered a duly executed and completed Notice of Borrowing in conformance with all the terms and conditions of this Credit Agreement.
(c) No Default. No Default or Event of Default shall exist or be continuing either prior to or after giving effect thereto.
(d) Availability. Immediately after giving effect to the making of a Loan (and the application of the proceeds thereof) the sum of the amount of Loans outstanding shall not exceed the Aggregate Commitment.
The delivery of each Notice of Borrowing shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b) through (d) above.
SECTION 6.
The Borrower hereby represents and warrants to each Lender that:
6.1 ORGANIZATION AND GOOD STANDING.
The Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdictions of its incorporation, (b) is duly qualified and in good standing as a foreign corporation authorized to do business in every jurisdiction where the failure to so qualify would have or would reasonably be expected to have a Material Adverse Effect and (c) has the requisite corporate power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.
6.2 DUE AUTHORIZATION.
The Borrower (a) has the requisite corporate power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary corporate action, to execute, deliver and perform this Credit Agreement and the other Credit Documents.
6.3 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof by the Borrower will in any material respect (a) violate or conflict with any provision of its articles of incorporation or bylaws, (b) violate, contravene or conflict with any law (including without limitation, the Public Utility Holding Company Act of 1935, as amended), regulation (including without limitation, Regulation U, Regulation X or any regulation promulgated by the Federal Energy Regulatory Commission), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it or its properties may be bound, or (d) result in or require the creation of any Lien upon or with respect to its properties.
6.4 CONSENTS.
No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents.
6.5 ENFORCEABLE OBLIGATIONS.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by bankruptcy or insolvency laws or similar laws affecting creditors' rights generally or by general equitable principles.
6.6 FINANCIAL CONDITION.
(a) The financial statements delivered to the Lenders pursuant to Section 5.1(d) and pursuant to Section 7.1(a) and (b): (i) have been prepared in accordance with GAAP (subject to the provisions of Section 1.3) and (ii) present fairly in all material respects the financial condition, results of operations, and cash flows of the Borrower and its Subsidiaries as of such date and for such periods.
(b) Since March 31, 2003, there has been no sale, transfer or other disposition by the Borrower of any material part of the business or property of the Borrower, and no purchase or other acquisition by the Borrower of any business or property (including any Capital Stock of any other Person) material in relation to the financial condition of the Borrower, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to Section 5.1(d) or 7.1 or in the notes thereto or (ii) otherwise permitted by the terms of this Credit Agreement and communicated to the Administrative Agent.
6.7 NO MATERIAL CHANGE.
Since September 30, 2002, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or would be reasonably expected to have a Material Adverse Effect.
6.8 NO DEFAULT.
No Default or Event of Default presently exists and is continuing.
There are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower, any of its Subsidiaries or any of its properties which could have or be reasonably expected to have a Material Adverse Effect.
6.10 TAXES.
The Borrower and its Subsidiaries have filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown thereon to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
6.11 COMPLIANCE WITH LAW.
The Borrower and each of its Subsidiaries is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, except where the failure to be in compliance would not have or would not reasonably be expected to have a Material Adverse Effect.
6.12 MATERIAL AGREEMENTS.
Neither the Borrower nor any of its Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default has had or would be reasonably expected to have a Material Adverse Effect.
6.13 ERISA.
Except as would not result or be reasonably expected to result in a Material Adverse Effect:
(a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no Termination Event has occurred, and, to the best knowledge of the Borrower, no event or condition has occurred or exists as a result of which any Termination Event is reasonably expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in material compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no Lien in favor or the PBGC or a Plan has arisen or is reasonably expected to arise on account of any Plan.
(c) The actuarial present value of all "benefit liabilities" under each Single Employer Plan (determined within the meaning of Section 401(a)(2) of the Code, utilizing the actuarial assumptions used to fund such Plans), whether or not vested, did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the current value of the assets of such Plan allocable to such accrued liabilities, except as disclosed in the Borrower's financial statements.
(d) Neither the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Borrower, is reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Borrower, reasonably expected to be in reorganization, insolvent, or terminated.
(e) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or is reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 407, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(f) The present value (determined using actuarial and other assumptions which are reasonable with respect to the benefits provided and the employees participating) of the liability of the Borrower and each ERISA Affiliate for post-retirement welfare benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA), net of all assets under all such Plans allocable to such benefits, are reflected on the financial statements referenced in Section 7.1 in accordance with FASB 106.
(g) Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
6.14 USE OF PROCEEDS.
The proceeds of the Loans hereunder will be used solely for the purposes specified in Section 7.8. None of such proceeds will be used for the acquisition of another Person unless the board of directors (or other comparable governing body) or stockholders, as appropriate, of such Person has approved such acquisition.
(a) No proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meaning of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by the Credit Documents (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act or the Exchange Act.
(b) Neither the Borrower nor any of its Subsidiaries is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by an "investment company", or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of the Borrower or any of its Subsidiaries is a director, executive officer or principal shareholder of any Lender. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to any Lender) have the respective meanings assigned thereto in Regulation O.
6.16 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to the Lenders nor any other document, certificate or statement furnished to the Lenders by or on behalf of the Borrower in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.
6.17 ENVIRONMENTAL MATTERS.
Except as would not result or be reasonably expected to result in a Material Adverse Effect: (a) each of the properties of the Borrower and its Subsidiaries (the "Properties") and all operations at the Properties are in compliance in all material respects with all applicable Environmental Laws, (b) there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower or its Subsidiaries (the "Businesses"), and (c) there are no conditions relating to the Businesses or Properties that would reasonably be expected to give rise to a material liability under any applicable Environmental Laws.
The Borrower and its Subsidiaries maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower and its Subsidiaries operate.
6.19 FRANCHISES, LICENSES, ETC.
The Borrower and its Subsidiaries possess (a) good title to, or the legal right to use, all material properties and assets and (b) all material franchises, certificates, licenses, permits and other authorizations, in each case as are necessary for the operation of their respective businesses.
6.20 SECURED INDEBTEDNESS.
All of the secured indebtedness of the Borrower is set forth on Schedule 6.20 or permitted by Section 8.6.
6.21 SUBSIDIARIES.
All Subsidiaries of the Borrower and the designation as to which such Subsidiaries
are Material Subsidiaries are set forth on Schedule 6.21. Schedule
6.21 may be updated from time to time by the Borrower.
SECTION 7.
