<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
- --
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13895
CONECTIV
--------
(Exact name of registrant as specified in its charter)
Delaware 51-0377417
------------------------ ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
--------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3114
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at April 30, 1999
------------------------------------- ------------------------------------
Common Stock, $0.01 par value 100,589,287
Class A Common Stock, $0.01 par value 6,560,612
<PAGE>
Conectiv
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Table of Contents
-----------------
Page
----
Part I. Financial Information:
Consolidated Statements of Income for the three
months ended March 31, 1999, and 1998............ 1
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998............................ 2-3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999, and 1998...... 4
Notes to Consolidated Financial Statements....... 5-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 13-25
Part II. Other Information and Signature.................... 26-27
i
<PAGE>
PART I. FINANCIAL INFORMATION
CONECTIV
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CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Electric $ 563,313 $ 354,128
Gas 291,850 115,785
Other services 91,422 33,678
--------- ---------
946,585 503,591
--------- ---------
OPERATING EXPENSES
Electric fuel and purchased energy 228,553 135,659
Gas purchased 271,613 98,628
Other services' cost of sales 73,933 23,688
Purchased electric capacity 50,061 22,538
Employee separation and other merger-related costs -- 40,623
Operation and maintenance 134,251 103,536
Depreciation 66,883 43,891
Taxes other than income taxes 18,753 12,865
--------- ---------
844,047 481,428
--------- ---------
OPERATING INCOME 102,538 22,163
--------- ---------
OTHER INCOME
Allowance for equity funds used during construction 736 332
Other income 22,377 2,515
--------- ---------
23,113 2,847
--------- ---------
INTEREST EXPENSE
Interest charges 40,260 26,355
Allowance for borrowed funds used during construction
and capitalized interest (1,566) (764)
--------- ---------
38,694 25,591
--------- ---------
PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES 4,948 3,323
--------- ---------
INCOME / (LOSS) BEFORE INCOME TAXES 82,009 (3,904)
INCOME TAXES 33,314 74
--------- ---------
NET INCOME / (LOSS) $ 48,695 $ (3,978)
========= =========
EARNINGS / (LOSS) APPLICABLE TO COMMON STOCK
Common stock $ 47,358 $ (4,136)
Class A common stock 1,337 158
--------- ---------
$ 48,695 $ (3,978)
========= =========
COMMON STOCK
Average shares outstanding (000)
Common stock 100,532 74,684
Class A common stock 6,561 6,561
Earnings / (Loss) per average share--basic and diluted
Common stock $0.47 ($0.06)
Class A common stock $0.20 $0.02
Dividends declared per share
Common stock $0.385 $0.385
Class A common stock $0.80 $0.80
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CONECTIV
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CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 102,049 $ 65,884
Accounts receivable 484,073 455,088
Inventories, at average cost:
Fuel (coal, oil, and gas) 51,369 71,701
Materials and supplies 81,977 73,047
Prepaid New Jersey sales and excise taxes 641 20,078
Other prepayments 14,394 17,278
Deferred income taxes, net 31,453 20,796
------------ ------------
765,956 723,872
------------ ------------
INVESTMENTS
Investment in leveraged leases 121,901 122,256
Funds held by trustee 165,733 174,509
Other investments 118,019 90,913
------------ ------------
405,653 387,678
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PROPERTY, PLANT, and EQUIPMENT
Electric utility plant 5,678,398 5,649,827
Gas utility plant 251,670 249,383
Common utility plant 179,354 169,883
------------ ------------
6,109,422 6,069,093
Less: Accumulated depreciation 2,553,975 2,499,915
------------ ------------
Net utility plant in service 3,555,447 3,569,178
Utility construction work-in-progress 232,046 236,830
Leased nuclear fuel, at amortized cost 58,885 63,328
Nonutility property, net 227,094 208,215
Goodwill, net 401,918 402,836
------------ ------------
4,475,390 4,480,387
------------ ------------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs 43,583 48,274
Deferred recoverable income taxes 184,340 184,434
Unrecovered New Jersey state excise tax 33,204 35,594
Deferred debt refinancing costs 43,118 44,223
Deferred other postretirement benefit costs 34,353 34,978
Prepaid employee benefits costs 20,534 16,132
Unamortized debt expense 27,547 27,375
License fees 24,362 24,706
Other 76,543 80,021
------------ ------------
487,584 495,737
------------ ------------
TOTAL ASSETS $ 6,134,583 $ 6,087,674
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
CONECTIV
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CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $ 374,411 $ 376,061
Long-term debt due within one year 126,688 80,822
Variable rate demand bonds 125,100 125,100
Accounts payable 226,155 240,775
Taxes accrued 69,384 41,299
Interest accrued 39,949 37,346
Dividends payable 47,437 47,743
Deferred energy costs 51,572 15,990
Current capital lease obligation 28,202 28,314
Accrued employee separation and
other merger-related costs 7,468 12,173
Other 63,163 76,168
------------ ------------
1,159,529 1,081,791
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DEFERRED CREDITS AND OTHER LIABILITIES
Other postretirement benefits obligation 101,125 102,268
Deferred income taxes, net 875,618 862,179
Deferred investment tax credits 78,251 79,525
Long-term capital lease obligation 32,127 36,603
Other 54,209 50,702
------------ ------------
1,141,330 1,131,277
------------ ------------
CAPITALIZATION
Common stock: $0.01 per share par value;
150,000,000 shares authorized; shares outstanding--
100,589,287 in 1999, and 100,516,768 in 1998 1,008 1,007
Class A common stock, $0.01 par value;
10,000,000 shares authorized; shares outstanding--
6,560,612 in 1999, 6,560,612 in 1998 66 66
Additional paid-in capital--common stock 1,464,599 1,462,675
Additional paid-in capital--Class A common stock 107,095 107,095
Retained earnings 281,682 276,939
------------ ------------
1,854,450 1,847,782
Treasury shares, at cost:
186,010 shares in 1999; 185,030 shares in 1998 (3,819) (3,797)
Unearned compensation (2,421) (824)
------------ ------------
Total common stockholders' equity 1,848,210 1,843,161
Preferred stock of subsidaries:
Not subject to mandatory redemption 95,933 95,933
Subject to mandatory redemption 188,950 188,950
Long-term debt 1,700,631 1,746,562
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3,833,724 3,874,606
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TOTAL CAPITALIZATION AND LIABILITIES $ 6,134,583 $ 6,087,674
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
CONECTIV
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 48,695 $ (3,978)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 72,805 46,356
Allowance for equity funds used during construction (736) (332)
Investment tax credit adjustments, net (1,274) (852)
Deferred income taxes, net 2,876 2,169
Net change in:
Accounts receivable (28,497) 4,003
Inventories 11,467 11,726
Prepaid New Jersey sales and excise taxes 19,437 1,987
Accounts payable (14,693) (4,236)
Other current assets & liabilities (1) 49,707 45,259
Gain on sale of nonutility asset -- (1,246)
Other, net (10,801) (7,740)
---------- ----------
Net cash provided by operating activities 148,986 93,116
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (1,950) 12,264
Capital expenditures (58,909) (28,427)
Investments in partnerships (10,292) (1,919)
Sale of nonutility asset -- 5,617
Deposits to nuclear decommissioning trust funds (2,672) (2,659)
Decrease in bond proceeds held in trust funds 11,536 --
Other, net 1,600 1,006
---------- ----------
Net cash used by investing activities (60,687) (14,118)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock dividends paid (43,723) (23,606)
Issuances: Long-term debt -- 33,000
Common stock -- 63
Redemptions: Long-term debt (211) (158,532)
Common stock (22) (1,983)
Principal portion of capital lease payments (5,922) (2,465)
Net change in short-term debt (1,650) 106,625
Cost of issuances and refinancings (606) (444)
---------- ----------
Net cash used by financing activities (52,134) (47,342)
---------- ----------
Net change in cash and cash equivalents 36,165 31,656
Cash and cash equivalents at beginning of period 65,884 35,339
---------- ----------
Cash and cash equivalents at end of period $102,049 $ 66,995
========== ==========
</TABLE>
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Financial Statement Presentation
--------------------------------
Conectiv's consolidated condensed interim financial statements contained herein
include the accounts of Conectiv and its majority-owned subsidiaries and reflect
all adjustments necessary in the opinion of management for a fair presentation
of interim results. In accordance with regulations of the Securities and
Exchange Commission, disclosures which would substantially duplicate the
disclosures in Conectiv's 1998 Report on Form 10-K have been omitted.
Accordingly, Conectiv's consolidated condensed interim financial statements
contained herein should be read in conjunction with Conectiv's 1998 Report on
Form 10-K and Part II of this Report on Form 10-Q for additional relevant
information.
On March 1, 1998, Conectiv became a holding company that owns Delmarva Power &
Light Company (DPL), Atlantic City Electric Company (ACE) and other subsidiaries
(the Merger). Under the purchase method of accounting, with DPL as the acquirer
of Atlantic Energy, Inc. (Atlantic) and its subsidiaries, the Consolidated
Statement of Income for the three months ended March 31, 1998 includes one month
of results of operations for ACE and nonutility subsidiaries formerly owned by
Atlantic. For additional information about the Merger, see Note 4 to the
Consolidated Financial Statements included in Conectiv's 1998 Report on Form 10-
K. See Note 4 to the Consolidated Financial Statements of this report for
comparative pro forma information.
2. Investment Income
-----------------
ATE Investment, Inc. (ATE), a wholly-owned Conectiv subsidiary, holds a 94%
limited partner interest in Enertech Capital Partners, L.P. (Enertech).
Enertech is a venture capital fund which invests in energy-related technology
and service companies. Enertech records its investments at fair value and
includes gains and losses on changes in the fair value of its investments in
income in accordance with industry practice. Conectiv accounts for ATE's
investment in Enertech on the equity method of accounting. Conectiv's equity in
pre-tax earnings of Enertech for the first quarter of 1999 was $16.0 million
($9.4 million after-income taxes or $0.09 per common share). The pre-tax
earnings of $16.0 million are reported as "Other income" within the Consolidated
Statement of Income for the first quarter of 1999. Conectiv's equity in
earnings of Enertech was not significant in 1998. Due to the nature of
Enertech's investments, which include internet service companies, its earnings
may be volatile from period to period.
3. Employee Separation and Other Merger-Related Costs
--------------------------------------------------
In the first quarter of 1998, enhanced retirement offers and other employee
separation programs were utilized to reduce the workforces of DPL, ACE, and
other Conectiv subsidiaries. The costs for separated DPL employees and other
Merger-related costs expensed in the first quarter of 1998 were $40.6 million
before taxes, reducing net income and earnings per common share by $24.6
million and $0.33, respectively. The $40.6 million charge to expense was net of
a $32.5 million gain from curtailments and settlements of pension and other
postretirement benefits, based on actual settlements through March 31, 1998.
Employee separation, relocation, and other Merger-related costs for Atlantic and
its former subsidiaries were capitalized as costs of the Merger.
-5-
<PAGE>
4. Pro Forma Information (unaudited)
---------------------------------
Actual unadjusted operating results for the first quarter of 1999 and pro forma
unaudited financial information for the first quarter of 1998, giving effect to
the Merger as if it had occurred on January 1, 1998, are presented below. The
first quarter 1998 pro forma information has not been adjusted to exclude the
charge to earnings for employee separation and other Merger-related costs
incurred by DPL which reduced operating income, net income, earnings applicable
to common stock and earnings per average Conectiv common share by $40.6 million,
$24.6 million, $24.6 million, and $0.33, respectively. The pro forma
information presented below is not necessarily indicative of the results that
would have occurred, or that will occur in the future.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in Thousands, except ------------------------
per share amounts) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
(Actual) (Pro Forma)
Operating Revenues $946,585 $668,776
Operating Income $102,538 $43,197
Net Income / (Loss) $48,695 $(1,847)
Earnings / (Loss) Applicable to Common Stock:
Common stock $47,358 $(2,158)
Class A common stock $1,337 $311
Average common shares outstanding (000)
Common stock 100,532 101,005
Class A common stock 6,561 6,561
Basic and Diluted Earnings / (Loss) per average
share outstanding of:
Common stock $0.47 $(0.02)
Class A common stock $0.20 $0.05
</TABLE>
5. Rate Matters
------------
The following information updates the disclosures previously made in Note 6,
Rate Matters, to Conectiv's Consolidated 1998 Financial Statements included in
Conectiv's 1998 Report on Form 10-K.
Asset Impairments and Charges to Earnings
Management has made a preliminary estimate of the amount of stranded costs not
expected to be recovered through regulated electricity delivery rates after the
restructuring of the electric utility industry in the states in which ACE and
DPL operate. The New Jersey, Delaware, and Maryland public utility regulatory
commissions are expected to issue restructuring orders for ACE and DPL which
specify the amount and timing of stranded cost recovery by the following
expected dates: New Jersey--by June 30, 1999; Delaware--by August 31, 1999;
Maryland--by October 1, 1999. After the orders are received, the financial
impact of the restructurings, including charges to earnings, will be finalized
and recorded. When the restructuring orders become effective, the electricity
supply businesses of ACE and DPL will no longer be subject to the requirements
of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." The discussion below describes the
primary immediate expected effect on the results of operations of discontinuing
the application of SFAS No. 71 to these electricity supply businesses.
-6-
<PAGE>
To estimate the impairment of electric generating plants of DPL and ACE in
accordance with generally accepted accounting principles (GAAP), the book value
of each generating plant is first compared to the estimated future net operating
cash flows of each generating plant. Any electric generating plant with
undiscounted future net cash flows less than book value is considered impaired,
and the plant's net future cash flows are discounted. The amount by which the
book value of the impaired electric generating plants exceeds their discounted
cash flows (or other estimate of fair value) is the estimated impairment amount.
DPL has purchased power contracts expected to be uneconomic when customer choice
begins, and the stranded cost amount is estimated to be the net present value of
the contracts' costs less the forecasted revenues from sales of the purchased
power. ACE's purchased power contracts with independent power producers are not
expected to result in stranded costs because management expects the New Jersey
Board of Public Utilities' (NJBPU) restructuring order will provide for recovery
of costs incurred under these contracts.
The total amount that could be charged to earnings, on a consolidated basis,
includes (a) the impairment amount for the electric generating plants of DPL and
ACE, (b) the stranded cost amount for DPL's purchased power contracts, and (c)
regulatory assets of DPL and ACE related to their electric generation
businesses. The charge to earnings is reduced by the estimated cost recovery
through regulated electricity delivery rates. Based on this methodology, (giving
effect to estimated cost recoveries) management currently estimates future
charges to earnings, after taxes, as a result of electric utility industry
restructuring could be as follows:
<TABLE>
<S> <C>
DPL $300 million to $425 million
ACE $ 50 million to $ 75 million
----------------------------
Consolidated Conectiv $350 million to $500 million
============================
</TABLE>
Expected Sales of Electric Generating Plants
Management also expects to sell some or all of the electric generating plants of
DPL and ACE. After electric generating plants that are impaired as a result of
electric utility industry restructuring are written down to fair value, any
sales of the impaired electric generating plants are not expected to result in
significant gains or losses. Some of the electric generating plants which are
not impaired may be sold at a gain. Under GAAP, the write-down of impaired
assets is not reduced by expected future gains on sales of assets which are not
impaired by electric utility industry restructuring; the gain on the sale of an
asset is recognized when the sale occurs.
Under New Jersey electric utility restructuring legislation, any gains on sales
of ACE's electric generating plants reduce stranded cost recovery, which results
in no earnings effect when the gain is realized. DPL's agreements with some
participants in restructuring proceedings expected to be conducted by the
Delaware Public Service Commission (DPSC) and with some of the participants in
the proceedings being conducted by the Maryland Public service commission (MPSC)
provide that electric rates will not be changed in the event DPL sells or
transfers assets. Accordingly, subject to DPSC and MPSC approval of these
agreements, the Delaware and Maryland portions of any gains, or losses, realized
on the sale of DPL electric generating plants would affect future earnings.
There can be no assurances, however, that DPL or ACE will elect or be able to
sell any such electric generating plants, or that any gains will be realized
from such sales of electric generating plants.
After the sale of electric generating plants is completed, management estimates
that the net impact on retained earnings of asset impairments, stranded costs,
and asset sales to be a charge of approximately $300 million to $400 million.
New Jersey Electric Utility Restructuring Legislation
As previously reported, the Electric Discount and Energy Competition Act (the
New Jersey Act) was signed into law by the Governor of New Jersey on February 9,
1999. The New Jersey Act requires electric utilities to reduce their rates by
at least 5% at the start of retail choice (scheduled for August 1, 1999) and by
a total of 10% within 36 months of the start of choice. Assuming that the rate
reduction had been effective as of January 1, 1998, management estimates that
the impact on revenue of ACE from the initial rate reduction of 5% would have
been to decrease revenue during the fiscal year ended December 31, 1998 by
approximately $38 million.
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<PAGE>
Settlement discussions in the NJBPU restructuring proceeding for ACE are
ongoing.
Delaware Electric Utility Restructuring Legislation
As previously reported, the Delaware General Assembly passed the Electric
Utility Restructuring Act of 1999 (the Delaware Act) on March 25, 1999. On March
31, 1999, the Governor of Delaware signed the Delaware Act. Assuming that a 7.5%
rate reduction, as required by the Delaware Act, had been effective as of
January 1, 1998, management estimates that the impact on revenue of DPL would
have been to decrease revenue during the fiscal year ended December 31, 1998 by
approximately $17 million. The Delaware Act makes DPL the provider of default
service to customers who do not choose an alternative supplier for a period of 3
or 4 years for non-residential and residential customers, respectively.
Thereafter, the DPSC may conduct a bidding process to select the default
supplier(s) for such customers. The DPSC also has the authority under the
Delaware Act to order DPL to divest its generating assets, as a last resort, to
remedy any adverse effects of electricity supply market power. The DPSC also is
authorized to establish licensing standards for electricity suppliers. Unless
DPL asks the DPSC to makes these functions competitive earlier, and the DPSC so
orders, metering functions will be performed by DPL for 3 or 4 years after they
may choose their electricity suppliers, for non-residential customers and
residential customers, respectively. Among other matters, unbundled rates to be
charged by DPL during the "rate freeze" periods prescribed by the Delaware Act
have been agreed upon by a number of the participants in the restructuring
proceeding contemplated by the Delaware Act. Included within the agreement on
unbundled rates, which is subject to DPSC approval, DPL would recover $16
million (Delaware retail basis) of stranded costs, and electric rates would not
be changed in the event DPL sells or transfers generating assets.
Maryland Electric Utility Restructuring Legislation
On April 2, 1999, the Maryland General Assembly passed the Electric Utility
Industry Restructuring Act of 1999 (the Maryland Act). On April 8, 1999, the
Governor of Maryland signed the Maryland Act. The major elements of the
Maryland Act include the following:
(A) Phase-in of retail choice beginning in July 2000, with full choice for all
customers by July 2003;
(B) Rate reductions of 3% to 7.5% for residential customers with rates then held
constant for four years;
(C) The deregulation of generating assets sold to a non-affiliate or transferred
to an affiliate prior to January 1, 2001;
(D) Recovery of stranded costs and other costs associated with the transition to
retail choice through a method to be determined by the Maryland Public Service
Commission (MPSC);
(E) Imposition by the MPSC of an environmental surcharge on each kilowatt-hour
distributed in Maryland;
(F) The creation of a statewide fund for low-income assistance.
On May 5, 1999, DPL filed a proposed settlement with the MPSC in DPL's pending
restructuring proceeding. The proposed settlement is with some parties,
including the MPSC Staff and the Office of People's Counsel, but not all parties
to the proceeding. Included in the proposed settlement are the following
provisions: (i) effective July 1, 2000, all of DPL's Maryland-retail customers
will be eligible to select an alternative electricity supplier; (ii) for a
period of at least 3 years thereafter, DPL will remain the supplier of "standard
offer service" for customers who do not select an alternative electricity
supplier; (iii) agreed-upon unbundled rates (including nuclear decommissioning
costs and funding for low income energy assistance programs at an estimated
level of between $2 and $3 million per year); (iv) the deregulation of DPL's
generating facilities, such that electric rates would not be changed in the
event DPL sells or transfers generating assets (v) authorization to transfer DPL
generating assets to one or more affiliates at net book value; (vi) the recovery
of an estimated $8 million (Maryland retail basis) in stranded costs from non-
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<PAGE>
residential customers; (vii) a 7.5% reduction in residential rates effective
July 1, 2000 (representing a revenue reduction of approximately $12.5 million,
assuming fiscal year 1998 sales and revenue levels; and (viii) effective July 1,
2000, "rate freezes" for 4 years for residential customers and 3 years for non-
residential customers, subject to certain adjustments. In addition, under the
proposed settlement, effective July 1, 2000, DPL customers with loads in excess
of 300 kilowatts (kW) may elect to have meters installed and read by an
alternative supplier. Prior to that date, another MPSC proceeding will be
initiated to determine the level of and recovery mechanism for any DPL stranded
metering costs. Other DPL customers will be eligible for competitive metering on
April 1, 2002 as set forth in the Maryland Act.
The MPSC is expected to issue an order with respect to the proposed settlement
by October 1, 1999.
Virginia Electric Utility Industry Restructuring Legislation
As previously reported, electric utility restructuring legislation was
introduced in the Virginia General Assembly on January 21, 1999. The Virginia
General Assembly passed the Virginia Electric Utility Restructuring Act (the
Virginia Act) on March 25, 1999. On March 29, 1999, the Governor of Virginia
signed the Virginia Act.
6. Conectiv Class A Common Stock
-----------------------------
Earnings applicable to Conectiv Class A common stock are equal to 30% of the net
of (1) earnings attributable to ACE's regulated electric utility business, as
the business existed on August 9, 1996, less (2) $40 million per year. Earnings
applicable to Conectiv common stock are the consolidated earnings of Conectiv
less earnings applicable to Conectiv Class A common stock.
Summarized ACE financial information and the calculation of earnings applicable
to Conectiv Class A common stock are presented below and on the following page.
Under purchase method accounting, the Consolidated Conectiv Statement of Income
for the three months ended March 31, 1998 includes ACE's operating results for
the month of March 1998.
Summarized Financial Information of Atlantic City Electric Company
------------------------------------------------------------------
(Dollars in Thousands)(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended One Month
Income Statement Information March 31, 1999 March 1998
---------------------------- -------------- ------------
<S> <C> <C>
Operating revenues $243,438 $75,708
Operating income (loss) (1) $38,034 $(39,590)
Net income (loss) (1) $14,558 $(27,380)
December 31,
Balance Sheet Information March 31, 1999 1998
------------------------- -------------- ------------
Current assets $266,679 $236,177
Noncurrent assets 2,104,451 2,131,045
-------------- ------------
Total assets $2,371,130 $2,367,222
============== ============
Current liabilities $296,011 $236,546
Noncurrent liabilities 1,225,591 1,275,402
Preferred stock 125,181 125,181
Common stockholders' equity 724,347 730,093
-------------- ------------
Total capitalization and liabilities $2,371,130 $2,367,222
============== ============
</TABLE>
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<PAGE>
Computation of Earnings Applicable to Conectiv Class A Common Stock
-------------------------------------------------------------------
(Dollars in Thousands)(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended One Month
March 31, 1999 March 1998
-------------- ----------
<S> <C> <C>
Net earnings (loss) of ACE (1) $14,558 $(27,380)
Exclude:
Employee separation and other
Merger-related costs (1) -- 30,946
Net loss (income) of nonutility activities (102) 293
Pro-rata portion of fixed amount
of $40 million per year (10,000) (3,333)
-------------- ----------
Subtotal 4,456 526
Percentage applicable to Conectiv
Class A common stock 30% 30%
-------------- ----------
Earnings applicable to Conectiv
Class A common stock $1,337 $158
============== ==========
</TABLE>
(1) Employee separation and other Merger-related costs recorded in March 1998
reduced ACE's operating income by $51.5 million and net income by $30.9
million. In the Consolidated Conectiv Financial Statements, these costs
were capitalized as costs of the Merger.
7. Contingencies
-------------
Environmental Matters
- ---------------------
Conectiv's subsidiaries are subject to regulation with respect to the
environmental effects of their operations, including air and water quality
control, solid and hazardous waste disposal, and limitations on land use by
various federal, regional, state, and local authorities. Federal and state
statutes authorize governmental agencies to compel responsible parties to clean
up certain abandoned or uncontrolled hazardous waste sites. Costs may be
incurred to clean up facilities found to be contaminated due to past disposal
practices. Conectiv's current liabilities include $3.0 million as of March 31,
1999 and December 31, 1998, respectively, for potential clean-up and other costs
related to sites at which a Conectiv subsidiary is a potentially responsible
party or alleged to be a third party contributor. Conectiv does not expect such
future costs to have a material effect on its financial position or results of
operations.
Nuclear Insurance
- -----------------
In conjunction with the ownership interests of DPL and ACE in Peach Bottom
Atomic Power Station (Peach Bottom), Salem Nuclear Generating Station (Salem),
and Hope Creek Nuclear Generating Station (Hope Creek), DPL and ACE could be
assessed for a portion of any third-party claims associated with an incident at
any commercial nuclear power plant in the United States. Under the provisions
of the Price Anderson Act, if third-party claims relating to such an incident
exceed $200 million (the amount of primary insurance), DPL and ACE could be
assessed up to $57.0 million on an aggregate basis for such third-party claims.
In addition, Congress could impose a revenue-raising measure on the nuclear
industry to pay such claims.
-10-
<PAGE>
The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance
coverage of approximately $2.8 billion for each unit for loss or damage to the
units, including coverage for decontamination expense and premature
decommissioning. In addition, Conectiv is a member of an industry mutual
insurance company, which provides replacement power cost coverage in the event
of a major accidental outage at a nuclear power plant. Under these coverages,
Conectiv is subject to potential retrospective loss experience assessments of up
to $9.4 million on an aggregate basis.
8. Supplemental Cash Flow Information
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash paid for:
(Dollars in thousands)
Interest, net of amounts capitalized $34,489 $22,093
Income taxes, net of refunds $152 $939
</TABLE>
9. Business Segments
-----------------
The following information is presented in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Conectiv's business segments under SFAS No. 131 are as follows: Generation--
produces electricity and operates power plants; Merchant--purchases and sells
bulk energy; Power Delivery--delivers electricity and gas to customers at
regulated prices over transmission and distribution systems; All Other--includes
heating, ventilation, and air conditioning (HVAC), plumbing, telephone and other
services provided to homes and businesses; thermal heating and cooling systems
for large commercial and industrial customers; and various other businesses
which are not subject to price regulation.
Billings to electric and gas customers under regulated tariffs include amounts
for services provided by the Generation, Merchant, and Power Delivery business
segments. These revenues are allocated directly to the business segments based
on the cost of services provided. The Merchant business segment also earns
revenues from bulk energy sales to off-system customers in markets not subject
to price regulation.
The operating results for each business segment are evaluated based on a profit
measure called "contribution to corporate," which is equal to operating revenues
and other income less operating expenses other than corporate expenses. All
Other business segments' contribution to corporate for the three months ended
March 31, 1999 includes $16.0 million from ATE's investment in Enertech as
discussed in Note 2 to the Consolidated Financial Statements.
For the three months ended March 31, 1998, the business segment's revenues and
contribution to corporate include the January and February 1998 operating
results of the former Atlantic-owned companies and exclude Merger-related costs
charged to expense.
-11-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
--------------------------- ---------------------------
Contribution Contribution
Business Segments Revenues to Corporate Revenues to Corporate
- ----------------- ------------ ------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Energy:
Generation $221,694 $47,680 $196,502 $55,061
Merchant 511,952 518 290,857 (4,166)
Power Delivery 196,966 86,792 153,215 66,052
All Other 65,011 1,636 35,402 (15,069)
----------- ----------- ----------- -----------
$995,623(1) $136,626(2) $675,976(3) $101,878(4)
=========== =========== =========== ===========
</TABLE>
(1) Includes intercompany revenues which are eliminated in consolidation as
follows: Merchant business segment--$45,204; All Other business segments--
$3,834.
(2) The following items are subtracted from contribution to corporate to arrive
at consolidated income before income taxes: (a) $14,213 of corporate costs
not allocated to business segments, and (b) $40,404 of interest expense and
preferred dividends deducted after contribution to corporate.
(3) Includes the following which are excluded from consolidated revenues: (a)
$165,185 of revenues for January to February 1998 of the formerly Atlantic-
owned companies; (b) intercompany revenues of $5,204 in the Merchant
business segment; and (c) intercompany revenues of $1,996 in All Other
business segments.
(4) The following items are subtracted from contribution to corporate to arrive
at consolidated income before income taxes: (a) $20,914 for the January to
February 1998 contribution to corporate of the formerly Atlantic-owned
companies; (b) $40,623 of employee separation and other Merger-related
costs; (c) $19,045 of corporate expenses not allocated to business
segments; and (d) $25,200 of interest expense and preferred dividends
deducted after contribution to corporate.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Earnings Summary
- ----------------
Conectiv's consolidated operating results for the first quarter of 1999 include
three months of operating results for ACE and the nonutility businesses formerly
owned by Atlantic, whereas consolidated operating results for the first quarter
of 1998 include one month (March 1998) of operating results for these
businesses, in accordance with the purchase method of accounting.
Reported earnings applicable to Conectiv common stock were $47.4 million, or
$0.47 per average common share (100,532,000 average common shares) for the first
quarter of 1999, compared to a loss of $4.1 million, or $0.06 per average common
share (74,684,000 average common shares) in the first quarter of 1998. The
earnings per share dilution resulting from Conectiv common shares issued to
Atlantic stockholders on March 1, 1998 was offset by the additional two months
of net earnings contributed in the first quarter of 1999 by the former Atlantic-
owned companies.
