UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________.
Commission file number 1-3187
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
(Exact name of registrant as specified in its charter)
Texas 22-3865106
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
|
(713) 207-3000
(Registrant's telephone number, including area code)
RELIANT ENERGY, INCORPORATED
(Former Name, Former Address and
Former Fiscal Year, if changed
since last report)
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
As of November 9, 2002, all 1,000 common shares of CenterPoint Energy Houston Electric, LLC were held by Utility Holding, LLC, a wholly owned subsidiary of CenterPoint Energy, Inc.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................1
Statements of Consolidated Income
Three Months and Nine Months Ended September 30, 2001 and 2002 (unaudited)........1
Consolidated Balance Sheets
December 31, 2001 and September 30, 2002 (unaudited)..............................2
Statements of Consolidated Cash Flows
Three Months and Nine Months Ended September 30, 2001 and 2002 (unaudited)........4
Notes to Unaudited Consolidated Financial Statements.................................5
Item 2. Management's Narrative Analysis of the Results of Operations of
CenterPoint Energy Houston Electric, LLC and Subsidiaries...........................19
Item 4. Controls and Procedures.............................................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................28
Item 5. Other Information...................................................................28
Item 6. Exhibits and Reports on Form 8-K....................................................30
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND
SUBSIDIARIES (A WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
REVENUES......................................................... $ 709,750 $ 660,342 $ 1,688,956 $ 1,756,744
------------ ------------ ------------ ------------
EXPENSES:
Purchased power................................................ -- -- -- 55,932
Operation and maintenance...................................... 164,610 130,175 448,288 400,767
Depreciation and amortization.................................. 122,454 74,702 254,504 204,282
Taxes other than income taxes.................................. 88,458 56,419 234,903 168,340
------------ ------------ ------------ ------------
Total...................................................... 375,522 261,296 937,695 829,321
------------ ------------ ------------ ------------
OPERATING INCOME................................................. 334,228 399,046 751,261 927,423
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense............................................... (51,805) (57,693) (171,978) (185,358)
Other, net..................................................... 11,425 7,701 35,922 15,268
------------ ------------ ------------ ------------
Total...................................................... (40,380) (49,992) (136,056) (170,090)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
PREFERRED DIVIDENDS............................................ 293,848 349,054 615,205 757,333
Income Tax Expense............................................. 107,198 120,854 212,963 258,994
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE PREFERRED DIVIDENDS..... 186,650 228,200 402,242 498,339
Income from Discontinued Operations, net of tax................ 168,422 134,839 531,738 131,949
------------ ------------ ------------ ------------
INCOME BEFORE PREFERRED DIVIDENDS................................ 355,072 363,039 933,980 630,288
Preferred Dividends............................................ 97 -- 292 --
------------ ------------ ------------ ------------
NET INCOME ...................................................... $ 354,975 $ 363,039 $ 933,688 $ 630,288
============ ============ ============ ============
|
See Notes to the Company's Interim Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND
SUBSIDIARIES (A WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
DECEMBER 31, SEPTEMBER 30,
2001 2002
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 3,428 $ 6,273
Accounts and notes receivable, net....................................... 12,463 167,403
Accrued unbilled revenues................................................ 33,404 83,282
Materials and supplies................................................... 80,919 71,621
Current assets of discontinued operations................................ 6,366,569 --
Other.................................................................... 4,071 7,553
-------------- --------------
Total current assets................................................... 6,500,854 336,132
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................................ 6,254,277 5,900,594
Less accumulated depreciation and amortization........................... (2,195,280) (2,073,766)
-------------- --------------
Property, plant and equipment, net..................................... 4,058,997 3,826,828
-------------- --------------
OTHER ASSETS:
Other intangibles, net................................................... 44,314 38,741
Regulatory assets........................................................ 3,247,888 3,719,521
Note receivable-affiliate................................................ -- 750,000
Non-current assets of discontinued operations............................ 16,910,295 --
Other.................................................................... 181,589 87,993
-------------- --------------
Total other assets..................................................... 20,384,086 4,596,255
-------------- --------------
TOTAL ASSETS......................................................... $ 30,943,937 $ 8,759,215
============== ==============
|
See Notes to the Company's Interim Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND
SUBSIDIARIES (A WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS) -- (CONTINUED)
(UNAUDITED)
LIABILITIES AND MEMBER'S EQUITY
DECEMBER 31, SEPTEMBER 30,
2001 2002
-------------- --------------
CURRENT LIABILITIES:
Short-term borrowings................................................... $ 163,731 $ --
Current portion of long-term debt....................................... 414,038 18,742
Accounts payable........................................................ 40,089 34,917
Accounts and notes payable-- affiliates, net............................ 266,190 13,682
Taxes accrued........................................................... 113,694 129,231
Interest accrued........................................................ 49,718 53,128
Regulatory liabilities.................................................. 154,783 169,776
Current liabilities of discontinued operations........................ 8,789,005 --
Other................................................................... 124,458 63,907
-------------- --------------
Total current liabilities............................................. 10,115,706 483,383
-------------- --------------
OTHER LIABILITIES:
Accumulated deferred income taxes, net.................................. 1,055,966 1,381,423
Unamortized investment tax credits...................................... 58,270 54,753
Benefit obligations..................................................... 81,555 59,181
Regulatory liabilities.................................................. 1,158,988 836,323
Note payable-- affiliate................................................ 10,825 1,633,000
Non-current liabilities of discontinued operations...................... 8,407,310 --
Other................................................................... 28,201 16,261
-------------- --------------
Total other liabilities............................................... 10,801,115 3,980,941
-------------- --------------
LONG-TERM DEBT............................................................. 2,947,193 2,018,210
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 9)
Company Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts Holding Solely Junior Subordinated
Debentures of the Company............................................... 342,000 --
-------------- --------------
MEMBER'S EQUITY:
Contributed capital .................................................... 3,897,301 2,207,639
Unearned ESOP stock..................................................... (131,888) --
Retained earnings....................................................... 3,176,533 70,120
Accumulated other comprehensive loss.................................... (204,023) (1,078)
-------------- --------------
Total member's equity................................................. 6,737,923 2,276,681
-------------- --------------
TOTAL LIABILITIES AND MEMBER'S EQUITY............................... $ 30,943,937 $ 8,759,215
============== ==============
|
See Notes to the Company's Interim Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND
SUBSIDIARIES (A WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2001 2002
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations less preferred dividends.............. $ 401,950 $ 498,339
Adjustments to reconcile income from continuing operations less
preferred dividends to net cash provided by operating activities:
Depreciation and amortization......................................... 254,504 204,282
Deferred income taxes................................................. (74,811) 272,066
Investment tax credits................................................ (3,534) (3,517)
Changes in other assets and liabilities:
Accounts receivable and accrued unbilled revenues, net.............. 11,383 (356,085)
Accounts receivable/payable, affiliates............................. 1,707 (21,259)
Inventory........................................................... 11,638 9,298
Accounts payable.................................................... 56,947 39,940
Fuel cost over recovery............................................. 114,094 164,151
Interest and taxes accrued.......................................... 256,029 18,947
Net regulatory assets and liabilities............................... 4,621 (823,597)
Other current assets................................................ 1,820 (3,482)
Other current liabilities........................................... (17,537) (105,696)
Other assets........................................................ (77,911) 89,882
Other liabilities................................................... 10,191 19,884
Other, net............................................................ -- 5,021
------------------- ------------------
Net cash provided by operating activities......................... 951,091 8,174
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................... (387,650) (197,231)
Other, net.............................................................. 45,626 (81,746)
------------------- ------------------
Net cash used in investing activities............................. (342,024) (278,977)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash related to securitization financing.................... -- 3,726
(Decrease) increase in short-term borrowing, net........................ (269,396) 223,220
(Decrease) increase in notes with affiliates, net....................... (255,467) 290,926
Payments of long-term debt.............................................. (986) (13,405)
Payment of common stock dividend........................................ (324,956) (222,538)
Other, net.............................................................. 3,481 --
------------------- ------------------
Net cash (used in) provided by financing activities................. (847,324) 281,929
------------------- ------------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS.................... 238,179 (8,281)
------------------- ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (78) 2,845
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 1,081 3,428
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 1,003 $ 6,273
=================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest................................................................ $ 219,192 $ 95,789
Income taxes............................................................ -- 108,701
|
See Notes to the Company's Interim Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND AND BASIS OF PRESENTATION
Included in this Quarterly Report on Form 10-Q (Form 10-Q) for CenterPoint Energy Houston Electric, LLC (CenterPoint Houston, together with its subsidiaries, the Company), are the Company's consolidated interim financial statements and notes (Interim Financial Statements) including its wholly owned subsidiaries. The Interim Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the amended Annual Report on Form 10-K/A (Amendment No. 1) of Reliant Energy, Incorporated (Reliant Energy Form 10-K/A) for the year ended December 31, 2001, which was filed with the Securities and Exchange Commission (SEC) on July 15, 2002, and the Quarterly Reports on Form 10-Q of Reliant Energy, Incorporated (Reliant Energy) for the quarters ended March 31, 2002 and June 30, 2002.
ORGANIZATIONAL STRUCTURE AND RESTRUCTURING
CenterPoint Houston is a regulated utility engaged in the transmission and distribution of electric energy in a 5,000 square mile area located along the Texas Gulf Coast, including the City of Houston. CenterPoint Houston is a wholly owned subsidiary of CenterPoint Energy, Inc. (CenterPoint Energy), a new public utility holding company whose principal businesses are the regulated businesses of Reliant Energy and its former subsidiaries. CenterPoint Energy's regulated businesses conduct activities in the following operating segments: Electric Transmission and Distribution; Electric Generation; Natural Gas Distribution; Pipelines and Gathering; and Other. CenterPoint Energy was incorporated in Texas in 2001 in connection with the restructuring of Reliant Energy discussed below to separate its regulated and unregulated businesses and, as required by the Texas Electric Choice Plan enacted by the Texas legislature in 1999 (the Texas electric restructuring law), its generation, transmission and distribution, and retail electric sales functions. CenterPoint Energy is a registered holding company under the Public Utility Holding Company Act of 1935 (1935 Act) and is subject to regulation as a "registered holding company" with respect to, among other things, transactions with its affiliates, sales or acquisitions of assets, issuances of securities, distributions and permitted lines of business.
CenterPoint Houston's business includes:
o Distribution. CenterPoint Houston's electric distribution business distributes electricity for retail electric providers in its certificated service area by carrying power from the substation to the retail electric customer.
o Transmission. CenterPoint Houston's transmission business transports electricity from power plants to substations and from one substation to another in locations in the control area managed by the Electric Reliability Council of Texas, Inc. (ERCOT).
CenterPoint Houston operates its business as a single segment. In addition to the electric transmission and distribution business, the consolidated financial statements include the operations of two financing subsidiaries.
CenterPoint Houston's business does not include:
o the generation or sale of electricity;
o the procurement, supply or delivery of fuel for the generation of electricity; or
o the marketing to or billing of retail electric customers.
Effective August 31, 2002, Reliant Energy consummated a restructuring transaction (Restructuring) in which it, among other things, (1) conveyed its Texas electric generation assets to an affiliated company, Texas Genco Holdings, Inc. (Texas Genco), (2) became an indirect, wholly owned subsidiary of a new utility holding company, CenterPoint Energy, (3) was converted into a Texas limited liability company named CenterPoint Energy Houston Electric, LLC and (4) distributed the capital stock of its operating subsidiaries, including Texas Genco, to CenterPoint Energy. As part of the Restructuring, each share of Reliant Energy common stock was converted into one share of CenterPoint Energy common stock and CenterPoint Energy assumed, and CenterPoint Houston was released from, approximately $3.7 billion in principal amount of outstanding indebtedness. Included in the $3.7 billion of indebtedness assumed by CenterPoint Energy, was $1.7 billion of debt and $0.3 billion of trust preferred securities that was reflected in continuing operations in the Company's Consolidated Balance Sheet as of December 31, 2001. Additionally, CenterPoint Houston issued a $1.6 billion note payable to CenterPoint Energy at Restructuring.
Additionally, CenterPoint Energy assumed a $2.5 billion Senior A Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto, and a $1.8 billion Senior B Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company's Interim Financial Statements reflect all normal recurring
adjustments that are, in the opinion of management, necessary to present fairly
the financial position and results of operations for the respective periods.
Amounts reported in the Company's Statements of Consolidated Operations are not
necessarily indicative of amounts expected for a full year period due to the
effects of, among other things, (a) seasonal variations in energy consumption,
(b) timing of maintenance and other expenditures and (c) acquisitions and
dispositions of assets and other interests. In addition, certain amounts from
the prior year have been reclassified to conform to the Company's presentation
of financial statements in the current year. These reclassifications do not
affect earnings of the Company.
As a result of the implementation of deregulation, the Company's regulated transmission and distribution business recovers the cost of its service through an energy delivery charge, and not as a component of the prior bundled rate, which included energy and delivery charges. Accordingly, there are no meaningful comparisons for these business segments against prior periods. The design of the new energy delivery rate differs from the prior bundled rate. The winter/summer rate differential for residential customers has been eliminated and the energy component of the rate structure has been removed, which will tend to lessen some of the pronounced seasonal variation of revenues which has been experienced in prior periods.
The following notes to the consolidated financial statements in the Reliant Energy Form 10-K/A (Reliant Energy 10-K/A Notes) relate to certain contingencies. These notes, as updated herein, are incorporated herein by reference:
Reliant Energy 10-K/A Notes: Note 4 (Regulatory Matters), and Note 14 (Commitments and Contingencies).
For information regarding certain legal and regulatory proceedings, see Note 9.
(2) DISCONTINUED OPERATIONS
The Interim Financial Statements have been prepared to reflect the effect of the Restructuring as described above as it relates to CenterPoint Houston, and have been prepared based upon Reliant Energy's historical consolidated financial statements.
The Interim Financial Statements present the regulated and unregulated operations of Reliant Energy that were distributed to CenterPoint Energy in the restructuring as discontinued operations, in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). Included in discontinued operations of CenterPoint Energy Houston are Reliant Energy's unregulated operations previously reported in the Wholesale Energy, European Energy and Retail Energy business segments in the Reliant Energy Form 10 K/A. Also included in discontinued operations are the regulated businesses conveyed to CenterPoint Energy which have previously been reported in the Natural Gas Distribution and Pipelines and Gathering business segments as well as the Electric Generation business segment. Accordingly, the Interim Financial Statements of CenterPoint Houston reflect these operations as discontinued operations for the three and nine months ended September 30, 2002.
Total revenues included in discontinued operations were $10.2 billion and $12.5 billion for the three months ended September 30, 2001 and 2002, respectively, and were $31.6 billion and $29.8 billion for the nine months ended September 30, 2001 and 2002, respectively. Income from discontinued operations for the three months ended September 30, 2001 and 2002 is reported net of income tax expense of $149 million and $130 million, respectively, and $351 million and $254 million for the nine months ended September 30, 2001 and 2002, respectively. Total revenues included in discontinued operations have been presented prior to adoption of Emerging Issues Task Force (EITF) Issue No. 02-3, "Recognition and Reporting Gains and Losses on Energy Trading Contracts under Issues No. 98-10 and 00-17."
Also as more fully described in Note 1 to the Reliant Energy 10-K/A Notes, which is incorporated herein by reference, on May 9, 2002, Reliant Resources determined that it had engaged in same-day commodity trading transactions involving purchases and sales with the same counterparty for the same volume at substantially the same price (round trip trades). The personnel who effected these transactions apparently did so with the sole objective of increasing volumes. Reliant Resources commenced a review to quantify the amount and assess the impact of these trades. The Audit Committees of each of the Board of Directors of Reliant Resources and Reliant Energy (Audit Committees) also directed an internal investigation by outside legal counsel, with assistance by outside accountants, of the facts and circumstances relating to the round trip trades and related matters.
Prior to the third quarter of 2002, Reliant Resources reported all trading, marketing and risk management services transactions on a gross basis with such transactions being reported in revenues and expenses except primarily for financial gas transactions such as swaps. Therefore, the round trip trades were reflected in both the Reliant Resources' revenues and expenses. The round trip trades should not have been recognized in revenues or
expenses (i.e., they should have been reflected on a net basis). However, since the round trip trades were done at the same volume and substantially the same price, they had no impact on the Company's reported cash flows, operating income or net income.
Based on its review, Reliant Resources determined that it engaged in such round trip trades in 1999, 2000 and 2001. The results of the Audit Committees' investigation were consistent with the results of the Company's review. The round trip trades were for 20 million megawatt hours (MWh) of power and 61 million MWh of power for the three and nine months ended September 30, 2001, respectively, and 46 Billion cubic feet (Bcf) of natural gas for the nine months ended September 30, 2001.
These round trip trades, collectively, had the effect of increasing each of revenues and purchased power expense by $847 million for the three months ended September 30, 2001 and increasing revenues, fuel and cost of gas sold expense and purchased power expense by $3.5 billion, $180 million and $3.3 billion, respectively, for the nine months ended September 30, 2001.
In the course of the Reliant Resources' review, the Company also identified and determined that it should record on a net basis several transactions for energy related services (not involving round trip trades) that totaled $13 million and $30 million for the three and nine months ended September 30, 2001, respectively. These transactions were originally recorded on a gross basis.
In addition, during the May 2001 through September 2001 time frame, Reliant Resources entered into four structured transactions involving a series of forward or swap contracts to buy and sell an energy commodity in 2001 and to buy and sell an energy commodity in 2002 or 2003 (four structured transactions). The four structured transactions were intended to increase future cash flow and earnings and to increase certainty associated with future cash flow and earnings, albeit at the expense of 2001 cash flow and earnings. Each series of contracts in a structure were executed with the same counterparty. The contracts in each structure were offsetting in the aggregate in terms of physical attributes. The transactions that settled during the three and nine months ended September 30, 2001 were previously recorded on a gross basis with such transactions being reported in revenues and expenses which resulted in $700 million of revenues, $206 million in fuel and cost of gas sold and $494 million of purchased power expense, and $1.0 billion of revenues, $367 million in fuel and cost of gas sold and $656 million of purchased power expense being recognized in each period, respectively. These transactions should have been accounted for on a net basis.
Reliant Resources' consolidated financial statements for the three and nine months ended September 30, 2001 have been restated from amounts previously reported to reflect the transactions discussed above on a net basis. The restatement decreased Reliant Resources' revenues and operating expenses for the three months ended September 30, 2001 by $1.6 billion from total revenues of $4.1 billion as previously reported, to $2.5 billion, as restated, and total operating expenses of $3.7 billion as previously reported, to $2.1 billion, as restated. The restatement decreased Reliant Resources' revenues and operating expenses for the nine months ended September 30, 2001 by $4.5 billion from total revenues of $10.2 billion, as previously reported, to $5.7 billion, as restated, and total operating expenses of $9.5 billion as previously reported, to $5.0 billion, as restated.
In addition to the round trip trades described above, Reliant Resources' review and the Audit Committees' investigation also considered other transactions executed on the same day at the same volume, price and delivery terms and with the same counterparty. These transactions were executed in the normal course of the Company's trading and marketing activities, and were historically reported on a gross basis, and were not material.
Also as more fully described in Note 1 to the Reliant Energy 10-K/A Notes, during the fourth quarter of 2000, two power generation swap contracts with a fair value of $261 million were terminated by Reliant Resources and replaced with a substantially similar contract providing for physical delivery and designated to hedge electric generation. The termination of the original contracts and execution of the replacement contract represented a substantive modification to the original contract. As a result, upon termination of the original contracts, a contractual liability representing the fair value of the original contracts and a deferred asset of equal amount should have been recorded. As of January 1, 2001, in connection with the adoption of SFAS No. 133, the deferred asset should have been recorded as a transition adjustment to other comprehensive loss totaling $170 million. The liability and transition adjustment should have been amortized on a straight-line basis over the term of the power generation contract replacing the terminated power generation contracts (through May 2004). Reliant Resources previously did not give accounting recognition to these transactions. As a result, the Company restated its Consolidated Balance Sheets as of December 31, 2000 and 2001 and the Statement of Consolidated Stockholder's Equity and
Comprehensive Income for the year ended December 31, 2001 in the Reliant Energy Form 10-K/A. The Company has restated its comprehensive income disclosure related to its Reliant Resources' discontinued operations for the three and nine months ended September 30, 2001 from amounts previously reported, to effect this transaction as described above (Note 7). The restatement increased comprehensive income by $14 million from a total comprehensive income of $147 million, as previously reported, to $161 million, as restated, for the three months ended September 30, 2001 and decreased comprehensive income by $132 million (including the $170 million transition adjustment discussed above) from a total comprehensive income of $954 million, as previously reported, to $822 million, as restated, for the nine months ended September 30, 2001. The restatement had no impact on the Company's reported consolidated cash flows, operating income or net income.
Furthermore, in September 2002, during Reliant Resources' review of certain trading transactions in connection with various pending investigations, Reliant Resources identified four natural gas financial swap transactions that should not have been reflected in its financial statements. Reliant Resources has concluded, based on the offsetting nature of the transactions and manner in which the transactions were documented, that none of the transactions should have been given accounting recognition. Reliant Resources accounted for the transactions in its financial statements as a reduction in revenues in December 2000 and an increase in revenues in January 2001, with the effect of decreasing net income in the fourth quarter of 2000 and increasing net income in the first quarter of 2001, in each case by $20 million pre-tax ($13 million after-tax), and the effect of increasing basic and diluted earnings per share by $0.04 in the first quarter of 2001. There were no cash flows associated with the transactions. The Company has further concluded, after considering both qualitative and quantitative factors, that a restatement of its financial statements for this item is not required.
(3) NEW ACCOUNTING PRONOUNCEMENTS
See Note 5 for a discussion of the Company's adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142) on January 1, 2002.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 requires the fair value of a liability for an asset retirement legal obligation to be recognized in the period in which it is incurred. When the liability is initially recorded, associated costs are capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. SFAS No. 143 requires entities to record a cumulative effect of change in accounting principle in the income statement in the period of adoption. The Company plans to adopt SFAS No. 143 on January 1, 2003, and is in the process of determining the effect of adoption on its consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144. SFAS No. 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS No. 144 supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," while retaining many of the requirements of these two statements. Under SFAS No. 144, assets held for sale that are a component of an entity will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations prospectively. SFAS No. 144 did not materially change the methods used by the Company to measure impairment losses on long-lived assets, but
may result in more future dispositions being reported as discontinued operations than would previously have been permitted. The Company adopted SFAS No. 144 on January 1, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). SFAS No. 145 eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent. SFAS No. 145 also requires that capital leases that are modified so that the resulting lease agreement is classified as an operating lease be accounted for as a sale-leaseback transaction. The changes related to debt extinguishment are effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting are effective for transactions occurring after May 15, 2002. The Company has applied this guidance prospectively.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146 nullifies EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" (EITF No. 94-3). The principal difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements for recognition of a liability for costs associated with an exit or disposal activity. SFAS No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity when it is incurred. A liability is incurred when a transaction or event occurs that leaves an entity little or no discretion to avoid the future transfer or use of assets to settle the liability. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. In addition, SFAS No. 146 also requires that a liability for a cost associated with an exit or disposal activity be recognized at its fair value when it is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. The Company will apply the provisions of SFAS No. 146 to all exit or disposal activities initiated after December 31, 2002.
(4) REGULATORY MATTERS
(a) Excess Cost Over Market (ECOM) True-Up.
Our affiliate, Texas Genco, sells, through auctions, entitlements to substantially all of its installed electric generation capacity, excluding reserves for planned and forced outages. In September, October and December 2001, and March, July, October and November 2002, it conducted auctions, as required by the Public Utility Commission of Texas (Texas Utility Commission) and by Reliant Energy's Master Separation Agreement with Reliant Resources.
The capacity auctions were consummated at market-based prices that are substantially below the estimate of those prices made by the Texas Utility Commission in the spring of 2001. The Texas electric restructuring law provides for the recovery in a "true-up" proceeding in 2004 (2004 True-up Proceeding) of any difference between market power prices and the earlier estimates of those market prices by the Texas Utility Commission, using the prices received in the auctions required by the Texas Utility Commission as the measure of market prices (ECOM True-Up). For the three months and nine months ended September 30, 2002, respectively, the Company recorded approximately $240 million and $551 million in revenue related to the recovery of the difference between the market power prices and the Texas Utility Commission's earlier estimates. Under the guidance of EITF No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101," the Company has recorded the ECOM True-Up amounts as a regulatory asset since its operations will receive the regulated cash flows to recover these amounts. For additional information regarding the capacity auctions and the related true-up proceeding, please read Note 4(a) to the Reliant Energy 10-K/A Notes, which is incorporated herein by reference.
(b) Regulatory Assets Contingency.
As of September 30, 2002, in contemplation of the 2004 True-up Proceeding, the Company has recorded a regulatory asset of $2.0 billion representing the estimated future recovery of previously incurred stranded costs, which includes $1.0 billion of previously recorded accelerated depreciation (an amount equal to earnings above a stated overall annual rate of return on invested capital that was used to recover CenterPoint Energy's investment in generation assets) plus redirected depreciation, both reversed in 2001. Offsetting this regulatory asset is a $1.0 billion regulatory liability to refund the excess mitigation to ratepayers. This estimated recovery is based upon current projections of the market value of CenterPoint Energy's Texas generation assets to be covered by the 2004 True-up Proceeding calculations. The regulatory liability reflects a current refund obligation arising from prior mitigation of stranded costs deemed excessive by the Texas Utility Commission. The Company began refunding excess mitigation credits with the January 2002 bills. These credits are to be refunded over a seven year period. Because accounting principles generally accepted in the United States of America require the Company to estimate fair market values in advance of the final reconciliation, the financial impacts of the Texas electric restructuring law with respect to the final determination of stranded costs in the 2004 True-up Proceeding are subject to material changes. Factors affecting such changes may include estimation risk, uncertainty of future energy and commodity prices and the economic lives of the plants. If events were to occur that made the recovery of some of the remaining generation related regulatory assets no longer probable, the Company would write off the unrecoverable balance of such assets as a charge against earnings.
(c) Fuel Reconciliation Contingency.
CenterPoint Houston filed its final fuel reconciliation proceeding with the Texas Utility Commission on July 1, 2002, and subsequently amended its filing on October 2, 2002 and on November 8, 2002. Although previous fuel reconciliation proceedings have generally covered three-year periods, this filing covers fuel expense and interest incurred from August 1, 1997 through January 30, 2002. Also included in this amount is an under-recovery of $94 million, which was the balance as of July 31, 1997 as approved in the Company's last fuel reconciliation. CenterPoint Houston's filing related to this proceeding covers $8.5 billion in fuel revenues and $8.6 billion in expenses and interest, resulting in a current under-collection, including interest, of $128 million, which is recorded as a regulatory asset in our consolidated balance sheet at September 30, 2002. A procedural schedule has been set with a hearing scheduled to begin January 28, 2003. Any over- or under-recovery, plus interest thereon, will be either returned to or recovered from CenterPoint Houston's customers, as appropriate, as a component of the 2004 True-up Proceeding.
(5) INTANGIBLES
In July 2001, the FASB issued SFAS No. 142, which provides that goodwill and certain intangibles with indefinite lives will not be amortized into results of operations, but instead will be reviewed periodically for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles with indefinite lives is more than its fair value. On January 1, 2002, the Company adopted the provisions of the statement which apply to goodwill and intangible assets acquired prior to June 30, 2001.
The Company recognizes specifically identifiable intangibles when specific rights and contracts are acquired. As of September 30, 2002, specific intangibles related to land rights were $39 million. The Company amortizes these acquired intangibles on a straight-line basis over the lesser of their contractual or estimated useful lives that range between 50 and 75 years.
Amortization expense for these specifically identifiable intangibles was immaterial and is expected to be immaterial for the next five years.
(6) LONG-TERM DEBT
SEPTEMBER 30, 2002
----------------------------
LONG-TERM CURRENT(1)
------------- --------------
(IN MILLIONS)
Bank loans and commercial paper (2).................................... $ 387 $ --
First mortgage bonds 7.50% to 9.15% due 2021 to 2023................... 614 --
Obligations of subsidiaries:
Series 2001-1 Transition Bonds 3.84% to 5.63% due 2003 to 2013(3)... 717 19
7.40% Notes of subsidiary due 2002(2)............................... 300 --
------------- -------------
Long-term debt to third parties........................................ 2,018 19
Notes payable to affiliate 4.90% to 6.7%............................... 1,633 --
------------- --------------
Total borrowings....................................................... $ 3,651 $ 19
============= ==============
|
(1) Includes amounts due or exchangeable within one year of the date noted.
(2) The $387 million of bank loans and commercial paper and $300 million current portion of 7.40% Notes of subsidiary are reflected as long-term debt in the Consolidated Balance Sheet at September 30, 2002 as a result of the terms of the $1.3 billion loan funded on November 12, 2002 as discussed below.
(3) The Series 2001-1 Transition Bonds were issued by one of the Company's subsidiaries, and are non-recourse to the Company.
Assumption and Release of Certain Debt
In connection with the Restructuring of Reliant Energy pursuant to the Texas electric restructuring law, Reliant Energy transferred assets and subsidiaries to CenterPoint Energy or its subsidiaries and became a subsidiary of CenterPoint Energy. Pursuant to the provisions of existing debt agreements applicable when the properties or assets of Reliant Energy were transferred to another entity substantially as an entirety, concurrently with these transfers, CenterPoint Energy expressly assumed $3.7 billion of debt and other obligations of Reliant Energy. Certain of the Company's first mortgage bonds and general mortgage bonds serve as collateral for approximately $547 million and approximately $527 million of such debt, respectively. Additionally, CenterPoint Energy assumed a $2.5 billion Senior A Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto, and a $1.8 billion Senior B Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto.
Bank Loans and Commercial Paper
As of September 30, 2002, the Company had bank loans of $246 million and outstanding commercial paper of $141 million obtained under, and supported by, the Company's $400 million credit facility. The weighted average interest rate on these short-term borrowings at December 31, 2001 and September 30, 2002 was 3.36% and 4.4%, respectively. The Company's $400 million credit facility was replaced on October 10, 2002, by an $850 million secured credit facility which was repaid on November 12, 2002.
Long-term Debt
As of September 30, 2002, the Company had approximately $1.6 billion of non-affiliate long-term debt. Subsequent to September 30, 2002, the Company issued $1.3 billion of debt collateralized by general mortgage bonds and maturing in 2005. The general mortgage bonds are issued under the General Mortgage Indenture dated as of October 10, 2002 between CenterPoint Houston and JPMorgan Chase Bank, as trustee. The lien of the general mortgage indenture is junior to that of the Mortgage and Deed of Trust dated as of November 1, 1944 between CenterPoint Houston (successor of Houston Lighting & Power Company) and JPMorgan Chase Bank (successor of South Texas Commercial National Bank), as trustee. For further discussion, please see Note 8.
The following table shows future maturity dates of long-term debt issued by CenterPoint Houston, future maturity dates of debt securities issued by Reliant Energy FinanceCo II LP (FinanceCo), a subsidiary of CenterPoint Houston, and expected future maturity dates of transition bonds issued by CenterPoint Energy Transition Bond Company, LLC, a subsidiary of CenterPoint Houston, as of November 12, 2002. Amounts are expressed in thousands.
YEAR CENTERPOINT HOUSTON FINANCECO SUB-TOTAL TRANSITION BONDS TOTAL
---- ------------------- --------- --------- ---------------- -----
EXTERNAL AFFILIATE
-------- ---------
2002 $300,000 $300,000 $300,000
2003 $166,600 166,600 $18,722 185,322
2004 0 41,189 41,189
2005 $1,310,000 1,310,000 46,806 1,356,806
2006 0 54,295 54,295
2007 0 59,912 59,912
2008 0 65,528 65,528
2009 0 73,017 73,017
2010 0 80,506 80,506
2011 0 87,995 87,995
2012 45,570 45,570 99,229 144,799
2013 0 108,590 108,590
2015 150,850 150,850 150,850
2017 127,385 127,385 127,385
2021 102,442 102,442 102,442
2022 62,275 62,275 62,275
2023 450,000 450,000 450,000
2027 56,095 56,095 56,095
2028 536,500 536,500 536,500
-------------------------------------------------------------------------------------------------------
Total $1,924,717 $1,083,000 $300,000 $3,307,717 $735,789 $4,043,506
=======================================================================================================
|
External debt of $615 million is senior and secured by first mortgage bonds. External debt of $1.3 billion maturing in 2005 is senior and secured by general mortgage bonds. The affiliate debt is senior and unsecured. The FinanceCo debt has the benefit of a support agreement from CenterPoint Houston.
Funding of a three year $1.3 billion loan occurred on November 12, 2002.
Proceeds were used to (1) repay an $850 million secured bank credit facility,
(2) repay $100 million of intercompany notes maturing in 2028 and (3) pay
transaction costs. Remaining proceeds of $300 million will be used to repay $300
million of FinanceCo debt maturing on November 15, 2002. The interest rate on
the $1.3 billion loan is the London inter-bank offered rate (LIBOR) plus
9.75 percent, subject to a minimum LIBOR rate of 3 percent.
Other than the affiliate notes due 2028, the amounts, maturities and interest rates of the intercompany debt payable to CenterPoint Energy of $547 million effectively match the amounts, maturities and interest rates of medium-term notes and certain pollution control bond obligations of CenterPoint Energy that are secured by the Company's first mortgage bonds in the same amounts in the table below.
The following table shows the maturity dates of the $1.1 billion of first mortgage bonds and general mortgage bonds that CenterPoint Houston has issued as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected on the financial statements of CenterPoint Houston because of the contingent nature of the obligation. Amounts are expressed in thousands.
GENERAL MORTGAGE
YEAR FIRST MORTGAGE BONDS BONDS TOTAL
---- -------------------- ---------------- --------
2003 $166,600 $166,600
2011 $19,200 19,200
2012 45,570 45,570
2015 150,850 150,850
2017 127,385 127,385
2018 50,000 50,000
2019 200,000 200,000
2020 90,000 90,000
2026 100,000 100,000
2027 56,095 56,095
2028 68,000 68,000
--------------------------------------------------------
Total $546,500 $527,200 $1,073,700
========================================================
|
The aggregate amount of general mortgage bonds and first mortgage bonds that could be issued is approximately $3.9 billion based on estimates of the value of property encumbered by the general mortgage, the cost of such property and the 70% bonding ratio contained in the general mortgage. As of November 12, 2002, outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.0 billion. The agreement relating to $1.3 billion of debt maturing in 2005 limits incremental secured debt to $300 million.
One of CenterPoint Houston's subsidiaries, CenterPoint Energy Transition Bond Company, LLC, has $736 million aggregate principal amount of outstanding transition bonds. Classes of the transition bonds have final maturity dates of September 15, 2007, September 15, 2009, September 15, 2011 and September 15, 2015 and bear interest at rates of 3.84%, 4.76%, 5.16% and 5.63%, respectively. The transition bonds are secured by "transition property," as defined in the Texas electric restructuring law, which includes the irrevocable right to recover, through non-bypassable transition charges payable by retail electric customers, qualified costs provided in the Texas electric restructuring law and a tariff issued by the Texas Utility Commission. The transition bonds are reported as CenterPoint Houston's long-term debt, although the holders of the transition bonds have no recourse to any of CenterPoint Houston's assets or revenues, and CenterPoint Houston's creditors have no recourse to any assets or revenues (including, without limitation, the transition charges) of the transition bond company. CenterPoint Houston has no payment obligations with respect to the transition bonds except to remit collections of transition charges as set forth in a servicing agreement between CenterPoint Houston and the transition bond company and in an intercreditor agreement among CenterPoint Houston, our indirect transition bond subsidiary and other parties.
Liens. The Company's assets are subject to liens securing approximately $1.2 billion of first mortgage bonds. Sinking or improvement fund and replacement fund requirements on the first mortgage bonds may be satisfied by certification of property additions at 100% of the requirements as defined by the first mortgage and deed of trust. Sinking or improvement/replacement fund requirements for 1999, 2000, 2001 and 2002 have been satisfied by certification of property additions. The replacement fund requirement to be satisfied in 2003 is approximately $342 million, and the sinking fund requirement to be satisfied in 2003 is approximately $15 million. The Company expects to meet these 2003 obligations by certification of property additions.
Subsequent to September 30, 2002, the Company's assets have become subject to second liens securing approximately $1.8 billion of general mortgage bonds.
(7) COMPREHENSIVE INCOME
The following table summarizes the components of total comprehensive income:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
(IN MILLIONS)
Net income ...................................................... $ 355 $ 363 $ 934 $ 630
------------ ------------ ------------ ------------
Other comprehensive (loss) income:
Other comprehensive (loss) income from discontinued operations (193) (18) (111) 202
Additional minimum non-qualified pension liability adjustment.. -- -- 1 1
Net deferred loss from cash flow hedges........................ (1) -- (2) --
------------ ------------ ------------ ------------
Other comprehensive (loss) income................................ (194) (18) (112) 203
------------ ------------ ------------ ------------
Comprehensive income............................................. $ 161 $ 345 $ 822 $ 833
============ ============ ============ ============
|
(8) RELATED PARTY TRANSACTIONS
From time to time, the Company has advanced money to, or borrowed money from, CenterPoint Energy or its subsidiaries. As of December 31, 2001, the Company had net short-term borrowings, included in accounts and notes payable-affiliated companies, of $226 million, and net accounts payable of $40 million. As of September 30, 2002, the Company had net accounts payable, included in accounts and notes payable-affiliated companies, of $19 million, partially offset by net short-term receivables of $5 million. As of December 31, 2001, the Company had net long-term borrowings, included in notes payable-affiliated companies, totaling $11 million. As of September 30, 2002, the Company had a $750 million long-term note receivable from affiliate, as further discussed below, and a $1.6 billion long-term note payable to affiliate as further discussed in Note 6. For the three and nine months ended September 30, 2001, the Company had net interest expense related to affiliate borrowings of $6 million and $23 million, respectively. For the three and nine months ended September 30, 2002, the Company had net interest expense related to affiliate borrowings of $13 million and $64 million, respectively.
Prior to August 31, 2002, the Company had $737 million invested in a money fund through which the Company and certain of its affiliates could borrow and/or invest on a short-term basis. At the time of the Restructuring, the Company converted a money fund investment into a $750 million note receivable from CenterPoint Energy payable on demand and bearing interest at the prime rate, leaving $13 million borrowed from the money fund. Since August 31, 2002, the Company has been a participant in the CenterPoint Energy money pool. The $750 million note receivable is included in long-term notes receivable from affiliate in the consolidated balance sheet because CenterPoint Energy does not plan to repay the note within the next twelve months.
For the three and nine months ended September 30, 2002, revenues derived from energy delivery charges provided by the Company to a subsidiary of Reliant Resources, Inc. (Reliant Resources), a former affiliate, totaled $273 million and $639 million, respectively.
Although the former retail sales business is no longer conducted by the Company, retail customers remained regulated customers of the Company through the date of their first meter reading in January 2002. During this transition period, the Company purchased $56 million of power from Texas Genco.
For the three and nine months ended September 30, 2001, a subsidiary of Reliant Resources, a former affiliate, provided certain support services to the Company totaling $14 million and $37 million, respectively.
(9) LEGAL PROCEEDINGS
Legal Matters
The Company's predecessor, Reliant Energy, and certain of its former subsidiaries have been named as defendants in several lawsuits described below. Under a master separation agreement between Reliant Energy and
Reliant Resources, CenterPoint Energy and its subsidiaries, including the Company, are entitled to be indemnified by Reliant Resources for any losses arising out of the lawsuits described under "Southern California Class Actions," "Northern California Class Actions" and "Trading and Marketing Activities," including attorneys' fees and other costs. The ultimate outcome of these matters cannot be predicted at this time.
Reliant Energy Municipal Franchise Fee Lawsuits. In February 1996, the cities of Wharton, Galveston and Pasadena filed suit, for themselves and a proposed class of all similarly situated cities in Reliant Energy's electric service area, against Reliant Energy and Houston Industries Finance, Inc. (formerly a wholly owned subsidiary of Reliant Energy) alleging underpayment of municipal franchise fees. Plaintiffs claim that they are entitled to 4% of all receipts of any kind for business conducted within these cities over the previous four decades. A jury trial of the original claimant cities (but not the class of cities) in the 269th Judicial District Court for Harris County, Texas, ended in April 2000 (the Three Cities case). Although the jury found for Reliant Energy on many issues, they found in favor of the original claimant cities on three issues, and assessed a total of $4 million in actual and $30 million in punitive damages. However, the jury also found in favor of Reliant Energy on the affirmative defense of laches, a defense similar to a statute of limitations defense, due to the original claimant cities having unreasonably delayed bringing their claims during the 43 years since the alleged wrongs began. The trial court in the Three Cities case granted most of Reliant Energy's motions to disregard the jury's findings. The trial court's rulings reduced the judgment to $1.7 million, including interest, plus an award of $13.7 million in legal fees. In addition, the trial court granted Reliant Energy's motion to decertify the class. Following this ruling, 45 cities filed individual suits against Reliant Energy in the District Court of Harris County.
The Three Cities case has been appealed. The Company believes that the damage award resulted from serious errors of law and that it will be set aside by the Texas appellate courts. In addition, the Company believes that because of an agreement between the parties limiting fees to a percentage of the damages, reversal of the award of attorneys' fees is probable.
The extent to which issues in the Three Cities case may affect the claims of the other cities served by Reliant Energy cannot be assessed until judgments are final and no longer subject to appeal. However, the trial court's rulings disregarding most of the jury's findings are consistent with Texas Supreme Court opinions. The Company estimates the range of possible outcomes for recovery by the plaintiffs in the Three Cities case to be between zero and $18 million inclusive of interest and attorneys' fees.
Southern California Class Actions. Reliant Energy, Reliant Energy Services, Inc. (Reliant Energy Services), Reliant Energy Power Generation, Inc. (REPG) and several other subsidiaries of Reliant Resources, as well as two former officers and one present officer of some of these companies, have been named as defendants in class action lawsuits and other lawsuits filed against a number of companies that own generation plants in California and other sellers of electricity in California markets. Three of these lawsuits were filed in the Superior Court of the State of California, San Diego County; two were filed in the Superior Court in San Francisco County; and one was filed in the Superior Court of Los Angeles County. While the plaintiffs allege various violations by the defendants of state antitrust laws and state laws against unfair and unlawful business practices, each of the lawsuits is grounded on the central allegation that defendants conspired to drive up the wholesale price of electricity. In addition to injunctive relief, the plaintiffs in these lawsuits seek treble the amount of damages alleged, restitution of alleged overpayments, disgorgement of alleged unlawful profits for sales of electricity, costs of suit and attorneys' fees. Plaintiffs have voluntarily dismissed Reliant Energy from two of the three class actions in which it was named as a defendant.
The cases were initially removed to federal court and were then assigned to Judge Robert H. Whaley, United States District Judge, pursuant to the federal procedures for multi-district litigation. On July 30, 2001, Judge Whaley remanded the cases to state court. Upon remand to state court, the cases were assigned to Superior Court Judge Janis L. Sammartino pursuant to the California state coordination procedures. On March 4, 2002, Judge Sammartino adopted a schedule proposed by the parties that would result in a trial beginning on March 1, 2004. On March 8, 2002, the plaintiffs filed a single, consolidated complaint naming numerous defendants, including Reliant Energy Services and other Reliant Resources' subsidiaries, that restated the allegations described above and alleged that damages against all defendants could be as much as $1 billion. On April 22 and 23, 2002, Reliant Resources and Duke Energy filed cross complaints in the coordinated proceedings seeking, in an alternative pleading, relief against other market participants in California, the surrounding states, Canada and Mexico including Powerex Corp., the Los Angeles Department of Water and Power and the Bonneville Power Administration. Powerex Corp. and Bonneville Power Administration removed the case once again to federal court where it was reassigned to Judge
Whaley. On July 10, 2002, a motion to dismiss was filed in coordinated proceedings seeking dismissal of the complaints on the basis of the filed rate doctrine and federal preemption.
On March 11, 2002, the California Attorney General filed a civil lawsuit in San Francisco Superior Court naming Reliant Energy, Reliant Resources, Reliant Energy Services, REPG, and several other subsidiaries of Reliant Resources as defendants. The Attorney General alleges various violations by the defendants of state laws against unfair and unlawful business practices arising out of transactions in the markets for ancillary services run by the California Independent System Operator. In addition to injunctive relief, the Attorney General seeks restitution and disgorgement of alleged unlawful profits for sales of electricity, and civil penalties. Reliant Resources removed this lawsuit to federal court in April 2002, where it has been assigned to Judge Vaughn Walker in the Northern District of California.
On April 15, 2002, the California Attorney General filed a lawsuit in San Francisco County Superior Court against Reliant Energy, Reliant Resources, Reliant Energy Services and several other subsidiaries of Reliant Resources. The complaint alleges that defendants violated their tariffs by failing to file transaction specific information, violated Federal Energy Regulatory Commission regulations concerning rate filings and charged unjust and unreasonable prices for electricity. The complaint also alleges that Reliant Resources consistently charged unjust and unreasonable prices for electricity, and that each instance of overcharge violated California law. The lawsuit seeks fines, under California law, of up to $2,500 for each alleged violation, and "other equitable relief as appropriate." Reliant Resources has removed this case to federal court, where it has been assigned to Judge Vaughn Walker in the Northern District of California.
On April 15, 2002, the California Attorney General and the California Department of Water Resources filed a complaint in the United States District Court for the Northern District of California against Reliant Energy, Reliant Resources and a number of its subsidiaries. In this lawsuit, the Attorney General alleges that Reliant Resources' acquisition of electric generating facilities from Southern California Edison in 1998 violated Section 7 of the Clayton Act, which prohibits mergers or acquisitions that substantially lessen competition. The lawsuit claims that the acquisitions gave Reliant Resources market power which it then exercised to overcharge California consumers for electricity. The lawsuit seeks injunctive relief against alleged unfair competition, divestiture of Reliant Resources' California facilities, disgorgement of alleged illegal profits, damages, and civil penalties for each alleged exercise of market power. This lawsuit also has been assigned to Judge Vaughn Walker. Judge Walker has denied the California Attorney General's motion to remand the two above-mentioned cases to state court and it is anticipated that he will rule in the near future in Reliant Resources' motion to dismiss all three cases.
Northern California Class Actions. In the wake of the filing of the Attorney General cases, there have been seven new class action cases filed in state courts in Northern California. Each of these purports to represent the same class of California ratepayers, assert the same claims as asserted in the Southern California class action cases, and in some instances repeat as well the allegations in the Attorney General cases. All of these cases have been removed to federal court and have been assigned to Judge Whaley by the Panel on Multi-District Litigation.
Neither the Company nor Reliant Resources has answered any of these cases; however, they have moved to dismiss the cases on the grounds that the claims are barred by federal preemption and by the filed rate doctrine.
Trading and Marketing Activities. Reliant Energy has been named as a party in several lawsuits and regulatory proceedings relating to the trading and marketing activities of Reliant Resources. Their ultimate outcome and their effect on the Company cannot be predicted at this time. Additional information regarding certain of these matters is set forth below.
In June 2002, the SEC advised Reliant Resources that it had issued a formal order in connection with its investigation of Reliant Resources' financial reporting, internal controls and related matters. The Company understands that the investigation is focused on Reliant Resources' round trip trades and structured transactions. These matters were previously the subject of an informal inquiry by the SEC. The SEC's formal order is also addressed to Reliant Energy. Reliant Resources and CenterPoint Energy are cooperating with the SEC staff.
In connection with the Texas Utility Commission's industry-wide investigation into potential manipulation of the ERCOT market on and after July 31, 2001, Reliant Energy and Reliant Resources have provided information to the Texas Utility Commission concerning their scheduling and trading activities.
In May, June and July 2002, ten class action lawsuits were filed in federal court for the Southern District of Texas in Houston and one class action lawsuit was filed in federal court for the Eastern District of Texas in Texarkana on behalf of purchasers of securities of Reliant Resources and/or Reliant Energy. Reliant Resources and certain of its executive officers are named as defendants. Reliant Energy is also named as a defendant in three of the lawsuits. Two of the lawsuits also name as defendants the underwriters of the initial public offering of Reliant Resources. One lawsuit names Reliant Resources' and Reliant Energy's independent auditors as a defendant. The dates of filing of these lawsuits are as follows: two lawsuits on May 15, 2002; two lawsuits on May 16, 2002; one lawsuit on May 17, 2002; one lawsuit on May 20, 2002; one lawsuit on May 21, 2002; one lawsuit on May 23, 2002; one lawsuit on June 19, 2002; one lawsuit on June 20, 2002; and one lawsuit on July 1, 2002. The complaints allege that the defendants overstated the revenues of Reliant Energy and Reliant Resources by including transactions involving the purchase and sale of commodities with the same counterparty at the same price and that Reliant Energy and Reliant Resources improperly accounted for certain other transactions, among other things. The complaints seek monetary damages, and in one of the lawsuits rescission, on behalf of a supposed class. In eight of the lawsuits, the supposed class is composed of persons who purchased or otherwise acquired Reliant Resources and/or Reliant Energy securities during specified class periods. The three lawsuits that include Reliant Energy as a named defendant were also filed on behalf of purchasers of securities of Reliant Resources and/or Reliant Energy during specified class periods.
Additionally, in May and June 2002, four class action lawsuits were filed on behalf of purchasers of securities of Reliant Energy. Reliant Energy and several of its executive officers are named as defendants. The dates of filing of the four lawsuits are as follows: one on May 16, 2002; one on May 21, 2002; one on June 13, 2002; and one on June 17, 2002. The lawsuits were filed in federal district court for the Southern District of Texas in Houston. The plaintiffs allege that the defendants made false and misleading statements as part of an alleged scheme to artificially inflate trading volumes and revenues by including transactions involving the purchase and sale of commodities with the same counterparty at the same price, to spin-off Reliant Resources to avoid exposure to Reliant Resources' liabilities and to cause the price of Reliant Resources' stock to rise artificially, among other things. The complaints seek monetary damages on behalf of persons who purchased Reliant Energy securities during specified class periods.
Fourteen of the fifteen securities cases were filed in the United States District Court for the Southern District of Texas, Houston Division. By Order dated August 1, 2002, the Court consolidated ten of the Houston cases. By Order dated August 27, 2002, the Court consolidated the remaining four Houston cases. In the same Order, the Court appointed the Boca Raton Police & Firefighters Retirement System and the Louisiana Retirement Funds to be lead plaintiffs in the consolidated securities cases.
By Order dated August 22, 2002, the remaining securities case was transferred from the United States District court of the Eastern District of Texas, Texarkana Division, to the Southern District of Texas, Houston Division. By Order dated September 20, 2002, the Court consolidated the case originally filed in the Texarkana Division with the fourteen cases previously consolidated in the Houston Division.