The Borrower hereby covenants and agrees that so long as this Credit Agreement is in effect and until the Loans, together with interest, fees and other obligations hereunder, have been paid in full and the Commitments shall have terminated:
7.1 INFORMATION COVENANTS.
The Borrower will furnish, or cause to be furnished, to the Administrative Agent (who shall forward copies thereof to each Lender):
(a) Annual Financial Statements. As soon as available, and in any event within 120 days after the close of each fiscal year of the Borrower, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal year, together with retained earnings and a consolidated statement of cash flows for such fiscal year setting forth in comparative form figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited by independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent and whose opinion shall be furnished to the Administrative Agent, shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect.
(b) Quarterly Financial Statements. As soon as available, and in any event within 65 days after the close of each fiscal quarter of the Borrower (other than the fourth fiscal quarter, in which case 120 days after the end thereof) a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal quarter, together with a related consolidated statement of cash flows for such fiscal quarter in each case setting forth in comparative form figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Administrative Agent, and accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Borrower and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a Financial Officer of the Borrower, substantially in the form of Exhibit 7.1(c), (i) demonstrating compliance with Section 7.2 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.
(d) Reports. Promptly upon transmission or receipt thereof, copies of any filings and registrations with, and reports to or from, any Governmental Authority, including, without limitation, the Securities and Exchange Commission or any successor agency and any utility regulatory body.
(e) Notices. Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent immediately of (i) the occurrence of a Default or Event of Default, specifying the nature and existence thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower or any Subsidiary: (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower or such Subsidiary which, if adversely determined, would have or would be reasonably expected to have a Material Adverse Effect or (B) the institution of any proceedings against the Borrower or such Subsidiary with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any Environmental Law), the violation of which would have or would be reasonably expected to have a Material Adverse Effect.
(f) ERISA. Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent and each of the Lenders promptly (and in any event within five Business Days) of: (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or would be reasonably expected to lead to, a Termination Event; (ii) any communication from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan together with a statement of the amount of liability, if any, incurred or expected to be incurred by the Borrower or any Subsidiary in connection therewith; (iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any ERISA Affiliate, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iv) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the Borrower or any of its Subsidiaries or ERISA Affiliates is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (v) any change in the funding status of any Plan that would have or would be reasonably expected to have a Material Adverse Effect; together, with a description of any such event or condition or a copy of any such notice and a statement by a officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Borrower with respect thereto. Promptly upon request, the Borrower shall furnish the Administrative Agent and each of the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA).
(g) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower as the Administrative Agent or the Required Lenders may reasonably request.
7.2 DEBT TO CAPITALIZATION RATIO.
At all times, the Debt to Capitalization Ratio shall be less than or equal to 0.70 to 1.0.
7.3 PRESERVATION OF EXISTENCE, FRANCHISES AND ASSETS.
The Borrower will, and will cause its Subsidiaries to, do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority, except where failure to do so would not or would not reasonably be expected to have a Material Adverse Effect. The Borrower will, and will cause its Subsidiaries to, generally maintain its properties, real and personal, in good condition, and the Borrower and its Subsidiaries shall not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted, except where failure to do so would not or would not reasonably be expected to have a Material Adverse Effect.
The Borrower will, and will cause its Subsidiaries to, keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).
7.5 COMPLIANCE WITH LAW.
The Borrower will, and will cause its Subsidiaries to, comply with, and obtain all permits and licenses required by, all laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its property, if the failure to comply would have or would be reasonably expected to have a Material Adverse Effect.
7.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
The Borrower will, and will cause its Subsidiaries to, pay, settle or discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) all of its other indebtedness as it shall become due (to the extent such repayment is not otherwise prohibited by this Credit Agreement); provided, however, that the Borrower shall not be required to pay any such tax, assessment, charge, levy, claim or indebtedness which is being contested in good faith by appropriate action and as to which adequate reserves therefor, if required, have been established in accordance with GAAP, unless the failure to make any such payment (i) would give rise to an immediate right to foreclose or collect on a Lien securing such amounts or (ii) would have or would reasonably be expected to have a Material Adverse Effect.
7.7 INSURANCE.
The Borrower will, and will cause its Subsidiaries to, at all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) with responsible and reputable insurance companies in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.
7.8 USE OF PROCEEDS.
The proceeds of the Loans may be used solely (a) to refinance the indebtedness under the Existing Revolving Credit Agreement and (b) for working capital, capital expenditures and other lawful corporate purposes of the Borrower.
7.9 AUDITS/INSPECTIONS.
Upon reasonable prior notice and during normal business hours, the Borrower will permit representatives appointed by the Administrative Agent, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the Borrower's and its Subsidiaries' property, including their books and records, their accounts receivable and inventory, the Borrower's and its Subsidiaries' facilities and their other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Administrative Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of the Borrower and its Subsidiaries.
SECTION 8.
The Borrower hereby covenants and agrees that so long as this Credit Agreement is in effect and until the Loans, together with interest, fees and other obligations hereunder, have been paid in full and the Commitments shall have terminated:
8.1 NATURE OF BUSINESS.
The Borrower will not materially alter the character of its business from that conducted as of the Closing Date.
8.2 CONSOLIDATION AND MERGER.
The Borrower will not (a) enter into any transaction of merger, or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, so long as no Default or Event of Default shall exist or be caused thereby, a Person may be merged or consolidated with or into the Borrower so long as the Borrower shall be the continuing or surviving corporation.
8.3 SALE OR LEASE OF ASSETS.
Within any twelve month period, the Borrower will not, nor will it permit any Subsidiary to, convey, sell, lease, transfer or otherwise dispose of assets, business or operations with a net book value in excess of 25% of Total Assets as calculated as of the end of the most recent fiscal quarter.
8.4 ARM'S-LENGTH TRANSACTIONS.
The Borrower will not, nor will it permit its Subsidiaries to, enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any officer, director or Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an officer, director or Affiliate.
8.5 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
The Borrower will not (a) change its fiscal year or (b) in any manner that would reasonably be expected to materially adversely affect the rights of the Lenders, change its organizational documents or its bylaws; it being understood that the Borrower's shareholders may approve an amendment to the Borrower's Articles of Incorporation to permit the issuance of Preferred Securities.