First quarter 1999 earnings include equity in earnings of a limited partnership
investment of $0.09 per common share, and first quarter 1998 earnings reflect a
charge of $0.33 per common share for DPL employee separation costs and other
Merger-related costs. Excluding these two items, earnings per share of Conectiv
common stock were $0.38 for the first quarter of 1999 compared to $0.27 for the
first quarter of 1998. The $0.11 increase in earnings per common share (as
adjusted) was primarily attributed to (a) higher regulated retail electric and
gas sales, which increased mainly due to colder winter weather than last year,
and (b) lower utility operating and maintenance expenses exclusive of the two
additional months of ACE's operations, which decreased mainly due to Merger-
related reductions in the number of employees. The operations of Conectiv's
telecommunications business, HVAC business, and competitive retail energy
business resulted in a net after-tax loss of $9.2 million ($0.09 per common
share) in the first quarter of 1999 compared to a net after-tax loss of $6.6
million ($0.09 per common share) in the first quarter of 1998.
Earnings available for Conectiv Class A common stock were $1.3 million or $0.20
per Class A common share for the first quarter of 1999 compared to $0.2 million
or $0.02 per Class A common share for the first quarter of 1998. The increase
in Conectiv Class A common stock earnings was primarily attributed to the two
additional months of ACE's earnings. Average shares outstanding of Conectiv
Class A common stock were 6,560,612 in the first quarter of 1999 and 1998. For
additional information, see Note 6 to the Consolidated Financial Statements.
Electric Utility Industry Restructuring
- ---------------------------------------
Effect on Revenues
As previously reported, provisions for customer rate reductions included in
electric utility industry restructuring legislation become effective when
customer choice begins this year in New Jersey and Delaware, and next year in
Maryland. Without reflecting other factors, the initial reduction in Conectiv's
annual electric revenues due to the restructuring legislation rate reductions
implemented in 1999 and 2000 is estimated to be up to $68 million in total.
Management expects to offset substantially all of the revenue reductions with,
among other things, a productivity improvement and cost reduction program.
There can be no assurances, however, that Conectiv will be able to achieve its
productivity improvement and cost reduction goals under the program, or that
such productivity improvements and cost reductions as are achieved, will be
sufficient to offset these revenue reductions.
-13-
<PAGE>
Asset Impairments and Charges to Earnings
Management has made a preliminary estimate of the amount of stranded costs not
expected to be recovered through regulated electricity delivery rates after the
restructuring of the electric utility industry in the states in which ACE and
DPL operate. The New Jersey, Delaware, and Maryland public utility regulatory
commissions are expected to issue restructuring orders for ACE and DPL which
specify the amount and timing of stranded cost recovery by the following
expected dates: New Jersey--by June 30, 1999; Delaware--by August 31, 1999;
Maryland--by October 1, 1999. After the orders are received, the financial
impact of the restructurings, including charges to earnings, will be finalized
and recorded. When the restructuring orders become effective, the electricity
supply businesses of ACE and DPL will no longer be subject to the requirements
of SFAS No. 71. The discussion below describes the primary immediate expected
effect on the results of operations of discontinuing the application of SFAS No.
71 to these electricity supply businesses.
To estimate the impairment of the electric generating plants of DPL and ACE in
accordance with GAAP, the book value of each generating plant is first compared
to the estimated future net operating cash flows of each generating plant. Any
electric generating plant with undiscounted future net cash flows less than book
value is considered impaired, and the plant's net future cash flows are
discounted. The amount by which the book value of the impaired electric
generating plants exceeds their discounted cash flows (or other estimate of fair
value) is the estimated impairment amount.
DPL has purchased power contracts expected to be uneconomic when customer choice
begins, and the stranded cost amount is estimated to be the net present value of
the contracts' costs less the forecasted revenues from sales of the purchased
power. ACE's purchased power contracts with independent power producers are not
expected to result in stranded costs because management expects the New Jersey
Board of Public Utilities' (NJBPU) restructuring order will provide for recovery
of costs incurred under these contracts.
The total amount that could be charged to earnings, on a consolidated basis,
includes (a) the impairment amount for the electric generating plants of DPL and
ACE, (b) the stranded cost amount for DPL's purchased power contracts, and (c)
regulatory assets of DPL and ACE related to their electric generation
businesses. The charge to earnings is reduced by the estimated cost recovery
through regulated electricity delivery rates. Based on this methodology, (giving
effect to estimated cost recoveries) management currently estimates future
charges to earnings, after taxes, as a result of electric utility industry
restructuring could be as follows:
<TABLE>
<S> <C>
DPL $300 million to $425 million
ACE $ 50 million to $ 75 million
----------------------------
Consolidated Conectiv $350 million to $500 million
============================
</TABLE>
Expected Sales of Electric Generating Plants
Management also expects to sell some or all of the electric generating plants of
DPL and ACE. After electric generating plants that are impaired as a result of
electric utility industry restructuring are written down to fair value, any
sales of the impaired electric generating plants are not expected to result in
significant gains or losses. Some of the electric generating plants which are
not impaired may be sold at a gain. Under GAAP, the write-down of impaired
assets is not reduced by expected future gains on sales of assets which are not
impaired by electric utility industry restructuring; the gain on the sale of an
asset is recognized when the sale occurs.
-14-
<PAGE>
Under New Jersey electric utility restructuring legislation, any gains on sales
of ACE's electric generating plants reduce stranded cost recovery, which results
in no earnings effect when the gain is realized. DPL's agreements with some
participants in restructuring proceedings expected to be conducted by the DPSC
and with some of the participants in the proceedings being conducted by the
Maryland Public Service Commission (MPSC) provide that electric rates will not
be changed in the event DPL sells or transfers assets. Accordingly, subject to
DPSC and MPSC approval of these agreements, the Delaware and Maryland portions
of any gains, or losses, realized on the sale of DPL electric generating plants
would affect future earnings. There can be no assurances, however, that DPL or
ACE will elect or be able to sell any such electric generating plants, or that
any gains will be realized from such sales of electric generating plants.
After the sale of electric generating plants is completed, management estimates
that the net impact on retained earnings of asset impairment, stranded costs,
and asset sales to be a charge of approximately $300 million to $400 million.
Intent to Renegotiate Purchased Power Contracts
ACE has four NJBPU-approved long-term power purchase contracts with independent
power producers. ACE continues to negotiate buyouts and buydowns of these
contracts, which would be subjec to NJBPU and other approvals, including NJBPU
authorization to recover any contract buyout and buydown costs through the
issuance of transition bonds, as permitted by the New Jersey Act. The financial
commitments associated with such buyouts and buydowns could be substantial.
Management cannot currently predict the outcome of contract buyout and buydown
negotiations or the costs associated with such efforts. There can be no
assurances, moreover, that the NJBPU will approve the issance of transition
bonds for such costs or that ACE will be able to issue and sell any such bonds.
On May 7, 1999, ACE and an independent power producer, with which ACE has a
long-term power purchase contract, signed a letter of intent ("LOI") relating to
a transaction which could ultimately result in the termination of such existing
contract. The LOI calls for the negotiation of a definitive agreement and the
establishment of necessary arrangements associated with the termination. Upon
receipt of corporate and regulatory approvals (including NJBPU approval), the
agreement would require, among other things, a substantial payment to the
independent power producer (estimated to be in excess of $100 million).
Management cannot predict whether the LOI will result in the negotiation of a
definitive agreement or if such an agreement would receive the necessary
approvals.
New Jersey Electric Utility Industry Restructuring Legislation
As previously reported, the Electric Discount and Energy Competition Act (the
New Jersey Act) was signed into law by the Governor of New Jersey on February 9,
1999. The New Jersey Act requires electric utilities to reduce their rates by at
least 5% at the start of retail choice (scheduled for August 1, 1999) and by a
total of 10% within 36 months of the start of choice. Assuming that the rate
reduction had been effective as of January 1, 1998, management estimates that
the impact on revenue of ACE from the initial rate reduction of 5% would have
been to decrease revenue during the fiscal year ended December 31, 1998 by
approximately $38 million. Settlement discussions in the NJBPU restructuring
proceeding for ACE are ongoing.
Delaware Electric Utility Industry Restructuring Legislation
As previously reported, the Delaware General Assembly passed the Electric
Utility Restructuring Act of 1999 (the Delaware Act) on March 25, 1999. On
March 31, 1999, the Governor of Delaware signed the Delaware Act. Assuming that
a 7.5% rate reduction, as required by the Delaware Act, had been effective as of
January 1, 1998, management estimates that the impact on revenue of DPL would
have been to decrease revenue during the fiscal year ended December 31, 1998 by
approximtely $17 million. The Delaware Act makes DPL the provider of default
service to customers who do not choose an alternative supplier for a period of 3
or 4 years for non-residential and residential customers, respectively.
Thereafter, the DPSC may conduct a bidding process to select the default
supplier(s) for such customers. The DPSC also has the authority under the
Delaware Act to order DPL to divest its generating assets, as a last resort, to
remedy any adverse effects of electricity supply market power. The DPSC also is
authorized to establish licensing standards for electricity suppliers. Unless
DPL asks the DPSC to makes these functions competitive earlier, and the DPSC so
orders, metering functions will be performed by DPL for 3 or 4 years after they
may choose their electricity suppliers,
-15-
<PAGE>
for non-residential customers and residential customers, respectively. Among
other matters, unbundled rates to be charged by DPL during the "rate freeze"
periods prescribed by the Delaware Act have been agreed upon by a number of the
participants in the restructuring proceeding contemplated by the Delaware Act.
Included within the agreement on unbundled rates which is subject to DPSC
approval, DPL would recover $16 million (Delaware retail basis) of stranded
costs, and electric rates would not be changed in the event DPL sells or
transfers generating assets.
Maryland Electric Utility Industry Restructuring Legislation
On April 2, 1999, the Maryland General Assembly passed legislation to
restructure the electric utility industry (the Maryland Act). On April 8, 1999,
the Governor of Maryland signed the Maryland Act. The major elements of the
Maryland Act include the following:
(A) Phase-in of retail choice beginning in July 2000, with full choice for all
customers by July 2003;
(B) Rate reductions of 3% to 7.5% for residential customers, with rates then
held constant for four years;
(C) The deregulation of generating assets sold to a non-affiliate or transferred
to an affiliate prior to January 1, 2001;
(D) Recovery of stranded costs and other costs associated with the transition to
retail choice through a method to be determined by the MPSC;
(E) Imposition by the MPSC of an environmental surcharge on each kilowatt-hour
distributed in Maryland;
(F) The creation of a statewide fund for low-income assistance.
On May 5, 1999, DPL filed a proposed settlement with the MPSC in DPL's pending
restructuring proceeding. The proposed settlement is with some parties,
including the MPSC Staff and the Office of People's Counsel, but not all parties
to the proceeding. Included in the proposed settlement are the following
provisions: (i) effective July 1, 2000, all of DPL's Maryland-retail customers
will be eligible to select an alternative electricity supplier; (ii) for a
period of at least 3 years thereafter, DPL will remain the supplier of "standard
offer service" for customers who do not select an alternative electricity
supplier; (iii) agreed-upon unbundled rates (including nuclear decommissioning
costs and funding for low income energy assistance programs at an estimated
level of between $2 and $3 million per year); (iv) the deregulation of DPL's
generating facilities, such that electric rates would not be changed in the
event DPL sells or transfers generating assets (v) authorization to transfer DPL
generating assets to one or more affiliates at net book value; (vi) the recovery
of an estimated $8 million (Maryland retail basis) in stranded costs from non-
residential customers; (vii) a 7.5% reduction in residential rates effective
July 1, 2000 (representing a revenue reduction of approximately $12.5 million,
assuming fiscal year 1998 sales and revenue levels; and (viii) effective July 1,
2000, "rate freezes" for 4 years for residential customers and 3 years for non-
residential customers, subject to certain adjustments. In addition, under the
proposed settlement, effective July 1, 2000, DPL customers with loads in excess
of 300 kilowatts (kW) may elect to have meters installed and read by an
alternative supplier. Prior to that date, another MPSC proceeding will be
initiated to determine the level of and recovery mechanism for any DPL stranded
metering costs. Other DPL customers will be eligible for competitive metering on
April 1, 2002 as set forth in the Maryland Act.
The MPSC is expected to issue an order with respect to the proposed settlement
by October 1, 1999.
Virginia Electric Utility Industry Restructuring Legislation
As previously reported, electric utility restructuring legislation was
introduced in the Virginia General Assembly on January 21, 1999. The Virginia
General Assembly passed the Virginia Electric Utility Restructuring Act (the
Virginia Act) on March 25, 1999. On March 29, 1999, the Governor of Virginia
signed the Virginia Act. In 1998, revenues from DPL's Virginia customers
comprised less than 2% of consolidated Conectiv electric revenues earned from
regulated electricity sales.
-16-
<PAGE>
Restructuring Legislation Summary Chart
The chart below summarizes key elements of electric utility industry
restructuring legislation in New Jersey, Delaware, and Maryland, the principal
jurisdictions in which DPL and ACE provide electric service. See the following
page for notes to the restructuring legislation summary chart.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Note Legislative Provision New Jersey Delaware Maryland
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(1) Customer Choice All customers have choice Customers with
Begins beginning on 8/1/99 peak demands Choice Customer Choice
greater than: begins group begins
------------- ------ ------------------ --------
1000 kW 10/01/99 1/3 of residential 07/01/00
300 kW 01/15/00 All commercial
All others 10/01/00 & industrial 01/01/01
2/3 of residential 07/01/01
All others 07/01/01
- --------------------------------------------------------------------------------------------------------------------------
(2) Rate Reductions 5% for all customers effective 7.5% for residential custo- 3% - 7.5% for residential
8/1/99. An additional 5% mers, effective 10/1/99. customers effective 7/1/00.
effective by 8/1/02.
- --------------------------------------------------------------------------------------------------------------------------
(3) Estimated Decrease $38 million effective 8/1/99. $17 million $4.8 - $12.5 million
In Annual Revenues
Due To Rate
Reductions
- --------------------------------------------------------------------------------------------------------------------------
(4) Rate Freeze 4 years 4 years for residential 4 years for residential,
customers commercial, and industrial
3 years for commercial and customers
industrial customers
- --------------------------------------------------------------------------------------------------------------------------
(5) Stranded Cost
Recovery See note 5 (a) below. See note 5 (b) below. See note 5 (c) below.
- --------------------------------------------------------------------------------------------------------------------------
(6) Divestiture of Not required by the legislation. Not required by the Not required by the
Generation Assets Gains from divestiture of gen- legislation. legislation.
eration assets reduce the amount
of stranded costs recovered from
customers.
- --------------------------------------------------------------------------------------------------------------------------
(7) Securitization Yes No Yes
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
Notes to Restructuring Legislation Summary Chart
(1) Represents the dates on which electric customers can choose their
electricity supplier according to the schedules established by the
restructuring legislation, which are subject to change. (kW represents
kilowatt.)
(2) Represents the percentage reductions in customers' electric rates required
by the restructuring legislation. The proposed settlement filed in Maryland
provides for a 7.5% residential rate reduction.
(3) Represents the estimated decrease in annual electric revenues which will
occur when customer rates are reduced by the initial percentages required by
the restructuring legislation.
(4) Represents the "rate freeze" period, which begins when customer choice
becomes effective and after restructuring rate reductions are effective,
during which customer rates remain unchanged.
(5) (a) The New Jersey Act authorizes the NJBPU to permit electric utilities to
recover the full amount of their stranded costs through a non-bypassable
market transition charge, as long as mandated rate reductions are achieved.
The NJBPU is expected to issue a restructuring order for ACE by June 30,
1999. There can be no assurances, however, that the NJBPU will permit ACE to
recover the full amount of such stranded costs.
(b) DPL's settlement with some participants in restructuring proceedings
expected to be conducted by the DPSC provides for DPL's recovery of $16
million (on a Delaware retail basis) of stranded costs from non-residential
customers. There can be no assurances, however, that the DPSC will permit
DPL to recover such standed costs.
(c) Recovery of stranded costs and other costs associated with the
transition to retail choice is permitted through a method to be determined
by the MPSC. The proposed settlement provides for the recovery of an
estimated $8 million (Maryland retail basis) in stranded costs from non-
residential customers. There can be no assurances, however, that the MPSC
will permit DPL to recover such stranded costs.
(6) The sale of electric generating plants is not required by electric utility
restructuring legislation in New Jersey, Delaware, or Maryland. New
Jersey's regulatory treatment of a utility-initiated divestiture of
generation assets is indicated in the chart.
(7) "Securitization" refers to the issuance of debt securitized by the cash
flows collected from customers for stranded cost recovery. The New Jersey
Act and the Maryland Act provide for securitization; the Delaware Act does
not.
Delaware Retail Gas Pilot Program
On April 27, 1999, the DPSC approved DPL's plan for a Natural Gas Choice
Program. Beginning on July 15, 1999, 15,000 current DPL residential natural gas
customers and 1,500 current DPL commercial natural gas customers will be able to
choose a natural gas supplier other than DPL. DPL's large commercial and
industrial customers already have the ability to choose their natural gas
suppliers.
-18-
<PAGE>
Electric Revenues
- -----------------
Details of the changes in the various components of electric revenues for the
first quarter of 1999 compared to the first quarter of 1998 are shown below
(dollars in millions):
<TABLE>
<CAPTION>
Consolidated
Conectiv ACE DPL
------------ ------- ------
<S> <C> <C> <C>
Non-energy (base rate) revenues $ 93.0 $ 87.4 $ 5.6
Energy revenues 63.9 65.7 (1.8)
Interchange delivery revenues 32.9 15.6 17.3
Revenues from sales not subject
to price regulation 19.4 (2.0) 21.4
------ ------ -----
Total $209.2 $166.7 $42.5
====== ====== =====
</TABLE>
Consolidated electric revenues increased by $209.2 million, from $354.1 million
for the first quarter of 1998 to $563.3 million for the first quarter of 1999.
Merger-related customer base rate decreases reduced the increase in non-energy
(or base rate) revenues by approximately $2.4 million. As shown in the table
above, ACE's electric revenues included in consolidated Conectiv electric
revenues increased $166.7 million, primarily due to inclusion of two additional
months of ACE's operating results in the current period. On a pro forma basis,
as though Conectiv's operating results included ACE's operations beginning
January 1, 1998, regulated electric retail kilowatt-hour (kWh) sales and
customers increased 5.8% and 1.4%, respectively. The pro forma sales increase
was primarily due to colder winter weather, which caused greater kWh usage than
last year for heating.
Currently, energy and interchange delivery revenues generally do not affect net
income due to energy adjustment clauses. After restructuring becomes effective,
gross margins from supplying electricity (energy supply revenues less energy
costs) to current DPL customers are expected to affect earnings. The New Jersey
energy adjustment clause is expected to be superseded by provisions contained in
the New Jersey Act which permit Basic Generation Service (BGS) suppliers full
and timely recovery of their costs. The Act also authorizes the NJBPU to allow
the deferral and subsequent recovery of BGS costs if necessary for attainment of
the rate reductions required by the New Jersey Act. Regulations governing BGS
are expected to be promulgated by the NJBPU prior to beginning retail choice of
electricity suppliers in New Jersey.
Revenues from electric sales not subject to price regulation increased $19.4
million, mainly due to more output sold off-system through DPL's Merchant
business. Gross margin percentages earned in markets not subject to price
regulation are generally lower than the gross margin percentages earned in
regulated retail markets due to product differences, greater volume per
customer, and unregulated pricing.
-19-
<PAGE>
Gas Revenues
- ------------
Total gas revenues increased by $176.1 million, from $115.8 million to $291.9
million. Details of the changes in the various components of gas revenues for
the first quarter of 1999 compared to the first quarter of 1998 are shown below
(dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Non-energy (base rate) revenues $ 2.3
Energy revenues 5.3
Revenues from sales not subject
to price regulation 168.5
------
Total $176.1
======
</TABLE>
The increases shown above for non-energy and energy gas revenues were primarily
due to a 15.1% increase in residential gas sales (based on cubic feet sold) due
to colder winter weather which caused more cubic feet of gas to be used to
operate heating systems. Gas energy revenues generally do not affect net income
due the energy adjustment clause, as discussed in Conectiv's 1998 report on Form
10-K, under "Gas Regulatory Matters" on page I-13.
Gas revenues from sales not subject to price regulation increased $168.5 million
mainly due to higher volumes of bulk gas sales. The margin earned from non-
price regulated gas sales in excess of related purchased gas costs is relatively
small mainly due to the competitive nature of bulk commodity sales.
Other Services Revenues
- -----------------------
Other service revenues were comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
------------------
<S> <C> <C>
Fuel oil and gasoline $37.5 $ --
HVAC 26.7 20.3
Telecommunications 6.1 0.4
Thermal systems 5.9 2.0
Operation of power plants 5.8 5.5
Solutions (1) 4.7 1.8
Other 4.7 3.7
----- -----
Total $91.4 $33.7
===== =====
</TABLE>
(1) Refer to page I-3 of Conectiv's 1998 Report on Form 10-K for a description
of this business.
As shown in the preceding table, other services revenues increased to $91.4
million in the first quarter of 1999, from $33.7 million in the first quarter of
1998. The $57.7 million revenue increase was mainly due to $37.5 million of
first quarter 1999 revenues from a business which sells fuel oil and gasoline
and was acquired by Conectiv late in the first quarter of 1998. Revenues also
increased due to additional acquisitions of HVAC businesses, expansion of
Conectiv's telecommunications and energy solutions businesses, and two
additional months of operating results from the district heating and cooling
business of Conectiv Thermal Systems, Inc. Conectiv Communications, Inc. had
sold about 42,000 access line equivalents as of March 31, 1999 in comparison to
32,000 access line equivalents as of December 31, 1998.
-20-
<PAGE>
Operating Expenses
- ------------------
Electric Fuel and Purchased Energy
Electric fuel and purchased energy increased $92.9 million in the first quarter
of 1999, with the additional two months of ACE's operations in the current
period accounting for $50.3 million of the total increase. The remaining $42.6
million of the increase was primarily due to more energy supplied for greater
volumes of electricity sold off-system and within DPL's and ACE's service
territories.
Gas Purchased
Gas purchased increased from $98.6 million to $271.6 million mainly due to
larger volumes of gas purchased for resale off-system and to satisfy higher on-
system sales demand due to the colder winter weather.
Other Services Cost of Sales
Other services cost of sales increased by $50.2 million primarily due to the
business acquisitions and expansions discussed under "Other Services Revenues."
Purchased Electric Capacity
Purchased electric capacity costs increased $27.5 million due to inclusion of
the two additional months of ACE's operations in the first quarter 1999.
Employee Separation and Other Merger-Related Costs
The costs for separated DPL employees and other Merger-related costs expensed in
the first quarter of 1998 were $40.6 million before taxes, reducing net income
and earnings per common share by $24.6 million and $0.33, respectively.
Employee separation, relocation, and other Merger-related costs for Atlantic's
former subsidiaries were capitalized as costs of the Merger.
Operation and Maintenance Expenses
After excluding the $35.5 million of operation and maintenance expenses
attributed to the two additional months of ACE's operations included in the
first quarter of 1999, operation and maintenance expenses decreased by $4.8
million. This decrease resulted from a $15.1 million decrease for utility
operations, which was substantially offset by a $10.3 million increase for
nonutility operations. Utility operations benefited from fewer employees, cost
control measures, and other Merger synergies. The increase for nonutility
operations was primarily due to expansion of the telecommunications business and
also reflects higher expenses due to acquisitions and other business growth.
Depreciation and Taxes Other than Income Taxes
Depreciation and taxes other than income taxes increased principally due to
inclusion of the two additional months of operating results of ACE and other
former Atlantic-owned businesses in the first quarter of 1999.
-21-
<PAGE>
Other Income
- ------------
Other income reflects a $16.0 million increase due to ATE's equity in earnings
of an investment partnership (Enertech). This investment contributed $9.4
million to net income and $0.09 to earnings per common share. Due to the nature
of Enertech's investments, which include internet service companies, its
earnings may be volatile from period to period.
Financing Costs
- ---------------
Financing costs reflected in the Consolidated Statements of Income include
interest charges, allowance for funds used during construction (AFUDC), and
preferred stock dividend requirements of subsidiaries. Financing costs
increased $14.3 million primarily due to inclusion of two additional months of
operating results of ACE and other former Atlantic-owned businesses in the first
quarter of 1999.
Year 2000
- ----------
The Year 2000 issue is the result of computer programs and embedded systems
using a two-digit format, as opposed to four digits, to indicate the year.
Computer and embedded systems with this characteristic may be unable to
interpret dates during and beyond the year 1999, which could cause a system
failure or other computer errors, leading to disruption of operations. A
project team, originally started in 1996 by ACE, is managing Conectiv's response
to this situation. A Conectiv corporate officer, reporting directly to the
Chief Executive Officer, is coordinating all Year 2000 activities. There are
substantial challenges in identifying and correcting the computer and embedded
systems critical to generating and delivering power, delivering natural gas and
providing other services to customers.
The project team is using a phased approach to managing its activities. The
first phase is inventory and assessment of all systems, equipment, and
processes. Each identified item was given a criticality rating of high, medium
or low. Those items rated as high or medium are then subject to the second
phase of the project. The second phase is determining and implementing
corrective action for the systems, equipment and processes, and concludes with a
test of the unit being remediated. The third phase is system testing and
compliance certification. Additionally, the project team is updating existing
outage contingency plans to address Year 2000 issues.
Overall, Conectiv's Year 2000 Project covers approximately 140 different systems
(some with numerous components) that had been originally identified as high or
medium in criticality. However, only 21 of those 140 systems are essential for
Conectiv to provide electric and gas service to its customers. The Year 2000
Project team is focusing on these 21 systems, with additional work on the other
systems continuing based on their relative importance to Conectiv's businesses.
The following chart sets forth the current estimated completion percentage of
the 140 different systems in the Year 2000 Project by major business group, and
for the information technology systems used in managing Conectiv's business.
Conectiv expects to continue to see significant progress in remediation and
testing over the next quarter based on work that is in process and material that
has been ordered or already received.
-22-
<PAGE>
<TABLE>
<CAPTION>
Inventory and Corrective Action/ System Testing/
Business Group Assessment Unit Testing Compliance
- -------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Business systems 100% 95% 75%
Power production 100% 55% 40%
Electricity distribution 100% 55% 15%
Gas delivery 100% 90% 90%
Competitive services 100% 100% 50%-90%
</TABLE>
Conectiv is also contacting vendors and service providers to review remediation
of their Year 2000 issues. Many aspects of Conectiv's businesses are dependent
on third parties. For example, fuel suppliers must be able to provide coal or
gas to allow Conectiv's subsidiaries to generate electricity.
Distribution of electricity is dependent on the overall reliability of the
electric grid. ACE and DPL are cooperating with the North American Electric
Reliability Council (NERC) and the PJM Interconnection in Year 2000 remediation
and contingency planning efforts. Recent reports issued by NERC indicate a
diminished risk of disruption to the electric grid caused by Year 2000 issues.
Conectiv's Year 2000 Project timeline is generally in-line with the
recommendations of those groups. Two small DPL generating units for which
remediation will be complete by June, 1999, are scheduled for testing in
September to coincide with a previously scheduled outage. These units represent
about 4% of Conectiv's generating capacity and will be tested earlier if an
appropriate outage occurs. Testing that has already taken place at similar
units that have been remediated indicated no Year 2000 problems.
In addition, Conectiv participated in the first of two NERC drills on April 9,
1999; a small number of manageable issues were identified and are being
addressed. The Company will also participate in the second NERC drill set for
September 9, 1999 and will conduct its own drill.
Conectiv has incurred approximately $5.7 million in costs for the Year 2000
Project. Current estimates of the costs for the Year 2000 Project range from
$10 million to $15 million. These estimates could change significantly as the
Year 2000 Project progresses. The costs set forth above do not include several
significant expenditures covering new systems, such as Conectiv's SAP business,
financial and human resources management system and an Energy Control System.
While these new systems effectively remediated Year 2000 problems in the systems
they replaced, Conectiv is not reporting the expenditures on these systems in
its costs for the Year 2000 Project, because the new systems were installed
principally for other reasons.
Since the project team is still in the process of assessing and correcting
impacted systems, equipment and processes, Conectiv cannot with certainty
determine whether the Year 2000 issue might cause disruptions to its operations
and impact related costs and revenues. Conectiv assesses the status of the Year
2000 Project on at least a monthly basis to determine the likelihood of
disruption. Based on its own Year 2000 program, as well as reports from NERC
and other utilities, Conectiv's management believes it is unlikely that
significant Year 2000 related disruption will occur. However, any substantial
disruption to Conectiv's operations could negatively impact Conectiv's revenues,
significantly impact its customers and could generate legal claims against
Conectiv. Conectiv's results of operations and financial position would likely
suffer an adverse impact if other entities, such as suppliers, customers and
service providers do not effectively address their Year 2000 issues.
-23-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased by $36.2 million during the first quarter of
1999. Operating activities provided $149.0 million of net cash which was used
primarily to pay for $58.9 million of capital expenditures and $43.7 million of
common dividends.
Net cash provided by operating activities for the first quarter of 1999
increased by $55.9 million from the first quarter of 1998. The increase was
primarily due to the two additional months of ACE's operations included in the
consolidated financial statements, cost reductions, and higher electric and gas
revenues, net of amounts paid for related energy costs.
Primarily due to over-collections of energy costs from utility customers,
Conectiv's consolidated liability for deferred energy costs was $51.6 million as
of March 31, 1999. These over-collections of energy costs will be returned to
customers via lower energy rates, which will reduce net cash provided by
operating activities as the energy businesses of DPL and ACE are restructured.
Capital expenditures for the first quarter of 1999 were $58.9 million compared
to $28.4 million for the first quarter of 1998. The $30.5 million increase in
capital expenditures was primarily due to construction of a new customer service
center, higher expenditures for other shared infrastructure assets, and
expansion of Conectiv Communications, Inc.'s telecommunications system. The
$10.3 million of "Investments in partnerships" reflects Conectiv Thermal
Systems' share of funding for construction of the "Venetian" project in Las
Vegas, Nevada, and investments in Enertech by ATE.