In May 2002, three class action lawsuits were filed in federal district court for the Southern District of Texas in Houston on behalf of participants in various employee benefits plans sponsored by Reliant Energy. Reliant Energy and its directors are named as defendants in all of the lawsuits. The lawsuits were filed on May 29, 2002, May 30, 2002, and May 31, 2002. Two of the lawsuits have been dismissed without prejudice. The remaining lawsuit alleges that the defendants breached their fiduciary duties to various employee benefits plans directly or indirectly sponsored by Reliant Energy, in violation of the Employee Retirement Income Security Act. The plaintiffs allege that the defendants permitted the plans to purchase or hold securities issued by Reliant Energy when it was imprudent to do so, including after the prices for such securities became artificially inflated because of alleged securities fraud engaged in by the defendants. The complaints seek monetary damages for losses suffered by a putative class of plan participants whose accounts held Reliant Energy or Reliant Resources securities, as well as equitable relief in the form of restitution.
Reliant Resources is defending CenterPoint Energy and its subsidiaries, including the Company, in these class action suits relating to Reliant Resources' trading and marketing activities pursuant to its indemnification obligations under the master separation agreement between Reliant Resources and Reliant Energy.
Other. The Company is involved in other proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. The Company's management currently believes that the disposition of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS OF CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
The following narrative analysis should be read in combination with CenterPoint Energy Houston Electric, LLC's Interim Financial Statements and notes contained in this Form 10-Q.
Effective August 31, 2002, Reliant Energy, Incorporated (Reliant Energy) consummated a restructuring transaction (which is referred to herein as the Restructuring) in which it, among other things, (1) conveyed its Texas electric generation assets to an affiliated company, Texas Genco Holdings, Inc. (Texas Genco), (2) became an indirect, wholly owned subsidiary of a new utility holding company, CenterPoint Energy, Inc. (CenterPoint Energy), (3) was converted into a Texas limited liability company named CenterPoint Energy Houston Electric, LLC (CenterPoint Houston or the Company), and (4) distributed the capital stock of its operating subsidiaries to CenterPoint Energy. As part of the Restructuring, each share of Reliant Energy common stock was converted into one share of CenterPoint Energy common stock and CenterPoint Energy assumed, and CenterPoint Houston was released from, approximately $3.7 billion in principal amount of outstanding indebtedness. Additionally, CenterPoint Energy assumed a $2.5 billion Senior A Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto, and a $1.8 billion Senior B Credit Agreement, dated as of July 13, 2001 among Houston Industries FinanceCo LP, Reliant Energy and the lender parties thereto.
CenterPoint Houston continues Reliant Energy's electric transmission and distribution business, which continues to be subject to cost-of-service rate regulation and is responsible for the delivery of electricity sold to retail customers through retail electric providers in the 5,000 square mile service area of Houston, Texas and surrounding metropolitan areas as well as the transmission of bulk power into and out of the Houston area.
CenterPoint Houston meets the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and is therefore permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, the Company has omitted from this report the information called for by Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations), Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2 (Changes in Securities), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a Vote of Security Holders). The following discussion explains material changes in CenterPoint Houston's results of operations between the three months and nine months ended September 30, 2002 and the three months and nine months ended September 30, 2001. Reference is made to Management's Discussion and Analysis of Financial Condition and Results or Operations in Item 7 of the Reliant Energy Form 10-K/A.
Contemporaneous with the Restructuring, CenterPoint Energy registered and became subject, with its subsidiaries, to regulation as a registered holding company system under the Public Utility Holding Company Act of 1935 (1935 Act). The 1935 Act directs the SEC to regulate, among other things, financings, sales or acquisitions of assets and intra-system transactions.
The Interim Financial Statements have been prepared to reflect the effect of the Restructuring as described above as it relates to CenterPoint Houston, and have been prepared based upon Reliant Energy's historical consolidated financial statements.
The Interim Financial Statements present the former subsidiaries of Reliant Energy that were distributed to CenterPoint Energy in the Restructuring as discontinued operations, in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). Accordingly, the Interim Financial Statements of CenterPoint Houston reflect these operations as discontinued operations for the three and nine months ended September 30, 2002. Additionally, the conveyance of Reliant Energy's Texas generation assets to Texas Genco, has been reflected as discontinued operations in accordance with SFAS No. 144 for all periods presented.
Earnings before interest and taxes (EBIT) is shown because CenterPoint Houston believes it is a measure of financial performance that may be used as a means to analyze and compare companies on the basis of operating performance. CenterPoint Houston expects that some analysts and investors will want to review EBIT when
evaluating our company. EBIT is not defined under accounting principles generally accepted in the United States of America (GAAP), and should not be considered in isolation or as a substitute for a measure of performance prepared in accordance with GAAP and is not indicative of operating income from operations as determined under GAAP. Additionally, CenterPoint Houston's computation of EBIT may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate it in the same fashion.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
2001 2002 2001 2002
------------- --------- ----------- -----------
(IN MILLIONS)
Revenues............................................ $ 710 $ 660 $ 1,689 $ 1,757
Operating Expenses.................................. (376) (261) (938) (829)
------------- --------- ----------- -----------
Operating Income.................................... 334 399 751 928
Other Income, net .................................. 11 8 36 15
------------- --------- ----------- -----------
Earnings Before Interest and Taxes.................. 345 407 787 943
Interest Expense.................................... (52) (58) (172) (186)
Income Tax Expense.................................. (106) (121) (213) (259)
------------- --------- ----------- -----------
Income From Continuing Operations................... 187 228 402 498
Income from Discontinued Operations, net of tax..... 168 135 532 132
------------- --------- ----------- -----------
Net Income ......................................... $ 355 $ 363 $ 934 $ 630
============= ========= =========== ===========
|
Prior to January 1, 2002, Reliant Energy's electric operations reflected the regulated electric utility business, including generation, transmission and distribution, and retail electric sales. As of January 1, 2002, with the opening of the Texas market to full retail electric competition, generation and retail sales are no longer subject to cost of service regulation. Retail electric sales involve the sale of electricity and related services to end users of electricity and were included as part of the bundled regulated service prior to 2002. The previously regulated generation operations in Texas are now a part of Texas Genco. Our electric transmission and distribution business reports results from two sources:
o the regulated electric transmission and distribution operations; and
o the generation-related stranded costs recoverable by the regulated utility.
As a result of the implementation of deregulation, the regulated transmission and distribution utility recovers the cost of its service through an energy delivery charge, and not as a component of the prior bundled rate, which included energy and delivery charges. Accordingly, there are no meaningful comparisons for the regulated transmission and distribution business against prior periods. The design of the new energy delivery rate differs from the prior bundled rate. The winter/summer rate differential for residential customers has been eliminated and the energy component of the rate structure has been removed, which will tend to lessen some of the pronounced seasonal variation of revenues which has been experienced in prior periods.
Although our former retail sales business is no longer conducted by us, retail customers remained regulated customers of Reliant Energy through the date of their first meter reading in 2002. Operations during this transition period, reflected in the electric transmission and distribution business, produced a $4 million loss before interest and taxes for the three months ended September 30, 2002, and EBIT of $3 million for the nine months ended September 30, 2002. Operations during this transition period included power purchased from Texas Genco of approximately $56 million. We expect to incur additional transition expenses during the remainder of the year which are expected to offset a substantial portion of the earnings from retail sales in January 2002.
CenterPoint Houston reported EBIT of $407 million for the three months ended September 30, 2002, consisting of EBIT of $171 million for the regulated electric transmission and distribution business, loss before interest and taxes of $4 million from operations during the transition period as discussed above and EBIT of $240 million associated with certain generation-related regulatory assets (ECOM, or Excess Cost Over
Market, true-up) recorded pursuant to the Texas Electric Choice Plan enacted by the Texas legislature in 1999 (Texas electric restructuring law) as explained below. The electric transmission and distribution business reported EBIT of $943 million for the nine months ended September 30, 2002, consisting of EBIT of $389 million for the regulated electric transmission and distribution business, EBIT of $3 million from sales during the transition period as discussed above and EBIT of $551 million associated with the ECOM true-up.
Under the Texas electric restructuring law, each power generator that is unbundled from an integrated electric utility in Texas has an obligation to conduct state-mandated capacity auctions of 15% of its capacity. In addition, under a master separation agreement between CenterPoint Energy and Reliant Resources, Texas Genco is contractually obligated to auction all capacity in excess of the state-mandated capacity auctions. The auctions conducted periodically between September 2001 and October 2002 were consummated at prices below those used in the ECOM model by the Public Utility Commission of Texas (Texas Utility Commission). Under the Texas electric restructuring law, a regulated utility may recover in a regulatory proceeding scheduled for 2004 (2004 True-up Proceeding) any difference between market prices received through the state-mandated auctions and the Texas Utility Commission's earlier estimates of those market prices. This difference, recorded as a regulatory asset, produced $240 million of EBIT and $551 million of EBIT in the third quarter and the first nine months of 2002, respectively.
In the electric transmission and distribution business, throughput remained level during the three months ended September 30, 2002, and declined 5% during the nine months ended September 30, 2002 as compared to the same periods in 2001. The decrease was primarily due to reduced energy delivery in the industrial sector resulting from self-generation by several major customers, partially offset by increased residential usage due to warmer weather and increased demand from non-weather related factors such as price elasticity. Additionally, despite a slowing economy, total metered customers continued to grow at an approximate annual growth rate of 2% during the quarter.
Operation and maintenance expenses decreased by $34 million and $48 million for the three and nine months ended September 30, 2002, respectively, compared to the same periods in 2001. The decrease for the three months ended September 30, 2002 compared to the same period in 2001 was primarily due to the elimination of factoring expense ($17 million) as a result of the termination of an agreement under which we had sold our customer accounts receivable, decreased transmission cost of service ($9 million), decreased contract services expense ($8 million), partially offset by higher benefits expense ($4 million) and transition expenses related to the transition to retail electric competition in January 2002 as discussed above ($6 million). The decrease for the nine months ended September 30, 2002 compared to the same period in 2001 was primarily due to the elimination of factoring expense ($43 million), decreased contract services expense ($17 million) and decreased transmission line losses ($13 million), partially offset by higher benefits expense ($7 million) and transition expenses related to the transition to retail electric competition in January 2002 as discussed above ($29 million).
Depreciation and amortization decreased $48 million and $50 million for the three and nine months ended September 30, 2002, respectively, compared to the same periods in 2001. The decrease was primarily due to decreased amortization of CenterPoint Houston's impairment loss recorded in June 1999 related to generation assets held by Texas Genco, which was fully amortized in December 2001, offset by the discontinuance of redirection of depreciation expense related to electric transmission and distribution assets.
Taxes other than income for the three months ended September 30, 2002 decreased $32 million compared to the same period in 2001. The decrease was primarily due to lower gross receipts taxes which became the responsibility of the retail electric provider upon deregulation ($11 million) and lower franchise fees ($19 million). Taxes other than income decreased $67 million for the nine months ended September 30, 2002, compared to the same period in 2001, primarily due to lower gross receipts taxes ($52 million) and lower franchise fees ($23 million), offset by increased expenses related to transition to retail electric competition in January 2002 as discussed above ($11 million).
Other income, net decreased $3 million and $21 million for the three and nine months ended September 30, 2002, respectively, compared to the same periods in 2001. The decrease was primarily due to a reduction in interest income from under-recovery of fuel in 2002 compared to 2001.
CenterPoint Houston's effective tax rate for the three months ended September 30, 2001 and 2002 was 36% and 35%, respectively.
CenterPoint Houston's effective tax rate for the nine months ended September 2001 and 2002 was 35% and 34%, respectively.
For a discussion of certain other factors that may affect CenterPoint Houston's future earnings, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors Affecting Our Future Earnings --Factors Affecting the Results of Our Electric Operations" in the Reliant Energy Form 10-K/A, which information is incorporated herein by reference.
LIQUIDITY
Long-Term Debt. The following table shows future maturity dates of long-term debt issued by CenterPoint Houston, future maturity dates of debt securities issued by Reliant Energy FinanceCo II LP (FinanceCo), a subsidiary of CenterPoint Houston, and expected future maturity dates of transition bonds issued by CenterPoint Energy Transition Bond Company, LLC, a subsidiary of CenterPoint Houston, as of November 12, 2002. Amounts are expressed in thousands.
TRANSITION
YEAR CENTERPOINT HOUSTON FINANCECO SUB-TOTAL BONDS TOTAL
---- ------------------- --------- --------- ----- -----
EXTERNAL AFFILIATE
-------- ---------
2002 $300,000 $300,000 $300,000
2003 $166,600 166,600 $18,722 185,322
2004 0 41,189 41,189
2005 $1,310,000 1,310,000 46,806 1,356,806
2006 0 54,295 54,295
2007 0 59,912 59,912
2008 0 65,528 65,528
2009 0 73,017 73,017
2010 0 80,506 80,506
2011 0 87,995 87,995
2012 45,570 45,570 99,229 144,799
2013 0 108,590 108,590
2015 150,850 150,850 150,850
2017 127,385 127,385 127,385
2021 102,442 102,442 102,442
2022 62,275 62,275 62,275
2023 450,000 450,000 450,000
2027 56,095 56,095 56,095
2028 536,500 536,500 536,500
--------------------------------------------------------------------------------------------------
Total $1,924,717 $1,083,000 $300,000 $3,307,717 $735,789 $4,043,506
==================================================================================================
|
External debt of $615 million is senior and secured by first mortgage bonds. External debt of $1.3 billion maturing in 2005 is senior and secured by general mortgage bonds. The affiliate debt is senior and unsecured. The FinanceCo debt has the benefit of a support agreement from CenterPoint Houston.
Funding of a three year $1.3 billion loan occurred on November 12, 2002.
Proceeds were used to (1) repay an $850 million secured bank credit facility,
(2) repay $100 million of intercompany notes maturing in 2028 and (3) pay
transaction costs. Remaining proceeds of $300 million will be used to repay $300
million of FinanceCo debt maturing on November 15, 2002. The interest rate on
the $1.3 billion loan is the London inter-bank offered rate (LIBOR) plus 9.75
percent, subject to a minimum LIBOR rate of 3 percent.
The following table shows the future maturity dates of the $1.1 billion of first mortgage bonds and general mortgage bonds that we have issued as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected on the financial statements of CenterPoint Houston because of the contingent nature of the obligation. Amounts are expressed in thousands.
FIRST MORTGAGE GENERAL MORTGAGE
YEAR BONDS BONDS TOTAL
---- -------------- ---------------- ----------
2003 $166,600 $ 166,600
2011 $19,200 19,200
2012 45,570 45,570
2015 150,850 150,850
2017 127,385 127,385
2018 50,000 50,000
2019 200,000 200,000
2020 90,000 90,000
2026 100,000 100,000
2027 56,095 56,095
2028 68,000 68,000
-----------------------------------------------------
Total $546,500 $527,200 $1,073,700
=====================================================
|
The aggregate amount of general mortgage bonds and first mortgage bonds that could be issued is approximately $3.9 billion based on estimates of the value of property encumbered by the general mortgage, the cost of such property and the 70% bonding ratio contained in the general mortgage. As of November 12, 2002, outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.0 billion. The agreement relating to $1.3 billion of debt maturing in 2005 limits incremental secured debt to $300 million.
One of our subsidiaries, CenterPoint Energy Transition Bond Company, LLC, has $736 million aggregate principal amount of outstanding transition bonds. Classes of the transition bonds have final maturity dates of September 15, 2007, September 15, 2009, September 15, 2011 and September 15, 2015 and bear interest at rates of 3.84%, 4.76%, 5.16% and 5.63%, respectively. The transition bonds are secured by "transition property," as defined in the Texas electric restructuring law, which includes the irrevocable right to recover, through non-bypassable transition charges payable by retail electric customers, qualified costs provided in the Texas electric restructuring law and a tariff issued by the Texas Utility Commission. The transition bonds are reported as our long-term debt, although the holders of the transition bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition charges) of the transition bond company. We have no payment obligations with respect to the transition bonds except to remit collections of transition charges as set forth in a servicing agreement between us and the transition bond company and in an intercreditor agreement among us, our indirect transition bond subsidiary and other parties.
Bank Loans. Our $850 million bank facility was collateralized by $850 million of general mortgage bonds and was fully utilized on October 31, 2002. Borrowings under the facility were repaid with proceeds from the November 12, 2002 loan of $1.3 billion which is secured by general mortgage bonds.
Temporary Investments. On October 31, 2002, we had approximately $66 million of investments in a money market fund.
Capital Requirements. We anticipate investing up to $1.5 billion in capital expenditures in the years 2002 through 2006, including $197 million expended during the nine months ended September 30, 2002. We anticipate capital expenditures to be approximately $292 million and $266 million in 2002 and 2003, respectively.
Refunds to Our Customers. An order issued by the Texas Utility Commission on October 3, 2001 (October 3, 2001 Order) established the transmission and distribution rates that became effective in January 2002. The Texas Utility Commission determined that we had overmitigated our stranded costs by redirecting transmission and distribution depreciation and by accelerating depreciation of generation assets (an amount equal to earnings above a stated overall rate of return on rate base that was used to recover our investment in generation assets) as
provided under the 1998 transition plan and the Texas electric restructuring law. In this final order, we are required to reverse the amount of redirected depreciation and accelerated depreciation taken for regulatory purposes as allowed under the transition plan and the Texas electric restructuring law. Per the October 3, 2001 Order, we recorded a regulatory liability to reflect the prospective refund of the accelerated depreciation. We began refunding excess mitigation credits with the January 2002 unbundled bills, to be refunded over a seven year period. The annual cash flow impact of the reversal of both redirected and accelerated depreciation is a decrease of approximately $225 million. Under the Texas electric restructuring law, a final settlement of these stranded costs will occur in 2004.
Cash Requirements in 2002 and 2003. Our liquidity and capital requirements are affected primarily by our results of operations, capital expenditures, debt service requirements, and working capital needs. Our principal cash requirements during the fourth quarter of 2002 include the following:
o transaction costs of approximately $85 million related to debt
financings;
o approximately $95 million of capital expenditures;
o $300 million of maturing debt of our subsidiary Reliant Energy
FinanceCo II LP;
o an estimated $60 million which we are obligated to return to
customers as a result of the Texas Utility Commission's finding
of over-mitigation of stranded costs.
Our principal cash requirements during 2003 include the following:
o approximately $266 million of capital expenditures;
o an estimated $240 million which we are obligated to return to
customers as a result of the Texas Utility Commission's finding
of over-mitigation of stranded costs;
o $167 million of maturing long-term debt to affiliate (excluding
maturities relating to transition bonds).
We expect to fund cash requirements with cash from operations, liquidations of short-term investments, short-term borrowings and proceeds from debt offerings. We believe that our current liquidity, along with anticipated cash flows from operations and proceeds from possible debt issuances will be sufficient to meet our cash needs.
The amount of any debt issuance, whether registered or unregistered, or whether debt is secured or unsecured, is expected to be affected by the market's perception of our creditworthiness, market conditions and factors affecting our industry. Proceeds from the issuance of debt are expected to be used to refinance maturing debt, to finance capital expenditures and to permit the payment of dividends.
Principal Factors Affecting Cash Requirements in 2004 and 2005. We expect to issue transition bonds in 2004 or 2005 to monetize and recover the balance of stranded costs relating to previously owned electric generation assets and other qualified costs as determined in the 2004 True-up Proceeding. As with the debt of our existing transition bond company, payments on these new securitization bonds would also be made out of funds from non-bypassable charges assessed to retail electric customers required to take delivery service from us. The holders of the securitization bonds would not have recourse to any of our assets or revenues, and our creditors would not have recourse to any assets or revenues of the entity issuing the securitization bonds. All or a portion of the proceeds from the issuance of securitization bonds is expected to be utilized to retire our existing debt.
Impact on Liquidity of a Downgrade in Credit Ratings. As of November 4, 2002, Moody's Investors Service, Inc. (Moody's), Standard & Poor's, a division of The McGraw Hill Companies (S&P) and Fitch, Inc. (Fitch) had assigned the following credit ratings to senior secured debt of CenterPoint Houston:
MOODY'S S&P FITCH
------------------------ ------------------ ---------------------
RATING OUTLOOK RATING WATCH RATING OUTLOOK
------ ------- ------ ----- ------ -------
Baa2 Stable (1) BBB Negative (2) BBB+ Negative (3)
|
(1) A "stable" outlook from Moody's indicates that Moody's does not expect to
put the rating on review for an upgrade or downgrade within 18 months from
when the outlook was assigned or last affirmed.
(2) S&P's CreditWatch "negative" indicates a potential for a downgrade within a
relatively short period of time usually related to a specific event.
(3) A "negative" outlook from Fitch encompasses a one- to two- year horizon as
to the likely rating direction.
We cannot assure you that these ratings will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. Any future reduction or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing, the cost of such financings and the execution of our commercial strategies.
A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and would negatively impact our ability to complete capital market transactions.
Cross Defaults. The terms of our debt instruments generally provide that a default on obligations by CenterPoint Energy does not cause a default under our debt instruments. A payment default by us exceeding $50 million will cause a default under our $1.3 billion loan maturing in 2005.
Recovery of Fuel Costs. We filed our final fuel reconciliation with the Texas Utility Commission on July 1, 2002, and subsequently amended our filing on October 2, 2002 and November 8, 2002. Although previous fuel reconciliation proceedings have generally covered three-year periods, this filing covers fuel expense and interest incurred from August 1, 1997 through January 30, 2002. Also included in this amount is an under-recovery of $94 million, which was the balance as of July 31, 1997 as approved in our last fuel reconciliation. Our filing related to this proceeding covers $8.5 billion in fuel revenues and $8.6 billion in expenses and interest, resulting in a current under-collection, including interest, of $128 million. A procedural schedule has been set with a hearing scheduled to begin January 28, 2003. Any over- or under-recovery, plus interest thereon, will be either returned to or recovered from our customers, as appropriate, as a component of the 2004 True-up Proceeding.
Pension and Postretirement Benefits Funding. We make contributions to achieve adequate funding of company sponsored pension and postretirement benefits in accordance with applicable regulations and rate orders. Due to the decline in current market value of the pension plan's assets, the value of the plan's assets is less than our accumulated pension benefit obligation. As a result, we may be required to record a non-cash minimum pension liability adjustment to other comprehensive income during the fourth quarter of 2002, which could be material. Recording a minimum liability adjustment will not effect our results of operations or our ability to meet any existing financial covenants related to our debt facilities. Additionally, we are not required to make any pension contributions in 2002 and 2003.
Other Factors that Could Affect Cash Requirements. In addition to the above factors, our liquidity and capital resources could be affected by:
o various regulatory actions; and
o the ability of Reliant Resources and its subsidiaries to satisfy their obligations to us as a principal customer of CenterPoint Houston and in respect of its indemnity obligation to us.
Money Pool. We participate in a "money pool" through which we and certain of our affiliates can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The money pool's net funding requirements are generally met with short-term borrowings of, and/or cash held by, CenterPoint Energy. The terms of the money pool are in accordance with requirements applicable to registered public utility holding companies under the 1935 Act.
Capitalization. Factors affecting our capitalization include:
o covenants in our borrowing agreements; and
o limitations imposed on us because our parent company is a registered public utility holding company.
Our $1.3 billion loan maturing in 2005 provides that debt as a percentage of total capitalization, as defined in the related agreement, cannot exceed 68%. At September 30, 2002, the ratio was 56%, calculated as defined in the related agreement.
In connection with our parent company's registration as a public utility holding company under the 1935 Act, the SEC has limited the aggregate amount of our external borrowings to $3.55 billion and has placed limitations on our dividends by requiring that common equity as a percentage of our total capitalization must be at least 30% after the payment of such dividends.
Relationship with CenterPoint Energy. We are a wholly owned subsidiary of CenterPoint Energy. As a result of this relationship, the financial condition and liquidity of our parent company could affect our access to capital, our credit standing and our financial condition.
Asset Sales. Factors affecting our ability to sell assets (including assets of our subsidiaries) or to satisfy our cash requirements include the following:
o The 1935 Act may require us to obtain prior approval of certain assets sales; and
o obligations under our existing credit facilities to use cash received to pay down debt.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 5 for a discussion of our adoption of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142) on January 1, 2002.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 requires the fair value of a liability for an asset retirement legal obligation to be recognized in the period in which it is incurred. When the liability is initially recorded, associated costs are capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. SFAS No. 143 requires entities to record a cumulative effect of change in accounting principle in the income statement in the period of adoption. We plan to adopt SFAS No. 143 on January 1, 2003, and are in the process of determining the effect of adoption on our consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS No. 144 supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," while retaining many of the requirements of these two statements. Under SFAS No. 144, assets held for sale that are a component of an entity will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations prospectively. SFAS No. 144 did not materially change the methods we use to measure impairment losses on long-lived assets, but may result in more
future dispositions being reported as discontinued operations than would previously have been permitted. We adopted SFAS No. 144 on January 1, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). SFAS No. 145 eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent. SFAS No. 145 also requires that capital leases that are modified so that the resulting lease agreement is classified as an operating lease be accounted for as a sale-leaseback transaction. The changes related to debt extinguishment are effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting are effective for transactions occurring after May 15, 2002. We have applied this guidance prospectively.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146 nullifies Emerging Issues Task Force (EITF) No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" (EITF No. 94-3). The principal difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements for recognition of a liability for costs associated with an exit or disposal activity. SFAS No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity when it is incurred. A liability is incurred when a transaction or event occurs that leaves an entity little or no discretion to avoid the future transfer or use of assets to settle the liability. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. In addition, SFAS No. 146 also requires that a liability for a cost associated with an exit or disposal activity be recognized at its fair value when it is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. We will apply the provisions of SFAS No. 146 to all exit or disposal activities initiated after December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings. Subsequent to the date of their evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of legal proceedings affecting the Company, please review Note 9 to the Company's Interim Financial Statements, Item 3 of the Reliant Energy Form 10-K/A and Note 14 to the Reliant Energy 10-K/A Notes, all of which are incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements. From time to time, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify the forward-looking statements by the words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "should," "will," "forecast," "goal," "objective," "projection," or other similar words.
We have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, actual results may differ materially from those expressed or implied by our forward-looking statements. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise publicly any forward-looking statements.
The following list identifies some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:
o state and federal legislative and regulatory actions or developments, including deregulation, re-regulation and restructuring of the electric utility industry, constraints placed on our activities or business by the Public Utility Holding Company Act of 1935, changes in or application of laws or regulations applicable to other aspects of our business and actions with respect to:
o approval of stranded costs;
o allowed rates of return;
o rate structures;
o recovery of investments; and
o operation and construction of facilities;
o non-payment for our services due to financial distress of our customers, including our largest customer, Reliant Resources, Inc.;
o our ability to successfully and timely complete our capital projects;
o industrial, commercial and residential growth in our service territory and changes in market demand and demographic patterns;
o changes in business strategy or development plans;
o changes in interest rates or rates of inflation;
o unanticipated changes in operating expenses and capital expenditures;
o weather variations and other natural phenomena, which can affect the demand for power over our transmission and distribution system;
o commercial bank and financial market conditions, our access to capital, the cost of such capital, receipt of certain approvals under the Public Utility Holding Company Act of 1935, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;
o actions by rating agencies;
o legal and administrative proceedings and settlements;
o changes in tax laws;
o inability of various counterparties to meet their obligations with respect to our financial instruments;
o any lack of effectiveness of our disclosure controls and procedures;
o changes in technology;
o significant changes in our relationship with our employees, including the availability of qualified personnel and the potential adverse effects if labor disputes or grievances were to occur;
o significant changes in accounting policies material to us;
o acts of terrorism or war, including any direct or indirect effect on our business resulting from terrorist attacks such as occurred on September 11, 2001 or any similar incidents or responses to those incidents;
o the outcome of the pending securities lawsuits against Reliant Energy, Incorporated and Reliant Resources, Inc.;
o the outcome of the SEC investigation relating to the treatment in our consolidated financial statements of certain activities of Reliant Resources, Inc.;
o the ability of Reliant Resources, Inc. to satisfy its indemnity obligations to us;
o the reliability of the systems, procedures and other infrastructure necessary to operate the retail electric business in our service territory, including the systems owned and operated by the independent system operator in the Electric Reliability Council of Texas, Inc.;
o political, legal, regulatory and economic conditions and developments in the United States; and
o other factors we discuss in the Reliant Energy Form 10-K/A, including those outlined in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors Affecting Our Future Earnings -- Factors Affecting the Results of our Electric Operations."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Houston Electric, LLC or CenterPoint Energy, Inc. as indicated.
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
2(a) Agreement and Plan Joint Proxy 333-69502 Annex A
of Merger among Statement/Prospectus
Reliant Energy, of REI contained
Incorporated in Registration
("REI"), Statement on Form
CenterPoint Energy, S-4
Inc. ("CNP) and
Reliant Energy
MergerCo, Inc.
dated as of
October 19, 2001
3(a) Articles of Form 8-K dated 1-3187 3(a)
Conversion of REI August 31, 2002
filed with the SEC
on September 3,
2002
3(b) Articles of Form 8-K dated 1-3187 3(b)
Organization of August 31, 2002
CenterPoint Energy filed with the SEC
Houston Electric, on September 3,
LLC 2002
3(c) Limited Liability Form 8-K dated 1-3187 3(c)
Company Regulations August 31, 2002
of CenterPoint filed with the SEC
Energy Houston on September 3,
Electric, LLC 2002
4(a) Fifth Supplemental Form 8-K12B of CNP 1-31447 4(d)
Indenture dated as dated August 31,
of August 31, 2002, 2002 filed with
among CNP, REI and the SEC on
JPMorgan Chase Bank September 6, 2002
(supplementing the
Collateral Trust
Indenture dated as
of September 1,
1988 pursuant to
which REI's Series
C Medium Term Notes
were issued)
4(b) Supplemental Form 8-K12B of CNP 1-31447 4(e)
Indenture No. 2 dated August 31,
dated as of August 2002 filed with
31, 2002, among the SEC on
CNP, REI and September 6, 2002
JPMorgan Chase Bank
(supplementing the
Subordinated
Indenture dated as
of September 1, 1999
under which REI's 2%
Zero-Premium
Exchangeable
Subordinated Notes
Due 2029 were issued)
|
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
4(c) Supplemental Form 8-K12B of CNP 1-31447 4(f)
Indenture No. 2 dated August 31,
dated as of August 2002 filed with
31, 2002, among the SEC on
CNP, REI and The September 6, 2002
Bank of New York
(supplementing the
Junior Subordinated
Indenture dated as
of February 15, 1999
under which REI's
Junior Subordinated
Debentures related
to REI Trust I's
7.20% trust
originated preferred
securities were
issued)
4(d) Supplemental Form 8-K12B of CNP 1-31447 4(g)
Indenture No. 3 dated August 31,
dated as of August 2002 filed with
31, 2002 among CNP, the SEC on
REI and The Bank of September 6, 2002
New York
(supplementing the
Junior Subordinated
Indenture dated as
of February 1, 1997
under which REI's
Junior Subordinated
Debentures related
to 8.125% trust
preferred
securities issued
by HL&P Capital
Trust I and 8.257%
capital securities
issued by HL&P
Capital Trust II
were issued)
4(e) Third Supplemental Form 8-K12B of CNP 1-31447 4(h)
Indenture dated as dated August 31,
of August 31, 2002 2002 filed with
among CNP, REI, the SEC on
Reliant Energy September 6, 2002
Resources Corp.
("RERC") and The
Bank of New York
(supplementing the
Indenture dated as
of June 15, 1996
under which RERC's
6.25% Convertible
Junior Subordinated
Debentures were
issued)
4(f) Second Supplemental Form 8-K12B of CNP 1-31447 4(i)
Indenture dated as dated August 31,
of August 31, 2002 2002 filed with
among CNP, REI, the SEC on
RERC and JPMorgan September 6, 2002
Chase Bank
(supplementing the
Indenture dated as
of March 1, 1987
under which RERC's
6% Convertible
Subordinated
Debentures due 2012
were issued)
|
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
4(g) Assignment and Form 8-K12B of CNP 1-31447 4(j)
Assumption dated August 31,
Agreement for 2002 filed with
the the SEC on
Guarantee September 6, 2002
Agreements dated as
of August 31, 2002
between CNP and REI
(relating to (i)
the Guarantee
Agreement dated as
of February 4, 1997
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 8.125% trust
preferred
securities issued
by Trust I and (ii)
the Guarantee
Agreement dated as
of February 4, 1997
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 8.257% capital
securities issued
by Trust II)
4(h) Assignment and Form 8-K12B of CNP 1-31447 4(k)
Assumption dated August 31,
Agreement for the 2002 filed with
Guarantee Agreement the SEC on
dated as of August September 6, 2002
31, 2002 between
CNP and REI
(relating to the
Guarantee Agreement
dated as of
February 26, 1999
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 7.20% Trust
Originated
Preferred
Securities issued
by REI Trust I )
4(i) Assignment and Form 8-K12B of CNP 1-31447 4(l)
Assumption dated August 31,
Agreement for the 2002 filed with
Expense and the SEC on
Liability September 6, 2002
Agreements and the
Trust Agreements
dated as of August
31, 2002 between
CNP and REI
(relating to the
(i) Agreement as to
Expenses and
Liabilities dated
as of June 4, 1997
between REI and
Trust I, (ii)
Agreement as to
Expenses and
Liabilities dated
as of February 4,
1997 between REI
and Trust II, (iii)
Trust I's Amended
and Restated Trust
Agreement dated
February 4, 1997
and (iv) Trust II's
Amended and
Restated Trust
Agreement dated
February 4, 1997)
|
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
+4(j)(1) General Mortgage
Indenture, dated as
of October 10,
2002, between
CenterPoint Energy
Houston Electric,
LLC and JPMorgan
Chase Bank, as
Trustee
+4(j)(2) First Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(3) Second Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(4) Third Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(5) Fourth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(6) Fifth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(7) Sixth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(8) Seventh
Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(9) Eighth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+99 Items incorporated
by reference from
the REI Form
10-K/A: Item 3
"Legal Proceedings"
and Item 7
"Management's
Discussion and
Analysis of the
Results of
Operations --
Certain Factors
Affecting Our
Future Earnings --
Factors Affecting
the Results of Our
Electric
Operations" and
Notes 4 (Regulatory
Matters) and 14
(Commitments and
Contingencies).
|
(b) Reports on Form 8-K.
On July 5, 2002, we filed a Current Report on Form 8-K dated July 5, 2002, in order to provide updated information regarding certain investigations, litigation and governmental proceedings involving Reliant Energy and/or its subsidiaries, including its approximately 83% owned subsidiary Reliant Resources.
On July 15, 2002, we filed a Current Report on Form 8-K dated July 12, 2002, announcing the extension of $4.7 billion in credit facilities of Reliant Energy.
On July 25, 2002, we filed a Current Report on Form 8-K dated July 25, 2002, relating to the announcement of second quarter 2002 results.
On August 1, 2002, we filed a Current Report on Form 8-K dated July 31, 2002, announcing that on July 31, 2002, Moody's Investors Service, Inc. and Standard & Poor's Rating Services took various actions related to the credit ratings of Reliant Energy, Incorporated and its subsidiaries. Also on July 31, 2002, Reliant Energy announced that the Internal Revenue Service had issued a supplemental ruling confirming that the proposed spin-off of Reliant Resources from Reliant Energy will be tax-free to Reliant Energy and its shareholders.
On August 14, 2002, we filed a Current Report on Form 8-K dated August 14, 2002, furnishing certifications of our financial statements by our Chief Executive Officer and Chief Financial Officer related to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
On September 3, 2002, we filed a Current Report on Form 8-K dated August 31, 2002, which was subsequently amended on September 6, 2002 on a Current Report on Form 8-K/A, to announce the restructuring of Reliant Energy, Incorporated and the formation of CenterPoint Energy Houston Electric, LLC.
On November 8, 2002, we filed a Current Report on Form 8-K dated November 8, 2002, to announce that CenterPoint Energy, Inc., the parent company of CenterPoint Energy Houston Electric, LLC, had successfully negotiated a new $1.310 billion senior secured credit facility at CenterPoint Energy Houston Electric, LLC.
SIGNATURE
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.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ James S. Brian
-----------------------------------------------
James S. Brian
Senior Vice President and Chief Accounting Officer
Date: November 14, 2002
|
CERTIFICATIONS
I, David M. McClanahan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CenterPoint Energy Houston Electric, LLC;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By /s/ David M. McClanahan
-----------------------------------------
David M. McClanahan
Chairman and Principal Executive Officer
|
I, Gary L. Whitlock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CenterPoint Energy Houston Electric, LLC;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By /s/ Gary L. Whitlock
----------------------------------------------------------
Gary L. Whitlock
Executive Vice President and Chief Financial Officer
|
EXHIBIT INDEX
Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Houston Electric, LLC or CenterPoint Energy, Inc. as indicated.
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
4(c) Supplemental Form 8-K12B of CNP 1-31447 4(f)
Indenture No. 2 dated August 31,
dated as of August 2002 filed with
31, 2002, among the SEC on
CNP, REI and The September 6, 2002
Bank of New York
(supplementing the
Junior Subordinated
Indenture dated as
of February 15, 1999
under which REI's
Junior Subordinated
Debentures related
to REI Trust I's
7.20% trust
originated preferred
securities were
issued)
4(d) Supplemental Form 8-K12B of CNP 1-31447 4(g)
Indenture No. 3 dated August 31,
dated as of August 2002 filed with
31, 2002 among CNP, the SEC on
REI and The Bank of September 6, 2002
New York
(supplementing the
Junior Subordinated
Indenture dated as
of February 1, 1997
under which REI's
Junior Subordinated
Debentures related
to 8.125% trust
preferred
securities issued
by HL&P Capital
Trust I and 8.257%
capital securities
issued by HL&P
Capital Trust II
were issued)
4(e) Third Supplemental Form 8-K12B of CNP 1-31447 4(h)
Indenture dated as dated August 31,
of August 31, 2002 2002 filed with
among CNP, REI, the SEC on
Reliant Energy September 6, 2002
Resources Corp.
("RERC") and The
Bank of New York
(supplementing the
Indenture dated as
of June 15, 1996
under which RERC's
6.25% Convertible
Junior Subordinated
Debentures were
issued)
4(f) Second Supplemental Form 8-K12B of CNP 1-31447 4(i)
Indenture dated as dated August 31,
of August 31, 2002 2002 filed with
among CNP, REI, the SEC on
RERC and JPMorgan September 6, 2002
Chase Bank
(supplementing the
Indenture dated as
of March 1, 1987
under which RERC's
6% Convertible
Subordinated
Debentures due 2012
were issued)
|
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
4(g) Assignment and Form 8-K12B of CNP 1-31447 4(j)
Assumption dated August 31,
Agreement for 2002 filed with
the Guarantee the SEC on
Agreements September 6, 2002
dated as of
August 31, 2002
between CNP and REI
(relating to (i)
the Guarantee
Agreement dated as
of February 4, 1997
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 8.125% trust
preferred
securities issued
by Trust I and (ii)
the Guarantee
Agreement dated as
of February 4, 1997
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 8.257% capital
securities issued
by Trust II)
4(h) Assignment and Form 8-K12B of CNP 1-31447 4(k)
Assumption dated August 31,
Agreement for the 2002 filed with
Guarantee Agreement the SEC on
dated as of August September 6, 2002
31, 2002 between
CNP and REI
(relating to the
Guarantee Agreement
dated as of
February 26, 1999
between REI and The
Bank of New York
providing for the
guaranty of certain
amounts relating to
the 7.20% Trust
Originated
Preferred
Securities issued
by REI Trust I )
4(i) Assignment and Form 8-K12B of CNP 1-31447 4(l)
Assumption dated August 31,
Agreement for the 2002 filed with
Expense and the SEC on
Liability September 6, 2002
Agreements and the
Trust Agreements
dated as of August
31, 2002 between
CNP and REI
(relating to the
(i) Agreement as to
Expenses and
Liabilities dated
as of June 4, 1997
between REI and
Trust I, (ii)
Agreement as to
Expenses and
Liabilities dated
as of February 4,
1997 between REI
and Trust II, (iii)
Trust I's Amended
and Restated Trust
Agreement dated
February 4, 1997
and (iv) Trust II's
Amended and
Restated Trust
Agreement dated
February 4, 1997)
|
Report or
Registration SEC File or
Exhibit Number Description Statement Registration Number Exhibit References
-------------------------------------------------------------------------------------------------------------
+4(j)(1) General Mortgage
Indenture, dated as
of October 10,
2002, between
CenterPoint Energy
Houston Electric,
LLC and JPMorgan
Chase Bank, as
Trustee
+4(j)(2) First Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(3) Second Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(4) Third Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(5) Fourth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(6) Fifth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(7) Sixth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(8) Seventh
Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+4(j)(9) Eighth Supplemental
Indenture to
Exhibit 4(j)(1),
dated as of October
10, 2002
+99 Items incorporated
by reference from
the REI Form
10-K/A: Item 3
"Legal Proceedings"
and Item 7
"Management's
Discussion and
Analysis of the
Results of
Operations --
Certain Factors
Affecting Our
Future Earnings --
Factors Affecting
the Results of Our
Electric
Operations" and
Notes 4 (Regulatory
Matters) and 14
(Commitments and
Contingencies).
|
EXHIBIT 4(j)(1)
This Instrument Grants a Security Interest by a Public Utility
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
To
JPMORGAN CHASE BANK
Trustee
General Mortgage Indenture
Dated as of October 10, 2002
This Instrument Contains After-Acquired Property Provisions
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO
SECTIONS 310 THROUGH 318,
INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE
ACT SECTION INDENTURE SECTION(S)
Section 310(a)(1)................................................................................1109
(a)(2)..................................................................................1109
(a)(3)..................................................................................1114(3)
(a)(4)..................................................................................Not Applicable
(b).....................................................................................1108, 1110
Section 311(a)...................................................................................1113
(b).....................................................................................1113
(c).....................................................................................Not Applicable
Section 312(a)...................................................................................1201, 1202
(b).....................................................................................1202
(c).....................................................................................1202
Section 313(a)...................................................................................1203
(b).....................................................................................1203
(c).....................................................................................1203
(d).....................................................................................1203
Section 314(a)...................................................................................610, 1202
(b).....................................................................................608
(c)(1)..................................................................................105
(c)(2)..................................................................................105
(c)(3)..................................................................................106
(d).....................................................................................402, 607(2), 803,
804, 809
(e).....................................................................................105
Section 315(a)...................................................................................1101, 1103
(b).....................................................................................1102
(c).....................................................................................1101
(d).....................................................................................1101
(e).....................................................................................1018
Section 316(a)...................................................................................1016, 1017
(a)(1)(A)...............................................................................1016
(a)(1)(B)...............................................................................1017
(a)(2)..................................................................................Not Applicable
(b).....................................................................................1012
(c).....................................................................................107
Section 317(a)(1)................................................................................1006
(a)(2)..................................................................................1009
(b).....................................................................................603
Section 318(a)...................................................................................110
|
TABLE OF CONTENTS
PAGE
----
ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..............................................5
SECTION 101. General Definitions..................................................................................5
"Accountant"......................................................................................................6
"Act".............................................................................................................6
"Adjusted Net Earnings"...........................................................................................6
"Affiliate".......................................................................................................7
"Annual Interest Requirements"....................................................................................7
"Authenticating Agent"............................................................................................7
"Authorized Officer"..............................................................................................7
"Authorized Publication"..........................................................................................7
"Authorized Purposes".............................................................................................7
"Business Day"....................................................................................................7
"Commission"......................................................................................................7
"Company".........................................................................................................7
"Company Request".................................................................................................8
"Corporate Trust Office"..........................................................................................8
"Corporation".....................................................................................................8
"Cost"............................................................................................................8
"Defaulted Interest"..............................................................................................8
"Dollar"..........................................................................................................8
"Eligible Obligations"............................................................................................8
"Event of Default"................................................................................................8
"Excepted Property"...............................................................................................8
"Exchange Act"....................................................................................................8
"Exchange Rate"...................................................................................................8
"Expert"..........................................................................................................8
"Expert's Certificate"............................................................................................9
"Expiration Date".................................................................................................9
"Fair Value"......................................................................................................9
"First Mortgage"..................................................................................................9
"First Mortgage Securities".......................................................................................9
"First Mortgage Collateral Bonds".................................................................................9
"First Mortgage Collateralization Date"...........................................................................9
"Funded Cash".....................................................................................................9
"Funded Property".................................................................................................9
"Governmental Authority"..........................................................................................9
"Government Obligations".........................................................................................10
"Holder".........................................................................................................10
|
TABLE OF CONTENTS - CONTINUED -
PAGE
----
"Indenture"......................................................................................................10
"Independent"....................................................................................................10
"Independent Expert's Certificate"...............................................................................10
"Initial Expert's Certificate"...................................................................................10
"Initial Series".................................................................................................11
"Interest".......................................................................................................12
"Interest Payment Date"..........................................................................................12
"Investment Securities"..........................................................................................12
"Lien"...........................................................................................................13
"Manager"........................................................................................................13
"Manager Resolution".............................................................................................13
"Matured Event of Default".......................................................................................13
"Maturity".......................................................................................................13
"Maximum Interest Rate"..........................................................................................13
"Mortgaged Property".............................................................................................13
"Net Earnings Certificate".......................................................................................13
"Notice of Default"..............................................................................................13
"Officer's Certificate"..........................................................................................13
"Opinion of Counsel".............................................................................................13
"Original Issue Discount Security"...............................................................................14
"Outstanding"....................................................................................................14
"Paying Agent"...................................................................................................15
"Periodic Offering"..............................................................................................15
"Permitted Liens"................................................................................................15
"Person".........................................................................................................17
"Place of Payment"...............................................................................................18
"Pollution Control Bond Collateral Requirements".................................................................18
"Predecessor Security"...........................................................................................18
"Prepaid Lien"...................................................................................................18
"Property Additions".............................................................................................18
"Purchase Money Lien"............................................................................................18
"Redemption Date"................................................................................................19
"Redemption Price"...............................................................................................19
"Regular Record Date"............................................................................................19
"Responsible Officer"............................................................................................19
"Retired Securities".............................................................................................19
"Securities".....................................................................................................20
"Security Register"..............................................................................................20
"Special Record Date"............................................................................................20
"Stated Interest Rate"...........................................................................................20
"Stated Maturity"................................................................................................20
"Successor Corporation"..........................................................................................20
"Tranche"........................................................................................................20
"Transaction Costs"..............................................................................................20
"Trust Indenture Act"............................................................................................20
|
TABLE OF CONTENTS - CONTINUED -
PAGE
----
"Trustee"........................................................................................................20
"Trustee's Lien".................................................................................................21
"United States"..................................................................................................21
SECTION 102. Funded Property; Funded Cash........................................................................21
SECTION 103. Property Additions; Cost............................................................................22
SECTION 104. Net Earnings Certificate; Adjusted Net Earnings; Annual Interest Requirements.......................24
SECTION 105. Compliance Certificates and Opinions................................................................27
SECTION 106. Content and Form of Documents Delivered to Trustee..................................................27
SECTION 107. Acts of Holders; Record Dates.......................................................................29
SECTION 108. Notices, Etc., to Trustee and Company...............................................................31
SECTION 109. Notice to Holders; Waiver...........................................................................31
SECTION 110. Conflict with Trust Indenture Act...................................................................32
SECTION 111. Effect of Headings and Table of Contents............................................................32
SECTION 112. Successors and Assigns..............................................................................32
SECTION 113. Separability Clause.................................................................................32
SECTION 114. Benefits of Indenture...............................................................................32
SECTION 115. Governing Law.......................................................................................32
SECTION 116. Legal Holidays......................................................................................33
SECTION 117. Investment of Cash Held by Trustee..................................................................33
ARTICLE TWO. SECURITY FORMS......................................................................................34
SECTION 201. Forms Generally.....................................................................................34
SECTION 202. Form of Trustee's Certificate of Authentication.....................................................34
ARTICLE THREE. THE SECURITIES....................................................................................35
SECTION 301. Amount Unlimited; Issuable in Series................................................................35
SECTION 302. Denominations.......................................................................................38
SECTION 303. Execution, Authentication, Delivery and Dating......................................................38
SECTION 304. Temporary Securities................................................................................39
SECTION 305. Registration, Registration of Transfer and Exchange.................................................39
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities....................................................41
SECTION 307. Payment of Interest; Interest Rights Preserved......................................................41
SECTION 308. Persons Deemed Owners...............................................................................43
SECTION 309. Cancellation........................................................................................43
SECTION 310. Computation of Interest; Usury Not Intended.........................................................43
SECTION 311. CUSIP Numbers.......................................................................................44
ARTICLE FOUR. ISSUANCE OF SECURITIES.............................................................................44
SECTION 401. General.............................................................................................44
SECTION 402. Issuance of Securities on the Basis of Property Additions...........................................47
SECTION 403. Issuance of Securities on the Basis of Retired Securities...........................................50
SECTION 404. Issuance of Securities on the Basis of Deposit of Cash..............................................50
|
TABLE OF CONTENTS - CONTINUED -
PAGE
----
ARTICLE FIVE. REDEMPTION OF SECURITIES...........................................................................51
SECTION 501. Applicability of Article............................................................................51
SECTION 502. Election to Redeem; Notice to Trustee...............................................................51
SECTION 503. Selection by Trustee of Securities to Be Redeemed...................................................52
SECTION 504. Notice of Redemption................................................................................52
SECTION 505. Deposit of Redemption Price.........................................................................53
SECTION 506. Securities Payable on Redemption Date...............................................................54
SECTION 507. Securities Redeemed in Part.........................................................................54
ARTICLE SIX. COVENANTS...........................................................................................54
SECTION 601. Payment of Securities; Lawful Possession; Maintenance of Lien.......................................54
SECTION 602. Maintenance of Office or Agency.....................................................................55
SECTION 603. Money for Securities Payments to Be Held in Trust...................................................55
SECTION 604. Existence...........................................................................................56
SECTION 605. Maintenance of Properties...........................................................................57
SECTION 606. Payment of Taxes; Discharge of Liens................................................................57
SECTION 607. Insurance...........................................................................................58
SECTION 608. Recording, Filing, etc. ............................................................................61
SECTION 609. Waiver of Certain Covenants.........................................................................62
SECTION 610. Annual Officer's Certificate as to Compliance.......................................................62
SECTION 611. Limited Issuance of First Mortgage Securities.......................................................62
ARTICLE SEVEN. FIRST MORTGAGE COLLATERAL BONDS; DISCHARGE OF FIRST MORTGAGE.....................................63
SECTION 701. First Mortgage Collateral Bonds.....................................................................63
SECTION 702. Registration and Ownership of First Mortgage Collateral Bonds.......................................64
SECTION 703. Payments on First Mortgage Collateral Bonds.........................................................64
SECTION 704. Surrender of First Mortgage Collateral Bonds........................................................65
SECTION 705. No Transfer of First Mortgage Collateral Bonds......................................................65
SECTION 706. Voting of First Mortgage Collateral Bonds...........................................................65
SECTION 707. Discharge of First Mortgage.........................................................................66
ARTICLE EIGHT. POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY.................................................69
SECTION 801. Quiet Enjoyment.....................................................................................69
SECTION 802. Dispositions without Release........................................................................69
SECTION 803. Release of Funded Property..........................................................................70
SECTION 804. Release of Property Not Constituting Funded Property................................................75
SECTION 805. Release of Minor Properties.........................................................................77
SECTION 806. Withdrawal or Other Application of Funded Cash; Purchase Money Obligations..........................77
SECTION 807. Release of Property Taken by Eminent Domain, etc. ..................................................80
|
TABLE OF CONTENTS - CONTINUED -
PAGE
----
SECTION 808. Disclaimer or Quitclaim.............................................................................81
SECTION 809. Miscellaneous.......................................................................................81
ARTICLE NINE. SATISFACTION AND DISCHARGE.........................................................................82
SECTION 901. Satisfaction and Discharge of Securities............................................................82
SECTION 902. Satisfaction and Discharge of Indenture.............................................................85
SECTION 903. Application of Trust Money..........................................................................86
ARTICLE TEN. EVENTS OF DEFAULT; REMEDIES.........................................................................87
SECTION 1001. Events of Default..................................................................................87
SECTION 1002. Acceleration of Maturity; Rescission and Annulment.................................................88
SECTION 1003. Entry upon Mortgaged Property......................................................................89
SECTION 1004. Power of Sale; Suits for Enforcement...............................................................90
SECTION 1005. Incidents of Sale..................................................................................92
SECTION 1006. Collection of Indebtedness and Suits for Enforcement by Trustee....................................93
SECTION 1007. Application of Money Collected.....................................................................93
SECTION 1008. Receiver...........................................................................................94
SECTION 1009. Trustee May File Proofs of Claim...................................................................94
SECTION 1010. Trustee May Enforce Claims Without Possession of Securities........................................95
SECTION 1011. Limitation on Suits................................................................................95
SECTION 1012. Unconditional Right of Holders to Receive Principal, Premium and Interest..........................96
SECTION 1013. Restoration of Rights and Remedies.................................................................96
SECTION 1014. Rights and Remedies Cumulative.....................................................................96
SECTION 1015. Delay or Omission Not Waiver.......................................................................96
SECTION 1016. Control by Holders.................................................................................97
SECTION 1017. Waiver of Past Defaults............................................................................97
SECTION 1018. Undertaking for Costs..............................................................................97
SECTION 1019. Waiver of Appraisement, Usury, Stay and Other Laws.................................................98
SECTION 1020. Defaults under First Mortgage......................................................................98
ARTICLE ELEVEN. THE TRUSTEE......................................................................................98
SECTION 1101. Certain Duties and Responsibilities................................................................98
SECTION 1102. Notice of Defaults.................................................................................99
SECTION 1103. Certain Rights of Trustee.........................................................................100
SECTION 1104. Not Responsible for Recitals or Issuance of Securities or Application of Proceeds.................101
SECTION 1105. May Hold Securities...............................................................................101
SECTION 1106. Money Held in Trust...............................................................................102
SECTION 1107. Compensation and Reimbursement....................................................................102
SECTION 1108. Conflicting Interests.............................................................................103
SECTION 1109. Corporate Trustee Required; Eligibility...........................................................103
SECTION 1110. Resignation and Removal; Appointment of Successor.................................................103
SECTION 1111. Acceptance of Appointment by Successor............................................................105
|
TABLE OF CONTENTS - CONTINUED -
PAGE
----
SECTION 1112. Merger, Conversion, Consolidation or Succession to Business.......................................105
SECTION 1113. Preferential Collection of Claims Against Company.................................................106
SECTION 1114. Co-trustees and Separate Trustees.................................................................106
SECTION 1115. Appointment of Authenticating Agent...............................................................107
ARTICLE TWELVE. LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY................................................109
SECTION 1201. Company to Furnish Trustee Names and Addresses of Holders.........................................109
SECTION 1202. Preservation of Information; Communications to Holders............................................109
SECTION 1203. Reports by Trustee................................................................................110
SECTION 1204. Reports by Company................................................................................110
ARTICLE THIRTEEN. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..........................................110
SECTION 1301. Company May Consolidate, Etc., Only on Certain Terms..............................................110
SECTION 1302. Successor Corporation Substituted.................................................................111
SECTION 1303. Extent of Lien Hereof on Property of Successor Corporation........................................112
SECTION 1304. Release of Company upon Conveyance or Other Transfer..............................................112
SECTION 1305. Merger into Company; Extent of Lien Hereof........................................................113
ARTICLE FOURTEEN. SUPPLEMENTAL INDENTURES.......................................................................113
SECTION 1401. Supplemental Indentures Without Consent of Holders................................................113
SECTION 1402. Supplemental Indentures With Consent of Holders...................................................115
SECTION 1403. Execution of Supplemental Indentures..............................................................116
SECTION 1404. Effect of Supplemental Indentures.................................................................116
SECTION 1405. Conformity with Trust Indenture Act...............................................................116
SECTION 1406. Reference in Securities to Supplemental Indentures................................................116
SECTION 1407. Modification Without Supplemental Indenture.......................................................117
ARTICLE FIFTEEN. MEETINGS OF HOLDERS; ACTION WITHOUT MEETING....................................................117
SECTION 1501. Purposes for Which Meetings May Be Called.........................................................117
SECTION 1502. Call, Notice and Place of Meetings................................................................117
SECTION 1503. Persons Entitled to Vote at Meetings..............................................................118
SECTION 1504. Quorum; Action....................................................................................118
SECTION 1505. Attendance at Meetings; Determination of Voting Rights; Conduct and Adjournment
of Meetings....................................................................................119
SECTION 1506. Counting Votes and Recording Action of Meetings...................................................120
SECTION 1507. Action Without Meeting............................................................................120
ARTICLE SIXTEEN. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES.....................121
SECTION 1601. Exemption from Individual Liability...............................................................121
Exhibit A Property Description (Real Property)....................................................................1
|
GENERAL MORTGAGE INDENTURE (herein called this "Indenture"), dated as of October 10, 2002, between CenterPoint Energy Houston Electric, LLC, a limited liability company duly organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a New York state bank having an office at 600 Travis Street, Suite 1150, Houston, Texas 77002, as Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture, as originally executed and delivered, to provide for the issuance from time to time of its bonds, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as contemplated herein, and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities. All acts necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been performed. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires, capitalized terms used herein shall have the meanings assigned to them in Article One of this Indenture.