8.6 LIENS.
The Borrower will not, nor will it permit any of its Material Subsidiaries to, contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or after acquired, except for the following: (a) Liens securing Borrower Obligations, (b) Liens for taxes not yet due or Liens for taxes being contested in good faith by appropriate action and for which adequate reserves, if required, determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (c) Liens in respect of property imposed by law arising in the ordinary course of business such as materialmen's, mechanics', warehousemen's, carrier's, landlords' and other nonconsensual statutory Liens which are not yet due and payable, which have been in existence less than 90 days or which are being contested in good faith by appropriate action and for which adequate reserves, if required, determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (d) pledges or deposits made in the ordinary course of business to secure payment of worker's compensation insurance, unemployment insurance, pensions or social security programs, (e) Liens arising from good faith deposits in connection with or to secure performance of tenders, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (other than obligations in respect of the payment of borrowed money), (f) Liens arising from good faith deposits in connection with or to secure performance of statutory obligations and surety and appeal bonds, (g) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered property for its intended purposes, (h) judgment Liens that would not constitute an Event of Default, (i) Liens arising by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a creditor depository institution, (j) any Lien on any assets securing indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such assets; provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof, (k) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or one of its Subsidiaries and not created in contemplation of such event, (l) any Lien existing on any asset prior to the acquisition thereof by the Borrower or one of its Subsidiaries and not created in contemplation of such acquisition, (m) any Lien (whether such Lien applies to current assets or after-acquired property, or both) on any assets of the Borrower or such Material Subsidiary created pursuant to the 1957 Indenture or the 1959 Indenture; provided that any Lien on any assets of the Borrower or such Material Subsidiary that are specifically excluded as collateral under such Indentures shall not be deemed to be a Permitted Lien hereunder, (n) any Lien on the assets of the Borrower pursuant to Section 803 of the 1998 Indenture or Section 803 of the 2001 Indenture, if placed on the property of the Borrower on a pro rata basis only with Liens securing Borrower Obligations and other Liens that may be placed on the properties of the Borrower in the future, (o) Liens on Fixed Assets not otherwise permitted by this Credit Agreement securing indebtedness in the aggregate (at the time such Liens are created) not in excess of five percent (5%) of Consolidated Net Property, and (p) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses (a) through (o) for amounts not exceeding the principal amount of the indebtedness secured by the Lien so extended, renewed or replaced; provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets).
SECTION 9.
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"):
(a) Payment. The Borrower shall default in the payment (i) when due of any principal of any of the Loans or (ii) within one Business Day of when due of any interest on the Loans or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith.
(b) Representations. Any representation, warranty or statement made or deemed to be made by the Borrower herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made.
(c) Covenants. The Borrower shall:
(i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.3, 7.4, 7.5, 7.9 or 8.1 through 8.6 inclusive; or
(ii) default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.1 and such default shall continue unremedied for a period of five Business Days after the earlier of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent; or
(iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b), (c)(i), or (c)(ii) of this Section 9.1) contained in this Credit Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 30 days after the earlier of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.
(e) Bankruptcy, etc. The occurrence of any of the following with respect to the Borrower or any of its Material Subsidiaries: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower or any of its Material Subsidiaries or for any substantial part of its property or order the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect is commenced against the Borrower or any of its Material Subsidiaries and such petition remains unstayed and in effect for a period of 60 consecutive days; or (iii) the Borrower or any of its Material Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) the Borrower or any of its Material Subsidiaries shall admit in writing its inability to pay its debts generally as they become due or any action shall be taken by such Person in furtherance of any of the aforesaid purposes.
(f) Defaults under Other Agreements. With respect to (x) any secured indebtedness of the Borrower or (y) any other indebtedness in excess of $20,000,000 (other than indebtedness outstanding under this Credit Agreement) of the Borrower (A) the Borrower shall (1) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such indebtedness, or (2) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder of the holders of such indebtedness (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required) any such indebtedness to become due prior to its stated maturity; or (B) any such indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment prior to the stated maturity thereof; or (C) any such indebtedness shall mature and remain unpaid.
(h) ERISA. The occurrence of any of the following events or conditions if any of the same would be reasonably expected to result in a liability of an amount greater than or equal to $20,000,000: (A) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of the Borrower or any ERISA Affiliate in favor of the PBGC or a Plan; (B) a Termination Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (C) a Termination Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in (i) the termination of such Plan for purposes of Title IV of ERISA, or (ii) the Borrower or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency (within the meaning of Section 4245 of ERISA) of such Plan; or (D) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which would be reasonably expected to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(i) Change of Control. The occurrence of any Change of Control.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may, with the consent of the Required Lenders, and shall, upon the request and direction of the Required Lenders, by written notice to the Borrower take any of the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for herein:
(i) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated.
(ii) Acceleration of Loans. Declare the unpaid amount of all Borrower Obligations to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
(iii) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents, including, without limitation, all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(e) shall occur, then the Commitments shall automatically terminate and all Loans, all accrued interest in respect thereof, all accrued and unpaid fees and other indebtedness or obligations owing to the Lenders and the Administrative Agent hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders.
Notwithstanding the fact that enforcement powers reside primarily with the Administrative Agent, each Lender has, to the extent permitted by law, a separate right of payment and shall be considered a separate "creditor" holding a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute.
9.3 ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.
Notwithstanding any other provisions of this Credit Agreement, after the occurrence of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Administrative Agent or any of the Lenders in connection with enforcing the rights of the Lenders under the Credit Documents, pro rata as set forth below;
SECOND, to payment of any fees owed to the Administrative Agent, or any Lender, pro rata as set forth below;
THIRD, to the payment of all accrued interest payable to the Lenders hereunder, pro rata as set forth below;
FOURTH, to the payment of the outstanding principal amount of the Loans, pro rata as set forth below;
FIFTH, to all other obligations which shall have become due and payable under the Credit Documents and not repaid pursuant to clauses "FIRST" through "FOURTH" above; and
SIXTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category and (b) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied.
SECTION 10.
10.1 APPOINTMENT.
Each Lender hereby designates and appoints Bank One, NA as agent of such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby authorizes the Administrative Agent, as the agent for such Lender, to take such action on its behalf under the provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Administrative Agent. The provisions of this Section 10.1 are solely for the benefit of the Administrative Agent and the Lenders and the Borrower shall not have any rights as a third party beneficiary of the provisions hereof. In performing its functions and duties under this Credit Agreement and the other Credit Documents, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrower. Any agent named herein (other than the Administrative Agent) shall have no duties or obligations whatsoever under this Credit Agreement or the other Credit Documents.
10.2 DELEGATION OF DUTIES.
The Administrative Agent may execute any of its duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.
