SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period from January 1, 1999 to December 31, 1999
Commission File Number 1-14161
KEYSPAN CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 11-3431358
(State or other jurisdiction of incorporation (I.R.S.)employer
or organization identification no.)
175 EAST OLD COUNTRY ROAD, HICKSVILLE, NEW YORK 11801
ONE METROTECH CENTER, BROOKLYN, NEW YORK 11201
(Address of principal executive offices) (Zip code)
(516) 755-6650 (HICKSVILLE)
(718) 403-1000 (BROOKLYN)
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Series AA Preferred Stock, $25 par value New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes. X No.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
As of March 1, 2000, the aggregate market value of the common stock held
by non-affiliates (129,408,442 shares) of the registrant was 2,628,608,978
(based on the closing price, on such date, of $20.3125 per share).
As of March 1, 2000, there were 133,876,426 shares of common stock, $.01
par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated on or about March 27, 2000 is incorporated by reference
into Part III hereof.
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KEYSPAN CORPORATION D/B/A KEYSPAN ENERGY
INDEX TO FORM 10-K
Page
PART I
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Item 1. Business................................................................
Item 2. Properties..............................................................
Item 3. Legal Proceedings.......................................................
Item 4. Submission of Matters to a Vote of Security Holders.....................
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data.................................................
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...........................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............
Item 8. Financial Statements and Supplementary Data.............................
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................
PART III
Item 10. Directors and Executive Officers of the Registrant......................
Item 11. Executive Compensation..................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions..........................
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........
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PART I
ITEM 1. BUSINESS
OVERVIEW
KeySpan Corporation d/b/a KeySpan Energy (the "Company" or "KeySpan Energy")
provides a range of energy-related services through operations and investments
in selected areas of the energy industry. The Company is the fourth largest gas
utility in the United States with approximately 1.6 million customers in New
York City and Long Island. The Company engages in three core downstream
businesses: natural gas distribution, electric services and energy-related
services. It also competes in two additional lines of business: gas exploration
and production and select energy- related investments.
The Company was formed to facilitate the combination (the "Combination"),
completed on May 28, 1998, of KeySpan Energy Corporation ("KSE") and its
principal subsidiary, The Brooklyn Union Gas Company ("Brooklyn Union") and the
non-nuclear electric generation and natural gas distribution businesses of the
Long Island Lighting Company ("LILCO"). To effect the Combination, all of the
assets used by LILCO in connection with its gas distribution business, its
non-nuclear electric generation business and the assets common to its prior
operations (the "Transferred Assets") were transferred to the Company. The Long
Island Power Authority ("LIPA") then acquired all of the common stock of LILCO
for approximately $2.5 billion in cash and the direct or indirect assumption of
certain liabilities. The Company sold to the former holders of LILCO common
stock, shares of the Company's common stock and then acquired KSE by merger with
a wholly-owned subsidiary of the Company in exchange for shares of the Company's
common stock.
The assets of LILCO not transferred to the Company (the "Retained Assets") were
retained by LIPA and primarily consist of LILCO's electric transmission and
distribution ("T&D") system located on Long Island, its 18% ownership interest
in Nine Mile Point Nuclear Power Station, Unit 2 ("NMP2"), located in upstate
New York, and certain of LILCO's regulatory assets and liabilities associated
with its electric business.
The Company was organized as a corporation under New York law in 1998. Brooklyn
Union was formed in 1895 through the consolidation of several existing
companies, the oldest of which commenced operations in 1849, providing gas
distribution services throughout the New York City Boroughs of Brooklyn, Staten
Island and most of Queens, New York. LILCO was organized in 1910 to provide
electric and gas services in the Long Island counties of Nassau and Suffolk and
the Rockaway peninsula in the Borough of Queens, all in New York.
In November 1999, the Company and Eastern Enterprises ("Eastern") announced that
they had signed a definitive merger agreement under which the Company will
acquire all of the common stock of Eastern for $64.00 per share in cash (the
"K/E Transaction"). Through its subsidiaries, Eastern is the largest gas utility
in New England. It owns and operates Boston Gas Company, Colonial Gas
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Company and Essex Gas Company, all of which are natural gas distribution
companies operating in Massachusetts.
Boston Gas Company is a regulated utility that distributes natural gas in
eastern and central Massachusetts, and also sells natural gas for resale in
Massachusetts. Boston Gas has been wholly- owned by Eastern since 1929 and has
been in business for 177 years, making it the second oldest gas company in the
United States. Colonial Gas Company also is a regulated utility that distributes
natural gas in Cape Cod and eastern Massachusetts. Colonial Gas has been in
business for 150 years and was acquired by eastern in August 1999. Essex Gas
Company also is a regulated utility that distributes natural gas in eastern
Massachusetts. Essex Gas has been in business for 146 years and was acquired by
Eastern in September 1998.
Eastern also owns Midland Enterprises Inc., the second largest independent
operator of tow boats and barges on the nations inland river system; Transgas
Inc., an unregulated energy trucking company and ServicEdge Partners, Inc.,
which is engaged in heating, ventilation and air conditioning ("HVAC")
installation and maintenance. At December 31, 1999, Eastern had total assets of
$2.0 billion; long-term debt and preferred stock of $515.2 million; common
shareholders equity of $754.6 million; gross revenues of $978.7 million of which
$690.8 million (or approximately 71%) were derived from regulated gas sales and
gas transportation; operating earnings of $113.4 million; and earnings before
extraordinary items of $55.1 million.
In July 1999, Eastern announced that it had entered into an agreement to acquire
EnergyNorth Inc., owner of New Hampshire's largest natural gas distributor,
Energy North Natural Gas, Inc. ("Energy North"). Energy North is located across
the border from, but contiguous to, areas served by Eastern's gas distribution
subsidiaries. In connection with the Company's acquisition of Eastern, Eastern
has amended its agreement with EnergyNorth Inc. to provide for an all cash
acquisition of EnergyNorth Inc. shares at a price per share of $61.13. The
restructured EnergyNorth Inc. merger is expected to close contemporaneously with
the K/E Transaction (collectively, the K/E Transaction and the restructured
EnergyNorth Inc.'s merger are referred to as the "Eastern Transaction").
The Eastern Transaction is conditioned upon, among other things, the approval of
Eastern's shareholders, the Securities and Exchange Commission (the "SEC") and
the New Hampshire Public Utility Commission. The Company anticipates that the
transaction will be completed in the third or fourth quarter of 2000, but is
unable to determine when or whether all of the required approvals will be
obtained.
The Eastern transaction has a total value of approximately $2.5 billion ($1.7
billion in equity and $0.8 billion in assumed debt and preferred stock).
With the consummation of the Eastern Transaction, the Company will become a
registered holding company under the Public Utility Holding Company Act of 1935,
as amended ("PUHCA"). As such, the corporate and financial activities of the
Company and its subsidiaries, including the ability of each such entity to pay
dividends, will be subject to regulation of the SEC.
The increased size and scope of the combined organization should enable the
combined company to: provide enhanced, cost-effective customer service;
capitalize on the above-average growth
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opportunities for natural gas in the Northeast; and provide additional resources
to the Company's unregulated businesses. The combined company will serve
approximately 2.4 million customers and will be the largest gas distributor in
the Northeast.
As used herein, the "Company" or "KeySpan Energy" refers to KeySpan Corporation
d/b/a KeySpan Energy, Brooklyn Union and KeySpan Gas East Corporation d/b/a
Brooklyn Union of Long Island ("Brooklyn Union of Long Island"), its two
principal gas distribution subsidiaries, and its other subsidiaries,
individually and in the aggregate. In 1998, the Company changed its fiscal year
end from March 31 to December 31. For financial reporting purposes, financial
statements included, or incorporated by reference, herein for the period ending
December 31, 1998 are for the nine months then ended and have been prepared on
the basis that LILCO was deemed the acquiring company in the Combination for
financial reporting purposes. Unless otherwise specified, other information
contained in Part I hereof, for the twelve month periods ended December 31, 1998
and 1997, has been compiled on a combined basis ("Combined Company Basis") to
aggregate the information shown for both KSE and LILCO. Additional information
about the Company's industry segments is contained in Note 2 to the Consolidated
Financial Statements, "Business Segments" included herein and incorporated by
reference thereto.
Certain statements contained in this Annual Report on Form 10-K concerning
expectations, beliefs, plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts, are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Without limiting the foregoing, all statements under the captions "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk" relating to the Company's future outlook, anticipated capital
expenditures, future cash flows and borrowings, pursuit of potential future
acquisition opportunities and sources of funding are forward-looking statements.
Such forward-looking statements reflect numerous assumptions and involve a
number of risks and uncertainties and actual results may differ materially from
those discussed in such statements. Among the factors that could cause actual
results to differ materially are: available sources and cost of fuel; federal
and state regulatory initiatives that increase competition, threaten cost and
investment recovery, and impact rate structures; the ability of the Company to
successfully reduce its cost structure; the successful integration of the
Company's subsidiaries, including the Eastern Transaction companies; the degree
to which the Company develops unregulated business ventures; the ability of the
Company to identify and make complementary acquisitions, as well as the
successful integration of such acquisitions; inflationary trends and interest
rates; and other risks detailed from time to time in other reports and other
documents filed by the Company with the SEC. For any of these statements, the
Company claims the protection of the safe harbor for forward-looking information
contained in the Private Securities Litigation Reform Act of 1995, as amended.
For additional discussion on these risks, uncertainties and assumptions, see
"Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk" contained herein.
The Company's principal executive offices are located at One MetroTech Center,
Brooklyn, New York 11201 and 175 East Old Country Road, Hicksville, New York
11801 and its telephone
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numbers are (718) 403-1000 (Brooklyn) and (516) 755-6650 (Hicksville). Financial
and other information is also available through the World Wide Web at
http://www.keyspanenergy.com.
BUSINESS STRATEGY
The Company seeks to become the premier energy and services company in the
Northeastern United States, delivering energy, products and services to people
at their homes and businesses. The Company engages in three core downstream
businesses: natural gas distribution, electric services and energy-related
services primarily focused in the Northeast. It also competes in two additional
lines of business: gas exploration and production and select energy-related
investments, which include investments in select energy markets or regions,
including the Gulf of Mexico, Western Canada and Northern Ireland. The Company
intends to grow through investments in its core businesses and other
energy-related activities; by expanding its gas distribution business through
the completion of the Eastern Transaction and the continued penetration of the
Long Island gas market; by emphasizing superior customer service; and by taking
advantage of the increasing trend towards deregulation and competition to offer
an expanded array of energy services to its customers.
Key elements of the Company's business strategy include:
INVESTMENTS IN CORE BUSINESSES AND ENERGY-RELATED ACTIVITIES. In recent years,
the Company has made a number of acquisitions and energy-related investments
designed to enhance its presence in the Northeastern United States. On June 18,
1999, the Company acquired the 2,168 megawatt Ravenswood electric generating
plant (the "Ravenswood Facility") located in Long Island City, Queens, New York
City. The Company's total power generation capacity, including its Long Island
generation, now approximates 6,200 megawatts, making it one of the largest power
generators in the region.
As previously noted, on November 4, 1999, the Company entered into a definitive
merger agreement with Eastern to acquire all of its common stock. The Eastern
Transaction will increase the number of gas distribution utilities owned by the
Company, to include Boston Gas Company, Colonial Gas Company, Essex Gas Company
and EnergyNorth, resulting in the Company being the largest gas distributor in
the Northeast serving approximately 2.4 million customers.
The Company has also expanded its unregulated energy services operations in the
Northeast, through several significant acquisitions, including one of the
largest heating, ventilation and air conditioning ("HVAC") contractors in the
state of Rhode Island and a New Jersey based HVAC contractor. Further, in
February 2000, the Company acquired additional companies. For information
concerning these acquisitions, see Note 2 to the Consolidated Financial
Statements, "Business Segment."
Consistent with the Company's strategy to make investments in certain select
markets outside of the Northeast, the Company made two additional investments in
Western Canada. In September 1999, the Company acquired a 37% interest in the
Paddle River gas processing plant and associated gathering systems ("Paddle
River"); and in December 1999, the Company acquired certain oil properties in
Alberta, Canada.
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These acquisitions and energy-related investments reflect the Company's
commitment to enhancing its presence as an energy and service company focused
primarily on the customer-oriented segment of the energy market in the
Northeastern United States, with additional complementary interests in the Gulf
of Mexico and Western Canadian supply basins, as well as Northern Ireland.