Common dividends paid increased from $23.6 million for the first quarter of 1998
to $43.7 million for the first quarter of 1999, mainly due to the additional
shares of common stock outstanding in the first quarter of 1999 due to the
Merger.
Conectiv's capital structure as of March 31, 1999 and December 31, 1998,
expressed as a percentage of total capitalization is shown below.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Common stockholders' equity 46.7% 46.1%
Preferred stock of subsidiaries 7.2% 7.1%
Long-term debt and variable rate demand bonds 46.1% 46.8%
</TABLE>
Current maturities of long-term debt increased $45.9 million primarily due to
scheduled maturities of ACE's Medium Term Notes.
Conectiv, the holding company, increased its credit lines with banks from $500
million as of December 31, 1998, to $800 million as of March 31, 1999. Two
credit agreements provide the $800 million of borrowing capability as follows:
(a) a $300 million credit agreement which has a five-year term that expires in
February 2003; and (b) a $500 million credit agreement which has a one-year term
that expires in February 2000.
-24-
<PAGE>
Conectiv's ratio of earnings to fixed charges under the SEC Method are shown
below.
<TABLE>
<CAPTION>
12 Months
Ended
March 31, Year Ended December 31,
--------- -------------------------
1999 1998 1997 1996 1995
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (SEC Method) 2.71 2.38 2.63 2.83 2.92
</TABLE>
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act)
provides a "safe harbor" for forward-looking statements to encourage such
disclosures without the threat of litigation, provided those statements are
identified as forward-looking and are accompanied by meaningful, cautionary
statements identifying important factors that could cause the actual results to
differ materially from those projected in the statement. Forward-looking
statements have been made in this report. Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used herein, the words "will," "anticipate,"
"estimate," "expect," "believe," and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions and other
factors referred to specifically in connection with such forward-looking
statements, factors that could cause actual results to differ materially from
those contemplated in any forward-looking statements include, among others, the
following: deregulation of energy supply and the unbundling of delivery
services; an increasingly competitive marketplace; results of any asset
dispositions; sales retention and growth; federal and state regulatory actions;
future litigation results; costs of construction; operating restrictions;
increased costs and construction delays attributable to environmental
regulations; nuclear decommissioning and the availability of reprocessing and
storage facilities for spent nuclear fuel; and credit market concerns. Conectiv
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing list of factors pursuant to the Litigation Reform Act should not
be construed as exhaustive or as any admission regarding the adequacy of
disclosures made prior to the effective date of the Litigation Reform Act.
-25-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information
- --------------------------
The following information updates the disclosure regarding Air Quality
Regulations on page I-15 of Conectiv's 1998 Report on Form 10-K.
On March 1, 1999, the State of Delaware Department of Natural Resources and
Environmental Control (DNREC) re-issued final "post-RACT" NOx control
regulations requiring attainment of summer seasonal emission reductions of up to
65% below 1990 levels by May 1999 through reduced emissions or the procurement
of NOx emission allowances. DPL is working toward compliance with the
regulations by installing control technology and trying to secure NOx
allowances. The short time period between initial proposal of the regulations
in October 1997 and the May 1999 compliance date, uncertainty regarding the
successful implementation of control technologies in the short term, inadequate
time for development of an allowance trading market and the regulations'
stringent penalties for non-compliance, have prompted DPL to challenge the
regulations before the Environmental Appeals Board and in Delaware Superior
Court. Management cannot predict the outcome of this litigation.
Similar post-RACT regulations issued in Maryland were vacated in February 1999
by the Maryland Circuit Court for Baltimore City in response to a challenge by
other Maryland utilities. Accordingly, DPL's Maryland units are not required to
comply with post-RACT requirements during the 1999 summer ozone season.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
- --------
Exhibit 10-A, $500 million, 364 Day Credit Agreement, dated February 19, 1999
Exhibit 10-B, $300 million, Five Year Credit Agreement, dated February 4, 1998
Exhibit 12, Ratio of Earnings to Fixed Charges
Exhibit 27, Financial Data Schedule
Reports on Form 8-K
- -------------------
On January 26, 1999, Conectiv filed a Report on Form 8-K under Item 5, Other
Events, concerning proposed legislation to restructure the electric utility
industry in Delaware.
On February 17, 1999, Conectiv filed a report on Form 8-K under Item 5, Other
Events, concerning proposed legislation to restructure the electric utility
industry in New Jersey.
On April 14, 1999, Conectiv filed a report on Form 8-K under Item 5, Other
Events, updating developments concerning electric utility industry restructuring
legislation in Delaware, Maryland, and Virginia.
-26-
<PAGE>
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.
Conectiv
------------
(Registrant)
Date: May 10, 1999 /s/ John C. van Roden
------------ ----------------------------------------
John C. van Roden, Senior Vice President
and Chief Financial Officer
<PAGE>
================================================================================
CREDIT AGREEMENT
(364-DAY)
among
CONECTIV
The Several Lenders
from Time to Time Parties Hereto,
FIRST UNION NATIONAL BANK,
as Syndication Agent,
NATIONSBANK, N.A.,
as Documentation Agent,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
Dated as of February 19, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS.................................................1
1.1 Defined Terms..................................................1
1.2 Other Definitional Provisions.................................16
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS............................16
2.1 Revolving Credit Commitments..................................16
2.2 Procedure for Revolving Credit Borrowing......................17
2.3 Commitment Fee................................................17
2.4 Termination or Reduction of Commitments.......................17
2.5 Repayment of Loans; Evidence of Debt..........................18
2.6 Optional Prepayments..........................................18
2.7 Conversion and Continuation Options...........................19
2.8 Minimum Amounts and Maximum Number of Tranches................19
2.9 Interest Rates and Payment Dates..............................20
2.10 Computation of Interest and Fees.............................20
2.11 Inability to Determine Interest Rate.........................21
2.12 Pro Rata Treatment and Payments..............................21
2.13 Illegality...................................................22
2.14 Requirements of Law..........................................22
2.15 Taxes........................................................24
2.16 Indemnity....................................................25
2.17 Change of Lending Office.....................................26
2.18 Extension of Maturity Date...................................26
2.19 Telephonic Notices...........................................27
SECTION 3. LETTERS OF CREDIT..........................................27
3.1 L/C Commitment................................................27
3.2 Procedure for Issuance of Letters of Credit...................28
3.3 Fees and Other Charges........................................28
3.4 L/C Participations............................................29
3.5 Reimbursement Obligation of the Borrower......................30
3.6 Obligations Absolute..........................................30
3.7 Letter of Credit Payments.....................................31
3.8 Application...................................................31
<PAGE>
Page
----
SECTION 4. REPRESENTATIONS AND WARRANTIES............................32
4.1 Financial Condition..........................................32
4.2 No Change....................................................32
4.3 Corporate Existence; Compliance with Law.....................32
4.4 Corporate Power; Authorization; Enforceable Obligations......32
4.5 No Legal Bar.................................................33
4.6 No Material Litigation.......................................33
4.7 Ownership of Property; Liens.................................33
4.8 Taxes........................................................33
4.9 Federal Regulations..........................................34
4.10 ERISA.......................................................34
4.11 Investment Company Act......................................34
4.12 Purpose of Loans............................................34
4.13 Environmental Matters.......................................34
4.14 Year 2000 Problem...........................................35
SECTION 5. CONDITIONS PRECEDENT......................................35
5.1 Conditions to Effectiveness..................................35
5.2 Conditions to Initial Extension of Credit....................36
5.3 Conditions to Each Extension of Credit.......................36
SECTION 6. AFFIRMATIVE COVENANTS.....................................37
6.1 Financial Statements.........................................37
6.2 Certificates; Other Information..............................38
6.3 Payment of Obligations.......................................39
6.4 Conduct of Business and Maintenance of Existence.............39
6.5 Maintenance of Property; Insurance...........................39
6.6 Inspection of Property; Books and Records; Discussions.......39
6.7 Notices......................................................40
6.8 Investment Strategy..........................................40
6.9 Year 2000....................................................40
SECTION 7. NEGATIVE COVENANTS........................................40
7.1 Maintenance of Indebtedness to Capitalization Ratio..........40
7.2 Limitation on Liens..........................................41
7.3 Limitation on Fundamental Changes............................42
7.4 Limitation on Sale of Assets.................................42
7.5 Maintenance of Aggregate Availability........................43
<PAGE>
Page
----
SECTION 8. EVENTS OF DEFAULT.........................................43
SECTION 9. THE AGENTS................................................47
9.1 Appointment; Nature of Relationship..........................47
9.2 Powers.......................................................47
9.3 General Immunity.............................................47
9.4 No Responsibility for Loans, Recitals, etc...................48
9.5 Action on Instructions of Lenders............................48
9.6 Employment of Administrative Agents and Counsel..............48
9.7 Reliance on Documents; Counsel...............................49
9.8 Administrative Agent's Reimbursement and Indemnification.....49
9.9 Notice of Default............................................49
9.10 Rights as a Lender..........................................49
9.11 Lender Credit Decision......................................50
9.12 Successor Administrative Agent..............................50
9.13 Administrative Agent's Fee..................................51
9.14 Delegation to Affiliates....................................51
9.15 The Syndication Agent, the Documentation Agent and
the Arranger...............................................51
SECTION 10. MISCELLANEOUS............................................51
10.1 Amendments and Waivers......................................52
10.2 Notices.....................................................52
10.3 No Waiver; Cumulative Remedies..............................53
10.4 Survival of Representations and Warranties..................53
10.5 Payment of Expenses and Taxes...............................53
10.6 Successors and Assigns; Participations and Assignments......54
10.7 Adjustments; Set-off........................................57
10.8 Counterparts................................................58
10.9 Severability................................................58
10.10 Integration................................................58
10.11 Governing Law..............................................58
10.12 Submission To Jurisdiction; Waivers........................58
10.13 Nonliability of Lenders....................................59
10.14 Waivers of Jury Trial......................................59
10.15 Confidentiality............................................60
10.16 Termination of Existing Credit Agreement...................60
<PAGE>
SCHEDULES
- ---------
I Commitments
II Pennsylvania Transition Bond Statute
4.4 Consents
7.2 Liens
EXHIBITS
- --------
A Form of Note
B Form of Extension Request
C Form of Opinion of General Counsel to the Borrower
D Form of Assignment and Acceptance
E Form of Confidentiality Agreement
<PAGE>
CREDIT AGREEMENT (364-Day), dated as of February 19, 1999 is among
CONECTIV, a Delaware corporation (the "Borrower"), various financial
--------
institutions (together with their respective successors and assigns,
individually each as "Lender" and collectively the "Lenders"), FIRST UNION
-------
NATIONAL BANK, as Syndication Agent, NATIONSBANK, N.A., as Documentation Agent,
and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate of interest per annum equal to the greater
---
of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal
Funds Effective Rate for such day plus 1/2% per annum.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"ACE": Atlantic City Electric Company, a New Jersey corporation.
---
"Administrative Agent": The First National Bank of Chicago in its
--------------------
capacity as contractual representative of the Lenders pursuant to Section
9, and not in its individual capacity as a Lender, and any successor
Administrative Agent appointed pursuant to Section 9.
"Administrative Questionnaire": an Administrative Questionnaire
----------------------------
completed by a Lender and delivered to the Administrative Agent in a form
supplied by the Administrative Agent.
"Affiliate": as to any Person, any other Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or indirectly,
either to direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Aggregate Availability": at any time, (a) the sum of (i) the
----------------------
aggregate amount of the Commitments and (ii) the aggregate amount of the
Commitments (as defined therein) under the Other Credit Agreement minus (b)
the sum of (i) the aggregate amount of the Loans and L/C Obligations then
outstanding, (ii) the aggregate amount of the Loans (as
<PAGE>
defined therein) under the Other Credit Agreement minus (b) the sum of (i)
the aggregate amount of the Loans and L/C Obligations then outstanding,
(ii) the aggregate amount of the Loans (as defined therein) and L/C
Obligations (as defined therein) then outstanding under the Other Credit
Agreement and (iii) the aggregate principal amount of commercial paper of
the Borrower and its Subsidiaries then outstanding.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any
------------------------------------------
time, an amount equal to the sum of (a) the aggregate principal amount of
all Loans made by such Lender then outstanding and (b) such Lender's
Commitment Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": with respect to each Type of Revolving Credit
-----------------
Loan, for any day, the rate per annum set forth below, under the column
applicable to such Type, opposite the Rating in effect on such day:
<TABLE>
<CAPTION>
Applicable Margin
Rating Applicable Margin for Applicable Margin
--------- for Eurodollar for C/D
(S&P/Moody's) ABR Loans Loans Rate Loans
--------- ----- ----------
==================================================================================================
<S> <C> <C> <C>
Level 1
-------
at least A+/A1 0% 0.500% 0.625%
- --------------------------------------------------------------------------------------------------
Level 2
-------
less than A+/A1;
at least A-/A3 0 0.625% 0.750%
- --------------------------------------------------------------------------------------------------
Level 3
-------
less than A-/A3; 0 0.750% 0.875%
at least BBB+/Baa1
- --------------------------------------------------------------------------------------------------
Level 4
-------
less than BBB+/Baa1; 0 0.875%
at least BBB/Baa2 1.000%
- --------------------------------------------------------------------------------------------------
Level 5
-------
less than BBB/Baa2 0 1.000% 1.125%
==================================================================================================
</TABLE>
In addition, (a) at any time that the outstanding principal amount of
all Loans and L/C Obligations exceeds 1/3 of the aggregate amount of the
Commitments, the Applicable Margin for Eurodollar Loans and C/D Rate Loans
(at all levels) shall be increased by 0.125%; and (b) at any time that the
outstanding principal amount of all Loans and L/C Obligations exceeds 2/3
of the aggregate amount of the Commitments, the Applicable Margin for
Eurodollar Loans and C/D Rate Loans (at all levels) shall be increased by
an additional 0.125% (for a total increase of 0.250%).
2
<PAGE>
"Application": an application, in such form as the Issuing Bank may
-----------
specify from time to time, requesting the Issuing Bank to open a Letter of
Credit.
"Arranger": First Chicago Capital Markets, Inc., a Delaware
--------
corporation, and its successors.
"Assignee": as defined in subsection 10.6(c).
--------
"Available Commitment": as to any Lender, at any time, an amount
--------------------
equal to the excess, if any, of (a) such Lender's Commitment over (b) such
Lender's Aggregate Outstanding Extensions of Credit.
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
subsection 2.2 as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"Business Day": (i) with respect to any borrowing, payment or rate
------------
selection of Eurodollar Loans, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which
dealings in United States dollars are carried on in the London interbank
market and (ii) for all other purposes, a day (other than a Saturday or
Sunday) on which banks generally are open in Chicago for the conduct of
substantially all of their commercial lending activities.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"C/D Assessment Rate": for any day as applied to any C/D Rate Loan,
-------------------
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
----
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. (S) 327.4 (or any successor
provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D Base Rate": with respect to each day during each Interest Period
-------------
pertaining to a C/D Rate Loan, the rate of interest per annum equal to the
average rate bid at 9:00 A.M., New York City time, or as soon thereafter as
practicable, on the first day of such Interest Period by a total of three
certificate of deposit dealers of recognized standing selected by First
Chicago for the purchase at face value from First Chicago of its
3
<PAGE>
certificates of deposit in an amount comparable to the C/D Rate Loan of
First Chicago to which such Interest Period applies and having a maturity
comparable to such Interest Period.
"C/D Rate": with respect to each day during each Interest Period
--------
pertaining to a C/D Rate Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
C/D Base Rate + C/D Assessment Rate
-----------------------
1.00 - C/D Reserve Percentage
"C/D Rate Loans": Loans the rate of interest applicable to which is
--------------
based upon the C/D Rate.
"C/D Reserve Percentage": for any day as applied to any C/D Rate
----------------------
Loan, that percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) (the "Board"), for determining the maximum reserve
-----
requirement for a Depositary Institution (as defined in Regulation D of the
Board) in respect of new non-personal time deposits in Dollars having a
maturity comparable to the Interest Period for such C/D Rate Loan.
"Closing Date": the date on which the conditions precedent set forth
------------
in subsection 5.2 shall be satisfied.
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Loans to and/or issue or participate in Letters of Credit issued on behalf
of the Borrower hereunder in an aggregate principal and/or face amount at
any one time outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule I.
"Commitment Expiration Date": as defined in subsection 2.18(a).
--------------------------
"Commitment Fee Rate": for any day, the rate per annum set forth
-------------------
below opposite the Rating in effect on such day:
=======================================
Rating Commitment
(S&P/Moody's) Fee Rate
=======================================
Level 1
-------
at least A+/A1 0.100%
- ---------------------------------------
Level 2
-------
less than A+/A1;
at least A-/A3 0.125%
- ---------------------------------------
4
<PAGE>
- ---------------------------------------
Level 3 0.150%
-------
less than A-/A3;
at least BBB+/Baa1
- ---------------------------------------
Level 4
-------
less than BBB+/Baa1;
at least BBB/Baa2 0.200%
- ---------------------------------------
Level 5
-------
less than BBB/Baa2 0.250%
=======================================
"Commitment Percentage": as to any Lender at any time, the percentage
---------------------
which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans and participations in L/C Obligations then outstanding
constitutes of the aggregate principal amount of the Loans and L/C
Obligations then outstanding).
"Commitment Period": the period from and including the date hereof to
-----------------
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Consolidated Total Indebtedness": at any date of determination, the
-------------------------------
sum of (a) all then outstanding Indebtedness of the Borrower and its
Subsidiaries plus (b) all Guarantee Obligations of the Borrower and its
Subsidiaries in respect of Indebtedness of Persons other than the Borrower
and its Subsidiaries, all as determined on a consolidated basis in
accordance with GAAP; provided, that any Nonrecourse Transition Bond Debt
--------
shall be excluded in determining Consolidated Total Indebtedness.
"Consolidated Total Capitalization": at any date of determination
---------------------------------
with respect to the Borrower and its Subsidiaries on a consolidated basis
in accordance with GAAP, the sum of (i) the amount classified as common
shareholders' equity for purposes of balance sheet presentation in
accordance with GAAP, plus (ii) the amount classified as preferred stock
----
for purposes of balance sheet presentation in accordance with GAAP, plus
----
(iii) Consolidated Total Indebtedness, less (iv) unamortized capital stock
----
expenses.
5
<PAGE>
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Corporate Base Rate": a rate per annum determined by the
-------------------
Administrative Agent to be the corporate base rate of interest announced by
First Chicago from time to time, changing when and as such corporate base
rate changes (the corporate base rate identified above not being intended
to be the lowest rate of interest charged by First Chicago in connection
with extensions of credit to debtors).
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Delmarva": Delmarva Power & Light Company, a Delaware and Virginia
--------
corporation.
"Documentation Agent": NationsBank, N.A., in its capacity as
-------------------
documentation agent for the Lenders
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Domestic Dollar Loans": the collective reference to C/D Rate Loans
---------------------
and ABR Loans.
"Effective Date": the date on which the conditions precedent set
--------------
forth in subsection 5.1 shall be satisfied.
"Environmental Laws": any and all federal, state, local and foreign
------------------
statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental
restrictions relating to (i) the protection of the environment, (ii) the
effect of the environment on human health, (iii) emissions, discharges or
releases of pollutants, contaminants, hazardous substances or wastes into
surface water, ground water or land or (iv) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Materials or wastes or the clean-up or
other remediation thereof.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic,
6
<PAGE>
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate appearing on Page 3750 of
the Dow Jones Markets Page (or on any successor or substitute page of such
Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such
Service, as determined by the Administrative Agent form time to time for
purposes of providing quotations of interest rates applicable to Dollar
deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time
for any reason, then the "Eurodollar Base Rate" with respect to such
--------------------
Eurodollar Loan for such Interest Period shall be the rate per annum equal
to the rate at which the principal London office of First Chicago offers
to place Dollar deposits at or about 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period with first-class banks
in the London interbank market for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time,
--------
or both, or any other condition, has been satisfied.
"Existing Credit Agreement": the existing 364-day credit agreement,
-------------------------
dated as of February 4, 1998, among the Borrower, various financial
institutions, Canadian Imperial Bank of Commerce, New York Agency, as
Syndication Agent, First Union National Bank, as Documentation Agent, and
The First National Bank of Chicago, as Administrative Agent.
7
<PAGE>
"Federal Funds Effective Rate": for any day, an interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is
not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations at
approximately 10:00 a.m. (Chicago time) on such day on such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by the Administrative Agent in its sole
discretion.
"Financing Lease": any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"First Chicago: The First National Bank of Chicago in its individual
-------------
capacity, and its successors.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Granting Lender": as defined in subsection 10.6.
---------------
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
-------------------
(the "primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
--------
however, that the term Guarantee
-------
8
<PAGE>
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of
(a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b)
the maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which
such guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"Hazardous Materials" means all explosive or radioactive substances
-------------------
or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any
nature regulated pursuant to any Environmental Law.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person under Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person and
(e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intangible Transition Property": assets that are of a type similar
------------------------------
to those described as "intangible transition property" in the Pennsylvania
Transition Bond Statute and that are described in a public utility law
applicable to the Borrower or any of its Subsidiaries adopted subsequent to
the date hereof.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December, (b) as to any Eurodollar Loan having
an Interest Period of three months or less and any C/D Rate Loan having an
Interest Period of 90 days or less, the last day of such Interest Period,
and (c) as to any Eurodollar Loan or C/D Rate Loan having an Interest
Period longer than three months or 90 days, respectively, each
9
<PAGE>
day which is three months or 90 days, respectively, or a whole multiple
thereof, after the first day of such Interest Period and the last day of
such Interest Period.
"Interest Period": (a) with respect to any Eurodollar Loan:
---------------
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six months thereafter, as selected by
the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then
current Interest Period with respect thereto;
and (b) with respect to any C/D Rate Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such C/D Rate
Loan and ending 30, 60, 90 or 180 days thereafter, as selected by the
Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such C/D Rate Loan
and ending 30, 60, 90 or 180 days thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than two Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
--------
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) if any Interest Period pertaining to a C/D Rate Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day;
10
<PAGE>
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(4) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(5) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan or C/D Rate
Loan during an Interest Period for such Loan.
"Investment Strategy": as defined in subsection 5.1(f).
-------------------
"Issuing Bank": First Chicago in its capacity as issuer of Letters of
------------
Credit.
"L/C Commitment": $200,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to subsection 3.5(a).
"L/C Participants": the collective reference to all the Lenders other
----------------
than, in the case of any Letter of Credit, the Issuing Bank.
"Lender": as defined in the preamble hereto.
------
"Letters of Credit": as defined in subsection 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any Financing Lease having substantially the same economic effect as
any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loans": as defined in subsection 2.1.
-----
11
<PAGE>
"Loan Documents": this Agreement, any Notes and the Applications.
--------------
"Majority Lenders": at any time, Lenders the Commitment Percentages
----------------
of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
financial condition, results of operations, assets or business of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Moody's": Moody's Investors Service, Inc.
-------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes": as defined in subsection 2.15.
------------------
"Nonrecourse Transition Bond Debt": obligations evidenced by
--------------------------------
Transition Bonds rated investment grade or better by S&P or Moody's,
representing a securitization of Intangible Transition Property as to which
obligations neither the Borrower nor any Subsidiary of the Borrower (other
than a Special Purchase Subsidiary) has any direct or indirect liability
(whether as primary obligor, guarantor, or surety, provider of collateral
security, put option, asset repurchase agreement or capital maintenance
agreement, debt subordination agreement, or through other right or
arrangement of any nature providing direct or indirect assurance of payment
or performance of any such obligations in whole or in part), except for
liability to repurchase Intangible Transition Property conveyed to the
securitization vehicle, on terms and conditions customary in receivables
securitizations, in the event such Intangible Transition Property violates
representations and warranties of scope customary in receivables
securitizations.
"Note": as defined in subsection 2.5(e).
----
"Objecting Lender": as defined in subsection 2.18(a).
----------------
"Obligations": all unpaid principal of and accrued and unpaid
-----------
interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Administrative Agent or any indemnified party
arising under the Loan Documents.
"Other Credit Agreement": the Credit Agreement (Five Year), dated as
----------------------
of February 4, 1998, among the Borrower, the several lenders from time to
time parties
12
<PAGE>
thereto, Canadian Imperial Bank of Commerce, as syndication agent, First
Union National Bank, as documentation agent and The First National Bank of
Chicago, as administrative agent, as amended, supplemented or otherwise
modified from time to time.
"Other Objecting Lender": as defined in subsection 2.18(c).
----------------------
"Participant": as defined in subsection 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA.
"Pennsylvania Transition Bond Statute": 66 Pa. C.S.A. (S) 2812 as in
------------------------------------
effect on the date hereof (a copy of which is attached hereto as Schedule
II).
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Rating": at any time, the lowest rating (actual or implied) by
------
either Rating Agency of the senior, long-term, secured, non credit-enhanced
debt of either ACE or Delmarva. For purposes of the foregoing, (i) if
either Moody's or S&P shall not have in effect a rating relating to either
ACE or Delmarva (other than by reason of the circumstances referred to in
the last sentence of this definition), then such Rating Agency shall be
deemed to have established a rating less than BBB, in the case of S&P, and
less than Baa2, in the case of Moody's; (ii) if the ratings established or
deemed to have been established by Moody's and S&P shall fall within
different "Levels" (as set forth in the tables contained in the definitions
of "Applicable Margin" and "Commitment Fee Rate"), the Rating shall be
based on the lower of the two ratings; and (iii) if any rating established
by Moody's or S&P shall be changed (other than as a result of a change in
the rating system of Moody's or S&P), such change shall be effective as of
the date on which it is first announced by the applicable Rating Agency.
Each change in the "Rating" shall apply during the period commencing on the
effective date of such change and ending on the date immediately preceding
the effective date of the next such change. If the rating system of
Moody's or S&P shall change, or if either such Rating Agency shall cease to
be in the business of rating corporate debt obligations, the Borrower and
the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from
such Rating Agency, and, pending the effectiveness of
13
<PAGE>
any such amendment, the "Rating" shall be determined by reference to the
"Rating" most recently in effect prior to such change or cessation.
"Rating Agency": each of Moody's and S&P.
-------------
"Register": as defined in subsection 10.6(d).
--------
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Bank pursuant to subsection 3.5(a) for amounts drawn
under Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC
Reg. (S) 4043.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": each of the chief executive officer, the
-------------------
president and the treasurer of the Borrower or, with respect to financial
matters, the chief financial officer of the Borrower.
"S&P": Standard & Poor's Ratings Group.
---
"Significant Subsidiary": as defined in Rule 1-02(w) under Regulation
----------------------
S-X of the United States Securities and Exchange Commission (or any
successor), as the same may be amended or supplemented from time to time.
Unless otherwise qualified, all references to a "Significant Subsidiary" or
to "Significant Subsidiaries" in this Agreement shall refer to a
Significant Subsidiary or Significant Subsidiaries of the Borrower.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"SPC": as defined in subsection 10.6.
---
14
<PAGE>
"Special Purpose Subsidiary": a direct or indirect wholly owned
--------------------------
corporate Subsidiary of the Borrower, substantially all of the assets of
which are Intangible Transition Property and proceeds thereof, formed
solely for the purpose of holding such assets and issuing Transition Bonds
and, which complies with the requirements customarily imposed on
bankruptcy-remote corporations in receivables securitizations.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"Syndication Agent": First Union National Bank, in its capacity as
-----------------
syndication agent for the Lenders.
"Termination Date": February 18, 2000 or such later date to which the
----------------
Termination Date shall be extended in accordance with subsection 2.18.
"Tranche": the collective reference to Eurodollar Loans or C/D Rate
-------
Loans the then current Interest Periods with respect to all of which begin
on the same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day); Tranches may be
identified as "Eurodollar Tranches" or "C/D Rate Tranches", as applicable.
------------------- -----------------
"Transferee": as defined in subsection 10.6(f).
----------
"Transition Bonds": bonds that are of a type similar to those
----------------
described as "transition bonds" in the Pennsylvania Transition Bond Statute
and that are described in a public utility law applicable to the Borrower
or any of its Subsidiaries adopted subsequent to the date hereof.
"Type" as to any Loan, its nature as an ABR Loan, a Eurodollar Loan
----
or a C/D Rate Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
15
<PAGE>
"Year 2000 Problem": means the risk that computer applications and
-----------------
embedded microchips in non-computing devices may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999.
"Year 2000 Program": as defined in subsection 4.14.
-----------------
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto (other than the Letters of Credit).
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Lender severally agrees to make revolving credit loans
("Loans") to the Borrower from time to time during the Commitment Period in an
-----
aggregate principal amount at any one time outstanding which, when added to such
Lender's Commitment Percentage of the then outstanding L/C Obligations, does not
exceed the amount of such Lender's Commitment. During the Commitment Period the
Borrower may use the Commitments by borrowing, prepaying the Loans in whole or
in part, and reborrowing, all in accordance with the terms and conditions
hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans, (iii) C/D Rate Loans or (iv) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with subsections
2.2 and 2.7, provided that no Revolving Credit Loan shall be made as a
--------
Eurodollar Loan or a C/D Rate Loan after the day that is one month or 30 days,
respectively, prior to the Termination Date.