10.3 EXCULPATORY PROVISIONS.
Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Lender for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct), or responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained herein or in any of the other Credit Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by the Borrower in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of the Borrower. The Administrative Agent is not a trustee for the Lenders and owes no fiduciary duty to the Lenders.
10.4 RELIANCE ON COMMUNICATIONS.
The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower, independent accountants and other experts selected by the Administrative Agent with reasonable care). The Administrative Agent may deem and treat the Lenders as the owner of its interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent in accordance with Section 11.3(b). The Administrative Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns).
10.5 NOTICE OF DEFAULT.
The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent or any affiliate thereof hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower and made its own decision to make its Extensions of Credit hereunder and enter into this Credit Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
10.7 INDEMNIFICATION.
Each Lender agrees to indemnify the Administrative Agent in its capacity as
such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to its Commitment Percentage
at the time the indemnification request is made, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment in full of the
Borrower Obligations) be imposed on, incurred by or asserted against the Administrative
Agent in its capacity as such in any way relating to or arising out of this
Credit Agreement or the other Credit Documents or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby
or thereby or any action taken or omitted by the Administrative Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Administrative
Agent. If any indemnity furnished to the Administrative Agent for any purpose
shall, in the opinion of the Administrative Agent, be insufficient or become
impaired, the Administrative Agent may call for additional indemnity and cease,
or not commence, to do the acts indemnified against until such additional indemnity
is furnished. The agreements in this
Section 10.7 shall survive the payment of the Borrower Obligations and all other
amounts payable hereunder and under the other Credit Documents and the termination
of the Commitments.
The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not Administrative Agent hereunder. With respect to the Loans made and all Borrower Obligations owing to it, the Administrative Agent shall have the same rights and powers under this Credit Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.
10.9 SUCCESSOR AGENT.
The Administrative Agent may, at any time, resign upon 20 days written notice to the Lenders. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, which successor shall be reasonably acceptable to the Borrower; provided that the Borrower shall have no right to approve such successor during the existence and continuation of a Default or Event of Default. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the notice of resignation, then the retiring Administrative Agent shall select a successor Administrative Agent; provided such successor is an Eligible Assignee (or if no Eligible Assignee shall have been so appointed by the retiring Administrative Agent and shall have accepted such appointment, then the Lenders shall perform all obligations of the retiring Administrative Agent hereunder until such time, if any, as a successor Administrative Agent shall have been appointed and shall have accepted such appointment as provided for above). Upon the acceptance of any appointment as an Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations as an Administrative Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Administrative Agent under this Credit Agreement.
SECTION 11.
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device), (c) the Business Day following the day on which the same has been delivered to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers set forth on Schedule 11.1, or at such other address as such party may specify by written notice to the other parties hereto.
In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuation of an Event of Default and the commencement of remedies described in Section 9.2, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of the Borrower against obligations and liabilities of the Borrower to the Lenders hereunder, under the Notes or the other Credit Documents, irrespective of whether the Administrative Agent or the Lenders shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Borrower hereby agrees that any Person purchasing a participation in the Loans and Commitments hereunder pursuant to Section 11.3(c) may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder.
11.3 BENEFIT OF AGREEMENT.
(a) Generally. This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that the Borrower may not assign and transfer any of its interests without the prior written consent of the Lenders; and provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this Section 11.3.
(b) Assignments. Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Credit Agreement (including, without limitation, all or a portion of its Loans, its Notes, and its Commitment); provided, however, that:
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Credit Agreement, any such partial assignment shall (unless each of the Borrower and the Administrative Agent otherwise consents) be in an amount at least equal to $3,000,000 (or, if less, the remaining amount of the Commitment being assigned by such Lender) and an integral multiple of $1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Credit Agreement and the Notes; and
Upon execution, delivery, and acceptance of such Assignment Agreement, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Credit Agreement. Upon the consummation of any assignment pursuant to this Section 11.3(b), the assignor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof; it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of taxes in accordance with Section 4.4.
By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (A) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim created by such assigning Lender and the assignee warrants that it is an Eligible Assignee; (B) except as set forth in clause (A) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (C) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (D) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (E) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement and the other Credit Documents; (F) such assignee appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (G) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Credit Agreement and the other Credit Documents are required to be performed by it as a Lender.
(c) Register. The Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d) Acceptance. Upon its receipt of an Assignment Agreement executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Administrative Agent shall, if such Assignment Agreement has been completed and is in substantially the form of Exhibit 11.3(b), (i) accept such Assignment Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto.
(e) Participations. Each Lender may sell participations to one or more Persons in all or a portion of its rights, obligations or rights and obligations under this Credit Agreement (including all or a portion of its Commitment, its Notes and its Loans); provided, however, that (i) such Lender's obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Sections 4.1 through 4.4, inclusive, and the right of set-off contained in Section 11.2, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Credit Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Notes and to approve any amendment, modification, or waiver of any provision of this Credit Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Notes, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Notes, or extending its Commitment).
(f) Nonrestricted Assignments. Notwithstanding any other provision set forth in this Credit Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder.
(g) Information. Any Lender may furnish any information concerning the Borrower in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants).
No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.
11.5 PAYMENT OF EXPENSES, ETC.
The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Administrative Agent and Banc One Capital Markets, Inc. ("BOCM") in connection with (A) the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Mayer, Brown, Rowe & Maw, special counsel to the Administrative Agent) and (B) any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Borrower under this Credit Agreement, (ii) pay all reasonable out-of-pocket costs and expenses of the Administrative Agent and the Lenders in connection with (A) enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and each of the Lenders (including the allocated cost of internal counsel)) and (B) any bankruptcy or insolvency proceeding of the Borrower and (iii) indemnify the Administrative Agent, BOCM and each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not the Administrative Agent, BOCM or any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated cost of internal counsel) incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified).
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement, nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing and signed by the Required Lenders and the Borrower; provided that no such amendment, change, waiver, discharge or termination shall without the consent of each Lender affected thereby:
(a) extend the Maturity Date, or postpone or extend the time for any payment or prepayment of principal;
(b) reduce the rate or amount or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or fees or other amounts payable hereunder;
(c) reduce or waive the principal amount of any Loan;
(d) increase or extend the Commitment of a Lender (it being understood and agreed that a waiver of any Default or Event of Default or a waiver of any mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender);
(e) release the Borrower from its obligations under the Credit Documents;
(f) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.8, 9.1(a), 11.2, 11.3 or 11.5;
(g) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders; or
(h) consent to the assignment or transfer by the Borrower of any of its rights and obligations under (or in respect of) the Credit Documents.