EXPANDED GAS DISTRIBUTION SERVICES. The Company has achieved a high degree of
penetration in its Brooklyn Union service territory, with approximately 79% of
all one and two family homes currently using natural gas for space heating. In
contrast, only 28% of one and two family homes in Brooklyn Union of Long
Island's service territory currently use natural gas for space heating. The
Company believes that there remains a significant opportunity for increased gas
heating penetration of the Long Island service territory and continues to make
capital expenditures to expand its gas distribution infrastructure in this area
in order to maximize long-term growth objectives while enhancing shareholder
value. In addition, the Company expects to provide a focused marketing effort in
both service territories, in an attempt to capitalize on the current substantial
price advantage that natural gas enjoys over competing fuel oil in residential
and small commercial markets in the metropolitan New York City - Long Island
area. Examples of focused marketing programs include concentrated efforts to
convert current non-heating natural gas customers, which would require little or
minimal capital investment; continued targeting of the new construction segments
where natural gas heating is the preferred choice; and conversion to gas of
small to medium size commercial businesses and large volume dual-fuel customers.
SUPERIOR CUSTOMER SERVICE. The Company's utility operations have an outstanding
reputation for customer service and have consistently received excellent marks
for customer loyalty and satisfaction, as measured by independent
customer-satisfaction specialists. In 1999, for the second consecutive year,
Brooklyn Union was awarded the Brand Keys Customer Loyalty Award, as the United
States energy provider that had achieved the highest level of success in
anticipating and exceeding customer expectations.
The Company was also recognized for its outstanding commitment to the community.
In 1999, Brooklyn Union was honored by the New York City Council on the 30th
Anniversary of its Cinderella Program, which has contributed to the development
of more than 10,000 units of residential housing as well as the revitalization
of commercial facilities in Brooklyn, Queens, and Staten Island.
During 1999, Chairman and Chief Executive Officer, Robert B. Catell, received
the American Gas Association's Distinguished Service Award, the association's
highest honor. In addition, in its Century of Power edition, Energy Markets
Magazine honored Chairman and CEO Robert B. Catell as one of the 20th Century's
100 most influential people in gas and electricity. Mr. Catell was cited for his
role in helping to integrate U.S. and Canadian gas lines to supply natural gas
in the Northeast through the Iroquois Transmission System.
The Company intends to continue to emphasize superior customer service, both to
differentiate itself from competitors as markets become increasingly deregulated
and to take advantage of selling opportunities available for complementary
energy-related services such as appliance repair and energy system installation
and management.
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EXPANDED SERVICES. With its strong market presence in the metropolitan New York
City -Long Island area, the Company believes it is well-positioned to provide
customers with an expanded array of energy-related services. In recent years,
the Company offered gas and electric marketing services throughout New York,
Connecticut, New Jersey, Maryland, Delaware, Pennsylvania and Ohio and appliance
repair, energy management, and related services for residential, commercial and
industrial customers throughout the metropolitan New York City - Long Island
area, as well as in Rhode Island. The Company owns a fiber optic
telecommunications network consisting in excess of 350 miles of fiber optics on
Long Island and, in addition to use in its operations, it provides use of the
network to local carriers. The Company also has become the exclusive provider of
residential fuel cell units distributed on behalf of a joint venture between GE
MicroGen, a subsidiary of General Electric Power Systems and Plug Power in New
York City and Long Island and is the authorized service provider for PC25(TM)
natural-gas-powered fuel cells manufactured by International Fuel Cells
(IFC)/ONSI(R) Corporation, subsidiaries of United Technologies, in the New York
metropolitan area. The Company believes that its investments in the fiber optic
network and fuel cells provide increased growth opportunities for the Company in
new and developing technologies.
INDUSTRY AND COMPETITION
The electric and natural gas sectors of the regulated energy industry are
undergoing significant change, as market forces are moving towards replacing or
supplementing rate regulation as a means of controlling prices for natural gas
and electricity. Competition also presents utilities with greater opportunities
to manage the cost of their natural gas and electric supplies, and through
unregulated affiliates, to earn profits on energy sales and to expand their
business activities.
Historically, government regulation served both to control prices in the natural
gas and electric sectors of the energy industry and to substantially shield
industry participants from competition. The natural gas sector was segmented
into three regulated parts: production; interstate transportation; and
franchised retail sales and local distribution. The electric sector featured
vertically integrated utilities providing generation, transmission and
distribution services for their franchised service territories. Under
traditional rate regulation, utilities were provided the opportunity to earn a
fair, but regulated, return on invested capital in exchange for a commitment to
serve all customers within a franchised service territory. An extensive and
complex regime for the regulation of public utility companies and public utility
holding companies limited natural gas and electric utilities' opportunities for
geographic expansion and business diversification.
Between the 1930's and the late 1970's, federal and state energy regulatory
policies remained relatively stable, and the structure of the regulated energy
industry changed little. However, after the energy crises in the 1970's, new
legislation and changes in regulatory policy set in motion competitive forces
that are continuing to reshape the energy industry.
Beginning in 1978 with federal legislation that authorized the phased
deregulation of wellhead natural gas prices and the establishment of unregulated
electric generation companies, competition has been increasingly introduced into
segments of the regulated energy industry. To foster competition, federal
regulators adopted "open access" rules which required interstate natural gas
pipelines and electric transmission systems to "unbundle" wholesale sales, I.E.,
the sale of gas or electricity for resale, from transportation and transmission
services. Open access also required
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interstate gas pipelines and electric utilities, for the first time, to provide
transportation and transmission service on a non-discriminatory basis to all
qualified customers. Recent initiatives also permit market forces, rather than
regulation, to establish rates charged under short-term contracts for interstate
natural gas transportation and to determine the allocation of increased
electricity costs that result when electric transmission constraints prevent
lower priced electricity from reaching electric customers. By enabling natural
gas producers and electric generators to reach new markets, open access policies
have led to intensified competition in wholesale markets and are altering the
geographic character of the industry. No longer typified by isolated local
companies, the natural gas and electric sectors in many parts of the country
include a growing number of firms with regional, national and international
dimensions.
Parallel changes in the regulation of retail electric and gas markets are being
implemented by many state public utility commissions, including the Public
Service Commission of the State of New York ("NYPSC"). On a state-by-state
basis, initially in the Northeast, Mid-Atlantic and California, and now
spreading to other regions, local franchised utilities are being required to
separate their marketing and retail sales businesses from the physical
distribution of natural gas and electricity through pipes and wires. Just as at
the federal level, distribution services are increasingly required to be
unbundled from retail sales, and made available on a non-discriminatory open
access basis to all qualified retail customers. Retail natural gas and
electricity marketers are being permitted to compete for energy customers in
what were formerly exclusive service territories of electric and natural gas
utilities. However, natural gas and electric utilities are likely to remain
exclusive providers of unbundled distribution services through pipes and wires,
and may remain obligated to continue to sell natural gas or electricity to
customers who do not select other suppliers.
In New York State, large-volume retail customers have been able to purchase
natural gas supplies directly from non-utility vendors for about 15 years, while
direct sales to aggregations of small customers have been permitted since 1996.
New York regulators have commenced initiatives to further enhance retail
competition in the state. In November 1998, the NYPSC issued a policy statement
setting forth its vision for furthering competition in the natural gas industry
and requesting that each of the gas utility subsidiaries file a restructuring
proposal. In response, the Company's two gas distribution utility subsidiaries
filed their restructuring proposal with the NYPSC in October 1999. For
additional discussion on gas deregulation, see "NYPSC Regulation."
Similarly, the NYPSC has been encouraging the development of retail competition
in the electric sector in New York. In the past three years, electric utilities
have begun to unbundle electric sales from retail distribution services, open
their franchised territories to competitors, transfer control over their
transmission systems to an independent system operator, and divest many of their
generating plants. Several New York investor-owned utilities have divested their
non-nuclear generating plants, including Consolidated Edison Company of New
York, Inc. ("Con Edison"). In response to a divestiture plan by Con Edison, in
June 1999, the Company completed the acquisition of the Ravenswood Facility from
Con Edison, as discussed under the heading "The Company - Electric Services."
The Company's electric operations on Long Island are governed by a service
agreement with LIPA, discussed in greater detail below, and FERC. This agreement
generally provides for recovery of all costs of production, operation and
maintenance, and capital improvements, subject to certain
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incentive provisions. Also, since Long Island is considered a "load pocket,"
I.E., there are insufficient transmission ties to permit a significant amount of
energy to be transported into Long Island, at this time, the Company faces
minimal competitive pressures associated with its electric operations on Long
Island.
As indicated, the Company also has electric operations in New York City. The
Company currently bids and sells the energy produced by the Ravenswood Facility
through bidding it into the energy market operated by the New York Independent
System Operator ("NYISO"). Further, the Company has a capacity contract with Con
Edison, which provides Con Edison with 100% of the available capacity of the
Ravenswood Facility. The Company anticipates that this contract will expire on
April 30, 2000, at which time the available capacity of the Ravenswood Facility
will be bid into the capacity auction conducted by the NYISO. New York City
local reliability rules currently require that 80% of the electric capacity
needs of New York City is to be provided by "in-city" generators. The Company
expects that the current New York City reliability rules will remain in effect
through at least 2000. However, in the future, should new, more efficient
electric power plants be built in New York City and/or the in-city capacity
requirements be modified, the capacity and energy sales quantities of the
Ravenswood Facility could be adversely affected. The Company can not predict,
however, when or if new power plants will be built or the nature of future New
York City requirements.
A significant number of natural gas and electric utilities have reacted to the
changing structure of the regulated energy industry by entering into business
combinations, with the goal of reducing common costs, gaining size to better
withstand competitive pressures and business cycles, and attaining synergies
from the combination of electric and natural gas operations. The Combination and
related transactions which resulted in the formation of the Company, as well as
the pending Eastern Transaction, illustrate these attributes.
The transformation of the energy industry is an ongoing process. Larger
regional, national and international companies are being formed through
acquisitions and mergers. The remaining legal barriers to interregional natural
gas and electric distribution companies, which have been relaxed as the result
of regulatory decisions, are the subject of legislative proposals calling for
repeal or substantial modifications. The advent of industry restructuring has
meant that regional, national and international companies are increasingly
offering energy consumers a wide array of choices as to the supply, type,
quality and cost of natural gas and electric services as well as other services,
such as telecommunications and cable. For the Company, industry restructuring
means increased opportunities to enter new markets and pressures to manage its
costs of doing business.
THE COMPANY
GAS DISTRIBUTION
OVERVIEW
The Company sells, distributes and transports natural gas in two separate, but
contiguous service territories of approximately 1,417 square miles in the
aggregate in the New York City - Long Island metropolitan area. The Company owns
and operates gas distribution, transmission and storage
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systems that consist of approximately 10,146 miles of distribution pipelines,
576 miles of transmission pipelines and two gas storage facilities. The Company
serves approximately 1.6 million customers, of which approximately 1.5 million,
or 94%, are residential. Gas is offered for sale to residential customers on a
"firm" basis, and to commercial and industrial customers on a "firm" or
"interruptible" basis. "Firm" service is offered to customers under schedules or
contracts which anticipate no interruptions, whereas "interruptible" service is
offered to customers under schedules or contracts which anticipate and permit
interruption on short notice, generally in peak- load seasons. Gas is available
at any time of the year on an interruptible basis, if the supply is sufficient
and the supply system is adequate. The Company also participates in the
interstate markets by releasing pipeline capacity or bundling pipeline capacity
with gas for "off-system" sales. An "off- system" customer consumes gas at
facilities located outside the Company's service territories, by connecting to
the Company's facilities or one of its transporter's facilities, at a point of
delivery agreed to by the Company and the customer. The Company purchases its
natural gas for sale to its customers under long-term supply contracts and
short-term spot contracts. Such gas is transported under both firm and
interruptible transportation contracts. In addition, the Company has commitments
for the provision of gas storage capability and peaking supplies.
For the year ended December 31, 1999, gas revenues were $1.753 billion, or 59%
of the Company's revenues, and gas operating income was $308.4 million.
The gas operations of the Company can be significantly affected by seasonal
weather conditions. Traditionally, annual revenues are substantially realized
during the heating season as a result of higher sales of gas due to cold
weather. Accordingly, operating results historically are most favorable in the
first and fourth calendar quarters. However, the Company's gas utility tariffs
contain weather normalization adjustments that provide for recovery from or
refund to firm customers of material shortfalls or excesses of firm net revenues
(revenues less applicable gas costs, if any) during a heating season due to
variations from normal weather. For additional discussion, see "Regulation and
Rate Matters" below.