GRANTING CLAUSES
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in consideration of the premises and of the purchase of the Securities by the Holders thereof, and in order to secure the payment of the principal of and premium, if any, and interest, if any, on all Securities from time to time Outstanding and the performance of the covenants therein and herein contained and to declare the terms and conditions on which such Securities are secured, the Company hereby grants, bargains, sells, conveys, assigns, transfers, mortgages, pledges, sets over and confirms to the Trustee, and grants to the Trustee a security interest in, the following (subject, however, to the terms and conditions set forth in this Indenture):
GRANTING CLAUSE FIRST
All right, title and interest of the Company, as of the date of the execution and delivery of this Indenture, as originally executed and delivered, in and to all property, real, personal and mixed (other than Excepted Property) including without limitation all right, title and interest of the Company in and to the following property so located (other than Excepted Property): (a) all real property owned in fee, easements and other interests in real property wherever situated, including without limitation, all land and interests in land covered by the First Mortgage Indenture and in the sixty-five Supplemental Indentures thereto, as described in Exhibit A hereto, except land and interests in land which have been specifically released from the Lien of the First Mortgage Indenture from time to time; (b) all licenses, permits to use the real property of others, franchises to use public roads, streets and other public properties, rights of way and other rights or interests relating to the occupancy or use of real property; (c) all facilities, machinery, equipment and fixtures for the generation, transmission and distribution of electric energy including, but not limited to, all plants, powerhouses, dams, diversion works, generators,
turbines, engines, boilers, fuel handling and transportation facilities, air and water pollution control and sewage and solid waste disposal facilities, switchyards, towers, substations, transformers, poles, lines, cables, conduits, ducts, conductors, meters, regulators and all other property used or to be used for any or all of such purposes; (d) all buildings, offices, warehouses, structures or improvements in addition to those referred to or otherwise included in clauses (a) and (c) above; (e) all computers, data processing, data storage, data transmission and/or telecommunications facilities, equipment and apparatus necessary for the operation or maintenance of any facilities, machinery, equipment or fixtures described or referred to in clause (c) above; and (f) all of the foregoing property in the process of construction;
GRANTING CLAUSE SECOND
Subject to the applicable exceptions permitted by Section 809(3),
Section 1303 and Section 1305, all right, title and interest of the Company in
all property, real, personal and mixed (other than Excepted Property) which may
be hereafter acquired by the Company, it being the intention of the Company that
all such property acquired by the Company after the date of the execution and
delivery of this Indenture, as originally executed and delivered, shall be as
fully embraced within and subjected to the Lien hereof as if such property were
owned by the Company as of the date of the execution and delivery of this
Indenture, as originally executed and delivered;
GRANTING CLAUSE THIRD
Any Excepted Property, which may, from time to time after the date of the execution and delivery of this Indenture, as originally executed and delivered, by delivery or by an instrument supplemental to this Indenture, be subjected to the Lien hereof by the Company, the Trustee being hereby authorized to receive the same at any time as additional security hereunder; it being understood that any such subjection to the Lien hereof of any Excepted Property as additional security may be made subject to such reservations, limitations or conditions respecting the use and disposition of such property or the proceeds thereof as shall be set forth in such instrument; and
GRANTING CLAUSE FOURTH
All tenements, hereditaments, servitudes and appurtenances belonging or in any wise appertaining to the aforesaid property, with the reversions and remainders thereof;
EXCEPTED PROPERTY
Expressly excepting and excluding, however, from the Lien of this Indenture all right, title and interest of the Company in and to the following property, whether now owned or hereafter acquired (herein sometimes called "Excepted Property"):
(1) all cash on hand or in banks or other financial institutions, deposit accounts, shares of stock, interests in general or limited partnerships, bonds, membership interests in limited liability companies, notes, other evidences of ownership, equity, indebtedness and other securities, of whatsoever kind and nature, not hereafter paid or delivered to, deposited with or held by the Trustee hereunder or required so to be;
(2) all contracts, leases, operating agreements and other
agreements of whatsoever kind and nature; all contract rights, bills, notes and
other instruments and chattel paper (except to the extent that any of the same
constitute securities, in which case they are separately excepted from the Lien
of this Indenture under clause (1) above); all revenues, income and earnings,
all accounts, accounts receivable and unbilled revenues, and all rents, tolls,
issues, product and profits, claims, credits, demands and judgments; all
governmental and other licenses, permits, franchises, consents and allowances
(except to the extent that any of the same are specifically described in clause
(b) of Granting Clause First of this Indenture, in which case they are included
within the Lien of this Indenture); and all patents, patent licenses and other
patent rights, patent applications, trade names, trademarks, copyrights, domain
names, claims, credits, choses in action and other intangible property and
general intangibles including, but not limited to, computer software;
(3) all automobiles, buses, trucks, truck cranes, tractors, trailers and similar vehicles and movable equipment; all rolling stock, rail cars and other railroad equipment; all vessels, boats, barges and other marine equipment; all airplanes, helicopters, aircraft engines and other flight equipment; all parts, accessories and supplies used in connection with any of the foregoing; and all personal property of such character that the perfection of a security interest therein or other Lien thereon is not governed by the Uniform Commercial Code as in effect in the jurisdiction in which such property is located;
(4) all goods, stock in trade, wares, merchandise and inventory held for the purpose of sale or lease in the ordinary course of business; all materials, supplies, inventory and other items of personal property which are consumable (otherwise than by ordinary wear and tear) in their use in the operation or ownership of the Mortgaged Property; all fuel, whether or not any such fuel is in a form consumable in the operation or ownership of the Mortgaged Property, including separate components of any fuel in the forms in which such components exist at any time before, during or after the period of the use thereof as fuel; all hand and other portable tools and equipment; all furniture and furnishings; and computers and data processing, data storage, data transmission, telecommunications and other facilities, equipment and apparatus, which, in any case, are used primarily for administrative or clerical purposes or are otherwise not necessary for the operation or maintenance of the facilities, machinery, equipment or fixtures described or referred to in clause (c) or (d) of Granting Clause First of this Indenture;
(5) all coal, ore, gas, oil and other minerals and all timber, and all rights and interests in any of the foregoing, whether or not such minerals or timber shall have been mined or extracted or otherwise separated from the land; and all electric energy, gas (natural or artificial), steam, water and other products generated, produced, manufactured, purchased or otherwise acquired by the Company;
(6) all real property, leaseholds, gas rights, wells, gas works, stations and substations, transmission pipelines, storage facilities, holders, tanks, retorts, purifiers, odorizers, scrubbers, compressors, valves, regulators, pumps, mains, pipes, service pipes, conduits, ducts, fittings and connections, services, meters, gathering, tap or other pipe lines, facilities, equipment, apparatus or any other property used or to be used for the production, gathering transmission, storage or distribution of natural gas, crude oil or other hydro-carbons or minerals;
(7) all property which is the subject of a lease agreement designating the Company as lessee and all right, title and interest of the Company in and to such property and in, to and under such lease agreement, whether or not such lease agreement is intended as security;
(8) all facilities, machinery, equipment and fixtures for the appropriation, storage, transmission and distribution of water including, but not limited to, water works, reservoirs, diversion works, stations and substations, transmission pipelines, canals, raceways, flumes, waterways, aqueducts, storage facilities, tanks, purifiers, valves, regulators, pumps, mains, pipes, service pipes, conduits, fittings and connections, services, meters and any and all other property used or to be used for any or all of such purposes; and
(9) all property, real, personal and mixed, which prior to the date of the execution and delivery of this Indenture, as originally executed and delivered, has been excepted or released from the Lien of the First Mortgage;
provided, however, that subject to the provisions of Section 1303, (x)
if, at any time after the occurrence of an Event of Default, the Trustee, or any
separate trustee or co-trustee appointed under Section 1114 or any receiver
appointed pursuant to Section 1008 or otherwise, shall have entered into
possession of all or substantially all of the Mortgaged Property, all the
Excepted Property described or referred to in the foregoing clauses (2), (3) and
(4), then owned or held or thereafter acquired by the Company, to the extent
that the same is used in connection with, or otherwise relates or is
attributable to, the Mortgaged Property, shall immediately, and, in the case of
any Excepted Property described or referred to in clause (6), to the extent that
the same is used in connection with, or otherwise relates or is attributable to,
the Mortgaged Property, upon demand of the Trustee or such other trustee or
receiver, become subject to the Lien of this Indenture to the extent not
prohibited by law or by the terms of any other Lien or encumbrance on such
Excepted Property, and the Trustee or such other trustee or receiver may, to the
extent not prohibited by law or by the terms of any such other Lien (and subject
to the rights of the holders of all such other Liens), at the same time likewise
take possession thereof, and (y) whenever all Events of Default shall have been
cured and the possession of all or substantially all of the Mortgaged Property
shall have been restored to the Company, such Excepted Property shall again be
excepted and excluded from the Lien hereof to the extent set forth above; it
being understood that the Company may, however, pursuant to Granting Clause
Third, subject to the Lien of this Indenture any Excepted Property, whereupon
the same shall cease to be Excepted Property;
TO HAVE AND TO HOLD all such property, real, personal and mixed, unto the Trustee, its successors in trust and their assigns forever;
SUBJECT, HOWEVER, to (a) Liens existing at the date of the execution and delivery of this Indenture, as originally executed and delivered (including, but not limited to, the Lien of the First Mortgage), (b) as to property acquired by the Company after the date of the execution and delivery of this Indenture, as originally executed and delivered, Liens existing or placed thereon at the time of the acquisition thereof (including, but not limited to, Purchase Money Liens), (c) Permitted Liens and all other Liens permitted to exist under Section 6.06; and
SUBJECT, FURTHER, to the condition that, with respect to any property which is now or hereafter becomes subject to the Lien of the First Mortgage, the Lien of this Indenture shall at all times be junior, subject and subordinate to the Lien of the First Mortgage;
IN TRUST, NEVERTHELESS, for the equal and ratable benefit and security of the Holders from time to time of all Outstanding Securities without any priority of any such Security over any other such Security;
PROVIDED, HOWEVER, that the right, title and interest of the Trustee in and to the Mortgaged Property shall cease, terminate and become void in accordance with, and subject to the conditions set forth in, Article Nine or Article Fourteen hereof, and if, thereafter, the principal of and premium, if any, and interest, if any, on the Securities shall have been paid to the Holders thereof, or shall have been paid to the Company pursuant to Section 603 hereof, then and in that case this Indenture shall terminate, and the Trustee shall execute and deliver to the Company such instruments as the Company shall require to evidence such termination; otherwise this Indenture, and the estate and rights hereby granted, shall be and remain in full force and effect; and
IT IS HEREBY COVENANTED AND AGREED by and between the Company and the Trustee that all the Securities are to be authenticated and delivered, and that the Mortgaged Property is to be held, subject to the further covenants, conditions and trusts hereinafter set forth, and the Company hereby covenants and agrees to and with the Trustee, for the equal and ratable benefit of all Holders, as follows:
ARTICLE ONE.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. General Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article One have the meanings assigned to them in this Article One and include the plural as well as the singular;
(2) all other terms used herein without definition which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) all terms used herein without definition which are defined in the Uniform Commercial Code as in effect in any jurisdiction in which any portion of the Mortgaged Property is located shall have the meanings assigned to them therein with respect to such portion of the Mortgaged Property;
(4) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United
States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation or, at the election of the Company from time to time, at the date of the execution and delivery of this Indenture, as originally executed and delivered;
(5) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Indenture;
(6) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision;
(7) words importing any gender include the other genders;
(8) references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to;
(9) references to "writing" include printing, typing, lithography and other means of reproducing words in a visible form;
(10) the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; and
(11) unless otherwise provided, references to agreements and other instruments shall be deemed to include all amendments and other modifications to such agreements and instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Indenture.
"Accountant" means a Person engaged in the accounting profession or otherwise qualified to pass on accounting matters (including, but not limited to, a Person certified or licensed as a public accountant, whether or not then engaged in the public accounting profession), which Person, unless required to be Independent, may be an employee or Affiliate of the Company.
"Act", when used with respect to any Holder, has the meaning specified in Section 107.
"Adjusted Net Earnings" means the amount calculated in accordance with
Section 104(1); provided, however, that if any of the property of the Company
owned by it at the time of the making of any Net Earnings Certificate (a) shall
have been acquired during or after any period for which Adjusted Net Earnings of
the Company are to be computed, (b) shall not have been acquired in exchange or
substitution for property the net earnings of which have been included in the
Adjusted Net Earnings of the Company, and (c) had been operated as a separate
unit and items of revenue and expense attributable thereto are readily
ascertainable, then the net earnings of such property (computed in the manner
provided for the computation of the Adjusted Net Earnings of the Company) during
such period or such part of such period as shall have preceded the acquisition
thereof, to the extent that the same have not otherwise been included in the
Adjusted Net Earnings of the Company, shall be so included.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Annual Interest Requirements" means the amount calculated in accordance with Section 104(2).
"Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 1114 to act on behalf of the Trustee to authenticate Securities of one or more series.
"Authorized Officer" means the Manager, the President, any Vice President or the Treasurer of the Company, or any other duly authorized officer, agent or attorney-in-fact of the Company named in an Officer's Certificate signed by any of such company officers.
"Authorized Publication" means a newspaper or financial journal of general circulation, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays; or, in the alternative, shall mean such form of communication as may have come into general use for the dissemination of information of import similar to that of the information specified to be published by the provisions hereof. In the event that successive weekly publications in an Authorized Publication are required hereunder they may be made (unless otherwise expressly provided herein) on the same or different days of the week and in the same or in different Authorized Publications. In case, by reason of the suspension of publication of any Authorized Publication, or by reason of any other cause, it shall be impractical without unreasonable expense to make publication of any notice in an Authorized Publication as required by this Indenture, then such method of publication or notification as shall be made with the approval of the Trustee shall be deemed the equivalent of the required publication of such notice in an Authorized Publication.
"Authorized Purposes" means the authentication and delivery of Securities, the release of property and/or the withdrawal of cash under any of the provisions of this Indenture.
"Business Day", when used with respect to any Place of Payment or any other particular location specified in the Securities or this Indenture, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture, as originally executed and delivered, such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of this Indenture until a Successor Corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such Successor Corporation.
"Company Request" or "Company Order" mean, respectively, a written request or order signed in the name of the Company by its Manager, its Chief Executive Officer, its Chief Financial Officer, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Company Secretary or an Assistant Company Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution and delivery of this Indenture, as originally executed and delivered, is as follows: at 600 Travis Street, Suite 1150, Houston, Texas 77002.
"Corporation" means a corporation, limited liability company, company, association, joint-stock company or business trust.
"Cost" has the meaning specified in Section 103.
"Defaulted Interest" has the meaning specified in Section 307.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts.
"Eligible Obligations" means:
(1) with respect to Securities denominated in Dollars, Government Obligations; or
(2) with respect to Securities denominated in a currency other than Dollars or in a composite currency, such other obligations or instruments as shall be specified with respect to such Securities as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 1001.
"Excepted Property" has the meaning specified in the Granting Clauses of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time.
"Exchange Rate" has the meaning specified in Section 1001.
"Expert" means a Person which is an engineer, appraiser or other expert and which, with respect to any certificate to be signed by such Person and delivered to the Trustee, is qualified to pass upon the matters set forth in such certificate. For purposes of this definition, (a) "engineer" means a Person engaged in the engineering profession or otherwise qualified to pass upon engineering matters (including, but not limited to, a Person licensed as a professional engineer, whether or not then engaged in the engineering profession) and (b) "appraiser" means a Person engaged in the business of appraising property or otherwise qualified to pass upon the Fair Value or fair market value of property.
"Expert's Certificate" means a certificate signed by an Authorized Officer and by an Expert (which Expert (a) shall be selected either by the Manager or by an Authorized Officer, the execution of such certificate by such Authorized Officer to be conclusive evidence of such selection, and (b) except as otherwise required in Sections 402, 607, 707 and 809, may be an employee or Affiliate of the Company duly authorized either by the Manager or by an Authorized Officer) and delivered to the Trustee. The amount stated in any Expert's Certificate as to the Cost or Fair Value of property shall be conclusive and binding upon the Company, the Trustee and the Holders.
"Expiration Date" has the meaning specified in Section 107.
"Fair Value", with respect to property, means the fair value of such property as may reasonably be determined by reference to (a) the amount which would be likely to be obtained in an arm's-length transaction with respect to such property between an informed and willing buyer and an informed and willing seller, under no compulsion, respectively, to buy or sell, (b) the amount of investment with respect to such property which, together with a reasonable return thereon, would be likely to be recovered through ordinary business operations or otherwise, (c) the Cost, accumulated depreciation and replacement cost with respect to such property and/or (d) any other relevant factors; provided, however, that (x) the Fair Value of property shall be determined without deduction for any Liens on such property prior to the Lien of this Indenture (except as otherwise provided in Section 803) and (y) the Fair Value to the Company of Property Additions shall not reflect any reduction relating to the fact that such Property Additions may be of less value to a Person which is not the owner or operator of the Mortgaged Property or any portion thereof than to a Person which is such owner or operator. Fair Value may be determined, in the discretion of the expert certifying the same, without physical inspection, by the use of accounting and/or engineering records and/or other data maintained by the Company or otherwise available to such Expert.
"First Mortgage" means the Mortgage and Deed of Trust, dated as of November 1, 1944, from Houston Lighting & Power Company (Company successor) to South Texas Commercial National Bank of Houston (JPMorgan Chase Bank, successor) as trustee, which Mortgage and Deed of Trust and amendments and supplements thereto have been recorded and filed in the office of the Secretary of State in the State of Texas as set forth in Exhibit A hereto.
"First Mortgage Securities" means securities or other obligations, from time to time, issued and Outstanding under the First Mortgage.
"First Mortgage Collateral Bonds" has the meaning specified in Section 701.
"First Mortgage Collateralization Date" means the date on which the Company delivers to the Trustee the First Mortgage Collateralization Bonds pursuant to Section 701 hereof.
"Funded Cash" has the meaning specified in Section 102.
"Funded Property" has the meaning specified in Section 102.
"Governmental Authority" means the government of the United States or of any State or Territory thereof or of the District of Columbia or of any county, municipality or other political
subdivision of any thereof, or any department, agency, authority or other instrumentality of any of the foregoing.
"Government Obligations" means:
(1) any security which is (A) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (B) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (A) or (B), is not callable or redeemable at the option of the issuer thereof; and
(2) certificates, depositary receipts or other instruments which evidence a direct ownership interest in obligations described in clause (1) above or in any specific interest or principal payments due in respect thereof; provided, however, that the custodian of such obligations or specific interest or principal payments shall be a bank or trust company (which may include the Trustee or any Paying Agent) subject to Federal or State supervision or examination with a combined capital and surplus of at least Fifty Million Dollars ($50,000,000); and provided, further, that except as may be otherwise required by law, such custodian shall be obligated to pay to the holders of such certificates, depositary receipts or other instruments the full amount received by such custodian in respect of such obligations or specific payments and shall not be permitted to make any deduction therefrom.
"Holder" means a Person in whose name a Security is registered in the Security Register.
"Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301.
"Independent", when applied to any Accountant or Expert, means such a Person who (a) is in fact independent, (b) does not have any direct material financial interest in the Company or in any other obligor upon the Securities or in any Affiliate of the Company or of such other obligor, (c) is not connected with the Company or such other obligor as an officer, employee, promoter, underwriter, trustee, partner, director or any person performing similar functions and (d) is approved by the Trustee in the exercise of reasonable care.
"Independent Expert's Certificate" means a certificate signed by an Independent Expert and delivered to the Trustee.
"Initial Expert's Certificate" means an Expert's certificate delivered upon the earliest of (a) the first authentication and delivery of Securities, subsequent to the initial authentication and delivery of the Securities of the Initial Series (excluding Securities of the Initial Series issued in connection with a transfer, exchange or replacement of any Predecessor Securities of such series), upon the basis of Property Additions pursuant to Section 402, (b) the first release of any
part of the Mortgaged Property pursuant to Section 803 or 804 and (c) the first withdrawal of cash on the basis of Property Additions pursuant to Section 806.
"Initial Series" means:
(1) the series of Securities, initially authenticated and delivered in the aggregate principal amount of Eight Hundred Fifty Million Dollars ($850,000,000) established in the First Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the First Supplemental Indenture;
(2) the series of Securities, initially authenticated and delivered in the aggregate principal amount of Fifty Million Dollars ($50,000,000) established in the Second Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Second Supplemental Indenture;
(3) the series of Securities, initially authenticated and delivered in the aggregate principal amount of Sixty Eight Million Dollars ($68,000,000) established in the Third Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Third Supplemental Indenture;
(4) the series of Securities, initially authenticated and delivered in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) established in the Fourth Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Fourth Supplemental Indenture;
(5) the series of Securities, initially authenticated and delivered in the aggregate principal amount of Ninety Million Dollars ($90,000,000) established in the Fifth Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Fifth Supplemental Indenture;
(6) the series of Securities, initially authenticated and delivered in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) established in the Sixth Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Sixth Supplemental Indenture;
(7) the series of Securities, initially authenticated and delivered in the aggregate principal amount of Nineteen Million Two Hundred Thousand Dollars ($19,200,000) established in the Seventh Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Seventh Supplemental Indenture;
(8) the series of Securities, initially authenticated and delivered in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) established in the Eighth Supplemental Indenture, dated as of October 10, 2002, between the Company and the Trustee, the form and terms of which are established in the Officer's Certificate, dated October 10, 2002, pursuant to the Eighth Supplemental Indenture; and
(9) each additional series of Securities, provided that the aggregate principal amount of the Securities to be authenticated and delivered in respect of such series, when added to the aggregate principal amount of Securities outstanding immediately prior to the issuance thereof (other than any Securities for the payment or redemption of which such Securities are to be issued and any Securities pledged as security for the payment obligations of the Company in respect of indebtedness for the satisfaction of which such Securities are to be issued), shall not exceed an amount equal to the sum of One Billion Seven Hundred Seventy Seven Million Two Hundred Thousand Dollars ($1,777,200,000) and the aggregate amount of all Transaction Costs relating to any such series.
"Interest" when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
"Investment Securities" means any of the following obligations or securities on which neither the Company, any other obligor on the Securities nor any Affiliate of either is the obligor: (a) Government Obligations; (b) interest bearing deposit accounts (which may be represented by certificates of deposit) in any national or state bank (which may include the Trustee or any Paying Agent) or savings and loan association which has outstanding securities rated by a nationally recognized rating organization in either of the two (2) highest rating categories (without regard to modifiers) for short term securities or in any of the three (3) highest rating categories (without regard to modifiers) for long term securities; (c) bankers' acceptances drawn on and accepted by any commercial bank (which may include the Trustee or any Paying Agent) which has outstanding securities rated by a nationally recognized rating organization in either of the two (2) highest rating categories (without regard to modifiers) for short term securities or in any of the three (3) highest rating categories (without regard to modifiers) for long term securities; (d) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, any State or Territory of the United States or the District of Columbia, or any political subdivision of any of the foregoing, which are rated by a nationally recognized rating organization in either of the two (2) highest rating categories (without regard to modifiers) for short term securities or in any of the three (3) highest rating categories (without regard to modifiers) for long term securities; (e) bonds or other obligations of any agency or instrumentality of the United States; (f) corporate debt securities which are rated by a nationally recognized rating organization in either of the two (2) highest rating categories (without regard to modifiers) for short term securities or in any of the three (3) highest rating categories (without regard to modifiers) for long term securities; (g) repurchase agreements with respect to any of the foregoing obligations or securities with any banking or financial institution (which may include the Trustee or any Paying Agent) which has outstanding securities rated by a nationally recognized rating organization in either of the two (2) highest rating categories
(without regard to modifiers) for short term securities or in any of the three
(3) highest rating categories (without regard to modifiers) for long term
securities; (h) securities issued by any regulated investment company (including
any investment company for which the Trustee or any Paying Agent is the
advisor), as defined in Section 851 of the Internal Revenue Code of 1986, as
amended, or any successor Section of such Code or successor federal statute,
provided that the portfolio of such investment company is limited to obligations
or securities of the character and investment quality contemplated in clauses
(a) through (f) above and repurchase agreements which are fully collateralized
by any of such obligations or securities; and (i) any other obligations or
securities which may lawfully be purchased by the Trustee in its capacity as
such.
"Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, easement, lease, reservation, restriction, servitude, charge or similar right and any other lien of any kind, including, without limitation, the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement.
"Manager" means the appointed manager of the Company.
"Manager Resolution" means a copy of a resolution certified by the Company Secretary or an Assistant Company Secretary of the Company to have been duly adopted by the Manager and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Matured Event of Default" means the occurrence of any default or any other event under the First Mortgage, and the expiration of the applicable grace period, if any, specified in the First Mortgage, if the effect of such default or other event is to accelerate, or to permit the acceleration of, the maturity of any amount due under the First Mortgage.
"Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Maximum Interest Rate" has the meaning specified in Section 310.
"Mortgaged Property" means, as of any particular time, all property which at such time is subject to the Lien of this Indenture.
"Net Earnings Certificate" has the meaning specified in Section 104.
"Notice of Default" has the meaning specified in Section 1001.
"Officer's Certificate" means a certificate signed by an Authorized Officer and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company or other counsel acceptable to the Trustee and who may be an employee or Affiliate of the Company.
"Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 1002.
"Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
(1) Securities theretofore canceled or delivered to the Securities Registrar or the Trustee for cancellation;
(2) Securities deemed to have been paid for all purposes of this Indenture in accordance with Section 901 (whether or not the Company's indebtedness in respect thereof shall be satisfied and discharged for any other purpose); and
(3) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
and the Company that such Securities are held by a bona fide purchaser in whose
hands such Securities are valid obligations of the Company; provided, however,
that in determining whether or not the Holders of the requisite principal amount
of the Outstanding Securities under this Indenture, or the Outstanding
Securities of any series or Tranche, have given, made or taken any request,
demand, authorization, direction, notice, consent, election, waiver or other
action hereunder or whether or not a quorum is present at a meeting of Holders,
as of any date, (A) the principal amount of an Original Issue Discount Security
which shall be deemed to be Outstanding shall be the amount of the principal
thereof which would be due and payable as of such date upon acceleration of the
Maturity thereof to such date pursuant to Section 1002; (B) if, as of such date,
the principal amount payable at the Stated Maturity of a Security is not
determinable, the principal amount of such Security which shall be deemed to be
Outstanding shall be the amount as specified or determined as contemplated by
Section 301; (C) the principal amount of a Security denominated in one or more
foreign currencies or currency units which shall be deemed to be Outstanding
shall be the U.S. dollar equivalent, determined as of such date in the manner
provided as contemplated by Section 301, of the principal amount of such
Security (or, in the case of a Security described in clause (A) or (B) above, of
the amount determined as provided in such clause); and (D) Securities owned by
the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, election, waiver or other action, only Securities which the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Outstanding", when used with respect to First Mortgage Securities, has the meaning specified in the First Mortgage.
"Paying Agent" means any Person, including the Company or any of its Affiliates, authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company.
"Periodic Offering" means an offering of Securities of a series from
time to time any or all of the specific terms of which Securities, including
without limitation the rate or rates of interest, if any, thereon, the Stated
Maturity or Maturities thereof and the redemption provisions, if any, with
respect thereto, are to be determined by the Company or its agents from time to
time subsequent to the initial request for the authentication and delivery of
such Securities by the Trustee, all as contemplated in Section 301 and clause
(2) of Section 401.
"Permitted Liens" means, as of any particular time, any of the following:
(1) Liens for taxes, assessments and other governmental charges or requirements which are not delinquent or which are being contested in good faith by appropriate proceedings or which secure charges that do not exceed Five Million Dollars ($5,000,000);
(2) mechanics', workmen's, repairmen's, materialmen's, warehousemen's and carriers' Liens, other Liens incident to construction, improvement, repair or maintenance of property, Liens or privileges of any officers or employees of the Company for compensation earned, and other Liens, including without limitation Liens for worker's compensation awards, arising in the ordinary course of business for charges or requirements which are not delinquent or which are being contested in good faith and by appropriate proceedings;
(3) Liens in respect of attachments, judgments or awards arising out of judicial or administrative proceedings (i) in an amount not exceeding the greater of (A) Ten Million Dollars ($10,000,000) and (B) three percentum (3%) of the sum of (1) the principal amount of the Securities Outstanding at the time such Lien arises and (2) the principal amount of First Mortgage Securities Outstanding other than First Mortgage Collateral Bonds at the time such Lien arises or (ii) with respect to which the Company shall (X) in good faith be prosecuting an appeal or other proceeding for review and with respect to which the Company shall have secured a stay of execution pending such appeal or other proceeding or (Y) have the right to prosecute an appeal or other proceeding for review;
(4) easements, leases, reservations or other rights of others in, on, over and/or across, and laws, regulations and restrictions affecting, and defects, irregularities, deficiencies, exceptions and limitations in title to, the Mortgaged Property or any part thereof; provided, however, that such easements, leases, reservations, rights, laws, regulations, restrictions, defects, irregularities, deficiencies, exceptions and limitations do not in the aggregate materially impair the use by the Company of the Mortgaged Property considered as a whole for the purposes for which it is held by the Company;
(5) Liens, defects, irregularities, exceptions and limitations in title to property subject to rights-of-way in favor of the Company or otherwise or used or to be used by the Company primarily for right-of-way purposes or property held by the Company under lease, easement, license or similar right; provided, however, that (i) the Company shall have obtained from the apparent owner or owners of such property a sufficient right, by the terms of the
instrument granting such right-of-way, lease, easement, license or similar right, to the use thereof for the purposes for which the Company acquired the same, (ii) the Company has power under eminent domain or similar statutes to remove such defects, irregularities, exceptions or limitations or (iii) such defects, irregularities, exceptions and limitations may be otherwise remedied without undue effort or expense; and defects, irregularities, exceptions and limitations in title to flood lands, flooding rights and/or water rights;
(6) Liens securing indebtedness or other obligations neither created, assumed nor guaranteed by the Company, nor on account of which it customarily pays interest, upon real property or rights in or relating to real property of the Company existing at the date of execution and delivery of this Indenture, or, as to property thereafter acquired, at the time of the acquisition thereof by the Company;
(7) leases existing at the date of the execution and delivery of this Indenture, as originally executed and delivered, affecting properties owned by the Company at such date and renewals and extensions thereof; and leases affecting such properties entered into after such date or affecting properties acquired by the Company after such date which, in either case, (i) have respective terms (or periods at the end of which the Company may terminate the lease) of not more than fifteen (15) years (including extensions or renewals at the option of the tenant) or (ii) do not in the aggregate materially impair the use by the Company of such properties considered as a whole for the purpose for which they are held by the Company;
(8) Liens vested in lessors, licensors, franchisors, permitters or others for rent or other amounts to become due or for other obligations or acts to be performed, the payment of which rent or the performance of which other obligations or acts is required under leases, subleases, licenses, franchises or permits, so long as the payment of such rent or other amounts or the performance of such other obligations or acts is not delinquent or is being contested in good faith and by appropriate proceedings;
(9) controls, restrictions, obligations, duties and/or other burdens imposed by federal, state, municipal or other law, or by rules, regulations or orders of Governmental Authorities, upon the Mortgaged Property or any part thereof or the operation or use thereof or upon the Company with respect to the Mortgaged Property or any part thereof or the operation or use thereof or with respect to any franchise, grant, license, permit or public purpose requirement, or any rights reserved to or otherwise vested in Governmental Authorities to impose any such controls, restrictions, obligations, duties and/or other burdens;
(10) rights which Governmental Authorities may have by virtue of franchises, grants, licenses, permits or contracts, or by virtue of law, to purchase, recapture or designate a purchaser of or order the sale of the Mortgaged Property or any part thereof, to terminate franchises, grants, licenses, permits, contracts or other rights or to regulate the property and business of the Company; and any and all obligations of the Company correlative to any such rights;
(11) Liens required by law or governmental regulations (i) as a condition to the transaction of any business or the exercise of any privilege or license, (ii) to enable the Company to maintain self-insurance or to participate in any funds established to cover any insurance risks,
(iii) in connection with workmen's compensation, unemployment insurance, social security, any pension or welfare benefit plan or (iv) to share in the privileges or benefits required for companies participating in one or more of the arrangements described in clauses (ii) and (iii) above;
(12) Liens on the Mortgaged Property or any part thereof which are granted by the Company to secure (or to obtain letters of credit that secure) the performance of duties or public or statutory, bid or performance obligations or to secure, or serve in lieu of, surety, stay or appeal bonds;
(13) rights reserved to or vested in others to take or receive any part of any coal, ore, gas, oil and other minerals, any timber and/or any electric capacity or energy, gas, water, steam and any other products, developed, produced, manufactured, generated, purchased or otherwise acquired or used by the Company or by others on property of the Company;
(14) (i) rights and interests of Persons other than the Company arising out of contracts, agreements and other instruments to which the Company is a party and which relate to the common ownership or joint use of property; and (ii) all Liens on the interests of Persons other than the Company in property owned in common by such Persons and the Company if and to the extent that the enforcement of such Liens would not adversely affect the interests of the Company in such property in any material respect;
(15) any restrictions on assignment and/or requirements of any assignee to qualify as a permitted assignee and/or public utility or public service corporation or company;
(16) any Liens which have been bonded for the full amount in dispute or for the payment of which other adequate security arrangements have been made;
(17) rights and interests granted pursuant to Section 802(4);
(18) Liens granted on air or water pollution control, sewage or solid waste disposal, or other similar facilities of the Company in connection with the issuance of pollution control revenue bonds, in connection with financing the cost of, or the construction, acquisition, improvement, repair or maintenance of, such facilities;
(19) the Trustee's Lien;
(20) Prepaid Liens;
(21) the Lien of the First Mortgage; and
(22) prior Liens, vendor's Liens and purchase money mortgages.
"Person" means any individual, Corporation, partnership, limited liability partnership, joint venture, trust, unincorporated organization or any Governmental Authority.
"Place of Payment", when used with respect to the Securities of any series, or any Tranche thereof, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301.
"Pollution Control Bond Collateral Requirements" means the requirements, if any, under each of the Installment Payment and Bond Amortization Agreement, dated as of January 1, 1997, between Brazos River Authority and the Company (as successor) relating to the Trust Indenture, dated as of January 1, 1997, between Brazos River Authority and Bank One (as successor) as Trustee thereunder ("Indenture Trustee") and the Installment Payment Agreement and Bond Amortization Agreement, dated January 1, 1997, between Matagorda County Navigation District Number One and the Company (as successor) relating to the Trust Indenture, dated as of January 1, 1997, between Matagorda County Navigation District One and Bank One (as successor) as Trustee thereunder ("Indenture Trustee") that, if the Company issues First Mortgage Bonds in certain circumstances, the Company must also issue First Mortgage Bonds to each respective Indenture Trustee in an aggregate principal amount equal to the aggregate principal amount of securities outstanding under the relevant Trust Indenture.
"Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed (to the extent lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Prepaid Lien" means any Lien securing indebtedness for the payment, prepayment or redemption of which there shall have been irrevocably deposited in trust with the trustee or other holder of such Lien moneys and/or Investment Securities which (together with the interest reasonably expected to be earned from the investment and reinvestment in Investment Securities of the moneys and/or the principal of and interest on the Investment Securities so deposited) shall be sufficient for such purpose; provided, however, that if such indebtedness is to be redeemed or otherwise prepaid prior to the stated maturity thereof, any notice requisite to such redemption or prepayment shall have been given in accordance with the instrument creating such Lien or irrevocable instructions to give such notice shall have been given to such trustee or other holder; and provided, further, that the First Mortgage shall not be deemed to be a Prepaid Lien unless it shall have been satisfied and discharged and all First Mortgage Securities issued thereunder shall be deemed to have been paid, all in accordance with the provisions thereof.
"Property Additions" has the meaning specified in Section 103.
"Purchase Money Lien" means, with respect to any property (and any improvements or accessions thereto) being acquired or disposed of by the Company or being released from the Lien of this Indenture, a Lien on such property which:
(1) is taken or retained by the transferor of such property to secure all or part of the purchase price thereof;
(2) is granted to one or more Persons other than the transferor which, by making advances or incurring an obligation, give value to enable the grantor of such Lien to acquire rights in or the use of such property;
(3) is granted to any other Person in connection with the release of such property from the Lien of this Indenture on the basis of the deposit with the Trustee or the trustee or other holder of a Lien prior to the Lien of this Indenture of obligations secured by such Lien on such property (as well as any other property subject thereto);
(4) is held by a trustee or agent for the benefit of one or more Persons described in clause (1), (2) and/or (3) above, provided that such Lien may be held, in addition, for the benefit of one or more other Persons which shall have theretofore given, or may thereafter give, value to or for the benefit or account of the grantor of such Lien for one or more other purposes; or
(5) otherwise constitutes a purchase money mortgage or a purchase money security interest under applicable law; and, without limiting the generality of the foregoing, for purposes of this Indenture, the term Purchase Money Lien shall be deemed to include any Lien described above whether or not such Lien (x) shall permit the issuance or other incurrence of additional indebtedness secured by such Lien on such property, (y) shall permit the subjection to such Lien of additional property and the issuance or other incurrence of additional indebtedness on the basis thereof and/or (z) shall have been granted prior to the acquisition, disposition or release of such property, shall attach to or otherwise cover property other than the property being acquired, disposed of or released and/or shall secure obligations issued prior and/or subsequent to the issuance of the obligations delivered in connection with such acquisition, disposition or release.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301.
"Responsible Officer", when used with respect to the Trustee, means an officer in the Institutional Trust Services department of the Trustee having direct responsibility for administration of this Indenture.
"Retired Securities" means (a) any Securities authenticated and delivered under this Indenture which (i) no longer remain Outstanding by reason of the applicability of clause (1) or (2) in the definition of "Outstanding" (other than any Predecessor Security of any Security), (ii) have not been made the basis under any of the provisions of this Indenture of one or more Authorized Purposes and (iii) have not been paid, redeemed, purchased or otherwise retired by the application thereto of Funded Cash and (b) any First Mortgage Bond authenticated and delivered under the First Mortgage which (x) at such time could be used as the basis for the
authentication and delivery of additional First Mortgage Securities pursuant to the provisions of the First Mortgage and (y) shall have been retired after the initial authentication and delivery of the Securities of the Initial Series; provided, however, that, after the delivery to the Trustee of the Initial Expert's Certificate, no Security and no such First Mortgage Security shall be deemed to be a Retired Security unless the retirement thereof shall have occurred after such delivery of the Initial Expert's Certificate.
"Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Interest Rate" means a rate (whether fixed or variable) at which an obligation by its terms is stated to bear simple interest. Any calculation or other determination to be made under this Indenture by reference to the Stated Interest Rate on a Security shall be made (a) without regard to the effective interest cost to the Company of such Security and (b) without regard to the Stated Interest Rate on, or the effective cost to the Company of, any other obligation for which such Security is pledged or otherwise delivered as security.
"Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of or interest on such Security, or such installment of principal or interest, is due and payable.
"Successor Corporation" has the meaning specified in Section 1301.
"Tranche" means a group of Securities which (a) are of the same series and (b) have identical terms except as to principal amount and/or date of issuance.
"Transaction Costs" means all costs associated with the issuance and sale of Securities, including but not limited to the fees and disbursements of counsel, the compensation of underwriters, and accountants' or other professional fees.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of that series.
"Trustee's Lien" has the meaning specified in Section 1107.
"United States" means the United States of America, its Territories, its possessions and other areas subject to its political jurisdiction.
SECTION 102. Funded Property; Funded Cash.
"Funded Property" means:
(1) all Property Additions to the extent that the same shall have been designated in an Initial Expert's Certificate to be deemed to be Funded Property;
(2) all Property Additions to the extent that the same shall have been made the basis of the authentication and delivery of Securities under this Indenture pursuant to Section 402;
(3) all Property Additions to the extent that the same shall have been made the basis of the release of property from the Lien of this Indenture pursuant to Section 803;
(4) all Property Additions to the extent that the same shall have been substituted for Funded Property retired pursuant to Section 802;
(5) all Property Additions to the extent that the same shall have been made the basis of the withdrawal of cash held by the Trustee pursuant to Section 404 or 806; and
(6) all Property Additions to the extent that the same shall have been used as the basis of a credit against, or otherwise in satisfaction of, the requirements of any sinking, improvement, maintenance, replacement or similar fund or analogous provision established with respect to the Securities of any series, or any Tranche thereof, as contemplated by Section 301; provided, however, that any such Property Additions shall cease to be Funded Property when all of the Securities of such series or Tranche shall have been paid.
In the event that in any certificate filed with the Trustee in
connection with any of the transactions referred to in clauses (1), (2), (3),
(5) and (6) of this Section, only a part of the Cost or Fair Value of the
Property Additions described in such certificate shall be required for the
purposes of such certificate, then such Property Additions shall be deemed to be
Funded Property only to the extent so required for the purpose of such
certificate.
All Funded Property that shall be abandoned, destroyed, released or otherwise disposed of shall for the purpose of Section 103 hereof be deemed Funded Property retired and for other purposes of this Indenture shall thereupon cease to be Funded Property but as in this Indenture provided may at any time thereafter again become Funded Property. Neither any reduction in the cost or book value of property recorded in the plant account of the Company, nor the transfer of any amount appearing in such account to intangible and/or adjustment or expense accounts, otherwise than in connection with actual retirements of physical property abandoned, destroyed, released or disposed of, and otherwise than in connection with the removal of such property in its entirety from plant account, shall be deemed to constitute a retirement of Funded Property.
The Company may make allocations, on a pro-rata or other reasonable basis (including, but not limited to, the designation of specific properties or the designation of all or a specified portion of the properties reflected in one or more generic accounts or subaccounts in the Company's books of account), for the purpose of determining the extent to which fungible properties, or other properties not otherwise identified, reflected in the same generic account or subaccount in the Company's books of account constitute Funded Property or Funded Property retired.
"Funded Cash" means:
(1) cash, held by the Trustee hereunder, to the extent that it represents the proceeds of insurance on Funded Property (except as otherwise provided in Section 607), or cash deposited in connection with the release of Funded Property pursuant to Article Eight, or the payment of the principal of, or the proceeds of the release of, obligations secured by Purchase Money Lien and delivered to the Trustee pursuant to Article Eight, all subject, however, to the provisions of Section 607 and Section 806;
(2) any cash deposited with the Trustee under Section 404; and
(3) any cash received by the Trustee from the payment of the principal of First Mortgage Collateral Bonds.
SECTION 103. Property Additions; Cost.
(1) "Property Additions" means, as of any particular time, any item, unit or element of property which at such time is owned by the Company and is subject to the Lien of this Indenture; provided, however, that Property Additions shall not include:
(A) goodwill, going concern value rights or intangible property except as provided in clause (3) of this Section; or
(B) any property the cost of acquisition or construction of which is, in accordance with generally accepted accounting principles, properly chargeable to an operating expense account of the Company.
(2) When any Property Additions are certified to the Trustee as the basis of any Authorized Purpose (except as otherwise provided in Section 803 and Section 806):
(A) there shall be deducted from the Cost or Fair Value to the Company thereof, as the case may be (as of the date so certified), an amount equal to the Cost (or as to Property Additions of which the Fair Value to the Company at the time the same became Funded Property was certified to be an amount less than the Cost as determined pursuant to this Section, then such Fair Value, as so certified, in lieu of Cost) of all Funded Property of the Company retired to the date of such certification (other than the Funded Property, if any, in connection with the application for the release of which such certificate is filed) and not theretofore deducted from the Cost or Fair Value to the Company of Property Additions theretofore certified to the Trustee; and
(B) there may, at the option of the Company, be added to such Cost or Fair Value, as the case may be, the sum of:
(i) the principal amount of any obligations secured by Purchase Money Lien, not theretofore so added and which the Company then elects so to add, which shall theretofore have been delivered to the Trustee or the trustee or other holder of a Lien prior to the Lien of this Indenture as the basis of the release of Funded Property retired from the Lien of this Indenture or such prior Lien, as the case may be;
(ii) ten-sevenths (10/7) of the amount of any cash, not theretofore so added and which the Company then elects so to add, which shall theretofore have been delivered to the Trustee or the trustee or other holder of a Lien prior to the Lien of this Indenture as the proceeds of insurance on Funded Property retired (to the extent of the portion thereof deemed to be Funded Cash) or as the basis of the release of Funded Property retired from the Lien of this Indenture or from such prior Lien, as the case may be;
(iii) ten-sevenths (10/7) of the principal amount of any Security or Securities, or portion of such principal amount, not theretofore so added and which the Company then elects so to add, (I) which shall theretofore have been delivered to the Trustee as the basis of the release of Funded Property retired or (II) the right to the authentication and delivery of which under the provisions of Section 403 shall at any time theretofore have been waived under Section 803(4)(C) as the basis of the release of Funded Property retired;
(iv) the Cost or Fair Value to the Company (whichever shall be less), after making any deductions and any additions pursuant to this Section, of any Property Additions, not theretofore so added and which the Company then elects so to add, which shall theretofore have been made the basis of the release of Funded Property retired (such Fair Value to be the amount shown in the Expert's Certificate delivered to the Trustee in connection with such release); and
(v) the Cost to the Company of any Property Additions (including Property Additions subject to the Lien of the First Mortgage) not theretofore so added and which the Company then elects so to add, to the extent that the same shall have been substituted for Funded Property retired;
provided, however, that the aggregate of the amounts added under clause (B) above shall in no event exceed the amounts deducted under clause (A) above.