No provision of Section 10 may be amended or modified without the consent of the Administrative Agent.
Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, each Lender is entitled to vote as such Lender sees fit on any reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein.
11.7 COUNTERPARTS/TELECOPY.
This Credit Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of executed counterparts by telecopy shall be as effective as an original and shall constitute a representation that an original will be delivered.
The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement.
11.9 DEFAULTING LENDER.
Each Lender understands and agrees that if such Lender is a Defaulting Lender then it shall not be entitled to vote on any matter requiring the consent of the Required Lenders or to object to any matter requiring the consent of all the Lenders; provided, however, that all other benefits and obligations under the Loan Documents shall apply to such Defaulting Lender.
11.10 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND WARRANTIES.
All indemnities set forth herein and all representations and warranties made herein shall survive the execution and delivery of this Credit Agreement, the making of the Loans, and the repayment of the Loans and other obligations and the termination of the Commitments hereunder.
11.11 GOVERNING LAW; VENUE.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Credit Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. The Borrower further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to Section 11.1, such service to become effective 10 days after such mailing. Nothing herein shall affect the right of a Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against the Borrower in any other jurisdiction. The Borrower agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law; provided that nothing in this Section 11.11(b) is intended to impair the Borrower's right under applicable law to appeal or seek a stay of any judgment.
(c) The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.
11.12 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.13 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
11.14 FURTHER ASSURANCES.
The Borrower agrees, upon the request of the Administrative Agent, to promptly take such actions, as reasonably requested, as are necessary to carry out the intent of this Credit Agreement and the other Credit Documents.
11.15 ENTIRETY.
This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein.
11.16 BINDING EFFECT; CONTINUING AGREEMENT.
(a) This Credit Agreement shall become effective at such time when all of the conditions set forth in Section 5.1 have been satisfied or waived by the Lenders and it shall have been executed by the Borrower, the Administrative Agent and the Lenders, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns. The Borrower and the Lenders party to the Existing Revolving Credit Agreement each hereby agrees that, at such time as this Credit Agreement shall have become effective pursuant to the terms of the immediately preceding sentence, the Existing Revolving Credit Agreement automatically shall be deemed terminated and the Borrowers and the Lenders party to the Existing Revolving Credit Agreement shall no longer have any obligations thereunder (other than those obligations in the Existing Revolving Credit Agreement that expressly survive the termination thereof).
[Remainder of Page Intentionally Left Blank]
Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written.
BORROWER: ATMOS ENERGY CORPORATION, A Texas
and Virginia corporation
By: /s/ LAURIE SHERWOOD
---------------------------------------------
Name: Laurie Sherwood
---------------------------------------------
Title: Vice President, Corporate Development and
---------------------------------------------
Treasury
---------------------------------------------
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Signature Page to Atmos Energy Corporation
364-Day Revolving Credit Agreement
LENDERS: BANK ONE, NA
individually in its capacity as a
Lender and in its capacity as Administrative Agent
By: /s/ SHARON K. WEBB
--------------------------------------
Name: Sharon K. Webb
------------------------------------
Title: Associate Director
-----------------------------------
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Signature Page to Atmos Energy Corporation
364-Day Revolving Credit Agreement
|
By: /s/ LINDA STANLEY
--------------------------------
Name: Linda Stanley
------------------------------
Title: Director
-----------------------------
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By: /s/ STEVEN A. MACKENZIE
-----------------------------------
Name: Steven A. Mackenzie
---------------------------------
Title: Vice President
--------------------------------
|
By: /s/ CATHLEEN D. REED
-------------------------------------
Name: Cathleen D. Reed
-----------------------------------
Title: Assistant Vice President
----------------------------------
|
By: /s/ WAYNE HOSANG
-------------------------------------
Name: Wayne Hosang
-----------------------------------
Title: Vice President
----------------------------------
|
By: /s/ JEAN PIERRE DIELS/ERIC RASKIN
-----------------------------------------
Name: Jean Pierre Diels/Eric Raskin
---------------------------------------
Title: First Vice President/Vice President
--------------------------------------
|
By: /s/ JOHN MCGHEE
-----------------------------------------
Name: John McGhee
---------------------------------------
Title: Vice President, Manager
--------------------------------------
|
By: /s/ BRIAN H. GALLAGHER
-----------------------------------------
Name: Brian H. Gallagher
---------------------------------------
Title: Vice President
--------------------------------------
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By: /s/ LOUIS ADLER
-----------------------------------------
Name: Louis Adler
---------------------------------------
Title: Vice President
--------------------------------------
|
By: /s/ YANN PIRIO
-----------------------------------------
Name: Yann Pirio
---------------------------------------
Title: Vice President
--------------------------------------
|
By: /s/ PATRICIA O'KICKI/WILFRED V. SAINT
---------------------------------------------------
Name: Patricia O'Kicki/Wilfred V. Saint
-------------------------------------------------
Title: Director/Associated Director Banking Products
------------------------------------------------
Services, US
------------------------------------------------
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By: /s/ SHAUN BREIDBART/LAURA ANNE RAFFA
-----------------------------------------------
Name: Shaun Breidbart/Laura Anne Raffa
---------------------------------------------
Title: Vice President/Senior Vice President
--------------------------------------------
& Corporate Manager
--------------------------------------------
|
By: /s/ CHAN BLOUNT
--------------------------------------------
Name: Chan Blount
--------------------------------------------
Title: First Vice President
--------------------------------------------
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By: /s/ LAURA K. WATTS
-----------------------------------------------
Name: Laura K. Watts
---------------------------------------------
Title: Vice President
--------------------------------------------
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COMMITMENT
LENDERS COMMITMENT PERCENTAGE
------- ---------- ----------
BANK ONE, NA $31,000,000 8.857%
SUNTRUST BANK $31,000,000 8.857%
BANK OF AMERICA, N.A. $31,000,000 8.857%
COBANK ACB $27,500,000 7.857%
SOCIETE GENERALE, NEW YORK BRANCH $27,500,000 7.857%
KBC BANK N.V. $27,500,000 7.857%
THE BANK OF TOKYO-MITSUBISHI, LTD. $27,500,000 7.857%
U.S. BANK NATIONAL ASSOCIATION $27,500,000 7.857%
MERRILL LYNCH BANK USA $25,000,000 7.142%
WACHOVIA BANK, NATIONAL ASSOCIATION $25,000,000 7.142%
UBS AG, CAYMAN ISLANDS BRANCH $25,000,000 7.142%
BANK HAPOALIM B.M. $22,000,000 6.285%
TRUSTMARK NATIONAL BANK $15,000,000 4.285%
HIBERNIA NATIONAL BANK $7,500,000 2.142%
------------ ------
TOTAL $350,000,000 100%
|
Applicable Percentage Level I Level II Level III Level IV Level V Level VI
Status Status Status Status Status Status
------- -------- --------- -------- ------- --------
Eurodollar Rate 0.50% 0.625% 0.75% 1.0% 1.25% 1.75%
Base Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.25%
Unused Fee 0.085% 0.10% 0.125% 0.15% 0.20% 0.30%
Utilization Fee (when 0.125% 0.125% 0.125% 0.125% 0.125% 0.25%
usage exceeds 33 1/3%)
|
"Level I Status" exists at any date if, on such date, the Borrower's Moody's Rating is A2 or better or the Borrower's S&P Rating is A or better.