SALES AND DISTRIBUTION
The Company is the fourth largest gas distribution company in the United States,
providing, through its gas distribution subsidiaries, natural gas sales and
transportation services to customers in the New York City Boroughs of Brooklyn,
Queens and Staten Island and the Long Island counties of Nassau and Suffolk.
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Gas sales and revenues for 1999 by class of customer are set forth below:
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Revenues
Sales Revenues (% of
Customer (MDTH) (thousands of $) Total)
- -------------------------------------------- ----------- ----------------- ---------------
FIRM
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Residential Heating......................... 102,135 976,193 55.68
Residential Non-Heating..................... 9,916 192,810 11.00
Temperature-Controlled heating.............. 31,112 137,422 1.84
Commercial/Industrial....................... 28,856 226,675 12.93
----------- ----------------- ---------------
Total Firm.................................. 172,019 1,533,100 87.45
----------- ----------------- ---------------
Firm Transportation......................... 21,249 88,168 5.03
Transportation - Electric Generation........ 82,503 15,150 0.86
----------- ----------------- ---------------
Total Firm Transportation................... 103,752 103,318 5.89
----------- ----------------- ---------------
Total Firm Gas Sales and Transportation... 275,771 1,636,418 93.34
INTERRUPTIBLE............................... 10,903 32,825 1.87
OFF-SYSTEM SALES............................ 14,323 32,006 1.83
TRANSPORTATION.............................. 29,435 11,492 .66
----------- ----------------- ---------------
Total Gas Sales and Transportation........ 330,432 1,712,741 97.70
OTHER RETAIL SERVICES....................... N/A 40,391 2.30
Total Sales and Revenues*................. 330,432 1,753,132 100.00
<
=========== ================= ===============
</TABLE>
- -----------------------
*Excludes lost and unaccounted for gas.
Set forth below is information, on a Combined Company Basis, concerning certain
operating statistics applicable to the Company's gas distribution business:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ($000)............................. 1,753,132 1,766,949 1,991,793
Net Income ($000)........................... 151,217 133,685 * 134,403
Firm Gas Sales and Transportation (MDTH).... 193,268 179,305 203,587
Transportation - Electric Generation (MDTH). 82,503 40,614 --
Other Deliveries (MDTH)..................... 54,661 65,482 73,132
Heating customers........................... 677,000 665,000 657,000
Degree Days, Cooler (Warmer) than Normal %.. (10.0) (17.5) 0.2
Capital Expenditures ($000)................. 213,845 181,700 178,651
</TABLE>
- -----------------------
*Excludes non-recurring and special charges associated with the Combination.
-An MDTH is 10,000 therms (British Thermal Units) and reflects the heating
content of approximately one million cubic feet of gas. A therm reflects the
heating content of approximately 100 cubic feet of gas.
The Company sells gas to its firm gas customers at the Company's cost for such
gas, plus a charge designed to recover the costs of distribution (including a
return of and a return on invested capital). The Company shares with its firm
gas customers net revenues (operating revenues less the cost of gas purchased
for resale) from off-system sales and, in addition, Brooklyn Union of Long
Island credits its firm gas customers net revenues from on-system interruptible
gas sales, thereby reducing its rates to these firm customers.
12
<PAGE>
The yearly variations in firm gas sales and transportation quantities is due,
primarily, to variations in weather between the periods presented. Measured in
annual degree days, weather was 10% warmer than normal in 1999, 17.5% warmer
than normal in 1998 and 0.2% colder than normal in 1997. After normalizing for
weather, firm sales volumes increased by 2.4% in 1999, as compared to 1998. Firm
sales quantities, after normalizing for weather, were approximately the same in
1998 as compared to 1997.
Transportation volumes related to electric generation, reflect the
transportation of gas to the Company's electric generating facilities located on
Long Island. The Company has been reporting these quantities since the
Combination.
The decrease in other deliveries in all periods is primarily due to the
discontinuance by Brooklyn Union of its off-system sales program in April 1998.
The program was replaced by a management agreement with Enron Capital and Trade
Resources Corp. For a further discussion and additional information on this
agreement, see "Supply and Storage."
For additional details on gas revenues, gas sales quantities and market
saturation, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SUPPLY AND STORAGE
The Company has contracts for the purchase of firm long-term transportation and
storage services. The Company's gas supplies are purchased under long-term
contracts and on the spot market and are transported by interstate pipelines
from domestic and Canadian sources. Storage and peaking supplies are available
to meet system requirements during winter periods.
Regulatory actions, economic factors and changes in customers and their
preferences continue to reshape the Company's gas operations markets. A number
of multi-family, commercial and industrial customers and a growing number of
residential customers currently purchase their gas supplies from natural gas
marketers and then contract with the Company for local transportation, balancing
and other unbundled services. Since these customers are no longer reliant on the
Company for sales service, the quantity of gas that the Company must obtain to
meet remaining sales customers' requirements has been reduced. This trend is
likely to continue as state regulators continue to implement policies designed
to encourage customers to purchase their gas from suppliers other than the
traditional gas utilities. In October 1999, the Company filed a proposal with
the NYPSC consistent with the NYPSC's policy objective of local distribution
companies ending their role as providers of merchant sales service for the
natural gas commodity. For further information, see "NYPSC Regulation" below.
PEAK-DAY CAPABILITY. The design criteria for the Company's gas system assumes an
average temperature of 0(0)F for peak-day demand. Under such criteria, the
Company estimates that the requirements to supply its firm gas customers would
amount to approximately 1,863 MDTH of gas for a peak-day during the 1999/2000
winter season and that the gas supplies available to the Company on such a
peak-day amounts to approximately 2,033 MDTH. For the 2000/2001 winter season,
the Company estimates that the peak-day requirements would amount to
approximately 1,904 MDTH and that the gas supplies available to the Company on
such a peak day amounts to
13
<PAGE>
approximately 2,033 MDTH. The 1999/2000 winter peak-day throughput to the
Company's customers was 1,721 MDTH, which occurred on January 17, 2000, at an
average temperature of 9 degrees Fahrenheit, representing 85% of the Company's
per day capability at that time. The Company had sufficient gas available to
meet the requirements of firm gas customers for the 1999/2000 winter season, and
projects that it also will have sufficient gas supply available to meet such
requirements for the 2000/2001 winter season. The Company's firm gas peak-day
capability is summarized in the following table:
Source MDTH per day % of Total
Pipeline.................... 750 37
Underground Storage......... 779 38
Peaking Supplies............ 504 25
Total................... 2,033 100
=============== ===============
PIPELINES. The Company purchases natural gas for sale to its customers under
contracts with suppliers located in domestic and Canadian supply basins and
arranges for its transportation to the Company's facilities under firm long-term
contracts with interstate pipeline companies. For the 1999/2000 winter,
approximately 78% of the Company's natural gas supply was available from
domestic sources and 22% from Canadian sources. The Company has available under
firm contract 750 MDTH per day of year-round and seasonal pipeline
transportation capacity to its facilities in the New York City metropolitan
area. Major providers of interstate pipeline capacity and related services to
the Company include: Transcontinental Gas Pipe Line Corporation ("Transco"),
Texas Eastern Transmission Corporation ("Texas Eastern"), Iroquois Gas
Transmission System ("Iroquois"), Tennessee Gas Pipeline Company ("Tennessee"),
CNG Transmission Corporation ("CNG") and Texas Gas Transmission Company ("Texas
Gas").
STORAGE. In order to meet higher winter demand, the Company also has long-term
contracts with Transco, Texas Eastern, Tennessee, CNG, Equitrans, Inc.,
Hattiesburg First Reserve and Honeoye Storage Corporation, for underground
storage capacity of 58,935 MDTH for the winter season, with 779 MDTH per day,
maximum deliverability.
PEAKING SUPPLIES. In addition to the pipeline and storage supply, the Company
supplements its winter supply with peaking supplies which are available on the
coldest days of the year to enable the Company to economically meet the
increased requirements of its heating customers. The Company's peaking supplies
include gas provided by the Company's two liquefied natural gas ("LNG") plants
and under peaking supply contracts with four cogeneration facilities/independent
power producers located in its franchise areas. For the 1999/2000 winter season,
the Company has the capability to provide a maximum peak-day supply of 504 MDTH
on extremely cold days. The LNG plants have a storage capacity of approximately
2,053 MDTH and peak-day throughput capacity of 395 MDTH, or 19% of peak-day
supply. The Company has contract rights with Trigen Services Corporation,
Brooklyn Navy Cogeneration Partners, LP, Nissequogue Cogen Partners and the New
York Power Authority to purchase peaking supplies with a maximum daily capacity
of 110 MDTH and total available peaking supplies during the winter season of
3,349 MDTH.
14
<PAGE>
GAS SUPPLY MANAGEMENT. Enron Capital and Trade Resources Corp., a subsidiary of
Enron Corp. ("Enron"), provides gas supply asset management services to Brooklyn
Union. Under the terms of this agreement, which has been in effect since April
1, 1998 and expires on March 31, 2000, Enron is responsible for managing certain
aspects of Brooklyn Union's interstate pipeline transportation, gas supply and
storage. Enron is also responsible for satisfying certain of the Company's gas
supply requirements; however, the Company remains contractually obligated to its
gas suppliers and has not terminated any of its supply and delivery contracts.
Pursuant to this agreement, Enron paid the Company a fee in 1999, a portion of
which was credited to the Company's gas ratepayers, and obtained the right to
earn revenues based upon its management of the Company's gas supply
requirements, storage arrangements and off-system capacity.
The Company also has an arrangement with Coral Energy Resources, L.P., a
subsidiary of Shell Oil Company ("Coral"), whereby Coral assists the Company in
the origination, structuring, valuation and execution of energy-related
transactions relating to Brooklyn Union of Long Island and the Company's
energy-management services undertaken on behalf of LIPA. A sharing agreement
exists between the gas ratepayers and the Company for off-system gas
transactions and between the Company and LIPA for off-system electric
transactions. The Company's share of the profits on such transactions is then
shared with Coral. The Company also shares in revenues arising from certain
transactions initiated by Coral. This agreement also expires on March 31, 2000.
The Company currently is in negotiations with a large energy corporation to
provide energy supply management services to both Brooklyn Union and Brooklyn
Union of Long Island beginning on April 1, 2000.
GAS COSTS. Gas costs for 1999 were $702.0 million and reflect warmer than normal
weather during the year. Variations in gas costs have little impact on operating
results of the Company since its current gas rate structures include gas
adjustment clauses whereby variations between actual gas costs and gas cost
recoveries are deferred and subsequently refunded to or collected from
customers.
ELECTRIC SERVICES
OVERVIEW
The Company's electric services primarily consist of (i) the ownership and
operation of oil and gas fired generating facilities located on Long Island and
New York and the delivery of the power generated by the Long Island facilities
to LIPA; (ii) the management and operation of LIPA's T&D System; and (iii) the
management of LIPA's fuel and electric energy purchases and off-system sales.
As more fully described below, the Company (i) provides to LIPA all operation,
maintenance and construction services relating to the Retained Assets through a
Management Services Agreement (the "MSA"); (ii) supplies LIPA with capacity,
energy conversion and ancillary services through a Power Supply Agreement (the
"PSA") to allow LIPA to provide electricity to its customers on Long Island; and
(iii) manages all aspects of the fuel supply for the Generating Facilities (as
defined below) as well as all aspects of the capacity and energy owned by or
under contract to LIPA through an Energy Management Agreement (the "EMA"). Each
of the MSA, PSA and EMA became effective on May 28, 1998 and are collectively
referred to herein as the "LIPA Agreements."
15
<PAGE>
On June 18, 1999, the Company completed its acquisition of the 2,168 megawatt
Ravenswood Facility located in New York City from Con Edison for approximately
$597 million. As a means of financing this acquisition, the Company entered into
a lease agreement with a special purpose, unaffiliated financing entity that
acquired a portion of the Ravenswood Facility directly from Con Edison and
leased it to a subsidiary of the Company under a ten year lease. The Company has
guaranteed all payment and performance obligations of its subsidiary under the
lease. Another subsidiary of the Company provides all operating, maintenance and
construction services for the facility. The lease program was established in
order to reduce the Company's cash requirements by $425 million. The lease
qualifies as an operating lease for financial reporting purposes while
preserving the Company's ownership of the facility for federal and state income
tax purposes. The balance of the funds needed to acquire the facility were
provided from cash on hand. The Company has recorded an asset of approximately
$200 million, representing its ownership interest in the assets acquired.