16
<PAGE>
2.2 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Commitments during the Commitment Period on any Business Day,
provided that the Borrower shall give the Administrative Agent irrevocable
- --------
notice (which notice must be received by the Administrative Agent prior to 10:00
A.M., Chicago time, (a) three Business Days prior to the requested Borrowing
Date, if all or any part of the requested Loans are to be initially Eurodollar
Loans, (b) two Business Days prior to the requested Borrowing Date, if all or
any part of the requested Loans are to be initially C/D Rate Loans, or (c) on
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans, C/D Rate Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of Eurodollar Loans or C/D
Rate Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Periods therefor. Each borrowing under the
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then
Available Commitments are less than $5,000,000, such lesser amount) and (y) in
the case of Eurodollar Loans or C/D Rate Loans, $5,000,000 or a whole multiple
of $1,000,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its pro rata share of each borrowing
available to the Administrative Agent for the account of the Borrower at the
office of the Administrative Agent specified in subsection 10.2 prior to 11:00
A.M., Chicago time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be
made available to the Borrower by the Administrative Agent crediting the account
of the Borrower on the books of such office with the aggregate of the amounts
made available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.3 Commitment Fee. The Borrower agrees to pay to the Administrative
--------------
Agent for the account of each Lender a commitment fee for the period from and
including the first day of the Commitment Period through but excluding the
Termination Date, computed at the Commitment Fee Rate on the average daily
amount of the Available Commitment of such Lender during the period for which
payment is made, payable quarterly in arrears on the last day of each March,
June, September and December and on the Termination Date or such earlier date as
the Commitments shall terminate as provided herein, commencing on the first of
such dates to occur after the date hereof.
2.4 Termination or Reduction of Commitments. The Borrower shall have
---------------------------------------
the right, upon not less than five Business Days' notice to the Administrative
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments, provided that no such termination or reduction shall be
--------
permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, (a) the aggregate principal amount of the
Loans then outstanding, when added to the then outstanding L/C Obligations,
would exceed the Commitments then in effect or (b) the Aggregate Availability
would be less than zero. Any such reduction shall be in an amount equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce
permanently the Commitments then in effect.
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<PAGE>
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in subsection 2.9.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 10.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Revolving Credit Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 2.5(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing the Loans of such Lender,
substantially in the form of Exhibit A with appropriate insertions as to date
and principal amount (a "Note").
----
2.6 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Loans, in whole or in part, without premium or penalty, upon
at least three Business Days' irrevocable notice to the Administrative Agent,
specifying the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans, C/D Rate Loans, ABR Loans or a combination thereof, and, if of
a combination thereof, the amount allocable to each. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
pursuant to subsection 2.16 and accrued
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<PAGE>
interest to such date on the amount prepaid. Partial prepayments shall be in an
aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in
excess thereof.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans or C/D Rate Loans to ABR Loans,
and/or to convert Eurodollar Loans or ABR Loans to C/D Rate Loans, by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans or C/D Rate
--------
Loans may only be made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to convert ABR Loans or C/D
Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three
Business Days' prior irrevocable notice of such election, provided that any such
--------
conversion of C/D Rate Loans may, subject to the third succeeding sentence, only
be made on the last day of an Interest Period with respect thereto. Any such
notice of conversion to Eurodollar Loans or C/D Rate Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
Lender thereof. If the last day of the then current Interest Period with
respect to C/D Rate Loans that are to be converted to Eurodollar Loans is not a
Business Day, such conversion shall be made on the next succeeding Business Day,
and during the period from such last day to such succeeding Business Day such
Loans shall bear interest as if they were ABR Loans. All or any part of
outstanding Eurodollar Loans, ABR Loans and C/D Rate Loans may be converted as
provided herein, provided that (i) no Loan may be converted into a Eurodollar
--------
Loan or a C/D Rate Loan when any Event of Default has occurred and is continuing
and the Administrative Agent has or the Majority Lenders have determined that
such a conversion is not appropriate and (ii) no Loan may be converted into a
Eurodollar Loan or a C/D Rate Loan after the date that is one month or 30 days,
respectively, prior to the Termination Date.
(b) Any Eurodollar Loans or C/D Rate Loans may be continued as such
upon the expiration of the then current Interest Period with respect thereto by
the Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
provided that no Eurodollar Loan or C/D Rate Loan may be continued as such (i)
- --------
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Lenders have determined that such a continuation is
not appropriate or (ii) after the date that is one month or 30 days prior to,
respectively, the Termination Date and provided, further, that if the Borrower
-------- -------
shall fail to give such notice or if such continuation is not permitted such
Loans shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings,
----------------------------------------------
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising (i) each Eurodollar Tranche shall be equal to $5,000,000
or a whole multiple of $1,000,000 in excess thereof and (ii)
19
<PAGE>
each C/D Rate Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof. In no event shall there be more than 16 Eurodollar
Tranches or 16 C/D Rate Tranches outstanding at any time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) Each C/D Rate Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the C/D Rate
determined for such day plus the Applicable Margin.
(d) If all or a portion of (i) any principal of any Loan, (ii) any
interest payable thereon, (iii) any commitment fee, (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise) or (v) any other Event of Default shall have occurred
and be continuing, the principal of the Loans and any such overdue interest,
commitment fee or other amount shall bear interest at a rate per annum which is
(x) in the case of principal, the rate that would otherwise be applicable
thereto pursuant to the foregoing provisions of this subsection plus 2% or (y)
in the case of any such overdue interest, commitment fee or other amount, the
rate described in paragraph (b) of this subsection plus 2%, in each case from
the date of such non-payment until such overdue principal, interest, commitment
fee or other amount is paid in full (as well after as before judgment).
(e) Interest shall be payable in arrears on each Interest Payment
Date and on the Termination Date, provided that interest accruing pursuant to
--------
paragraph (d) of this subsection shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Commitment fees and,
--------------------------------
whenever it is calculated on the basis of the Corporate Base Rate, interest
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed; and, otherwise, interest shall be calculated
on the basis of a 360-day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders of each
determination of a Eurodollar Rate or of a C/D Rate. Any change in the interest
rate on a Loan resulting from a change in the ABR, the Eurocurrency Reserve
Requirements, the C/D Assessment Rate or the C/D Reserve Percentage shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
20
<PAGE>
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a written statement showing the quotations used by the Administrative
Agent in determining any interest rate pursuant to subsection 2.9(a) or (c).
2.11 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate or the
C/D Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate or the C/D Rate determined or to
be determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such Interest
Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans or C/D Rate Loans, as the case may be, requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans that were to have been converted on the first day of such Interest
Period to Eurodollar Loans or C/D Rate Loans, as the case may be, shall be
converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans
or C/D Rate Loans, as the case may be, that were to have been continued as such
on such first day shall be converted on such day to ABR Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans or C/D Rate Loans, as the case may be, shall be made or continued as such,
nor shall the Borrower have the right to convert Loans to Eurodollar Loans or
C/D Rate Loans, as the case may be.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of the
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans then held by the Lenders.
All payments (including prepayments) to be made by the Borrower hereunder,
whether on account of principal, interest, fees or otherwise, shall be made
without set off, counterclaim or other deduction and shall be made prior to
12:00 Noon, Chicago time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in subsection 10.2, in Dollars and in immediately available funds. The
21
<PAGE>
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to
the Administrative Agent by the required time on the Borrowing Date therefor,
such Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Administrative Agent
by such Lender within three Business Days of such Borrowing Date, the
Administrative Agent shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from
the Borrower.
2.13 Illegality. Notwithstanding any other provision herein, if the
----------
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Domestic Dollar Loans to Eurodollar Loans shall forthwith be canceled
and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall
be converted automatically to ABR Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs
on a day which is not the last day of the then current Interest Period with
respect thereto, the Borrower shall pay to such Lender such amounts, if any, as
may be required pursuant to subsection 2.16.
2.14 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note, any Letter of Credit, any Application
or any Eurodollar Loan or C/D Rate Loan made by it, or change the basis of
taxation of payments to such Lender in
22
<PAGE>
respect thereof (except for Non-Excluded Taxes covered by subsection 2.15
and changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate or the C/D Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or C/D Rate Loans or issuing or
participating in Letters of Credit or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable within 15 days following
notification of such increased cost or reduced amount receivable pursuant to
subsection 2.14(c) below, provided that such increased cost or reduced amount
--------
receivable shall be compensated only to the extent incurred during the 90 day
period prior to the notification of the Borrower by such Lender of such
increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction within 15 days following notification of such
reduction pursuant to subsection 2.14(c) below, provided that such reduction
--------
shall be compensated only to the extent incurred during the 90 day period prior
to the notification of the Borrower by such Lender of such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower (with a copy
to the Administrative Agent) of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of
23
<PAGE>
manifest error. The agreements in this subsection shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Taxes. (a) All payments made by the Borrower under this
-----
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any Note). If any such non-
excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
------------------
payable to the Administrative Agent or any Lender hereunder or under any Note,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement, provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A) two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the case
may be;
24
<PAGE>
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 9.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
2.16 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans or C/D Rate Loans after
the Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans or C/D Rate Loans on a day which is not the last day of an Interest Period
with respect thereto. Such indemnification may include an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
25
<PAGE>
2.17 Change of Lending Office. Each Lender agrees that if it makes
------------------------
any demand for payment under subsection 2.14 or 2.15(a), or if any adoption or
change of the type described in subsection 2.13 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 2.14 or
2.15(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 2.13.
2.18 Extension of Maturity Date. (a) Not less than 60 days and not
--------------------------
more than 90 days prior to the Termination Date then in effect, provided that no
Event of Default shall have occurred and be continuing, the Borrower may request
an extension of such Termination Date by submitting to the Administrative Agent
an Extension Request containing the information in respect of such extension
specified in Exhibit B, which the Administrative Agent shall promptly furnish to
each Lender. Each Lender shall, not less than 30 days and not more than 45 days
prior to the Termination Date then in effect, notify the Borrower and the
Administrative Agent of its election to extend or not extend the Termination
Date as requested in such Extension Request. Notwithstanding any provision of
this Agreement to the contrary, any notice by any Lender of its willingness to
extend the Termination Date shall be revocable by such Lender in its sole and
absolute discretion at any time prior to the date which is 30 days prior to the
Termination Date then in effect. If the then Majority Lenders shall approve in
writing the extension of the Termination Date requested in such Extension
Request, the Termination Date shall automatically and without any further action
by any Person be extended for the period specified in such Extension Request;
provided that (i) each extension pursuant to this subsection shall be for a
- --------
maximum of 364 days and (ii) the Commitment of any Lender that does not consent
in writing to such extension not less than 30 days and not more than 45 days
prior to the Termination Date then in effect (an "Objecting Lender") shall,
----------------
unless earlier terminated in accordance with this Agreement, expire on the
Termination Date in effect on the date of such Extension Request (such
Termination Date, if any, referred to as the "Commitment Expiration Date" with
--------------------------
respect to such Objecting Lender). If, not less than 30 days and not more than
45 days prior to the Termination Date then in effect, the then Majority Lenders
shall not approve in writing the extension of the Termination Date requested in
an Extension Request, the Termination Date shall not be extended pursuant to
such Extension Request. The Administrative Agent shall promptly notify (y) the
Lenders and the Borrower of any extension of the Termination Date pursuant to
this subsection and (z) the Borrower and each other Lender of any Lender which
becomes an Objecting Lender.
(b) Loans owing to any Objecting Lender on the Commitment Expiration
Date with respect to such Lender shall be repaid in full on or before such
Commitment Expiration Date.
(c) The Borrower may, at its sole expense and effort, upon notice to
any Objecting Lender or any Lender who is an "Objecting Lender" as defined in
the Other Credit Agreement (an "Other Objecting Lender") and the Administrative
----------------------
Agent, require such Objecting
26
<PAGE>
Lender or Other Objecting Lender, as the case may be, to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in subsection 10.6), all its interests, rights and obligations under this
Agreement to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that (i) the
--------
Borrower shall have received the prior written consent of the Administrative
Agent and the Issuing Bank (unless such Objecting Lender or Other Objecting
Lender is the Administrative Agent or an Issuing Bank, in which case its consent
shall not be required), which consents shall not unreasonably be withheld, (ii)
such Objecting Lender or Other Objecting Lender, as the case may be, shall have
received payment of an amount equal to the outstanding principal of its Loans
and participations in Letter of Credit disbursements, accrued interest thereon,
accrued fees and all other amounts payable to it hereunder, from the assignee
(to the extent of such outstanding principal and accrued interest and fees) or
the Borrower (in the case of all other amounts).
(d) For a period of 90 days following any extension of the
Termination Date pursuant to this subsection 2.18, the Borrower may, at its sole
expense and effort, upon notice to the Administrative Agent, cause additional
banks or other financial institutions to become parties hereto as Lenders to
replace the Commitments of Objecting Lenders no longer parties hereto, provided
--------
that the aggregate Commitments shall not exceed the aggregate Commitments
existing prior to such extension. Such additional banks or other financial
institutions shall be subject to the approval of the Administrative Agent and
the Issuing Bank (the consent of which will not be unreasonably withheld) and
shall become parties hereto by executing such supplements hereto as shall be
satisfactory to the Borrower and the Administrative Agent. Upon any such bank
or other financial institution so becoming a Lender the Borrower will effect
such borrowings and prepayments as are necessary to cause all then outstanding
Loans to be held ratably by all the Lenders.
2.19 Telephonic Notices. The Borrower hereby authorizes the Lenders
------------------
and the Administrative Agent to extend, convert or continue Loans, effect
selections of Types of Loans and to transfer funds based on telephonic notices
made by any person or persons the Administrative Agent or any Lender in good
faith believes to be a Responsible Officer or manager of corporate markets
acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the
Administrative Agent a written confirmation, if such confirmation is requested
by the Administrative Agent or any Lender, of each telephonic notice signed by a
Responsible Officer. If the written confirmation differs in any material respect
from the action taken by the Administrative Agent and the Lenders, the records
of the Administrative Agent and the Lenders shall govern absent manifest error.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment.
--------------
27
<PAGE>
(a Subject to the terms and conditions hereof, the Issuing Bank, in
reliance on the agreements of the other Lenders set forth in subsection 3.4(a),
agrees to issue letters of credit ("Letters of Credit") for the account of the
-----------------
Borrower on any Business Day during the Commitment Period in such form as may be
approved from time to time by the Issuing Bank; provided that the Issuing Bank
--------
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or
(ii) the Available Commitment of any Lender would be less than zero.
(b Each Letter of Credit shall:
(i0 be denominated in Dollars and shall be a standby letter of credit
------------------------
issued to support obligations of the Borrower or any Subsidiary, contingent
or otherwise, and
(ii0 expire no later than the earlier of (A) the date that is 364
days from the date of issue of such Letter of Credit and (B) the date which
is ten days prior to the Termination Date.
(c Each Letter of Credit shall be subject to the Uniform Customs or
The International Standby Practices (ISP98) and, to the extent not inconsistent
therewith, the laws of the State of New York.
(d) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit.
-------------------------------------------
The Borrower may from time to time request that the Issuing Bank issue
a Letter of Credit by delivering to the Issuing Bank at its address for notices
specified herein an Application therefor, completed to the satisfaction of the
Issuing Bank, and such other certificates, documents and other papers and
information as the Issuing Bank may request. Upon receipt of any Application,
the Issuing Bank will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Bank be required to
issue any Letter of Credit earlier than three Business Days after its receipt of
the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Bank and the Borrower. The Issuing Bank shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof.
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on the
----------------------
maximum amount available from time to time for drawing under all outstanding
Letters of Credit at a rate
28
<PAGE>
per annum (calculated for actual days elapsed on the basis of a year of 360
days) equal to the Applicable Margin then in effect for Eurodollar Loans
hereunder. Such fee shall be payable to the Administrative Agent, to be shared
ratably among the L/C Participants, quarterly in arrears on each L/C Fee Payment
Date after the issuance date. In addition, the Borrower shall pay to the Issuing
Bank for its own account a fronting fee with respect to each Letter of Credit as
set forth in that certain letter agreement between the Borrower and the Issuing
Bank dated February 11, 1999 or as otherwise agreed from time to time.
(b In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in issuing, negotiating,
effecting payment under, amending or otherwise administering any Letter of
Credit.
3.4 L/C Participations.
------------------
(a The Issuing Bank irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and purchase and
hereby accepts and purchases from the Issuing Bank, on the terms and conditions
hereinafter stated, for such L/C Participant's own account and risk an undivided
interest equal to such L/C Participant's Commitment Percentage in the Issuing
Bank's obligations and rights under each Letter of Credit issued hereunder and
the amount of each draft paid by the Issuing Bank thereunder. Each L/C
Participant unconditionally and irrevocably agrees with the Issuing Bank that,
if a draft is paid under any Letter of Credit for which the Issuing Bank is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the
Issuing Bank's address for notices specified herein an amount equal to such L/C
Participant's Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed. Each L/C Participant acknowledges and
agrees that its obligation to acquire participations pursuant to this paragraph
in respect of Letters of Credit is absolute and unconditional and shall not be
affected by any circumstances whatsoever, including the occurrence and
continuance of a Default or an Event of Default or the termination of the
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
(b If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
not paid to the Issuing Bank when due but is paid to the Issuing Bank within
three Business Days after the date such payment is due, such L/C Participant
shall pay to the Issuing Bank on demand an amount equal to the product of (i)
such amount, times (ii) the daily average Federal funds rate, as quoted by the
Issuing Bank, during the period from and including the date such payment is
required to the date on which such payment is immediately available to the
Issuing Bank, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such
29
<PAGE>
amount required to be paid by any L/C Participant pursuant to subsection 3.4(a)
is not in fact made available to the Issuing Bank by such L/C Participant within
three Business Days after the date such payment is due, the Issuing Bank shall
be entitled to recover from such L/C Participant, on demand, such amount with
interest thereon calculated from such due date at the rate per annum applicable
to ABR Loans hereunder. A certificate of the Issuing Bank submitted to any L/C
Participant with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c Whenever, at any time after the Issuing Bank has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with subsection 3.4(a), the Issuing
Bank receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Issuing Bank), or any payment of interest on account thereof, the Issuing
Bank will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Bank shall be required to be returned by the Issuing Bank, such L/C
Participant shall return to the Issuing Bank the portion thereof previously
distributed by the Issuing Bank to it.
3.5 Reimbursement Obligation of the Borrower.
----------------------------------------
(a The Borrower agrees to reimburse the Issuing Bank on each date on
which the Issuing Bank notifies the Borrower of the date and amount of a draft
presented under any Letter of Credit and paid by the Issuing Bank for the amount
of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or
expenses incurred by the Issuing Bank in connection with such payment. Each such
payment shall be made to the Issuing Bank at its address for notices specified
herein in Dollars and in immediately available funds.
(b Interest shall be payable on any and all amounts remaining unpaid
by the Borrower under this subsection from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding ABR Loans which were then
overdue.
(c Each drawing under any Letter of Credit shall constitute a
request by the Borrower to the Administrative Agent for a borrowing pursuant to
subsection 2.2 of ABR Loans in the amount of such drawing. The Borrowing Date
with respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute.
--------------------
(a The Borrower's obligations under this Section 3 shall be absolute
and unconditional under any and all circumstances and irrespective of any set-
off, counterclaim or defense to payment which the Borrower may have or have had
against the Issuing Bank or any beneficiary of a Letter of Credit.
30
<PAGE>
(b The Borrower also agrees with the Issuing Bank that the Issuing
Bank shall not be responsible for, and the Borrower's Reimbursement Obligations
under subsection 3.5(a) shall not be affected by, among other things, (i) the
validity or genuineness of documents or of any endorsements thereon, even though
such documents shall in fact prove to be invalid, fraudulent or forged (subject,
however, to the provisions of subsection 3.6(d)), or (ii) any dispute between or
among the Borrower and any beneficiary of any Letter of Credit or any other
party to which such Letter of Credit may be transferred or (iii) any claims
whatsoever of the Borrower against any beneficiary of such Letter of Credit or
any such transferee.
(c The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct.
(d The Borrower agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Bank to the Borrower.
3.7 Letter of Credit Payments.
-------------------------
If any draft shall be presented for payment under any Letter of
Credit, the Issuing Bank shall promptly notify the Borrower of the date and
amount thereof. The responsibility of the Issuing Bank to the Borrower in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
3.8 Application.
-----------
To the extent that any provision of any Application related to any
Letter of Credit is inconsistent with the provisions of this Section 3, the
provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the
Loans and issue or participate in the Letters of Credit, the Borrower hereby
represents and warrants to the Administrative Agent and each Lender that:
31
<PAGE>
4.1 Financial Condition. The unaudited consolidated balance sheet of
-------------------
the Borrower, ACE and Delmarva and their respective consolidated Subsidiaries as
at September 30, 1998 and the related unaudited consolidated statements of
income and of cash flows for the nine-month period then ended, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated financial
condition of the Borrower, ACE and Delmarva and their respective consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the period then ended (subject to normal
year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither the Borrower, ACE and Delmarva nor any of their respective
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, which is not reflected in the foregoing statements
or in the notes thereto.
4.2 No Change. Since September 30, 1998 there has been no
---------
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower
----------------------------------------
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law, except to the extent that the failure to comply with clauses (a) through
(d) above would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. (a)
-------------------------------------------------------
The Borrower has the corporate power and authority, and the legal right, to
make, deliver and perform this Agreement and each other Loan Document and to
borrow hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and each other Loan
Document and to authorize the execution, delivery and performance of this
Agreement, the Notes and the Applications and each other Loan Document to which
it is a party.
(b Except for the consent from the Securities and Exchange
Commission, a copy of which is attached as Schedule 4.4, no consent or
authorization of, approval by, notice to, filing with or other act by or in
respect of, any Governmental Authority (including, without limitation, the
United States Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, as amended) or any other Person is required in
connection with the
32
<PAGE>
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Loan Document.
(c This Agreement has been, and each other Loan Document will be,
duly executed and delivered on behalf of the Borrower.
(d This Agreement constitutes, and each other Loan Document when
executed and delivered will constitute, a legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with its terms,
except as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to the enforcement of
creditors' rights generally and general equitable principles (whether considered
in a proceeding in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement, any Applications and any Notes, the borrowings hereunder and the use
of the proceeds thereof will not violate any Requirement of Law or material
Contractual Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of its
or their respective properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
4.6 No Material Litigation. Except as heretofore disclosed to the
----------------------
Lenders by the Borrower (a) in its financial statements referred to in
subsection 4.1 or (b) in quarterly or other periodic reports filed with the
United States Securities and Exchange Commission copies of which have been
delivered to the Lenders prior to the date hereof, no litigation, investigation
or proceeding of or before any arbitrator or Governmental Authority is pending
or, to the knowledge of the Borrower, threatened by or against the Borrower or
any of its Subsidiaries or against any of its or their respective properties or
revenues which could reasonably be expected to have a Material Adverse Effect.
4.7 Ownership of Property; Liens. Each of the Borrower and its
----------------------------
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, except to the extent that the
failure to have such title or leasehold interest could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, and none of such
property is subject to any Lien except as permitted by subsection 7.2.
4.8 Taxes. Each of the Borrower and its Subsidiaries has filed or
-----
caused to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its
33
<PAGE>
Subsidiaries, as the case may be), except to the extent that the failure to file
such tax returns or pay such taxes, fees and other charges would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.9 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used in any manner that would result in a violation of Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
4.10 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
4.11 Investment Company Act. The Borrower is not an "investment
----------------------
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
4.12 Purpose of Loans. The proceeds of the Loans shall be used by
----------------
the Borrower for general corporate purposes.
4.13 Environmental Matters. In the ordinary course of its business,
---------------------
the officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
reasonably concluded that Environmental Laws cannot reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has
received any notice to the effect that its operations are not in material
compliance with any of the requirements of applicable Environmental Laws or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial action
could reasonably be expected to have a Material Adverse Effect.
34
<PAGE>
4.14 Year 2000 Problem. The Borrower and its Subsidiaries (a) have
-----------------
reviewed the areas within their business and operations which could be adversely
affected by, and have developed and are implementing a program (the "Year 2000
---------
Program") to address on a timely basis, the Year 2000 Problem and (b) have made
- -------
or are planning to make appropriate inquiries as to the effect the Year 2000
Problem will have on their material suppliers and customers. Based on such
review, program and inquiries, the Borrower reasonably believes that the Year
2000 Problem will not have a Material Adverse Effect.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. The effectiveness of the Loan
---------------------------
Documents is subject to the satisfaction of the following conditions precedent:
(a Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a copy for each Lender and (ii) for the account of each
Lender which shall have delivered to the Administrative Agent a request
therefor, a Note, conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrower.
(b Corporate Proceedings of the Borrower. The Administrative Agent
-------------------------------------
shall have received, with a copy for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party and (ii) the borrowings contemplated
hereunder, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Effective Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(c Corporate Documents. The Administrative Agent shall have
-------------------
received, with a copy for each Lender, true and complete copies of the
certificate of incorporation and by-laws of the Borrower, certified as of
the Effective Date as complete and correct copies thereof by the Secretary
or Assistant Secretary of the Borrower.
(d Borrower Incumbency Certificate. The Administrative Agent shall
-------------------------------
have received, with a copy for each Lender, a Certificate of the Borrower,
dated the Effective Date, as to the incumbency and signature of the
officers of the Borrower executing any Loan Document satisfactory in form
and substance to the Administrative Agent, executed by the President or any
Vice President and the Secretary or any Assistant Secretary of the
Borrower.
35
<PAGE>
(e Fees. The Administrative Agent (for its own account or for that
----
of the Lenders) shall have received the fees to be received on the
Effective Date.
(f Investment Strategy. The Administrative Agent shall have
-------------------
received, with a copy for each Lender, a copy of the Borrower's "Investment
Strategy" relating to the non-regulated businesses of the Borrower and its
Subsidiaries (the "Investment Strategy") satisfactory in form and substance
-------------------
to the Administrative Agent.
(g Other Matters. The Administrative Agent shall have received,
-------------
with a copy for each Lender, such other approvals, opinions and documents
as the Administrative Agent may reasonably request.
5.2 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such extension of credit on the Closing Date, of the
following conditions precedent:
(a Termination of Existing Credit Agreement. The Administrative
----------------------------------------
Agent shall have received satisfactory evidence that the obligations of the
Borrower under the Existing Credit Agreement shall be terminated upon the
payment of all amounts due and payable thereunder and that all such amounts
shall have been paid in full or shall be paid in full with the proceeds of
the initial extensions of credit hereunder.
(b Consents, Licenses and Approvals. The Administrative Agent shall
--------------------------------
have received, with a copy for each Lender, a certificate of a Responsible
Officer of the Borrower stating that all consents, licenses and filings
referred to in subsection 4.4 are in full force and effect, and each such
consent, authorization and filing shall be in form and substance
satisfactory to the Administrative Agent.
(c Legal Opinion. The Administrative Agent shall have received,
-------------
with a copy for each Lender, the executed legal opinion of Peter F. Clark,
General Counsel of the Borrower, substantially in the form of Exhibit C;
such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(d) Year 2000 Compliance. The Administrative Agent shall have
--------------------
received copies of written information, reasonably satisfactory to the
Lenders and Administrative Agent, regarding the Borrower's and its
Subsidiaries' plans for addressing the Year 2000 Problem.
5.3 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it hereunder on
any date (including, without limitation, its initial extension of credit) is
subject to the satisfaction of the following conditions precedent:
36
<PAGE>
(a Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date (except to the extent that such representations
and warranties are expressly stated to relate to an earlier date, in which
case such representations and warranties shall have been true and correct
as of such earlier date).
(b No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
Each borrowing by and Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such borrowing or issuance that the conditions contained in this
subsection 5.3 have been satisfied. A drawing under a Letter of Credit does
not, in and of itself, constitute a borrowing hereunder.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall and (except in the case of delivery of financial information,
reports and notices) shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Lender:
--------------------
(a as soon as available, but in any event within 95 days after the
end of each fiscal year of each of the Borrower, ACE and Delmarva, a copy
of the consolidated balance sheets of each of the Borrower, ACE and
Delmarva and its consolidated Subsidiaries as at the end of such year and
the related consolidated statements of income and retained earnings and of
cash flows for such year, setting forth in each case in comparative form
the figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by independent certified public accountants of nationally
recognized standing; and
37
<PAGE>
(b as soon as available, but in any event not later than 50 days
after the end of each of the first three quarterly periods of each fiscal
year of each of the Borrower, ACE and Delmarva, the unaudited consolidated
balance sheets of each of the Borrower, ACE and Delmarva and its
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of
cash flows of the Borrower and its consolidated Subsidiaries for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Lender:
-------------------------------
(a concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such
certificate;
(b concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a certificate of a Responsible
Officer stating that, to the best of such Responsible Officer's knowledge,
during such period the Borrower has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in
this Agreement and the other Loan Documents to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate;
(c (i) promptly upon becoming available, copies of all financial
statements and reports which the Borrower sends to its stockholders, (ii)
promptly upon becoming available, copies of all financial statements,
reports and registration and proxy statements which the Borrower, ACE or
Delmarva may make to, or file with, the United States Securities and
Exchange Commission or any successor or analogous Governmental Authority
and (iii) promptly upon becoming available, copies of any prospectus or
offering memorandum relating to new securities or material corporate
transactions of the Borrower, ACE, Delmarva or their Subsidiaries not
otherwise furnished pursuant to clause (ii) above;
(d) promptly upon the request of the Administrative Agent or any
Lender, provide such updated information or documentation as may be
reasonably requested from time to
38
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time regarding the efforts of the Borrower and its Subsidiaries to address
the Year 2000 Problem; and
(e) promptly, such additional financial and other information as the
Administrative Agent may from time to time reasonably request (including,
upon request by the Administrative Agent at the direction of any Lender, a
calculation in reasonable detail and showing compliance with subsection 7.1
as of the end of any period for which the Borrower has delivered financial
statements pursuant to subsection 6.1(a) or (b)).