(3) Except as otherwise provided in Section 803, the term "Cost" with respect to Property Additions shall mean the sum of (i) any cash delivered in payment therefor or for the acquisition thereof, (ii) an amount equivalent to the fair market value in cash (as of the date of delivery) of any securities or other property delivered in payment therefor or for the acquisition thereof, (iii) the principal amount of any obligations secured by prior Lien (other than the First Mortgage) upon such Property Additions outstanding at the time of the acquisition thereof, (iv) the principal amount of any other obligations incurred or assumed in connection with the payment for such Property Additions or for the acquisition thereof and (v) any other amounts which, in accordance with generally accepted accounting principles, are properly charged or
chargeable to the plant or other property accounts of the Company with respect to such Property Additions as part of the cost of construction or acquisition thereof, including, but not limited to any allowance for funds used during construction or any similar or analogous amount; provided, however, that, notwithstanding any other provision of this Indenture,
(A) with respect to Property Additions owned by a Successor Corporation immediately prior to the time it shall have become such by consolidation or merger or acquired by a Successor Corporation in or as a result of a consolidation or merger (excluding, in any case, Property Additions owned by the Company immediately prior to such time), Cost shall mean the amount or amounts at which such Property Additions are recorded in the plant or other property accounts of such Successor Corporation, or the predecessor corporation from which such Property Additions are acquired, as the case may be, immediately prior to such consolidation or merger;
(B) with respect to Property Additions which shall have been acquired (otherwise than by construction) by the Company without any consideration consisting of cash, securities or other property or the incurring or assumption of indebtedness or other obligation, no determination of Cost shall be required, and, wherever in this Indenture provision is made for Cost or Fair Value, Cost with respect to such Property Additions shall mean an amount equal to the Fair Value to the Company thereof or, if greater, the aggregate amount reflected in the Company's books of account with respect thereto upon the acquisition thereof; and
(C) in no event shall the Cost of Property Additions be required to reflect any depreciation or amortization in respect of such Property Additions, or any adjustment to the amount or amounts at which such Property Additions are recorded in plant or other property accounts due to the non-recoverability of investment or otherwise.
If any Property Additions are shown by the Expert's Certificate provided for in Section 402 (2)(B) to include property which has been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company, the Cost thereof need not be reduced by any amount in respect of any goodwill, going concern value rights and/or intangible property simultaneously acquired and in such case the term Property Additions as defined herein may include such goodwill, going concern value rights and intangible property.
SECTION 104. Net Earnings Certificate; Adjusted Net Earnings; Annual Interest Requirements.
A "Net Earnings Certificate" means a certificate signed by an Authorized Officer and an accountant (who may be employed by or Affiliated with the Company), stating:
(1) the "Adjusted Net Earnings" of the Company for a period of twelve (12) consecutive calendar months within the eighteen (18) calendar months immediately preceding the first day of the month in which the Company Order requesting the authentication and delivery under this Indenture of Securities is delivered to the Trustee (provided that for purposes of any Net Earnings Certificate delivered to the Trustee on or prior to June 30, 2003, the Adjusted Net Earnings of the Company shall be determined on the basis of twelve (12)
consecutive calendar months within the fifteen (15) calendar months immediately preceding the first day of the month in which the Company order requesting the authentication and delivery under this Indenture of Securities is delivered to the Trustee, specifying:
(A) its operating revenues (which may include revenues of the Company subject when collected or accrued to possible refund at a future date);
(B) its operating expenses, excluding (i) expenses for taxes on income or profits and other taxes measured by, or dependent on, net income, (ii) provisions for reserves for renewals, replacements, depreciation, depletion or retirement of property (or any expenditures therefor), or provisions for amortization of property, (iii) expenses or provisions for interest on any indebtedness of the Company, for the amortization of debt discount, premium, expense or loss on reacquired debt, for any maintenance and replacement, improvement or sinking fund or other device for the retirement of any indebtedness, or for other amortization, (iv) expenses or provisions for any non-recurring charge to income or to retained earnings of whatever kind or nature (including without limitation the recognition of expense or impairment due to the non-recoverability of assets or expense), whether or not recorded as a non-recurring charge in the Company's books of account, and (v) provisions for any refund of revenues previously collected or accrued by the Company subject to possible refund;
(C) the amount remaining after deducting the amount required to be stated in such certificate by clause (B) above from the amount required to be stated therein by clause (A) above;
(D) its other income, net of related expenses (excluding expenses or provisions for any non-recurring charge to the income or retained earnings of the entity which is the source of such other income of whatever kind or nature (including without limitation the recognition of expense or impairment due to the non-recoverability of assets or expense), whether or not recorded and a non-recurring charge in such entity's books of account), which other income may include any portion of the allowance for funds used during construction and other deferred costs (or any analogous amounts) which is not included in "other income" (or any analogous item) in the Company's books of account; and
(E) the Adjusted Net Earnings of the Company for such period of twelve (12) consecutive calendar months (being the sum of the amounts required to be stated in such certificate by clauses (C) and (D) above); and
(2) the "Annual Interest Requirements," being the interest requirements for one year, at the respective Stated Interest Rates, if any, borne prior to Maturity, upon:
(A) all Securities Outstanding hereunder at the date of such certificate, except any for the payment or redemption of which the Securities applied for are to be issued; provided, however, that, if Outstanding Securities of any series bear interest at a variable rate or rates, then the interest requirement on the Securities of such series shall be determined by reference to the rate or rates in effect on the day immediately preceding the date of such certificate;
(B) all Securities then applied for in pending
applications for the original issuance of Securities, including the application
in connection with which such certificate is made; provided, however, that if
Securities of any series are to bear interest at a variable rate or rates, then
the interest requirement on the Securities of such series shall be determined by
reference to the rate or rates to be in effect at the time of the initial
authentication and delivery of such Securities; and provided, further, that the
determination of the interest requirement on Securities of a series subject to a
Periodic Offering shall be further subject to the provisions of clause (6) of
Section 401;
(C) all First Mortgage Securities Outstanding at the date of such certificate, except any First Mortgage Collateral Bonds and except any for the payment or redemption of which the Securities applied for are to be issued; provided, however, that, if the Outstanding First Mortgage Securities of any series bear interest at a variable rate or rates, then the interest requirement on the First Mortgage Securities of such series shall be determined by reference to the rate or rates in effect on the day immediately preceding the date of such certificate; and
(D) the principal amount of all other indebtedness (except (i) First Mortgage Collateral Bonds, (ii) indebtedness of the Company the repayment of which supports or is supported by other indebtedness included in Annual Interest Requirements pursuant to one of the other clauses of this definition, (iii) indebtedness for the payment of which the Securities applied for are to be issued, and (iv) indebtedness secured by a Prepaid Lien prior to the Lien of this Indenture upon property subject to the Lien of this Indenture outstanding on the date of such certificate and secured by a Lien on a parity with or prior to the Lien of this Indenture upon property subject to the Lien of this Indenture), if such indebtedness has been issued, assumed or guaranteed by the Company or if the Company customarily pays the interest upon the principal thereof or collections from the Company's customers are applied to, or pledged as security for the payment of such interest; provided, however, that if any such indebtedness bears interest at a variable rate or rates, then the interest requirement on such indebtedness shall be determined by reference to the rate or rates in effect on the day immediately preceding the date of such certificate; and provided, further, that any amounts collected by others to be applied to debt service on indebtedness of the Company, and not otherwise treated on the Company's books as revenue, shall be added to the Company's operating revenues when determining Adjusted Net Earnings.
In any case where a Net Earnings Certificate is required as a condition precedent to the authentication and delivery of Securities, such certificate shall be accompanied by a certificate signed by an Independent Accountant if the aggregate principal amount of Securities then applied for plus the aggregate principal amount of Securities authenticated and delivered hereunder since the commencement of the then current calendar year (other than those with respect to which a Net Earnings Certificate is not required, or with respect to which a Net Earnings Certificate accompanied by a certificate signed by an Independent Accountant has previously been furnished to the Trustee) is ten percent (10%) or more of the sum of (a) the principal amount of the Securities at the time Outstanding, and (b) the principal amount of the First Mortgage Securities at the time Outstanding other than First Mortgage Collateral Bonds, which certificate shall provide that such Independent Accountant has reviewed the Net Earnings
Certificate and that such Independent Accountant has no knowledge that any statements in such Net Earnings Certificate are not true.
SECTION 105. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
(1) a statement that each Person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such Person, such condition or covenant has been complied with.
SECTION 106. Content and Form of Documents Delivered to Trustee.
(1) Any Officer's Certificate may be based (without further examination or investigation), insofar as it relates to or is dependent upon legal matters, upon an opinion of, or representations by, counsel, and, insofar as it relates to or is dependent upon matters which are subject to verification by Accountants, upon a certificate or opinion of, or representations by, an Accountant, and, insofar as it relates to or is dependent upon matters which are required in this Indenture to be covered by a certificate or opinion of, or representations by, an Expert, upon the certificate or opinion of, or representations by, an Expert, unless, in any case, such officer has actual knowledge that the certificate or opinion or representations with respect to the matters upon which such Officer's Certificate may be based as aforesaid are erroneous.
Any Expert's Certificate may be based (without further examination or investigation), insofar as it relates to or is dependent upon legal matters, upon an opinion of, or representations by, counsel, and insofar as it relates to or is dependent upon factual matters, information with respect to which is in the possession of the Company and which are not subject to verification by Experts, upon a certificate or opinion of, or representations by, an officer or officers of the Company, unless such Expert has actual knowledge that the certificate or opinion or
representations with respect to the matters upon which his certificate or opinion may be based as aforesaid are erroneous.
Any certificate of an Accountant may be based (without further examination or investigation), insofar as it relates to or is dependent upon legal matters, upon an opinion of, or representations by, counsel, and insofar as it relates to or is dependent upon factual matters, information with respect to which is in the possession of the Company and which are not subject to verification by Accountants, upon a certificate of, or representations by, an officer or officers of the Company, unless such Accountant has actual knowledge that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion may be based as aforesaid are erroneous.
Any Opinion of Counsel may be based (without further examination or
investigation), insofar as it relates to or is dependent upon factual matters,
information with respect to which is in the possession of the Company, upon a
certificate of, or representations by, an officer or officers of the Company,
and, insofar as it relates to or is dependent upon matters which are subject to
verification by Accountants upon a certificate or opinion of, or representations
by, an Accountant, and, insofar as it relates to or is dependent upon matters
required in this Indenture to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless such counsel has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his opinion may be based as aforesaid are erroneous. In addition, any Opinion of
Counsel may be based (without further examination or investigation), insofar as
it relates to or is dependent upon matters covered in an Opinion of Counsel
rendered by other counsel, upon such other Opinion of Counsel, unless such
counsel has actual knowledge that the Opinion of Counsel rendered by such other
counsel with respect to the matters upon which his Opinion of Counsel may be
based as aforesaid are erroneous. Further, any Opinion of Counsel with respect
to the status of title to or the sufficiency of descriptions of property, and/or
the existence of Liens thereon, and/or the recording or filing of documents,
and/or any similar matters, may be based (without further examination or
investigation) upon (i) title insurance policies or commitments and reports,
lien search certificates and other similar documents or (ii) certificates of, or
representations by, officers, employees, agents and/or other representatives of
the Company or (iii) any combination of the documents referred to in (i) and
(ii), unless, in any case, such counsel has actual knowledge that the document
or documents with respect to the matters upon which his opinion may be based as
aforesaid are erroneous. If, in order to render any Opinion of Counsel provided
for herein, the signer thereof shall deem it necessary that additional facts or
matters be stated in any Officer's Certificate, certificate of an Accountant or
Expert's Certificate provided for herein, then such certificate may state all
such additional facts or matters as the signer of such Opinion of Counsel may
request.
(2) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
(3) Whenever, subsequent to the receipt by the Trustee of any Manager Resolution, Officer's Certificate, Expert's Certificate, Net Earnings Certificate, Opinion of Counsel or other document or instrument, a clerical, typographical or other inadvertent or unintentional error or omission shall be discovered therein, a new document or instrument may be substituted therefor in corrected form with the same force and effect as if originally filed in the corrected form and, irrespective of the date or dates of the actual execution and/or delivery thereof, such substitute document or instrument shall be deemed to have been executed and/or delivered as of the date or dates required with respect to the document or instrument for which it is substituted. Anything in this Indenture to the contrary notwithstanding, if any such corrective document or instrument indicates that action has been taken by or at the request of the Company which could not have been taken had the original document or instrument not contained such error or omission, the action so taken shall not be invalidated or otherwise rendered ineffective but shall be and remain in full force and effect, except to the extent that such action was a result of willful misconduct or bad faith. Without limiting the generality of the foregoing, any Securities issued under the authority of such defective document or instrument shall nevertheless be the valid obligations of the Company entitled to the benefit of the Lien of this Indenture equally and ratably with all other Outstanding Securities, except as aforesaid.
SECTION 107. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; or, alternatively, may be embodied in and
evidenced by the record of Holders voting in favor thereof, either in person or
by proxies duly appointed in writing, at any meeting of Holders duly called and
held in accordance with the provisions of Article Fifteen, or a combination of
such instruments and any such record. Except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments and any such record
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments
and so voting at any such meeting. Proof of execution of any such instrument or
of a writing appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 1101) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 107. The record of any meeting of Holders shall
be proved in the manner provided in Section 1506.
The fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee and the Company deem sufficient. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee and the Company deem sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of a Holder shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, election, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 109.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 1002, (iii) any request to institute
proceedings referred to in Section 1011 or (iv) any direction referred to in
Section 1016, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action
taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 109.
With respect to any record date set pursuant to this Section 107, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities of the relevant series in the manner
set forth in Section 109, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section 107, the party hereto which set such record date shall be deemed
to have initially designated the one hundred eightieth (180th) day after such
record date as the Expiration Date with respect thereto, subject to its right to
change the Expiration Date as provided in this paragraph. Notwithstanding the
foregoing, no Expiration Date shall be later than the one hundred eightieth
(180th) day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount.
SECTION 108. Notices, Etc., to Trustee and Company.
Except as otherwise provided herein, any request, demand, authorization, direction, notice, consent, election, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, Attention:
Institutional Trust Services, or
(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to the attention of the Treasurer of the Company at the address of the Company's principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 109. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event otherwise to be specified therein, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 110. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with a provision of the Trust Indenture Act which is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 111. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 112. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
SECTION 113. Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 114. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 115. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York (including without limitation
Section 5-1401 of the New York General Obligations Law or any successor to such
statute), except to the extent that the Trust
Indenture Act shall be applicable and except to the extent that the law of any jurisdiction wherein any portion of the Mortgaged Property is located shall mandatorily govern the creation of a mortgage lien on and security interest in, or perfection, priority or enforcement of the Lien of this Indenture or exercise of remedies with respect to, such portion of the Mortgaged Property.
SECTION 116. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section 116)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, and no additional interest shall accrue as the result of such delayed payment.
SECTION 117. Investment of Cash Held by Trustee.
Any cash held by the Trustee or any Paying Agent under any provision of this Indenture shall, except as otherwise provided in Section 806 or in Article Nine, at the request of the Company evidenced by Company Order, be invested or reinvested in Investment Securities designated by the Company (such Company Order to contain a representation to the effect that the securities designated therein constitute Investment Securities), and any interest on such Investment Securities shall be promptly paid over to the Company as received free and clear of any Lien. Such Investment Securities shall be held subject to the same provisions hereof as the cash used to purchase the same, but upon a like request of the Company shall be sold, in whole or in designated part, and the proceeds of such sale shall be held subject to the same provisions hereof as the cash used to purchase the Investment Securities so sold. If such sale shall produce a net sum less than the cost of the Investment Securities so sold, the Company shall pay to the Trustee or any such Paying Agent, as the case may be, such amount in cash as, together with the net proceeds from such sale, shall equal the cost of the Investment Securities so sold, and if such sale shall produce a net sum greater than the cost of the Investment Securities so sold, the Trustee or any such Paying Agent, as the case may be, shall promptly pay over to the Company an amount in cash equal to such excess, free and clear of any Lien. In no event shall the Trustee be liable for any loss incurred in connection with the sale of any Investment Security pursuant to this Section.
Notwithstanding the foregoing, if an Event of Default shall have occurred and be continuing, interest on Investment Securities and any gain upon the sale thereof shall be held as part of the Mortgaged Property until such Event of Default shall have been cured or waived, whereupon such interest and gain shall be promptly paid over to the Company free and clear of any Lien.
ARTICLE TWO.
SECURITY FORMS
SECTION 201. Forms Generally.
The definitive Securities of each series shall be in substantially the form or forms established in the indenture supplemental hereto establishing such series, or in a Manager Resolution establishing such series, or in an Officer's Certificate pursuant to such a supplemental indenture or Manager Resolution, in any case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or automated quotation system on which the Securities of such series may be listed or traded or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Manager Resolution, a copy of an appropriate record of such action shall be certified by the Company Secretary or an Assistant Company Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 401 for the authentication and delivery of such Securities.
The Securities of each series shall be issuable in registered form without coupons. The definitive Securities of each series shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange or automated quotation system on which the Securities of such series may be listed or traded, on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange or automated quotation system on which the Securities of such series may be listed or traded, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication:
---------------- --------------------------
As Trustee
By:
-------------------------
Authorized Signatory
|
ARTICLE THREE.
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
Subject to the provisions of Article Four, the aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series each of which may be issued in Tranches. Subject to the penultimate paragraph of this Section, prior to the authentication and delivery of Securities of any series there shall be established by specification in a supplemental indenture or in a Manager Resolution, or in an Officer's Certificate pursuant to a supplemental indenture or a Manager Resolution:
(1) the title of the Securities of such series (which shall distinguish the Securities of such series from Securities of all other series);
(2) any limit upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 304, 305, 306, 507 or 1406 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder);
(3) the Persons (without specific identification) to whom interest on Securities of such series, or any Tranche thereof, shall be payable on any Interest Payment Date, if other than the Persons in whose names such Securities (or one or more Predecessor Securities) are registered at the close of business on the Regular Record Date for such interest;
(4) the date or dates on which the principal of the Securities of such series, or any Tranche thereof, is payable or any formulary or other method or other means by which such date or dates shall be determined, by reference to an index or other fact or event ascertainable outside of this Indenture or otherwise (without regard to any provisions for redemption, prepayment, acceleration, purchase or extension);
(5) the rate or rates at which the Securities of such series, or any Tranche thereof, shall bear interest, if any (including the rate or rates at which overdue principal shall bear interest, if different from the rate or rates at which such Securities shall bear interest prior to Maturity, and, if applicable, the rate or rates at which overdue premium or interest shall bear interest, if any), or any formulary or other method or other means by which such rate or rates shall be determined, by reference to an index or other fact or event ascertainable outside of this Indenture or otherwise; the date or dates from which such interest shall accrue; the Interest Payment Dates on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on such Securities on any Interest Payment Date; and the basis of computation of interest, if other than as provided in Section 310;
(6) the place or places at which and/or the methods (if other than as provided elsewhere in this Indenture) by which (i) the principal of and premium, if any, and interest, if any, on Securities of such series, or any Tranche thereof, shall be payable, (ii) registration of transfer of Securities of such series, or any Tranche thereof, may be effected, (iii) exchanges of Securities of such series, or any Tranche thereof, may be effected and (iv) notices and demands to or upon the Company in respect of the Securities of such series, or any Tranche thereof, and this Indenture may be served; the Security Registrar and any Paying Agent or Agents for such series or Tranche; and, if such is the case, that the principal of such Securities shall be payable without the presentment or surrender thereof;
(7) the period or periods within which or the date or dates on which, the price or prices at which and the terms and conditions upon which the Securities of such series, or any Tranche thereof, may be redeemed, in whole or in part, at the option of the Company;
(8) the obligation or obligations, if any, of the Company to
redeem or purchase the Securities of such series, or any Tranche thereof,
pursuant to any sinking fund or other mandatory redemption provisions or at the
option of a Holder thereof and the period or periods within which or the date or
dates on which, the price or prices at which and the terms and conditions upon
which such Securities shall be redeemed or purchased, in whole or in part,
pursuant to such obligation, and applicable exceptions to the requirements of
Section 504 in the case of mandatory redemption or redemption at the option of
the Holder;
(9) the denominations in which Securities of such series, or any Tranche thereof, shall be issuable if other than denominations of One Thousand Dollars ($1,000) and any integral multiple thereof;
(10) the currency or currencies, including composite currencies, in which payment of the principal of and premium, if any, and interest, if any, on the Securities of such series, or any Tranche thereof, shall be payable (if other than in Dollars); it being understood that, for purposes of calculations under this Indenture (including calculations of principal amount under Article Four), any amounts denominated in a currency other than Dollars or in a composite currency shall be converted to Dollar equivalents by calculating the amount of Dollars which could have been purchased by the amount of such other currency based on such quotations or methods of determination as shall be specified pursuant to this clause (10);
(11) if the principal of or premium, if any, or interest, if any, on the Securities of such series, or any Tranche thereof, are to be payable, at the election of the Company or a Holder thereof, in a coin or currency other than that in which the Securities are stated to be payable, the coin or currency in which payment of any amount as to which such election is made will be payable, the period or periods within which, and the terms and conditions upon which, such election may be made; it being understood that, for purposes of calculations under this Indenture (including calculations of principal amount under Article Four), any such election shall be required to be taken into account, in the manner contemplated in clause (10) of this paragraph, only after such election shall have been made;
(12) if the principal of or premium, if any, or interest, if any, on the Securities of such series, or any Tranche thereof, are to be payable, or are to be payable at the election of
the Company or a Holder thereof, in securities or other property, the type and amount of such securities or other property, or the formulary or other method or other means by which such amount shall be determined, and the period or periods within which, and the terms and conditions upon which, any such election may be made; it being understood that all calculations under this Indenture (including calculations of principal amount under Article Four) shall be made on the basis of the fair market value of such securities or the Fair Value of such other property, in either case determined as of the most recent practicable date, except that, in the case of any amount of principal or interest that may be so payable at the election of the Company or a Holder, if such election shall not yet have been made, such calculations shall be made on the basis of the amount of principal or interest, as the case may be, that would be payable if no such election were made;
(13) if the amount payable in respect of principal of or premium, if any, or interest, if any, on the Securities of such series, or any Tranche thereof, may be determined with reference to an index or other fact or event ascertainable outside of this Indenture, the manner in which such amounts shall be determined (to the extent not established pursuant to clause (5) of this paragraph); it being understood that all calculations under this Indenture (including calculations of principal amount under Article Four) shall be made on the basis of the amount that would be payable as principal if such principal were due, or on the basis of the interest rates in effect, as the case may be, on the date next preceding the date of such calculation;
(14) if other than the principal amount thereof, the portion of the principal amount of Securities of such series, or any Tranche thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 1002;
(15) the terms, if any, pursuant to which the Securities of such series, or any Tranche thereof, may be converted into or exchanged for membership interests or shares of capital stock or other securities of the Company or any other Person;
(16) the obligations or instruments, if any, which shall be considered to be Eligible Obligations in respect of the Securities of such series, or any Tranche thereof, denominated in a currency other than Dollars or in a composite currency, and any additional or alternative provisions for the reinstatement of the Company's indebtedness in respect of such Securities after the satisfaction and discharge thereof as provided in Section 901;
(17) if the Securities of such series, or any Tranche thereof, are to be issued in global form, (i) any limitations on the rights of the Holder or Holders of such Securities to transfer or exchange the same or to obtain the registration of transfer thereof, (ii) any limitations on the rights of the Holder or Holders thereof to obtain certificates therefor in definitive form in lieu of temporary form and (iii) any and all other matters incidental to such Securities;
(18) if the Securities of such series, or any Tranche thereof, are to be issuable as bearer securities, any and all matters incidental thereto which are not specifically addressed in a supplemental indenture as contemplated by clause (4) of Section 1401;
(19) to the extent not established pursuant to clause (17) of this paragraph, any limitations on the rights of the Holders of the Securities of such series, or any Tranche thereof, to
transfer or exchange such Securities or to obtain the registration of transfer thereof; and if a service charge will be made for the registration of transfer or exchange of Securities of such series, or any Tranche thereof, the amount or terms thereof;
(20) any exceptions to Section 116, or variation in the definition of Business Day, with respect to the Securities of such series, or any Tranche thereof;
(21) the terms of any sinking, improvement, maintenance, replacement or analogous fund for any series; and
(22) any other terms of the Securities of such series, or any Tranche thereof.
With respect to Securities of a series subject to a Periodic Offering, the indenture supplemental hereto or the Manager Resolution which establishes such series, or the Officer's Certificate pursuant to such supplemental indenture or Manager Resolution, as the case may be, may provide general terms or parameters for Securities of such series and provide either that the specific terms of Securities of such series, or any Tranche thereof, shall be specified in a Company Order or that such terms shall be determined by the Company or its agents in accordance with procedures specified in a Company Order as contemplated by clause (2) of Section 401.
Anything herein to the contrary notwithstanding, the Trustee shall be under no obligation to authenticate and deliver Securities of any series the terms of which, established as contemplated by this Section, would affect the rights, duties, obligations, liabilities or immunities of the Trustee under this Indenture or otherwise.
SECTION 302. Denominations.
Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, or any Tranche thereof, the Securities of each series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by an Authorized Officer, under its company seal reproduced or impressed thereon and attested by its Company Secretary or one of its Assistant Company Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at time of execution the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, or any Tranche thereof, each Security shall be dated the date of its authentication.
Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, or any Tranche thereof, no Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if (a) any Security shall have been authenticated and delivered hereunder to the Company, or any Person acting on its behalf, but shall never have been issued and sold by the Company, (b) the Company shall deliver such Security to the Security Registrar for cancellation or shall cancel such Security and deliver evidence of such cancellation to the Trustee, in each case as provided in Section 309, and (c) the Company, at its election, shall deliver to the Trustee a written statement (which need not comply with Section 105 and need not be accompanied by an Officer's Certificate or an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, then, for all purposes of this Indenture, such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits hereof.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, or any Tranche thereof, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
Except as otherwise specified as contemplated by Section 301 with respect to the Securities of any series, or any Tranche thereof, after the preparation of definitive Securities of such series or Tranche, the temporary Securities of such series or Tranche shall be exchangeable, without charge to the Holder thereof, for definitive Securities of such series or Tranche upon surrender of such temporary Securities at the office or agency of the Company maintained pursuant to Section 602 in a Place of Payment for such Securities. Upon such surrender of temporary Securities, the Company shall, except as aforesaid, execute and the Trustee shall authenticate and deliver in exchange therefor definitive Securities of the same series and Tranche, of authorized denominations and of like tenor and aggregate principal amount.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept, with respect to the Securities of each series, or any Tranche thereof, at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities of such series or Tranche and the registration of transfer thereof. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. If any indenture supplemental hereto refers to any transfer agents
(in addition to the Security Registrar) initially designated by the Company with respect to any series of Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which such transfer agent acts, provided that the Company maintains a transfer agent in each Place of Payment for such series. The Company may at any time designate additional transfer agents with respect to the Securities of any series, or any Tranche thereof.
Upon surrender for registration of transfer of any Security of such series or Tranche at the office or agency of the Company in a Place of Payment for such series or Tranche, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series and Tranche, of authorized denominations and of like tenor and aggregate principal amount.
Except as otherwise specified as contemplated by Section 301 with respect to the Securities of any series, or any Tranche thereof, any Security of such series or Tranche may be exchanged at the option of the Holder, for one or more new Securities of the same series and Tranche, of authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee or the Security Registrar) be duly endorsed or shall be accompanied by a written instrument of transfer in form satisfactory to the Company, the Trustee or the Security Registrar, as the case may be, duly executed by the Holder thereof or his attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301 with respect to Securities of any series, or any Tranche thereof, no service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 507 or 1406 not involving any transfer.
Neither the Trustee nor the Company shall be required, pursuant to the provisions of this Section 305, (A) to issue, register the transfer of or exchange any Securities of any series (or of any Tranche thereof) during a period beginning at the opening of business fifteen (15) days before the day of the mailing of a notice of redemption of any such Securities of such series or Tranche selected for redemption under Section 503 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, any portion not to be redeemed.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them and any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and Tranche, and of like tenor and principal amount and bearing a number not contemporaneously outstanding and shall cancel and destroy such mutilated Security.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security is held by a Person purporting to be the owner of such Security, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and Tranche, and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If, after the delivery of such new Security, a bona fide purchaser of the original Security in lieu of which such new Security was issued presents for payment or registration such original Security, the Trustee shall be entitled to recover such new Security from the party to whom it was delivered or any party taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Company and the Trustee in connection therewith and shall cancel and destroy such new Security.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 306, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of counsel to the Company and the fees and expenses of the Trustee, its agents and counsel) connected therewith.
Every new Security of any series issued pursuant to this Section 306 in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
The provisions of this Section 306 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Except as otherwise provided as contemplated by Section 301 with respect to the Securities of any series, or any Tranche thereof, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities of such series, or any Tranche
thereof, except that, unless otherwise provided in the Securities of such
series, or any Tranche thereof, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security of any series which is issued
between a Regular Record Date and the related Interest Payment Date shall be
payable as provided in such Security or in the Manager Resolution pursuant to
Section 301 with respect to the related series of Securities. Except in the case
of a Security in global form, at the option of the Company, interest on any
series of Securities may be paid (i) by check mailed to the address of the
Person entitled thereto as it shall appear on the Security Register of such
series or (ii) by wire transfer in immediately available funds at such place and
to such account as designated in writing by the Person entitled thereto as
specified in the Security Register of such series.
Any Paying Agents will be identified in a supplemental indenture hereto. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent; however, the Company at all times will be required to maintain a Paying Agent in each Place of Payment for each series of Securities.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, any interest on any Security of any series which is
payable, but is not timely paid or duly provided for, on any Interest Payment
Date for Securities of such series (herein called "Defaulted Interest") shall
forthwith cease to be payable to the registered Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series in respect of which interest is in default (or their respective Predecessor Securities) are registered at the close of business on a date (herein called a "Special Record Date") for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause (1). Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder of Securities of such series in the manner set forth in Section 109, not less than ten (10) days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which such Securities may be listed or traded, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 307 and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and premium, if any, and (subject to Sections 305 and 307) interest, if any, on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 309, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be treated in accordance with the Trustee's document retention policies.
SECTION 310. Computation of Interest; Usury Not Intended.
Except as otherwise specified as contemplated by Section 301 for Securities of any series, or any Tranche thereof, interest on the Securities of each series shall be computed on the basis of a three hundred sixty (360)-day year of twelve (12) thirty (30)-day months and interest on the Securities of each series for any partial period shall be computed on the basis of a three hundred sixty (360)-day year of twelve (12) thirty (30)-day months and the actual number of days elapsed in any partial month.
The amount of interest (or amounts deemed to be interest under applicable law) payable or paid on any Security shall be limited to an amount which shall not exceed the maximum nonusurious rate of interest allowed by the applicable laws of the State of Texas or any applicable law of the United States permitting a higher maximum nonusurious rate that preempts such applicable Texas laws, which could lawfully be contracted for, taken, reserved, charged or received (the "Maximum Interest Rate"). If, as a result of any circumstances whatsoever, the Company or any other Person is deemed to have paid interest (or amounts deemed to be interest under applicable law) or any Holder is deemed to have contracted for, taken, reserved, charged or received interest (or amounts deemed to be interest under applicable law), in excess of the Maximum Interest Rate, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of validity, and if from any such circumstance, the Trustee, acting on behalf of the Holders, or any Holder shall ever receive interest or anything that might be deemed interest under applicable law that would exceed the Maximum Interest Rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing on the applicable Security or Securities and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of any such Security or Securities, such excess shall be refunded to the Company. In addition, for purposes of determining whether payments in respect of any Security are usurious, all sums paid or agreed to be paid with respect to such Security for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such Bond.
SECTION 311. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" or other similar numbers (if then generally in use), and, if so, the Trustee or Security Registrar may use "CUSIP" or such other numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, in which case none of the Company or, as the case may be, the Trustee or the Security Registrar, or any agent of any of them, shall have any liability in respect of any CUSIP number used on any such notice, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee in writing of any change in "CUSIP" numbers.
ARTICLE FOUR.
ISSUANCE OF SECURITIES
SECTION 401. General.
Subject to the provisions of Section 402, 403 or 404, whichever may be applicable, and provided that the First Mortgage Collateralization Date has not occurred, the Trustee shall authenticate and deliver Securities of a series, for original issue, at one time or from time to time in accordance with the Company Order referred to below, upon receipt by the Trustee of:
(1) the instrument or instruments establishing the form or forms and terms of such series, as provided in Sections 201 and 301;
(2) a Company Order requesting the authentication and delivery of such Securities and, to the extent that the terms of such Securities shall not have been established in an indenture supplemental hereto or in a Manager Resolution, or in an Officer's Certificate pursuant to a supplemental indenture or Manager Resolution, all as contemplated by Section 301, either (i) establishing such terms or (ii) in the case of Securities of a series subject to a Periodic Offering, specifying procedures, acceptable to the Trustee, by which such terms are to be established (which procedures may provide for authentication and delivery pursuant to oral or electronic instructions from the Company or any agent or agents thereof, which oral instructions are to be promptly confirmed electronically or in writing), in either case in accordance with the instrument or instruments delivered pursuant to clause (1) above;
(3) the Securities of such series, executed on behalf of the Company by an Authorized Officer;
(4) an Opinion of Counsel to the effect that:
(A) the form or forms of such Securities have been duly authorized by the Company and have been established in conformity with the provisions of this Indenture;
(B) the terms of such Securities have been duly authorized by the Company and have been established in conformity with the provisions of this Indenture; and
(C) when such Securities shall have been authenticated and delivered by the Trustee and issued and delivered by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, such Securities will constitute valid and legally binding obligations of the Company, enforceable against the Company (subject to customary exceptions) and entitled to the benefit of the Lien of this Indenture equally and ratably with all other Securities then Outstanding;
provided, however, that, with respect to Securities of a series subject to a Periodic Offering, the Trustee shall be entitled to receive such Opinion of Counsel only once at or prior to the time of the first authentication and delivery of such Securities (provided that such Opinion of Counsel addresses the authentication and delivery of all such Securities) and that, in lieu of the opinions described in clauses (B) and (C) above, counsel may opine that:
(X) when the terms of such Securities shall have been established pursuant to a Company Order or Orders or pursuant to such procedures as may be specified from time to time by a Company Order or Orders, all as contemplated by and in accordance with the instrument or instruments delivered pursuant to clause (1) above, such terms will have been duly authorized by the Company and will have been established in conformity with the provisions of this Indenture; and
(Y) when such Securities shall have been authenticated and delivered by the Trustee in accordance with this Indenture and the Company Order or Orders or the specified procedures referred to in paragraph (X) above and issued and delivered by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, such Securities will
constitute valid obligations of the Company, entitled to the benefit of the Lien of this Indenture equally and ratably with all other Securities then Outstanding;
(5) an Officer's Certificate to the effect that, to the knowledge of the signer, no Event of Default has occurred and is continuing; provided, however, that with respect to Securities of a series subject to a Periodic Offering, either (i) such an Officer's Certificate shall be delivered at the time of the authentication and delivery of each Security of such series or (ii) the Officer's Certificate delivered at or prior to the time of the first authentication and delivery of the Securities of such series shall state that the statements therein shall be deemed to be made at the time of each, or each subsequent, authentication and delivery of Securities of such series;
(6) a Net Earnings Certificate showing the Adjusted Net
Earnings of the Company for the period therein specified to have been not less
than an amount equal to two (2) times the Annual Interest Requirements therein
specified, all in accordance with the provisions of Section 104; provided,
however, that the Trustee shall not be entitled to receive a Net Earnings
Certificate hereunder if the Securities of such series are to have no Stated
Interest Rate prior to Maturity; and provided, further, that, with respect to
Securities of a series subject to a Periodic Offering, other than Securities
theretofore authenticated and delivered, (i) it shall be assumed in the Net
Earnings Certificate delivered in connection with the authentication and
delivery of Securities of such series that none of the Securities of such series
not yet authenticated and delivered shall have a Stated Interest Rate in excess
of a maximum rate to be stated therein, and thereafter no Securities of such
series which would have a Stated Interest Rate at the time of the initial
authentication and delivery thereof in excess of such maximum rate shall be
authenticated and delivered under the authority of such Net Earnings Certificate
but instead shall only be authenticated and delivered under the authority of a
new Net Earnings Certificate which complies with the requirements of this clause
(6), including the proviso relating to Securities of a series subject to a
Periodic Offering, and (ii) so long as the Stated Interest Rate that Securities
of a series subject to a Periodic Offering bear at the time of the initial
authentication and delivery thereof does not exceed the maximum rate assumed in
the most recent Net Earnings Certificate delivered with respect to the
Securities of such series, the Trustee shall not be entitled to receive a new
Net Earnings Certificate at the time of any subsequent authentication and
delivery of the Securities of such series (unless such Securities are
authenticated and delivered on or after the date which is two years after the
most recent Net Earnings Certificate with respect to such series was delivered
pursuant to this clause (6), in which case this subclause (ii) shall not apply),
provided that no Net Earnings Certificate shall be required in connection with
any issuance of Securities if the Company Order requesting the authentication
and delivery of such Securities is delivered to the Trustee on a date prior to
March 31, 2003; and
(7) such other Opinions of Counsel, certificates and other documents as may be required under Section 402, 403 or 404, whichever may be applicable to the authentication and delivery of the Securities of such series.
With respect to Securities of a series subject to a Periodic Offering, the Trustee may conclusively rely, as to the authorization by the Company of any of such Securities, the forms and terms thereof, the validity thereof and the compliance of the authentication and delivery
thereof with the terms and conditions of this Indenture, upon the Opinion or Opinions of Counsel and the certificates and other documents delivered pursuant to this Article Four at or prior to the time of the first authentication and delivery of Securities of such series until any of such opinions, certificates or other documents have been superseded or revoked or expire by their terms. In connection with the authentication and delivery of Securities of a series subject to a Periodic Offering, the Trustee shall be entitled to assume that the Company's instructions to authenticate and deliver such Securities do not violate any applicable law or any applicable rule, regulation or order of any Governmental Authority having jurisdiction over the Company.
Anything herein to the contrary notwithstanding, none of the conditions specified in Sections 402, 403 and 404 shall be required to be satisfied in connection with the initial authentication and delivery of the Securities of the Initial Series.
SECTION 402. Issuance of Securities on the Basis of Property Additions.
(1) Securities of any one or more series may be authenticated and delivered on the basis of Property Additions which do not constitute Funded Property in a principal amount not exceeding seventy percentum (70%) of the balance of the Cost or the Fair Value to the Company of such Property Additions (whichever shall be less) after making any deductions and any additions pursuant to Section 103(2) except as otherwise specified in clause (2) with respect to the Initial Expert's Certificate.
(2) Securities of any series shall be authenticated and delivered by the Trustee on the basis of Property Additions upon receipt by the Trustee of:
(A) the documents with respect to the Securities of such series specified in Section 401;
(B) an Expert's Certificate dated as of a date not more than ninety (90) days prior to the date of the Company Order requesting the authentication and delivery of such Securities:
(i) describing generally all property constituting Property Additions and designated by the Company, in its discretion, to be made the basis of the authentication and delivery of such Securities (such description of property to be made by reference, at the election of the Company, either to specified items, units and/or elements of property or portions thereof, on a percentage or Dollar basis, or to properties reflected in specified accounts or subaccounts in the Company's books of account or portions thereof, on a Dollar basis), and stating the Cost of such property;
(ii) stating that all such property constitutes Property Additions;
(iii) stating that such Property Additions are desirable for use in the conduct of the business, or one of the businesses, of the Company;
(iv) stating that such Property Additions, to the extent of the Cost or Fair Value to the Company thereof (whichever is less) to be made the basis of the authentication and delivery of such Securities, do not constitute Funded Property;
(v) stating, except as to Property Additions acquired, made or constructed wholly through the delivery of securities or other property or the incurrence of other obligations, that the amount of cash forming all or part of the Cost thereof was equal to or more than an amount to be stated therein;
(vi) briefly describing, with respect to any Property Additions acquired, made or constructed in whole or in part through the delivery of securities or other property or the incurrence of other obligations, the securities or other property so delivered or obligations so incurred and stating the date of such delivery or incurrence;
(vii) stating what part, if any, of such Property Additions includes property which within six months prior to the date of acquisition thereof by the Company had been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and stating whether or not, in the judgment of the signers, the Fair Value thereof to the Company, as of the date of such certificate, is less than One Hundred Thousand Dollars ($100,000) and whether or not such Fair Value is less than one percentum (1%) of the sum of the aggregate principal amount of Securities then Outstanding and the aggregate principal amount of First Mortgage Securities then Outstanding other than First Mortgage Collateral Bonds;
(viii) stating, in the judgment of the signers, the Fair Value to the Company, as of the date of such certificate, of such Property Additions, except any thereof with respect to the Fair Value to the Company of which a statement is to be made in an Independent Expert's Certificate pursuant to clause (C) below;
(ix) stating the amount required to be
deducted under Section 103(2)(A) and the amounts elected to be added under
Section 103(2)(B) in respect of Funded Property retired of the Company;
(x) if any property included in such
Property Additions is subject to a Lien (other than the Lien of the First
Mortgage) of the character described (a) in clause (4) of the definition of
Permitted Liens, stating that such Lien does not, in the judgment of the
signers, materially impair the use by the Company of the Mortgaged Property
considered as a whole, or (b) in clause (7)(ii) of the definition of Permitted
Liens, stating that such Lien does not, in the judgment of the signers, in the
aggregate materially impair the use by the Company of such properties,
considered as a whole for the purposes for which it is held by the Company or
(c) in clause (14)(ii) of the definition of Permitted Liens, stating that the
enforcement of such Lien would not, in the judgment of the signers, adversely
affect the interests of the Company in such property in any material respect;
(xi) stating the lower of the Cost or the Fair Value to the Company of such Property Additions, after the deductions therefrom and additions thereto specified in such Expert's Certificate pursuant to clause (ix) above;
(xii) stating the amount equal to seventy percentum (70%) of the amount required to be stated pursuant to clause (xi) above; and
(xiii) stating the aggregate principal amount of the Securities to be authenticated and delivered on the basis of such Property Additions (such amount not to exceed the amount stated pursuant to clause (xii) above); provided, however, that in the Initial Expert's Certificate there shall be stated, in lieu of such principal amount, the sum of (a) the principal amount of Securities to be authenticated and delivered on the basis of Property Additions, (b) the aggregate principal amount of all Securities then Outstanding and (c) the aggregate principal amount of all First Mortgage Securities then Outstanding other than First Mortgage Collateral Bonds (such sum not to exceed the amount stated pursuant to clause (xii) above);
(C) in case any Property Additions are shown by the Expert's Certificate provided for in clause (B) above to include property which, within six months prior to the date of acquisition thereof by the Company, had been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and such certificate does not show the Fair Value thereof to the Company, as of the date of such certificate, to be less than One Hundred Thousand Dollars ($100,000) or less than one percentum (1%) of the sum of the aggregate principal amount of Securities then Outstanding and the aggregate principal amount of First Mortgage Securities then Outstanding other than First Mortgage Collateral Bonds, an Independent Expert's Certificate stating, in the judgment of the signer, the Fair Value to the Company, as of the date of such Independent Expert's Certificate, of (X) such Property Additions which have been so used or operated and (at the option of the Company) as to any other Property Additions included in the Expert's Certificate provided for in clause (B) above and (Y) in case such Independent Expert's Certificate is being delivered in connection with the authentication and delivery of Securities, any property so used or operated which has been subjected to the Lien of this Indenture since the commencement of the then current calendar year as the basis for the authentication and delivery of Securities and as to which an Independent Expert's Certificate has not previously been furnished to the Trustee;
(D) in case any Property Additions are shown by the Expert's Certificate provided for in clause (B) above to have been acquired, made or constructed in whole or in part through the delivery of securities or other property or the incurrence of an obligation, an Expert's Certificate stating, in the judgment of the signers, the fair market value in cash of such securities or other property or other obligation at the time of delivery thereof in payment for or for the acquisition of such Property Additions;
(E) an Opinion of Counsel to the effect that:
(i) this Indenture constitutes, or, upon the delivery of, and/or the filing and/or recording in the proper places and manner of, the instruments of conveyance, assignment or transfer, if any, specified in said opinion, will constitute, a Lien on all the Property Additions to be made the basis of the authentication and delivery of such Securities, subject to no Lien thereon prior to the Lien of this Indenture except Permitted Liens; and
(ii) the Company has corporate or limited liability authority to operate such Property Additions; and
(F) copies of the instruments of conveyance, assignment and transfer, if any, specified in the Opinion of Counsel provided for in clause (E) above.
SECTION 403. Issuance of Securities on the Basis of Retired Securities.
(1) Securities of any one or more series may be authenticated and delivered on the basis of, and in an aggregate principal amount not exceeding the aggregate principal amount of, Retired Securities.
(2) Securities of any series shall be authenticated and delivered by the Trustee on the basis of Retired Securities upon receipt by the Trustee of:
(A) the documents with respect to the Securities of such series specified in Section 401; provided, however, that no Net Earnings Certificate shall be required to be delivered unless the maximum Stated Interest Rate, if any, on such Retired Securities at the time of their authentication and delivery was less than the maximum Stated Interest Rate, if any, on such Securities to be in effect upon the initial authentication and delivery thereof; and
(B) an Officer's Certificate stating that Retired Securities, specified by series, in an aggregate principal amount not less than the aggregate principal amount of Securities to be authenticated and delivered, have theretofore been authenticated and delivered and, as of the date of such Officer's Certificate, constitute, or will constitute upon the application of the proceeds of issuance of the Securities to be authenticated and delivered on the basis of such Retired Securities to the repayment of the aggregate principal amount of such Retired Securities, Retired Securities and are the basis for the authentication and delivery of such Securities.
SECTION 404. Issuance of Securities on the Basis of Deposit of Cash.
(1) Securities of any one or more series may be authenticated and delivered on the basis of, and in an aggregate principal not exceeding the amount of, any deposit with the Trustee of cash for such purpose.
(2) Securities of any series shall be authenticated and delivered by the Trustee on the basis of the deposit of cash when the Trustee shall have received, in addition to such deposit, the documents with respect to the Securities of such series specified in Section 401.
(3) All cash deposited with the Trustee under the provisions of this Section shall be held by the Trustee as a part of the Mortgaged Property and may be withdrawn from time to time by the Company, upon application of the Company to the Trustee, in an amount equal to the aggregate principal amount of Securities to the authentication and delivery of which the Company shall be entitled under any of the provisions of this Indenture by virtue of compliance with all applicable provisions of this Indenture (except as hereinafter in this clause (3) otherwise provided).
Upon any such application for withdrawal, the Company shall comply with all applicable provisions of this Indenture relating to the authentication and delivery of Securities except that the Company shall not in any event be required to deliver the documents specified in Section 401.
Any withdrawal of cash under this clause (3) shall operate as a waiver by the Company of its right to the authentication and delivery of the Securities on which it is based and such Securities may not thereafter be authenticated and delivered hereunder. Any Property Additions which have been made the basis of any such right to the authentication and delivery of Securities so waived shall be deemed to have been made the basis of the withdrawal of such cash and any Retired Securities which have been made the basis of any such right to the authentication and delivery of Securities so waived shall be deemed to have been made the basis of the withdrawal of such cash.
(4) If at any time the Company shall so direct, any sums deposited with the Trustee under the provisions of this Section may be used or applied to the purchase, payment or redemption of Securities in the manner and subject to the conditions provided in clauses (5) and (6) of Section 806.
ARTICLE FIVE.
REDEMPTION OF SECURITIES
SECTION 501. Applicability of Article.
Securities of any series, or any Tranche thereof, which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of such series or Tranche) in accordance with this Article.
SECTION 502. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by a Manager Resolution or in another manner specified as contemplated by
Section 301 for such Securities. In case of any redemption at the election of
the Company of less than all the Securities of any series (including any such
redemption affecting only a single Security), the Company shall, not less than
forty-five (45) nor more than sixty (60) days prior to the Redemption Date fixed
by the Company (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee of such Redemption Date, of the principal amount of
Securities of such series, or any Tranche thereof, to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In the case of any
redemption of Securities (a) prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture, or (b) pursuant to an election of the Company which is subject to a
condition specified in the terms of such Securities, the Company shall furnish
the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing
compliance with such restriction or condition.
SECTION 503. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series, or any Tranche thereof, are to be redeemed (unless all the Securities of such series or Tranche and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series, or any Tranche thereof, not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, or any Tranche thereof, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series, or any Tranche thereof, and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series, or any Tranche thereof, and specified tenor not previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company or any Affiliate thereof shall not be included in the Securities selected for redemption.
SECTION 504. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register.
With respect to Securities of each series, or any Tranche thereof, to be redeemed, each notice of redemption shall identify the Securities to be redeemed (including CUSIP numbers) and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of any series, or any Tranche thereof, consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series, or any Tranche thereof, consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed;
(4) that on the Redemption Date the Redemption Price, together with accrued interest, if any, to the Redemption Date, will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date;
(5) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, unless it shall have been specified as contemplated by Section 301 with respect to such Securities that such surrender shall not be required;
(6) that the redemption is for a sinking fund, if such is the case; and
(7) such other matters as the Company shall deem desirable or appropriate
(8) with respect to any notice of redemption of Securities at the election of the Company, unless, upon the giving of such notice, such Securities shall be deemed to have been paid in accordance with Section 901, such notice may state that such redemption shall be conditional upon the receipt by the Paying Agent or Agents for such Securities, on or prior to the date fixed for such redemption, of money sufficient to pay the principal of and premium, if any, and interest, if any, on such Securities and that if such money shall not have been so received such notice shall be of no force or effect and the Company shall not be required to redeem such Securities. In the event that such notice of redemption contains such a condition and such money is not so received, the redemption shall not be made and within a reasonable time thereafter notice shall be given, in the manner in which the notice of redemption was given, that such money was not so received and such redemption was not required to be made, and the Paying Agent or Agents for the Securities otherwise to have been redeemed shall promptly return to the Holders thereof any of such Securities which had been surrendered for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the election of the Company, and any notice of non-satisfaction of a condition for redemption as aforesaid, shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security.