The Company currently sells the energy produced by the Ravenswood Facility
through daily and/or hourly bidding into the energy market conducted by the
NYISO. Revenues are recorded when the energy is sold to the NYISO. Further, the
Company has an interim capacity contract with Con Edison which provides Con
Edison with 100% of the available capacity of the Ravenswood Facility under the
capacity contract. Capacity charges are billed to Con Edison on a monthly
fixed-fee basis. The Company anticipates that this contract will expire on April
30, 2000, at which time the available capacity of the Ravenswood Facility will
be bid into an auction process conducted by the NYISO.
For the year ended December 31, 1999, electric revenues were $861.6 million or
29% of the Company's revenues and electric operating income was $139.9 million.
GENERATING FACILITY OPERATIONS.
The Company owns and operates an aggregate of 73 electric generation units
throughout Long Island and Queens (the Long Island electric generation units are
referred to as the "Generating Facilities"), 40 of which can be powered either
by oil or natural gas at the Company's election. In recent years, the Company
has reconfigured several of its facilities to enable them to burn either oil or
natural gas, thus enabling the Company to switch periodically between fuel
alternatives based upon cost and seasonal environmental requirements.
The following table indicates the 1999 summer capacity of the Company's steam
generation facilities and internal combustion ("IC") Units as reported to the
NYISO:
16
<PAGE>
LOCATION OF UNITS Description Fuel Units MW
- ---------------------- ---------------------- -------------------------- -----
Long Island City Steam Turbine Dual* 3 1,743
Northport, L.I. Steam Turbine Dual* 3 1,167
Northport, L.I. Steam Turbine Oil 1 381
Port Jefferson, L.I. Steam Turbine Dual* 2 387
Glenwood, L.I. Steam Turbine Gas 2 228
Island Park, L.I. Steam Turbine Dual* 2 390
Far Rockaway, L.I. Steam Turbine Dual* 1 108
Long Island City IC Units Dual* 17 425
Throughout L.I. IC Units Dual* 12 296
Throughout L.I. IC Units Oil 30 1,075
Total 73 6,200
====================== ====================== =================================
*Dual - Oil or natural gas.
LIPA AGREEMENTS
POWER SUPPLY AGREEMENT. The PSA provides for the sale to LIPA by the Company of
all of the capacity and, to the extent LIPA requests, energy from the Generating
Facilities. Capacity refers to the ability to generate energy and, pursuant to
NYISO requirements, must be maintained at specified levels (including reserves)
regardless of the source and amount of energy consumption. By contrast, energy
refers to the electricity actually generated for consumption by consumers. Such
sales of capacity and energy from the Generating Facilities are made at
cost-based wholesale rates regulated by FERC. These rates may be modified in the
future in accordance with the terms of the PSA for (i) agreed upon labor and
expense indices applied to the base year; (ii) a return of and on the capital
invested in the Generating Facilities; and (iii) reasonably incurred expenses
that are outside the control of the Company.
The PSA provides incentives and penalties for the Company to maintain the output
capability of the Generating Facilities, as measured by annual industry-standard
tests of operating capability, and plant availability and efficiency. These
combined incentives and penalties may total as much as $4 million annually. In
1999, the Company earned approximately $3.3 million in incentives under the PSA.
The PSA provides LIPA with all of the capacity from the Generating Facilities.
However, LIPA has no obligation to purchase energy conversion services from the
Generating Facilities and is able to purchase energy on a least-cost basis from
all available sources consistent with existing transmission interconnection
limitations of the T&D system. Under the terms of the PSA, LIPA is obligated to
pay for capacity at rates which reflect a large percentage of the overall fixed
cost of maintaining and operating the Generating Facilities. A variable
maintenance charge is imposed for each unit of energy actually generated by the
Generating Facilities. The PSA expires on May 28, 2013 and is renewable on
similar terms. However, the PSA provides LIPA the option of electing to reduce
or "ramp-down" the capacity it purchases from the Company in accordance with
agreed-upon schedules. In years 7 through 10 of the PSA, if LIPA elects to
ramp-down, the Company is entitled to receive payment for 100 percent of the
present value of the capacity charges otherwise payable
17
<PAGE>
over the remaining term of the PSA. If LIPA ramps-down the generation capacity
in years 11 through 15 of the PSA, the capacity charges otherwise payable by
LIPA will be reduced in accordance with a formula established in the PSA. If
LIPA exercises its ramp-down option, the Company may use any capacity released
by LIPA to bid on new LIPA capacity requirements or to bid on LIPA's capacity
requirements to replace other ramped-down capacity. If the Company continues to
operate the ramped-down capacity, the PSA requires it to use reasonable efforts
to market the capacity and energy from the ramped-down capacity and to share any
profits with LIPA. Capacity and energy sold by the Company from ramped-down
capacity must be transported over the T&D system, and the Company will be
required to pay LIPA's standard transmission (and, if applicable, distribution)
rates for the service. The PSA will be terminated in the event that LIPA
exercises its right to purchase, at fair market value, all of the Generating
Facilities in the twelve- month period beginning on May 28, 2001.
The Company has an inventory of sulfur dioxide ("SO2") and nitrogen oxide
("NOx") emission allowances that may be sold to third party purchasers. The
amount of allowances varies from year to year relative to the level of emissions
from the Generating Facilities which is greatly dependent on the mix of natural
gas and fuel oil used for generation and the amount of purchased power that is
imported onto Long Island. In accordance with the PSA, 33% of emission allowance
sales revenues attributable to the Generating Facilities is kept by the Company
and the other 67% is credited to LIPA. LIPA also has a right of first refusal on
any potential emission allowance sales of the Generating Facilities.
Additionally, the Company is bound by a memorandum of understanding with the New
York State Department of Environmental Conservation ("DEC"), which memorandum
prohibits the sale of SO2 allowances into certain states and requires the
purchaser to be bound by the same restriction, which may affect the market value
of the allowances.
MANAGEMENT SERVICES AGREEMENT. Under the MSA, the Company performs day-to-day
operation and maintenance services and capital improvements for the T&D system,
including, among other functions, transmission and distribution facility
operations, customer service, billing and collection, meter reading, planning,
engineering, and construction, all in accordance with policies and procedures
adopted by LIPA. The Company furnishes such services as an independent
contractor and does not have any ownership or leasehold interest in the T&D
system.
In exchange for providing these services, the Company is entitled to earn an
annual management fee of $10 million and may also earn certain incentives, or be
responsible for certain penalties, based upon its performance. The incentives
provide for the Company to retain 100% of the first $5 million of cost
reductions and 50% of any additional cost reductions up to 15% of the total cost
budget. Thereafter, all savings accrue to LIPA. The Company also is required to
absorb any total cost budget overruns up to a maximum of $15 million in each
contract year.
In addition to the foregoing cost-based incentives and penalties, the Company is
eligible for incentives for performance above certain threshold target levels
and subject to disincentives for performance below certain other threshold
levels, with an intermediate band of performance in which neither incentives nor
disincentives will apply, for system reliability, worker safety, and customer
satisfaction. In 1999, the Company earned $7.2 million in non-cost performance
incentives.
18
<PAGE>
The MSA shall continue in effect until May 28, 2006. Thereafter, LIPA will
commence a competitive process to solicit a new management services agreement.
Generally, the Company is eligible to submit a bid for such new management
services agreement.
ENERGY MANAGEMENT AGREEMENT. Pursuant to the EMA, the Company (i) procures and
manages fuel supplies for LIPA to fuel the Generating Facilities, (ii) performs
off-system capacity and energy purchases on a least-cost basis to meet LIPA's
needs, and (iii) makes off-system sales of output from the Generating Facilities
and other power supplies either owned or under contract to LIPA. LIPA is
entitled to two-thirds of the profit from any off-system electricity sales
arranged by the Company. The term for the service provided in (i) above is
fifteen years, and the term for the service provided in (ii) and (iii) above is
eight years.
In exchange for these services, the Company earns an annual fee of $1.5 million,
plus an allowance for certain costs incurred in performing services under the
EMA. The EMA further provides incentives for control of the cost of fuel and
electricity purchased on behalf of LIPA by the Company. Fuel and electricity
purchase prices will be compared to regional price indices and the Company will
receive a payment from LIPA, or be obligated to make a payment to LIPA, for fuel
and/or purchased electricity costs which are below or above, respectively,
specified tolerance bands. The total fuel purchase incentive or disincentive can
be no greater than $5 million annually and the electricity purchase incentive or
disincentive can be no greater than $2 million annually. For the year ended
December 31, 1999, the Company earned an aggregate of $5.3 million in incentives
under the EMA.
OTHER RIGHTS. Pursuant to other agreements between LIPA and the Company, certain
future rights have been granted to LIPA. Subject to certain conditions, these
rights include the right for 99 years to lease or purchase, at fair market
value, parcels of land and to acquire unlimited access to, as well as
appropriate easements at, the Generating Facilities for the purpose of
constructing new electric generating facilities to be owned by LIPA or its
designee. Subject to this right granted to LIPA, the Company has the right to
sell or lease property on or adjoining the Generating Facilities to third
parties. In addition, LIPA has the right to acquire a parcel at the Shoreham
Nuclear Power Station site suitable as the terminus for a potential transmission
cable under Long Island Sound or the potential site of a new gas-fired combined
cycle generating facility.
The Company owns the common plant (such as administrative office buildings and
computer systems) formerly owned by LILCO and recovers LIPA's allocable share of
the carrying costs of such plant through the MSA. The Company has agreed to
provide LIPA, for a period of 99 years, the right to enter into leases at fair
market value for common plant or sub-contract for common services which it may
assign to a subsequent manager of the T&D system. The Company has also agreed
(i) for a period of 99 years not to compete with LIPA as a provider of
transmission or distribution service on Long Island; (ii) that LIPA will share
in synergy (I.E., efficiency) savings over a 10-year period attributed to the
Combination (estimated to be approximately $1 billion), which savings are
incorporated into the cost structure under the LIPA Agreements; and (iii) not to
commence any tax certiorari case (until termination of the PSA) challenging
certain property tax assessments relating to the Generating Facilities.
19
<PAGE>
GUARANTEES AND INDEMNITIES. The Company and LIPA also have entered into
agreements providing for the guarantee of certain obligations, indemnification
against certain liabilities and allocation of responsibility and liability for
certain pre-existing obligations and liabilities. In general, liabilities
associated with the Transferred Assets have been assumed by the Company and
liabilities associated with the Retained Assets are borne by LIPA, subject to
certain specified exceptions. The Company has assumed all liabilities arising
from all manufactured gas plant ("MGP") operations of LILCO and its predecessors
and LIPA has assumed certain liabilities relating to the Generating Facilities
and all liabilities traceable to the business and operations conducted by LIPA
after completion of the Combination.
An agreement also provides for an allocation of liabilities which relate to the
assets that were common to the operations of LILCO and/or shared services and
are not traceable directly to either the business or operations conducted by
LIPA or the Company. LIPA bears 53.6% of the costs associated therewith and the
Company bears the remainder.
In addition, the Company has assumed environmental obligations relating to the
Ravenswood Facility operations, but not including liabilities arising from
pre-closing disposal of waste at off-site locations and any monetary fines
arising from Con Edison's pre-closing conduct. For additional discussion, see
"Remediation of Contaminated Property."
20
<PAGE>
GAS EXPLORATION & PRODUCTION
The Company is also engaged in the exploration and production of domestic gas
and oil, through its 64% equity interest in The Houston Exploration Company
("THEC"), an independent natural gas and oil company, and its wholly owned
subsidiary, KeySpan Exploration and Production, LLC "KeySpan Exploration."
THEC was organized by the Company in 1985 to conduct natural gas and oil
exploration and production activities. It completed an initial public offering
in 1996 and its shares are currently traded on the New York Stock Exchange under
the symbol "THX." At March 1, 2000, its aggregate market capitalization was
approximately $372.3 million (based upon the closing price on the New York Stock
Exchange on that date of $15.5625. THEC has approximately 23,923,020 shares of
common stock, $.01 par value, outstanding. More detailed information concerning
the operations of THEC is contained in the annual, quarterly and periodic
reports filed by THEC with the SEC.
KeySpan Exploration was organized in 1999, as a Delaware corporation,
principally to form a joint venture with THEC. On March 15, 1999, KeySpan
Exploration and THEC entered into a joint exploration agreement (the "THEC Joint
Venture") to explore for natural gas and oil over a term of three years and
expiring on December 31, 2001, subject to earlier termination, at the option of
either party, upon proper notice to the other party. THEC contributed all of its
then undeveloped offshore leases to the THEC Joint Venture, and KeySpan
Exploration and Production, LLC acquired a 45% working interest in all prospects
to be drilled under the THEC Joint Venture . THEC retained a 55% interest in the
leases, and the revenues generated from this joint program are shared between
the Company and THEC on a 45% and 55% basis, respectively. The Company commit
approximately $25 million for exploration and development activities, and will
reimburse THEC for certain general and administrative expenses relating to the
THEC Joint Venture during 2000.