"Level II Status" exists at any date if, on such date, (i) the Borrower has not qualified for Level I Status and (ii) the Borrower's Moody's Rating is A3 or better or the Borrower's S&P Rating is A- or better.
"Level III Status" exists at any date if, on such date, (i) the Borrower has not qualified for Level I Status or Level II Status and (ii) the Borrower's Moody's Rating is Baa1 or better or the Borrower's S&P Rating is BBB+ or better.
"Level IV Status" exists at any date if, on such date, (i) the Borrower
has not qualified for Level I Status, Level II Status or Level III Status and
(ii) the Borrower's Moody's Rating is Baa2 or better or the Borrower's S&P
Rating is BBB or better.
"Level V Status" exists at any date if, on such date, (i) the Borrower has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Borrower's Moody's Rating is Baa3 or better or the Borrower's S&P Rating is BBB- or better.
"Level VI Status" exists at any date if, on such date, the Borrower has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status.
"Moody's Rating" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Borrower's senior unsecured long-term non-credit enhanced debt securities.
"S&P Rating" means, at any time, the rating issued by Standard and Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and then in effect with respect to the Borrower's senior unsecured long-term non-credit enhanced debt securities.
"Status" means Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status.
The Applicable Percentage shall be determined in accordance with the foregoing table based on the Borrower's Status as determined from its then-current Moody's and S&P Ratings.
If the Borrower is split-rated and the ratings differential is one level, the better rating will apply. If the Borrower is split-rated and the ratings differential is two levels or more, the applicable rating shall be one level below the higher of the Moody's or S&P Rating.
INTEREST BALANCE AT
RATE MATURITY 3/31/03
FIRST MORTGAGE BONDS
FMB Series P 10.43% due 2012 issued under 1959 Indenture 13,750,000.00
FMB Series Q 9.75% due 2020 issued under 1959 Indenture 18,000,000.00
FMB Series R 11.32% due 2004 issued under 1959 Indenture 4,300,000.00
FMB Series T 9.32% due 2021 issued under 1959 Indenture 18,000,000.00
FMB Series U 8.77% due 2022 issued under 1959 Indenture 20,000,000.00
FMB Series J 9.40% due 2021 issued under 1957 Indenture 17,000,000.00
FMB Series V 7.50% due 2007 issued under 1959 Indenture 6,733,333.00
--------------
97,783,333.00
--------------
Rental Property fixed rate term 7.90% due 2013 due in installments 1,374,999.11
note
--------------
Total Secured Indebtedness 99,158,332.11
==============
|
Mississippi Energies, Inc.
Mississippi Wastewater, Inc.
Mississippi Water Incorporated
Atmos Energy Holdings, Inc.
Atmos Energy Marketing, LLC
Trans Louisiana Industrial Gas Company, Inc.
Woodward Marketing, L.L.C. Southern Resources, Inc.
Atmos Energy Services, LLC
Energas Energy Services Trust
Enermart Energy Services Trust
Egasco, LLC
Atmos Power Systems, Inc.
United Cities Propane Gas, Inc.
Atmos Pipeline and Storage, LLC
UCG Storage, Inc.
WKG Storage, Inc.
Trans Louisiana Gas Storage, Inc.
Trans Louisiana Gas Pipeline, Inc.
Atmos Exploration & Production, Inc.
(1) Each of these subsidiaries is 100% owned by its parent.
(2) No Subsidiary of the Borrower currently qualifies as a Material Subsidiary as that term is defined in the Credit Agreement.
(3) The first three subsidiaries listed above became wholly-owned subsidiaries of the Borrower as a result of the merger of Mississippi Valley Gas Company with and into the Borrower on December 3, 2002.
BANK ONE, NA BANC ONE CAPITAL MARKETS, INC.
Sharon Webb William Banks
1 Bank One Plaza 1 Bank One Plaza
Suite IL1-0363, 10th Floor Suite IL1-0429, 8th Floor
Chicago, IL 60670 Chicago, IL 60670
Tel: 312-732-7437 Tel: 312-732-9781
Fax: 312-732-3055 Fax: 312-732-7455
E-mail: sharon_k_webb@bankone.com E-mail: william_banks@bankone.com
SUNTRUST BANK BANK OF AMERICA, N.A.
Linda Stanley Steven A. Mackenzie
303 Peachtree Street, 10th Floor 901 Main Street, 67th Floor
Atlanta, GA 30308 Dallas, TX 75202
Tel: 404-532-0989 Tel: 214-209-3680
Fax: 404-827-6270 Fax: 214-209-3140
E-mail: linda.stanley@suntrust.com E-Mail: steven.mackenzie@bankofamerica.com
COBANK ACB SOCIETE GENERALE, NEW YORK BRANCH
Deann Sullivan David Bird
550 South Quebec Street 1221 Avenue of the Americas, 11th Floor
Greenwood Village, CO 80111 New York, NY 10020
Tel: 303-740-4315 Tel: 212-278-7429
Fax: 303-740-4021 E-mail: david.bird@us.socgen.com
E-mail: dsullivan@cobank.com
KBC BANK N.V. THE BANK OF TOKYO-MITSUBISHI, LTD.