SECTION 505. Deposit of Redemption Price.
On or before the Redemption Date specified in the notice of redemption given as provided in Section 504, the Company shall deposit with the Trustee or with a Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 603) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.
SECTION 506. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, and the conditions, if any, set forth in such notice having been satisfied, the Securities or portions thereof so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless, in the case of an unconditional notice of redemption, the Company shall default in the payment of the Redemption Price and accrued interest, if any) such Securities or portions thereof, if interest bearing, shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with such notice, such Security or portion thereof shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that no such surrender shall be a condition to such payment if so specified as contemplated by Section 301 with respect to such Security; and provided, further, that, except as otherwise specified as contemplated by Section 301 with respect to such Security, any installment of interest on any Security the Stated Maturity of which installment is on or prior to the Redemption Date shall be payable to the Holder of such Security, or one or more Predecessor Securities, registered as such at the close of business on the related Record Date according to the terms of such Security and subject to the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
SECTION 507. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE SIX.
COVENANTS
SECTION 601. Payment of Securities; Lawful Possession; Maintenance of Lien.
(1) The Company covenants and agrees that it will duly and punctually pay the principal of and any premium and interest on the Securities of each series in accordance with the terms of such Securities and this Indenture.
(2) At the date of the execution and delivery of this Indenture, as originally executed and delivered, the Company is lawfully possessed of the Mortgaged Property.
(3) The Company shall maintain and preserve the Lien of this Indenture so long as any Securities shall remain Outstanding, subject, however, to the provisions of Article Eight and Article Fourteen.
SECTION 602. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for the Securities of each series, or any Tranche thereof, an office or agency where Securities of that series or Tranche may be presented or surrendered for payment, where Securities of that series or Tranche may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series or Tranche and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purpose. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency and prompt notice to the Holders of any such change in the manner specified in Section 109. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series, or any Tranche thereof, may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee, and prompt notice to the Holders in the manner specified in Section 109, of any such designation or rescission and of any change in the location of any such other office or agency.
Anything herein to the contrary notwithstanding, any office or agency required by this Section may be maintained at an office of the Company, in which event the Company shall perform all functions to be performed at such office or agency.
SECTION 603. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to the Securities of any series, or any Tranche thereof, it will, on or before each due date of the principal of or any premium or interest on any such Securities, segregate to the extent required by law and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Securities of any series, or any Tranche thereof, it will provide to a Paying Agent a sum sufficient to pay the
principal of or any premium or interest on such Securities, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for the Securities of any series, or any Tranche thereof, other than the Company or the Trustee, to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 603, that such Paying Agent will:
(1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent; and
(2) during the continuance of any default by the Company (or any other obligor upon such Securities), upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of such Securities.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall, upon receipt of a Company Request and at the expense of the Company, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 604. Existence.
Subject to Article Thirteen and the Company's ability to convert into a corporation, limited partnership or limited liability partnership or other legal entity under applicable law, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a limited liability company. On and after any conversion of the Company into a corporation, limited partnership or limited liability partnership or other legal entity under
applicable law, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate, limited partnership or limited liability partnership or other existence, as applicable.
SECTION 605. Maintenance of Properties.
The Company shall cause (or, with respect to property owned in common with others, make reasonable effort to cause) the Mortgaged Property, considered as a whole, to be maintained and kept in good condition, repair and working order and shall cause (or, with respect to property owned in common with others, make reasonable effort to cause) to be made such repairs, renewals, replacements, betterments and improvements thereof, as, in the judgment of the Company, may be necessary in order that the operation of the Mortgaged Property, considered as a whole, may be conducted in accordance with common industry practice; provided, however, that nothing in this Section shall prevent the Company from discontinuing, or causing the discontinuance of, the operation and maintenance of any portion of the Mortgaged Property; and provided, further, that nothing in this Section shall prevent the Company from selling, transferring or otherwise disposing of, or causing the sale, transfer or other disposition of, any portion of the Mortgaged Property or other property, subject to the provisions of this Indenture.
SECTION 606. Payment of Taxes; Discharge of Liens.
The Company shall pay all taxes and assessments and other governmental charges lawfully levied or assessed upon the Mortgaged Property, or upon any part thereof, or upon the interest of the Trustee in the Mortgaged Property, before the same shall become delinquent, and shall make reasonable effort to observe and conform in all material respects to all valid requirements of any Governmental Authority relative to any of the Mortgaged Property and all covenants, terms and conditions upon or under which any of the Mortgaged Property is held; and the Company shall not suffer any Lien to be created upon the Mortgaged Property, or any part thereof, prior to the Lien hereof, other than Permitted Liens and other than, in the case of property hereafter acquired, Purchase Money Liens and any other Liens existing or placed thereon at the time of the acquisition thereof; provided, however, that nothing in this Section contained shall require the Company (i) to observe or conform to any requirement of Governmental Authority or to cause to be paid or discharged, or to make provision for, any such Lien, or to pay any such tax, assessment or governmental charge so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings or such Lien, tax, assessment or charge is not greater than Five Million Dollars ($5,000,000), (ii) to pay, discharge or make provisions for any tax, assessment or other governmental charge, the validity of which shall not be so contested if adequate security for the payment of such tax, assessment or other governmental charge and for any penalties or interest which may reasonably be anticipated from failure to pay the same shall be given to the Trustee or (iii) to pay, discharge or make provisions for any Liens existing on the Mortgaged Property at the date of execution and delivery of this Indenture, as originally executed and delivered; and provided, further, that nothing in this Section shall prohibit the issuance or other incurrence of additional indebtedness, or the refunding of outstanding indebtedness, secured by any Lien prior to the Lien hereof which is permitted under this Section to continue to exist.
SECTION 607. Insurance.
(1) The Company shall (i) keep or cause to be kept all the
Mortgaged Property insured against loss by fire, to the extent that property of
similar character is usually so insured by companies similarly situated and
operating like properties, to a reasonable amount, by reputable insurance
companies, the proceeds of such insurance (except as to any loss of Excepted
Property and except as to any particular loss less than the greater of (A) Ten
Million Dollars ($10,000,000) and (B) three percentum (3%) of the sum of (1) the
principal amount of Securities Outstanding on the date of such particular loss
and (2) the principal amount of the First Mortgage Securities Outstanding other
than First Mortgage Collateral Bonds on the date of such particular loss) to be
made payable, subject to applicable law, to the Trustee as the interest of the
Trustee may appear, to the trustee of the First Mortgage, or to the trustee or
other holder of any other Lien prior hereto upon property subject to the Lien
hereof, if the terms thereof require such payment or (ii) in lieu of or
supplementing such insurance in whole or in part, adopt some other method or
plan of protection against loss by fire at least equal in protection to the
method or plan of protection against loss by fire of companies similarly
situated and operating properties subject to similar fire hazards or properties
on which an equal primary fire insurance rate has been set by reputable
insurance companies; and if the Company shall adopt such other method or plan of
protection, it shall, subject to applicable law (and except as to any loss of
Excepted Property and except as to any particular loss less than the greater of
(X) Ten Million Dollars ($10,000,000) and (Y) three percentum (3%) of the sum of
(1) the principal amount of Securities Outstanding on the date of such
particular loss and (2) the principal amount of the First Mortgage Securities
Outstanding other than First Mortgage Collateral Bonds on the date of such
particular loss) pay to the Trustee on account of any loss covered by such
method or plan an amount in cash equal to the amount of such loss less any
amounts otherwise paid to the Trustee in respect of such loss or paid to the
trustee under the First Mortgage or to the trustee or other holder of any other
Lien prior hereto upon property subject to the Lien hereof in respect of such
loss if the terms thereof require such payment. Any cash so required to be paid
by the Company pursuant to any such method or plan shall for the purposes of
this Indenture be deemed to be proceeds of insurance. In case of the adoption of
such other method or plan of protection, the Company shall also furnish to the
Trustee a certificate of an actuary or other qualified person appointed by the
Company with respect to the adequacy of such method or plan.
Anything herein to the contrary notwithstanding, the Company may have fire insurance policies with (i) a deductible provision in a dollar amount per occurrence not exceeding the greater of (A) Ten Million Dollars ($10,000,000) and (B) three percentum (3%) of the sum of (1) the principal amount of the Securities Outstanding on the date such policy goes into effect and (2) the principal amount of the First Mortgage Securities Outstanding other than First Mortgage Collateral Bonds on the date such policy goes into effect, and/or (ii) co-insurance provisions with a dollar amount per occurrence not exceeding thirty percentum (30%) of the loss proceeds otherwise payable; provided, however, that the dollar amount described in clause (i) above may be exceeded to the extent such dollar amount per occurrence is below the deductible amount in effect as to fire insurance (X) on property of similar character insured by companies similarly situated and operating like property or (Y) on property as to which an equal primary fire insurance rate has been set by reputable insurance companies.
(2) All moneys paid to the Trustee by the Company in accordance with this Section or received by the Trustee as proceeds of any insurance, in either case on account of a loss on or with respect to Funded Property, shall, subject to the requirements of the First Mortgage or other Lien prior hereto upon property subject to the Lien hereof, be held by the Trustee and, subject as aforesaid, shall be paid by it from time to time to the Company to reimburse the Company for amounts (including incremental amounts) expended or committed for expenditure in the rebuilding, renewal and/or replacement of or substitution for the property destroyed or damaged or lost, upon receipt by the Trustee of:
(A) a Company Request requesting such payment;
(B) an Expert's Certificate:
(i) describing the property so damaged or destroyed or otherwise lost;
(ii) stating the Cost of such property (or, if the Fair Value to the Company of such property at the time the same became Funded Property was certified to be an amount less than the Cost thereof, then such Fair Value, as so certified, in lieu of Cost) or, if such damage or destruction shall have affected only a portion of such property, stating the allocable portion of such Cost or Fair Value;
(iii) stating the amounts so expended or committed for expenditure in the rebuilding, renewal, replacement of and/or substitution for such property; and
(iv) stating the Fair Value to the Company of such property as rebuilt or renewed or as to be rebuilt or renewed and/or of the replacement or substituted property, and if:
(a) within six months prior to the date of acquisition thereof by the Company, such property has been used or operated, by a person or persons other than the Company, in a business similar to that in which it has been or is to be used or operated by the Company; and
(b) the Fair Value to the Company of such property as set forth in such Expert's Certificate is not less than One Hundred Thousand Dollars ($100,000) and not less than one percentum (1%) of the aggregate principal amount of the Securities at the time Outstanding, the Expert making the statement required by this clause (b) shall be an Independent Expert; and
(C) an Opinion of Counsel stating that, in the opinion of the signer, the property so rebuilt or renewed or to be rebuilt or renewed, and/or the replacement property, is or will be subject to the Lien hereof to the same extent as was the property so destroyed or damaged or otherwise lost.
Any such moneys not so applied within thirty-six (36) months after its receipt by the Trustee, or in respect of which notice in writing of intention to apply the same to the work of rebuilding, renewal, replacement or substitution then in progress and uncompleted shall not have
been given to the Trustee by the Company within such thirty-six (36) months, or which the Company shall at any time notify the Trustee is not to be so applied, shall thereafter be withdrawn, used or applied in the manner, to the extent and for the purposes, and subject to the conditions, provided in Section 806; provided, however, that if the amount of such moneys shall exceed seventy percentum (70%) of the amount stated pursuant to clause (B) in the Expert's Certificate referred to above, the amount of such excess shall not be deemed to be Funded Cash, shall not be subject to Section 806 and shall be remitted to or upon the order of the Company upon the withdrawal, use or application of the balance of such moneys pursuant to Section 806.
Anything in this Indenture to the contrary notwithstanding, if property on or with respect to which a loss occurs constitutes Funded Property in part only, the Company may, at its election, obtain the reimbursement of insurance proceeds attributable to the part of such property which constitutes Funded Property under this clause (2) and obtain the reimbursement of insurance proceeds attributable to the part of such property which does not constitute Funded Property under clause (3) of this Section 607.
(3) All moneys paid to the Trustee by the Company in accordance with this Section or received by the Trustee as proceeds of any insurance, in either case on account of a loss on or with respect to property which does not constitute Funded Property, shall, subject to the requirements of the First Mortgage or other Lien prior hereto upon property subject to the Lien hereof, be held by the Trustee and, subject as aforesaid, shall be paid by it to the Company upon receipt by the Trustee of:
(A) a Company Request requesting such payment;
(B) an Expert's Certificate stating:
(i) that such moneys were paid to or received by the Trustee on account of a loss on or with respect to property which does not constitute Funded Property; and
(ii) if true, either (I) that the aggregate amount of the Cost or Fair Value to the Company (whichever is less) of all Property Additions which do not constitute Funded Property (excluding, to the extent of such loss, the property on or with respect to which such loss was incurred), after making deductions therefrom and additions thereto of the character contemplated by Section 103, is not less than zero (0) or (II) that the amount of such loss does not exceed the aggregate Cost or Fair Value to the Company (whichever is less) of Property Additions acquired, made or constructed on or after the ninetieth (90th) day prior to the date of the Company Request requesting such payment; or
(iii) if neither of the statements contemplated in subclause (ii) above can be made, the amount by which zero (0) exceeds the amount referred to in subclause (ii)(I) above (showing in reasonable detail the calculation thereof); and
(C) if the Expert's Certificate required by clause
(B) above contains neither of the statements contemplated in clause (B)(ii)
above, an amount in cash, to be held by the Trustee as part of the Mortgaged
Property, equal to seventy percentum (70%) of the amount shown in clause
(B)(iii) above.
To the extent that the Company shall be entitled to withdraw proceeds of insurance pursuant to this clause (3), such proceeds shall be deemed not to constitute Funded Cash.
(4) Whenever under the provisions of this Section the Company is required to deliver moneys to the Trustee and at the same time shall have satisfied the conditions set forth herein for payment of moneys by the Trustee to the Company, there shall be paid to or retained by the Trustee or paid to the Company, as the case may be, only the net amount.
SECTION 608. Recording, Filing, etc.
The Company shall cause this Indenture and all indentures and instruments supplemental hereto (or notices, memoranda or financing statements as may be recorded or filed to place third parties on notice thereof) to be promptly recorded and filed and re-recorded and re-filed in such manner and in such places, as may be required by law in order fully to preserve and protect the security of the Holders and all rights of the Trustee, and shall furnish to the Trustee:
(1) promptly after the execution and delivery of this
Indenture, as originally executed and delivered, and of each supplemental
indenture, an Opinion of Counsel either stating that in the opinion of such
counsel this Indenture or such supplemental indenture (or any other instrument,
notice, memorandum or financing statement in connection therewith) has been
properly recorded and filed, so as to make effective the Lien intended to be
created hereby or thereby, and reciting the details of such action, or stating
that in the opinion of such counsel no such action is necessary to make such
Lien effective. The Company shall be deemed to be in compliance with this clause
(1) if (i) the Opinion of Counsel herein required to be delivered to the Trustee
shall state that this Indenture or such supplemental indenture (or any other
instrument, notice, memorandum or financing statement in connection therewith)
has been received for record or filing in each jurisdiction in which it is
required to be recorded or filed and that, in the opinion of such counsel (if
such is the case), such receipt for record or filing makes effective the Lien
intended to be created by this Indenture or such supplemental indenture, and
(ii) such opinion is delivered to the Trustee within such time, following the
date of the execution and delivery of this Indenture, as originally executed and
delivered, or such supplemental indenture, as shall be practicable having due
regard to the number and distance of the jurisdictions in which this Indenture
or such supplemental indenture (or such other instrument, notice, memorandum or
financing statement in connection therewith) is required to be recorded or
filed; and
(2) on or before April 1 of each year, beginning April 1,
2003, an Opinion of Counsel stating either (i) that in the opinion of such
counsel such action has been taken, since the date of the most recent Opinion of
Counsel furnished pursuant to this clause (2) or the first Opinion of Counsel
furnished pursuant to clause (1) of this Section, with respect to the recording,
filing, re-recording, and re-filing of this Indenture and of each indenture
supplemental to this Indenture (or any other instrument, notice, memorandum or
financing statement in connection therewith), as is necessary to maintain the
effectiveness of the Lien hereof, and reciting the details of such action, or
(ii) that in the opinion of such counsel no such action is necessary to maintain
the effectiveness of such Lien.
The Company shall execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as may be necessary or proper to carry out the purposes of this Indenture and to make subject to the Lien hereof any property hereafter acquired, made or constructed and intended to be subject to the Lien hereof, and to transfer to any new trustee or trustees or co-trustee or co-trustees, the estate, powers, instruments or funds held in trust hereunder.
SECTION 609. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term, provision or condition set forth in:
(1) any covenant or restriction specified with respect to the Securities of any one or more series, or any one or more Tranches thereof, as contemplated by Section 301 if before the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Securities of all series and Tranches with respect to which compliance with such covenant or restriction is to be omitted, considered as one class, shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition; provided, however, that no such waiver shall be effective as to any of the matters contemplated in clause (1), (2), (3) or (4) in Section 1402 without the consent of the Holders specified in such Section; and
(2) Section 604, 605, 606 or 607 or Article Thirteen if before the time for such compliance the Holders of at least a majority in principal amount of Securities Outstanding under this Indenture shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition; but, in either case, no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect.
SECTION 610. Annual Officer's Certificate as to Compliance.
Within one hundred twenty (120) days after the end of each fiscal year
of the Company ending after the date hereof, the Company shall deliver to the
Trustee an Officer's Certificate which need not comply with Section 105,
executed by the principal executive officer, the principal financial officer or
the principal accounting officer of the Company, as to such officer's knowledge
of the Company's compliance with all conditions and covenants under this
Indenture, such compliance to be determined (solely for the purpose of this
Section 610) without regard to any period of grace or requirement of notice
under this Indenture.
SECTION 611. Limited Issuance of First Mortgage Securities.
From and after the date of the initial authorization and delivery of the Securities of the Initial Series issued under this Indenture and until (but excluding) the First Mortgage Collateralization Date, the Company shall not issue any additional First Mortgage Securities, except:
(1) First Mortgage Securities in an aggregate principal amount which, when added to the aggregate principal amount of First Mortgage Securities Outstanding immediately prior to the issuance thereof (other than any Securities for the payment or redemption of which such First Mortgage Securities are to be issued), shall not exceed One Billion One Hundred Sixty One Million Two Hundred Seventeen Thousand Dollars ($1,161,217,000);
(2) to the extent necessary to replace any mutilated, lost or destroyed First Mortgage Securities or to effect exchanges and transfers of First Mortgage Securities; and
(3) if at any time First Mortgage Securities are issued pursuant to clause (1) of this Section, additional First Mortgage Securities in an aggregate principal amount of up to One Hundred Eighteen Million Dollars ($118,000,000) for the purpose of satisfying any Pollution Control Bond Collateral Requirements arising at such time.
ARTICLE SEVEN.
FIRST MORTGAGE COLLATERAL BONDS;
DISCHARGE OF FIRST MORTGAGE
SECTION 701. First Mortgage Collateral Bonds.
At any time in the discretion of the Company, the Company may issue and deliver to the Trustee, to be held by the Trustee as security under this Indenture, First Mortgage Securities in an aggregate principal amount equal to the aggregate principal amount of the Securities then Outstanding; provided that such First Mortgage Securities (the "First Mortgage Collateral Bonds"):
(1) shall mature on such dates and in such principal amounts that, at each Stated Maturity of the Securities then Outstanding, there shall mature First Mortgage Securities equal in principal amount to the Securities of such series or Tranche then to mature;
(2) (A) shall contain, in addition to any mandatory redemption provisions applicable to all First Mortgage Securities Outstanding under the First Mortgage, mandatory redemption provisions correlative to the provisions, if any, for the mandatory redemption (pursuant to a sinking fund or otherwise) of the Securities then Outstanding or for the redemption thereof at the option of the Holder or the Company;
(B) shall bear interest and premium, if any, at such rate and/or amount as shall cause the amount of interest and/or premium payable on such First Mortgage Collateral Bonds from time to time to be equal to the amount of interest and/or premium payable on the Securities then Outstanding, any such interest and premium to be payable at the same times as interest and/or premium on the Securities then Outstanding;
(C) may not contain provisions for the redemption thereof at the option of the Company; and
(D) shall be held by the Trustee in accordance with this Article Seven; and
(3) contain a mandatory redemption provision requiring that such First Mortgage Securities be mandatorily redeemed upon any declaration of the acceleration of the Maturity of the Securities pursuant to Section 1002, provided that such provision shall also require that, if the Event of Default giving rise to such declaration of acceleration shall have been deemed to have been waived and such declaration and the consequences thereof shall have been deemed to have been rescinded and annulled pursuant to Section 1002, then such mandatory redemption shall also be deemed to have been waived, rescinded and annulled with respect to such declaration of acceleration;
and provided further that the Company deliver an Opinion of Counsel to the Trustee on such date to the effect that:
(w) the forms of such First Mortgage Securities have been duly authorized by the Company and have been established in conformity with the provisions of the First Mortgage;
(x) the terms of such First Mortgage Securities have been duly authorized by the Company and have been established in conformity with the provisions of the First Mortgage and this Article Seven;
(y) the deposit of such First Mortgage Securities with the Trustee in accordance herewith has been duly authorized by the Company; and
(z) such First Mortgage Securities have been duly issued under the First Mortgage and constitute valid and legally binding obligations of the Company, enforceable against the Company (subject to customary exceptions) and entitled to the benefit of the Lien of the First Mortgage equally and ratably with all other First Mortgage Securities Outstanding.
SECTION 702. Registration and Ownership of First Mortgage Collateral Bonds.
All First Mortgage Collateral Bonds shall be registered in the name of the Trustee or its nominee and shall be owned and held by the Trustee, subject to the provisions of this Indenture, for the benefit of the Holders of all Securities from time to time Outstanding, and the Company shall have no interest therein. The Trustee shall be entitled to exercise all rights of holders under the First Mortgage either in its discretion (which it need not exercise) or as otherwise provided in this Article or in Article Ten.
SECTION 703. Payments on First Mortgage Collateral Bonds.
(1) Any payment by the Company of principal of or premium or interest on any First Mortgage Collateral Bonds shall be applied by the Trustee to the payment of any principal, premium or interest, as the case may be, in respect of the Securities which is then due, and, to the extent of such application, the obligation of the Company hereunder to make such payment in respect of the Securities shall be deemed to have been satisfied and discharged.
(2) Each supplemental indenture pursuant to which any First Mortgage Collateral Bonds are issued shall contain a provision to the effect that any payment by the Company hereunder of principal of or premium or interest on Securities shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make
a payment of principal, premium or interest, as the case may be, in respect of such First Mortgage Collateral Bonds which is then due.
SECTION 704. Surrender of First Mortgage Collateral Bonds.
If at any time after the First Mortgage Bond Collateralization Date any Securities of any series, or any Tranche thereof, cease to be Outstanding, the Trustee shall surrender to or upon the order of the Company an equal principal amount of First Mortgage Collateral Bonds having the same Stated Maturity, payment provisions and provisions, if any, for mandatory redemption as such Securities.
SECTION 705. No Transfer of First Mortgage Collateral Bonds.
Subject to the provisions of Section 1020 hereof, the Trustee shall not sell, assign or otherwise transfer any First Mortgage Collateral Bonds except to a successor trustee under this Indenture. The Company may take such actions as it shall deem necessary, desirable or appropriate to effect compliance with such restrictions on transfer, including the placing of a legend on each First Mortgage Collateral Bond and the issuance of stop-transfer instructions to the trustee under the First Mortgage or any other transfer agent thereunder.
SECTION 706. Voting of First Mortgage Collateral Bonds.
The Trustee shall, as the holder of First Mortgage Collateral Bonds Outstanding under the First Mortgage, attend such meeting or meetings of bondholders under the First Mortgage or, at its option, deliver its proxy in connection therewith, as relate to matters with respect to which it is entitled to vote or consent. So long as no Event of Default hereunder shall have occurred and be continuing, either at any such meeting or meetings, or otherwise when the consent of the holders of the First Mortgage Securities Outstanding under the First Mortgage is sought without a meeting, the Trustee shall vote as holder of such First Mortgage Collateral Bonds, or shall consent with respect thereto, as follows:
(1) the Trustee shall vote all First Mortgage Collateral Bonds Outstanding under the First Mortgage then held by it, or consent with respect thereto, in favor of any or all amendments or modifications of the First Mortgage which the Company has requested and which do not have a material adverse effect on Holders of Securities (and, as to whether or not any such material adverse effect would so result, the Trustee shall be entitled to receive and shall be fully protected in relying upon an Officer's Certificate and Opinion of Counsel); and
(2) with respect to any other amendments or modifications of the First Mortgage:
(A) at any time when the First Mortgage Collateral Bonds Outstanding constitute less than a majority in aggregate principal amount of the First Mortgage Securities then Outstanding under the First Mortgage, the Trustee shall vote all First Mortgage Collateral Bonds Outstanding under the First Mortgage then held by it, or consent with respect thereto, proportionately with what the Trustee reasonably believes will be the vote or consent of the holders of all other First Mortgage Securities Outstanding under such First Mortgage the holders of which are eligible to vote or consent; provided, however, that the Trustee shall not so vote in
favor of, or so consent to, any amendment or modification of a First Mortgage which, if it were an amendment or modification of this Indenture, would require the consent of Holders, without the prior consent, obtained in the manner prescribed in Section 1402, of Holders of Securities which would be required under said Section 1402 for such an amendment or modification of this Indenture; and
(B) at any time when the First Mortgage Collateral Bonds Outstanding constitute at least a majority in aggregate principal amount of the First Mortgage Securities then Outstanding under the First Mortgage, the Trustee shall vote all First Mortgage Collateral Bonds Outstanding under the First Mortgage then held by it, or consent with respect thereto, in accordance with the written direction of the Company evidenced by an Officer's Certificate or, in the absence of any such direction, proportionately with what the Trustee reasonably believes will be the vote or consent of the holders of all other First Mortgage Securities Outstanding under the First Mortgage the holders of which are eligible to vote or consent; provided, however, that the Trustee shall not so vote in favor of, or so consent to, any amendment or modification of the First Mortgage which, if it were an amendment or modification of this Indenture, would require the consent of Holders, without the prior consent, obtained in the manner prescribed in Section 1402, of Holders of Securities which would be required under said Section 1402 for such an amendment or modification of this Indenture.
SECTION 707. Discharge of First Mortgage
(1) The Trustee shall surrender for cancellation to the trustee under the First Mortgage all First Mortgage Collateral Bonds then held by the Trustee upon receipt by the Trustee of:
(A) a Company Order requesting such surrender for cancellation of such First Mortgage Collateral Bonds;
(B) an Officer's Certificate to the effect that no First Mortgage Securities are Outstanding under the First Mortgage other than First Mortgage Collateral Bonds and that promptly upon such surrender the First Mortgage will be satisfied and discharged pursuant to the terms thereof;
(C) an Expert's Certificate:
(i) describing in reasonable detail all
property constituting Property Additions designated by the Company, in its
discretion, to be deemed, on and after the date of such surrender for
cancellation and for all purposes of this Indenture, to have been made the basis
of the authentication and delivery of all Securities then Outstanding such
Property Additions to have, in the aggregate, a Cost (or as to Property
Additions of which the Fair Value to the Company specified pursuant to subclause
(viii) of this clause (C) or pursuant to clause (D) below is less than the Cost
thereof, then such Fair Value in lieu of Cost) not less than ten-sevenths (10/7)
of the aggregate principal amount of such Securities;
(ii) stating that all such property constitutes Property Additions;
(iii) stating that such Property Additions are desirable for use in the proper conduct of the business of the Company;
(iv) stating that such Property Additions, to the extent of the Cost (or as to Property Additions of which the Fair Value to the Company specified pursuant to subclause (viii) of this clause (C) or pursuant to clause (D) below is less than the Cost thereof, then such Fair Value in lieu of Cost) to the Company to be deemed to have been made the basis of the authentication and delivery of such Securities, will no longer constitute Funded Property (other than pursuant to clause (6) of the definition of "Funded Property") upon the discharge of the First Mortgage;
(v) stating, except as to Property Additions acquired, made or constructed wholly through the delivery of securities or other property, that the amount of cash forming all or part of the Cost thereof was equal to or more than an amount to be stated therein;
(vi) briefly describing, with respect to any Property Additions acquired, made or constructed in whole or in part through the delivery of securities or other property, the securities or other property so delivered and stating the date of such delivery;
(vii) stating what part, if any, of such Property Additions included property which within six months prior to the date of acquisition thereof by the Company had been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and stating whether or not, in the judgment of the signers, the Fair Value thereof to the Company, as of the date of such certificate, is less than One Hundred Thousand Dollars ($100,000) or one percentum (1%) of the sum of (x) the aggregate principal amount of Securities then Outstanding, and (y) the aggregate principal amount of First Mortgage Securities then Outstanding other than First Mortgage Collateral Bonds;
(viii) stating, in the judgment of the signers, the Fair Value to the Company, as of the date of such certificate, of such Property Additions, except any thereof with respect to the Fair Value to the Company of which a statement is to be made in an Independent Expert's Certificate as provided for in clause (D) below; provided, however, that if any such Property Additions shall have theretofore been certified to the trustee under the First Mortgage as the basis for the authentication and delivery of First Mortgage Securities:
(x) which are First Mortgage Collateral Bonds as of the date of such certificate; or
(y) the retirement of which shall have theretofore been made the basis (whether directly or indirectly when considered in light of the issuance and retirement of successive issues of First Mortgage Securities) of the authentication and delivery of First Mortgage Collateral Bonds then held by the Trustee;
then there may be stated, in lieu of the Fair Value of such Property Additions as of the date of such certificate, the Fair Value thereof as so certified to the trustee under such First Mortgage; and
(ix) stating that the Liens, if any, of the character described in clause (4) of the definition of "Permitted Liens" to which a property included in such Property Additions is subject do not, in the judgment of the signers, in the aggregate materially impair the use of such property for the purposes for which the same is held by the Company;
(D) in case any Property Additions are shown by the Expert's Certificate provided for in clause (C) above to include property which, within six months prior to the date of acquisition thereof by the Company, had been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and such certificate does not show the Fair Value thereof to the Company, as of the date of such certificate, to be less than One Hundred Thousand Dollars ($100,000) or less than one percentum (1%) of the sum of (x) the aggregate principal amount of Securities then Outstanding, and (y) the aggregate principal amount of First Mortgage Securities then Outstanding other than First Mortgage Collateral Bonds, an Independent Expert's Certificate stating, in the judgment of the signer, the Fair Value to the Company, as of the date of such Independent Expert's Certificate, of (i) such Property Additions which have been so used or operated and (at the option of the Company) as to any other Property Additions included in the Expert's Certificate provided for in clause (C) above, and (ii) any property so used or operated which has been subjected to the Lien of this Indenture since the commencement of the then current calendar year as the basis for the authentication and delivery of Securities and as to which an Independent Expert's Certificate has not previously been furnished to the Trustee;
(E) in case any Property Additions are shown by the Expert's Certificate provided for in clause (C) above to have been acquired, made or constructed in whole or in part through the delivery of securities or other property, a written appraisal of an Expert stating, in the judgment of the Expert, the Fair Value in cash of such securities or other property at the time of delivery thereof in payment for or for the acquisition of such Property Additions;
(F) an Opinion of Counsel to the effect
(i) that (except as to paving, grading and other improvements to, under or upon highways, bridges, parks or other public property of analogous character) this Indenture is, or upon (x) the delivery of, or the filing or recording in the proper places and manner of, the instruments of conveyance, assignment or transfer, if any, specified in said opinion, or (y) the satisfaction and discharge of the First Mortgage, will be, a Lien on all the Property Additions to be deemed to have been made the basis of the authentication and delivery of Securities then Outstanding, subject to no Lien thereon prior to the Lien of this Indenture except Permitted Liens; and
(ii) that the Company has corporate authority to operate the Property Additions with respect to which such application is made;
(G) an Opinion of Counsel to the effect that upon satisfaction and discharge of the First Mortgage the Lien of this Indenture on the property formerly subject to the Lien of the First Mortgage, to the extent the same is part of the Mortgaged Property, will be subject to no Lien prior to the Lien of this Indenture except Permitted Liens and Liens of the character permitted to exist or to be hereafter created under Section 606; and
(H) copies of the instruments of conveyance, assignment and transfer, if any, specified in the Opinion of Counsel provided for in clause (F) above.
(2) The amount of the Cost of any Property Additions and the Fair Value thereof to the Company and the fair market value in cash of any securities or other property so delivered in payment therefor or for the acquisition thereof shall be determined for the purposes of this Section by the appropriate certificate provided for in this Section.
ARTICLE EIGHT.
POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY
SECTION 801. Quiet Enjoyment.
Unless one or more Events of Default shall have occurred and be continuing, the Company shall be permitted to possess, use and enjoy the Mortgaged Property (except, to the extent not herein otherwise provided, such cash and securities as are expressly required to be deposited with the Trustee).
SECTION 802. Dispositions without Release.
Unless an Event of Default shall have occurred and be continuing, the Company may at any time and from time to time, without any release or consent by, or report to, the Trustee:
(1) sell or otherwise dispose of, free from the Lien of this Indenture, any machinery, equipment, apparatus, towers, transformers, poles, lines, cables, conduits, ducts, conductors, meters, regulators, holders, tanks, retorts, purifiers, odorizers, scrubbers, compressors, valves, pumps, mains, pipes, service pipes, fittings, connections, services, tools, implements, or any other fixtures or personalty, then subject to the Lien hereof, which shall have become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable, undesirable or unnecessary for use in the operations of the Company upon replacing the same by, or substituting for the same, similar or analogous property, or other property performing a similar or analogous function or otherwise obviating the need therefor, having a Fair Value to the Company at least equal to that of the property sold or otherwise disposed of and subject to the Lien hereof, subject to no Liens prior hereto except Permitted Liens and any other Liens to which the property sold or otherwise disposed of was subject;
(2) cancel or make changes or alterations in or substitutions for any and all easements, servitudes, rights-of-way and similar rights and/or interests;
(3) surrender or assent to the modification of any right, power, franchise, license, governmental consent or permit under which it may be operating, provided that any such
surrender or modification which adversely affects the Mortgaged Property, taken as a whole, in any material respect is, in the opinion of the Manager (such opinion to be stated in a resolution to be filed with the Trustee), necessary or desirable in the conduct of the business of the Company; and
(4) grant, free from the Lien of this Indenture, easements, ground leases or rights-of-way in, upon, over and/or across the property or rights-of-way of the Company for the purpose of roads, pipe lines, transmission lines, distribution lines, communication lines, railways, removal of coal or other minerals or timber, and other like purposes, or for the joint or common use of real property, rights-of-way, facilities and/or equipment; provided, however, that such grant shall not materially impair the use of the property or rights-of-way for the purposes for which such property or rights-of-way are held by the Company.
SECTION 803. Release of Funded Property.
Unless an Event of Default shall have occurred and be continuing, the Company may obtain the release of any part of the Mortgaged Property, or any interest therein, which constitutes Funded Property, and the Trustee shall release all its right, title and interest in and to the same from the Lien hereof, upon receipt by the Trustee of:
(1) a Company Order requesting the release of such property and transmitting therewith a form of instrument to effect such release;
(2) an Officer's Certificate stating that, to the knowledge of the signer, no Event of Default has occurred and is continuing;
(3) an Expert's Certificate made and dated not more than ninety (90) days prior to the date of such Company Order:
(A) describing generally the property to be released;
(B) stating the Fair Value, in the judgment of the signers, of the property to be released;
(C) stating the Cost of the property to be released (or, if the Fair Value to the Company of such property at the time the same became Funded Property was certified to be an amount less than the Cost thereof, then such Fair Value, as so certified, in lieu of Cost); and
(D) stating that, in the judgment of the signers, such release will not impair the security under this Indenture in contravention of the provisions hereof;
(4) an amount in cash to be held by the Trustee as part of the Mortgaged Property, equal to the amount, if any, by which seventy percentum (70%) of the amount referred to in clause (3)(C) above exceeds the aggregate of the following items:
(A) an amount equal to seventy percentum (70%) of the aggregate principal amount of any obligations secured by Purchase Money Lien delivered to the Trustee, to
be held as part of the Mortgaged Property, subject to the limitations hereafter in this Section set forth;
(B) an amount equal to seventy percentum (70%) of the
Cost or Fair Value to the Company (whichever is less), after making any
deductions and any additions pursuant to Section 103, of any Property Additions
not constituting Funded Property described in an Expert's Certificate, dated not
more than ninety (90) days prior to the date of the Company Order requesting
such release and complying with clause (B) and, to the extent applicable, clause
(C) in Section 402(2), delivered to the Trustee; provided, however, that the
deductions and additions contemplated by Section 103 shall not be required to be
made if such Property Additions were acquired, made or constructed on or after
the ninetieth (90th) day preceding the date of such Company Order;
(C) the aggregate principal amount of Securities to the authentication and delivery of which the Company shall be entitled under the provisions of Section 403, by virtue of compliance with all applicable provisions of Section 403 (except as hereinafter in this Section otherwise provided); provided, however, that such release shall operate as a waiver by the Company of the right to the authentication and delivery of such Securities and, to such extent, no such Securities may thereafter be authenticated and delivered hereunder; and any Securities which were the basis of such right to the authentication and delivery of Securities so waived shall be deemed to have been made the basis of such release of property;
(D) any amount in cash and/or an amount equal to seventy percentum (70%) of the aggregate principal amount of any obligations secured by Purchase Money Lien that, in either case, is evidenced to the Trustee by a certificate of the trustee or other holder of a Lien prior to the Lien of this Indenture to have been received by such trustee or other holder in accordance with the provisions of such Lien in consideration for the release of such property or any part thereof from such Lien, all subject to the limitations hereafter in this Section set forth;
(E) on or after the First Mortgage Collateralization Date, the aggregate principal amount of First Mortgage Securities delivered to the Trustee to be held as First Mortgage Collateral Bonds;
(F) the aggregate principal amount of any Outstanding Securities delivered to the Trustee; and
(G) any taxes and expenses incidental to any sale, exchange, dedication or other disposition of the property to be released;
(5) if the release is on the basis of Property Additions or on
the basis of the right to the authentication and delivery of Securities under
Section 403, all documents contemplated below in this Section; and
(6) if the release is on the basis of the delivery to the Trustee or to the trustee or other holder of a prior Lien of obligations secured by Purchase Money Lien, all documents contemplated below in this Section, to the extent required.
If and to the extent that the release of property is, in whole or in
part, based upon Property Additions (as permitted under the provisions of clause
(4)(B) in the first paragraph of this Section), the Company shall, subject to
the provisions of said clause (4)(B) and except as hereafter in this paragraph
provided, comply with all applicable provisions of this Indenture as if such
Property Additions were to be made the basis of the authentication and delivery
of Securities equal in principal amount to seventy percentum (70%) of the Cost
(or, as to property of which the Fair Value to the Company at the time the same
became Funded Property was certified to be an amount less than the Cost thereof,
such Fair Value, as so certified, in lieu of Cost) of that portion of the
property to be released which is to be released on the basis of such Property
Additions, as shown by the Expert's Certificate required by clause (3) in the
first paragraph of this Section; provided, however, that the Cost of any
Property Additions received or to be received by the Company in whole or in part
as consideration in exchange for the property to be released shall for all
purposes of this Indenture be deemed to be the amount stated in the Expert's
Certificate provided for in clause (3) in the first paragraph of this Section to
be the Fair Value of the property to be released (x) plus the amount of any cash
and the fair market value of any other consideration, further to be stated in
such Expert's Certificate, paid and/or delivered or to be paid and/or delivered
by, and the amount of any obligations assumed or to be assumed by, the Company
in connection with such exchange as additional consideration for such Property
Additions and/or (y) less the amount of any cash and the fair market value of
any other consideration, which shall also be stated in such Expert's
Certificate, received or to be received by the Company in connection with such
exchange in addition to such Property Additions. If and to the extent that the
release of property is in whole or in part based upon the right to the
authentication and delivery of Securities under Section 403 (as permitted under
the provisions of clause (4)(C) in the first paragraph of this Section), the
Company shall, except as hereafter in this paragraph provided, comply with all
applicable provisions of Section 403 relating to such authentication and
delivery. Notwithstanding the foregoing provisions of this paragraph, in no
event shall the Company be required to deliver the documents specified in
Section 401.
If the release of property is, in whole or in part, based upon the delivery to the Trustee or the trustee or other holder of a Lien prior to the Lien of this Indenture of obligations secured by Purchase Money Lien, the Company shall deliver to the Trustee:
(A) an Officer's Certificate (i) stating that no event has occurred and is continuing which entitles the holder of such Purchase Money Lien to accelerate the maturity of the obligations, if any, outstanding thereunder and (ii) reciting the aggregate principal amount of obligations, if any, then outstanding thereunder in addition to the obligations then being delivered in connection with the release of such property and the terms and conditions, if any, on which additional obligations secured by such Purchase Money Lien are permitted to be issued; and
(B) an Opinion of Counsel stating that, in the opinion of the signer, (i) such obligations are valid and legally binding obligations, enforceable against the Company (subject to customary exceptions) and entitled to the benefit of such Purchase Money Lien equally and ratably with all other obligations, if any, then outstanding thereunder, (ii) that such Purchase Money Lien constitutes, or, upon the delivery of, and/or the filing and/or recording in the proper places and manner of, the instruments of conveyance, assignment or transfer, if any, specified in such opinion, will constitute, a Lien upon the property to be released, subject to no
Lien prior thereto except Liens generally of the character of Permitted Liens and such Liens, if any, as shall have existed thereon immediately prior to such release as Liens prior to the Lien of this Indenture, (iii) if any obligations in addition to the obligations being delivered in connection with such release of property are then outstanding, or are permitted to be issued, under such Purchase Money Lien, (a) that such Purchase Money Lien constitutes, or, upon the delivery of, and/or the filing and/or recording in the proper places and manner of, the instruments of conveyance, assignment or transfer, if any, specified in such opinion, will constitute, a Lien upon all other property, if any, purporting to be subject thereto, subject to no Lien prior thereto except Liens generally of the character of Permitted Liens and Liens permitted to exist or to be hereafter created under Section 606 and (b) that the terms of such Purchase Money Lien, as then in effect, do not permit the issuance of obligations thereunder except on the basis of property generally of the character of Property Additions, the retirement or deposit of outstanding obligations, the deposit of prior Lien obligations or the deposit of cash.
Anything herein to the contrary notwithstanding (a) the aggregate
principal amount of obligations secured by Purchase Money Lien which may be used
pursuant to subclause (A) and/or subclause (D) of clause (4) in the first
paragraph of this Section as the basis for the release of property from the Lien
of this Indenture shall not exceed seventy-five percentum (75%) of the Fair
Value of the property to be released, as certified pursuant to clause (3)(B) in
the first paragraph of this Section, and (b) no obligations secured by Purchase
Money Lien shall be used as the basis for the release of property hereunder, if
the aggregate principal amount of such obligations to be used by the Company
pursuant to subclause (A) and/or subclause (D) of such clause (4) plus the
aggregate principal amount used by the Company pursuant to said subclause (A)
and subclause (D) in connection with all previous releases of property from the
Lien hereof on the basis of obligations secured by Purchase Money Lien
theretofore delivered to and then held by the Trustee or the trustee or other
holder of a Lien prior to the Lien of this Indenture shall, immediately after
the release then being applied for, exceed forty percentum (40%) of the sum of
(1) the aggregate principal amount of Securities then Outstanding and (2) the
aggregate principal amount of First Mortgage Securities then Outstanding other
than the First Mortgage Collateral Bonds; provided, however, that the limitation
set forth in clause (a) above shall not be applicable if no additional
obligations are then outstanding, or are permitted to be issued, under the
Purchase Money Lien securing such obligations; and provided, further, that there
shall not be taken into account for purposes of the calculation contemplated in
clause (b) above any obligations secured by Purchase Money Lien with respect to
which there shall have been delivered to the Trustee:
(X) an Officer's Certificate (i) if any obligations shall then be outstanding under such Purchase Money Lien and/or additional obligations are permitted to be issued thereunder, either (A) stating that the terms of such Purchase Money Lien, as then in effect, do not permit the issuance of obligations thereunder on the basis of property additions in a principal amount exceeding seventy percentum (70%) of the balance of the cost or fair value of such property additions to the issuer thereof (whichever shall be less) after making deductions and additions similar to those provided for in Section 103 or (B) in the event that the statements contained in clause (A) above cannot be made, stating that such issuer has irrevocably waived its right to the authentication and delivery of obligations under
such Purchase Money Lien (1) on any basis, in a principal amount equal to the excess of (I) the aggregate principal amount of obligations, if any, then outstanding under such Purchase Money Lien which were issued on the basis of property additions or on the basis of the retirement of obligations which were issued (whether directly or indirectly when considered in light of the successive issuance and retirement of obligations) on the basis of property additions over (II) an amount equal to seventy percentum (70%) of the aggregate Dollar amount of property additions certified as the basis for the issuance of such obligations then outstanding and (2) on the basis of property additions, in a principal amount exceeding seventy percentum (70%) of the balance of the cost or fair value thereof to such issuer (whichever shall be less) after making deductions and additions similar to those provided for in Section 103 and (ii) stating either (A) that the obligations secured by such Purchase Money Lien delivered to the Trustee or to the trustee or other holder of a Lien prior to the Lien of this Indenture as the basis for such release of property contain a provision for mandatory redemption upon the acceleration of the maturity of all Outstanding Securities following an Event of Default (whether or not such redemption may be rescinded upon the rescission of such acceleration) or (B) that so long as such obligations are held by the Trustee or the trustee or other holder of such a prior Lien, an Event of Default under this Indenture constitutes a matured event of default under such Purchase Money Lien (provided, however, that the waiver or cure of such Event of Default hereunder and the rescission and annulment of the consequences thereof may constitute a cure of the corresponding event of default under such Purchase Money Lien and a rescission and annulment of the consequences thereof); and
(Y) an Opinion or Opinions of Counsel to the effect that
(i) if any obligations shall then be outstanding
under such Purchase Money Lien and/or additional
obligations are permitted to be issued thereunder, to
the effect either (A) that the terms of such Purchase
Money Lien, as then in effect, do not permit the
issuance of obligations thereunder upon the basis of
property additions in a principal amount exceeding
seventy percentum (70%) of the balance of the cost or
the fair value thereof to the issuer of such
obligations (whichever shall be less) after making
deductions and additions similar to those provided
for in Section 103, or, if such is not the case, (B)
that the waivers contemplated by clause (X)(i)(B)
above have been duly made and (ii) to the effect
either (A) that the obligations secured by such
Purchase Money Lien delivered to the Trustee or to
the trustee or other holder of a Lien prior to the
Lien of this Indenture as the basis for such release
of property contain a provision for mandatory
redemption upon an acceleration of the maturity of
all Outstanding Securities following an Event of
Default (whether or not such redemption may be
rescinded upon the rescission of such acceleration)
or (B) that, so long as such obligations are held by
the Trustee or the trustee or other holder of such a
prior Lien, an Event of Default under this Indenture
constitutes a
matured event of default under such Purchase Money Lien (provided, however, that the waiver or cure of such Event of Default hereunder and the rescission and annulment of the consequences thereof may constitute a cure of the corresponding event of default under such Purchase Money Lien and a rescission and annulment of the consequences thereof).
If (a) any property to be released from the Lien of this Indenture under any provision of this Article (other than Section 807) is subject to a Lien prior to the Lien hereof and is to be sold, exchanged, dedicated or otherwise disposed of subject to such prior Lien and (b) after such release, such prior Lien will not be a Lien on any property subject to the Lien hereof, then the Fair Value of such property to be released shall be deemed, for all purposes of this Indenture, to be the value thereof unencumbered by such prior Lien less the principal amount of the indebtedness secured by such prior Lien.
Any Outstanding Securities delivered to the Trustee pursuant to clause
(4) in the first paragraph of this Section shall forthwith be canceled by the
Trustee. Any cash and/or obligations so deposited with the Trustee, and the
proceeds of any such obligations, shall be held as part of the Mortgaged
Property and shall be withdrawn, released, used or applied in the manner, to the
extent and for the purposes, and subject to the conditions, provided in Section
806.
Anything in this Indenture to the contrary notwithstanding, if property
to be released constitutes Funded Property in part only, the Company shall
obtain the release of the part of such property which constitutes Funded
Property under this Section 803 and obtain the release of the part of such
property which does not constitute Funded Property under Section 804. In such
event, (a) the application of Property Additions in the release under this
Section 803 as contemplated in clause (4)(B) in the first paragraph thereof
shall be taken into account in clause (E) or clause (F), whichever may be
applicable, of the Expert's Certificate described in clause (3) in Section 804
and (b) the Trustee shall, at the election of the Company, execute and deliver a
separate instrument of release with respect to the property released under each
of such Sections or a consolidated instrument of release with respect to the
property released under both of such Sections considered as a whole.
SECTION 804. Release of Property Not Constituting Funded Property.
Unless an Event of Default shall have occurred and be continuing, the Company may obtain the release of any part of the Mortgaged Property, or any interest therein, which does not constitute Funded Property, and the Trustee shall release all its right, title and interest in and to the same from the Lien hereof, upon receipt by the Trustee of:
(1) a Company Order requesting the release of such property and transmitting therewith a form of instrument to effect such release;
(2) an Officer's Certificate stating that, to the knowledge of the signer, no Event of Default has occurred and is continuing;
(3) an Expert's Certificate, made and dated not more than ninety (90) days prior to the date of such Company Order:
(A) describing the property to be released;
(B) stating the Fair Value, in the judgment of the signers, of the property to be released;
(C) stating the Cost of the property to be released;
(D) stating that the property to be released does not constitute Funded Property;
(E) if true, stating either (i) that the aggregate amount of the Cost or Fair Value to the Company (whichever is less) of all Property Additions which do not constitute Funded Property (excluding the property to be released), after making deductions therefrom and additions thereto of the character contemplated by Section 103, is not less than zero (0) or (ii) that the Cost or Fair Value (whichever is less) of the property to be released does not exceed the aggregate Cost or Fair Value to the Company (whichever is less) of Property Additions acquired, made or constructed on or after the ninetieth (90th) day prior to the date of the Company Order requesting such release;
(F) if neither of the statements contemplated in clause (E) above can be made, stating the amount by which zero (0) exceeds the amount referred to in subclause (E)(i) above (showing in reasonable detail the calculation thereof); and
(G) stating that, in the judgment of the signers, such release will not impair the security under this Indenture in contravention of the provisions hereof; and
(4) if the Expert's Certificate required by clause (3) above
contains neither of the statements contemplated in clause (3)(E) above, an
amount in cash, to be held by the Trustee as part of the Mortgaged Property,
equal to the amount, if any, by which seventy percentum (70%) of the lower of
(i) the Cost or Fair Value (whichever shall be less) of the property to be
released and (ii) the amount shown in clause (3)(F) above exceeds the aggregate
of items of the character described in subclauses (C) and (F) of clause (4) in
the first paragraph of Section 803 then to be used as a credit under this
Section 804 (subject, however, to the same limitations and conditions with
respect to such items as are set forth in Section 803).