Information with respect to net proved reserves, production, productive wells
and acreage, undeveloped acreage, drilling activities, present activities and
drilling commitments is contained in Note 16 to the Consolidated Financial
Statements, "Supplemental Gas and Oil Disclosures," included herein.
During 1999, the Company's revenues attributable to gas exploration and
production were $150.6 million, and gas exploration and production operating
income was $48.5 million. Set forth below is certain selected information with
respect to the Company's gas exploration and production activities:
<TABLE>
<CAPTION>
1999* 1998 1997
---------- ----------- ---------
<S> <C> <C> <C>
Net Proved Reserves (BCFe)....................... 553.0 480.3 337.1
Production of Natural Gas and Oil (BCFe)......... 71.2 62.8 51.3
Average Realized Price of Natural Gas ($/per MCF) 2.10 2.02 2.25
Average Unhedged Price of Natural Gas ($/per MCF) 2.14 1.96 2.45
Capital Expenditures ($000)...................... 183,322 302,837 145,175
</TABLE>
*1999 is the first year which includes KeySpan Exploration's activities.
- One billion cubic feet (BCFe) of gas equals 1,000 MDTH. Gas reserves and
production are stated in BCFe and MCFe, which includes equivalent oil
reserves.
21
<PAGE>
The Company's interests in exploration and production have achieved significant
growth in net proved reserves, production and revenues over the past five years.
The Company, primarily through its interests in THEC, has increased net proved
reserves from 150 BCFe at December 31, 1994 to 553 BCFe at December 31, 1999.
During this period, annual production increased from 22 BCFe in 1994 to 71 BCFe
in 1999. At the close of 1999, daily production averaged 195 MMcfe per day. The
Company's oil and gas revenues from its interests in exploration and production
activities have increased from $42 million in 1994 to $150.6 million in 1999.
In September 1999, the Company and THEC jointly announced their intention to
begin a process to review strategic alternatives for THEC. The process included
an assessment of the role of THEC within the Company's strategic plans,
including the sale of all or a portion of THEC by the Company. After completing
the review of strategic alternatives for THEC, the Company concluded that it
would retain its equity interest in THEC.
In November 1998, the Company extended a $150 million revolving credit line to
THEC (the "THEC Facility"). The THEC Facility matures on March 31, 2000 and is
convertible to equity, if borrowings remain outstanding at maturity. Currently,
there is approximately $80 million outstanding and it is anticipated that such
debt will convert into additional common equity on April 1, 2000, increasing the
Company's equity ownership interest in THEC to approximately 70%.
THEC focuses its operations offshore in the Gulf of Mexico and onshore in South
Texas, South Louisiana, the Arkoma Basin, East Texas and West Virginia. The
geographic focus of its operations enables it to manage a comparatively large
asset base with relatively few employees and to add and operate production at
relatively low incremental costs. THEC seeks to balance its offshore and onshore
activities so that the lower risk and more stable production typically
associated with onshore properties complement the high potential exploratory
projects in the Gulf of Mexico by balancing risk and reducing volatility. THEC's
business strategy is to seek to continue to increase reserves, production and
cash flow by pursuing internally generated prospects, primarily in the Gulf of
Mexico, by conducting development and exploratory drilling on its offshore and
onshore properties and by making selective opportune acquisitions.
OFFSHORE PROPERTIES. THEC holds interests in 86 lease blocks, representing
527,279 gross (286,953 net) acres, in federal and state waters in the Gulf of
Mexico, of which 28 have current operations. THEC operates 22 of these blocks,
accounting for approximately 79% of THEC's offshore production. Over the past
five years, THEC has drilled 21 successful exploratory wells and 18 successful
development wells in the Gulf of Mexico, representing a historical success rate
of 71%. During 1999, THEC drilled 6 successful exploratory wells and 8
successful development wells on its Gulf of Mexico properties.
ONSHORE PROPERTIES. THEC owns onshore natural gas and oil properties
representing interests in 1,179 gross (779 net) wells, approximately 86% of
which THEC is the operator of record, and 166,450 gross (116,639 net) acres.
Over the past five years, THEC has drilled or participated in the drilling of
108 successful development wells and 9 successful exploratory wells onshore,
representing a historical success rate of 80%. During 1999, THEC drilled 31
successful development wells and 2 successful exploratory wells on its onshore
properties. During the same period, THEC drilled or participated in the drilling
of 6 development wells that were not successful.
22
<PAGE>
Effective October 1, 1999, THEC acquired from a private undisclosed party an
interest in offshore producing properties in the West Cameron 587 field of the
Gulf of Mexico. The newly acquired properties are comprised of 21 BCFe of proved
reserves and 6 BCFe of probable reserves. The net purchase price of $21.0
million was paid in cash and financed by borrowings under the THEC Facility.
THEC plans to drill 2 additional wells and install a minimal structure with test
facilities to commence production in 2000.
JOINT VENTURE
During 1999, THEC completed the drilling of eight wells, six of which were
successful. At December 31, 1999, two additional joint venture wells were
drilled, and subsequently, in January and February 2000, three new wells were
spud. During 2000, the THEC Joint Venture plans to drill approximately five to
eight offshore exploratory wells and to complete the development and facility
installation of the successful exploratory wells drilled in 1999.
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ENERGY-RELATED SERVICES
As part of its business strategy, the Company is focusing on continuing to
develop and grow its energy services through non-regulated subsidiaries that
market and manage natural gas, electricity, and consumer products and services
to residential, commercial and industrial customers, including those within the
Company's traditional utility service territories. These non-regulated
subsidiaries, some of which are currently in the start-up phase, had revenues of
$188.6 million and an operating loss of $3.4 million in 1999.
ENERGY MARKETING. The Company buys, sells and markets gas and electricity and
arranges for transportation and related services to over 100,000 customers
throughout the Northeastern United States, including those in the gas service
territories of the Company.
ENERGY MANAGEMENT. The Company owns, designs, constructs and/or operates energy
systems for commercial and industrial customers and provides energy-related
services to clients in the metropolitan New York City - Long Island area and in
New England.
APPLIANCE SERVICES. The Company provides various technical and maintenance
services to customers throughout the metropolitan New York City - Long Island
area, including the installation, maintenance and repair of heating equipment,
water heaters, central air conditioners and other appliances. With over 125,000
service contracts, the Company is the largest provider of these services in the
State of New York.
TELECOMMUNICATIONS. The Company owns a fiber optic network in excess of 350
miles on Long Island. The fiber optic network serves the telecommunication needs
of the Company on Long Island and also serves several carriers under short and
long-term agreements.
FUEL CELLS. The Company has also become the exclusive provider of residential
fuel cell units distributed on behalf of a joint venture between GE MicroGen, a
subsidiary of GE Power Systems and Plug Power in New York City and Long Island
and is the authorized service provider for PC25(TM) natural-gas-powered fuel
cells manufactured by International Fuel Cells (IFC)/ONSI(R) Corporation,
subsidiaries of United Technologies, in the metropolitan New York - Long Island
area.
As previously stated, during 1999 and in February 2000, the Company made several
acquisitions to expand its energy services operations in the metropolitan New
York City - Long Island area and in New England.
The Company's energy-related services operations compete with the marketing and
management operations of both independent and major energy companies in addition
to electric utilities, independent power producers, local distribution companies
and various energy brokers. As a result of the continuing efforts to deregulate
both the natural gas and electric industries, the relative energy cost
differences among different forms of energy are expected to be reduced in the
future. Competition is based largely upon pricing, availability and reliability
of supply, technical and financial capabilities, regional presence and
experience. The Company's energy-related services subsidiaries are expected to
enable the Company to take advantage of emerging deregulated energy markets for
both gas and electricity and the Company anticipates that it will continue to
target other
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acquisitions which also provide it with opportunities to expand those services
both within and outside its traditional service territories.
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ENERGY-RELATED INVESTMENTS
As one of its complementary lines of business, the Company has investments in
energy-related businesses, including natural gas pipelines, midstream natural
gas processing and gathering facilities and gas storage facilities in the
Northeast region of the United States and in Canada and the United Kingdom.
During 1999, net income from energy-related investments was $7.8 million, and
the Company's capital expenditures in this segment were $49.4 million, which
represents the Company's acquisition of a 37% interest in Paddle River, its
purchase of certain oil properties in Canada, as well as its share of capital
expenditures in the midstream natural gas assets owned jointly with Gulf Canada
Resources Limited ("Gulf Canada") and its capital expenditures related to its
investment in the gas distribution system in Northern Ireland, as discussed
below.
The Company owns a 20% interest in Iroquois, the partnership that owns a
374-mile pipeline that currently transports 946 MDTH of Canadian gas supply
daily from the New York-Canadian border to markets in the Northeastern United
States. The Company is also a shipper on Iroquois and currently transports up to
137 MDTH of gas per day on the pipeline.
The Company owns a 24.5% interest in Phoenix Natural Gas ("Phoenix") and a 50%
interest in Premier Transco Pipeline ("Premier") in Northern Ireland. Phoenix is
a gas distribution system serving the City of Belfast, Northern Ireland, which
is in its early stages of development pursuant to an eight-year program of
capital development and line extensions. Premier is an 84-mile pipeline to
Northern Ireland from southwest Scotland that has planned transportation
capacity of approximately 300 MDTH of gas supply daily to markets in Northern
Ireland.
The Company has equity investments in two gas storage facilities in the State of
New York, Honeoye Storage Corporation and Steuben Gas Storage Company.
The Company also has a 50% interest in midstream natural gas assets located in
Western Canada owned jointly with Gulf Canada. The assets include interests in
14 processing plants and associated gathering systems that can process
approximately 1.5 BCFe of natural gas daily, and associated natural gas liquids
fractionation. Additionally, as previously discussed, a 37% interest in Paddle
River was acquired by the Company in September 1999 and in December 1999, the
Company acquired the Nipisi oil property all in Western Canada.
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REGULATION AND RATE MATTERS
Gas and electric public utility companies, and corporations which own gas and
electric public utility companies (I.E., public utility holding companies) may
be subject to either or both state and federal regulation. In general, state
public utility commissions, such as the NYPSC, regulate the provision of retail
services, including the distribution and sale of natural gas and electricity to
consumers. FERC regulates interstate natural gas transportation and electric
transmission, and has jurisdiction over certain wholesale natural gas sales and
wholesale electric sales. Public utility holding companies, especially those
with operations in several states, are regulated by the SEC under PUHCA, and to
some extent by state utility commissions through the regulation of corporate,
financial and affiliate activities of public utilities.
PUBLIC UTILITY HOLDING COMPANY REGULATION. KeySpan Energy is a public utility
holding company, although it is currently exempt from most regulation under
PUHCA because of the predominately intrastate character of its public utility
subsidiaries. The only provision of PUHCA from which KeySpan Energy is not
currently exempt is the requirement that any person must obtain advance SEC
approval for the acquisition of 5% or more of voting securities issued by any
public utility company or public utility holding company. However, following the
consummation of the Eastern Transaction, the Company will become a "registered"
holding company under PUHCA. As such, the corporate and financial activities of
the Company and its subsidiaries, including the ability of each entity to pay
dividends will be subject to regulation of the SEC. On March 6, 2000, the
Company filed its application with the SEC to become a registered holding
company under PUHCA.
KeySpan Energy also is subject to indirect regulation by the NYPSC in the form
of conditions attached to NYPSC orders authorizing the formation of the Company
and approving the Combination, among other matters. Those conditions address the
manner in which KeySpan Energy and its subsidiaries interact with their two
NYPSC-regulated natural gas distribution subsidiaries, Brooklyn Union and
Brooklyn Union of Long Island.
NYPSC REGULATION
NATURAL GAS UTILITIES. The NYPSC is the principal agency in the State of New
York which regulates, as "gas corporations" - companies that own, operate or
manage pipelines and other facilities used to distribute or sell natural gas.
The NYPSC regulates the construction, use and maintenance of intrastate natural
gas facilities, the retail rates, terms and conditions of service offered by gas
corporations, as well as matters relating to the quality, reliability and safety
of service. The NYPSC also regulates the corporate, financial and affiliate
activities of gas corporations. Both Brooklyn Union and Brooklyn Union of Long
Island are gas corporations subject to the full scope of NYPSC regulation.