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except (a) where the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the
books of the Borrower or its Subsidiaries, as the case may be, or (b) to the
extent that the failure to pay, discharge or otherwise satisfy such obligations
would not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
6.4 Conduct of Business and Maintenance of Existence. Continue to
------------------------------------------------
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except as otherwise permitted
pursuant to subsections 7.3 or 7.4; comply with all Contractual Obligations and
Requirements of Law, including, without limitation, all ERISA and tax laws and
all Environmental Laws, except to the extent that failure to comply therewith
would not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
6.5 Maintenance of Property; Insurance. Keep all property useful and
----------------------------------
necessary in its business (other than property sold as permitted by subsection
7.4) in good working order and condition and maintain with financially sound and
reputable insurance companies insurance on all its property (with usual self-
insured retentions) in at least such amounts and against at least such risks as
are usually insured against in the same general area by companies engaged in the
same or a similar business, except to the extent that the failure to keep such
property in good working order and condition or to maintain such insurance would
not, in the aggregate, be reasonably expected to have a Material Adverse Effect;
and furnish to each Lender, upon written request, full information as to the
insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time during normal business hours and as often as may reasonably be desired and
upon two days prior written request to discuss the business, operations,
properties and financial and other
39
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condition of the Borrower and its Subsidiaries with officers and employees of
the Borrower and its Subsidiaries and with its independent certified public
accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a the occurrence of any Default or Event of Default;
(b the occurrence of any development or event that would cause the
representation in subsection 4.10 to be false if such representation were
made at the time of or immediately after the occurrence of such development
or event;
(c any change in the rating (actual or implied) by any Rating Agency
of the senior, long-term, secured, non credit-enhanced debt of either ACE
or Delmarva; and
(d any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
6.8 Investment Strategy. Comply in all material respects with the
-------------------
Investment Strategy.
6.9 Year 2000. The Borrower will take, and will cause each of its
---------
Subsidiaries to take, all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that the Year 2000
Problem will not have a Material Adverse Effect. At the request of the
Administrative Agent, the Borrower will provide (for distribution to the
Lenders) a description of the Borrower's Year 2000 Program, together with any
updates or progress reports with respect thereto.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall not, and (except with respect to subsection 7.1) shall not permit
any of its Subsidiaries to, directly or indirectly:
7.1 Maintenance of Indebtedness to Capitalization Ratio. Permit the
---------------------------------------------------
ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization at
the end of any fiscal quarter of the Borrower to be greater than .65 to 1.00.
40
<PAGE>
7.2 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, including, without limitation, any Lien upon the Capital
Stock of ACE or Delmarva, except for:
(a Liens on assets of ACE and Delmarva and their respective
Subsidiaries.
(b Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(c carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(d pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(e deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(g Liens on assets in existence on February 4, 1998 listed on
Schedule 7.2, provided that no such Lien is spread to cover any additional
--------
property after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
(h Liens securing Indebtedness of the Borrower and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets after
February 4, 1998, provided that (i) such Liens shall be created
--------
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv) the principal amount
of Indebtedness secured by any such Lien shall at no time exceed 100% of
the original purchase price of such property at the time it was acquired;
41
<PAGE>
(i Liens on the property or assets of a corporation which becomes a
Subsidiary after the February 4, 1998, provided that (i) such Liens existed
--------
at the time such corporation became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not spread to cover any
property or assets of such corporation after the time such corporation
becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby
is not increased; and
(j Liens (not otherwise permitted hereunder) which secure
obligations not exceeding (as to the Borrower and all Subsidiaries)
$10,000,000 in aggregate amount at any time outstanding; and
(k Liens granted by a Special Purpose Subsidiary to secure
Nonrecourse Transition Bond Debt of such Special Purpose Subsidiary.
7.3 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, except:
(a so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any Subsidiary of the Borrower may be
merged or consolidated with or into the Borrower (provided that the
--------
Borrower shall be the continuing or surviving corporation) or with or into
any one or more wholly owned Subsidiaries of the Borrower (provided that
--------
the wholly owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation);
(b so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any wholly owned Subsidiary may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or any other wholly
owned Subsidiary of the Borrower; and
(c so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any Significant Subsidiary may merge
or consolidate with any other Person so long as such Significant Subsidiary
shall be the surviving entity.
7.4 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
transfer or otherwise dispose of all or any substantial part of its property,
business or assets, whether now owned or hereafter acquired, or, in the case of
any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to
any Person other than the Borrower or any wholly owned Subsidiary, except:
(a so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the Capital Stock or
assets of any Subsidiary other
42
<PAGE>
than a Significant Subsidiary, provided that the fair market value of all
--------
sales pursuant to this subsection 7.4(a) shall not exceed $10,000,000 in
the aggregate;
(b [so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of that certain centralized
steam and chilled water production facility located on an approximately
three-quarter acre site on the northeastern corner of the intersection of
Atlantic and Ohio Avenues in Atlantic City, New Jersey and related
distribution facilities];
(c so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the assets of any
Significant Subsidiary, provided that the book value of all sales by such
--------
Significant Subsidiary pursuant to this subsection 7.4(c) shall not, in the
aggregate, exceed 10% of the book value of the assets of such Significant
Subsidiary as of December 31, 1998;
(d so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the assets of any
Significant Subsidiary not otherwise permitted pursuant to subsections
7.4(b) or 7.4(c), provided that such sale shall be with the written consent
--------
of the Majority Lenders pursuant to subsection 10.1, which consent shall
not be unreasonably withheld; and
(e as permitted by subsection 7.3.
7.5 Maintenance of Aggregate Availability. Issue any commercial
-------------------------------------
paper if, after giving effect thereto, the Aggregate Availability would be less
than zero.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on any Loan, or any
other amount payable hereunder, within five days after any such interest or
other amount becomes due in accordance with the terms thereof or hereof; or
(b Any representation or warranty made or deemed made by the
Borrower herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
43
<PAGE>
(c The Borrower shall default in the observance or performance of
any agreement contained in Section 7; or
(d The Borrower shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period commencing on the
earlier of (i) the first date on which a Responsible Officer of the
Borrower first learns of such default and (ii) the date of receipt by the
Borrower of notice thereof from the Administrative Agent or any Lender and
ending on the date which is 30 days thereafter (or, in the case of any
default under subsections 6.3 through 6.5 or 6.6(a) which is capable of
being remedied, ending on the date on which the Borrower shall no longer be
continuing good faith efforts to remedy such default); or
(e The Borrower or any of its Significant Subsidiaries shall (i)
default in any payment of principal of or interest on any Indebtedness
(other than the Loans) or in the payment of any Guarantee Obligation,
beyond the period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation to
become payable; provided, however, that no Default or Event of Default
-------- -------
shall exist under this paragraph unless the aggregate amount of
Indebtedness and/or Guarantee Obligations in respect of which any default
or other event or condition referred to in this paragraph shall have
occurred shall be equal to at least (A) $10,000,000, in the case of
Indebtedness and/or Guarantee Obligations of the Borrower and any of its
Significant Subsidiaries other than ACE and Delmarva, or (B) $25,000,000,
in the case of Indebtedness and/or Guarantee Obligations of ACE or
Delmarva; or
(f) (i) The Borrower or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Borrower or
any of its Significant Subsidiaries shall make a general assignment for the
benefit of its
44
<PAGE>
creditors; or (ii) there shall be commenced against the Borrower or any of
its Significant Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 consecutive days;
or (iii) there shall be commenced against the Borrower or any of its
Significant Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60
consecutive days from the entry thereof; or (iv) the Borrower or any of its
Significant Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any
of its Significant Subsidiaries shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as they become
due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Significant Subsidiaries involving in the aggregate
a liability (not paid or fully covered by insurance) of at least (i)
$10,000,000, in the case of judgments and decrees entered against the
Borrower and any of its Significant Subsidiaries other than ACE or
Delmarva, or (ii) $25,000,000, in the case of judgments and decrees entered
against ACE or Delmarva, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
consecutive days from the entry thereof; or
(i) (i) Any Person or "group" (within the meaning of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended) (A) shall have
acquired beneficial
45
<PAGE>
ownership of 30% or more of any outstanding class of Capital Stock having
ordinary voting power in the election of directors of the Borrower or (B)
shall obtain the power (whether or not exercised) to elect a majority of
the Borrower's directors, (ii) the Board of Directors of the Borrower shall
not consist of a majority of Continuing Directors or (iii) the Borrower
shall cease to own directly or indirectly, free and clear of all Liens or
other encumbrances, 100% of the outstanding shares of voting stock of ACE
and Delmarva on a fully diluted basis; "Continuing Directors" shall mean
--------------------
the directors of the Borrower on the Closing Date and each other director,
if such other director's nomination for election to the Board of Directors
of the Borrower is recommended by a majority of the then Continuing
Directors;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) and any Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i)
with the consent of the Majority Lenders, the Administrative Agent may, or upon
the request of the Majority Lenders, the Administrative Agent shall, by notice
to the Borrower declare the Commitments to be terminated forthwith, whereupon
the Commitments shall immediately terminate; and (ii) with the consent of the
Majority Lenders, the Administrative Agent may, or upon the request of the
Majority Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) and any Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Bank and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under any Notes. After all
such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under any Notes shall have been paid in full, the
46
<PAGE>
balance, if any, in such cash collateral account shall be returned to the
Borrower. The Borrower shall execute and deliver to the Administrative Agent,
for the account of the Issuing Bank and the L/C Participants, such further
documents and instruments as the Administrative Agent may request to evidence
the creation and perfection of the within security interest in such cash
collateral account.
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENTS
9.1 Appointment; Nature of Relationship. The First National Bank of
-----------------------------------
Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Administrative Agent") hereunder and
under each other Loan Document, and each of the Lenders irrevocably authorizes
the Administrative Agent to act as the contractual representative of such Lender
with the rights and duties expressly set forth herein and in the other Loan
Documents. The Administrative Agent agrees to act as such contractual
representative upon the express conditions contained in this Section 9.
Notwithstanding the use of the defined term "Administrative Agent," it is
expressly understood and agreed that the Administrative Agent shall not have any
fiduciary responsibilities to any Lender by reason of this Agreement or any
other Loan Document and that the Administrative Agent is merely acting as the
contractual representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Administrative Agent
(i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Administrative Agent on any agency theory or any
other theory of liability for breach of fiduciary duty, all of which claims each
Lender hereby waives.
9.2 Powers. The Administrative Agent shall have and may exercise
------
such powers under the Loan Documents as are specifically delegated to the
Administrative Agent by the terms of each thereof, together with such powers as
are reasonably incidental thereto. The Administrative Agent shall have no
implied duties to the Lenders, or any obligation to the Lenders to take any
action thereunder except any action specifically provided by the Loan Documents
to be taken by the Administrative Agent.
9.3 General Immunity. Neither the Administrative Agent nor any of
----------------
its directors, officers, agents or employees shall be liable to the Borrower,
the Lenders or any Lender for any action taken or omitted to be taken by it or
them hereunder or under any other Loan Document or in connection herewith or
therewith except to the extent such action or inaction is determined in a
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final non-appealable judgment by a court of competent jurisdiction to have
arisen from the gross negligence or willful misconduct of such Person.
9.4 No Responsibility for Loans, Recitals, etc. Neither the
-------------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(a) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (b) the performance or observance of any of
the covenants or agreements of any obligor under any Loan Document, including,
without limitation, any agreement by an obligor to furnish information directly
to each Lender; (c) the satisfaction of any condition specified in Section 5,
except receipt of items required to be delivered solely to the Administrative
Agent; (d) the existence or possible existence of any Default or Event of
Default; (e) the validity, enforceability, effectiveness, sufficiency or
genuineness of any Loan Document or any other instrument or writing furnished in
connection therewith (except as may relate to the execution by the
Administrative Agent of any Loan Document); (f) the value, sufficiency,
creation, perfection or priority of any Lien in any collateral security; or (g)
the financial condition of the Borrower or any guarantor of any of the
Obligations or of any of the Borrower's or any such guarantor's respective
Subsidiaries. The Administrative Agent shall have no duty to disclose to the
Lenders information that is not required to be furnished by the Borrower to the
Administrative Agent at such time, but is voluntarily furnished by the Borrower
to the Administrative Agent (either in its capacity as Administrative Agent or
in its individual capacity).
9.5 Action on Instructions of Lenders. The Administrative Agent
---------------------------------
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder and under any other Loan Document in accordance with written
instructions signed by the Majority Lenders, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Majority Lenders. The
Administrative Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
9.6 Employment of Administrative Agents and Counsel. The
-----------------------------------------------
Administrative Agent may execute any of its duties as Administrative Agent
hereunder and under any other Loan Document by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Administrative Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Administrative Agent
and the Lenders and all matters pertaining to the Administrative Agent's duties
hereunder and under any other Loan Document.
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9.7 Reliance on Documents; Counsel. The Administrative Agent shall
------------------------------
be entitled to rely upon any Note, notice, consent, certificate, affidavit,
letter, telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and, in
respect to legal matters, upon the opinion of counsel selected by the
Administrative Agent, which counsel may be employees of the Administrative
Agent.
9.8 Administrative Agent's Reimbursement and Indemnification'. The
---------------------------------------------------------
Lenders agree to reimburse and indemnify the Administrative Agent ratably in
proportion to their respective Commitments (or, if the Commitments have been
terminated, in proportion to their Commitments immediately prior to such
termination) (i) for any amounts not reimbursed by the Borrower for which the
Administrative Agent is entitled to reimbursement by the Borrower under the Loan
Documents, (ii) for any other expenses incurred by the Administrative Agent on
behalf of the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents (including, without
limitation, for any expenses incurred by the Administrative Agent in connection
with any dispute between the Administrative Agent and any Lender or between two
or more of the Lenders) and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby (including, without limitation, for any
such amounts incurred by or asserted against the Administrative Agent in
connection with any dispute between the Administrative Agent and any Lender or
between two or more of the Lenders), or the enforcement of any of the terms of
the Loan Documents or of any such other documents, provided that no Lender shall
--------
be liable for any of the foregoing to the extent any of the foregoing is found
in a final non-appealable judgment by a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Administrative
Agent. The obligations of the Lenders under this subsection 9.8 shall survive
payment of the Obligations and termination of this Agreement.
9.9 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Borrower referring to this Agreement describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give prompt notice thereof to the Lenders.
9.10 Rights as a Lender. In the event the Administrative Agent is a
------------------
Lender, the Administrative Agent shall have the same rights and powers hereunder
and under any other Loan Document with respect to its Commitment and its Loans
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the term "Lender" or "Lenders" shall, at any time when the
Administrative Agent is a Lender, unless the context otherwise indicates,
include the Administrative Agent in its individual capacity. The Administrative
Agent and its Affiliates may accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any
49
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other Loan Document, with the Borrower or any of its Subsidiaries in which the
Borrower or such Subsidiary is not restricted hereby from engaging with any
other Person. The Administrative Agent, in its individual capacity, is not
obligated to remain a Lender.
9.11 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Administrative Agent, the Arranger
or any other Lender and based on the financial statements prepared by the
Borrower and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement and the
other Loan Documents. Each Lender also acknowledges that it will, independently
and without reliance upon the Administrative Agent, the Arranger or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents.
9.12 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign at any time by giving written notice thereof to the Lenders and the
Borrower, such resignation to be effective upon the appointment of a successor
Administrative Agent or, if no successor Administrative Agent has been
appointed, forty-five days after the retiring Administrative Agent gives notice
of its intention to resign. The Administrative Agent may be removed at any time
with or without cause by written notice received by the Administrative Agent
from the Majority Lenders, such removal to be effective on the date specified by
the Majority Lenders. Upon any such resignation or removal, the Majority
Lenders shall have the right to appoint, on behalf of the Borrower and the
Lenders, a successor Administrative Agent. If no successor Administrative Agent
shall have been so appointed by the Majority Lenders within thirty days after
the resigning Administrative Agent's giving notice of its intention to resign,
then the resigning Administrative Agent may appoint, on behalf of the Borrower
and the Lenders, a successor Administrative Agent. Notwithstanding the previous
sentence, the Administrative Agent may at any time without the consent of the
Borrower or any Lender, appoint any of its Affiliates which is a commercial bank
as a successor Administrative Agent hereunder. If the Administrative Agent has
resigned or been removed and no successor Administrative Agent has been
appointed, the Lenders may perform all the duties of the Administrative Agent
hereunder and the Borrower shall make all payments in respect of the Obligations
to the applicable Lender and for all other purposes shall deal directly with the
Lenders. No successor Administrative Agent shall be deemed to be appointed
hereunder until such successor Administrative Agent has accepted the
appointment. Any such successor Administrative Agent shall be a commercial bank
having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning or removed Administrative Agent. Upon the effectiveness of the
resignation or removal of the Administrative Agent, the resigning or removed
Administrative Agent shall be discharged from any future duties and obligations
hereunder and under the Loan Documents. After the effectiveness of the
resignation or removal of an Administrative Agent, the provisions of this
Section 9 shall continue in effect for the benefit of
50
<PAGE>
such Administrative Agent in respect of any actions taken or omitted to be taken
by it while it was acting as the Administrative Agent hereunder and under the
other Loan Documents.
9.13 Administrative Agent's Fee.' The Borrower agrees to pay to the
-------------------------- -
Administrative Agent, for its own account, the fees agreed to by the Borrower
and the Administrative Agent pursuant to the term sheet referred to in the
commitment letter among the Borrower, First Chicago and First Chicago Capital
Markets, Inc. dated January 15, 1999 or as otherwise agreed in writing from time
to time.
9.14 Delegation to Affiliates. The Borrower and the Lenders agree
------------------------
that the Administrative Agent may delegate any of its duties under this
Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's
directors, officers, agents and employees) which performs duties in connection
with this Agreement shall be entitled to the same benefits of the
indemnification, waiver and other protective provisions to which the
Administrative Agent is entitled under Sections 9 and 10.
9.15 The Syndication Agent, the Documentation Agent and the Arranger.
---------------------------------------------------------------
None of the Syndication Agent, the Documentation Agent or the Arranger, in such
capacities, shall have any duties, responsibilities, obligations, liabilities or
functions under this Agreement or the other Loan Documents. Each Lender
acknowledges that it has not relied, and will not rely, on any of the
Syndication Agent, the Documentation Agent or the Arranger in deciding to enter
into this Agreement or in taking or refraining from taking any action hereunder
or pursuant hereto.
SECTION 10. MISCELLANEOUS
51
<PAGE>
10.1 Amendments and Waivers. Neither this Agreement nor any other
----------------------
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Majority Lenders may, or, with the written consent of the Majority Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Majority Lenders or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
- -------- -------
modification shall (i) reduce the amount or extend the scheduled date of
maturity of any Loan or of any installment thereof or any Reimbursement
Obligation with respect to any Letter of Credit, or reduce the stated rate of
any interest or fee payable hereunder or extend the scheduled date of any
payment thereof or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Majority Lenders, or
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, in each case
without the written consent of all the Lenders, or (iii) amend any provision of
Section 3 or any Application without the written consent of the Issuing Bank, or
(iv) amend, modify or waive any provision of Section 9 or any other provision
relating to the Administrative Agent without the written consent of the then
Administrative Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the Lenders, the Administrative Agent and all future holders
of the Loans. In the case of any waiver, the Borrower, the Lenders and the
Administrative Agent shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
10.2 Notices. Except as provided in subsection 2.19, all notices,
-------
requests and demands to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission) and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made (a)
in the case of delivery by hand, when delivered, (b) in the case of delivery by
mail, three Business Days after being deposited in the mails, postage prepaid,
or (c) in the case of delivery by facsimile transmission, when sent and receipt
has been confirmed, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in its Administrative Questionnaire in
the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto:
52
<PAGE>
The Borrower: Conectiv
800 King Street
P.O Box 231
Wilmington, Delaware 19899
Attention: Stephanie M. Scola
Fax: (302) 429-3188
The Administrative
Agent: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Ken Bauer
Fax: (312) 732-3055
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7 or 2.12 shall not be
effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
-----------------------------
or reimburse the Arranger and the Administrative Agent for all its reasonable
out-of-pocket costs and expenses incurred in connection with the preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Arranger and the
Administrative Agent, (b) to pay or reimburse each Lender, the Arranger and the
Administrative Agent for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents and any such other documents, including, without limitation, the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to each of the Arranger and the
Administrative Agent, (c) to pay, indemnify, and hold each Lender, and each of
the Arranger and
53
<PAGE>
the Administrative Agent harmless from, any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender, and the Arranger and
the Administrative Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use of the proceeds of the Loans,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries or any of the Properties
(all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided that the Borrower shall have no obligation
--------
hereunder to the Administrative Agent, the Arranger or any Lender with respect
to indemnified liabilities arising from the gross negligence or willful
misconduct of the Administrative Agent, the Arranger or any such Lender, as
applicable. The agreements in this subsection shall survive repayment of the
Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
------------
owing to such Lender, any Commitment of such Lender or any other interest of
such Lender hereunder and under the other Loan Documents; provided that, in the
--------
case of any such sale of a participating interest, the aggregate amount of the
L/C Obligations and the aggregate amount of the Available Commitment being
assigned is not less than $5,000,000 (or such lesser amount as may be agreed to
by the Administrative Agent). In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. No Lender shall be entitled to create in favor of any Participant,
in the participation agreement pursuant to which such Participant's
participating interest shall be created or otherwise, any right to vote on,
consent to or approve any matter relating to this Agreement or any other Loan
Document except for those specified in clauses (i)
54
<PAGE>
and (ii) of the proviso to subsection 10.1. The Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 10.7(a) as fully as if it were a
Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.14, 2.15 and 2.16 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of subsection 2.15, such
--------
Participant shall have complied with the requirements of said subsection and
provided, further, that no Participant shall be entitled to receive any greater
- -------- -------
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any Affiliate thereof or, with the consent of the
Borrower, each Issuing Bank and the Administrative Agent (which in each case
shall not be unreasonably withheld), to an additional bank or financial
institution (an "Assignee") all or any part of its rights and obligations under
--------
this Agreement and the other Loan Documents pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit D, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an Affiliate thereof, by the Borrower, each Issuing Bank and the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register, provided that, in the case of any such
--------
assignment to an additional bank or financial institution, the sum of the
aggregate principal amount of the Loans, the aggregate amount of the L/C
Obligations and the aggregate amount of the Available Commitment being assigned
is not less than $5,000,000 (or such lesser amount as may be agreed to by the
Borrower and the Administrative Agent) or all of such Lender's Loans, rights and
obligations hereunder. Upon such execution, delivery, acceptance and recording,
from and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (e) of this subsection, the
consent of the Borrower shall not be required, and, unless requested by the
Assignee and/or the assigning Lender, new Notes shall not be required to be
executed and
55
<PAGE>
delivered by the Borrower, for any assignment which occurs at any time when any
Event of Default shall have occurred and be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
--------
and the Commitment of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Borrower and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
----------
subject to the provisions of subsection 10.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which has
been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender") may grant to a special purpose funding vehicle (a
---------------
"SPC"), identified as such in writing from time to time by the Granting Lender
---
to the Administrative Agent and the Borrower, the option to provide to the
Borrower all or any part of any Loan that such Granting Lender would otherwise
be obligated to make to the Borrower pursuant to this Agreement;
56
<PAGE>
provided that (i) nothing herein shall constitute a commitment by any SPC to
- --------
make any Loan and (ii) if an SPC elects not to exercise such option or otherwise
fails to provide all or any part of such Loan, the Granting Lender shall be
obligated to make such Loan pursuant to the terms hereof. The making of a Loan
by an SPC hereunder shall utilize the Commitment of the Granting Lender to the
same extent, and as if, such Loan were made by such Granting Lender. Each party
hereto agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Lender). In furtherance of the foregoing, each party hereto agrees
(which agreement shall survive the termination of this Agreement) that, prior to
the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will
not institute against, or join any other person in instituting against, such SPC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this subsection
10.6, any SPC may (i) with notice to, but without the prior written consent of,
the Borrower and the Administrative Agent and without paying any processing fee
therefor, assign all or a portion of its interests in any Loans to the Granting
Lender or to any financial institutions (consented to by the Borrower and
Administrative Agent) providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Loans and (ii)
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such SPC.
10.7 Adjustments; Set-off-. (a) If any Lender (a "benefitted
--------------------- ----------
Lender") at any time shall receive any payment of all or part of its Loans or
- ------
the Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 8(f) or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders such portion of each such
other Lender's Loan or the Reimbursement Obligations owing to it, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
-------- -------
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Borrower agrees that each
Lender so purchasing a portion of another Lender's Loan may exercise all rights
of payment (including, without limitation, rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming
57
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due and payable by the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency or Affiliate thereof to or for the credit or the account of the Borrower.
Each Lender agrees promptly to notify the Borrower and the Administrative Agent
after any such set-off and application made by such Lender, provided that the
--------
failure to give such notice not affect the validity of such set-off
and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the entire agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties hereto relating to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL SUBSTANTIVE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general
58
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jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 10.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or consequential
damages.
10.13 Nonliability of Lenders. The relationship between the Borrower
-----------------------
on the one hand and the Lenders and the Administrative Agent on the other hand
shall be solely that of borrower and lender. None of the Administrative Agent,
the Syndication Agent, the Documentation Agent, the Arranger or any Lender shall
have any fiduciary responsibilities to the Borrower. None of the Administrative
Agent, the Syndication Agent, the Documentation Agent, the Arranger or any
Lender undertakes any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower agrees that none of the Administrative Agent, the
Syndication Agent, the Documentation Agent, the Arranger or any Lender shall
have liability to the Borrower (whether sounding in tort, contract or otherwise)
for losses suffered by the Borrower in connection with, arising out of, or in
any way related to, the transactions contemplated and the relationship
established by the Loan Documents, or any act, omission or event occurring in
connection therewith, unless it is determined in a final non-appealable judgment
by a court of competent jurisdiction that such losses resulted from the gross
negligence or willful misconduct of the party from which recovery is sought.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
---------------------
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
59
<PAGE>
10.15 Confidentiality. Each Lender agrees to keep confidential all
---------------
non-public information provided to it by the Borrower pursuant to this Agreement
that is known to be or is designated by the Borrower in writing as confidential;
provided that nothing herein shall prevent any Lender from disclosing any such
- --------
information (i) to the Administrative Agent, any affiliate of such Lender or any
other Lender, (ii) to any Transferee or prospective Transferee which agrees to
comply in a binding written agreement (which may be in a form similar to Exhibit
E hereto) with the provisions of this subsection, (iii) to its employees,
directors, agents, attorneys, accountants and other professional advisors that
need to know such information, (iv) upon the request or demand of any
Governmental Authority having jurisdiction over such Lender, (v) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has been publicly
disclosed other than in breach of this Agreement, or (vii) in connection with
any legal proceeding brought in connection with the exercise of any remedy
hereunder.
10.16 Termination of Existing Credit Agreement. Lenders which are
----------------------------------------
parties to the Existing Credit Agreement (and which constitute "Majority
Lenders" under and as defined in the Existing Credit Agreement) hereby waive the
five Business Days' notice requirement set forth in Section 2.4 of the Existing
Credit Agreement for terminating the commitments under the Existing Credit
Agreement and agree that the Existing Credit Agreement shall be terminated on
the Effective Date (except for any provisions thereof which by their terms
survive termination thereof).
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CONECTIV
By:
-------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent and as a Lender
By:
-------------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
as Syndication Agent and as Lender
By:
-------------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as Documentation Agent and as Lender
By:
-------------------------------------------
Name:
Title:
<PAGE>
ABN AMRO BANK N.V.
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-------------------------------------------
Name:
Title:
CIBC, INC.
By:
-------------------------------------------
Name:
Title:
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA
S.P.A. NEW YORK BRANCH
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
BANK OF MONTREAL
By:
-------------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
<PAGE>
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
-------------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:
-------------------------------------------
Name:
Title:
BANCA POPOLARE DI MILANO, NEW YORK
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
<PAGE>
BANK HAPOALIM B.M.
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
FNB BANK
By:
-------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------------------------
Name:
Title:
MELLON BANK, N.A.
By:
-------------------------------------------
Name:
Title:
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:
-------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED NEW YORK BRANCH
By:
-------------------------------------------
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE CAYMAN ISLANDS BRANCH
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
FLEET BANK N.A.
By:
-------------------------------------------
Name:
Title:
<PAGE>
================================================================================
CREDIT AGREEMENT
(FIVE YEAR)
among
CONECTIV, INC.