Anything herein to the contrary notwithstanding, if any part of the
Mortgaged Property is to be released prior to the delivery of the Initial
Expert's Certificate pursuant to Section 402(2)(B), the Company shall deliver to
the Trustee an Initial Expert's Certificate complying with the provisions of
Section 402(2)(B), except that there shall be stated in clause (xiii) the sum of
(x) the aggregate principal amount of Securities then Outstanding and (y) the
aggregate principal amount of First Mortgage Securities then Outstanding other
than First Mortgage Collateral Bonds. Such Initial Expert's Certificate shall be
accompanied by the documents specified in clauses (C),(D), and (E) of Section
402(2). Thereupon, the part of the Mortgaged Property to be released shall be
released pursuant to Section 803, to the extent the same shall constitute Funded
Property, and/or pursuant to Section 804, to the extent the same shall not
constitute Funded Property.
SECTION 805. Release of Minor Properties.
Notwithstanding the provisions of Sections 803 and 804, unless an Event of Default shall have occurred and be continuing, the Company may obtain the release from the Lien hereof of any part of the Mortgaged Property, or any interest therein, and the Trustee shall whenever from time to time requested by the Company in a Company Order transmitting therewith a form of instrument to effect such release, and without requiring compliance with any of the provisions of Section 803 or 804, release from the Lien hereof all the right, title and interest of the Trustee in and to the same provided that the aggregate Fair Value of the property to be so released on any date in a given calendar year, together with all other property released pursuant to this Section 805 in such calendar year, shall not exceed the greater of (a) Ten Million Dollars ($10,000,000) and (b) one and one-half percentum (1-1/2%) of the sum of (i) the aggregate principal amount of Securities then Outstanding and (ii) the aggregate principal amount of First Mortgage Securities then Outstanding, other than First Mortgage Collateral Bonds. Prior to the granting of any such release, there shall be delivered to the Trustee (x) an Officer's Certificate stating that, to the knowledge of the signer, no Event of Default has occurred and is continuing and (y) an Expert's Certificate stating, in the judgment of the signers, the Fair Value of the property to be released, the aggregate Fair Value of all other property theretofore released pursuant to this Section in such calendar year and, as to Funded Property, the Cost thereof (or, if the Fair Value to the Company of such property at the time the same became Funded Property was certified to be an amount less than the Cost thereof, then such Fair Value, as so certified, in lieu of Cost), and that, in the judgment of the signers, the release thereof will not impair the security under this Indenture in contravention of the provisions hereof. On or before December 31st of each calendar year, the Company shall deposit with the Trustee an amount in cash equal to seventy percentum (70%) of the aggregate Cost of the properties constituting Funded Property so released during such year (or, if the Fair Value to the Company of any particular property at the time the same became Funded Property was certified to be an amount less than the Cost thereof, then such Fair Value, as so certified, in lieu of Cost); provided, however, that no such deposit shall be required to be made hereunder to the extent that cash or other consideration shall, as indicated in an Officer's Certificate delivered to the Trustee, have been deposited with the trustee or other holder of the First Mortgage or other Lien prior to the Lien of this Indenture in accordance with the provisions thereof; and provided, further, that the amount of cash so required to be deposited may be reduced, at the election of the Company, by the items specified in clause (4) in the first paragraph of Section 803, subject to all of the limitations and conditions specified in such Section, to the same extent as if such property were being released pursuant to Section 803. Any cash deposited with the Trustee under this Section may thereafter be withdrawn, used or applied in the manner, to the extent and for the purposes, and subject to the conditions, provided in Section 806.
SECTION 806. Withdrawal or Other Application of Funded Cash; Purchase Money Obligations.
Subject to the provisions of Section 404 and except as hereafter in this Section provided, unless an Event of Default shall have occurred and be continuing, any Funded Cash held by the Trustee, and any other cash which is required to be withdrawn, used or applied as provided in this Section:
(1) may be withdrawn from time to time by the Company to the extent of an amount equal to seventy percentum (70%) of the Cost or the Fair Value to the Company (whichever is less) of Property Additions not constituting Funded Property, after making any deductions and additions pursuant to Section 103, described in an Expert's Certificate, dated not more than ninety (90) days prior to the date of the Company Order requesting such withdrawal and complying with clause (B) and, to the extent applicable, clause (C) in Section 402(2), delivered to the Trustee; provided, however, that the deductions and additions contemplated by Section 103 shall not be required to be made if such Property Additions were acquired, made or constructed on or after the ninetieth (90th) day preceding the date of such Company Order;
(2) may be withdrawn from time to time by the Company in an amount equal to the aggregate principal amount of Securities to the authentication and delivery of which the Company shall be entitled under the provisions of Section 403 hereof, by virtue of compliance with all applicable provisions of Section 403 (except as hereinafter in this Section otherwise provided); provided, however, that such withdrawal of cash shall operate as a waiver by the Company of the right to the authentication and delivery of such Securities and, to such extent, no such Securities may thereafter be authenticated and delivered hereunder; and any such Securities which were the basis of such right to the authentication and delivery of Securities so waived shall be deemed to have been made the basis of such withdrawal of cash;
(3) on or after the First Mortgage Collateralization Date, may be withdrawn from time to time by the Company in an amount equal to the aggregate principal amount of First Mortgage Securities delivered to the Trustee to be held as First Mortgage Collateral Bonds;
(4) may be withdrawn from time to time by the Company in an amount equal to the aggregate principal amount of any Outstanding Securities delivered to the Trustee;
(5) may, upon the request of the Company, be used by the
Trustee for the purchase of Securities in the manner, at the time or times, in
the amount or amounts, at the price or prices and otherwise as directed or
approved by the Company, all subject to the limitations hereafter in this
Section set forth; or
(6) may, upon the request of the Company, be applied by the Trustee to the payment (or provision therefor pursuant to Article Eight) at Stated Maturity of any Securities or to the redemption (or similar provision therefor) of any Securities which are, by their terms, redeemable, in each case of such series as may be designated by the Company, any such redemption to be in the manner and as provided in Article Five, all subject to the limitations hereafter in this Section set forth.
Such moneys shall, from time to time, be paid or used or applied by the Trustee, as aforesaid, upon the request of the Company in a Company Order, and upon receipt by the Trustee of an Officer's Certificate stating that, to the knowledge of the signer, no Event of Default has occurred and is continuing. If and to the extent that the withdrawal of cash is based upon Property Additions (as permitted under the provisions of clause (1) above), the Company shall, subject to the provisions of said clause (1) and except as hereafter in this paragraph provided, comply with all applicable provisions of this Indenture as if such Property Additions were made the basis for the authentication and delivery of Securities equal in principal amount to
the cash so to be withdrawn. If and to the extent that the withdrawal of cash is based upon the right to the authentication and delivery of Securities (as permitted under the provisions of clause (2) above), the Company shall, except as hereafter in this paragraph provided, comply with all applicable provisions of Section 403 relating to such authentication and delivery. Notwithstanding the foregoing provisions of this paragraph, in no event shall the Company be required to deliver the documents specified in Section 401.
Notwithstanding the generality of clauses (4) and (5) above, no cash to be applied pursuant to such clauses shall be applied to the payment of an amount in excess of the principal amount of any Securities to be purchased, paid or redeemed except to the extent that the aggregate principal amount of all Securities theretofore, and of all Securities then to be, purchased, paid or redeemed pursuant to such clauses is not less than the aggregate cost for principal of, premium, if any, and accrued interest, if any, on and brokerage commissions, if any, with respect to, such Securities.
Any Outstanding Securities delivered to the Trustee pursuant to clause
(3) in the first paragraph of this Section shall forthwith be canceled by the
Trustee.
Any obligations secured by Purchase Money Lien delivered to the Trustee in consideration of the release of property from the Lien of this Indenture, together with any evidence of such Purchase Money Lien held by the Trustee, shall be released from the Lien of this Indenture and delivered to or upon the order of the Company upon payment by the Company to the Trustee of an amount in cash equal to the aggregate principal amount of such obligations less the aggregate amount theretofore paid to the Trustee (by the Company, the obligor or otherwise) in respect of the principal of such obligations.
The principal of and interest on any such obligations secured by Purchase Money Lien held by the Trustee shall be held by the Trustee as and when the same are received by the Trustee. The interest received by the Trustee on any such obligations shall be deemed not to constitute Funded Cash and shall be remitted to the Company; provided, however, that if an Event of Default shall have occurred and be continuing, such proceeds shall be held as part of the Mortgaged Property until such Event of Default shall have been cured or waived.
The Trustee shall have and may exercise all the rights and powers of any owner of such obligations and of all substitutions therefor and, without limiting the generality of the foregoing, may collect and receive all insurance moneys payable to it under any of the provisions thereof and apply the same in accordance with the provisions thereof, may consent to extensions thereof at a higher or lower rate of interest, may join in any plan or plans of voluntary or involuntary reorganization or readjustment or rearrangement and may accept and hold hereunder new obligations, stocks or other securities issued in exchange therefor under any such plan. Any discretionary action which the Trustee may be entitled to take in connection with any such obligations or substitutions therefor shall be taken, so long as no Event of Default shall have occurred and be continuing, in accordance with a Company Order, and, during the continuance of an Event of Default, in its own discretion.
Anything herein to the contrary notwithstanding, the Company may irrevocably waive all right to the withdrawal pursuant to this Section of, and any other rights with respect to, any
obligations secured by Purchase Money Lien held by the Trustee, and the proceeds of any such obligations, by delivery to the Trustee of a Company Order:
(1) specifying such obligations and stating that the Company thereby waives all rights to the withdrawal thereof and of the proceeds thereof pursuant to this Section, and any other rights with respect thereto; and
(2) directing that the principal of such obligations be applied as provided in clause (5) in the first paragraph of this Section, specifying the Securities to be paid or redeemed or for the payment or redemption of which payment is to be made.
Following any such waiver, the interest on any such obligations shall be applied to the payment of interest, if any, on the Securities to be paid or redeemed or for the payment or redemption of which provision is to be made, as specified in the aforesaid Company Order, as and when such interest shall become due from time to time, and any excess funds remaining from time to time after such application shall be applied to the payment of interest on any other Securities as and when the same shall become due. Pending any such application, the interest on such obligations shall be invested in Investment Securities. The principal of any such obligations shall be applied solely to the payment of principal of the Securities to be paid or redeemed or for the payment or redemption of which provision is to be made, as specified in the aforesaid Company Order. Pending such application, the principal of such obligations shall be invested in Eligible Obligations. The obligation of the Company to pay the principal of such Securities when the same shall become due at Maturity, shall be offset and reduced by the amount of the proceeds of such obligations then held, and to be applied, by the Trustee in accordance with this paragraph.
SECTION 807. Release of Property Taken by Eminent Domain, etc.
Should any of the Mortgaged Property, or any interest therein, be taken by exercise of the power of eminent domain or be sold to an entity possessing the power of eminent domain under a threat to exercise the same, and should the Company elect not to obtain the release of such property pursuant to other provisions of this Article, the Trustee shall, upon request of the Company evidenced by a Company Order transmitting therewith a form of instrument to effect such release, release from the Lien hereof all its right, title and interest in and to the property so taken or sold (or with respect to an interest in property, subordinate the Lien hereof to such interest), upon receiving (a) an Opinion of Counsel to the effect that such property has been taken by exercise of the power of eminent domain or has been sold to an entity possessing the power of eminent domain under threat of an exercise of such power, (b) an Officer's Certificate stating the amount of net proceeds received or to be received for such property so taken or sold, and the amount so stated shall be deemed to be the Fair Value of such property for the purpose of any notice to the Holders, (c) if any portion of such property constitutes Funded Property, an Expert's Certificate stating the Cost thereof (or, if the Fair Value to the Company of such portion of such property at the time the same became Funded Property was certified to be an amount less than the Cost thereof, then such Fair Value, as so certified, in lieu of Cost) and (d) if any portion of such property constitutes Funded Property, a deposit by the Company of an amount in cash equal to seventy percentum (70%) of the Cost or Fair Value stated in the Expert's Certificate delivered pursuant to clause (c) above; provided, however, that the amount required to be so
deposited shall not exceed the portion of the net proceeds received or to be received for such property so taken or sold which is allocable on a pro-rata or other reasonable basis to the portion of such property constituting Funded Property; and provided, further, that no such deposit shall be required to be made hereunder if the proceeds of such taking or sale shall, as indicated in an Officer's Certificate delivered to the Trustee, have been deposited with the trustee or other holder of the First Mortgage or other Lien prior to the Lien of this Indenture. Any cash deposited with the Trustee under this Section may thereafter be withdrawn, used or applied in the manner, to the extent and for the purposes, and subject to the conditions, provided in Section 806.
SECTION 808. Disclaimer or Quitclaim.
In case the Company has sold, exchanged, dedicated or otherwise disposed of, or has agreed or intends to sell, exchange, dedicate or otherwise dispose of, or a Governmental Authority has ordered the Company to divest itself of, any Excepted Property or any other property not subject to the Lien hereof, or the Company desires to disclaim or quitclaim title to property to which the Company does not purport to have title, the Trustee shall, from time to time, disclaim or quitclaim such property upon receipt by the Trustee of the following:
(1) a Company Order requesting such disclaimer or quitclaim and transmitting therewith a form of instrument to effect such disclaimer or quitclaim;
(2) an Officer's Certificate describing the property to be disclaimed or quitclaimed; and
(3) an Opinion of Counsel stating the signer's opinion that such property is not subject to the Lien hereof or required to be subject thereto by any of the provisions hereof.
SECTION 809. Miscellaneous.
(1) The Expert's Certificate as to the Fair Value of property to be released from the Lien of this Indenture in accordance with any provision of this Article, and as to the nonimpairment, by reason of such release, of the security under this Indenture in contravention of the provisions hereof, shall be made by an Independent Expert if the Fair Value of such property and of all other property released since the commencement of the then current calendar year, as set forth in the certificates required by this Indenture, is ten percentum (10%) or more of the aggregate principal amount of the Securities at the time Outstanding; but such Expert's Certificate shall not be required to be made by an Independent Expert in the case of any release of property if the Fair Value thereof, as set forth in the certificates required by this Indenture, is less than Twenty-five Thousand Dollars ($25,000) or less than one percentum (1%) of the aggregate principal amount of the Securities at the time Outstanding. To the extent that the Fair Value of any property to be released from the Lien of this Indenture shall be stated in an Independent Expert's Certificate, such Fair Value shall not be required to be stated in any other Expert's Certificate delivered in connection with such release.
(2) No release of property from the Lien of this Indenture effected in accordance with the provisions, and in compliance with the conditions, set forth in this Article and in Sections 105 and 106 shall be deemed to impair the security of this Indenture in contravention of any provision hereof.
(3) If the Mortgaged Property shall be in the possession of a receiver or trustee, lawfully appointed, the powers herein before conferred upon the Company with respect to the release of any part of the Mortgaged Property or any interest therein or the withdrawal of cash may be exercised, with the approval of the Trustee, by such receiver or trustee, notwithstanding that an Event of Default may have occurred and be continuing, and any request, certificate, appointment or approval made or signed by such receiver or trustee for such purposes shall be as effective as if made by the Company or any of its officers or appointees in the manner herein provided; and if the Trustee shall be in possession of the Mortgaged Property under any provision of this Indenture, then such powers may be exercised by the Trustee in its discretion notwithstanding that an Event of Default may have occurred and be continuing.
(4) If the Company shall retain any interest in any property released from the Lien of this Indenture as provided in Section 803, 804 or 805, this Indenture shall not become or be, or be required to become or be, a Lien upon such property or such interest therein or any improvements, accessions, extensions or additions to such property or renewals, replacements or substitutions of or for such property or any part or parts thereof or the proceeds thereof unless the Company shall execute and deliver to the Trustee an indenture supplemental hereto, in recordable form, containing a grant, conveyance, transfer and mortgage thereof.
(5) Notwithstanding the occurrence and continuance of an Event of Default, the Trustee, in its discretion, may release from the Lien hereof any part of the Mortgaged Property or permit the withdrawal of cash, upon compliance with the other conditions specified in this Article in respect thereof.
(6) No purchaser or grantee of property purporting to have been released hereunder shall be bound to ascertain the authority of the Trustee to execute the release, or to inquire as to any facts required by the provisions hereof for the exercise of such authority; nor shall any purchaser or grantee of any property or rights permitted by this Article to be sold, granted, exchanged, dedicated or otherwise disposed of, be under obligation to ascertain or inquire into the authority of the Company to make any such sale, grant, exchange, dedication or other disposition.
ARTICLE NINE.
SATISFACTION AND DISCHARGE
SECTION 901. Satisfaction and Discharge of Securities.
Any Security or Securities, or any portion of the principal amount thereof, shall be deemed to have been paid for all purposes of this Indenture, and the entire indebtedness of the Company in respect thereof shall be satisfied and discharged, if there shall have been irrevocably deposited with the Trustee or any Paying Agent (other than the Company), in trust:
(1) money (including Funded Cash not otherwise applied pursuant to Section 806) in an amount which shall be sufficient; or
(2) in the case of a deposit made prior to the Maturity of such Securities or portions thereof, Eligible Obligations, which shall not contain provisions permitting the
redemption or other prepayment thereof at the option of the issuer thereof, the principal of and the interest on which when due, without any regard to reinvestment thereof, will provide moneys which, together with the money, if any, deposited with or held by the Trustee or such Paying Agent, shall be sufficient; or
(3) a combination of (1) or (2) which shall be sufficient, to pay when due the principal of and premium, if any, and interest, if any, due and to become due on such Securities or portions thereof; provided, however, that in the case of the provision for payment or redemption of less than all the Securities of any series or Tranche, such Securities or portions thereof shall have been selected by the Security Registrar as provided herein and, in the case of a redemption, the notice requisite to the validity of such redemption shall have been given or irrevocable authority shall have been given by the Company to the Trustee to give such notice, under arrangements satisfactory to the Trustee; and provided, further, that the Company shall have delivered to the Trustee and such Paying Agent:
(A) if such deposit shall have been made prior to the Maturity of such Securities, a Company Order stating that the money and Eligible Obligations deposited in accordance with this Section shall be held in trust, as provided in Section 903;
(B) if Eligible Obligations shall have been deposited, an Opinion of Counsel to the effect that such obligations constitute Eligible Obligations and do not contain provisions permitting the redemption or other prepayment thereof at the option of the issuer thereof, and an opinion of an Independent Accountant of nationally recognized standing, selected by the Company, to the effect that the other requirements set forth in clause (2) above have been satisfied;
(C) if such deposit shall have been made prior to the Maturity of such Securities, an Officer's Certificate stating the Company's intention that, upon delivery of such Officer's Certificate, its indebtedness in respect of such Securities or portions thereof will have been satisfied and discharged as contemplated in this Section; and
(D) either:
(i) an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by the Internal Revenue Service a ruling or (b) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case (a) or (b) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities shall not recognize income gain or loss for federal income tax purposes as a result of the deposit, defeasance and discharge to be effected with respect to such Securities and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would be the case if such deposit, defeasance and discharge had not occurred; or
(ii) an instrument wherein the Company, notwithstanding the satisfaction and discharge of its indebtedness in respect of the Securities, shall assume the obligation (which shall be absolute and unconditional) to irrevocably deposit with the Trustee such additional sums of money, if any, or additional Government Obligations, if any, or any
combination thereof, at such time or times, as shall be necessary, together with the money and/or Government Obligations theretofore so deposited, to pay when due the principal of and premium, if any, and interest due and to become due on such Securities or portions thereof; provided, however, that such instrument may state that the Company's obligation to make additional deposits as aforesaid shall be subject to the delivery to it by the Trustee of (a) a notice asserting the deficiency accompanied by an opinion of an independent public accountant of nationally recognized standing showing the calculation thereof and (b) an opinion of tax counsel in the United States reasonably acceptable to the Trustee to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred.
Upon the deposit of money or Eligible Obligations, or both, in accordance with this Section, together with the documents required by clauses (A), (B), (C) and (D) above, the Trustee shall, upon Company Request, acknowledge in writing that such Securities or portions thereof are deemed to have been paid for all purposes of this Indenture and that the entire indebtedness of the Company in respect thereof has been satisfied and discharged as contemplated in this Section. In the event that all of the conditions set forth in the preceding paragraph shall have been satisfied in respect of any Securities or portions thereof except that, for any reason, the Officer's Certificate specified in clause (C) (if otherwise required) shall not have been delivered, such Securities or portions thereof shall nevertheless be deemed to have been paid for all purposes of this Indenture, and the Holders of such Securities or portions thereof shall nevertheless be no longer entitled to the benefit of the Lien of this Indenture or of any of the covenants of the Company under Article Six (except the covenants contained in Sections 602 and 603) or any other covenants made in respect of such Securities or portions thereof as contemplated by Section 301, but the indebtedness of the Company in respect of such Securities or portions thereof shall not be deemed to have been satisfied and discharged prior to Maturity for any other purpose; and, upon Company Request, the Trustee shall acknowledge in writing that such Securities or portions thereof are deemed to have been paid for all purposes of this Indenture.
If payment at Stated Maturity of less than all of the Securities of any
series, or any Tranche thereof, is to be provided for in the manner and with the
effect provided in this Section, the Security Registrar shall select such
Securities, or portions of principal amount thereof, in the manner specified by
Section 503 for selection for redemption of less than all the Securities of a
series or Tranche.
In the event that Securities which shall be deemed to have been paid for purposes of this Indenture, and, if such is the case, in respect of which the Company's indebtedness shall have been satisfied and discharged, all as provided in this Section, do not mature and are not to be redeemed within the sixty (60) day period commencing with the date of the deposit of moneys or Eligible Obligations, as aforesaid, the Company shall, as promptly as practicable, give a notice, in the same manner as a notice of redemption with respect to such Securities, to the Holders of such Securities to the effect that such deposit has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have been paid for purposes of this Indenture, as aforesaid, the obligations of the Company and the Trustee in respect of such Securities under Sections 304, 305, 306, 504, 602, 603, 1107 and 1114 and this Article shall survive.
The Company shall pay, and shall indemnify the Trustee or any Paying Agent with which Eligible Obligations shall have been deposited as provided in this Section against, any tax, fee or other charge imposed on or assessed against such Eligible Obligations or the principal or interest received in respect of such Eligible Obligations, including, but not limited to, any such tax payable by any entity deemed, for tax purposes, to have been created as a result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at any time
after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied and discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable Federal or State
bankruptcy, insolvency or other similar law, such Security shall thereupon be
deemed retroactively not to have been paid and any satisfaction and discharge of
the Company's indebtedness in respect thereof shall retroactively be deemed not
to have been effected, and such Security shall be deemed to remain Outstanding
and (b) any satisfaction and discharge of the Company's indebtedness in respect
of any Security shall be subject to the provisions of the last paragraph of
Section 603.
SECTION 902. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 902), and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the satisfaction and discharge of
this Indenture, when:
(1) either,
(A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for the payment of which money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 603) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for cancellation:
(i) have become due and payable; or
(ii) will become due and payable at their Stated Maturity within one year of the date of deposit; or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company;
and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 1107, the obligations of the Trustee to any Authenticating Agent under Section 1115 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section 902, the obligations of the Trustee under Section 903 and the last paragraph of Section 603 shall survive.
Upon satisfaction and discharge of this Indenture as provided in this Section, the Trustee shall release, quit claim and otherwise turn over to the Company the Mortgaged Property (other than money and Eligible Obligations held by the Trustee pursuant to Section 903) and shall execute and deliver to the Company such deeds and other instruments as, in the judgment of the Company, shall be necessary, desirable or appropriate to effect or evidence such release and quitclaim and the satisfaction and discharge of this Indenture.
SECTION 903. Application of Trust Money.
Neither the Eligible Obligations nor the money deposited pursuant to
Section 901, nor the principal or interest payments on any such Eligible
Obligations, shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and premium, if any, and
interest, if any, on the Securities or portions of principal amount thereof in
respect of which such deposit was made, all subject, however, to the provisions
of Section 603; provided, however, that any cash received from such principal or
interest payments on such Eligible Obligations, if not then needed for such
purpose, shall, to the extent practicable and upon Company Request and delivery
to the Trustee of the documents referred to in clause (y) in the first paragraph
of Section 901, be invested in Eligible Obligations of the type described in
clause (2) in the first paragraph of Section 901 maturing at such times and in
such amounts as shall be sufficient, together with any other moneys and the
proceeds of any other Eligible Obligations then held by the Trustee, to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof on and prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company
as received, free and clear of the Lien of this Indenture, except the Lien provided by Section 1107; and provided, further, that any moneys held in accordance with this Section on the Maturity of all such Securities in excess of the amount required to pay the principal of and premium, if any, and interest, if any, then due on such Securities shall be paid over to the Company free and clear of the Lien of this Indenture, except the Lien provided by Section 1107; and provided, further, that if an Event of Default shall have occurred and be continuing, moneys to be paid over to the Company pursuant to this Section shall be held as part of the Mortgaged Property until such Event of Default shall have been waived or cured.
ARTICLE TEN.
EVENTS OF DEFAULT; REMEDIES
SECTION 1001. Events of Default.
"Event of Default" means any of the following events which shall have occurred and be continuing:
(1) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of thirty (30) days; or
(2) default in the payment of the principal of or any premium on any Security when it becomes due and payable; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which is elsewhere in this
Section 1001 specifically dealt with and continuance of such default or breach
for a period of ninety (90) days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least thirty-three percentum (33%) in principal amount of
the Securities then Outstanding a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" unless the Trustee, or the Trustee and the Holders of a principal
amount of Securities not less than the principal amount of Securities the
Holders of which gave such notice, as the case may be, shall agree in writing to
an extension of such period prior to its expiration; provided, however, that the
Trustee, or the Trustee and the Holders of such principal amount of Securities,
as the case may be, shall be deemed to have agreed to an extension of such
period if corrective action is initiated by the Company within such period and
is being diligently pursued; or
(4) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition by one or more Persons other than the Company seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order for relief or any such other decree or order shall have remained unstayed and in effect for a period of ninety (90) consecutive days; or
(5) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment of a substantial part of its property and assets for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(6) the occurrence of a Matured Event of Default; provided, however, that, anything in this Indenture to the contrary notwithstanding, the waiver or cure of such event of default under the First Mortgage and the rescission and annulment of the consequences thereof under the First Mortgage shall constitute a cure of the corresponding Event of Default hereunder and a rescission and annulment of the consequences thereof.
Notwithstanding the foregoing provisions of this Section 1001, if the principal or any premium or interest on any Security is payable in a currency other than the currency of the United States and such currency is not available to the Company for making payment thereof due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to Holders by making such payment in the currency of the United States in an amount equal to the currency of the United States equivalent of the amount payable in such other currency, as determined by the Trustee by reference to the noon buying rate in The City of New York for cable transfers for such currency ("Exchange Rate"), as such Exchange Rate is reported or otherwise made available by the Federal Reserve Bank of New York on the date of such payment, or, if such rate is not then available, on the basis of the most recently available Exchange Rate. Notwithstanding the foregoing provisions of this Section 1001, any payment made under such circumstances in the currency of the United States where the required payment is in a currency other than the currency of the United States will not constitute an Event of Default under this Indenture.
SECTION 1002. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default shall have occurred and be continuing, then in every such case the Trustee or the Holders of not less than thirty-three percentum (33%) in principal amount of the Securities then Outstanding may declare the principal amount (or, if any of the Securities are Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof as contemplated by Section 301) of all Securities then Outstanding to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by
Holders), and upon such declaration such principal amount (or specified amount), together with premium, if any, and accrued interest, if any, thereon, shall become immediately due and payable, all subject, however, in the case of an Event of Default described in clause (6) of Section 1001, to the proviso contained in such clause (6).
At any time after such a declaration of acceleration of the Maturity of the Securities has been made, but before any sale of any of the Mortgaged Property has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article Ten, the Event of Default giving rise to such declaration of acceleration shall, without further act, be deemed to have been waived, and such declaration and its consequences shall, without further act, be deemed to have been rescinded and annulled, if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:
(A) all overdue installments of interest on all Securities of that series;
(B) the principal of and premium, if any, on any Securities then Outstanding which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities; and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities, other
than the non-payment of the principal of Securities which have become due solely
by such declaration of acceleration, have been cured or waived as provided in
Section 1017.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 1003. Entry upon Mortgaged Property.
If an Event of Default shall have occurred and be continuing, the Company, upon demand of the Trustee and if and to the extent permitted by law, shall forthwith surrender to the Trustee the actual possession of, and the Trustee, by such officers or agents as it may appoint, may enter upon and take possession of, the Mortgaged Property; and the Trustee may hold, operate and manage the Mortgaged Property and make all needful repairs and such renewals, replacements, betterments and improvements as to the Trustee shall seem prudent; and the Trustee may receive the rents, issues, profits, revenues and other income of the Mortgaged Property, to the extent, if any, that the same shall not then constitute Excepted Property; and, after deducting the costs and expenses of entering, taking possession, holding, operating and managing the Mortgaged Property, as well as payments for insurance and taxes and other proper charges upon the Mortgaged Property prior to the Lien of this Indenture and reasonable compensation to itself, its agents and counsel, the Trustee may apply the same as provided in Section 1007. Whenever all that is then due in respect of the principal of and premium, if any, and interest, if any, on the
Securities and under any of the terms of this Indenture shall have been paid and all defaults hereunder shall have been cured or shall have been waived as provided in Section 1017, the Trustee shall surrender possession of the Mortgaged Property to the Company.
SECTION 1004. Power of Sale; Suits for Enforcement.
If an Event of Default shall have occurred and be continuing, the Trustee, by such officers or agents as it shall appoint, with or without entry, in its discretion may, subject to the provisions of Section 1016 and if and to the extent permitted by law:
(1) Foreclosure. Sell, subject to applicable law, the Mortgaged Property.
(A) Foreclosure of Real Property. Mortgaged Property
constituting real property shall be sold in accordance with this Section
1004(1)(A). The sale shall be a public sale at auction held between 10 A.M. and
4 P.M. on the first Tuesday of a month. The sale shall take place at the county
courthouse in the county in which the Mortgaged Property is located, or if it is
located in more than one county, the sale will be made at the courthouse in one
of those counties. The sale shall occur at the area at that courthouse which the
commissioners' court of that county has designated as the place where such sales
are to take place by designation recorded in the real property records of that
county, or if no area is so designated, then the notice of sale shall designate
the area at the courthouse where the sale covered by that notice is to take
place, and the sale shall occur in that area. Notice of the sale shall include a
statement of the earliest time at which the sale will occur and shall be given
at least twenty-one (21) days before the date of the sale; (i) by posting at the
courthouse door of each county in which the Mortgaged Property is located a
written notice designating the county in which the Mortgaged Property will be
sold; (ii) by filing in the Office of the County Clerk of each county in which
the Mortgaged Property is located a copy of the notice posted under subsection
(1) above; and (iii) by the holders of the indebtedness to which this power of
sale is related serving written notice of the sale by certified mail on each
debtor who, according to the records of such holders, is obligated to pay such
indebtedness. The sale shall begin at the time stated in the notice of sale or
not later than three (3) hours after that time. Service of any notice under this
Section 1004(1)(A) by certified mail is complete when the notice is deposited in
the United States mail, postage prepaid and addressed to the debtor entitled to
it at that debtor's last known address as shown by the records of the Trustee
and the Holders. The affidavit of a person knowledgeable of the facts to the
effect that service was completed is prima facie evidence of service. After such
written notice shall have been posted and filed, as aforesaid, and such notice
shall have been served upon such debtor or debtors, as aforesaid, the Trustee
(or his successor or substitute then acting) shall perform his duty to enforce
this Indenture by selling the Mortgaged Property, either as an entirety or in
parcels, by one sale or several sales, as the Trustee acting may elect, all
rights to a marshalling of assets or sale in inverse order of alienation being
WAIVED, as aforesaid to the highest bidder or bidders for cash, and make due
conveyance to the purchaser or purchasers, with general warranty, and the title
to such purchaser or purchasers, when so made by the Trustee acting, the Company
binds itself, its successors and assigns, to warrant and forever defend against
claims and demands of every person whomsoever lawfully claiming or to claim the
same or any part thereof (such warranty to supersede any provision contained in
this Indenture limiting the liability of the Company), subject to Permitted
Liens and Liens and claims permitted in accordance with Section 606. The
provisions of this Indenture with respect to posting and giving
notices of sale are intended to comply with the provisions of Section 51.002 of the Texas Property Code as in force and effect as of the date hereof, and in the event the requirement for any notice under such Section 51.002 shall be eliminated or the prescribed manner of giving it shall be modified by future amendment to, or adoption of any statute superseding, such Section 51.002, the requirement for such particular notice shall be deemed stricken from or modified in this Indenture in conformity with such amendment or superseding statute, effective as of its effective date. The manner prescribed in this Indenture for serving or giving any notice, other than that to be posted or caused to be posted by the Trustee acting, shall not be deemed exclusive but such notice or notices may be given in any other manner permitted by applicable law. Said sale shall forever be a bar against the Company, its successors and assigns, and all other persons claiming under it. It is expressly agreed that the recitals in each conveyance to the purchaser shall be full evidence of the truth of the matters therein stated, and all lawful prerequisites to said sale shall be conclusively presumed to have been performed. The Trustee may require minimum bids at any foreclosure sale and may cancel and abandon the sale if no bid is received equal to or greater than any such minimum bid. For the avoidance of doubt, references to the term Mortgaged Property in this Section 1004(1)(A) are references to all or a portion of the Mortgaged Property to be sold in accordance with this Section 1004(1)(A) at any one time and not the Mortgaged Property in its entirety.
(B) Foreclosure of Other Property. Mortgaged Property constituting property other than real property shall be sold in accordance with this Section 1004(1)(B). In conducting the sale, the Trustee shall have all of the rights and remedies provided by applicable law or by this Indenture, including but not limited to the right to require the Company to assemble the Mortgaged Property and make it available to the Trustee at a place to be designated by the Trustee which is reasonably convenient to both the Trustee and the Company, the right to take possession of the Mortgaged Property with or without demand and with or without process of law and the right to sell and dispose of the same and distribute the proceeds according to Section 1007 of this Indenture. Any requirement of reasonable notice shall be met if the Trustee sends such notice to the Company at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice. The parties hereto further agree that any sale of the Mortgaged Property held contemporaneously with and upon the same notice as required in Section 1004(1)(A) (for the real property) shall be deemed to be a public sale conducted in a commercially reasonable manner. With respect to the Mortgaged Property that has become so attached to the real property that an interest therein arises under the real property law of the State of Texas, this Indenture shall also constitute a financing statement and a fixture filing under the Texas Uniform Commercial Code.
(2) Judicial Foreclosure. In addition to the foregoing, proceed to protect and enforce its rights and the rights of the Holders under this Indenture by sale pursuant to judicial proceedings or by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Indenture or in aid of the execution of any power granted in this Indenture or for the foreclosure of this Indenture or for the enforcement of any other legal, equitable or other remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Holders.
SECTION 1005. Incidents of Sale.
Upon any sale of any of the Mortgaged Property, whether made under the power of sale hereby given or pursuant to judicial proceedings, to the extent permitted by law:
(1) the principal amount (or, if any of the Securities are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof as contemplated by Section 301) of all Outstanding Securities, if not previously due, shall at once become and be immediately due and payable, together with premium, if any, and accrued interest, if any, thereon;
(2) any Holder or Holders or the Trustee may bid for and purchase the property offered for sale, and upon compliance with the terms of sale may hold, retain and possess and dispose of such property, without further accountability, and may, in paying the purchase money therefor, deliver any Outstanding Securities or claims for interest thereon in lieu of cash to the amount which shall, upon distribution of the net proceeds of such sale, be payable thereon, and such Securities, in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Holders thereof after being appropriately stamped to show partial payment;
(3) the Trustee may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold;
(4) the Trustee is hereby irrevocably appointed the true and lawful attorney of the Company, in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property so sold; and for that purpose it may execute all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more persons, firms or corporations with like power, the Company hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof; but, if so requested by the Trustee or by any purchaser, the Company shall ratify and confirm any such sale or transfer by executing and delivering to the Trustee or to such purchaser or purchasers all proper deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request;
(5) all right, title, interest, claim and demand whatsoever, either at law or in equity or otherwise, of the Company of, in and to the property so sold shall be divested and such sale shall be a perpetual bar both at law and in equity against the Company, its successors and assigns, and against any and all persons claiming or who may claim the property sold or any part thereof from, through or under the Company; and
(6) the receipt of the Trustee or of the officer making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money and such purchaser or purchasers and his or their assigns or personal representatives shall not, after paying such purchase money and receiving such receipt, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or non-application thereof.
SECTION 1006. Collection of Indebtedness and Suits for Enforcement by Trustee.
If an Event of Default described in clause (1) or (2) of Section 1001 shall have occurred and be continuing, the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of the Securities with respect to which such Event of Default shall have occurred, the whole amount then due and payable on such Securities for principal and premium, if any, and interest, if any, and, in addition thereto, such further amount as shall be sufficient to cover any amounts due to the Trustee under Section 1107.
If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
The Trustee shall, to the extent permitted by law, be entitled to sue and recover judgment as aforesaid either before, during or after the pendency of any proceedings for the enforcement of the Lien of this Indenture, and in case of a sale of the Mortgaged Property or any part thereof and the application of the proceeds of sale as aforesaid, the Trustee, in its own name and as trustee of an express trust, shall be entitled to enforce payment of, and to receive, all amounts then remaining due and unpaid upon the Securities then Outstanding for principal, premium, if any, and interest, if any, for the benefit of the Holders thereof, and shall be entitled to recover judgment for any portion of the same remaining unpaid, with interest as aforesaid. No recovery of any such judgment by the Trustee and no levy of any execution upon any such judgment upon any of the Mortgaged Property or any other property of the Company shall affect or impair the Lien of this Indenture upon the Mortgaged Property or any part thereof or any rights, powers or remedies of the Trustee hereunder, or any rights, powers or remedies of the Holders.
SECTION 1007. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article, including
any rents, issues, profits, revenues and other income collected pursuant to
Section 1003 (after the deductions therein provided) and any proceeds of any
sale (after deducting the costs and expenses of such sale, including a
reasonable compensation to the Trustee, its agents and counsel, and any taxes,
assessments or Liens prior to the Lien of this Indenture, except any thereof
subject to which such sale shall have been made), whether made under any power
of sale herein granted or pursuant to judicial proceedings, and any money
collected by the Trustee under Section 806, together with, in the case of an
entry or sale or as otherwise provided herein, any other sums then held by the
Trustee as part of the Mortgaged Property, shall be applied in the following
order, to the extent permitted by law, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal or
premium, if any, or interest, if any, upon presentation of the Securities and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
First: To the payment of all amounts due the Trustee under
Section 1107;
Second: To the payment of the whole amount then due and unpaid upon the Outstanding Securities for principal and premium, if any, and interest, if any, in respect of which or for the benefit of which such money has been collected; and in case such proceeds shall be insufficient to pay in full the whole amount so due and unpaid upon such Securities, then to the payment of such principal and interest, if any, thereon without any preference or priority, ratably according to the aggregate amount so due and unpaid, with any balance then remaining to the payment of premium, if any, and, if so specified as contemplated by Section 301 with respect to the Securities of any series, or any Tranche thereof, interest, if any, on overdue premium, if any, and overdue interest, if any, ratably as aforesaid, all to the extent permitted by applicable law; provided, however, that any money collected by the Trustee pursuant to Section 806 in respect of interest or pursuant to Section 1003 shall first be applied to the payment of interest accrued on the principal of Outstanding Securities; and
Third: To the payment of the remainder, if any, to the Company or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.
SECTION 1008. Receiver.
If an Event of Default shall have occurred and, during the continuance thereof, the Trustee shall have commenced judicial proceedings to enforce any right under this Indenture, the Trustee shall, to the extent permitted by law, be entitled, as against the Company, without notice or demand and without regard to the adequacy of the security for the Securities or the solvency of the Company, to the appointment of a receiver of the Mortgaged Property.
SECTION 1009. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal, premium, if any, and interest, if any, owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for amounts due to the Trustee under Section 1107) and of the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amounts due it under Section 1107.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 1010. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee under Section 1107, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
SECTION 1011. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver, assignee, trustee, liquidator or sequestor (or other similar official), or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default;
(2) the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such sixty (60) day period by the Holders of a majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing himself of, any provision of this Indenture to affect, disturb or prejudice the Lien of this Indenture or the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
SECTION 1012. Unconditional Right of Holders to Receive Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
SECTION 1013. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and such Holder shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and such Holder shall continue as though no such proceeding had been instituted.
SECTION 1014. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Anything in this Article to the contrary notwithstanding, the availability of the remedies set forth herein (on an individual or cumulative basis) and the procedures set forth herein relating to the exercise thereof shall be subject to (a) the law (including, for purposes of this paragraph, general principles of equity) of any jurisdiction wherein the Mortgaged Property or any part thereof is located to the extent that such law is mandatorily applicable and (b) the rights of the holder of any Lien prior to the Lien of this Indenture, and, if and to the extent that any provision of this Article conflicts with any provision of such applicable law and/or with the rights of the holder of any such prior Lien, such provision of law and/or the rights of such holder shall control.
SECTION 1015. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article Ten or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 1016. Control by Holders.
If an Event of Default shall have occurred and be continuing, the Holders of not less than a majority in principal amount of the Securities then Outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that:
(1) such direction shall not be in conflict with any rule of law or with this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and
(3) subject to the provisions of Section 1101, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would involve the Trustee in personal liability or would otherwise be contrary to applicable law.
SECTION 1017. Waiver of Past Defaults.
Before any sale of any of the Mortgaged Property and before a judgment or decree for payment of the money due shall have been obtained by the Trustee as herein provided, the Holders of not less than a majority in principal amount of the Securities then Outstanding may on behalf of the Holders of all the Outstanding Securities waive any past default hereunder and its consequences, except a default:
(1) in the payment of the principal of or any premium or interest on any Security Outstanding; or
(2) in respect of a covenant or provision hereof which under Article Fourteen cannot be modified or amended without the consent of the Holder of each Outstanding Security of any series or Tranche affected.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 1018. Undertaking for Costs.
The Company and the Trustee agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and such court may in its discretion assess reasonable
costs including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 1018 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder or group of Holders holding in the aggregate more than ten percentum (10%) in principal amount of the Securities then Outstanding, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security, on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). Neither this Section 1018 nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or such an assessment in any proceeding instituted by the Company.
SECTION 1019. Waiver of Appraisement, Usury, Stay and Other Laws.
To the full extent that it may lawfully so agree, the Company shall not at any time set up, claim or otherwise seek to take the benefit or advantage of any appraisement, valuation, stay, extension or redemption law, now or hereafter in effect, in order to prevent or hinder the enforcement of this Indenture or the absolute sale of the Mortgaged Property, or any part thereof, or the possession thereof, or any part thereof, by any purchaser at any sale under this Article; and the Company, for itself and all who may claim under it, so far as it or they now or hereafter may lawfully do so, hereby waives the benefit of all such laws. The Company, for itself and all who may claim under it, waives, to the extent that it may lawfully do so, all right to have the Mortgaged Property marshalled upon any foreclosure of the Lien hereof, and agrees that any court having jurisdiction to foreclose the Lien of this Indenture may order the sale of the Mortgaged Property as an entirety.
SECTION 1020. Defaults under First Mortgage.
In addition to every other right and remedy provided herein, the Trustee may exercise any right or remedy available to the Trustee in its capacity as owner and holder of First Mortgage Collateral Bonds which arises as a result of a default or event of default under the First Mortgage, whether or not an Event of Default shall then have occurred and be continuing.
ARTICLE ELEVEN.
THE TRUSTEE
SECTION 1101. Certain Duties and Responsibilities.
(1) Except during the continuance of an Event of Default, (A) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (B) in the absence of gross negligence or bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(2) In case an Event of Default shall have occurred and be continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(3) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(A) this subsection shall not be construed to limit the effect of Clause (1) of this Section;
(B) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(C) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders entitled to so direct the Trustee, as provided herein, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and
(D) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 1102. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder in the manner and to the extent required to do so by the Trust Indenture Act, unless such default shall have been cured or waived; provided, however, that in the case of any default of the character specified in Section 1001(3), no such notice to Holders shall be given until at least seventy-five (75) days after the occurrence thereof. For the purpose of this Section 1102, the term "default" means any event which is, or after notice or lapse of time, or both, would become, an Event of Default.
The Trustee shall give to the trustee under the First Mortgage a copy of each notice of default given to the Holders pursuant to this Section 1102.
SECTION 1103. Certain Rights of Trustee.
Subject to the provisions of Section 1101:
(1) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Manager shall be sufficiently evidenced by a Manager Resolution;
(3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate;
(4) the Trustee may consult with counsel, and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
(8) the Trustee is not required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture;
(9) in the event the Trustee receives inconsistent or conflicting requests and indemnity from two or more groups of Holders, each representing less than a majority in
aggregate principal amount of the Securities then Outstanding, the Trustee, in its sole discretion, may determine what action, if any, shall be taken;
(10) the Trustee's immunities and protections from liability and its right to indemnification in connection with the performance of its duties under this Indenture shall extend to the Trustee's officers, directors, agents and employees. Such immunities and protections and right to indemnification, together with the Trustee's right to compensation, shall survive the Trustee's resignation or removal and final payment of the Securities; and
(11) the Trustee is not required to take notice or deemed to have notice of any default or Event of Default hereunder, except Events of Default under Section 1001(1) and (2), unless a Responsible Officer of the Trustee has actual knowledge thereof or has received notice in writing of such default or Event of Default from the Company or the holders of at least thirty-three percentum (33%) in aggregate principal amount of the Securities then Outstanding, and in the absence of any such notice, the Trustee may conclusively assume that no such default or Event of Default exists.
SECTION 1104. Not Responsible for Recitals or Issuance of Securities or Application of Proceeds.
The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the value or condition of the Mortgaged Property or any part thereof, or as to the title of the Company thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any securities at any time pledged and deposited with the Trustee hereunder, or as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof or of any money paid to the Company or upon Company Order under any provision hereof. The Trustee shall have no responsibility to make or to see to the making of any recording, filing or registration of any instrument or notice (including any financing or continuation statement or any tax or securities form) (or any rerecording, refiling or reregistration of any thereof); at any time in any public office or elsewhere for the purpose of perfecting, maintaining the perfection of or otherwise making effective the Lien of this Indenture or for any other purpose and shall have no responsibility for seeing to the insurance on the Mortgaged Property or for paying any taxes relating to the Mortgaged Property or for otherwise maintaining the Mortgaged Property, including, but not limited to, attending to any environmental matters in respect thereof or disposing of any hazardous or other wastes located thereon.
SECTION 1105. May Hold Securities.
Each of the Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its commercial banking or in any other capacity, may become the owner or pledgee of Securities and, subject to Sections 1108 and 1113, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Each of said
entities, in its commercial banking or in any other capacity, may also engage in or be interested in any financial or other transaction with the Company and, subject to Sections 1108 and 1113, may act as depository, trustee or agent for any committee of Holders of Securities secured hereby or other obligations of the Company as freely as if it were not Trustee, Authenticating Agent, Paying Agent or Security Registrar. The provisions of this Section shall extend to Affiliates of said entities.
SECTION 1106. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
SECTION 1107. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree in writing from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, willful misconduct or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except those attributable to its negligence, willful misconduct or bad faith.
As security for the performance of the obligations of the Company under
this Section 1107, the Trustee shall have a Lien (the "Trustee's Lien") secured
by this Indenture prior to the Securities upon the Mortgaged Property and upon
all other property and funds held or collected by the Trustee as such, other
than property and funds held in trust under Section 903 (except moneys payable
to the Company as provided in Section 903). "Trustee" for purposes of this
Section 1107 shall include any predecessor Trustee; provided, however, that the
negligence, willful misconduct or bad faith of any Trustee hereunder shall not
affect the rights of any other Trustee hereunder.
The Trustee shall notify the Company promptly of any claim for which it may seek indemnity under this Section 1107. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and, in the event the subject matter of the claim involves a conflict of interest between the Company and the Trustee, the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent.
In the event the Trustee incurs expenses or renders services in any proceedings which result from an Event of Default under Section 1001(4) or (5), or from any default which, with the passage of time, would become such Event of Default, the expenses so incurred and compensation for services so rendered are intended to constitute expenses of administration under the United States Bankruptcy Code or equivalent law.
SECTION 1108. Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series.
SECTION 1109. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least Fifty Million Dollars ($50,000,000). If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 1109 and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section 1109, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Eleven.
SECTION 1110. Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article Eleven shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 1111.
(2) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 1111 shall not have been delivered to the Trustee within thirty (30)
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series.
(3) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
(4) If at any time:
(A) the Trustee shall fail to comply with Section 1108 after written request therefor by the Company or by any Holder who has been a bona fide Holder for at least six months; or
(B) the Trustee shall cease to be eligible under
Section 1109 and shall fail to resign after written request therefor by the
Company or by any such Holder; or
(C) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (a) the Company, acting pursuant to the authority of a Manager Resolution, may remove the Trustee with respect to all Securities, or (b) subject to Section 1018, any Holder who has been a bona fide Holder for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
(5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause (other than as contemplated in subclause (B) in clause (4) of this Section), with respect to the Securities of one or more series, the Company, by a Manager Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series) and shall comply with the applicable requirements of Section 1111. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of such series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 1111, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of such series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 1111, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
(6) So long as no event which is, or after notice or lapse of time, or both, would become, an Event of Default shall have occurred and be continuing, if the Company shall have delivered to the Trustee (i) a Manager Resolution appointing a successor Trustee, effective as of a date specified therein, and (ii) an instrument of acceptance of such appointment, effective
as of such date, by such successor Trustee in accordance with Section 1111, the Trustee shall be deemed to have resigned as contemplated in clause (2) of this Section, the successor Trustee shall be deemed to have been appointed pursuant to clause (5) of this Section and such appointment shall be deemed to have been accepted as contemplated in Section 1111, all as of such date, and all other provisions of this Section and Section 1111 shall be applicable to such resignation, appointment and acceptance except to the extent inconsistent with this clause (6).