Beginning in the mid-1980's, the NYPSC has taken a number of steps to require
the "unbundling" of natural gas sales and other services from the distribution
of natural gas through pipelines in order to encourage competition among gas
sellers and energy service providers. In 1985, the NYPSC ordered the major gas
utilities in the state to offer transportation service for large volume
customers who choose to purchase natural gas from other suppliers. Subsequently,
the NYPSC required that transportation service be made available to all
customers beginning on May 1, 1996. Brooklyn
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Union and Brooklyn Union of Long Island have been providing a transportation
service option to all their customers in compliance with that NYPSC requirement.
In April 1997, the NYPSC ordered gas utilities to cease providing non-safety
related appliance repair service by no later than May 1, 2000. Brooklyn Union
stopped providing these services in April 1998, and Brooklyn Union of Long
Island ceased providing non-emergency appliance repair services on July 1, 1999.
During a transition period from September 22, 1999 through April 30, 2000,
Brooklyn Union of Long Island is implementing a transition program to assist
customers in their change to new non-emergency appliance service providers.
In November 1998, the NYPSC issued a policy statement that anticipated that
natural gas utilities would cease sales of gas, and become transportation-only
providers, within three to seven years. Marketers, including those that are
affiliated with the natural gas utilities, are permitted to compete for retail
natural gas sales. The NYPSC's policy statement envisions proceedings to
restructure the operations of natural gas utilities in order to facilitate the
achievement of the objectives articulated in the policy statement.
On October 18, 1999, Brooklyn Union and Brooklyn Union of Long Island (the "Gas
Companies") filed a Joint Restructuring Proposal (the "Proposal") with the
NYPSC. The Proposal outlines how the Gas Companies would restructure their
operations by encouraging all gas consumers to migrate to transportation-only
service. The Proposal is designed to (i) provide significant impetus towards the
Gas Companies exiting the gas supply business and (ii) present opportunities for
the development of a competitive unbundled gas supply market for all customers.
Settlement discussions with the Staff of the NYPSC and other interested parties
have been held regarding the Gas Companies' restructuring proposals. The Company
is unable to predict the outcome of this matter. For more information on gas
deregulation, see Item 7A, Quantitative and Qualitative Disclosures About Market
Risk.
Brooklyn Union currently is operating under a six-year rate plan that ends on
September 30, 2002. Brooklyn Union is subject to an earnings sharing provision
under which it will be required to credit to certain customers 60% of any
utility earnings up to 100 basis points above specified common equity return
levels (other than any earnings associated with discrete incentives) and 50% of
any utility earnings in excess of 100 basis points above such threshold levels.
The threshold levels are13.50% for rate years, September 30 1999, 2000 and 2001;
and 13.25% for rate year 2002. A safety and reliability incentive mechanism
provides a maximum 12 basis point pre-tax penalty return on common equity if
Brooklyn Union fails to achieve certain safety and reliability performance
standards, and a customer service incentive performance program with a maximum
40 basis point pre-tax penalty return on equity. With the exception of the
simplification of the customer service performance standards and the imposition
of the earnings sharing provisions, the Brooklyn Union rate plan approved by the
NYPSC in 1996 remains unchanged.
Brooklyn Union of Long Island currently is operating under a three-year rate
plan. The rate plan applies to the period December 1, 1997 through November 30,
2000. Under the plan, if Brooklyn Union of Long Island's earned return on common
equity devoted to its operations exceeds 11.10%, it must credit back to certain
customers 60% of earnings up to 100 basis points above the 11.10% and 50% of any
earnings in excess of a 12.10% return. Both a customer service and a safety and
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reliability incentive performance program became effective on December 1, 1997,
with maximum pre-tax return on equity penalties of 40 and 12 basis points,
respectively, if Brooklyn Union of Long Island fails to achieve certain
performance standards in these areas. At the conclusion of the Brooklyn Union of
Long Island rate plan on November 30, 2000, Brooklyn Union of Long Island or the
NYPSC on its own motion, may initiate a proceeding to revise the rates and
charges of that company.
As part of the settlement agreement approved by the NYPSC in connection with its
approval of the Combination (the "Stipulation"), Brooklyn Union and Brooklyn
Union of Long Island are subject to certain affiliate transaction restrictions,
cost allocation and financial integrity conditions and a code of conduct
governing affiliate relationships. These restrictions and conditions eliminate
or relax many restrictions previously applicable to Brooklyn Union in such areas
as affiliate transactions, use of the name and reputation of Brooklyn Union by
unregulated affiliates, common officers of the Company, the utility subsidiaries
and unregulated subsidiaries, dividend payment restrictions, and the composition
of the Board of Directors of Brooklyn Union.
ELECTRIC SUPPLIERS. KeySpan Generation LLC ("KeySpan Generation") and KeySpan
Ravenswood, Inc. ("KeySpan Ravenswood"), KeySpan Energy's electric generation
subsidiaries, are not subject to NYPSC rate regulation because their energy
transactions are made exclusively at wholesale; however, KeySpan Generation and
KeySpan Ravenswood are subject to NYPSC financial, reliability and safety
regulation. As wholesale generators, KeySpan Generation and KeySpan Ravenswood
qualify for "lightened" regulatory treatment, I.E. certain discretionary
regulations are waived and others are applied with less scrutiny than would be
the case for fully-regulated electric utilities.
FEDERAL REGULATION
NATURAL GAS COMPANIES. The FERC has jurisdiction to regulate certain natural gas
sales for resale in interstate commerce, the transportation of natural gas in
interstate commerce, and, unless an exemption applies, companies engaged in such
activities. The natural gas distribution activities of Brooklyn Union and
Brooklyn Union of Long Island and certain related intrastate gas transportation
functions are not subject to FERC jurisdiction. However, to the extent that
Brooklyn Union and Brooklyn Union of Long Island sell gas for resale in
interstate commerce, such sales are subject to FERC jurisdiction and have been
authorized by the FERC.
The Company also owns an approximate 20% interest in Iroquois and 52% and 18.6%
interests in the Honeoye and Steuben gas storage facilities, respectively.
Iroquois, Honeoye and Steuben are fully regulated by the FERC as natural gas
companies.
ELECTRIC SUPPLIERS. The FERC regulates the sale of electricity at wholesale and
the transmission of electricity in interstate commerce as well as certain
corporate and financial activities of companies that are engaged in such
activities.
The Generating Facilities and the Ravenswood Facility are subject to FERC
regulation based on their wholesale energy transactions. LIPA, KeySpan
Generation, and the Staff of FERC stipulated to setting rates designed to
recover $300.5 million in the first year with agreed-upon adjustments to set
rates for the remainder of the five-year rate period. The only party opposed to
this stipulation is the
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County of Suffolk. Parties submitted initial briefs to a FERC Administrative Law
Judge ("ALJ") on December 8, 1998 and reply briefs on January 15, 1999. On April
15, 1999, the presiding ALJ issued an Initial Decision which ordered, subject to
review of the Commission on exceptions or on its own motion, that the rates and
terms contained in the PSA, as modified by the June 30, 1998 Stipulation and
Agreement, are just and reasonable. On June 17, 1999, this initial decision was
made a final order of the FERC. The FERC retains the ability in future
proceedings, either on its own motion or upon a complaint filed with the FERC,
to modify KeySpan Generation's rates, either upward or downward, if the FERC
finds that the public interest requires it to do so.
KeySpan Ravenswood's rates are based on its market based rate application
approved by FERC. The rates that KeySpan Ravenswood may charge are subject to
mitigation measures due to market power concerns of the FERC. As is the case
with KeySpan Generation, the FERC retains the ability in future proceedings,
either on its own motion or upon a complaint filed with the FERC, to modify
KeySpan Ravenswood's rates, either upward or downward, if the FERC concludes
that it is in the public interest to do so.
REGULATION IN OTHER COUNTRIES
The Company's operations in Northern Ireland, conducted through Premier and
Phoenix, are subject to licensing by the Northern Ireland Department of Economic
Development and regulation by the U.K. Department of Trade and Industry (with
respect to the subsea and on-land portions of the Premier pipeline) and the
Northern Ireland Director General, Office for the Regulation of Electricity and
Gas (with respect to the Northern Ireland portion of the Premier pipeline and
Phoenix's operations generally). The licenses establish mechanisms for the
establishment of rates for the conveyance and transportation of natural gas, and
generally may not be revoked except upon long- term notice. Charges for the
supply of gas by Phoenix are largely unregulated unless a determination is made
of an absence of competition.
The Company's assets in Canada are subject to regulation by Canadian provincial
authorities. Such regulatory authorities license the operations of the
facilities and regulate safety matters and certain changes in such facilities'
operations.
ENVIRONMENTAL MATTERS
OVERVIEW
The Company's ordinary business operations subject it to various federal, state
and local laws, rules and regulations dealing with the environment, including
air, water, and hazardous waste, and its business operations are regulated by
various federal, regional, state and local authorities, including the United
States Environmental Protection Agency (the "EPA"), the DEC, the New York City
Department of Environmental Protection (NYC DEP) and the Nassau and Suffolk
County Departments of Health. These requirements govern both the normal, ongoing
operations of the Company and the remediation of contaminated properties
historically used in utility operations. Potential liability associated with the
Company's historical operations may be imposed without regard to fault, even if
the activities were lawful at the time they occurred.
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Ensuring continuing compliance with environmental requirements may require
significant expenditures for capital improvements or modifications in some
areas. Total capital expenditures for environmental improvements and related
studies, for other than MGP matters, amounted to approximately $1.7 million for
the year ended December 31, 1999, and are expected to be in the $1 to $2 million
range for the year ending December 31, 2000.
Except as set forth below, no material proceedings relating to environmental
matters have been commenced or, to the knowledge of the Company, are
contemplated by any federal, state or local agency against the Company, and the
Company is not a defendant in any material litigation with respect to any matter
relating to the protection of the environment. The Company believes that its
operations are in substantial compliance with environmental laws and that
requirements imposed by environmental laws are not likely to have a material
adverse impact upon the Company. The Company believes that all prudently
incurred costs not recoverable through insurance or some other means with
respect to environmental requirements will be recoverable from its customers.
The Company also is pursuing claims against insurance carriers and potentially
responsible parties which seek the recovery of certain costs associated with the
investigation and remediation of contaminated properties.
AIR. Federal, state and local laws currently regulate a variety of air emissions
from new and existing electric generating plants, including SO2, NOx, opacity
and particulate matter and, in the future, may also regulate emissions of fine
particulate matter, hazardous air pollutants, and carbon dioxide. The Company
has submitted timely applications for permits in accordance with the
requirements of Title V of the 1990 amendments to the Federal Clean Air Act
("CAA"). Final permits have been issued for all of the Company's electric
generating facilities with the exception of the Far Rockaway and KeySpan
Ravenswood facilities, which are pending. The permits allow the Company's
electric generating plants to continue to operate without any additional
significant expenditures, except as described below.
The Company's generating facilities are located within a CAA severe ozone
non-attainment area, and are subject to the Phase I, II, and III NOx reduction
requirements established under the Ozone Transportation Commission ("OTC")
memorandum of understanding. The Company's investments in boiler combustion
modifications and the use of natural gas firing at its steam electric generating
stations has enabled the Company to achieve the NOx emission reductions required
under Phase I and II in a cost-effective manner. In addition, software and
equipment upgrades of approximately $1 million for continuous emissions monitors
("CEM") may be required in 2000 to meet EPA requirements for the NOx allowance
tracking/trading program and certain other regulatory changes affecting the
operation of CEM systems. The Company currently estimates that it may be
required to spend between $5 million and $25 million by the year 2003 for
additional pollution control equipment to achieve the OTC Phase III NOx
reduction requirements and/or new requirements imposed under the EPA NOx state
implementation plan, depending on the actual level of NOx emission reductions
which are required when pending regulations are implemented by the State of New
York.
WATER. The Company possesses permits for its generating units which authorize
discharges from cooling water circulating systems and chemical treatment
systems. These permits are renewed from
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time to time, as required by regulation. The Company does not foresee any new,
material obligations arising from these permit renewals.
On behalf of LIPA, the Company provides management and operations support for
the LIPA- Connecticut Light and Power Company electric transmission cable system
located under the Long Island Sound (the "Sound Cable"). The Connecticut
Department of Environmental Protection and the DEC separately have issued
Administrative Consent Orders ("ACOs") in connection with releases of insulating
fluid from the Sound Cable. The ACOs require the submission of a series of
reports and studies describing cable system condition, operation and repair
practices, alternatives for cable improvements or replacement, and environmental
impacts associated with prior leaks of fluid into the Long Island Sound.