(to be renamed Conectiv)
The Several Lenders
from Time to Time Parties Hereto,
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
as Syndication Agent,
FIRST UNION NATIONAL BANK,
as Documentation Agent
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
Dated as of February 4, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS..................................................1
1.1 Defined Terms..............................................1
1.2 Other Definitional Provisions.............................15
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................15
2.1 Revolving Credit Commitments..............................15
2.2 Procedure for Revolving Credit Borrowing..................15
2.3 Commitment Fee............................................16
2.4 Termination or Reduction of Commitments...................16
2.5 Repayment of Loans; Evidence of Debt......................16
2.6 Optional Prepayments......................................17
2.7 Conversion and Continuation Options.......................17
2.8 Minimum Amounts and Maximum Number of Tranches............18
2.9 Interest Rates and Payment Dates..........................18
2.10 Computation of Interest and Fees.........................19
2.11 Inability to Determine Interest Rate.....................19
2.12 Pro Rata Treatment and Payments..........................20
2.13 Illegality...............................................21
2.14 Requirements of Law......................................21
2.15 Taxes....................................................22
2.16 Indemnity................................................23
2.17 Change of Lending Office.................................24
2.18 Extension of Maturity Date...............................24
2.19 Telephonic Notices...................................25
SECTION 3. LETTERS OF CREDIT...........................................26
3.1 L/C Commitment............................................26
3.2 Procedure for Issuance of Letters of Credit...............27
3.3 Fees and Other Charges....................................27
3.4 L/C Participations........................................27
3.5 Reimbursement Obligation of the Borrower..................28
3.6 Obligations Absolute......................................29
3.7 Letter of Credit Payments.................................29
3.8 Application...............................................29
i
<PAGE>
Page
----
SECTION 4. REPRESENTATIONS AND WARRANTIES..............................30
4.1 Financial Condition.......................................30
4.2 No Change.................................................31
4.3 Corporate Existence; Compliance with Law..................31
4.4 Corporate Power; Authorization; Enforceable Obligations...31
4.5 No Legal Bar..............................................32
4.6 No Material Litigation....................................32
4.7 Ownership of Property; Liens..............................32
4.8 Taxes.....................................................32
4.9 Federal Regulations.......................................33
4.10 ERISA....................................................33
4.11 Investment Company Act...................................33
4.12 Purpose of Loans.........................................33
4.13 Environmental Matters....................................33
SECTION 5. CONDITIONS PRECEDENT........................................34
5.1 Conditions to Effectiveness...............................34
5.2 Conditions to Initial Extension of Credit.................35
5.3 Conditions to Each Extension of Credit....................35
SECTION 6. AFFIRMATIVE COVENANTS.......................................36
6.1 Financial Statements......................................36
6.2 Certificates; Other Information...........................37
6.3 Payment of Obligations....................................37
6.4 Conduct of Business and Maintenance of Existence..........38
6.5 Maintenance of Property; Insurance........................38
6.6 Inspection of Property; Books and Records; Discussions....38
6.7 Notices...................................................38
6.8 Investment Strategy.......................................39
6.9 Termination of Existing Bank Credit Agreements............39
SECTION 7. NEGATIVE COVENANTS..........................................39
7.1 Maintenance of Indebtedness to Capitalization Ratio.......39
7.2 Limitation on Liens.......................................39
7.3 Limitation on Fundamental Changes.........................40
7.4 Limitation on Sale of Assets..............................41
7.5 Maintenance of Aggregate Availability.....................41
SECTION 8. EVENTS OF DEFAULT...........................................41
ii
<PAGE>
Page
----
SECTION 9. THE AGENTS..................................................45
9.1 Appointment; Nature of Relationship.......................45
9.2 Powers....................................................45
9.3 General Immunity..........................................45
9.4 No Responsibility for Loans, Recitals, etc................45
9.5 Action on Instructions of Lenders.........................46
9.6 Employment of Administrative Agents and Counsel...........46
9.7 Reliance on Documents; Counsel............................46
9.8 Administrative Agent's Reimbursement and Indemnification..46
9.9 Notice of Default.........................................47
9.10 Rights as a Lender.......................................47
9.11 Lender Credit Decision...................................47
9.12 Successor Administrative Agent...........................48
9.13 Administrative Agent's Fee...............................48
9.14 Delegation to Affiliates.................................48
9.15 The Syndication Agent, the Documentation Agent
and the Arrangers.......................................49
SECTION 10. MISCELLANEOUS..............................................49
10.1 Amendments and Waivers...................................49
10.2 Notices..................................................49
10.3 No Waiver; Cumulative Remedies...........................50
10.4 Survival of Representations and Warranties...............50
10.5 Payment of Expenses and Taxes............................50
10.6 Successors and Assigns; Participations and Assignments...51
10.7 Adjustments; Set-off.....................................53
10.8 Counterparts.............................................54
10.9 Severability.............................................54
10.10 Integration.............................................54
10.11 GOVERNING LAW...........................................54
10.12 Submission To Jurisdiction; Waivers.....................54
10.13 Nonliability of Lenders.................................55
10.14 WAIVERS OF JURY TRIAL...................................55
10.15 Confidentiality.........................................55
iii
<PAGE>
SCHEDULES
- ---------
I Commitments
II Existing L/Cs
III Pennsylvania Transition Bond Statute
4.4 Consents
5.2(b) Terminating Agreements
6.9 Continuing Agreements
7.2 Liens
EXHIBITS
- --------
A Form of Note
B Form of Extension Request
C Form of Opinion of General Counsel to the Borrower
D Form of Assignment and Acceptance
E Form of Confidentiality Agreement
<PAGE>
CREDIT AGREEMENT (Five Year), dated as of February 4, 1998, among
CONECTIV, INC. (to be renamed Conectiv), a Delaware corporation (the
"Borrower"), the several banks and other financial institutions from time to
--------
time parties to this Agreement (the "Lenders"), Canadian Imperial Bank of
-------
Commerce, New York Agency, as Syndication Agent, First Union National Bank, as
Documentation Agent and The First National Bank of Chicago, as Administrative
Agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate of interest per annum equal to the higher
---
of (i) the Corporate Base Rate for such day and (ii) the sum of the
Federal Funds Effective Rate for such day plus 1/2% per annum.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"ACE": Atlantic City Electric Company, a New Jersey corporation.
---
"Administrative Agent": The First National Bank of Chicago in its
--------------------
capacity as contractual representative of the Lenders pursuant to Section
9, and not in its individual capacity as a Lender, and any successor
Administrative Agent appointed pursuant to Section 9.
"Administrative Questionnaire": an Administrative Questionnaire
----------------------------
completed by a Lender and delivered to the Administrative Agent in a form
supplied by the Administrative Agent.
"AEI": Atlantic Energy, Inc., a New Jersey corporation.
---
"Affiliate": as to any Person, any other Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or indirectly,
either to direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Aggregate Availability": at any time, (a) the sum of (i) the
----------------------
aggregate amount of Commitments and (ii) the aggregate amount of the
Commitments (as defined therein) under the Other Credit Agreement minus
(b) the sum of (i) the aggregate amount of the Loans and L/C Obligations
then outstanding, (ii) the aggregate amount of the Loans (as defined
therein) and L/C Obligations (as defined therein) then outstanding under
the
1
<PAGE>
Other Credit Agreement and (iii) the aggregate principal amount of
commercial paper of the Borrower and its Subsidiaries then outstanding.
"Aggregate Outstanding Extensions of Credit": as to any Lender at
------------------------------------------
any time, an amount equal to the sum of (a) the aggregate principal amount
of all Loans made by such Lender then outstanding and (b) such Lender's
Commitment Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": with respect to each Type of Revolving Credit
-----------------
Loan, for any day, the rate per annum set forth below, under the column
applicable to such Type, opposite the Rating in effect on such day:
<TABLE>
<CAPTION>
=========================================================================================================
Applicable Margin
-----------------
Rating Eurodollar C/D
------
(S&P/Moody's) ABR Loans Loans Rate Loans
------------- --------- ----- ----------
=========================================================================================================
<S> <C> <C> <C>
Level 1
-------
at least A+/A1 0% 0.275% 0.400%
- ---------------------------------------------------------------------------------------------------------
Level 2
-------
less than A+/A1;
at least A-/A3 0 0.325 0.450
- ---------------------------------------------------------------------------------------------------------
Level 3
-------
less than A-/A3;
at least BBB+/Baa1 0 0.400 0.525
- ---------------------------------------------------------------------------------------------------------
Level 4
-------
less than BBB+/Baa1;
at least BBB/Baa2 0 0.500 0.625
- ---------------------------------------------------------------------------------------------------------
Level 5
-------
less than BBB/Baa2 0 0.650 0.775
=========================================================================================================
</TABLE>
"Application": an application, in such form as the Issuing Bank may
-----------
specify from time to time, requesting the Issuing Bank to open a Letter of
Credit.
"Arrangers": First Chicago Capital Markets, Inc., a Delaware
---------
corporation, and its successors and CIBC, and its successors.
"Assignee": as defined in subsection 10.6(c).
--------
"Available Commitment": as to any Lender, at any time, an amount
--------------------
equal to the excess, if any, of (a) such Lender's Commitment over (b) such
Lender's Aggregate Outstanding Extensions of Credit.
"Borrower": as defined in the preamble hereto.
--------
2
<PAGE>
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
subsection 2.2 as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"Business Day": (i) with respect to any borrowing, payment or rate
------------
selection of Eurodollar Loans, a day (other than a Saturday or Sunday) on which
banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital Stock": any and all shares, interests, participations or other
-------------
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"C/D Assessment Rate": for any day as applied to any C/D Rate Loan, the
-------------------
annual assessment rate in effect on such day which is payable by a member of the
Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the
"FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a
----
comparable successor assessment risk classification) within the meaning of 12
C.F.R. ss. 327.4 (or any successor provision) to the FDIC (or any successor) for
the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Base Rate": with respect to each day during each Interest Period
-------------
pertaining to a C/D Rate Loan, the rate of interest per annum determined by the
Administrative Agent to be the arithmetic average (rounded upward to the nearest
1/16th of 1%) of the respective rates notified to the Administrative Agent by
each of the Reference Lenders as the average rate bid at 9:00 A.M., New York
City time, or as soon thereafter as practicable, on the first day of such
Interest Period by a total of three certificate of deposit dealers of recognized
standing selected by such Reference Lender for the purchase at face value from
such Reference Lender of its certificates of deposit in an amount comparable to
the C/D Rate Loan of such Reference Lender to which such Interest Period applies
and having a maturity comparable to such Interest Period.
"C/D Rate": with respect to each day during each Interest Period
--------
pertaining to a C/D Rate Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
C/D Base Rate + C/D Assessment Rate
----------------------------
1.00 - C/D Reserve Percentage
"C/D Rate Loans": Loans the rate of interest applicable to which is based
--------------
upon the C/D Rate.
3
<PAGE>
"C/D Reserve Percentage": for any day as applied to any C/D Rate Loan,
----------------------
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) (the "Board"), for determining the maximum reserve requirement for a
-----
Depositary Institution (as defined in Regulation D of the Board) in respect of
new non-personal time deposits in Dollars having a maturity comparable to the
Interest Period for such C/D Rate Loan.
"CIBC": Canadian Imperial Bank of Commerce, New York Agency in its
----
individual capacity, and its successors.
"Closing Date": the date on which the conditions precedent set forth in
------------
subsection 5.2 shall be satisfied.
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Loans to and/or issue or participate in Letters of Credit issued on behalf of
the Borrower hereunder in an aggregate principal and/or face amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule I.
"Commitment Expiration Date": as defined in subsection 2.18(a).
--------------------------
"Commitment Fee Rate": for any day, the rate per annum set forth below
-------------------
opposite the Rating in effect on such day:
===========================================================
Rating Commitment
------ ----------
(S&P/Moody's) Fee Rate
--------
===========================================================
Level 1
-------
at least A+/A1 0.1000%
-----------------------------------------------------------
Level 2
-------
less than A+/A1;
at least A-/A3 0.1250
-----------------------------------------------------------
Level 3
-------
less than A-/A3;
at least BBB+/Baa1 0.1500
-----------------------------------------------------------
Level 4
-------
less than BBB+/Baa1;
at least BBB/Baa2 0.1875
-----------------------------------------------------------
Level 5
-------
less than BBB/Baa2 0.2500
===========================================================
"Commitment Percentage": as to any Lender at any time, the percentage
---------------------
which such Lender's Commitment then constitutes of the aggregate Commitments
(or, at any time after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Loans and
participations in L/C Obligations
4
<PAGE>
then outstanding constitutes of the aggregate principal amount of the Loans and
L/C Obligations then outstanding).
"Commitment Period": the period from and including the date hereof to but
-----------------
not including the Termination Date or such earlier date on which the Commitments
shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Consolidated Total Indebtedness": at any date of determination, the sum
-------------------------------
of (a) all then outstanding Indebtedness of the Borrower and its Subsidiaries
plus (b) all Guarantee Obligations of the Borrower and its Subsidiaries in
respect of Indebtedness of Persons other than the Borrower and its Subsidiaries,
all as determined on a consolidated basis in accordance with GAAP; provided,
--------
that any Nonrecourse Transition Bond Debt shall be excluded in determining
Consolidated Total Indebtedness.
"Consolidated Total Capitalization": at any date of determination with
---------------------------------
respect to the Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP, the sum of (i) the amount classified as common
shareholders' equity for purposes of balance sheet presentation in accordance
with GAAP, plus (ii) the amount classified as preferred stock for purposes of
----
balance sheet presentation in accordance with GAAP, plus (iii) Consolidated
----
Total Indebtedness, less (iv) unamortized capital stock expenses.
----
"Contractual Obligation": as to any Person, any provision of any security
----------------------
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Corporate Base Rate": a rate per annum determined by the Administrative
-------------------
Agent to be the arithmetic average of the respective corporate base or prime
rates of interest, as the case may be, announced by the Reference Lenders from
time to time, changing when and as such corporate base or prime rates change
(the corporate base and prime rates identified above not being intended to be
the lowest rates of interest charged by the Reference Lenders in connection with
extensions of credit to debtors).
"Default": any of the events specified in Section 8, whether or not any
-------
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Delmarva": Delmarva Power & Light Company, a Delaware and Virginia
--------
corporation.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
5
<PAGE>
"Domestic Dollar Loans": the collective reference to C/D Rate Loans and
---------------------
ABR Loans.
"Effective Date": the date on which the conditions precedent set forth in
--------------
subsection 5.1 shall be satisfied.
"Environmental Laws": any and all federal, state, local and foreign
------------------
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Materials or wastes
or the clean-up or other remediation thereof.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate appearing on Page 3750 of the
Telerate Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent form time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "Eurodollar
----------
Base Rate" with respect to such Eurodollar Loan for such Interest Period shall
- ---------
be the rate per annum equal to the average (rounded upward to the nearest
1/100th of 1%) of the respective rates notified to the Administrative Agent by
each of the Reference Lenders as the rate at which the principal London office
of such Reference Lender offers to place Dollar deposits at or about 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest Period
with first-class banks in the London interbank market for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
6
<PAGE>
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
---------------
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Existing L/C": each letter of credit listed on Schedule II.
------------
"Federal Funds Effective Rate": for any day, an interest rate per annum
----------------------------
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
"Financing Lease": any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"First Chicago": The First National Bank of Chicago in its individual
-------------
capacity, and its successors.
"Five-Year Projections": as defined in subsection 4.1(c).
---------------------
"GAAP": generally accepted accounting principles in the United States of
----
America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
-------------------- -------------------
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends
7
<PAGE>
or other obligations (the "primary obligations") of any other third Person (the
-------------------
"primary obligor") in any manner, whether directly or indirectly, including,
---------------
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
- -------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
------------
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar instrument, (c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances issued or created
for the account of such Person and (e) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the condition that
----------
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intangible Transition Property": assets that are of a type similar to
------------------------------
those described as "intangible transition property" in the Pennsylvania
Transition Bond Statute
8
<PAGE>
and that are described in a public utility law applicable to the Borrower or any
of its Subsidiaries adopted subsequent to the date hereof.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December, (b) as to any Eurodollar Loan having an
Interest Period of three months or less and any C/D Rate Loan having an Interest
Period of 90 days or less, the last day of such Interest Period, and (c) as to
any Eurodollar Loan or C/D Rate Loan having an Interest Period longer than three
months or 90 days, respectively, each day which is three months or 90 days,
respectively, or a whole multiple thereof, after the first day of such Interest
Period and the last day of such Interest Period.
"Interest Period": (a) with respect to any Eurodollar Loan:
---------------
(i) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Eurodollar Loan and ending
one, two, three or six months thereafter, as selected by the Borrower in
its notice of borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto;
and (b) with respect to any C/D Rate Loan:
(i) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such C/D Rate Loan and ending
30, 60, 90 or 180 days thereafter, as selected by the Borrower in its
notice of borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such C/D Rate Loan and ending 30,
60, 90 or 180 days thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than two Business Days prior
to the last day of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result of
such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
9
<PAGE>
(2) if any Interest Period pertaining to a C/D Rate Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day;
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(4) any Interest Period pertaining to a Eurodollar Loan that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of a calendar
month; and
(5) the Borrower shall select Interest Periods so as not to require
a payment or prepayment of any Eurodollar Loan or C/D Rate Loan during an
Interest Period for such Loan.
"Investment Strategy": as defined in subsection 5.1(g).
-------------------
"Issuing Bank": (a) in the case of the first Letter of Credit issued
------------
hereunder (other than an Existing L/C) and every second Letter of Credit issued
hereunder thereafter, CIBC, Inc., in its capacity as issuer of such Letters of
Credit, (b) in the case of the second Letter of Credit issued hereunder and
every second Letter of Credit issued hereunder thereafter, First Chicago, in its
capacity as issuer of such Letters of Credit and (c) in the case of each
Existing L/C, the issuer thereof listed opposite such Existing L/C on Schedule
II.
"L/C Commitment": $300,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a)
---------------
the aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to subsection 3.5(a).
"L/C Participants": the collective reference to all the Lenders
----------------
other than, in the case of any Letter of Credit, the applicable Issuing Bank.
"Lender": as defined in the preamble hereto.
------
"Letters of Credit": as defined in subsection 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention
10
<PAGE>
agreement and any Financing Lease having substantially the same economic effect
as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loans": as defined in subsection 2.1.
-----
"Loan Documents": this Agreement, any Notes and the Applications.
--------------
"Majority Lenders": at any time, Lenders the Commitment Percentages
----------------
of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
financial condition, results of operations, assets or business of the Borrower
and its Subsidiaries taken as a whole or (b) the validity or enforceability of
this or any of the other Loan Documents or the rights or remedies of the
Administrative Agent or the Lenders hereunder or thereunder.
"Merger": the transactions described in the Borrower's
------
Application-Declaration on Form U-1, as amended, filed with the Securities and
Exchange Commission under Section 9(a)(2) of the Public Utility Holding Company
Act of 1935, as amended, seeking approvals relating to the acquisition by the
Borrower of securities of Delmarva and merger into the Borrower of Atlantic
Energy, Inc., a New Jersey corporation and parent of ACE, and for other related
transactions.
"Moody's": Moody's Investors Service, Inc.
-------
"Multiemployer Plan": a Plan which is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes": as defined in subsection 2.15.
------------------
"Nonrecourse Transition Bond Debt": obligations evidenced by
--------------------------------
Transition Bonds rated investment grade or better by S&P or Moody's,
representing a securitization of Intangible Transition Property as to which
obligations neither the Borrower nor any Subsidiary of the Borrower (other than
a Special Purchase Subsidiary) has any direct or indirect liability (whether as
primary obligor, guarantor, or surety, provider of collateral security, put
option, asset repurchase agreement or capital maintenance agreement, debt
subordination agreement, or through other right or arrangement of any nature
providing direct or indirect assurance of payment or performance of any such
obligations in whole or in part), except for liability to repurchase Intangible
Transition Property conveyed to the securitization vehicle, on terms and
conditions customary in receivables securitizations, in the event such
Intangible Transition Property violates representations and warranties of scope
customary in receivables securitizations.
"Note": as defined in subsection 2.5(e).
----
11
<PAGE>
"Objecting Lender": as defined in subsection 2.18(a).
----------------
"Obligations": all unpaid principal of and accrued and unpaid interest on
-----------
the Loans, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Borrower to the Lenders or to any
Lender, the Administrative Agent or any indemnified party arising under the Loan
Documents.
"Other Credit Agreement": the Credit Agreement (364-Day), dated as of the
----------------------
date hereof, among the Borrower, the several lenders from time to time parties
thereto, Canadian Imperial Bank of Commerce, as syndication agent, First Union
National Bank, as documentation agent and The First National Bank of Chicago, as
administrative agent, as amended, supplemented or otherwise modified from time
to time.
"Other Objecting Lender": as defined in subsection 2.18(c).
----------------------
"Participant": as defined in subsection 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
----
Subtitle A of Title IV of ERISA.
"Pennsylvania Transition Bond Statute": 66 Pa. C.S.A.ss. 2812 as in effect
------------------------------------
on the date hereof (a copy of which is attached hereto as Schedule III).
"Person": an individual, partnership, corporation, business trust, joint
------
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered
----
by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pro-Forma Balance Sheet": as defined in subsection 4.1(b).
-----------------------
"Rating": at any time, the lowest rating (actual or implied) by either
------
Rating Agency of the senior, long-term, secured, non credit-enhanced debt of
either ACE or Delmarva. For purposes of the foregoing, (i) if either Moody's or
S&P shall not have in effect a rating relating to either ACE or Delmarva (other
than by reason of the circumstances referred to in the last sentence of this
definition), then such Rating Agency shall be deemed to have established a
rating less than BBB, in the case of S&P, and less than Baa2, in the case of
Moody's; (ii) if the ratings established or deemed to have been established by
Moody's and S&P shall fall within different "Levels" (as set forth in the tables
contained in the definitions of "Applicable Margin" and "Commitment Fee Rate"),
the Rating shall be based on the lower of the two ratings; and (iii) if any
rating established by Moody's or S&P shall be changed (other than as a result of
a change in the rating system of Moody's or S&P), such change shall be effective
as of the date on which it is first announced by the applicable Rating Agency.
Each change in the "Rating" shall
12
<PAGE>
apply during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of Moody's or S&P shall change, or if either such
Rating Agency shall cease to be in the business of rating corporate debt
obligations, the Borrower and the Lenders shall negotiate in good faith to amend
this definition to reflect such changed rating system or the unavailability of
ratings from such Rating Agency, and, pending the effectiveness of any such
amendment, the "Rating" shall be determined by reference to the "Rating" most
recently in effect prior to such change or cessation.
"Rating Agency": each of Moody's and S&P.
-------------
"Reference Lenders": initially, CIBC and First Chicago.
-----------------
"Register": as defined in subsection 10.6(d).
--------
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to reimburse
------------------------
the Issuing Bank pursuant to subsection 3.5(a) for amounts drawn under Letters
of Credit.
"Reorganization": with respect to any Multiemployer Plan, the condition
--------------
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
ss. 4043.
"Requirement of Law": as to any Person, the Certificate of Incorporation
------------------
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": each of the chief executive officer, the president
-------------------
and the treasurer of the Borrower or, with respect to financial matters, the
chief financial officer of the Borrower.
"S&P": Standard & Poor's Ratings Group.
---
"Significant Subsidiary": as defined in Rule 1-02(w) under Regulation S-X
----------------------
of the United States Securities and Exchange Commission (or any successor), as
the same may be amended or supplemented from time to time. Unless otherwise
qualified, all references to a "Significant Subsidiary" or to "Significant
Subsidiaries" in this Agreement shall refer to a Significant Subsidiary or
Significant Subsidiaries of the Borrower.
13
<PAGE>
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
--------------------
but which is not a Multiemployer Plan.
"Special Purpose Subsidiary": a direct or indirect wholly owned corporate
--------------------------
Subsidiary of the Borrower, substantially all of the assets of which are
Intangible Transition Property and proceeds thereof, formed solely for the
purpose of holding such assets and issuing Transition Bonds and, which complies
with the requirements customarily imposed on bankruptcy-remote corporations in
receivables securitizations.
"Subsidiary": as to any Person, a corporation, partnership or other entity
----------
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower and shall be deemed to include all Persons who will become
Subsidiaries of the Borrower upon the consummation of the Merger, whether or not
the Merger has been consummated.
"Syndication Agent": Canadian Imperial Bank of Commerce, New York Agency
-----------------
in its capacity as syndication agent and not in its individual capacity as a
Lender.
"Termination Date": February 3, 2003 or such later date to which the
----------------
Termination Date shall be extended in accordance with subsection 2.18.
"Tranche": the collective reference to Eurodollar Loans or C/D Rate Loans
-------
the then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day); Tranches may be identified as "Eurodollar
----------
Tranches" or "C/D Rate Tranches", as applicable.
- -------- -----------------
"Transferee": as defined in subsection 10.6(f).
----------
"Transition Bonds": bonds that are of a type similar to those described as
----------------
"transition bonds" in the Pennsylvania Transition Bond Statute and that are
described in a public utility law applicable to the Borrower or any of its
Subsidiaries adopted subsequent to the date hereof.
"Type": as to any Loan, its nature as an ABR Loan, a Eurodollar Loan or a
----
C/D Rate Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
14
<PAGE>
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
-----------------------------
all terms defined in this Agreement shall have the defined meanings when used in
any Notes or any certificate or other document made or delivered pursuant hereto
(other than the Letters of Credit).
(b) As used herein and in any Notes, and any certificate or other document
made or delivered pursuant hereto, accounting terms relating to the Borrower and
its Subsidiaries not defined in subsection 1.1 and accounting terms partly
defined in subsection 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions
----------------------------
hereof, each Lender severally agrees to make revolving credit loans ("Loans") to
-----
the Borrower from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding which, when added to such Lender's
Commitment Percentage of the then outstanding L/C Obligations, does not exceed
the amount of such Lender's Commitment. During the Commitment Period the
Borrower may use the Commitments by borrowing, prepaying the Loans in whole or
in part, and reborrowing, all in accordance with the terms and conditions
hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans, (iii) C/D Rate Loans or (iv) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with subsections
2.2 and 2.7, provided that no Revolving Credit Loan shall be made as a
--------
Eurodollar Loan or a C/D Rate Loan after the day that is one month or 30 days,
respectively, prior to the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow
----------------------------------------
under the Commitments during the Commitment Period on any Business Day, provided
--------
that the Borrower shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 10:00 A.M., Chicago
time, (a) three Business Days prior to the requested Borrowing Date, if all or
any part of the requested Loans are to be initially Eurodollar Loans, (b) two
Business Days prior to the requested Borrowing Date, if all or any part of the
requested Loans are to be initially C/D Rate Loans, or (c) on the requested
Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, ABR Loans, C/D Rate Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans or C/D Rate Loans, the
respective amounts of each such Type of Loan and the respective lengths of
15
<PAGE>
the initial Interest Periods therefor. Each borrowing under the Commitments
shall be in an amount equal to (x) in the case of ABR Loans, $5,000,000 or a
whole multiple of $1,000,000 in excess thereof (or, if the then Available
Commitments are less than $5,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans or C/D Rate Loans, $5,000,000 or a whole multiple of $1,000,000
in excess thereof. Upon receipt of any such notice from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof. Each Lender will
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 10.2 prior to 11:00 A.M., Chicago
time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.3 Commitment Fee. The Borrower agrees to pay to the Administrative Agent
--------------
for the account of each Lender a commitment fee for the period from and
including the first day of the Commitment Period through but excluding the
Termination Date, computed at the Commitment Fee Rate on the average daily
amount of the Available Commitment of such Lender during the period for which
payment is made, payable quarterly in arrears on the last day of each March,
June, September and December and on the Termination Date or such earlier date as
the Commitments shall terminate as provided herein, commencing on the first of
such dates to occur after the date hereof.
2.4 Termination or Reduction of Commitments. The Borrower shall have the
---------------------------------------
right, upon not less than five Business Days' notice to the Administrative
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments, provided that no such termination or reduction shall be
--------
permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, (a) the aggregate principal amount of the
Loans then outstanding, when added to the then outstanding L/C Obligations,
would exceed the Commitments then in effect or (b) the Aggregate Availability
would be less than zero. Any such reduction shall be in an amount equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce
permanently the Commitments then in effect.
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in subsection 2.9.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
16
<PAGE>
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 10.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the amount of each Revolving Credit Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.5(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing the Loans of such
Lender, substantially in the form of Exhibit A with appropriate insertions as to
date and principal amount (a "Note").
----
2.6 Optional Prepayments. The Borrower may at any time and
--------------------
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' irrevocable notice to the
Administrative Agent, specifying the date and amount of prepayment and whether
the prepayment is of Eurodollar Loans, C/D Rate Loans, ABR Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Administrative Agent shall promptly
notify each Lender thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with any amounts payable pursuant to subsection 2.16 and accrued interest to
such date on the amount prepaid. Partial prepayments shall be in an aggregate
principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof.
2.7 Conversion and Continuation Options. (a) The Borrower may
-----------------------------------
elect from time to time to convert Eurodollar Loans or C/D Rate Loans to ABR
Loans, and/or to convert Eurodollar Loans or ABR Loans to C/D Rate Loans, by
giving the Administrative Agent at least two Business Days' prior irrevocable
notice of such election, provided that any such conversion of Eurodollar Loans
--------
or C/D Rate Loans may only be made on the last day of an Interest Period with
respect thereto. The Borrower may elect from time to time to convert ABR Loans
or C/D Rate Loans to Eurodollar Loans by giving the Administrative Agent at
least three Business Days' prior irrevocable notice of such election, provided
--------
that any such conversion of C/D Rate Loans may, subject to the third succeeding
sentence, only be made on the last day of an Interest Period with respect
thereto. Any such notice of conversion to Eurodollar Loans or C/D Rate Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof. If the last day of the then current
Interest Period with respect to C/D Rate Loans that are to be converted to
Eurodollar Loans is not a Business Day, such conversion shall be made on the
next succeeding Business Day, and during the period from such last day to such
succeeding Business Day such
17
<PAGE>
Loans shall bear interest as if they were ABR Loans. All or any part of
outstanding Eurodollar Loans, ABR Loans and C/D Rate Loans may be converted as
provided herein, provided that (i) no Loan may be converted into a Eurodollar
--------
Loan or a C/D Rate Loan when any Event of Default has occurred and is continuing
and the Administrative Agent has or the Majority Lenders have determined that
such a conversion is not appropriate and (ii) no Loan may be converted into a
Eurodollar Loan or a C/D Rate Loan after the date that is one month or 30 days,
respectively, prior to the Termination Date.
(b) Any Eurodollar Loans or C/D Rate Loans may be continued as
such upon the expiration of the then current Interest Period with respect
thereto by the Borrower giving notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
subsection 1.1, of the length of the next Interest Period to be applicable to
such Loans, provided that no Eurodollar Loan or C/D Rate Loan may be continued
--------
as such (i) when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Majority Lenders have determined that such a
continuation is not appropriate or (ii) after the date that is one month or 30
days prior to, respectively, the Termination Date and provided, further, that if
--------
the Borrower shall fail to give such notice or if such continuation is not
permitted such Loans shall be automatically converted to ABR Loans on the last
day of such then expiring Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All
----------------------------------------------
borrowings, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising (i) each Eurodollar Tranche shall be equal to
$5,000,000 or a whole multiple of $1,000,000 in excess thereof and (ii) each C/D
Rate Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in
excess thereof. In no event shall there be more than 16 Eurodollar Tranches or
16 C/D Rate Tranches outstanding at any time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to the ABR plus the Applicable Margin.
(c) Each C/D Rate Loan shall bear interest for each day during
each Interest Period with respect thereto at a rate per annum equal to the C/D
Rate determined for such day plus the Applicable Margin.