(7) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to all Holders of Securities of such series in the manner provided in Section
109. Each notice shall include the name of the successor Trustee with respect to
the Securities of such series and the address of its Corporate Trust Office.
SECTION 1111. Acceptance of Appointment by Successor.
(1) In case of the appointment hereunder of a successor Trustee with respect to any series of Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
(2) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in clause (1) of this Section.
(3) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article Eleven.
SECTION 1112. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article Eleven, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
SECTION 1113. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities (other than by reason of a relationship described in Section 311(b) of the Trust Indenture Act)), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). For purposes of Section 311(b)(4) and (6) of the Trust Indenture Act:
(1) "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks and payable upon demand; and
(2) "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company (or any such obligor) for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a Lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security; provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company (or any such obligor) arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 1114. Co-trustees and Separate Trustees.
(1) At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Mortgaged Property may at
the time be located, the Company and the Trustee shall have power to appoint,
and, upon the written request of the Trustee or of the Holders of at least
thirty-three percentum (33%) in principal amount of the Securities then
Outstanding, the Company shall for such purpose join with the Trustee in the
execution and delivery of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Trustee and, if no Event of Default
shall have occurred and be continuing, by the Company either to act as
co-trustee, jointly with the Trustee, of all or any part of the Mortgaged
Property, or to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons, in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions of
this Section. If the Company does not join in such appointment within fifteen
(15) days after the receipt by it of a request so to do, or if an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.
(2) Should any written instrument or instruments from the Company be required by any co-trustee or separate trustee so appointed to more fully confirm to such co-trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Company.
(3) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following conditions:
(A) the Securities shall be authenticated and delivered, and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with the Trustee hereunder shall be exercised solely by the Trustee;
(B) the rights, powers, duties and obligations hereby conferred or imposed upon the Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed either by the Trustee or by the Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed the Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee;
(C) the Trustee at any time, by an instrument in writing executed by it, with the concurrence of the Company, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, if an Event of Default shall have occurred and be continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Company. Upon the written request of the Trustee, the Company shall join with the Trustee in the execution and delivery of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section;
(D) neither the Trustee nor any co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and
(E) any Act of Holders delivered to the Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 1115. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to the Securities of one or more series, or any Tranche thereof which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series or Tranche issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States, any State or Territory thereof or the District of Columbia or the Commonwealth of Puerto Rico, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than Fifty Million Dollars ($50,000,000) and subject to supervision or examination by Federal or State authority. If
such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 1115, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 1115, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 1115.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section 1115, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 1115, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 109 to all Holders of Securities of the series or Tranche with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 1115.
The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 1115, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 1107.
If an appointment with respect to the Securities of one or more series, or any Tranche thereof, shall be made pursuant to this Section 1115, the Securities of such series or Tranche may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
By: ,
------------------------
as Authenticating Agent
By:
------------------------
Authorized Officer
|
If all of the Securities of a series may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested by the Company in writing (which writing need not comply with Section 105 and need not be accompanied by an Opinion of Counsel), shall appoint, in accordance with this Section and in accordance with such procedures as shall be acceptable to the Trustee, an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such series of Securities.
ARTICLE TWELVE.
LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY
SECTION 1201. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not later than January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of the preceding January 1 or July 1 as the case may be; and
(2) at such other times as the Trustee may request in writing, within thirty (30) days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be Security Registrar for Securities of a series, no such list need be furnished with respect to such series of Securities.
SECTION 1202. Preservation of Information; Communications to Holders.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 1201 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 1201 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act.
Every Holder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 1203. Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.
Reports so required to be transmitted at stated intervals of not more than twelve (12) months shall be transmitted no later than January 31 in each calendar year, commencing with the first January 31 after the first issuance of Securities under this Indenture.
A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company.
SECTION 1204. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act. The Company will notify the Trustee when any Securities are listed on any stock exchange.
ARTICLE THIRTEEN.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 1301. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or convey, transfer or lease, subject to the Lien of this Indenture, all of the Mortgaged Property as or substantially as an entirety to any Person, unless:
(1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease all of the Mortgaged Property as or substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the Mortgaged Property as or substantially as an entirety shall be a Person organized and validly existing under the laws of the United States, any State or Territory thereof or the District of Columbia (such Person being hereinafter sometimes called the "Successor Corporation") and shall execute and deliver to the Trustee an indenture supplemental hereto, in form satisfactory to the Trustee, which:
(A) in the case of a consolidation, merger, conveyance or other transfer, or in the case of a lease if the term thereof extends beyond the last Stated Maturity of
the Securities then Outstanding, contains an express assumption by the Successor Corporation of the due and punctual payment of the principal of and premium, if any, and interest, if any, on all the Securities then Outstanding and the performance and observance of every covenant and condition of this Indenture to be performed or observed by the Company; and
(B) in the case of a consolidation, merger, conveyance or other transfer, contains a grant, conveyance, transfer and mortgage by the Successor Corporation, of the same tenor of the Granting Clauses herein:
(i) confirming the Lien of this Indenture on the Mortgaged Property (as constituted immediately prior to the time such transaction became effective) and subjecting to the Lien of this Indenture all property, real, personal and mixed, thereafter acquired by the Successor Corporation which shall constitute an improvement, extension or addition to the Mortgaged Property (as so constituted) or a renewal, replacement or substitution of or for any part thereof; and
(ii) at the election of the Successor Corporation subjecting to the Lien of this Indenture such property, real, personal or mixed, in addition to the property described in clause (i) of this Section, then owned or thereafter acquired by the Successor Corporation as the Successor Corporation shall, in its sole discretion, specify or describe therein, and the Lien confirmed or created by such grant, conveyance, transfer and mortgage shall have force, effect and standing similar to those which the Lien of this Indenture would have had if the Company had not been a party to such consolidation, merger, conveyance or other transfer and had itself, after the time such transaction became effective, purchased, constructed or otherwise acquired the property subject to such grant, conveyance, transfer and mortgage;
(2) in the case of a lease, such lease shall be made expressly subject to termination by the Company or by the Trustee at any time during the continuance of an Event of Default, and also by the purchaser of the property so leased at any sale thereof hereunder, whether such sale be made under the power of sale hereby conferred or pursuant to judicial proceedings;
(3) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and
(4) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture, comply with this Article Thirteen and that all conditions precedent herein provided for relating to such transaction have been complied with.
SECTION 1302. Successor Corporation Substituted.
Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease, subject to the Lien of this Indenture, of the Mortgaged Property as or substantially as an entirety in accordance with Section 1301, the Successor Corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture with the same effect as if such Successor Corporation had been named as the Company herein. Without limiting the generality of the foregoing:
(1) all property of the Successor Corporation then subject to the Lien of this Indenture, of the character described in Section 103, shall constitute Property Additions;
(2) the Successor Corporation may execute and deliver to the Trustee, and thereupon the Trustee shall, subject to the provisions of Article Four, authenticate and deliver, Securities upon any basis provided in Article Four; and
(3) the Successor Corporation may, subject to the applicable provisions of this Indenture, cause Property Additions to be applied to any other Authorized Purpose.
All Securities so executed by the Successor Corporation, and authenticated and delivered by the Trustee, shall in all respects be entitled to the benefit of the Lien of this Indenture equally and ratably with all Securities executed, authenticated and delivered prior to the time such consolidation, merger, conveyance or other transfer became effective.
SECTION 1303. Extent of Lien Hereof on Property of Successor Corporation.
Unless, in the case of a consolidation, merger, conveyance or other transfer contemplated by Section 1301, the indenture supplemental hereto contemplated in clause (1)(B) in Section 1301, or any other indenture, contains a grant, conveyance, transfer and mortgage by the Successor Corporation as described in subclause (ii) thereof, neither this Indenture nor such supplemental indenture shall become or be, or be required to become or be, a Lien upon any of the properties:
(1) owned by the Successor Corporation or any other party to such transaction (other than the Company) immediately prior to the time of effectiveness of such transaction; or
(2) acquired by the Successor Corporation at or after the time of effectiveness of such transaction, except, in either case, properties acquired from the Company in or as a result of such transaction and improvements, extensions and additions to such properties and renewals, replacements and substitutions of or for any part or parts thereof.
SECTION 1304. Release of Company upon Conveyance or Other Transfer.
In the case of a conveyance or other transfer to any Person or Persons as contemplated in Section 1301, upon the satisfaction of all the conditions specified in Section 1301, the Company (such term being used in this Section without giving effect to such transaction) shall be released and discharged from all obligations and covenants under this Indenture and on and under all Securities then Outstanding (unless the Company shall have delivered to the Trustee an instrument in which it shall waive such release and discharge) and the Trustee shall acknowledge in writing that the Company has been so released and discharged.
SECTION 1305. Merger into Company; Extent of Lien Hereof.
(1) Nothing in this Indenture shall be deemed to prevent or restrict any consolidation or merger after the consummation of which the Company would be the surviving or resulting corporation or any conveyance or other transfer, or lease, subject to the Lien of this Indenture, of any part of the Mortgaged Property which does not constitute the entirety, or substantially the entirety, thereof.
(2) Unless, in the case of a consolidation or merger described in clause (1) of this Section, an indenture supplemental hereto shall otherwise provide, this Indenture shall not become or be, or be required to become or be, a Lien upon any of the properties acquired by the Company in or as a result of such transaction or any improvements, extensions or additions to such properties or any renewals, replacements or substitutions of or for any part or parts thereof.
ARTICLE FOURTEEN.
SUPPLEMENTAL INDENTURES
SECTION 1401. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Manager Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, or successive successions, and the assumption by any such successor of the covenants, agreements and obligations of the Company herein and in the Securities, all as provided in Article Thirteen; or
(2) to add one or more covenants of the Company or other provisions for the benefit of the Holders of, or to remain in effect only so long as there shall be Outstanding, all or any series of Securities, or any Tranches thereof (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series), or to surrender any right or power herein conferred upon the Company; or
(3) to correct or amplify the description of any property at any time subject to the Lien of this Indenture; or better to assure, convey and confirm unto the Trustee any property subject or required to be subjected to the Lien of this Indenture; or to subject to the Lien of this Indenture additional property (including property of Persons other than the Company), to specify any additional Permitted Liens with respect to such additional property and to modify Section 802 in order to specify therein any additional items with respect to such additional property; or
(4) to establish the form or terms of Securities of any series or Tranche as permitted by Sections 201 and 301; or
(5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 1111; or
(6) to provide for the procedures required to permit the Company to utilize, at its option, a non-certificated system of registration for all, or any series or Tranche of, the Securities; or
(7) to change any place or places where (A) the principal of and premium, if any, and interest, if any, on all or any series of Securities, or any Tranche thereof, shall be payable, (B) all or any series of Securities, or any Tranche thereof, may be surrendered for registration of transfer, (C) all or any series of Securities, or any Tranche thereof, may be surrendered for exchange and (D) notices and demands to or upon the Company in respect of all or any series of Securities, or any Tranche thereof, and this Indenture may be served; or
(8) to cure any ambiguity, to correct or supplement any provision in this Indenture which may be defective or inconsistent with any other provision herein, or to make any other additions to, deletions from or other changes to the provisions under this Indenture, provided that such additions, deletions and/or other changes shall not adversely affect the interests of the Holders of Securities of any series or Tranche in any material respect; or
(9) to provide for the authentication and delivery of bearer bonds and coupons appertaining thereto representing interest, if any, thereon and for the procedures for the registration, exchange and replacement thereof and for the giving of notice to, and the solicitation of the vote or consent of, the Holders thereof, and for any and all other matters incidental thereto; or
(10) to comply with the rules or regulations of any securities exchange or automated quotation system on which any of the Securities may be listed or traded; or
(11) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act, excluding, however the provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in effect at the date as of which this instrument was executed or any corresponding provision in any similar federal statute hereafter enacted.
Without limiting the generality of the foregoing, if the Trust Indenture Act as in effect at the date of the execution and delivery of this Indenture, as originally executed and delivered, or at any time thereafter shall be amended and if any such amendment shall require one or more changes to any provisions hereof or the inclusion herein of any additional provisions, or shall by operation of law be deemed to effect such changes or incorporate such provisions by reference or otherwise, this Indenture shall be deemed to have been amended so as to conform to such amendment to the Trust Indenture Act, and the Company and the Trustee may, without the
consent of any Holders, enter into an indenture supplemental hereto to evidence such amendment hereof.
SECTION 1402. Supplemental Indentures With Consent of Holders.
Subject to the provisions of Section 1401, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under this Indenture, considered as one class, by Act of said Holders delivered to the Company and the Trustee, the Company and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture; provided, however, that if there shall be Securities of more than one series Outstanding hereunder and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series so directly affected, considered as one class, shall be required; and provided, further, that if the Securities of any series shall have been issued in more than one Tranche and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and provided, further, that no such supplemental indenture shall:
(1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or the amount of any installment of interest thereon or change the method of calculating such rate or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 1002, or change the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date) without the consent of the Holder of such Security; or
(2) permit the creation of any Lien (not otherwise permitted hereby) ranking prior to the Lien of this Indenture with respect to all or substantially all of the Mortgaged Property, or (except by virtue of a supplemental indenture described in clause (9) in Section 1401) terminate the Lien of this Indenture on all or substantially all of the Mortgaged Property or deprive the Holders of the benefit of the Lien of this Indenture, without, in any such case, the consent of the Holders of all Securities then Outstanding; or
(3) reduce the percentage in principal amount of the Outstanding Securities of any series, or any Tranche thereof, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver (of compliance with any provision of this Indenture or any default hereunder and its consequence), or reduce the requirements for quorum or voting provided for in this Indenture without the consent of the Holder of each Outstanding Security of such series; or
(4) modify any of the provisions of this Section 1402, Section 1017 or Section 609, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived, without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section 1402 and Section 609, or the deletion of this proviso, in accordance with the requirements of Sections 1111 and 1401(5).
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of, or that is to remain in effect only so long as there shall be Outstanding, one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series or Tranche.
It shall not be necessary for any Act of Holders under this Section 1402 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 1403. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article Fourteen or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 1101) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 1404. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article Fourteen, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 1405. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Fourteen shall conform to the requirements of the Trust Indenture Act.
SECTION 1406. Reference in Securities to Supplemental Indentures.
Securities of any series, or any Tranche thereof, authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Fourteen may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series, or any Tranche thereof, so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series or Tranche.
SECTION 1407. Modification Without Supplemental Indenture.
To the extent, if any, that the terms of any particular series of Securities shall have been established in or pursuant to a Manager Resolution or an Officer's Certificate pursuant to a supplemental indenture or a Manager Resolution as contemplated by Section 301, and not in a supplemental indenture, additions to, changes in or the elimination of any of such terms may be effected by means of a supplemental Manager Resolution or a supplemental Officer's Certificate, as the case may be, delivered to, and accepted by, the Trustee, provided, however, that such supplemental Manager Resolution or supplemental Officer's Certificate shall not be accepted by the Trustee or otherwise be effective unless all conditions set forth in this Indenture which would be required to be satisfied if such additions, changes or elimination were contained in a supplemental indenture shall have been appropriately satisfied. Upon the acceptance thereof by the Trustee, any such supplemental Manager Resolution or supplemental Officer's Certificate shall be deemed to be a "supplemental indenture" for purposes of Section 1404 and 1406 and a "supplemental indenture", "indenture supplemental" to this Indenture or "instrument" supplemental to this Indenture for purposes of Section 608.
ARTICLE FIFTEEN.
MEETINGS OF HOLDERS; ACTION WITHOUT MEETING
SECTION 1501. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of one or more, or all, series, or any Tranche or Tranches thereof, may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series or Tranches.
SECTION 1502. Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of Securities of one or more, or all, series, or any Tranche or Tranches thereof, for any purpose specified in Section 1501, to be held at such time and (except as provided in clause (2) of this Section 1502) at such place in the Borough of Manhattan, the City of New York, as the Trustee shall determine, or, with the approval of the Company, at any other place. Notice of every such meeting, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 109, not less than twenty-one (21) nor more than one hundred eighty (180) days prior to the date fixed for the meeting.
(2) The Trustee may be asked to call a meeting of the Holders of Securities of one or more, or all, series, or any Tranche or Tranches thereof, by the Company or by the Holders of thirty-three percentum (33%) in aggregate principal amount of all of such series and Tranches, considered as one class, for any purpose specified in Section 1501, by written request
setting forth in reasonable detail the action proposed to be taken at the meeting. If the Trustee shall have been asked by the Company to call such a meeting, the Company shall determine the time and place for such meeting and may call such meeting by giving notice thereof in the manner provided in clause (1) of this Section, or shall direct the Trustee, in the name and at the expense of the Company, to give such notice. If the Trustee shall have been asked to call such a meeting by Holders in accordance with this clause (2), and the Trustee shall not have given the notice of such meeting within twenty-one (21) days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Holders of Securities of such series and Tranches, in the principal amount above specified, may determine the time and the place in the Borough of Manhattan, The City of New York, or in such other place as shall be determined or approved by the Company, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (1) of this Section.
(3) Any meeting of Holders of Securities of one or more, or all, series, or any Tranche or Tranches thereof, shall be valid without notice if the Holders of all Outstanding Securities of such series or Tranches are present in person or by proxy and if representatives of the Company and the Trustee are present, or if notice is waived in writing before or after the meeting by the Holders of all Outstanding Securities of such series, or any Tranche or Tranches thereof, or by such of them as are not present at the meeting in person or by proxy, and by the Company and the Trustee.
SECTION 1503. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of one
or more, or all, series, or any Tranche or Tranches thereof, a Person shall be
(a) a Holder of one or more Outstanding Securities of such series or Tranches or
(b) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Securities of such series or Tranches by such
Holder or Holders. The only Persons who shall be entitled to attend any meeting
of Holders of Securities of any series or Tranche shall be the Persons entitled
to vote at such meeting and their counsel, any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.
SECTION 1504. Quorum; Action.
The Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities of the series and Tranches with respect to which a meeting shall have been called as herein before provided, considered as one class, shall constitute a quorum for a meeting of Holders of Securities of such series and Tranches; provided, however, that if any action is to be taken at such meeting which this Indenture expressly provides may be taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of such series and Tranches, considered as one class, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series and Tranches, considered as one class, shall constitute a quorum. In the absence of a quorum within one hour of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series and Tranches, be dissolved. In any other case the meeting may be adjourned for such period as may be determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for such period as may be determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Except as provided by Section 1505, notice of the reconvening of any meeting adjourned for more than thirty (30) days shall be given as provided in Section 109 not less than ten (10) days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series and Tranches which shall constitute a quorum.
Except as limited by Section 1402, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in aggregate principal amount of the Outstanding Securities of the series and Tranches with respect to which such meeting shall have been called, considered as one class; provided, however, that, except as so limited, any resolution with respect to any action which this Indenture expressly provides may be taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of such series and Tranches, considered as one class, may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of such series and Tranches, considered as one class.
Any resolution passed or decision taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities of the series and Tranches with respect to which such meeting shall have been held, whether or not present or represented at the meeting.
SECTION 1505. Attendance at Meetings; Determination of Voting Rights; Conduct and Adjournment of Meetings.
(1) Attendance at meetings of Holders may be in person or by proxy; and, to the extent permitted by law, any such proxy shall remain in effect and be binding upon any future Holder of the Securities with respect to which it was given unless and until specifically revoked by the Holder or future Holder (except as provided in Section 107) of such Securities before being voted.
(2) Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem advisable for
any meeting of Holders in regard to proof of the holding of such Securities and
of the appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations and approved by the Company, the
holding of Securities shall be proved in the manner specified in Section 107 and
the appointment of any proxy shall be proved in the manner specified in Section
107. Such regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the proof
specified in Section 107 or other proof.
(3) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders as provided in Section 1502(2), in which case the Company or the Holders of Securities of the series and Tranches calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities of all series and Tranches represented at the meeting, considered as one class.
(4) At any meeting each Holder or proxy shall be entitled to one vote for each One Thousand Dollars ($1,000) principal amount of Outstanding Securities held or represented by such Holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy.
(5) Any meeting duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities of all series and Tranches represented at the meeting, considered as one class; and the meeting may be held as so adjourned without further notice.
SECTION 1506. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities, of the series and Tranches with respect to which the meeting shall have been called, held or represented by them. The permanent chairman of the meeting shall appoint two (2) inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that such notice was given as provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
SECTION 1507. Action Without Meeting.
In lieu of a vote of Holders at a meeting as herein before contemplated in this Article, any request, demand, authorization, direction, notice, consent, waiver or other action may be made, given or taken by Holders by one or more written instruments as provided in Section 106.
ARTICLE SIXTEEN.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND
EMPLOYEES
SECTION 1601. Exemption from Individual Liability.
No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, member, manager, stockholder, officer, director or employee, as such, past, present or future, of the Company or any predecessor or successor corporation or company, either directly or through the Company or any predecessor or successor corporation or company or any Successor Corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company, and that no such personal liability whatsoever shall attach to, or is or shall be incurred by, the incorporators, members, managers, stockholders, officers, directors, or employees, as such, of the Company or any predecessor or successor corporation or company, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, member, manager, stockholder, officer, director or employee, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Securities.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Rufus S. Scott
------------------------------------
Name: Rufus S. Scott
Title: Vice President
|
JPMORGAN CHASE BANK, as Trustee
Title:
Exhibit A
Real Property
That certain Mortgage and Deed of Trust dated as of November 1, 1944 from Houston Lighting & Power Company to South Texas Commercial National Bank of Houston, filed for record in the office of the Secretary of State of the State of Texas (the "Records") on February 19, 1974 under File No. 74-00016051, as amended and supplemented by the following sixty-five (65) supplemental indentures, filed in the Records on the respective dates and under the respective file numbers indicated (the following described Notices of Merger and Name Changes having been filed in the Records on the respective dates and under the respective file numbers indicated as well):
Supplemental Indenture Date of Filing File No.
---------------------- -------------- --------
First Supplemental Indenture February 19, 1974 00-00019587
Second Supplemental Indenture February 19, 1974 00-00019591
Third Supplemental Indenture February 19, 1974
Fourth Supplemental Indenture February 19, 1974 00-00019593
Fifth Supplemental Indenture February 19, 1974 00-00019595
Sixth Supplemental Indenture February 19, 1974 00-00019586
Seventh Supplemental Indenture February 19, 1974 00-00019597
Eighth Supplemental Indenture February 19, 1974 00-00019589
Ninth Supplemental Indenture February 19, 1974 00-00019588
Tenth Supplemental Indenture February 19, 1974 00-00019581
Eleventh Supplemental Indenture February 19, 1974 00-00019598
Twelfth Supplemental Indenture February 19, 1974 00-00019592
Thirteenth Supplemental Indenture February 19, 1974 00-00019593
Fourteenth Supplemental Indenture February 19, 1974 00-00019596
Fifteenth Supplemental Indenture February 19, 1974 00-00019590
|
Sixteenth Supplemental Indenture February 19, 1974 00-00019585 Seventeenth Supplemental Indenture February 19, 1974 00-00019584 Eighteenth Supplemental Indenture February 19, 1974 00-00019583 Nineteenth Supplemental Indenture February 19, 1974 00-00019582 Twentieth Supplemental Indenture October 8, 1976 00-00019600 Twenty-First Supplemental Indenture September 30, 1977 00-00019601 Twenty-Second Supplemental Indenture September 1, 1978 00-00019602 Twenty-Third Supplemental Indenture December 7, 1978 00-00019603 Twenty-Fourth Supplemental Indenture December 12, 1979 00-00019604 Twenty-Fifth Supplemental Indenture June 5, 1980 00-00019605 Twenty-Sixth Supplemental Indenture February 5, 1981 00-00019606 Twenty-Seventh Supplemental Indenture March 4, 1982 00-00019607 Twenty-Eighth Supplemental Indenture March 10, 1983 00-00019608 Twenty-Ninth Supplemental Indenture November 4, 1985 00-00019609 Thirtieth Supplemental Indenture November 24, 1986 00-00019610 Thirty-First Supplemental Indenture November 24, 1986 94-00677858 Thirty-Second Supplemental Indenture March 19, 1987 00-00019611 Thirty-Third Supplemental Indenture January 27, 1988 00-00019614 Thirty-Fourth Supplemental Indenture January 27, 1988 00-00019613 Thirty-Fifth Supplemental Indenture January 27, 1988 00-00019612 Thirty-Sixth Supplemental Indenture June 21, 1988 00-00019615 Thirty-Seventh Supplemental Indenture June 21, 1988 00-00019616 Thirty-Eighth Supplemental Indenture July 18, 1988 00-00019617 Thirty-Ninth Supplemental Indenture October 17, 1988 00-00019618 Fortieth Supplemental Indenture January 11, 1989 74-00648711 |
Forty-First Supplemental Indenture February 8, 1989 74-00661896 Forty-Second Supplemental Indenture February 14, 1989 94-00677859 Forty-Third Supplemental Indenture February 14, 1989 94-00677860 Forty-Fourth Supplemental Indenture May 24, 1989 74-00712229 Forty-Fifth Supplemental Indenture July 6, 1989 74-00730399 Forty-Sixth Supplemental Indenture July 6, 1989 74-00730400 Forty-Seventh Supplemental Indenture July 6, 1989 74-00730401 Forty-Eighth Supplemental Indenture November 8, 1989 74-00565762 Forty-Ninth Supplemental Indenture December 20, 1989 74-00583642 Fiftieth Supplemental Indenture December 20, 1989 74-00583643 Fifty-First Supplemental Indenture March 26, 1991 91-00046447 Fifty-Second Supplemental Indenture March 25, 1992 92-00645424 Fifty-Third Supplemental Indenture March 25, 1992 92-00645425 Fifty-Fourth Supplemental Indenture April 6, 1992 92-00651721 Fifty-Fifth Supplemental Indenture April 6, 1992 92-00651722 Fifty-Sixth Supplemental Indenture October 7, 1992 92-00731509 Fifty-Seventh Supplemental Indenture October 7, 1992 92-00731541 Fifty-Eighth Supplemental Indenture February 26, 1993 93-00628739 Fifty-Ninth Supplemental Indenture March 23, 1993 94-00677861 Sixtieth Supplemental Indenture July 12, 1993 94-00677862 Sixty-First Supplemental Indenture December 15, 1995 95-00748203 Sixty-Second Supplemental Indenture December 15, 1995 95-00748204 Sixty-Third Supplemental Indenture December 30, 1993 95-00750337 Sixty-Fourth Supplemental Indenture July 17, 1995 95-00685914 Sixty-Fifth Supplemental Indenture July 17, 1995 95-00685915 |
Notice of Merger and Name Change Date of Filing File No. -------------------------------- -------------- -------- Houston Industries Incorporated September 4, 1997 97-00708206 Reliant Energy, Incorporated May 26, 1999 99-00695760 CenterPoint Energy Houston Electric, LLC September 11, 2002 03-00012545 |
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
FIRST SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this First Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (1) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $850,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (1)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (1), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this First Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this First Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This First Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series A, due October 9, 2003" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $850,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this First Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this First Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This First Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This First Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride
---------------------------------------------
Name:
Title:
|
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman
---------------------------------------------
Name: Rhonda L. Parman
Title: Vice President Trust Officer
|
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut --------------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Treva Bushnell --------------------------------------------- Notary Public |
Seal of Notary Public
EXHIBIT 4(j)(3)
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
SECOND SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Second Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (2) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $50,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (2)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (2), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Second Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Second Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Second Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series B, due November 1, 2018" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $50,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Second Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Second Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Second Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Second Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Second Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride --------------------------------------- Name: Marc Kilbride Title: Vice President and Treasurer |
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman --------------------------------------- Name: Rhonda L. Parman Title: Vice President and Trust Officer |
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut ----------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Treva Bushnell ----------------------------------------- Notary Public |
Seal of Notary Public
EXHIBIT 4(j)(4)
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
THIRD SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Third Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (3) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $68,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (3)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (3), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Third Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Third Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Third Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series C, due November 1, 2028" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $68,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Third Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Third Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Third Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Third Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Third Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride --------------------------------------- Name: Marc Kilbride Title: Vice President and Trust Officer |
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman --------------------------------------- Name: Rhonda L. Parman Title: Vice President and Trust Officer |
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut ----------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came
Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Treva Bushnell ----------------------------------------- Notary Public |
Seal of Notary Public
EXHIBIT 4(j)(5)
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
FOURTH SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
FOURTH SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Fourth Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (4) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $100,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (4)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (4), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Fourth Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Fourth Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Fourth Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series D, due May 1, 2019" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $100,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Fourth Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Fourth Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Fourth Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Fourth Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Fourth Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride --------------------------------------- Name: Marc Kilbride Title: Vice President and Treasurer |
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman --------------------------------------- Name: Rhonda L. Parman Title: Vice President and Trust Officer |
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut ----------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Treva Bushnell ----------------------------------------- Notary Public |
Seal of Notary Public
EXHIBIT 4(j)(6)
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
FIFTH SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
FIFTH SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Fifth Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (5) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $90,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (5)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (5), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Fifth Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS FIFTH SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Fifth Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Fifth Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series E, due November 1, 2020" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $90,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Fifth Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Fifth Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Fifth Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Fifth Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Fifth Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride --------------------------------------- Name: Marc Kilbride Title: Vice President and Treasurer |
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman --------------------------------------- Name: Rhonda L. Parman Title: Vice President and Trust Officer |
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut ---------------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Jeanette C. Dunn ----------------------------------------- Notary Public |
Seal of Notary Public
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
SIXTH SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
SIXTH SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150, Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Sixth Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (6) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $100,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (6)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (6), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Sixth Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS SIXTH SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Sixth Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Sixth Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series F, due May 1, 2019" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $100,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Sixth Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Sixth Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Sixth Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Sixth Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Sixth Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride ----------------------------------------- Name: Marc Kilbride Title: Vice President and Treasurer |
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhoda L. Parman ----------------------------------------- Name: Rhoda L. Parman Title: Vice President and Trust Officer |
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut --------------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Jeanette C. Dunn --------------------------------------------- Notary Public |
Seal of Notary Public
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
SEVENTH SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
SEVENTH SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150 Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Seventh Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (7) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $19,200,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (7)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (7), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Seventh Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS SEVENTH SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Seventh Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Seventh Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series G, due January 1, 2011" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $19,200,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Seventh Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Seventh Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Seventh Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Seventh Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Seventh Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride
----------------------------------------
Name:
Title:
|
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parmar
----------------------------------------
Name: Rhonda L. Parmar
Title: Vice President and Trust Officer
|
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut --------------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parmar, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the _________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Jeanette C. Dunn --------------------------------------------- Notary Public |
Seal of Notary Public
Centerpoint Energy Houston Electric, LLC
1111 Louisiana
Houston, TX 77002
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
TO
JPMORGAN CHASE BANK
Trustee
EIGHTH SUPPLEMENTAL INDENTURE
Dated as of October 10, 2002
Supplementing the General Mortgage Indenture Dated as of October 10, 2002
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This instrument is being filed pursuant to Chapter 35 of the Texas Business and Commerce Code
EIGHTH SUPPLEMENTAL INDENTURE, dated as of October 10, 2002, between CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"), the office of the Trustee at which on the date hereof its corporate trust business is administered being 600 Travis Street, Suite 1150 Houston, Texas 77002.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the Trustee a General Mortgage Indenture dated as of October 10, 2002 (the "Indenture") providing for the issuance by the Company from time to time of its bonds, notes or other evidence of indebtedness to be issued in one or more series (in the Indenture and herein called the "Securities") and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities; and
WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of the Manager, has duly determined to make, execute and deliver to the Trustee this Eighth Supplemental Indenture to the Indenture as permitted by Sections 201, 301 and 1401 of the Indenture in order to establish the form or terms of, and to provide for the creation and issuance of, the Securities specified in clause (8) of the definition of the "Initial Series" under the Indenture in an initial aggregate principal amount of $100,000,000 (such series being hereinafter and in the Indenture referred to as the "Initial Series (8)"); and
WHEREAS, all things necessary to make the Securities of the Initial Series (8), when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor the valid, binding and legal obligations of the Company and to make this Eighth Supplemental Indenture a valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS EIGHTH SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of a series of Securities, and for and in consideration of the premises and of the covenants contained in the Indenture and in this Eighth Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used herein and is defined in the Indenture shall have the meaning specified in the Indenture unless such term is otherwise defined herein.
ARTICLE TWO
TITLE, FORM AND TERMS OF THE BONDS
Section 201. Title of the Bonds. This Eighth Supplemental Indenture hereby creates a series of Securities designated as the "General Mortgage Bonds, Series H, due June 1, 2026" of the Company (collectively referred to herein as the "Bonds"). For purposes of the Indenture, the Bonds shall constitute a single series of Securities and may be issued in an unlimited principal aggregate amount, although the initial issuance of the Bonds shall be in the principal amount of $100,000,000.
Section 202. Form and Terms of the Bonds. The form and terms of the Bonds will be set forth in an Officer's Certificate delivered by the Company to the Trustee pursuant to the authority granted by this Eighth Supplemental Indenture in accordance with Sections 201 and 301 of the Indenture.
Section 203. Treatment of Proceeds of Title Insurance Policy. Any moneys received by the Trustee as proceeds of any title insurance policy on Mortgaged Property of the Company shall be subject to and treated in accordance with the provisions of Section 607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this Eighth Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.
Except as expressly amended and supplemented hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This Eighth Supplemental Indenture and all of its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.
This Eighth Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York.
This Eighth Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Eighth Supplemental Indenture to be duly executed as of the day and year first above written.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
By: /s/ Marc Kilbride
-----------------------------------------
Name: Marc Kilbride
Title:
|
JPMORGAN CHASE BANK, as Trustee
By: /s/ Rhonda L. Parman
-----------------------------------------
Name: Rhonda L. Parman
Title: Vice President and Trust Officer
|
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Marc Kilbride, to me known, who, being by me duly sworn, did depose and say that he resides in Harris County, Texas; that he is the Vice President and Treasurer of CenterPoint Energy, Houston Electric, LLC, a Texas limited liability company, the limited liability company described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the sole manager of said limited liability company.
/s/ Mary Etta Gaut ---------------------------------------------- Notary Public |
Seal of Notary Public
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
|
On the 10th day of October 2002, before me personally came Rhonda L. Parman, to me known, who, being by me duly sworn, did depose and say that she resides in Houston, Texas; that she is Vice President and Trust Officer of JPMorgan Chase Bank, a banking corporation organized under the state of New York, the ___________________ described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the board of directors of corporation.
/s/ Treva Bushnell ---------------------------------------------- Notary Public |
Seal of Notary Public
EXHIBIT 99
ITEM 3. LEGAL PROCEEDINGS
For a description of certain legal and regulatory proceedings affecting us, see Notes 4, 14(f), 14(g) and 21 to our consolidated financial statements, which notes are incorporated herein by reference.
RESTATEMENT OF SECOND AND THIRD QUARTER 2001 RESULTS OF OPERATIONS
On February 5, 2002, Reliant Energy announced that it was restating its earnings for the second and third quarters of 2001. As more fully described in Reliant Energy's March 15, 2002 Current Report on Form 8-K, the restatement related to a correction in accounting treatment for a series of four structured transactions that were inappropriately accounted for by Reliant Resources as cash flow hedges for the period of May 2001 through September 2001, rather than as derivatives with changes in fair value recognized through the income statement. Each structured transaction involved a series of forward contracts to buy and sell an energy commodity in 2001 and to buy and sell an energy commodity in 2002 or 2003.
At the time of the public announcement of Reliant Energy's intention to restate its reporting of the structured transactions, the Audit Committees of each of the boards of directors of Reliant Energy and Reliant Resources instructed Reliant Resources to conduct an internal audit review to determine whether there were any other transactions included in the asset books as cash flow hedges that failed to meet the cash flow hedge requirements under Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). This targeted internal audit review found no other similar transactions.
The Audit Committees also directed an internal investigation by outside legal counsel of the facts and circumstances leading to the restatement, which investigation has been completed. In connection with the restatement and related investigations, the Audit Committees have met eight times to hear and assess reports from the investigative counsel regarding its investigation and contacts with the staff of the SEC. To address the issues identified in the investigation process, the Audit Committees and management have begun analyzing and implementing remedial actions, including, among other things, changes in organizational structure and enhancement of internal controls and procedures.
On April 5, 2002, Reliant Resources was advised that the Staff of the Division of Enforcement of the SEC is conducting an informal inquiry into the facts and circumstances surrounding the restatement. Reliant Resources is cooperating with this inquiry. Before releasing its 2001 earnings, Reliant Energy received concurrence from the SEC's accounting staff on the accounting treatment of the restatement, which increased its earnings for the two quarters by a total of $107 million. At this time, we cannot predict the outcome of the SEC's inquiry. In addition, we cannot predict what effect the inquiry may have on our pending application to the SEC under the 1935 Act, which is required for our Restructuring. For more information about our Restructuring, please read "Our Business -- Status of Business Separation" and "-- Business Separation" in Item 1 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FACTORS AFFECTING OUR FUTURE EARNINGS
Our past earnings are not necessarily indicative of our future earnings and results of operations. The magnitude of our future earnings and results of our operations will depend on numerous factors including:
- state, federal and international legislative and regulatory developments, including deregulation, re-regulation and restructuring of the electric utility industry, changes in or application of environmental and other laws and regulations to which we are subject and changes in or application of laws or regulations applicable to other aspects of our business, such as commodities trading and hedging activities;
- the timing of the implementation of our Business Separation Plan;
- the effects of competition, including the extent and timing of the entry of additional competitors in our markets;
- liquidity concerns in our markets;
- industrial, commercial and residential growth in our service territories;
- the degree to which Reliant Resources successfully integrates the operations and assets of Orion Power into the Wholesale Energy business segment;
- the determination of the amount of our Texas generation business' stranded costs and the recovery of these costs;
- the availability of adequate supplies of fuel, water, and associated transportation necessary to operate our generation facilities;
- our pursuit of potential business strategies, including acquisitions or dispositions of assets or the development of additional power generation facilities;
- state, federal and other rate regulations in the United States and in foreign countries in which we operate or into which we might expand our operations;
- the timing and extent of changes in interest rates and commodity prices, particularly natural gas prices;
- weather variations and other natural phenomena, which can affect the demand for power from, or our ability to produce power at our generating facilities;
- our ability to cost-effectively finance and refinance;
- the degree to which we successfully integrate the operations and assets of Orion Power into our Wholesale Energy segment;
- the successful and timely completion of our construction programs, as well as the successful start-up of completed projects;
- financial market conditions, our access to and cost of capital and the results of our financing and refinancing efforts, including availability of funds in the debt/capital markets for merchant generation companies;
- the credit worthiness or bankruptcy or other financial distress of our trading, marketing and risk management services counterparties;
- actions by rating agencies with respect to us or our competitors;
- acts of terrorism or war;
- the availability and price of insurance;
- the reliability of the systems, procedures and other infrastructure necessary to operate our retail electric business, including the systems owned and operated by ERCOT;
- political, legal, regulatory and economic conditions and developments in the United States and in foreign countries in which we operate or into which we might expand our operations, including the effects of fluctuations in foreign currency exchange rates;
- the resolution of the refusal by California market participants to pay our receivables balances due to the recent energy crisis in the West region; and
- the successful operation of deregulating power markets.
In order to adapt to the increasingly competitive environment in our industry, we continue to evaluate a wide array of potential business strategies, including business combinations or acquisitions involving other utility or non-utility businesses or properties, dispositions of currently owned businesses, as well as developing new generation projects, products, services and customer strategies.
FACTORS AFFECTING THE RESULTS OF OUR ELECTRIC OPERATIONS
Deregulation. In June 1999, the Texas legislature adopted the Texas Electric Restructuring Law, which substantially amended the regulatory structure governing electric utilities in Texas in order to allow retail competition. Retail pilot projects for up to 5% of each utility's load in all customer classes began in August 2001 and retail electric competition for all other customers began on January 1, 2002. We have made significant changes in the electric utility operations previously conducted through Reliant Energy HL&P. For additional information regarding these changes, please read "Our Business -- Deregulation," "-- Electric Operations," "-- Regulation -- State and Local Regulations -- Texas -- Electric Operations -- The Texas Electric Restructuring Law" and "-- Our Business Going Forward" in Item 1 of this Form 10-K and Note 4 to our consolidated financial statements.
Transmission and Distribution. Under the Texas Electric Restructuring Law, our T&D Utility will remain subject to traditional rate regulation by the Texas Utility Commission, and we will collect from retail electric providers the rates approved in the T&D Utility's rate case (Wires Case) to cover the cost of providing transmission and distribution service and any other expenses. Our ability to earn the rate of return built into the T&D Utility's rates may be affected, positively or negatively, to the extent that the T&D Utility's actual expenses or revenues differ from the estimates used to set the T&D Utility's rates.
Generation. As described under "Electric Operations -- Generation," since January 1, 2002, we have been obligated to sell substantially all of the generating capacity and related ancillary services of our Texas generation business through auctions. As a result, we are not guaranteed any rate of return on our investment in these generation facilities through mandated rates, and our revenues and results of operations are likely to depend, in large part, upon prevailing market prices for electricity in the Texas market and the related results of our capacity auctions. These market prices may fluctuate substantially over relatively short periods of time. In addition, ERCOT, the independent system operator for the Texas markets, may impose price limitations, bidding rules and other mechanisms that may impact wholesale power prices in the Texas market and the outcome of our capacity auctions. Our historical financial results represent the results of our Texas generation business as part of an integrated utility in a regulated market and may not be representative of its results as a stand-alone wholesale electric power generation company in an unregulated market. Therefore, the historical financial information included in this report does not necessarily reflect what our financial position, results of operations and cash flows would have been had our generation facilities been operated in an unregulated market.
Under the terms of the auctions pursuant to which we are obligated to sell our capacity, we are obligated to provide specified amounts of capacity to successful bidders. The products we sell in the auctions are only entitlements to capacity dispatched from our units and do not convey the right to have power dispatched from a particular unit. This flexibility exposes us to the risk that, depending on the availability of our units, we could be required to supply energy from a higher cost unit to meet an obligation for lower cost generation or to obtain the energy on the open market. Obtaining such replacement generation could involve significant additional costs. We manage this risk by maintaining appropriate reserves within our generation asset base but these reserves may not cover an entire exposure in the event of a significant outage at one of our facilities. For information about operating risks associated with our Texas generation business, please read "Factors Affecting the Results of Our Wholesale Energy Operations -- Operating Risks" below.
Also, market volatility in the price of fuel for our generation operations, as well as in the price of purchased power, could have an effect on our cost to generate or acquire power. For additional information regarding commodity prices and supplies, please read "-- Factors Affecting the Results of Our Wholesale Energy Operations -- Price Volatility."
Pursuant to the Texas Electric Restructuring Law, we will be entitled to recover our stranded costs (i.e., the excess of regulatory net book value of generation assets, as defined by the Texas Electric Restructuring Law, over the market value of those assets) and our regulatory assets related to generation. The Texas Electric Restructuring Law prescribes specific methods for determining the amount of stranded costs and the details for their recovery, and our recovery of stranded costs is dependent upon the outcome of regulatory proceedings in which we will be required to establish the extent of our stranded costs and related underlying matters. During the base rate freeze period from July 1999 through 2001, earnings above the utility's authorized rate of return formula were applied in a manner to accelerate depreciation of generation related plant assets for regulatory purposes. In addition, depreciation expense for transmission and distribution related assets was redirected to generation assets for regulatory purposes from 1998. The Texas Electric Restructuring Law also provided for us, or a special purpose entity formed by us, to issue securitization bonds for the recovery of generation related regulatory assets and a portion of stranded costs. Reliant Energy Transition Bond Company LLC, our wholly owned subsidiary, issued $749 million of securitization bonds on October 24, 2001. Any stranded costs not recovered through the sale of securitization bonds may be recovered through a charge to transmission and distribution customers. For additional information regarding these securitization bonds, please read Note 4(a) to our consolidated financial statements. For information regarding recovery of under-collected fuel expenses, please read "Liquidity and Capital Resources -- Future Sources and Uses of Cash -- Fuel Filing in Item 7 of this Form 10-K".
The Texas Utility Commission issued a final order on October 3, 2001 (October 3, 2001 Order) that established the transmission and distribution rates that became effective January 2002. In this Order, the Texas Utility Commission found that we had overmitigated our stranded costs by redirecting transmission and distribution depreciation and by accelerating depreciation of generation assets as provided under the Transition Plan and Texas Electric Restructuring Law. In December 2001, we recorded a regulatory liability of $1.1 billion to reflect the prospective refund of accelerated depreciation, removed our previously recorded embedded regulatory asset of $841 million related to redirected depreciation and recorded a regulatory asset of $2.0 billion based upon current projections of market value of the Reliant Energy HL&P generation assets to be covered by the 2004 true-up proceeding provided for in the Texas Electric Restructuring Law. Recovery of this asset is subject to regulatory risk. We began refunding the excess mitigation credits in January 2002 and will continue over a seven year period. If events occur that make the recovery of all or a portion of the regulatory assets no longer probable, we will write off the corresponding balance of these assets as a charge against earnings. One of the results of discontinuing the application of regulatory accounting for the generation operations is the elimination of the regulatory accounting effects of excess deferred income taxes and investment tax credits related to these operations. We believe it is probable that some parties will seek to return these amounts to ratepayers and, accordingly, we have recorded an offsetting liability.
The Texas Electric Restructuring Law requires us to auction 15% of the output of the installed generating capacity of our Texas generation business until January 1, 2007 unless certain criteria are met (state mandated auctions). In addition, the master separation agreement between Reliant Energy and Reliant Resources requires us to auction to third parties, including Reliant Resources, the capacity available in excess of amounts included in the state mandated auctions (contractually mandated auctions). Beginning January 2002, our Texas generation business began delivering power sold through the state mandated auctions and contractually mandated auctions at market rates. However, the Texas Electric Restructuring Law provides for recovery of any difference between market power prices received in these capacity auctions and the Texas Utility Commission's earlier estimates of those market prices. This capacity auction true-up should provide for revenues earned by our Texas generation business during the two-year period ending December 2003 to approximate a regulated return on the invested capital of our Texas generation business. The Texas Utility Commission's estimate serves as a preliminary identification of stranded costs for recovery through securitization. This component of the true-up is intended to ensure that neither the customers nor we are disadvantaged economically as a result of the two-year transition period by providing this pricing structure. The underlying data for the true-up calculation has not been finalized. Because the capacity true-up process provided for in the Texas Electric Restructuring Law will take into account only the prices we receive in the state mandated auctions, lower prices that we may receive in the contractually mandated auctions will not be considered and
we may therefore not recover all of our stranded costs. We cannot predict the amount, if any, of these costs that would not be recovered.
Retail. For a discussion of factors affecting our retail operations, please read "-- Factors Affecting the Results of Our Retail Operations."
Other. For additional information regarding litigation over franchise fees, please read Note 14(f) to our consolidated financial statements.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMITMENTS AND CONTINGENCIES
(a) COMMITMENTS AND GUARANTEES
The following information is presented separately for the Company's regulated and unregulated businesses:
RELIANT ENERGY (TO BECOME CENTERPOINT ENERGY SUBSEQUENT TO THE RESTRUCTURING)
Capital and Environmental Commitments. Reliant Energy anticipates investing up to $397 million in capital and other special project expenditures between 2002 and 2006 for environmental compliance. Reliant Energy anticipates expenditures to be as follows (in millions):
2002........................................................ $234
2003........................................................ 132
2004........................................................ 28
2005........................................................ 3
2006........................................................ --
----
Total..................................................... $397
====
|
Fuel and Purchased Power. Fuel commitments include several long-term coal, lignite and natural gas contracts related to Texas power generation operations, which have various quantity requirements and durations that are not classified as non-trading derivatives assets and liabilities or trading and marketing assets and liabilities in the Company's Consolidated Balance Sheets as of December 31, 2001 as these contracts meet the SFAS No. 133 exception to be classified as "normal purchases contracts" (see Note 5) or do not meet the definition of a derivative. Minimum payment obligations for coal and transportation agreements that extend through 2009 are approximately $199 million in 2002, $129 million in 2003, $133 million in 2004, $137 million in 2005 and $141 million in 2006. Purchase commitments related to lignite mining and lease agreements, natural gas purchases and storage contracts, and purchased power are not material to Reliant Energy's operations. Prior to January 1, 2002, the Electric Operations business segment was allowed recovery of these costs through rates for electric service. As of December 31, 2001, some of these contracts are above market. Reliant Energy anticipates that stranded costs associated with these obligations will be recoverable through the stranded cost recovery mechanisms contained in the Texas Electric Restructuring Law. For information regarding the Texas Electric Restructuring Law, see Note 4(a).
Reliant Energy's other long-term fuel supply commitments which have various quantity requirements and durations are not considered material either individually or in the aggregate to its results of operations or cash flows.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELIANT RESOURCES -- UNREGULATED BUSINESSES
As of December 31, 2001, the Wholesale Energy business segment had entered into commitments associated with various non-rate regulated electric generating projects, including commitments for the purchase of combustion turbines, aggregating $440 million. In addition, the Wholesale Energy business segment has options to purchase additional generating equipment for a total estimated cost of $42 million for future generation projects. Reliant Resources is actively attempting to remarket this equipment.
Reliant Resources is a party to several fuel supply contracts, commodity transportation contracts, and purchase power and electric capacity contracts, that have various quantity requirements and durations that are not classified as non-trading derivatives assets and liabilities or trading and marketing assets and liabilities in the Consolidated Balance Sheets as of December 31, 2001 as these contracts meet the SFAS No. 133 exception to be classified as "normal purchases contracts" (see Note 5) or do not meet the definition of a derivative. The maximum duration of any of these commitments is 21 years. Minimum purchase commitment obligations under these agreements are as follows for the next five years, as of December 31, 2001 (in millions):
PURCHASED POWER
AND ELECTRIC AND
TRANSPORTATION GAS CAPACITY
FUEL COMMITMENTS COMMITMENTS COMMITMENTS
---------------- -------------- ----------------
2002.................................... $105 $ 45 $315
2003.................................... 39 84 119
2004.................................... 45 101 61
2005.................................... 45 101 61
2006.................................... 45 101 61
---- ---- ----
Total................................. $279 $432 $617
==== ==== ====
|
The maximum duration under any individual fuel supply contract and transportation contract is 18 years and 21 years, respectively.
Reliant Resources' aggregate electric capacity commitments, including capacity auction products, are for 7,496 MW, 1,800 MW, 1,000 MW, 1,000 MW and 1,000 MW for 2002, 2003, 2004, 2005 and 2006, respectively. The maximum duration under any individual commitment is five years. Included in the above purchase power and electric capacity commitments are amounts to be acquired from Texas Genco in 2002 and 2003 of $213 million and $57 million, respectively.