Compliance activities associated with the ACOs are ongoing and are recoverable
from LIPA under the MSA.
REMEDIATION OF CONTAMINATED PROPERTY
SUPERFUND SITES. Federal and New York State Superfund laws impose liability,
regardless of fault, upon generators of hazardous substances for costs
associated with remediating contaminated property. In the course of its business
operations, the Company generates materials which are subject to these laws.
From time to time, the Company has received notices under these laws concerning
possible claims with respect to sites at which hazardous substances generated by
the Company and other potentially responsible parties ("PRPs") allegedly were
disposed.
The DEC has notified the Company, pursuant to the State Superfund program, that
the Company may be responsible for the disposal of hazardous substances at the
Huntington/East Northport Site, a municipal landfill property. The DEC
investigation is in its preliminary stages, and the Company currently is unable
to estimate its share, if any, of the costs required to investigate and
remediate this site.
MANUFACTURED GAS PLANT SITES. The Company has identified twenty-six MGP sites
which were historically owned or operated by Brooklyn Union or Brooklyn Union of
Long Island (or such companies' predecessors). Operations at these plants in the
late 1800's and early 1900's may have resulted in the release of hazardous
substances. These former sites, some of which are no longer owned by the
Company, have been identified to both the DEC for inclusion on appropriate waste
site inventories and the PSC. The currently-known conditions of fourteen of
these former MGP sites, their period and magnitude of operation, generally
observed cleanup requirements and costs in the industry, current land use and
ownership, and possible reuse have been considered in establishing contingency
reserves that are discussed below.
In 1995, Brooklyn Union executed an ACO with the DEC which addressed the
investigation and remediation of a site in Coney Island, Brooklyn. In 1998,
Brooklyn Union executed an ACO for the investigation and remediation of the
Clifton MGP site in Staten Island. At the initiative of DEC, the City of New
York and the Company are in negotiations on a cost sharing arrangement to
conduct investigations in 2000 at the Citizen's MGP site in Brooklyn, which is
now primarily owned by the City, but was formerly owned and operated by a
Brooklyn Union predecessor. The DEC notified the Company in 1998 that the Sag
Harbor and Rockaway Park MGP sites owned by Brooklyn Union of Long Island would
require remediation under the State's Superfund program. Accordingly, the
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Sag Harbor and Rockaway Park sites; as well as the Bay Shore, Glen Cove,
Halesite and Hempstead MGP sites; are the subject of two separate ACOs, which
the Company executed with the DEC in March and September 1999, respectively.
Field investigations and, in some cases, interim remedial measures, are underway
or scheduled to occur at each of these sites under the supervision of the DEC
and the New York State Department of Health.
The Company was also requested by the DEC to perform preliminary site
assessments at the Patchogue, Babylon, Far Rockaway, Garden City and Hempstead
(Clinton St.) MGP sites, each of which were formerly owned by LILCO, under a
separate ACO entered into in September 1999. Initial studies based on existing,
available documentation have been completed for each such site and the DEC has
requested that the Company collect additional samples at each of the subject
properties.
With the exception of the Coney Island site, which will be redeveloped for
commercial or industrial use, the final end uses for the sites identified above
and, therefore, acceptable remediation goals have not yet been determined. The
Company is required to prepare a feasibility study for the remediation of each
such site, based on cleanup levels derived from risk analyses associated with
the proposed or anticipated future use of the properties. The schedule for
completing this phase of the work under the ACOs for the identified sites
discussed above extends through 2001.
Thus, thirteen sites identified above are currently the subject of ACOs with the
DEC and one is subject to the negotiation of such an agreement. The Company's
remaining MGP sites may not become subject to ACOs in the future, and
accordingly no liability has been accrued for these sites. It is possible, based
on future investigation, that the Company may be required to undertake
investigation and potential remediation efforts at these, or other currently
unknown former MGP sites. However, the Company is currently unable to determine
whether or to what extent such additional costs may be incurred.
The Company believes that in the aggregate, the accrued liability for
investigation and remediation of the MGP sites identified above are reasonable
estimates of likely cost within a range of reasonable, foreseeable costs.
Accordingly, the Company presently estimates the cost of its MGP- related
environmental cleanup activities will be $123 million; which amount has been
accrued by the Company as its current best estimate of its aggregate
environmental liability for known sites. As previously indicated, the total
MGP-related costs may be substantially higher, depending upon remediation
experience, selected end use for each site, and actual environmental conditions
encountered.
The NYPSC approved rate plans for Brooklyn Union and Brooklyn Union of Long
Island provide for the recovery of such investigation and remediation costs. The
Brooklyn Union rate plan provides, among other things, that if the total cost of
investigation and remediation varies from that which is specifically estimated
for a site under investigation and/or remediation, then Brooklyn Union will
retain or absorb up to 10% of the variation. The Brooklyn Union of Long Island
rate plan also provides for the recovery of investigation and remediation costs
but with no consideration of the difference between estimated and actual costs.
Under prior rate orders, Brooklyn Union has offset certain moneys due to
ratepayers against its estimated environmental cleanup costs for MGP sites. At
December 31, 1999, the Company has reflected a regulatory asset of $95.6
million.
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Expenditures incurred to date by the Company with respect to MGP-related
activities total $15.9 million.
Periodic discussions by the Company with insurance carriers and third parties
for reimbursement of some portion of MGP site investigation and remediation
costs continue. In December 1996, LILCO filed a complaint in the United States
District Court for the Southern District of New York against fourteen insurance
companies that issued general comprehensive liability policies to LILCO. In
January 1998, LILCO commenced a similar action against the same, and additional,
insurance companies in New York State Supreme Court, and the federal court
action subsequently was dismissed. The state court action is being conducted by
the Company on behalf of Brooklyn Union of Long Island. The outcome of this
proceeding cannot yet be determined. In addition, Brooklyn Union is in
discussions with insurance carriers regarding the possible resolution of
coverage claims related to its MGP site investigation and remediation activities
without litigation. The Company is not able to predict the outcome of these
discussions.
RAVENSWOOD FACILITY. In connection with the Company's acquisition of the
Ravenswood Facility, the Company assumed all of Con Edison's historical
contingent environmental obligations relating to facility operations other than
liabilities arising from pre-closing disposal of waste at off-site locations and
any monetary fines arising from Con Edison's pre-closing conduct. These
environmental exposures are generally divided between (i) future capital
expenditures, in the nature of property and leasehold improvements, necessary to
address compliance obligations and (ii) expenditures to investigate and, as
necessary, remediate certain on-site contamination which may or may not result
in leasehold improvements.
Presently, there are four ACOs issued to Con Edison by the DEC. The Company has
contractually agreed to assume Con Edison's remaining obligations at the
Ravenswood Facility under these ACOs. Generally, the Company's derivative
obligations are expected to include investigation and remediation of certain
petroleum releases, inspection and any necessary corrective action for certain
aboveground storage tanks and underground piping, potential upgrades to existing
cooling water intake structures, and implementation of an air emissions opacity
reduction program. The Company is currently negotiating a consolidated ACO with
the DEC that will clarify the scope and timing of these activities.
The Company has identified certain capital expenditures for environmental
compliance purposes at the Ravenswood Facility that are reasonably likely to
occur. To address an anticipated shortfall of NOx emissions allowances beginning
in May 2003, the Company may incur capital costs for additional air pollution
control equipment. Alternatively, the Company may elect to purchase additional
NOx allowances. The Company may be required to upgrade the Ravenswood Facility
cooling intake structures in order to meet the best available technology
requirements of the Federal Clean Water Act. The extent and cost of any upgrades
are uncertain and will depend upon the analysis and interpretation of certain
studies submitted by the Company to the DEC and subsequently agreed upon between
the DEC and the Company.
Pursuant to its derivative ACO obligations, the Company will complete the
investigation and remediation of certain petroleum and other hazardous material
releases at the Ravenswood Facility, as necessary. The Company will also address
similar releases not covered by the ACO's. The
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Ravenswood Facility is located on a former MGP site. The Company has no current
obligation to investigate or remediate the property for contamination resulting
from historical MGP operations, although there may be a need to perform certain
site remediation as part of an overall improvement of property related to the
installation of new generation capacity. Based on information currently
available for environmental contingencies related to the Ravenswood acquisition,
the Company has accrued $5 million as the minimum liability to be incurred.
EMPLOYEE MATTERS
On December 31, 1999, the Company had approximately 7,723 full-time employees.
Of that total, approximately 4,946 employees are covered under collective
bargaining agreements; 1,726 employees are represented by Local 101, Utility
Division, of the Transport Workers Union of America, 205 employees are
represented by Local 3 of the International Brotherhood of Electrical Workers
(the "IBEW"), 1,882 employees are represented by Local 1049 of the IBEW and
1,133 employees are represented by Local 1381 of the IBEW.
The Company maintains collective bargaining agreements covering each of the four
collective bargaining units detailed above, all of which expire in 2001. The
Company has not experienced any work stoppage during the past five years and
considers its relationship with employees, including those covered by collective
bargaining agreements, to be good.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information regarding the Company's Executive Officers, all of whom
serve at the will of the Board of Directors, is set forth below:
ROBERT B. CATELL
Mr. Catell, age 62, has been a Director of the Company since its creation in May
1998 and served as its President and Chief Operating Officer from May 1998-July
1998. He was elected Chairman of the Board and Chief Executive Officer in July
1998. Mr. Catell joined Brooklyn Union in 1958 and became an officer in 1974. He
was elected Vice President in 1977, Senior Vice President in 1981 and Executive
Vice President in 1984. He was elected Chief Operating Officer in 1986 and
President in 1990. Mr. Catell served as President and Chief Executive Officer
from 1991 to 1996, when he was elected Chairman and Chief Executive Officer. In
1997, Mr. Catell was elected Chairman, President and Chief Executive Officer of
the Company.
LAWRENCE S. DRYER
Mr. Dryer, age 40, was elected Vice President of Internal Audit for the Company
in September 1998. Mr. Dryer had been with the Long Island Lighting Company
(LILCO) since 1992 as Director of Internal Audit and was responsible for
providing independent appraisals and recommendations to improve management
controls and increase operational efficiency. Prior to joining LILCO, Mr. Dryer
was an Audit Manager with Coopers & Lybrand.
35
<PAGE>
ROBERT J. FANI
Mr. Fani, age 46, was elected Executive Vice President of Strategic Services in
February 2000. Mr. Fani joined Brooklyn Union in 1976, and held a variety of
management positions in distribution, engineering, planning, marketing, and
business development. He was elected Vice President in 1992. In 1997, Mr. Fani
was promoted to Senior Vice President of Marketing and Sales. In 1998, he
assumed that position with the Company and, as of September 1, 1999, assumed
responsibility for Gas Operations.
WILLIAM K. FERAUDO
Mr. Feraudo, age 49, was elected Executive Vice President of KeySpan Services
Group in February 2000. KeySpan Services Group, is the group of non-regulated
energy service companies focusing on gas marketing, energy management and
telecommunications. Since its founding in 1996, the group has grown to more than
2,000 employees, serving customers in the Northeast. Mr. Feraudo began his
career at Brooklyn Union in 1971 and rose through a succession of positions in
Information Systems, Engineering, Customer Operations, Sales, Marketing, and
Product Development before being named Senior Vice President in 1994. He served
as Senior Vice President of Energy Services for the Company prior to his
promotion to Executive Vice President.
RONALD S. JENDRAS
Mr. Jendras, age 52, was named Vice President, Controller and Chief Accounting
Officer of the Company in August 1998. He joined Brooklyn Union in 1969 and held
a variety of positions in the Accounting Department before being named budget
director in 1973. In 1983, Mr. Jendras was promoted to manager of Brooklyn
Union's Rate and Regulatory Affairs area, and in 1997, was named general manager
of the Accounting Division.
GERALD LUTERMAN
Mr Luterman, age 56, has served as Senior Vice President and Chief Financial
Officer since August 1999. He formerly served as Chief Financial Officer of
barnesandnoble.com and Senior Vice President and Chief Financial Officer of
Arrow Electronics, Inc., a distributor of electronic components and computer
products. Prior to that, from 1985-1996, he held executive positions with
American Express, including Executive Vice President and Chief Financial Officer
of the Consumer Card Division from 1991-1996.