(d) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, (iii) any commitment fee, (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise) or (v) any other Event of Default shall have occurred
and be continuing, the principal of the Loans and any such overdue interest,
commitment fee or other amount shall bear interest at a rate per annum which is
(x) in the case of principal, the rate that would otherwise be applicable
thereto pursuant to the foregoing provisions of this subsection plus 2% or (y)
in the case of any such overdue interest,
18
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commitment fee or other amount, the rate described in paragraph (b) of this
subsection plus 2%, in each case from the date of such non-payment until such
overdue principal, interest, commitment fee or other amount is paid in full (as
well after as before judgment).
(e) Interest shall be payable in arrears on each Interest Payment Date and
on the Termination Date, provided that interest accruing pursuant to paragraph
--------
(d) of this subsection shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Commitment fees and, whenever it
--------------------------------
is calculated on the basis of the Corporate Base Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed; and, otherwise, interest shall be calculated on the basis
of a 360-day year for the actual days elapsed. The Administrative Agent shall as
soon as practicable notify the Borrower and the Lenders of each determination of
a Eurodollar Rate or of a C/D Rate. Any change in the interest rate on a Loan
resulting from a change in the ABR, the Eurocurrency Reserve Requirements, the
C/D Assessment Rate or the C/D Reserve Percentage shall become effective as of
the opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a written statement showing the quotations used by the Administrative
Agent in determining any interest rate pursuant to subsection 2.9(a) or (c).
(c) If any Reference Lender shall for any reason no longer have a
Commitment or any Loans, such Reference Lender shall thereupon cease to be a
Reference Lender, and if, as a result, there shall only be one Reference Lender
remaining, the Administrative Agent (after consultation with the Lenders and
with the approval of the Borrower) shall, by notice to the Borrower and the
Lenders, designate another Lender as a Reference Lender so that there shall at
all times be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts to furnish quotations
of rates to the Administrative Agent as contemplated hereby. If any of the
Reference Lenders shall be unable or shall otherwise fail to supply such rates
to the Administrative Agent upon its request, the rate of interest shall,
subject to the provisions of subsection 2.11, be determined on the basis of the
quotations of the remaining Reference Lenders or Reference Lender.
2.11 Inability to Determine Interest Rate. If prior to the first day of
------------------------------------
any Interest Period:
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate or the C/D Rate for such
Interest Period, or
19
<PAGE>
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate or the C/D Rate determined or to
be determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such Interest
Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans or C/D Rate Loans, as the case may be, requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans that were to have been converted on the first day of such Interest
Period to Eurodollar Loans or C/D Rate Loans, as the case may be, shall be
converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans
or C/D Rate Loans, as the case may be, that were to have been continued as such
on such first day shall be converted on such day to ABR Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans or
C/D Rate Loans, as the case may be, shall be made or continued as such, nor
shall the Borrower have the right to convert Loans to Eurodollar Loans or C/D
Rate Loans, as the case may be.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of the
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans then held by the Lenders.
All payments (including prepayments) to be made by the Borrower hereunder,
whether on account of principal, interest, fees or otherwise, shall be made
without set off, counterclaim or other deduction and shall be made prior to
12:00 Noon, Chicago time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in subsection 10.2, in Dollars and in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted to
any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Administrative Agent
by such Lender within three
20
<PAGE>
Business Days of such Borrowing Date, the Administrative Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to ABR Loans hereunder, on demand, from the Borrower.
2.13 Illegality. Notwithstanding any other provision herein, if the
----------
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Domestic Dollar Loans to Eurodollar Loans shall forthwith be cancelled
and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall
be converted automatically to ABR Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.16.
2.14 Requirements of Law. (a) If the adoption of or any change in any
-------------------
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note, any Letter of Credit, any Application
or any Eurodollar Loan or C/D Rate Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by subsection 2.15 and changes in the rate of
tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate or the C/D Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or C/D Rate Loans or issuing or
participating in Letters of Credit or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable within 15 days following
notification of such increased cost or reduced amount receivable pursuant to
subsection 2.14(c) below, provided that such increased cost or reduced amount
--------
receivable shall be compensated only to the extent incurred during the 90 day
period prior to the notification of the Borrower by such Lender of such
increased cost or reduced amount receivable.
21
<PAGE>
(b) If any Lender shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any corporation controlling
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under any Letter of Credit to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction
within 15 days following notification of such reduction pursuant to subsection
2.14(c) below, provided that such reduction shall be compensated only to the
--------
extent incurred during the 90 day period prior to the notification of the
Borrower by such Lender of such reduction.
(c) If any Lender becomes entitled to claim any additional amounts pursuant
to this subsection, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
A certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower (with a copy to the Administrative
Agent) shall be conclusive in the absence of manifest error. The agreements in
this subsection shall survive the termination of this Agreement and the payment
of the Loans and all other amounts payable hereunder.
2.15 Taxes. (a) All payments made by the Borrower under this Agreement and
-----
any Notes shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
------------
Taxes") are required to be withheld from any amounts payable to the
- -----
Administrative Agent or any Lender hereunder or under any Note, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided,
-------
however, that the Borrower shall not be required to increase any such amounts
- -------
payable to any Lender that is not organized under the laws of the United States
of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection. Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
22
<PAGE>
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A) two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the case
may be;
(ii) deliver to the Borrower and the Administrative Agent two further
copies of any such form or certification on or before the date that any
such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 9.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
2.16 Indemnity. The Borrower agrees to indemnify each Lender and to hold
---------
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans or C/D Rate Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans or C/D Rate Loans on a day which is not the last day of an Interest Period
with respect thereto. Such indemnification may include an amount equal to the
excess, if any, of (i) the amount of
23
<PAGE>
interest which would have accrued on the amount so prepaid, or not so borrowed,
converted or continued, for the period from the date of such prepayment or of
such failure to borrow, convert or continue to the last day of such Interest
Period (or, in the case of a failure to borrow, convert or continue, the
Interest Period that would have commenced on the date of such failure) in each
case at the applicable rate of interest for such Loans provided for herein
(excluding, however, the Applicable Margin included therein, if any) over (ii)
the amount of interest (as reasonably determined by such Lender) which would
have accrued to such Bank on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.17 Change of Lending Office. Each Lender agrees that if it makes any
------------------------
demand for payment under subsection 2.14 or 2.15(a), or if any adoption or
change of the type described in subsection 2.13 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 2.14 or
2.15(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 2.13.
2.18 Extension of Maturity Date. (a) Not less than 60 days and not more
--------------------------
than 90 days prior to the date that is one year prior to the Termination Date
then in effect, provided that no Event of Default shall have occurred and be
continuing, the Borrower may request an extension of such Termination Date by
submitting to the Administrative Agent an Extension Request containing the
information in respect of such extension specified in Exhibit B, which the
Administrative Agent shall promptly furnish to each Lender. Each Lender shall,
not less than 30 days and not more than 45 days prior to the date that is one
year prior to the Termination Date then in effect, notify the Borrower and the
Administrative Agent of its election to extend or not extend the Termination
Date as requested in such Extension Request. Notwithstanding any provision of
this Agreement to the contrary, any notice by any Lender of its willingness to
extend the Termination Date shall be revocable by such Lender in its sole and
absolute discretion at any time prior to the date which is 30 days prior to the
date that is one year prior to the Termination Date then in effect. If the then
Majority Lenders shall approve in writing the extension of the Termination Date
requested in such Extension Request, the Termination Date shall automatically
and without any further action by any Person be extended for the period
specified in such Extension Request; provided that (i) each extension pursuant
--------
to this subsection shall be for a maximum of one year and (ii) the Commitment of
any Lender that does not consent in writing to such extension not less than 30
days and not more than 45 days prior to the date that is one year prior to the
Termination Date then in effect (an "Objecting Lender") shall, unless earlier
----------------
terminated in accordance with this Agreement, expire on the Termination Date in
effect on the date of such Extension Request (such Termination Date, if any,
referred to as the "Commitment Expiration Date" with respect to such Objecting
--------------------------
Lender). If, not less than 30 days and not more than 45 days prior to the date
that is one year prior to the Termination Date then in effect, the then Majority
Lenders shall not approve in writing the extension of the Termination Date
requested in an Extension Request, the Termination Date shall not be extended
pursuant to such Extension Request. The Administrative Agent shall promptly
notify (y) the Lenders and the
24
<PAGE>
Borrower of any extension of the Termination Date pursuant to this subsection
and (z) the Borrower and each other Lender of any Lender which becomes an
Objecting Lender.
(b) Loans owing to any Objecting Lender on the Commitment Expiration Date
with respect to such Lender shall be repaid in full on or before such Commitment
Expiration Date.
(c) The Borrower may, at its sole expense and effort, upon notice to any
Objecting Lender or any Lender who is an "Objecting Lender" as defined in the
Other Credit Agreement (an "Other Objecting Lender") and the Administrative
----------------------
Agent, require such Objecting Lender or Other Objecting Lender, as the case may
be, to assign and delegate, without recourse (in accordance with and subject to
the restrictions contained in subsection 10.6), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) the Borrower shall have received the prior
--------
written consent of the Administrative Agent and the Issuing Banks (unless such
Objecting Lender or Other Objecting Lender is the Administrative Agent or an
Issuing Bank, in which case its consent shall not be required), which consents
shall not unreasonably be withheld, (ii) such Objecting Lender or Other
Objecting Lender, as the case may be, shall have received payment of an amount
equal to the outstanding principal of its Loans and participations in Letter of
Credit disbursements, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrower (in the
case of all other amounts).
(d) For a period of 90 days following any extension of the Termination Date
pursuant to this subsection 2.18, the Borrower may, at its sole expense and
effort, upon notice to the Administrative Agent, cause additional banks or other
financial institutions to become parties hereto as Lenders to replace the
Commitments of Objecting Lenders no longer parties hereto, provided that the
--------
aggregate Commitments shall not exceed the aggregate Commitments existing prior
to such extension. Such additional banks or other financial institutions shall
be subject to the approval of the Administrative Agent and the Issuing Banks
(the consent of which will not be unreasonably withheld) and shall become
parties hereto by executing such supplements hereto as shall be satisfactory to
the Borrower and the Administrative Agent. Upon any such bank or other financial
institution so becoming a Lender the Borrower will effect such borrowings and
prepayments as are necessary to cause all then outstanding Loans to be held
ratably by all the Lenders.
2.19 Telephonic Notices. The Borrower hereby authorizes the Lenders and the
------------------
Administrative Agent to extend, convert or continue Loans, effect selections of
Types of Loans and to transfer funds based on telephonic notices made by any
person or persons the Administrative Agent or any Lender in good faith believes
to be a Responsible Officer or manager of corporate markets acting on behalf of
the Borrower. The Borrower agrees to deliver promptly to the Administrative
Agent a written confirmation, if such confirmation is requested by the
Administrative Agent or any Lender, of each telephonic notice signed by a
Responsible Officer. If the written confirmation differs in any material respect
from the action taken by the Administrative Agent and the Lenders, the records
of the Administrative Agent and the Lenders shall govern absent manifest error.
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<PAGE>
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment.
--------------
(a) Subject to the terms and conditions hereof, the Issuing Bank, in
reliance on the agreements of the other Lenders set forth in subsection 3.4(a),
agrees to issue letters of credit ("Letters of Credit") for the account of the
-----------------
Borrower on any Business Day during the Commitment Period in such form as may be
approved from time to time by the Issuing Bank; provided that the Issuing Bank
--------
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or
(ii) the Available Commitment of any Lender would be less than zero.
(b Each Letter of Credit shall:
(i be denominated in Dollars and shall be a standby letter of credit
issued to support obligations of the Borrower or any Subsidiary, contingent
or otherwise, and
(ii expire no later than the earlier of (A) the date that is two years
from the date of issue of such Letter of Credit and (B) the date which is
ten days prior to the Termination Date.
(c Anything in this Agreement to the contrary notwithstanding, the Existing
L/Cs shall be deemed Letters of Credit issued hereunder on the Closing Date,
unless such Existing L/Cs shall have been terminated prior to the Closing Date.
(d Each Letter of Credit shall be subject to the Uniform Customs and, to
the extent not inconsistent therewith, the laws of the State of New York.
(e) The Issuing Bank shall not at any time be obligated to issue any Letter
of Credit hereunder if such issuance would conflict with, or cause the Issuing
Bank or any L/C Participant to exceed any limits imposed by, any applicable
Requirement of Law.
26
<PAGE>
3.2 Procedure for Issuance of Letters of Credit.
-------------------------------------------
The Borrower may from time to time request that the Issuing Bank issue a
Letter of Credit by delivering to the Issuing Bank at its address for notices
specified herein an Application therefor, completed to the satisfaction of the
Issuing Bank, and such other certificates, documents and other papers and
information as the Issuing Bank may request. Upon receipt of any Application,
the Issuing Bank will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Bank be required to
issue any Letter of Credit earlier than three Business Days after its receipt of
the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Bank and the Borrower. The Issuing Bank shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof.
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans hereunder which fee shall be
payable to the Administrative Agent, to be shared ratably among the L/C
Participants and to be payable quarterly in arrears on each L/C Fee Payment Date
after the issuance date. In addition, the Borrower shall pay to each Issuing
Bank for its own account an issuing fee with respect to each Letter of Credit
issued by such Issuing Bank as set forth in that certain letter agreement among
the Borrower, CIBC, First Chicago and First Chicago Capital Markets, Inc. dated
November 17, 1997, or as otherwise agreed from time to time, on all outstanding
letters of credit, payable quarterly in arrears on each L/C Fee Payment Date
after the issuance date.
(b In addition to the foregoing fees and commissions, the Borrower shall
pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in issuing, negotiating,
effecting payment under, amending or otherwise administering any Letter of
Credit.
3.4 L/C Participations.
------------------
(a The Issuing Bank irrevocably agrees to grant and hereby grants to each
L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and purchase and
hereby accepts and purchases from the Issuing Bank, on the terms and conditions
hereinafter stated, for such L/C Participant's own account and risk an undivided
interest equal to such L/C Participant's Commitment Percentage in the Issuing
Bank's obligations and rights under each Letter of Credit issued hereunder and
the amount of each draft paid by the Issuing Bank thereunder. Each L/C
Participant unconditionally and irrevocably agrees with the Issuing Bank that,
if a draft is paid under any Letter of Credit for which the Issuing Bank is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the
Issuing Bank's address for notices specified herein an amount equal to such L/C
Participant's Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed. Each L/C Participant acknowledges and
agrees that its obligation to acquire
27
<PAGE>
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstances
whatsoever, including the occurrence and continuance of a Default or an Event of
Default or the termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(b If any amount required to be paid by any L/C Participant to the Issuing
Bank pursuant to subsection 3.4(a) in respect of any unreimbursed portion of any
payment made by the Issuing Bank under any Letter of Credit is not paid to the
Issuing Bank when due but is paid to the Issuing Bank within three Business Days
after the date such payment is due, such L/C Participant shall pay to the
Issuing Bank on demand an amount equal to the product of (i) such amount, times
(ii) the daily average Federal funds rate, as quoted by the Issuing Bank, during
the period from and including the date such payment is required to the date on
which such payment is immediately available to the Issuing Bank, times (iii) a
fraction the numerator of which is the number of days that elapse during such
period and the denominator of which is 360. If any such amount required to be
paid by any L/C Participant pursuant to subsection 3.4(a) is not in fact made
available to the Issuing Bank by such L/C Participant within three Business Days
after the date such payment is due, the Issuing Bank shall be entitled to
recover from such L/C Participant, on demand, such amount with interest thereon
calculated from such due date at the rate per annum applicable to ABR Loans
hereunder. A certificate of the Issuing Bank submitted to any L/C Participant
with respect to any amounts owing under this subsection shall be conclusive in
the absence of manifest error.
(c Whenever, at any time after the Issuing Bank has made payment under any
Letter of Credit and has received from any L/C Participant its pro rata share of
such payment in accordance with subsection 3.4(a), the Issuing Bank receives any
payment related to such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the Issuing
Bank), or any payment of interest on account thereof, the Issuing Bank will
distribute to such L/C Participant its pro rata share thereof; provided,
--------
however, that in the event that any such payment received by the Issuing Bank
- -------
shall be required to be returned by the Issuing Bank, such L/C Participant shall
return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.
3.5 Reimbursement Obligation of the Borrower.
----------------------------------------
(a The Borrower agrees to reimburse the Issuing Bank on each date on which
the Issuing Bank notifies the Borrower of the date and amount of a draft
presented under any Letter of Credit and paid by the Issuing Bank for the amount
of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or
expenses incurred by the Issuing Bank in connection with such payment. Each such
payment shall be made to the Issuing Bank at its address for notices specified
herein in Dollars and in immediately available funds.
(b Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this subsection from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding ABR Loans which were then
overdue.
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<PAGE>
(c Each drawing under any Letter of Credit shall constitute a request by
the Borrower to the Administrative Agent for a borrowing pursuant to subsection
2.2 of ABR Loans in the amount of such drawing. The Borrowing Date with respect
to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute.
--------------------
(a The Borrower's obligations under this Section 3 shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Borrower may have or have had
against the Issuing Bank or any beneficiary of a Letter of Credit.
(b The Borrower also agrees with the Issuing Bank that the Issuing Bank
shall not be responsible for, and the Borrower's Reimbursement Obligations under
subsection 3.5(a) shall not be affected by, among other things, (i) the validity
or genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged (subject,
however, to the provisions of subsection 3.6(d)), or (ii) any dispute between or
among the Borrower and any beneficiary of any Letter of Credit or any other
party to which such Letter of Credit may be transferred or (iii) any claims
whatsoever of the Borrower against any beneficiary of such Letter of Credit or
any such transferee.
(c The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct.
(d The Borrower agrees that any action taken or omitted by the Issuing Bank
under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Commercial
Code of the State of New York, shall be binding on the Borrower and shall not
result in any liability of the Issuing Bank to the Borrower.
3.7 Letter of Credit Payments.
-------------------------
If any draft shall be presented for payment under any Letter of Credit, the
Issuing Bank shall promptly notify the Borrower of the date and amount thereof.
The responsibility of the Issuing Bank to the Borrower in connection with any
draft presented for payment under any Letter of Credit shall, in addition to any
payment obligation expressly provided for in such Letter of Credit, be limited
to determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment are in conformity with such
Letter of Credit.
3.8 Application.
-----------
To the extent that any provision of any Application related to any Letter
of Credit is inconsistent with the provisions of this Section 3, the provisions
of this Section 3 shall apply.
29
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit, the Borrower hereby
represents and warrants to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a)(i) The consolidated balance sheet of AEI and
-------------------
its consolidated Subsidiaries as at December 31, 1996 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, reported on by Deloitte & Touche LLP, copies of which have heretofore
been furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of AEI and its consolidated Subsidiaries as at
such date, and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. The unaudited
consolidated balance sheet of AEI and its consolidated Subsidiaries as at
September 30, 1997 and the related unaudited consolidated statements of income
and of cash flows for the nine-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated financial
condition of AEI and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the nine-month period then ended (subject to normal year-end audit adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). Neither AEI
nor any of its consolidated Subsidiaries had, at the date of the most recent
balance sheet referred to above, any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto. During the period from December
31, 1996 to and including the date hereof there has been no sale, transfer or
other disposition by AEI or any of its consolidated Subsidiaries of any material
part of its business or property and no purchase or other acquisition of any
business or property (including any capital stock of any other Person) material
in relation to the consolidated financial condition of AEI and its consolidated
Subsidiaries at December 31, 1996. (ii) The consolidated balance sheet of
Delmarva and its consolidated Subsidiaries as at December 31, 1996 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by Coopers & Lybrand L.L.P., copies of which
have heretofore been furnished to each Lender, are complete and correct and
present fairly the consolidated financial condition of Delmarva and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of Delmarva and its consolidated
Subsidiaries as at September 30, 1997 and the related unaudited consolidated
statements of income and of cash flows for the nine-month period ended on such
date, certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of Delmarva and its consolidated Subsidiaries
as at such date, and the consolidated results of their operations and their
consolidated cash flows for the nine-month period then ended (subject to normal
year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
30
<PAGE>
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither Delmarva nor any of its consolidated Subsidiaries had, at the
date of the most recent balance sheet referred to above, any material Guarantee
Obligation, contingent liability or liability for taxes, or any long-term lease
or unusual forward or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto. During the period
from December 31, 1996 to and including the date hereof there has been no sale,
transfer or other disposition by Delmarva or any of its consolidated
Subsidiaries of any material part of its business or property and no purchase or
other acquisition of any business or property (including any capital stock of
any other Person) material in relation to the consolidated financial condition
of Delmarva and its consolidated Subsidiaries at December 31, 1996.
(b The unaudited pro forma balance sheets of the Borrower and its
---------
consolidated Subsidiaries as at September 30, 1997, certified by a Responsible
Officer of the Borrower (collectively, the "Pro Forma Balance Sheet"), copies of
-----------------------
which have been furnished to each Lender, is the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries, adjusted to give effect
(as if such events had occurred on such date) to the Merger and the incurrence
of the Loans hereunder. The Pro Forma Balance Sheet, together with the notes
thereto, was prepared in accordance with GAAP and reflects on a pro forma basis
the financial position of the Borrower and its consolidated Subsidiaries as at
January 1, 1998, as adjusted as described above, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(c The projections, certified by a Responsible Officer of the Borrower, by
the Borrower of the operating budget and cash flow budget of the Borrower and
its Subsidiaries for the five fiscal years following the consummation of the
Merger, copies of which have heretofore been furnished to each Lender
(collectively, the "Five-Year Projections"), have been prepared on the basis of
---------------------
sound financial planning practice and the Borrower has no reason to believe they
are incorrect or misleading in any material respect.
4.2 No Change. Since September 30, 1997 there has been no development or
---------
event which has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower and its
----------------------------------------
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has the corporate power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law, except to the extent that
the failure to comply with clauses (a) through (d) above would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. (a) The
-------------------------------------------------------
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform this Agreement and each other Loan Document and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and
31
<PAGE>
each other Loan Document and to authorize the execution, delivery and
performance of this Agreement, the Notes and the Applications and each other
Loan Document to which it is a party.
(b Except for consents, authorizations, approvals, notices and filings
described on Schedule 4.4, all of which have been obtained, made or waived, no
consent or authorization of, approval by, notice to, filing with or other act by
or in respect of, any Governmental Authority (including, without limitation, the
United States Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, as amended) or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any other Loan
Document.
(c This Agreement has been, and each other Loan Document will be, duly
executed and delivered on behalf of the Borrower.
(d This Agreement constitutes, and each other Loan Document when executed
and delivered will constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms, except
as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to the enforcement of creditors'
rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement, any Applications and any Notes, the borrowings hereunder and the use
of the proceeds thereof will not violate any Requirement of Law or material
Contractual Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of its
or their respective properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
4.6 No Material Litigation. Except as heretofore disclosed to the Lenders
----------------------
by the Borrower (a) in its financial statements referred to in subsection 4.1 or
(b) in quarterly or other periodic reports filed with the United States
Securities and Exchange Commission copies of which have been delivered to the
Lenders prior to the date hereof, no litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
which could reasonably be expected to have a Material Adverse Effect.
4.7 Ownership of Property; Liens. Each of the Borrower and its Subsidiaries
----------------------------
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all its real property, and good title to, or a valid leasehold
interest in, all its other property, except to the extent that the failure to
have such title or leasehold interest could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect, and none of such property is subject
to any Lien except as permitted by subsection 7.2.
4.8 Taxes. Each of the Borrower and its Subsidiaries has filed or caused to
-----
be filed all tax returns which, to the knowledge of the Borrower, are required
to be filed and has paid all taxes shown to be due and payable on said returns
or on any assessments made against it
32
<PAGE>
or any of its property and all other taxes, fees or other charges imposed on it
or any of its property by any Governmental Authority (other than any the amount
or validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or its Subsidiaries, as the case may be),
except to the extent that the failure to file such tax returns or pay such
taxes, fees and other charges would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.9 Federal Regulations. No part of the proceeds of any Loans will be used
-------------------
in any manner that would result in a violation of Regulation G or Regulation U
of the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
4.10 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
4.11 Investment Company Act. The Borrower is not an "investment company",
----------------------
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
4.12 Purpose of Loans. The proceeds of the Loans shall be used by the
----------------
Borrower for general corporate purposes.
4.13 Environmental Matters. In the ordinary course of its business, the
---------------------
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
reasonably concluded that Environmental Laws cannot reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has
received any notice to the effect that its operations are not in material
compliance with any of the requirements of applicable Environmental Laws or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial action
could reasonably be expected to have a Material Adverse Effect.
33
<PAGE>
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. The effectiveness of the Loan
---------------------------
Documents is subject to the satisfaction of the following conditions precedent:
(a Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a copy for each Lender and (ii) for the account of each
Lender which shall have delivered to the Administrative Agent a request
therefor, a Note, conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrower.
(b Corporate Proceedings of the Borrower. The Administrative Agent
-------------------------------------
shall have received, with a copy for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party and (ii) the borrowings contemplated
hereunder, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Effective Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(c Corporate Documents. The Administrative Agent shall have received,
-------------------
with a copy for each Lender, true and complete copies of the certificate of
incorporation and by-laws of the Borrower, certified as of the Effective
Date as complete and correct copies thereof by the Secretary or Assistant
Secretary of the Borrower.
(d Borrower Incumbency Certificate. The Administrative Agent shall
-------------------------------
have received, with a copy for each Lender, a Certificate of the Borrower,
dated the Effective Date, as to the incumbency and signature of the
officers of the Borrower executing any Loan Document satisfactory in form
and substance to the Administrative Agent, executed by the President or any
Vice President and the Secretary or any Assistant Secretary of the
Borrower.
(e Fees. The Administrative Agent (for its own account or for that of
----
the Lenders) shall have received the fees to be received on the Effective
Date.
(f Other Credit Agreement. The Other Credit Agreement shall have
----------------------
become effective simultaneously with the effectiveness of this Agreement.
(g Investment Strategy. The Administrative Agent shall have received,
-------------------
with a copy for each Lender, a copy of the Borrower's "Investment Strategy"
relating to the non-regulated businesses of the Borrower and its
Subsidiaries (the "Investment Strategy") satisfactory in form and substance
-------------------
to the Administrative Agent.
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(h Pro-Forma Balance Sheet. The Administrative Agent shall have
-----------------------
received, with a copy for each Lender, the Pro-Forma Balance Sheet.
(i Five-Year Projections. The Administrative Agent shall have
---------------------
received, with a copy for each Lender, the Five-Year Projections.
(j Other Matters. The Administrative Agent shall have received, with a
-------------
copy for each Lender, such other approvals, opinions and documents as the
Administrative Agent may reasonably request.
5.2 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such extension of credit on the Closing Date, of the
following conditions precedent:
(a Merger. The Administrative Agent shall have received evidence, in
------
form and substance satisfactory to it, that the Merger shall have been
completed on the terms described in the Borrower's Application-Declaration
on Form U-1, as amended, filed with the Securities and Exchange Commission
under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as
amended, seeking approvals relating to the acquisition by the Borrower of
securities of Delmarva and merger into the Borrower of Atlantic Energy,
Inc., a New Jersey corporation and parent of ACE, and for other related
transactions.
(b Existing Obligations. The Administrative Agent shall have received
--------------------
satisfactory evidence that the obligations of each of the Borrower, ACE and
Delmarva and their Subsidiaries under those existing bank credit agreements
set forth on Schedule 5.2(b) shall be terminated upon the payment of all
amounts due and payable thereunder and that all such amounts shall have
been paid in full or shall be paid in full with the proceeds of the initial
extensions of credit hereunder.
(c Consents, Licenses and Approvals. The Administrative Agent shall
--------------------------------
have received, with a copy for each Lender, a certificate of a Responsible
Officer of the Borrower (i) attaching copies of all consents,
authorizations and filings referred to in subsection 4.4, and (ii) stating
that such consents, licenses and filings are in full force and effect, and
each such consent, authorization and filing shall be in form and substance
satisfactory to the Administrative Agent.
(d Legal Opinion. The Administrative Agent shall have received, with a
-------------
copy for each Lender, the executed legal opinion of James E. Franklin II,
Vice President, Secretary and General Counsel of the Borrower,
substantially in the form of Exhibit C; such legal opinion shall cover such
other matters incident to the transactions contemplated by this Agreement
as the Administrative Agent may reasonably require.
5.3 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it hereunder on
any date (including,
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<PAGE>
without limitation, its initial extension of credit) is
subject to the satisfaction of the following conditions precedent:
(a Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date (except to the extent that such representations
and warranties are expressly stated to relate to an earlier date, in which
case such representations and warranties shall have been true and correct
as of such earlier date).