As of December 31, 2001, Reliant Resources has commitments, including electric energy and capacity sale contracts and district heating contracts (see Note 14(h)) which are not classified as non-trading derivative assets and liabilities or trading and marketing assets and liabilities in the Consolidated Balance Sheets as these contracts meet the SFAS No. 133 exception to be classified as "normal sales contracts" or do not meet the definition of a derivative. The estimated minimum sale commitments under these contracts are $450 million, $211 million, $194 million, $174 million and $159 million in 2002, 2003, 2004, 2005 and 2006, respectively.
In addition, in January 2002, Reliant Resources began providing retail electric services to approximately 1.5 million residential and small commercial customers previously served by Reliant Energy's electric utility division. Within Reliant Energy's electric utility division's territory, prices that may be charged to residential and small commercial customers by this retail electric service provider are subject to a fixed, specified price (price to beat) at the outset of retail competition. The Texas Utility Commission's regulations allow this retail electric provider to adjust its price to beat fuel factor based on a percentage change in the price of natural gas. In addition, the retail electric provider may also request an adjustment as a result of changes in its price of purchased energy. The retail electric provider may request that its price to beat be adjusted twice a year.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reliant Resources will not be permitted to sell electricity to residential and small commercial customers in the incumbent's traditional service territory at a price other than the price to beat until January 1, 2005, unless before that date the Texas Utility Commission determines that 40% or more of the amount of electric power that was consumed in 2000 by the relevant class of customers is committed to be served by other retail electric providers.
Reliant Resources guarantees the performance of certain of its subsidiaries' trading and hedging obligations. As of December 31, 2001, the fixed maximum amount of such guarantees was $4.7 billion. In addition, Reliant Resources has issued letters of credit totaling $51 million in connection with its trading activities. Reliant Resources does not consider it likely that it would be required to perform or otherwise incur any losses associated with these guarantees.
In addition to the above discussions, Reliant Resources' other commitments have various quantity requirements and durations and are not considered material either individually or in the aggregate to its results of operations or cash flows.
(b) LEASE COMMITMENTS
In August 2000, the Company, entered into separate sale-leaseback transactions with each of three owner-lessors covering the subsidiaries' respective 16.45%, 16.67% and 100% interests in the Conemaugh, Keystone and Shawville generating stations, respectively, acquired in the REMA acquisition. As lessee, the Company leases an interest in each facility from each owner-lessor under a facility lease agreement. The equity interests in all the subsidiaries of REMA are pledged as collateral for REMA's lease obligations. In addition, the subsidiaries have guaranteed the lease obligations. The lease documents contain restrictive covenants that restrict REMA's ability to, among other things, make dividend distributions unless REMA satisfies various conditions. The covenant restricting dividends would be suspended if the direct or indirect parent of REMA, meeting specified criteria, including having a rating on REMA's long-term unsecured senior debt of at least BBB from Standard and Poor's and Baa2 from Moody's, guarantees the lease obligations. The Company will make lease payments through 2029. The lease term expires in 2034. As of December 31, 2001, REMA had $167 million of restricted funds that are available for REMA's working capital needs and to make future lease payments, including a lease payment of $55 million which was made in January 2002.
In the first quarter of 2001, Reliant Resources entered into tolling arrangements with a third party to purchase the rights to utilize and dispatch electric generating capacity of approximately 1,100 MW extending through 2012. This electricity will be generated by two gas-fired, simple-cycle peaking plants, with fuel oil backup which are being constructed by a tolling partner. Reliant Resources anticipates construction to be completed by the summer of 2002, at which time Reliant Resources will commence tolling payments. The tolling arrangements qualify as operating leases.
In February 2001, the Company entered into a lease for office space for Reliant Resources in a building under construction. The lease agreement was assigned by the Company to Reliant Resources by an assignment and assumption agreement in June 2001. The lease term, which commences in the second quarter 2003, is 15 years with two five-year renewal options. Reliant Resources has the right to name the building.
The following table sets forth information concerning the Company's obligations under non-cancelable long-term operating leases at December 31, 2001, which primarily relate to the REMA leases mentioned above. Other non-cancelable, long-term operating leases for Reliant Energy and Reliant Resources principally
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consist of tolling arrangements, as discussed above, rental agreements for building space, data processing equipment and vehicles, including major work equipment.
REMA SALE-LEASE RELIANT RESOURCES RELIANT ENERGY
OBLIGATION OTHER OTHER TOTAL
--------------- ----------------- -------------- ------
(IN MILLIONS)
2002............................ $ 136 $ 52 $ 14 $ 202
2003............................ 77 72 12 161
2004............................ 84 87 7 178
2005............................ 75 89 6 170
2006............................ 64 90 5 159
2007 and beyond................. 1,124 469 66 1,659
------ ---- ---- ------
Total......................... $1,560 $859 $110 $2,529
====== ==== ==== ======
|
Total lease expense for all operating leases was $39 million, $62 million and $112 million during 1999, 2000 and 2001, respectively. During 2001, the Company made lease payments related to the REMA lease of $259 million. As of December 31, 2001, the Company had recorded a prepaid lease obligation related to the REMA sale-leaseback of $59 million and $122 million in other current assets and other long-term assets, respectively.
(c) CROSS BORDER LEASES
During the period from 1994 through 1997, under cross border lease transactions, REPGB leased several of its power plants and related equipment and turbines to non-Netherlands based investors (the head leases) and concurrently leased the facilities back under sublease arrangements with remaining terms as of December 31, 2001 of 1 to 23 years. REPGB utilized proceeds from the head lease transactions to prepay its sublease obligations and to provide a source for payment of end of term purchase options and other financial undertakings. The initial sublease obligations totaled $2.4 billion of which $1.6 billion remained outstanding as of December 31, 2001. These transactions involve REPGB providing to a foreign investor an ownership right in (but not necessarily title to) an asset, with a leaseback of that asset. The net proceeds to REPGB of the transactions were recorded as a deferred gain and are currently being amortized to income over the lease terms. At December 31, 2000 and 2001, the unamortized deferred gain on these transactions totaled $77 million and $68 million, respectively. The power plants, related equipment and turbines remain on the financial statements of REPGB and continue to be depreciated.
REPGB is required to maintain minimum insurance coverages, perform minimum annual maintenance and, in specified situations, post letters of credit. REPGB's shareholder is subject to some restrictions with respect to the liquidation of REPGB's shares. In the case of early termination of these contracts, REPGB would be contingently liable for some payments to the sublessors, which at December 31, 2001, are estimated to be $272 million. Starting in March 2000, REPGB was required by some of the lease agreements to obtain standby letters of credit in favor of the sublessors in the event of early termination. The amount of the required letters of credit was $272 million as of December 31, 2001. Commitments for these letters of credit have been obtained as of December 31, 2001.
(d) NAMING RIGHTS TO HOUSTON SPORTS COMPLEX
In October 2000, Reliant Resources acquired the naming rights for the new football stadium for the Houston Texans, the National Football League's newest franchise. In addition, the naming rights cover the entertainment and convention facilities included in the stadium complex. The agreement extends for 32 years. In addition to naming rights, the agreement provides Reliant Resources with significant sponsorship rights.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate cost of the naming rights will be approximately $300 million. During the fourth quarter of 2000, Reliant Resources incurred an obligation to pay $12 million in order to secure the long-term commitment and for the initial advertising of which $10 million was expensed in the Statement of Consolidated Income in 2000. Starting in 2002, when the new stadium is operational, Reliant Resources will pay $10 million each year through 2032 for annual advertising under this agreement.
(e) TRANSPORTATION AGREEMENT
A subsidiary of RERC Corp. had an agreement (ANR Agreement) with ANR Pipeline Company (ANR) that contemplated that this subsidiary would transfer to ANR an interest in some of RERC Corp.'s pipeline and related assets. As of December 31, 2000 and 2001, the Company had recorded $41 million in other long-term liabilities in the Company's Consolidated Balance Sheets to reflect the Company's obligation to ANR for the use of 130 million cubic feet (Mmcf)/day of capacity in some of the Company's transportation facilities. The level of transportation will decline to 100 Mmcf/day in the year 2003 with a refund of $5 million to ANR. The ANR Agreement will terminate in 2005 with a refund of $36 million.
(f) LEGAL, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Legal Matters
Reliant Energy HL&P Municipal Franchise Fee Lawsuits. In February 1996, the cities of Wharton, Galveston and Pasadena filed suit, for themselves and a proposed class of all similarly situated cities in Reliant Energy HL&P's service area, against Reliant Energy and Houston Industries Finance, Inc. (formerly a wholly owned subsidiary of Reliant Energy) alleging underpayment of municipal franchise fees. Plaintiffs claim that they are entitled to 4% of all receipts of any kind for business conducted within these cities over the previous four decades. Because the franchise ordinances at issue affecting Reliant Energy HL&P expressly impose fees only on its own receipts and only from sales of electricity for consumption within a city, the Company regards all of plaintiffs' allegations as spurious and is vigorously contesting the case. The plaintiffs' pleadings asserted that their damages exceeded $250 million. The 269th Judicial District Court for Harris County granted partial summary judgment in favor of Reliant Energy dismissing all claims for franchise fees based on sales tax collections. Other motions for partial summary judgment were denied. A six-week jury trial of the original claimant cities (but not the class of cities) ended on April 4, 2000 (Three Cities case). Although the jury found for Reliant Energy on many issues, they found in favor of the original claimant cities on three issues, and assessed a total of $4 million in actual and $30 million in punitive damages. However, the jury also found in favor of Reliant Energy on the affirmative defense of laches, a defense similar to a statute of limitations defense, due to the original claimant cities having unreasonably delayed bringing their claims during the 43 years since the alleged wrongs began.
The trial court in the Three Cities case granted most of Reliant Energy's motions to disregard the jury's findings. The trial court's rulings reduced the judgment to $1.7 million, including interest, plus an award of $13.7 million in legal fees. In addition, the trial court granted Reliant Energy's motion to decertify the class and vacated its prior orders certifying a class. Following this ruling, 45 cities filed individual suits against Reliant Energy in the District Court of Harris County.
The Three Cities case has been appealed. The Company believes that the $1.7 million damage award resulted from serious errors of law and that it will be set aside by the Texas appellate courts. In addition, the Company believes that because of an agreement between the parties limiting fees to a percentage of the damages, reversal of the award of $13.7 million in attorneys' fees in the Three Cities case is probable.
The extent to which issues in the Three Cities case may affect the claims of the other cities served by Reliant Energy HL&P cannot be assessed until judgments are final and no longer subject to appeal. However, the trial court's rulings disregarding most of the jury's findings are consistent with Texas Supreme Court
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinions over the past decade. The Company estimates the range of possible outcomes for the plaintiffs to be between zero and $18 million inclusive of interest and attorneys' fees.
California Wholesale Market. Reliant Energy, Reliant Energy Services, REPG and several other subsidiaries of Reliant Resources, as well as three officers of some of these companies, have been named as defendants in class action lawsuits and other lawsuits filed against a number of companies that own generation plants in California and other sellers of electricity in California markets. Pursuant to the terms of the master separation agreement between Reliant Energy and Reliant Resources (see Note 4(c)), Reliant Resources has agreed to indemnify Reliant Energy for any damages arising under these lawsuits and may elect to defend these lawsuits at its own expense. Three of these lawsuits were filed in the Superior Court of the State of California, San Diego County; two were filed in the Superior Court in San Francisco County; and one was filed in the Superior Court of Los Angeles County. While the plaintiffs allege various violations by the defendants of state antitrust laws and state laws against unfair and unlawful business practices, each of the lawsuits is grounded on the central allegation that defendants conspired to drive up the wholesale price of electricity. In addition to injunctive relief, the plaintiffs in these lawsuits seek treble the amount of damages alleged, restitution of alleged overpayments, disgorgement of alleged unlawful profits for sales of electricity, costs of suit and attorneys' fees. The cases were initially removed to federal court and were then assigned to Judge Robert H. Whaley, United States District Judge, pursuant to the federal procedures for multi-district litigation. On July 30, 2000, Judge Whaley remanded the cases to state court. Upon remand to state court, the cases were assigned to Superior Court Judge Janis L. Sammartino pursuant to the California state coordination procedures. On March 4, 2002, Judge Sammartino adopted a schedule proposed by the parties that would result in a trial beginning on March 1, 2004. On March 8, 2002, the plaintiffs filed a single, consolidated complaint naming numerous defendants, including Reliant Energy Services and other Reliant Resources' subsidiaries, that restated the allegations described above and alleged that damages against all defendants could be as much as $1 billion.
Plaintiffs have voluntarily dismissed Reliant Energy from two of the three class actions in which it was named as a defendant. The ultimate outcome of the lawsuits cannot be predicted with any degree of certainty at this time. However, the Company believes, based on its analysis to date of the claims asserted in these lawsuits and the underlying facts, that resolution of these lawsuits will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
On March 11, 2002, the California Attorney General filed a civil lawsuit in San Francisco Superior Court naming Reliant Energy, Reliant Resources, Reliant Energy Services, REPG, and several other subsidiaries of Reliant Resources as defendants. Pursuant to the terms of the master separation agreement between Reliant Energy and Reliant Resources (see Note 4(c)), Reliant Resources has agreed to indemnify Reliant Energy for any damages arising under these lawsuits and may elect to defend these lawsuits at its own expense. The Attorney General alleges various violations by the defendants of state laws against unfair and unlawful business practices arising out of transactions in the markets for ancillary services run by the California Independent System Operator (Cal ISO). In addition to injunctive relief, the Attorney General seeks restitution and disgorgement of alleged unlawful profits for sales of electricity, and civil penalties. The ultimate outcome of this lawsuit cannot be predicted with any degree of certainty at this time.
On March 19, 2002, the California Attorney General filed a complaint with the FERC naming Reliant Energy Services and "all other public utility sellers" in California as defendants. The complaint alleges that sellers with market-based rates have violated their tariffs by not filing with the FERC transaction-specific information about all of their sales and purchases at market-based rates. The California Attorney General argues that, as a result, all past sales should be subject to refund if found to be above just and reasonable levels. The ultimate outcome of this complaint proceeding cannot be predicted with any degree of certainty at this time. However, the Company believes, based on its analysis to date of the claims asserted in the complaint, the underlying facts, and the relevant statutory and regulatory provisions, that resolution of this
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lawsuit will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Natural Gas Measurement Lawsuits. In 1997, a suit was filed under the Federal False Claim Act against RERC and certain of its subsidiaries alleging mismeasurement of natural gas produced from federal and Indian lands. The suit seeks undisclosed damages, along with statutory penalties, interest, costs, and fees. The complaint is part of a larger series of complaints filed against 77 natural gas pipelines and their subsidiaries and affiliates. An earlier single action making substantially similar allegations against the pipelines was dismissed by the U.S. District Court for the District of Columbia on grounds of improper joinder and lack of jurisdiction. As a result, the various individual complaints were filed in numerous courts throughout the country. This case was consolidated, together with the other similar False Claim Act cases filed and transferred to the District of Wyoming. Motions to dismiss were denied. The defendants intend to vigorously contest this case.
In addition, RERC, REGT, REFS and MRT have been named as defendants in a class action filed in May 1999 against approximately 245 pipeline companies and their affiliates. The plaintiffs in the case purport to represent a class of natural gas producers and fee royalty owners who allege that they have been subject to systematic gas mismeasurement by the defendants, including certain Reliant Energy entities, for more than 25 years. The plaintiffs seek compensatory damages, along with statutory penalties, treble damages, interest, costs and fees. The action is currently pending in state court in Stevens County, Kansas. Plaintiffs initially sued Reliant Energy Services, but that company was dismissed without prejudice on June 8, 2001. Other Reliant Energy entities that were misnamed or duplicative have also been dismissed. MRT and REFS have filed motions to dismiss for lack of personal jurisdiction and are currently responding to discovery on personal jurisdiction. All four Reliant Energy defendants have joined in a motion to dismiss.
The defendants plan to raise significant affirmative defenses based on the terms of the applicable contracts, as well as on the broad waivers and releases in take or pay settlements that were granted by the producer-sellers of natural gas who are putative class members.
Environmental Matters
Clean Air Standards. The Company has participated in a lawsuit against the Texas Natural Resource Conservation Commission (TNRCC) regarding the limitation of the emission of oxides of nitrogen (NOx) in the Houston area. A settlement of the lawsuit was reached with the TNRCC in the second quarter of 2001 and revised emissions limitations were adopted by the TNRCC in the third quarter of 2001. The revised limitations provide for an increase in allowable NOx emissions, compared to the original TNRCC requirements, through 2004. Further emission reduction requirements may or may not be required through 2007, depending upon the outcome of further investigations of regional air quality issues. To achieve the TNRCC NOx reduction requirements, the Company anticipates investing up to $721 million in capital and other special project expenditures by 2004, including costs incurred through December 31, 2001, and potentially up to an additional $88 million between 2004 and 2007. The Texas Electric Restructuring Law provides for stranded cost recovery for expenditures incurred before May 1, 2003 to achieve the NOx reduction requirements.
Hydrocarbon Contamination. On August 24, 2001, 37 plaintiffs filed suit against Reliant Energy Gas Transmission Company, Inc., Reliant Energy Pipeline Services, Inc., RERC, Reliant Energy Services, Inc., other Reliant Energy entities and third parties (Docket No. 460, 916-Div. "B"), in the 1st Judicial District Court, Caddo Parish, Louisiana. The petition has now been supplemented five times. As of March 11, 2002, there were 628 plaintiffs, a majority of whom are Louisiana residents who live near the Wilcox Aquifer. In addition to the Reliant Energy entities, the plaintiffs have sued the State of Louisiana through its Department of Environmental Quality, several individuals, some of whom are present employees of the State of Louisiana, the Bayou South Gas Gathering Company, L.L.C., Martin Timber Company, Inc., and several trusts.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The suit alleges that, at some unspecified date prior to 1985, the defendants allowed or caused hydrocarbon or chemical contamination of the Wilcox Aquifer which lies beneath property owned or leased by the defendants and which is the sole or primary drinking water aquifer in the area. The primary source of the contamination is alleged by the plaintiffs to be a gas processing facility in Haughton, Bossier Parish, Louisiana known as the "Sligo Facility." This facility was purportedly used for gathering natural gas from surrounding wells, separating gasoline and hydrocarbons from the natural gas for marketing, and transmission of natural gas for distribution. This site was originally leased and operated by predecessors of Reliant Energy Gas Transmission Company in the late 1940s and was operated until Arkansas Louisiana Gas Company ceased operations of the plant in the late 1970s.
Beginning about 1985, the predecessors of certain Reliant Energy defendants engaged in a voluntary remediation of any subsurface contamination of the groundwater below the property they own or lease. This work has been done in conjunction with and under the direction of the Louisiana Department of Environmental Quality. The plaintiffs seek monetary damages for alleged damage to the aquifer underlying their property, unspecified alleged personal injuries, alleged fear of cancer, alleged property damage or dimunition of value of their property, and in addition seek damages for trespass, punitive, and exemplary damages. The quantity of monetary damages sought is unspecified. As of December 31, 2001, the Company is unable to estimate the monetary damages, if any, that the plaintiffs may be awarded in this matter.
Manufactured Gas Plant Sites. RERC and its predecessors operated a manufactured gas plant (MGP) until 1960 adjacent to the Mississippi River in Minnesota, formerly known as Minneapolis Gas Works (MGW). RERC has substantially completed remediation of the main site other than ongoing water monitoring and treatment. The manufactured gas was stored in separate holders. RERC is negotiating clean-up of one such holder. There are six other former MGP sites in the Minnesota service territory. Remediation has been completed on one site. Of the remaining five sites, RERC believes that two were neither owned nor operated by RERC. RERC believes it has no liability with respect to the sites it neither owned nor operated.
At December 31, 2000 and 2001, RERC had accrued $18 million and $23 million, respectively, for remediation of the Minnesota sites. At December 31, 2001, the estimated range of possible remediation costs was $11 million to $49 million. The cost estimates of the MGW site are based on studies of that site. The remediation costs for the other sites are based on industry average costs for remediation of sites of similar size. The actual remediation costs will be dependent upon the number of sites remediated, the participation of other potentially responsible parties (PRP), if any, and the remediation methods used.
Issues relating to the identification and remediation of MGPs are common in the natural gas distribution industry. The Company has received notices from the United States Environmental Protection Agency and others regarding its status as a PRP for other sites. Based on current information, the Company has not been able to quantify a range of environmental expenditures for potential remediation expenditures with respect to other MGP sites.
Other Minnesota Matters. At December 31, 2000 and 2001, RERC had recorded accruals of $4 million and $5 million, respectively for other environmental matters in Minnesota for which remediation may be required. At December 31, 2001 the estimated range of possible remediation costs was $4 million to $8 million.
Mercury Contamination. The Company's pipeline and distribution operations have in the past employed elemental mercury in measuring and regulating equipment. It is possible that small amounts of mercury may have been spilled in the course of normal maintenance and replacement operations and that these spills may have contaminated the immediate area with elemental mercury. This type of contamination has been found by the Company at some sites in the past, and the Company has conducted remediation at sites found to be contaminated. Although the Company is not aware of additional specific sites, it is possible that other contaminated sites may exist and that remediation costs may be incurred for these sites. Although the total
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of these costs cannot be known at this time, based on experience by the Company and that of others in the natural gas industry to date and on the current regulations regarding remediation of these sites, the Company believes that the costs of any remediation of these sites will not be material to the Company's financial position, results of operations or cash flows.
REMA Ash Disposal Site Closures and Site Contaminations. Under the agreement to acquire REMA (see Note 3(a)), the Company became responsible for liabilities associated with ash disposal site closures and site contamination at the acquired facilities in Pennsylvania and New Jersey prior to a plant closing, except for the first $6 million of remediation costs at the Seward Generating Station. A prior owner retained liabilities associated with the disposal of hazardous substances to off-site locations prior to November 24, 1999. As of December 31, 2000 and 2001, REMA has liabilities associated with six future ash disposal site closures and six current site investigations and environmental remediations. The Company has recorded its estimate of these environmental liabilities in the amount of $36 million as of December 31, 2000 and 2001. The Company expects approximately $16 million will be paid over the next five years.
REPGB Asbestos Abatement and Soil Remediation. Prior to the Company's acquisition of REPGB (see Note 3(b)), REPGB had a $25 million obligation primarily related to asbestos abatement, as required by Dutch law, and soil remediation at six sites. During 2000, the Company initiated a review of potential environmental matters associated with REPGB's properties. REPGB began remediation in 2000 of the properties identified to have exposed asbestos and soil contamination, as required by Dutch law and the terms of some leasehold agreements with municipalities in which the contaminated properties are located. All remediation efforts are to be fully completed by 2005. As of December 31, 2000 and 2001, the recorded estimated undiscounted liability for this asbestos abatement and soil remediation was $24 million and $18 million, respectively.
Other. From time to time the Company has received notices from regulatory authorities or others regarding its status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. The Company has from time to time received notices from regulatory authorities regarding alleged noncompliance with environmental regulatory requirements. In addition, the Company has been named as a defendant in litigation related to allegedly contaminated sites and in recent years has been named, along with numerous others, as a defendant in several lawsuits filed by a large number of individuals who claim injury due to exposure to asbestos while working at sites along the Texas Gulf Coast. Most of these claimants have been workers who participated in construction of various industrial facilities, including power plants, and some of the claimants have worked at locations owned by the Company. The Company anticipates that additional claims like those received may be asserted in the future and intends to continue vigorously contesting claims which it does not consider to have merit. Although their ultimate outcome cannot be predicted at this time, the Company does not believe, based on its experience to date, that these matters, either individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations or cash flows.
Other Matters
The Company is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. Some of these proceedings involve substantial amounts. The Company's management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. The Company's management believes that the disposition of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) CALIFORNIA WHOLESALE MARKET UNCERTAINTY.
Receivables. During portions of 2000 and 2001, prices for wholesale electricity in California increased dramatically as a result of a combination of factors, including higher natural gas prices and emission allowance costs, reduction in available hydroelectric generation resources, increased demand, decreased net electric imports and limitations on supply as a result of maintenance and other outages. The resulting supply and demand imbalance disproportionately impacted California utilities that relied too heavily on short-term power markets to meet their load requirements. Although wholesale prices increased, California's deregulation legislation kept retail rates frozen at 10% below 1996 levels for two of California's public utilities, Pacific Gas and Electric (PG&E) and Southern California Edison Company (SCE), until rates were raised by the California Public Utilities Commission (CPUC) early in 2001.
Due to the disparity between wholesale and retail rates, the credit ratings of PG&E and SCE fell below investment grade. Additionally, PG&E filed for protection under the bankruptcy laws on April 6, 2001. As a result, PG&E and SCE are no longer considered creditworthy and since January 17, 2001 have not directly purchased power from third-party suppliers through the Cal ISO to serve their net short load. Pursuant to emergency legislation enacted by the California Legislature, the California Department of Water Resources (CDWR) has negotiated and purchased power through short and long-term contracts on behalf of PG&E and SCE to meet their net short loads. In December 2001, the CDWR began making payments to the Cal ISO for real-time transactions. The CDWR has now made payment through the Cal ISO for most real-time energy deliveries subsequent to January 17, 2001.
In addition, certain contracts intended to serve as collateral for sales to the California Power Exchange (Cal PX) were seized by California Governor Gray Davis in February 2001. The Ninth Circuit Court of Appeals subsequently ruled that Governor Davis' seizure of these contracts was wrongful. The Company has filed a lawsuit, currently pending in California, to require the state of California to compensate it for the seizure of these contracts. Although SCE made a payment on March 1, 2002 to the Cal PX that included amounts it owed to the Company under these contracts, the Company is still seeking to recover the market value of the contracts at the time they were seized by Governor Davis, which was significantly higher than the contract value, and to collect amounts owed as a result of payment defaults by PG&E under the contracts. The timing and ultimate resolution of these claims is uncertain at this time.
On September 20, 2001, PG&E filed a Plan of Reorganization and an accompanying disclosure statement with the bankruptcy court. Under this plan, PG&E would pay all allowed creditor claims in full, through a combination of cash and long-term notes. Components of the plan will require the approval of the FERC, the SEC and the Nuclear Energy Regulatory Commission, in addition to the bankruptcy court. PG&E has stated it seeks to have this plan confirmed by December 31, 2002. A number of parties are contesting PG&E's reorganization plan, including a number of California parties and agencies. The bankruptcy judge in the PG&E case has ordered that the CPUC may file a competing plan. The details of the CPUC's proposal are unknown at this time. The ability of PG&E to have its reorganization plan confirmed, including the provision providing for the payment in full of unsecured creditors, is uncertain at this time.
On October 5, 2001, a federal district court in California entered a stipulated judgment approving a settlement between SCE and the CPUC in an action brought by SCE regarding the recovery of its wholesale power costs under the filed rate doctrine. Under the stipulated judgment, a rate increase approved earlier in 2001 will remain in place until the earlier of SCE recovering $3.3 billion or December 31, 2002. After that date, the CPUC will review the sufficiency of retail rates through December 31, 2005. A consumer organization has appealed the judgment to the Ninth Circuit Court of Appeals, and no hearing has been held to date. Under the stipulated judgment, any settlement with SCE's creditors that is entered into after March 1, 2002 must be approved by the CPUC. The Company has appealed this provision of the judgment. On March 1, 2002, SCE made a payment to the Cal PX that included amounts it owed the Company. The Company has made a filing with FERC seeking an order providing for the disbursement of the funds owed to
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the suppliers. The FERC and the bankruptcy court governing the Cal PX bankruptcy proceedings are considering how to dispense this money and it remains uncertain when those funds will be paid over to the Company.
As of December 31, 2000, the Company was owed a total of $282 million by the Cal PX and the Cal ISO. As of December 31, 2001, the Company was owed a total of $302 million by the Cal ISO, the Cal PX, the CDWR, and California Energy Resources Scheduling for energy sales in the California wholesale market during the fourth quarter of 2000 through December 31, 2001. From January 1, 2002 through March 26, 2002, the Company has collected $45 million of these receivable balances. As of December 31, 2001, the Company had a pre-tax provision of $68 million against receivable balances related to energy sales in the California market, including $39 million recorded in 2000 and $29 million recorded in 2001. Management will continue to assess the collectability of these receivables based on further developments affecting the California electricity market and the market participants described herein.
FERC Market Mitigation. In response to the filing of a number of complaints challenging the level of wholesale prices, the FERC initiated a staff investigation and issued a number of orders implementing a series of wholesale market reforms. Under these orders, and subject to review and adjustment based on the pending refund proceeding described below, the Company may face an as yet undetermined amount of refund liability. See "-- FERC Refunds" below. Under these orders, for the period January 1, 2001 through June 19, 2001, approximately $20 million of the $149 million charged by the Company for sales in California to the Cal ISO and the Cal PX were identified as being subject to possible refunds. During the second quarter of 2001, the Company accrued refunds of $15 million, $3 million of which had been previously expensed during the first quarter of 2001.
On April 26, 2001, the FERC issued an order replacing the previous price review procedures and establishing a market monitoring and mitigation plan, effective May 29, 2001, for the California markets. The plan establishes a cap on prices during periods when power reserves fall below 7% in the Cal ISO (reserve deficiency periods). The Cal ISO is instructed to use data submitted confidentially by gas-fired generators in California and daily indices of natural gas and emissions allowance costs to establish the market-clearing price in real-time based on the marginal cost of the highest-cost generator called to run. The plan also requires generators in California to offer all their available capacity for sale in the real-time market, and conditions sellers' market-based rate authority such that sellers engaging in certain bidding practices will be subject to increased scrutiny by the FERC, potential refunds and even revocation of their market-based rate authority.
On June 19, 2001, the FERC issued an order modifying the market monitoring and mitigation plan adopted in its April 26 order, to apply price controls to all hours, instead of just hours of low operating reserve, and to extend the mitigation measures to other Western states in addition to California, including Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming. The FERC set July 2, 2001 as the refund effective date for sales subject to the price mitigation plan throughout the West region. This means that transactions after that date may be subject to refund if found to be unjust or unreasonable. The proxy market clearing price calculated by the Cal ISO will apply during periods of reserve deficiency to all sales in the Cal ISO and Western spot markets. In non-reserve deficiency hours in California, the maximum price in California and the other Western states will be capped at 85% of the highest Cal ISO hourly market clearing price established during the most recent reserve deficiency period. Sellers other than marketers will be allowed to bid higher than the maximum prices, but such bids are subject to justification and potential refund. Justification of higher prices is limited to establishing higher actual gas costs than the proxy calculation averages and making a showing that conditions in natural gas markets changed significantly. The modified monitoring and mitigation plan went into effect June 20, 2001, and will terminate on September 30, 2002, covering two summer peak seasons, or approximately 16 months.
On December 19, 2001, the FERC issued a series of orders on price mitigation in California and the West region. These orders largely maintained existing mitigation mechanisms, but did make a temporary modifica-
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion to the way that mitigated market clearing prices will be set during the winter months, allowing the maximum prices to rise if gas prices rise. The FERC removed the requirement that non-reserve deficiency prices be limited to 85% of the most recent reserve deficiency prices, allowing prices to rise to a mitigated clearing price of $108/MWh (above which price transactions must be justified as described above). In addition, the FERC determined that if gas prices in California rise by 10%, the mitigated price may be revised to take that change into account. The formula will then track subsequent cumulative changes of at least 10%, but may not fall below a maximum price of $108/MWh. This modification is effective December 20, 2001 through April 30, 2002, at which point the previous mitigation formula is reinstated.
Also, the December 19 orders affirm the June 19 order's requirement that generators must offer all available capacity for sale in the real-time market. As a result of this requirement, the Company's opportunity to sell ancillary services in the West region in the future may be reduced. During 2001, the Company recorded $42 million in revenues related to ancillary services in the West region.
In addition to the impact on ancillary services sales, certain aspects of the December 19, 2001 orders may have retroactive application that may affect prices charged in the West region since June 21, 2001. Because the precise application of the December 19, 2001 order is not known at this time, the Company cannot anticipate the resulting impact on earnings.
The Company believes that while the mitigation plan will reduce volatility in the market, the Company will nevertheless be able to profitably operate its facilities in the West. Additionally, as noted above, the mitigation plan allows sellers, such as the Company, to justify prices above the proxy price. However, previous efforts by the Company to justify prices above the proxy price have been rejected by the FERC and there is no certainty that the FERC will allow for the recovery of costs above the proxy price. Finally, any adverse impacts of the mitigation plan on the Company's operations would be mitigated, in part, by the Company's forward hedging activities.
FERC Refunds. The FERC issued an order on July 25, 2001 adopting a refund methodology and initiating a hearing schedule to determine (1) revised mitigated prices for each hour from October 2, 2000 through June 20, 2001; (2) the amount owed in refunds by each supplier according to the methodology (these amounts may be in addition to or in place of the refund amounts previously determined by the FERC); and (3) the amount currently owed to each supplier. The amounts of any refunds will be determined by the FERC after the conclusion of the hearing process. On December 19, 2001, the FERC issued an order modifying the methodology to be used to determine refund amounts. The schedule currently anticipates that the Administrative Law Judge will make his refund amount recommendations to the FERC in October 2002. However, the Company does not know when the FERC will issue its final decision. The Company has not reserved any amounts for potential future refund liability resulting from the FERC refund hearing, nor can it currently predict the amount of these potential refunds, if any, because the methodology used to calculate these refunds is not final and will depend on information that is still subject to review and challenge in the hearing process. Any refunds that are determined in the FERC proceeding will likely be offset against unpaid amounts owed, if any, to the Company for its prior sales.
On November 20, 2001, the FERC instituted an investigation under Section 206 of the Federal Power Act regarding the tariffs of all sellers with market-based rates authority, including the Company. In this proceeding, the FERC conditions the market-based rate authority of all sellers on their not engaging in anti-competitive behavior. Such condition will apply upon a further order from FERC establishing a refund effective date. This condition allows the FERC, if it determines that a seller has engaged in anti-competitive behavior subsequent to the start of the refund effective period, to order refunds back to the date of such behavior. The FERC invited comments regarding this proposal, and the Company has filed comments in opposition to the proposal. On March 11, 2002, the FERC's Staff held a conference with market participants to discuss the comments FERC has received, and possible modification of the proposed conditions to address concerns raised in the comments while protecting consumers against anticompetitive behavior. The timing of
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
further action by FERC is uncertain. If the FERC does not modify or reject its proposed approach for dealing with anti-competitive behavior, the Company's future earnings may be affected by the open-ended refund obligation.
On February 13, 2002, the FERC issued an order initiating a staff investigation into potential manipulation of electric and natural gas prices in the Western region for the period January 1, 2000 forward. While this order does not propose any action against the Company, if the investigation results in findings that markets were dysfunctional during this period, those findings may be used in support of existing or future claims by the FERC or others that prices in the Company's long-term contracts entered into after January 1, 2000 for sales in the West region should be altered.
Other Investigations. In addition to the FERC investigation discussed above, several state and other federal regulatory investigations and complaints have commenced in connection with the wholesale electricity prices in California and other neighboring Western states to determine the causes of the high prices and potentially to recommend remedial action. In California, the California State Senate and the California Office of the Attorney General have separate ongoing investigations into the high prices and their causes. Although these investigations have not been completed and no findings have been made in connection with either of them, the California Attorney General has filed a civil lawsuit in San Francisco Superior Court alleging that the Company has violated state laws against unfair and unlawful business practices and a complaint with the FERC alleging the Company violated the terms of its tariff with the FERC (see Note 14(f)). Adverse findings or rulings could result in punitive legislation, sanctions, fines or even criminal charges against the Company or its employees. The Company is cooperating with both investigations and has produced a substantial amount of information requested in subpoenas issued by each body. The Washington and Oregon attorneys general have also begun similar investigations.
Legislative Efforts. Since the inception of the California energy crisis, various pieces of legislation, including tax proposals, have been introduced in the U.S. Congress and the California Legislature addressing several issues related to the increase in wholesale power prices in 2000 and 2001. For example, a bill was introduced in the California legislature that would have created a "windfall profits" tax on wholesale electricity sales and would subject exempt wholesale generators, such as the Company's subsidiaries that own generation facilities in California, to regulation by the CPUC as "public utilities." To date, only a few energy-related bills have passed and the Company does not believe that the legislation that has been enacted to date on these issues will have a material adverse effect on the Company. However, it is possible that legislation could be enacted on either the state or federal level that could have a material adverse effect on the Company's financial condition, results of operations and cash flows.
(h) INDEMNIFICATION OF STRANDED COSTS
Background. In January 2001, the Dutch Electricity Production Sector Transitional Arrangements Act (Transition Act) became effective and, among other things, allocated to REPGB and the three other large-scale Dutch generation companies, a share of the assets, liabilities and stranded cost commitments of NEA. Prior to the enactment of the Transition Act, NEA acted as the national electricity pooling and coordinating body for the generation output of REPGB and the three other large-scale national Dutch generation companies. REPGB and the three other large-scale Dutch generation companies are shareholders of NEA.
The Transition Act and related agreements specify that REPGB has a 22.5% share of NEA's assets, liabilities and stranded cost commitments. NEA's stranded cost commitments consisted primarily of various uneconomical or stranded cost investments and commitments, including a gas supply and three power contracts entered into prior to the liberalization of the Dutch wholesale electricity market. REPGB's stranded cost obligations also include uneconomical district heating contracts which were previously administrated by NEA prior to deregulation of the Dutch power market.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The gas supply contract expires in 2016 and provides for gas imports aggregating 2.283 billion cubic meters per year. Prior to December 31, 2001, one of the stranded cost power contracts was settled. The two remaining stranded cost power contracts have the following capacities and terms: (a) 300 MW through 2005, and (b) 600 MW through March 2002 and 750 MW through 2009. Under the Transition Act, REPGB can either assume its 22.5% allocated interest in the contracts or, subject to the terms of the contracts, sell its interests to third parties. The district heating obligations relate to three heating water supply contacts entered into with various municipalities and expire from 2013 through 2015. Under the district heating contracts, the municipal districts are required to take annually a combined minimum of 5,549 terajoules (TJ) increasing annually to 7,955 TJ over the life of the contracts.
The Transition Act also authorized the government to purchase from NEA at least a majority of the shares in the Dutch national transmission grid company which was sold to the Dutch government on October 25, 2001 for approximately NLG 2.6 billion (approximately $1.05 billion based on an exchange rate of 2.48 NLG per U.S. dollar as of December 31, 2001).
Prior to December 31, 2001, the former shareholders agreed pursuant to a share purchase agreement to indemnify REPGB for up to NLG 1.9 billion in stranded cost liabilities (approximately $766 million). The indemnity obligation of the former shareholders and various provincial and municipal entities (including the city of Amsterdam), was secured by a NLG 900 million escrow account (approximately $363 million).
The Transition Act provided that, subject to the approval of the European Commission, the Dutch government will provide financial compensation to the Dutch generation companies, including REPGB, for liabilities associated with (a) long-term district heating contracts and (b) an experimental coal facility. In July 2001, the European Commission ruled that under certain conditions the Dutch government can provide financial compensation to the generation companies for the district heating contracts. To the extent that this compensation is not ultimately provided to the generation companies by the Dutch government, REPGB was to collect its compensation directly from the former shareholders as further discussed below.
In January 2001, the Company recognized an out-of-market, net stranded cost liability for its gas and electric contracts and district heating commitments. At such time, the Company recorded a corresponding asset of equal amount for the indemnification of this obligation from REPGB's former shareholders and the Dutch government, as applicable. Pursuant to SFAS No. 133, the gas and electric contracts are marked-to-market (see Note 5). As of December 31, 2001, the Company has recorded a liability of $369 million for its stranded cost gas and electric commitments in non-trading derivative liabilities and a liability of $206 million for its district heating commitments in current and non-current other liabilities. As of December 31, 2001, the Company has recorded an indemnification receivable from the Dutch government for the district heating stranded cost liability of $206 million. The settlement of the indemnification related to gas and electric contract commitments in December 2001 is discussed below.
Settlement of Stranded Cost Indemnification. In December 2001, REPGB and its former shareholders entered into a settlement agreement immediately resolving the former shareholders of their stranded cost indemnity obligations related to the gas supply and power contracts under the original share purchase agreement, and provides conditional terms for the possible settlement of their stranded cost indemnity obligation related to district heating obligations under certain conditions. The settlement agreement was approved in December 2001 by the Ministry of Economic Affairs of the Netherlands.
Under the settlement agreement, the former shareholders paid to REPGB NLG 500 million ($202 million) in January and February 2002. The payment represents a settlement of the obligations of the former shareholders to indemnify REPGB for all stranded cost liabilities other than those relating to the district heating contracts. The full amount of this payment was placed into an escrow account in the name of REPGB to fund its stranded cost obligations related to the gas and electric import contracts. Any remaining escrow funds as of January 1, 2004 will be distributed to REPGB.
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the settlement agreement, the former shareholders will continue to indemnify REPGB for the stranded cost liabilities relating to district heating contracts. The terms of the indemnity are as follows:
- The settlement agreement acknowledges that the Netherlands is finalizing regulations for compensation of stranded cost associated with district heating projects. Within 21 days after the date these compensation rules take effect, REPGB can elect to receive one of two forms of indemnification under the settlement agreement.
- If the compensation to be paid by the Netherlands under these rules is at least as much as the compensation to be paid under the original indemnification agreement, REPGB can elect to receive a one-time payment of NLG 60 million ($24 million). In addition, unless the decree implementing the new compensation rules provides for compensation for the lifetime of the district heating projects, REPGB can receive an additional cash payment of NLG 15 million ($6 million).
- If the compensation rules do not provide for compensation at least equal to that provided under the original indemnification agreement, REPGB can claim indemnification for stranded cost losses up to a maximum of NLG 700 million ($282 million) less the amount of compensation provided by the new compensation rules and certain proceeds received from arbitrations.
- If no new compensation rules have taken effect on or prior to December 31, 2003, REPGB is entitled, but not obligated, to elect to receive indemnification under the formula described above.
Under the terms of the original indemnification agreement, the former shareholders were entitled to receive any and all distributions and dividends above NLG 125 million ($51 million) paid by NEA. Under the settlement agreement, the former shareholders waived all rights under the original indemnification agreement to claim distributions of NEA.
Reliant Resources recognized a net gain of $37 million for the difference between the sum of (a) the cash settlement payment of $202 million and the additional rights to claim distributions of Reliant Resources' NEA investment recognized of $248 million and (b) the amount recorded as stranded cost indemnity receivable related to the stranded cost gas and electric commitments of $369 million and claims receivable related to stranded cost incurred in 2001 of $44 million both previously recorded in the Consolidated Balance Sheets.
Investment in NEA. During the second quarter of 2001, Reliant Resources recorded a $51 million pre-tax gain (NLG 125 million) recorded as equity income for the preacquisition gain contingency related to the acquisition of REPGB for the value of its equity investment in NEA. This gain was based on Reliant Resources' evaluation of NEA's financial position and fair value. The fair value of Reliant Resources' investment in NEA is dependent upon the ultimate resolution of its existing contingencies and proceeds received from liquidating its remaining net assets. Prior to the settlement agreement discussed above, pursuant to the purchase agreement of REPGB, as amended, REPGB was entitled to a NLG 125 million dividend from NEA with any remainder owing to the former shareholders. As mentioned above, REPGB entered into an agreement with its former shareholders to settle the original indemnification agreement and the former shareholders waived all rights to distributions of NEA. Accordingly, as a component of the net gain recognized from the settlement of the stranded cost indemnity, Reliant Resources recorded a $248 million increase in its investment in NEA. As of December 31, 2001, Reliant Resources has recorded $299 million in equity investments of unconsolidated subsidiaries for its investment in NEA.
(i) OPERATIONS AGREEMENT WITH CITY OF SAN ANTONIO
As part of the 1996 settlement of certain litigation claims asserted by the City of San Antonio with respect to the South Texas Project, the Company entered into a 10-year joint operations agreement under which the Company and the City of San Antonio, acting through the City Public Service Board of San Antonio (CPS), share savings resulting from the joint dispatching of their respective generating assets in
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
order to take advantage of each system's lower cost resources. In January 2000, the contract term was extended for three years and is expected to terminate in 2009. Under the terms of the joint operations agreement entered into between CPS and Electric Operations, the Company has guaranteed CPS minimum annual savings of $10 million up to a total cumulative savings of $150 million over the term of the agreement. The cumulative obligation was met in the first quarter of 2001. In 1999, 2000 and 2001, savings generated for CPS' account were $14 million, $60 million and $65 million, respectively. Through December 31, 2001, cumulative savings generated for CPS' account were $189 million.
(j) NUCLEAR INSURANCE
The Company and the other owners of the South Texas Project maintain nuclear property and nuclear liability insurance coverage as required by law and periodically review available limits and coverage for additional protection. The owners of the South Texas Project currently maintain $2.75 billion in property damage insurance coverage, which is above the legally required minimum, but is less than the total amount of insurance currently available for such losses.
Pursuant to the Price Anderson Act, the maximum liability to the public of owners of nuclear power plants was $9.3 billion as of December 31, 2001. Owners are required under the Price Anderson Act to insure their liability for nuclear incidents and protective evacuations. The Company and the other owners of the South Texas Project currently maintain the required nuclear liability insurance and participate in the industry retrospective rating plan.
There can be no assurance that all potential losses or liabilities will be insurable, or that the amount of insurance will be sufficient to cover them. Any substantial losses not covered by insurance would have a material effect on the Company's financial condition, results of operations and cash flows.
(k) NUCLEAR DECOMMISSIONING
The Company contributed $14.8 million per year in 1999, 2000 and 2001 to a trust established to fund its share of the decommissioning costs for the South Texas Project. Pursuant to the October 3, 2001 Order, beginning in 2002, the Company will contribute $2.9 million per year to this trust. There are various investment restrictions imposed upon the Company by the Texas Utility Commission and the NRC relating to the Company's nuclear decommissioning trust. Additionally, the Company's board of directors has appointed the Nuclear Decommissioning Trust Investment Committee to establish the investment policy of the trust and oversee the investment of the trusts' assets. The securities held by the trust for decommissioning costs had an estimated fair value of $169 million as of December 31, 2001, of which approximately 46% were fixed-rate debt securities and the remaining 54% were equity securities. For a discussion of the accounting treatment for the securities held in the Company's nuclear decommissioning trust, see Note 2(l). In July 1999, an outside consultant estimated the Company's portion of decommissioning costs to be approximately $363 million. While the current funding levels currently exceed minimum NRC requirements, no assurance can be given that the amounts held in trust will be adequate to cover the actual decommissioning costs of the South Texas Project. Such costs may vary because of changes in the assumed date of decommissioning and changes in regulatory requirements, technology and costs of labor, materials and equipment. Pursuant to the Texas Electric Restructuring Law, costs associated with nuclear decommissioning that have not been recovered as of January 1, 2002, will continue to be subject to cost-of-service rate regulation and will be included in a charge to transmission and distribution customers. For information regarding the effect of the Business Separation Plan on funding of the nuclear decommissioning trust fund, see Note 4(b).
(l) CONSTRUCTION AGENCY AGREEMENT AND EQUIPMENT FINANCING STRUCTURE
In 2001, Reliant Resources, through several of its subsidiaries, entered into operative documents with special purpose entities to facilitate the development, construction, financing and leasing of several power
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
generation projects. The special purpose entities are not consolidated by the Company. The special purpose entities have an aggregate financing commitment from equity and debt participants (Investors) of $2.5 billion of which the last $1.1 billion is currently available only if the cash is collateralized. The availability of the commitment is subject to satisfaction of various conditions, including the obligation to provide cash collateral for the loans and letters of credit outstanding on November 27, 2004. Reliant Resources, through several of its subsidiaries, acts as construction agent for the special purpose entities and is responsible for completing construction of these projects by December 31, 2004, but Reliant Resources has generally limited its risk during construction to an amount not in excess of 89.9% of costs incurred to date, except in certain events. Upon completion of an individual project and exercise of the lease option, Reliant Resources' subsidiaries will be required to make lease payments in an amount sufficient to provide a return to the Investors. If Reliant Resources does not exercise its option to lease any project upon its completion, Reliant Resources must purchase the project or remarket the project on behalf of the special purpose entities. Reliant Resources' ability to exercise the lease option is subject to certain conditions. Reliant Resources must guarantee that the Investors will receive an amount at least equal to 89.9% of their investment in the case of a remarketing sale at the end of construction. At the end of an individual project's initial operating lease term (approximately five years from construction completion), Reliant Resources' subsidiary lessees have the option to extend the lease with the approval of Investors, purchase the project at a fixed amount equal to the original construction cost, or act as a remarketing agent and sell the project to an independent third party. If the lessees elect the remarketing option, they may be required to make a payment of an amount not to exceed 85% of the project cost, if the proceeds from remarketing are not sufficient to repay the Investors. Reliant Resources has guaranteed the performance and payment of its subsidiaries' obligations during the construction periods and, if the lease option is exercised, each lessee's obligations during the lease period. At any time during the construction period or during the lease, Reliant Resources may purchase a facility by paying an amount approximately equal to the outstanding balance plus costs.
Reliant Resources, through its subsidiary, REPG, has entered into an agreement with a bank whereby the bank, as owner, entered or will enter into contracts for the purchase and construction of power generation equipment and REPG, or its subagent, acts as the bank's agent in connection with administering the contracts for such equipment. Under the agreement, the bank has agreed to provide up to a maximum aggregate amount of $650 million. REPG and its subagents must cash collateralize their obligation to administer the contracts. This cash collateral is approximately equivalent to the total payments by the bank for the equipment, interest and other fees. As of December 31, 2001, the bank had assumed contracts for the purchase of eleven turbines, two heat recovery steam generators and one air-cooled condenser with an aggregate cost of $398 million. REPG, or its designee, has the option at any time to purchase, or, at equipment completion, subject to certain conditions, including the agreement of the bank to extend financing, to lease the equipment, or to assist in the remarketing of the equipment under terms specified in the agreement. All costs, including the purchase commitment on the turbines, are the responsibility of the bank. The cash collateral is deposited by REPG or an affiliate into a collateral account with the bank and earns interest at LIBOR less 0.15%. Under certain circumstances, the collateral deposit or a portion of it, will be returned to REPG or its designee. Otherwise, it will be retained by the bank. At December 31, 2001, REPG and its subsidiary had deposited $230 million into the collateral account. The bank's payments for equipment under the contracts totaled $227 million as of December 31, 2001. In January 2002, the bank sold to the parties to the construction agency agreements discussed above, equipment contracts with a total contractual obligation of $258 million, under which payments and interest during construction totaled $142 million. Accordingly, $142 million of Reliant Resources' collateral deposits were returned to Reliant Resources. As of December 31, 2001, there were equipment contracts with a total contractual obligation of $140 million under which payments during construction totaled $83 million. Currently this equipment is not designated for current planned power generation construction projects. Therefore, the Company anticipates that it will either purchase the equipment, assist in the remarketing of the equipment or negotiate to cancel the related contracts.