Robert Pacifici / Loan Administration Giovanny Pieternelle
125 West 55th Street 1100 Louisiana Street, Suite 2800
New York, NY 10019 Houston, TX 77002
Tel: 212-541-0671 Tel: 713-655-3150
Fax: 212-956-5581 Fax: 713-658-0116
E-Mail: gpieternelle@btmna.com
|
U.S. BANK NATIONAL ASSOCIATION MERRILL LYNCH BANK USA
Ward Wilson Derek Befus
150 Fourth Avenue N, Third Floor 15 W. South Temple, Suite 300
Nashville, TN 37219 Salt Lake City, UT 84101
Tel: 615-251-9253 Tel: 801-526-6814
Fax: 615-251-9245 Fax: 801-531-7470
E-Mail: ward.wilson@usbank.com E-Mail: derek_befus@ml.com
WACHOVIA BANK, NATIONAL ASSOCIATION UBS AG, CAYMAN ISLANDS BRANCH
Reid Harden Marie Haddad
999 Peachtree Street 677 Washington Blvd.
Atlanta, GA 30309 Stamford, CT 06901
Tel: 404-332-1420 Tel: 203-719-5609
E-mail: reid.harden@wachovia.com Fax: 203-719-3888
E-Mail: marie.haddad@ubs.com
Mitch Wilson
Tel: 704-383-5642
Email: mitch.wilson@wachoiva.com
BANK HAPOALIM B.M. TRUSTMARK NATIONAL BANK
Dwight Ghans Chan Blount
1177 Avenue of the Americas 248 E. Capitol Street
New York, NY 10036-2790 Jackson, MS 39201
Tel: 212-782-2226 Tel: 601-208-6034
Fax: 212-782-2187 Fax: 601-208-5030
E-Mail: dghans@hapoalimusa.com E-Mail: cblount@trustmark.com
HIBERNIA NATIONAL BANK ATMOS ENERGY CORPORATION
Laura Watts Laurie Sherwood
313 Carondelet Street 5430 LBJ Freeway
New Orleans, LA 70130 Dallas, TX 75240
Tel: 504-533-7859 Tel: 972-855-9718
Fax: 504-533-5344 Fax: 972-855-3085
E-Mail: lwatts@hibernia.com E-Mail: laurie.sherwood@atmosenergy.com
|
TO: BANK ONE, NA, as Administrative Agent 1
Bank One Plaza
Chicago, Illinois 60670
RE: 364-Day Credit Agreement dated as of July 29, 2003, among Atmos Energy Corporation (the "Borrower"), the Lenders named therein and Bank One, NA, as Administrative Agent for the Lenders (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement")
DATE:____________, 200__
1. This Notice of Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
2. Please be advised that the Borrower is requesting Loans in the amount of $_________ to be funded on __________, 200__ at the interest rate option set forth in paragraph 3 below.
Subsequent to the funding of the requested Loans, the sum of the amount of Loans outstanding will be $__________, which is less than or equal to the Aggregate Commitment.
3. The interest rate option applicable to the requested Loans shall be:
a. ________the Base Rate
b. ________the Adjusted Eurodollar Rate for an Interest Period of:
________one month ________two months ________three months ________six months
4. As of the date on which funds are to be advanced, all representations and warranties contained in the Credit Agreement and in the other Credit Documents will be true and correct in all material respects.
5. As of the date on which funds are to be advanced, no Default or Event of
Default will exist or be continuing or will be caused by the making of Loans
pursuant to this Notice of Borrowing.
TO: BANK ONE, NA, as Administrative Agent 1
Bank One Plaza
Chicago, Illinois 60670
RE: 364-Day Credit Agreement dated as of July 29, 2003 among Atmos Energy Corporation (the "Borrower"), the Lenders named therein and Bank One, NA, as Administrative Agent for the Lenders (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement")
DATE:_____________, 200___
1. This Notice of Continuation/Conversion is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
2. Please be advised that the Borrower is requesting that a portion of the current outstanding Loans in the amount of $_________ currently accruing interest at _____ be continued or converted as of ___________, 200__ at the interest rate option set forth in paragraph 3 below.
3. The interest rate option applicable to the continuation or conversion of all or part of the existing Loans (as set forth above) shall be:
a. _______the Base Rate
b. _______the adjusted Eurodollar Rate for an Interest Period of:
_______one month
_______two months
_______three months
_______six months
FOR VALUE RECEIVED, ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Borrower"), hereby promises to pay to the order of ______________ (the "Lender"), at the office of Bank One, NA (the "Administrative Agent") as set forth in that certain 364-Day Credit Agreement dated as of July 29, 2003 among the Borrower, the Lenders named therein (including the Lender) and the Administrative Agent (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement") (or at such other place or places as the holder of this Note may designate), the aggregate amount of all Loans made by the Lender under the Credit Agreement (and not otherwise repaid), in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each Loan made by the Lender, at such office, in like money and funds, for the period commencing on the date of each Loan until each Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement and evidences Loans made by the Lender thereunder. The Lender shall be entitled to the benefits of the Credit Agreement. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of the Loans evidenced by this Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of Loans upon the terms and conditions specified therein. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorney fees.
Except as permitted by Section 11.3(b) of the Credit Agreement, this Note may not be assigned by the Lender to any other Person.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the date first above written.
TO: BANK ONE, NA, as Administrative Agent 1
Bank One Plaza
Chicago, Illinois 60670
RE: 364-Day Credit Agreement dated as of July 29, 2003 among Atmos Energy Corporation (the "Borrower"), the Lenders named therein and Bank One, NA, as Administrative Agent for the Lenders (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement")
DATE: ________________, 200_
Pursuant to the terms of the Credit Agreement, I, _______________________________, ____________ of the Borrower, hereby certify on behalf of the Borrower that, as of the quarter/year ending ____________, 200_, the statements below are accurate and complete in all material respects (all capitalized terms used herein unless defined shall have the meanings set forth in the Credit Agreement):
a. Attached hereto as Schedule I are calculations demonstrating compliance
by the Borrower with the financial covenant set forth in
Section 7.2 of the Credit Agreement, as of the end of the fiscal period cited
above.
b. No Default or Event of Default exists under the Credit Agreement, except as indicated on a separate page attached hereto, together with an explanation of the action taken or proposed to be taken by the Borrower with respect thereto.
c. The quarterly/annual financial statements for the fiscal period cited above which accompany this certificate are true and correct and have been prepared in accordance with GAAP (in the case of any quarterly financial statements, subject to changes resulting from audit and normal year-end audit adjustments).
1. Consolidated Funded Debt $_____________
2 Consolidated Capitalization $_____________
3. Debt to Capitalization Ratio: (Line 1 / Line 2) _____________
Maximum Allowed: Line 3 shall be less than or equal to 0.70 to 1.0
Reference is made to that certain 364-Day Credit Agreement, dated as of July 29, 2003, among Atmos Energy Corporation (the "Borrower"), the Lenders party thereto and Bank One, NA, as Administrative Agent for the Lenders (as the same may be amended, modified, extended or restated from time to time, the "Credit Agreement"). Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement.