(b No Default. No Default or Event of Default shall have occurred and
----------
be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
Each borrowing by and Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such borrowing or issuance that the conditions contained in this
subsection 5.3 have been satisfied. A drawing under a Letter of Credit does not,
in and of itself, constitute a borrowing hereunder.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall and (except in the case of delivery of financial information,
reports and notices) shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Lender:
--------------------
(a as soon as available, but in any event within 95 days after the end
of each fiscal year of each of the Borrower, ACE and Delmarva, a copy of
the consolidated balance sheets of each of the Borrower, ACE and Delmarva
and its consolidated Subsidiaries as at the end of such year and the
related consolidated statements of income and retained earnings and of cash
flows for such year, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by independent certified public accountants of nationally
recognized standing; and
(b as soon as available, but in any event not later than 50 days after
the end of each of the first three quarterly periods of each fiscal year of
each of the Borrower, ACE
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<PAGE>
and Delmarva, the unaudited consolidated balance sheets of each of the
Borrower, ACE and Delmarva and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of income
and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Lender:
-------------------------------
(a concurrently with the delivery of the financial statements referred
to in subsection 6.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such certificate;
(b concurrently with the delivery of the financial statements referred
to in subsections 6.1(a) and (b), a certificate of a Responsible Officer
stating that, to the best of such Responsible Officer's knowledge, during
such period the Borrower has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate;
(c (i) promptly upon becoming available, copies of all financial
statements and reports which the Borrower sends to its stockholders, (ii)
promptly upon becoming available, copies of all financial statements,
reports and registration and proxy statements which the Borrower, ACE or
Delmarva may make to, or file with, the United States Securities and
Exchange Commission or any successor or analogous Governmental Authority
and (iii) promptly upon becoming available, copies of any prospectus or
offering memorandum relating to new securities or material corporate
transactions of the Borrower, ACE, Delmarva or their Subsidiaries not
otherwise furnished pursuant to clause (ii) above;
(d promptly, such additional financial and other information as the
Administrative Agent may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except (a) where the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the
books of the Borrower or its Subsidiaries, as the case may be, or (b) to the
37
<PAGE>
extent that the failure to pay, discharge or otherwise satisfy such obligations
would not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
6.4 Conduct of Business and Maintenance of Existence. Continue to
------------------------------------------------
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence (except as may
result from the Merger) and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business except as otherwise permitted pursuant to subsections 7.3 or 7.4;
comply with all Contractual Obligations and Requirements of Law, including,
without limitation, all ERISA and tax laws and all Environmental Laws, except to
the extent that failure to comply therewith would not, in the aggregate, be
reasonably expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. Keep all property useful and
----------------------------------
necessary in its business (other than property sold as permitted by subsection
7.4) in good working order and condition and maintain with financially sound and
reputable insurance companies insurance on all its property (with usual
self-insured retentions) in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies
engaged in the same or a similar business, except to the extent that the failure
to keep such property in good working order and condition or to maintain such
insurance would not, in the aggregate, be reasonably expected to have a Material
Adverse Effect; and furnish to each Lender, upon written request, full
information as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time during normal business hours and as often as may reasonably be desired and
upon two days prior written request to discuss the business, operations,
properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and each
-------
Lender of:
(a the occurrence of any Default or Event of Default;
(b the occurrence of any development or event that would cause the
representation in subsection 4.10 to be false if such representation were
made at the time of or immediately after the occurrence of such development
or event;
(c any change in the rating (actual or implied) by any Rating Agency
of the senior, long-term, secured, non credit-enhanced debt of either ACE
or Delmarva; and
(d any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
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Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
6.8 Investment Strategy. Comply in all material respects with the
-------------------
Investment Strategy.
6.9 Termination of Existing Bank Credit Agreements. Use its best
----------------------------------------------
efforts to terminate all agreements listed on Schedule 6.9 as soon as
practicable following the initial extension of credit hereunder.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall not, and (except with respect to subsection 7.1) shall not permit
any of its Subsidiaries to, directly or indirectly:
7.1 Maintenance of Indebtedness to Capitalization Ratio. Permit the
---------------------------------------------------
ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization at
the end of any fiscal quarter of the Borrower to be greater than .65 to 1.00.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist any
-------------------
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, including, without limitation, any Lien upon the Capital
Stock of ACE or Delmarva, except for:
(a Liens on assets of ACE and Delmarva and their respective
Subsidiaries.
(b Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(c carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(d pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(e deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(f easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount
39
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and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct
of the business of the Borrower or such Subsidiary;
(g Liens on assets in existence on the date hereof listed on Schedule
7.2, provided that no such Lien is spread to cover any additional property
--------
after the Closing Date and that the amount of Indebtedness secured thereby
is not increased;
(h Liens securing Indebtedness of the Borrower and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets, provided
--------
that (i) such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do not at any
time encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not
increased and (iv) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed 100% of the original purchase price of such
property at the time it was acquired;
(i Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof, provided that (i) such Liens existed at
--------
the time such corporation became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not spread to cover any
property or assets of such corporation after the time such corporation
becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby
is not increased; and
(j Liens (not otherwise permitted hereunder) which secure obligations
not exceeding (as to the Borrower and all Subsidiaries) $10,000,000 in
aggregate amount at any time outstanding; and
(k Liens granted by a Special Purpose Subsidiary to secure Nonrecourse
Transition Bond Debt of such Special Purpose Subsidiary.
7.3 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, except:
(a so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any Subsidiary of the Borrower may be
merged or consolidated with or into the Borrower (provided that the
--------
Borrower shall be the continuing or surviving corporation) or with or into
any one or more wholly owned Subsidiaries of the Borrower (provided that
--------
the wholly owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation);
(b so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any wholly owned Subsidiary may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or any other wholly
owned Subsidiary of the Borrower;
40
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(c so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any Significant Subsidiary may merge
or consolidate with any other Person so long as such Significant Subsidiary
shall be the surviving entity; and
(d as may result from the Merger.
7.4 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
transfer or otherwise dispose of all or any substantial part of its property,
business or assets, whether now owned or hereafter acquired, or, in the case of
any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to
any Person other than the Borrower or any wholly owned Subsidiary, except:
(a so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the Capital Stock or
assets of any Subsidiary other than a Significant Subsidiary, provided that
--------
the fair market value of all sales pursuant to this subsection 7.4(a) shall
not exceed $10,000,000 in the aggregate;
(b so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of that certain centralized
steam and chilled water production facility located on an approximately
three-quarter acre site on the northeastern corner of the intersection of
Atlantic and Ohio Avenues in Atlantic City, New Jersey and related
distribution facilities;
(c so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the assets of any
Significant Subsidiary, provided that the book value of all sales by such
--------
Significant Subsidiary pursuant to this subsection 7.4(c) shall not, in the
aggregate, exceed 10% of the book value of the assets of such Significant
Subsidiary as of December 31, 1997;
(d so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the sale of the assets of any
Significant Subsidiary not otherwise permitted pursuant to subsections
7.4(b) or 7.4(c), provided that such sale shall be with the written consent
--------
of the Majority Lenders pursuant to subsection 10.1, which consent shall
not be unreasonably withheld; and
(e as permitted by subsection 7.3.
7.5 Maintenance of Aggregate Availability. Issue any commercial paper
-------------------------------------
if, after giving effect thereto, the Aggregate Availability would be less than
zero.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due in accordance with the terms thereof or
hereof; or
41
<PAGE>
the Borrower shall fail to pay any interest on any Loan, or any other
amount payable hereunder, within five days after any such interest or other
amount becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(c) The Borrower shall default in the observance or performance of any
agreement contained in Section 7; or
(d) The Borrower shall default in the observance or performance of any
other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period commencing on the
earlier of (i) the first date on which a Responsible Officer of the
Borrower first learns of such default and (ii) the date of receipt by the
Borrower of notice thereof from the Administrative Agent or any Lender and
ending on the date which is 30 days thereafter (or, in the case of any
default under subsections 6.3 through 6.5 or 6.6(a) which is capable of
being remedied, ending on the date on which the Borrower shall no longer be
continuing good faith efforts to remedy such default); or
(e) The Borrower or any of its Significant Subsidiaries shall (i)
default in any payment of principal of or interest on any Indebtedness
(other than the Loans) or in the payment of any Guarantee Obligation,
beyond the period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation to
become payable; provided, however, that no Default or Event of Default
-------- -------
shall exist under this paragraph unless the aggregate amount of
Indebtedness and/or Guarantee Obligations in respect of which any default
or other event or condition referred to in this paragraph shall have
occurred shall be equal to at least (A) $10,000,000, in the case of
Indebtedness and/or Guarantee Obligations of the Borrower and any of its
Significant Subsidiaries other than ACE and Delmarva, or (B) $25,000,000,
in the case of Indebtedness and/or Guarantee Obligations of ACE or
Delmarva; or
(f) (i) The Borrower or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of
42
<PAGE>
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Significant Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Significant Subsidiaries any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 consecutive days; or (iii) there shall be
commenced against the Borrower or any of its Significant Subsidiaries any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 consecutive days from the entry thereof; or
(iv) the Borrower or any of its Significant Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) the Borrower or any of its Significant Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Significant Subsidiaries involving in the aggregate
a liability (not paid or fully covered by insurance) of at least (i)
$10,000,000, in the case of judgments and decrees entered against the
Borrower and any of its Significant Subsidiaries other than ACE or
Delmarva, or (ii) $25,000,000, in the case of judgments and decrees entered
against ACE or Delmarva, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
consecutive days from the entry thereof; or
43
<PAGE>
(i) (i) Any Person or "group" (within the meaning of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended) (A) shall have
acquired beneficial ownership of 30% or more of any outstanding class of
Capital Stock having ordinary voting power in the election of directors of
the Borrower or (B) shall obtain the power (whether or not exercised) to
elect a majority of the Borrower's directors, (ii) the Board of Directors
of the Borrower shall not consist of a majority of Continuing Directors or
(iii) at any time after the Merger, the Borrower shall cease to own
directly or indirectly, free and clear of all Liens or other encumbrances,
100% of the outstanding shares of voting stock of ACE and Delmarva on a
fully diluted basis; "Continuing Directors" shall mean the directors of the
--------------------
Borrower on the Closing Date and each other director, if such other
director's nomination for election to the Board of Directors of the
Borrower is recommended by a majority of the then Continuing Directors;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) and any Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower declare the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate; and (ii) with the consent of the
Majority Lenders, the Administrative Agent may, or upon the request of the
Majority Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) and any Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Bank and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under any Notes. After all
such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under any Notes shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower. The Borrower shall execute and deliver to the Administrative Agent,
for the account of the Issuing Bank and
44
<PAGE>
the L/C Participants, such further documents and instruments as the
Administrative Agent may request to evidence the creation and perfection of the
within security interest in such cash collateral account.
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENTS
9.1 Appointment; Nature of Relationship. The First National Bank of
-----------------------------------
Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Administrative Agent") hereunder and
under each other Loan Document, and each of the Lenders irrevocably authorizes
the Administrative Agent to act as the contractual representative of such Lender
with the rights and duties expressly set forth herein and in the other Loan
Documents. The Administrative Agent agrees to act as such contractual
representative upon the express conditions contained in this Section 9.
Notwithstanding the use of the defined term "Administrative Agent," it is
expressly understood and agreed that the Administrative Agent shall not have any
fiduciary responsibilities to any Lender by reason of this Agreement or any
other Loan Document and that the Administrative Agent is merely acting as the
contractual representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Administrative Agent
(i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Administrative Agent on any agency theory or any
other theory of liability for breach of fiduciary duty, all of which claims each
Lender hereby waives.
9.2 Powers. The Administrative Agent shall have and may exercise
------
such powers under the Loan Documents as are specifically delegated to the
Administrative Agent by the terms of each thereof, together with such powers as
are reasonably incidental thereto. The Administrative Agent shall have no
implied duties to the Lenders, or any obligation to the Lenders to take any
action thereunder except any action specifically provided by the Loan Documents
to be taken by the Administrative Agent.
9.3 General Immunity. Neither the Administrative Agent nor any of
----------------
its directors, officers, agents or employees shall be liable to the Borrower,
the Lenders or any Lender for any action taken or omitted to be taken by it or
them hereunder or under any other Loan Document or in connection herewith or
therewith except to the extent such action or inaction is determined in a final
non-appealable judgment by a court of competent jurisdiction to have arisen from
the gross negligence or willful misconduct of such Person.
9.4 No Responsibility for Loans, Recitals, etc. Neither the
------------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(a) any statement, warranty or representation made in connection
45
<PAGE>
with any Loan Document or any borrowing hereunder; (b) the performance or
observance of any of the covenants or agreements of any obligor under any Loan
Document, including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (c) the satisfaction of any condition
specified in Section 5, except receipt of items required to be delivered solely
to the Administrative Agent; (d) the existence or possible existence of any
Default or Event of Default; (e) the validity, enforceability, effectiveness,
sufficiency or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith (except as may relate to the execution
by the Administrative Agent of any Loan Document); (f) the value, sufficiency,
creation, perfection or priority of any Lien in any collateral security; or (g)
the financial condition of the Borrower or any guarantor of any of the
Obligations or of any of the Borrower's or any such guarantor's respective
Subsidiaries. The Administrative Agent shall have no duty to disclose to the
Lenders information that is not required to be furnished by the Borrower to the
Administrative Agent at such time, but is voluntarily furnished by the Borrower
to the Administrative Agent (either in its capacity as Administrative Agent or
in its individual capacity).
9.5 Action on Instructions of Lenders. The Administrative Agent
---------------------------------
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder and under any other Loan Document in accordance with written
instructions signed by the Majority Lenders, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Majority Lenders. The
Administrative Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
9.6 Employment of Administrative Agents and Counsel. The
-----------------------------------------------
Administrative Agent may execute any of its duties as Administrative Agent
hereunder and under any other Loan Document by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Administrative Agent shall be entitled to advice of counsel
concerning the contractual arrangement between the Administrative Agent and the
Lenders and all matters pertaining to the Administrative Agent's duties
hereunder and under any other Loan Document.
9.7 Reliance on Documents; Counsel. The Administrative Agent shall
------------------------------
be entitled to rely upon any Note, notice, consent, certificate, affidavit,
letter, telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and, in
respect to legal matters, upon the opinion of counsel selected by the
Administrative Agent, which counsel may be employees of the Administrative
Agent.
9.8 Administrative Agent's Reimbursement and Indemnification. The
--------------------------------------------------------
Lenders agree to reimburse and indemnify the Administrative Agent ratably in
proportion to their respective Commitments (or, if the Commitments have been
terminated, in proportion to their Commitments immediately prior to such
termination) (i) for any amounts not reimbursed by the
46
<PAGE>
Borrower for which the Administrative Agent is entitled to reimbursement by the
Borrower under the Loan Documents, (ii) for any other expenses incurred by the
Administrative Agent on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents (including, without limitation, for any expenses incurred by the
Administrative Agent in connection with any dispute between the Administrative
Agent and any Lender or between two or more of the Lenders) and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Administrative Agent in any way
relating to or arising out of the Loan Documents or any other document delivered
in connection therewith or the transactions contemplated thereby (including,
without limitation, for any such amounts incurred by or asserted against the
Administrative Agent in connection with any dispute between the Administrative
Agent and any Lender or between two or more of the Lenders), or the enforcement
of any of the terms of the Loan Documents or of any such other documents,
provided that no Lender shall be liable for any of the foregoing to the extent
- --------
any of the foregoing is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Administrative Agent. The obligations of the Lenders under
this subsection 9.8 shall survive payment of the Obligations and termination of
this Agreement.
9.9 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Borrower referring to this Agreement describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give prompt notice thereof to the Lenders.
9.10 Rights as a Lender. In the event the Administrative Agent is a
------------------
Lender, the Administrative Agent shall have the same rights and powers hereunder
and under any other Loan Document with respect to its Commitment and its Loans
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the term "Lender" or "Lenders" shall, at any time when the
Administrative Agent is a Lender, unless the context otherwise indicates,
include the Administrative Agent in its individual capacity. The Administrative
Agent and its Affiliates may accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is
not restricted hereby from engaging with any other Person. The Administrative
Agent, in its individual capacity, is not obligated to remain a Lender.
9.11 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Administrative Agent, the
Syndication Agent, the Documentation Agent, the Arrangers or any other Lender
and based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and without reliance
upon the Administrative Agent, the Syndication Agent, the Documentation Agent,
the Arrangers or any other Lender and based on such documents and information as
it shall deem
47
<PAGE>
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents.
9.12 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign at any time by giving written notice thereof to the Lenders and the
Borrower, such resignation to be effective upon the appointment of a successor
Administrative Agent or, if no successor Administrative Agent has been
appointed, forty-five days after the retiring Administrative Agent gives notice
of its intention to resign. The Administrative Agent may be removed at any time
with or without cause by written notice received by the Administrative Agent
from the Majority Lenders, such removal to be effective on the date specified by
the Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint, on behalf of the Borrower and the Lenders, a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders within thirty days after the resigning
Administrative Agent's giving notice of its intention to resign, then the
resigning Administrative Agent may appoint, on behalf of the Borrower and the
Lenders, a successor Administrative Agent. Notwithstanding the previous
sentence, the Administrative Agent may at any time without the consent of the
Borrower or any Lender, appoint any of its Affiliates which is a commercial bank
as a successor Administrative Agent hereunder. If the Administrative Agent has
resigned or been removed and no successor Administrative Agent has been
appointed, the Lenders may perform all the duties of the Administrative Agent
hereunder and the Borrower shall make all payments in respect of the Obligations
to the applicable Lender and for all other purposes shall deal directly with the
Lenders. No successor Administrative Agent shall be deemed to be appointed
hereunder until such successor Administrative Agent has accepted the
appointment. Any such successor Administrative Agent shall be a commercial bank
having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning or removed Administrative Agent. Upon the effectiveness of the
resignation or removal of the Administrative Agent, the resigning or removed
Administrative Agent shall be discharged from any future duties and obligations
hereunder and under the Loan Documents. After the effectiveness of the
resignation or removal of an Administrative Agent, the provisions of this
Section 9 shall continue in effect for the benefit of such Administrative Agent
in respect of any actions taken or omitted to be taken by it while it was acting
as the Administrative Agent hereunder and under the other Loan Documents.
9.13 Administrative Agent's Fee. The Borrower agrees to pay to the
--------------------------
Administrative Agent, for its own account, the fees agreed to by the Borrower
and the Administrative Agent pursuant to that certain letter agreement among the
Borrower, CIBC, First Chicago and First Chicago Capital Markets, Inc. dated
November 17, 1997, or as otherwise agreed in writing from time to time.
9.14 Delegation to Affiliates. The Borrower and the Lenders agree
------------------------
that the Administrative Agent may delegate any of its duties under this
Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's
directors, officers, agents and employees) which performs duties in connection
with this Agreement shall be entitled to the same benefits of the
indemnification, waiver and other protective provisions to which the
Administrative Agent is entitled under Sections 9 and 10.
48
<PAGE>
9.15 The Syndication Agent, the Documentation Agent and the
----------------------------------------------
Arrangers. Neither the Syndication Agent, the Documentation Agent nor any
- ---------
Arranger, in such capacities, shall have any duties, responsibilities,
obligations, liabilities or functions under this Agreement or the other Loan
Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement nor any other
----------------------
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Majority Lenders may, or, with the written consent of the Majority Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Majority Lenders or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
- -------- -------
modification shall (i) reduce the amount or extend the scheduled date of
maturity of any Loan or of any installment thereof or any Reimbursement
Obligation with respect to any Letter of Credit, or reduce the stated rate of
any interest or fee payable hereunder or extend the scheduled date of any
payment thereof or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Majority Lenders, or
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, in each case
without the written consent of all the Lenders, or (iii) amend any provision of
Section 3 or any Application without the written consent of the Issuing Banks,
or (iv) amend, modify or waive any provision of Section 9 or any other provision
relating to the Administrative Agent without the written consent of the then
Administrative Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the Lenders, the Administrative Agent and all future holders
of the Loans. In the case of any waiver, the Borrower, the Lenders and the
Administrative Agent shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
10.2 Notices. Except as provided in subsection 2.19, all notices,
-------
requests and demands to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission) and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made (a)
in the case of delivery by hand, when delivered, (b) in the case of delivery by
mail, three Business Days after being deposited in the mails, postage prepaid,
or (c) in the case of delivery by facsimile transmission, when sent and receipt
has been confirmed, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth
49
<PAGE>
in its Administrative Questionnaire in the case of the other parties hereto, or
to such other address as may be hereafter notified by the respective parties
hereto:
The Borrower: Conectiv, Inc.
800 King Street
P.O. Box 231
Wilmington, Delaware 19899
Attention: Stephanie M. Scola
Fax: (302) 429-3188
The Administrative
Agent: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Ken Bauer
Fax: (312) 732-3055
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7 or 2.12 shall not be
effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
-----------------------------
or reimburse each of the Arrangers, the Syndication Agent, and the
Administrative Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Agreement and the other Loan Documents and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements of
counsel to each of the Arrangers, the Syndication Agent, and the Administrative
Agent, (b) to pay or reimburse each Lender, each of the Arrangers, the
Syndication Agent, and the Administrative Agent for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to each of the Arrangers, the Syndication Agent, and the Administrative
Agent, (c) to pay, indemnify, and hold each Lender,
50
<PAGE>
and each of the Arrangers, the Syndication Agent, and the Administrative Agent
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender, and each of the Arrangers, the Syndication Agent, and the
Administrative Agent harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use of the proceeds of the Loans,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries or any of the Properties
(all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided that the Borrower shall have no obligation hereunder to
the Administrative Agent, the Syndication Agent, the Arrangers or any Lender
with respect to indemnified liabilities arising from the gross negligence or
willful misconduct of the Administrative Agent, the Syndication Agent, the
Arrangers or any such Lender, as applicable. The agreements in this subsection
shall survive repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
------------
Loan owing to such Lender, any Commitment of such Lender or any other interest
of such Lender hereunder and under the other Loan Documents; provided that, in
--------
the case of any such sale of a participating interest, the aggregate amount of
the L/C Obligations and the aggregate amount of the Available Commitment being
assigned is not less than $5,000,000 (or such lesser amount as may be agreed to
by the Administrative Agent). In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. No Lender shall be entitled to create in favor of any Participant, in
the participation agreement pursuant to which such Participant's participating
interest shall be created or otherwise, any right to vote on, consent to or
approve any matter relating to this Agreement or any other Loan Document except
for those specified in clauses (i) and (ii) of the proviso to subsection 10.1.
The Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
51
<PAGE>
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
--------
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 10.7(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.14, 2.15 and 2.16
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the case of
--------
subsection 2.15, such Participant shall have complied with the requirements of
said subsection and provided, further, that no Participant shall be entitled to
-------- -------
receive any greater amount pursuant to any such subsection than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any Affiliate thereof or, with the consent
of the Borrower, each Issuing Bank and the Administrative Agent (which in each
case shall not be unreasonably withheld), to an additional bank or financial
institution (an "Assignee") all or any part of its rights and obligations under
--------
this Agreement and the other Loan Documents pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit D, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an Affiliate thereof, by the Borrower, each Issuing Bank and the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register, provided that, in the case of any such
--------
assignment to an additional bank or financial institution, the sum of the
aggregate principal amount of the Loans, the aggregate amount of the L/C
Obligations and the aggregate amount of the Available Commitment being assigned
is not less than $5,000,000 (or such lesser amount as may be agreed to by the
Borrower and the Administrative Agent). Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs at any time when any Event of Default shall have occurred and be
continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
--------
and the Commitment of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders may (and, in the
52
<PAGE>
case of any Loan or other obligation hereunder not evidenced by a Note, shall)
treat each Person whose name is recorded in the Register as the owner of a Loan
or other obligation hereunder as the owner thereof for all purposes of this
Agreement and the other Loan Documents, notwithstanding any notice to the
contrary. Any assignment of any Loan or other obligation hereunder not evidenced
by a Note shall be effective only upon appropriate entries with respect thereto
being made in the Register.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Borrower and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
----------
subject to the provisions of subsection 10.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which has
been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
-------------------- ----------
Lender") at any time shall receive any payment of all or part of its Loans or
- ------
the Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 8(f) or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders such portion of each such
other Lender's Loan or the Reimbursement Obligations owing to it, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
-------- -------
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Borrower agrees that each
Lender so purchasing a portion of another Lender's Loan may exercise all rights
of payment (including, without limitation, rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
53
<PAGE>
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency or Affiliate thereof to or
for the credit or the account of the Borrower. Each Lender agrees promptly to
notify the Borrower and the Administrative Agent after any such set-off and
application made by such Lender, provided that the failure to give such notice
--------
shall not affect the validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the entire agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties hereto relating to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL SUBSTANTIVE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
54
<PAGE>
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 10.2 or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
10.13 Nonliability of Lenders. The relationship between the
-----------------------
Borrower on the one hand and the Lenders and the Administrative Agent and the
Syndication Agent on the other hand shall be solely that of borrower and lender.
Neither the Administrative Agent, the Syndication Agent, the Arrangers nor any
Lender shall have any fiduciary responsibilities to the Borrower. Neither the
Administrative Agent, the Syndication Agent, the Arrangers nor any Lender
undertakes any responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the Borrower's business or
operations. The Borrower agrees that neither the Administrative Agent, the
Syndication Agent, the Arrangers nor any Lender shall have liability to the
Borrower (whether sounding in tort, contract or otherwise) for losses suffered
by the Borrower in connection with, arising out of, or in any way related to,
the transactions contemplated and the relationship established by the Loan
Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
---------------------
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each Lender agrees to keep confidential all
---------------
non-public information provided to it by the Borrower pursuant to this Agreement
that is known to be or is designated by the Borrower in writing as confidential;
provided that nothing herein shall prevent any Lender from disclosing any such
- --------
information (i) to the Administrative Agent or any other Lender, (ii) to any
Transferee or prospective Transferee which agrees to comply in a binding written
agreement (which may be in a form similar to Exhibit E hereto) with the
provisions of this subsection, (iii) to its employees, directors, agents,
attorneys, accountants and other
55
<PAGE>
professional advisors that need to know such information, (iv) upon the request
or demand of any Governmental Authority having jurisdiction over such Lender,
(v) in response to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law, (vi) which has
been publicly disclosed other than in breach of this Agreement, or (vii) in
connection with any legal proceeding brought in connection with the exercise of
any remedy hereunder.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
CONECTIV, INC.
By:
----------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent, and as a Lender
By:
----------------------------------------------
Name:
Title:
CIBC, INC.
By:
----------------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
----------------------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:
----------------------------------------------
Name:
Title:
57
<PAGE>
FLEET BANK
By:
----------------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
----------------------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
----------------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
----------------------------------------------
Name:
Title:
FIRST NATIONAL BANK OF MARYLAND
By:
----------------------------------------------
Name:
Title:
58
<PAGE>
MELLON BANK, N.A.
By:
----------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY
By:
----------------------------------------------
Name:
Title:
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
59
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA S.P.A.
NEW YORK BRANCH
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
BANCA POPOLARE DI MILANO, NEW YORK
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
ABU DHABI INTERNATIONAL BANK, INC.
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
BANK OF MONTREAL
By:
----------------------------------------------
Name:
Title:
60
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By:
----------------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:
----------------------------------------------
Name:
Title:
SUMMIT BANK
By:
----------------------------------------------
Name:
Title:
61
<PAGE>
Exhibit 12
Conectiv
--------
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Twelve Months Twelve Months Ended December 31,
Ended ---------------------------------------------
March 31, 1999 1998 1997 1996 1995
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income $205,874 $153,201 $101,218 $107,251 $107,546
--------------- --------- --------- --------- ---------
Income taxes 139,057 105,817 72,155 78,340 75,540
--------------- --------- --------- --------- ---------
Fixed charges:
Interest on long-term debt 143,185 133,796 78,350 69,329 65,572
Other interest 29,854 26,199 12,835 12,516 10,353
Preferred stock dividend
requirements of subsidiaries 19,496 17,871 10,178 10,326 9,942
--------------- --------- --------- --------- ---------
Total fixed charges 192,535 177,866 101,363 92,171 85,867
--------------- --------- --------- --------- ---------
Nonutility capitalized interest (2,351) (1,444) (208) (311) (304)
--------------- --------- --------- --------- ---------
Earnings before income taxes
and fixed charges $535,115 $435,440 $274,528 $277,451 $268,649
=============== ========= ========= ========= =========
Total fixed charges shown above $192,535 $177,866 $101,363 $ 92,171 $85,867
Increase preferred stock dividend
requirements of subsidiaries to
a pre-tax amount 4,918 4,901 3,065 6,025 6,243
--------------- --------- --------- --------- ---------
Fixed charges for ratio computation $197,453 $182,767 $104,428 $ 98,196 $ 92,110
=============== ========= ========= ========= =========
Ratio of earnings to fixed charges 2.71 2.38 2.63 2.83 2.92
--------------- --------- --------- --------- ---------
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges, less nonutility capitalized interest. Fixed charges consist
of interest on long- and short-term debt, amortization of debt discount,
premium, and expense, preferred stock dividend requirements of subsidiaries, and
interest on leases. Preferred dividend requirements for purposes of computing
the ratio have been increased to an amount representing the pre-tax earnings
which would be required to cover such dividend requirements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM CONECTIV'S FIRST QUARTER
1999 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,555,447
<OTHER-PROPERTY-AND-INVEST> 632,747
<TOTAL-CURRENT-ASSETS> 765,956
<TOTAL-DEFERRED-CHARGES> 487,584
<OTHER-ASSETS> 692,849
<TOTAL-ASSETS> 6,134,583
<COMMON> 1,074
<CAPITAL-SURPLUS-PAID-IN> 1,571,694
<RETAINED-EARNINGS> 281,682
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,848,210
188,950
95,933
<LONG-TERM-DEBT-NET> 1,700,631
<SHORT-TERM-NOTES> 374,411
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 126,688
0
<CAPITAL-LEASE-OBLIGATIONS> 32,127
<LEASES-CURRENT> 28,202
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,739,431
<TOT-CAPITALIZATION-AND-LIAB> 6,134,583
<GROSS-OPERATING-REVENUE> 946,585
<INCOME-TAX-EXPENSE> 33,314
<OTHER-OPERATING-EXPENSES> 844,047
<TOTAL-OPERATING-EXPENSES> 877,361
<OPERATING-INCOME-LOSS> 69,224
<OTHER-INCOME-NET> 23,113
<INCOME-BEFORE-INTEREST-EXPEN> 92,337
<TOTAL-INTEREST-EXPENSE> 43,642
<NET-INCOME> 48,695
0
<EARNINGS-AVAILABLE-FOR-COMM> 48,695
<COMMON-STOCK-DIVIDENDS> 43,953
<TOTAL-INTEREST-ON-BONDS> 40,260
<CASH-FLOW-OPERATIONS> 148,986
<EPS-PRIMARY> $0.47
<EPS-DILUTED> $0.47
</TABLE>