1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation and warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, without recourse and without representation and warranty except as expressly set forth herein, the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interest set forth below in the Commitment Percentage of the Assignor on the Effective Date (as defined below) and the Loans owing to the Assignor in connection with the Assigned Interest which are outstanding on the Effective Date. The purchase of the Assigned Interest shall be at par (unless otherwise agreed to by the Assignor and the Assignee) and periodic payments made with respect to the Assigned Interest which (a) accrued prior to the Effective Date shall be remitted to the Assignor and (b) accrue from and after the Effective Date shall be remitted to the Assignee.
2. The Assignor (a) warrants to the Assignee that it is the legal and beneficial owner of the Assigned Interest and that the Assigned Interest is free and clear of any adverse claim created by the Assignor; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Documents or any other document or instrument furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of Credit Documents or any document or instrument furnished pursuant thereto; (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Documents or any document or instrument furnished pursuant thereto and (d) if the Assignor is hereby assigning all of its Commitment, the Assignor attaches the Notes held by the Assignor and requests that the Administrative Agent exchange such Notes for new Notes in favor of the Assignee.
3. The Assignee (a) confirms that it is legally authorized to enter into this Assignment Agreement; (b) confirms that it has received a copy of the Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter to this Assignment Agreement; (c) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Credit Documents; (d) confirms that it is an Eligible Assignee; (e) appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under the Credit Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (f) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Credit Documents are required to be performed by it as a Lender; and (g) attaches any U.S. Internal Revenue Service or other forms required under Section 4.4.
4. Following the execution of this Assignment Agreement, it will be delivered to the Administrative Agent, together with the transfer fee required pursuant to Section 11.3(b) of the Credit Agreement, if any, for acceptance and recording by the Administrative Agent. The effective date for this Assignment Agreement (the "Effective Date") shall be the date of acceptance hereof by the Administrative Agent and the Borrower, as applicable, unless otherwise specified herein.
5. Upon the consent of the Borrower and the Administrative Agent, as applicable, as of the Effective Date, (a) the Assignment shall be a party to the Credit Agreement and the other Credit Documents and, to the extent provided in this Assignment Agreement, have the rights and obligations of a Lender thereunder and (b) the Assignor shall, to the extent provided in this Assignment Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents.
6. This Assignment Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
7. This Assignment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
8. Terms of Assignment
(a) Date of Assignment: ___________
(b) Legal Name of Assignor: ___________
(c) Legal Name of Assignee: ___________
(d) Effective Date of Assignment: ___________
(e) Commitment Percentage Assigned: __________%
(f) Commitment Percentage of Assignor
after Assignment __________%
(g) Total Loans outstanding as of
Effective Date $__________
|
(h) Principal Amount of Loans assigned
on Effective Date (the amount set
forth in (g) multiplied by the
percentage set forth in (e)) $___________
(i) Aggregate Commitment $___________
(j) Principal Amount of Aggregate
Commitment Assigned on the
Effective Date (the amount set
forth in (i) multiplied by the
percentage set forth in (e)) $___________
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_____________________________, as Assignor
By:
Name:
Title:
_____________________________, as Assignee
By:
Name:
Title:
Three Months Ended Nine Months Ended
June 30 June 30
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
(Dollars in thousands)
Income (loss) from continuing operations before
provision for income taxes and cumulative effect of
accounting change per statement of income $ (1,300) $ 5,173 $130,200 $103,760
Add:
Portion of rents representative of the interest factor 930 948 2,671 2,832
Interest on debt & amortization of debt expense 16,043 13,823 47,679 44,304
-------- -------- -------- --------
Income as adjusted $ 15,673 $ 19,944 $180,550 $150,896
======== ======== ======== ========
Fixed charges:
Interest on debt & amortization of debt expense (1) $ 16,043 $ 13,823 $ 47,679 $ 44,304
Capitalized interest (2) 183 300 488 1,003
Rents 2,789 2,843 8,014 8,496
Portion of rents representative of the interest factor (3) 930 948 2,671 2,832
-------- -------- -------- --------
Fixed charges (1)+(2)+(3) $ 17,156 $ 15,071 $ 50,838 $ 48,139
======== ======== ======== ========
Ratio of earnings to fixed charges 0.91 1.32 3.55 3.13
|
Board of Directors
Atmos Energy Corporation
We are aware of the incorporation by reference in the Registration Statements (Form S-3, No. 33-37869; Form S-3 D/A, No. 33-70212; Form S-3, No. 33-58220; Form S-3, No. 33-56915; Form S-3/A, No. 333-03339; Form S-3/A, No. 333-32475; Form S-3/A, No. 333-50477; Form S-3/A, No. 333-93705; Form S-3, No. 333-95525; Form S-3, No. 333-75576; Form S-4, No. 333-13429; Form S-8, No. 33-68852; Form S-8, No. 33-57687; Form S-8, No. 33-57695; Form S-8, No. 333-32343; Form S-8, No. 333-46337; Form S-8, No. 333-73143; Form S-8, No. 333-73145; Form S-8, No. 333-63738; and Form S-8, No. 333-88832) of Atmos Energy Corporation and in the related Prospectuses of our report dated August 8, 2003, relating to the unaudited condensed consolidated interim financial statements of Atmos Energy Corporation which are included in its Form 10-Q for the quarter ended June 30, 2003.
Dallas, Texas
August 14, 2003
I, Robert W. Best, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atmos Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003
By: /s/ ROBERT W. BEST
------------------
Robert W. Best
Chairman, President and
Chief Executive Officer
|
I, John P. Reddy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atmos Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003
By: /s/ JOHN P. REDDY
-----------------------------
John P. Reddy
Senior Vice President and
Chief Financial Officer
|
In connection with the Quarterly Report of Atmos Energy Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert W. Best, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ ROBERT W. BEST --------------------------- Robert W. Best Chairman, President and Chief Executive Officer |
August 14, 2003
A signed original of this written statement required by Section 906 has been provided to Atmos Energy Corporation and will be retained by Atmos Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
In connection with the Quarterly Report of Atmos Energy Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John P. Reddy, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ JOHN P. REDDY ---------------------- John P. Reddy Senior Vice President and Chief Financial Officer |
August 14, 2003
A signed original of this written statement required by Section 906 has been provided to Atmos Energy Corporation and will be retained by Atmos Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.