DAVID MANNING
Mr. Manning, age 49, was elected Senior Vice President of Corporate Affairs in
April 1999. Before joining KeySpan Energy, Mr. Manning had been president of the
Canadian Association of Petroleum Producers (CAPP) since 1995. From 1993 to
1995, he was Deputy Minister of Energy for the Province of Alberta, Canada, the
source of approximately 14 percent of the natural gas supply serving United
States markets. From 1988 to 1993, he was Senior International Trade Counsel for
the Government of Alberta, based in New York City. Previously he was in the
private practice of law in Canada.
36
<PAGE>
CRAIG G. MATTHEWS
Mr. Matthews, age 57, has been President and Chief Operating Officer of KeySpan
Energy and Brooklyn Union since January 1999. Mr. Matthews joined Brooklyn Union
in 1965 and held various management positions in the corporate planning,
financial, marketing, and engineering areas. He has been an officer since 1977.
He was elected Vice President in 1981 and Senior Vice President in 1985. In
1991, Mr. Matthews was named Executive Vice President with responsibilities for
Brooklyn Union's financial, gas supply, information systems, and strategic
planning functions, as well as Brooklyn Union's energy-related investments. In
1996, Mr. Matthews was promoted to President and Chief Operating Officer. He
also served as Executive Vice President and Chief Financial Officer of the
Company from May 1998 through August 1999.
H. NEIL NICHOLS
Mr. Nichols, age 62, was elected Senior Vice President of the Company in March
1999. He also serves as President of KeySpan Energy Development Corporation
(KEDC), a position to which he was elected in March 1998. KEDC is a wholly owned
subsidiary of the Company responsible for spearheading energy-related investment
project development efforts, both domestically and internationally. Since
February 1999, Mr. Nichols also has responsibility for KeySpan Energy Trading
Services, LLC, the Company which provides fuel procurement management and energy
trading services for Brooklyn Union, Brooklyn Union of Long Island and LIPA. Mr.
Nichols, joined KeySpan in 1997, as a broad-based negotiator and business
strategist with comprehensive finance and treasury experience in domestic and
international markets. Prior to joining KeySpan, Mr. Nichols was an owner and
president of Corrosion Interventions, Ltd. in Toronto, Canada. He also served as
Chief Financial Officer and Executive Vice President with TransCanada.
ANTHONY NOZZOLILLO
Mr. Nozzolillo, age 51, was elected Executive Vice President of Electric
Operations in February 2000. He previously served as Senior Vice President of
the Company's Electric Business Unit from December 1998 to January 2000. He
joined LILCO in 1972 and held various positions, including Manager of Financial
Planning and Manager of Systems Planning. Mr. Nozzolillo served as LILCO's
Treasurer from 1992 to 1994 and as Senior Vice President of Finance and Chief
Financial Officer from 1994 to 1998. He served as Senior Vice President of
Finance of the Company from May 1998 to December 1998. He also serves as a
Director to the Long Island Museum of Science and Technology.
WALLACE P. PARKER, JR.
Mr. Parker, age 50, was elected Executive Vice President of Gas Operations in
February 2000. He previously served as the Company's Senior Vice President of
Human Resources from August 1998 to January 2000. He joined Brooklyn Union in
1971 and served in a wide variety of management positions. In 1987 he was named
Assistant Vice President for marketing and advertising and was elected Vice
President in 1990. In 1994 Mr. Parker was promoted to Senior Vice President of
Human Resources.
37
<PAGE>
LENORE F. PULEO
Ms. Puleo, age 46, was elected Executive Vice President of Shared Services in
February 2000. She previously served as Senior Vice President of Customer
Relations for Brooklyn Union from May 1994 to May 1998, and for the Company from
May 1998 to January 2000. She joined Brooklyn Union in 1974 and worked in
management positions in Brooklyn Union's Accounting, Treasury, Corporate
Planning, and Human Resources areas. She was given responsibility for the Human
Resources Department in 1987 and was named a Vice President in 1990. Ms. Puleo
was promoted to Senior Vice President of Brooklyn Union's Customer Relations in
1994.
CHERYL T. SMITH
Ms. Smith, age 48, joined the Company in November 1998 as Senior Vice President
and Chief Information Officer. She came to the Company from Bell Atlantic where
she served as Vice President of Strategic Billing and Corporate Systems. Prior
to Bell Atlantic, she worked at Honeywell Federated Systems Inc. as the Director
of MIS for Honeywell Federal Systems, Inc. Ms. Smith brings to the Company more
than 25 years of information systems technology experience.
MICHAEL J. TAUNTON
Mr. Taunton, age 44, has been the Company's Vice President of Investor Relations
since September 1998. He joined Brooklyn Union in 1975 and has worked in various
management positions in Marketing and Sales, Corporate Planning, Corporate
Finance and Accounting. During the transition process he co-managed the
day-to-day operations of the merger on behalf of Brooklyn Union and LILCO.
Before that, Mr. Taunton was general manager of the Business Process Improvement
teams that were organized to improve the organization's strategic focus.
COLIN P. WATSON
Mr. Watson, age 46, was named Senior Vice President of Strategic Marketing and
E-Business effective March 1, 2000. He previously served as Vice President of
Strategic Marketing from May 1998 until his promotion to Senior Vice President.
Mr Watson joined Brooklyn Union in 1997 as Vice President of Strategic
Marketing. From 1973 to 1997, he held several positions at NYNEX, including vice
president and managing director of worldwide operations.
ROBERT R. WIECZOREK
Mr. Wieczorek, age 57, has been the Company's Vice President, Secretary and
Treasurer since August 1998. Mr. Wieczorek joined Brooklyn Union in 1976 and
held a variety of accounting/ financial related positions. In 1981 he was named
Treasurer responsible for all cash management activities and for overseeing
pension fund investments and retirement administration, pension manager
evaluation, long-term debt and equity financing, investor relations, and
shareholder records. From May 1998 to August 1998, he was Vice President and
Auditor of the Company.
STEVEN L. ZELKOWITZ
Mr. Zelkowitz, age 50, was elected Senior Vice President and General Counsel of
the Company in February 2000. He joined the Company as Senior Vice President and
Deputy General Counsel in October 1998. Before joining the Company, Mr.
Zelkowitz practiced law with Cullen and Dykman in Brooklyn, New York and had
been a partner since 1984. He served on the firm's Executive Committee and was
head of its Corporate/Energy Department. Mr. Zelkowitz specialized in energy and
utility law and represented investor-owned and municipal gas and electric
utilities in New York, New Jersey and Vermont.
<PAGE>
ITEM 2. PROPERTIES
Information with respect to the Company's material properties used in the
conduct of its business is set forth in, or incorporated by reference in, Item 1
hereof. Except where otherwise specified, all such properties are owned or, in
the case of certain rights of way used in the conduct of its gas distribution
business, held pursuant to municipal consents, easements or long-term leases,
and in the case of oil and gas properties, held under long-term mineral leases.
In addition to the information set forth therein with respect to properties
utilized by each business segment, the Company owns or leases a variety of
office space used for administrative operations of the Company. In the case of
leased office space, the Company anticipates no significant difficulty in
leasing alternative space at reasonable rates in the event of the expiration,
cancellation or termination of a lease relating to the Company's leased
properties.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to various legal proceedings arising
out of the ordinary course of its business. Except as described below, the
Company does not consider any of such proceedings to be material to its business
or likely to result in a material adverse effect on its results of operations or
financial condition.
In October 1998, the County of Suffolk and the Towns of Huntington and Babylon
commenced an action against LIPA, the Company, the NYPSC and others in the
United States District Court for the Eastern District of New York (the
"Huntington Lawsuit"). The Huntington Lawsuit alleges, among other things, that
LILCO ratepayers (i) have a property right to receive or share in the alleged
capital gain that resulted from the transaction with LIPA (which gain is alleged
to be at least $1 billion); and (ii) that LILCO was required to refund to
ratepayers the amount of a Shoreham-related deferred tax reserve (alleged to be
at least $800 million) carried on the books of LILCO at the consummation of the
LIPA transaction. In December 1998, and again in June 1999, the plaintiffs
amended their complaint. The amended complaint contains allegations relating to
certain payments LILCO had determined were payable in connection with the LIPA
Transaction and KeySpan Acquisition to LILCO's Chairman and certain former
officers and adds the recipients of the payments as defendants. In June 1999,
the Company was served with the second amended complaint. On August 23, 1999,
the Company filed a motion to dismiss the second amended complaint. Pursuant to
an agreement among the parties, the Company's motion to dismiss is being
converted to a summary judgement motion. At this time the Company is unable to
determine the outcome of this ongoing proceeding.
39
<PAGE>
A class settlement, which became effective in June 1989 (COUNTY OF SUFFOLK, ET
AL., V. LONG ISLAND LIGHTING COMPANY, ET AL.), resolved a civil lawsuit against
LILCO brought under the federal Racketeer Influenced and Corrupt Organizations
Act, alleging that LILCO made inadequate disclosures before the NYPSC concerning
the construction and completion of nuclear generating facilities. The class
settlement provided electric customers with rate reductions of $390.0 million
that were being reflected as adjustments to their monthly electric bills over a
ten-year period which began on June 1, 1990. The class settlement obligation of
approximately $20 million at December 31, 1999 reflects the present value of the
remaining reductions to be refunded to customers. As a result of the LIPA
Transaction, LIPA will provide the remaining balance to its electric customers
as an adjustment to their monthly electric bills. The Company will then, in
turn, reimburse LIPA on a monthly basis for such reductions on the customer's
monthly bill. The Company remains ultimately obligated for amounts due under the
class settlement. In November 1999, class counsel for the LILCO ratepayers
served a motion, in the United States District Court for the Eastern District of
New York, seeking an order directing the Company to pay $42 million, in addition
to the amounts remaining to be paid under the class settlement. Class counsel
contends that the required rate reductions should have been exclusive of gross
receipts taxes. The Company filed its opposition in January 2000 and class
counsel filed their reply papers in February 2000. In their February papers,
class counsel revised their demand to seek an order directing the Company to pay
approximately $22 million, plus interest, in addition to the amounts remaining
to be paid under the class settlement. The Company filed its rebuttal papers
March 1, 2000 and oral argument was held March 6, 2000. On March 9, 2000, an
order was issued by the court granting class counsel's motion. The Company is in
the process of evaluating the order and, accordingly, is currently unable to
determine the ultimate outcome of the proceeding or what effect, if any, such
outcome will have on its financial condition or results of operations.
In May 1995, eight participants of LILCO's Retirement Income Plan ("RIP") filed
a lawsuit against LILCO, the RIP and Robert X. Kelleher, the Plan Administrator,
in the United States District Court for the Eastern District of New York
(BECHER, ET AL., V. LONG ISLAND LIGHTING COMPANY, ET AL.). In January 1996, the
Court ordered that this action be maintained as a class action. This proceeding
arose in connection with the plaintiffs' withdrawal, approximately 25 years ago,
of contributions made to the RIP, thereby resulting in a reduction of their
pension benefits. The plaintiffs are now seeking, among other things, to have
these reduced benefits restored to their pension accounts. In November 1997, the
Company filed a motion for partial summary judgment with the District Court. On
April 28, 1998, the Court denied the Company's motion and permitted the Company
to file a further motion for partial summary judgment on additional grounds. On
January 27, 1999, the Company entered a stipulation of settlement which was
filed with the Court pursuant to which the Company will pay approximately $8
million, a substantial portion of which is recoverable from LIPA. On August 13,
1999, the Court approved the stipulation of settlement and dismissed the
litigation with prejudice.
40
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the last
quarter of the 12 months ended December 31, 1999.
41
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol "KSE." As of March 1, 2000,
there were approximately 90,500 record holders of the Company's common stock.
The following table sets forth, for the quarters indicated, the high and low
sales prices and dividends declared per share for the periods indicated:
1999 High Low Dividends Per Share
- ------------------ ----------- ----------- ----------------------
First Quarter 31.313 25.125 .445
Second Quarter 27.690 24.250 .445
Third Quarter 31.060 26.380 .445
Fourth Quarter 29.690 22.630 .445
1998 High Low Dividends Per Share
- ------------------------------------- ----------- -------- -------------------
Second Quarter (beginning May 28, 1998) 34 3/16 29 1/8 $0.445
Third Quarter 30 3/4 25 3/8 $0.445
Fourth Quarter 32 1/4 28 11/16 $0.445
1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except Per Share Amounts)
- ------------------------------------------------------------------------------------------------------------
Nine Months Twelve Months Twelve Months
YEAR ENDED Ended Ended Ended Year Ended
DECEMBER 31, 1999 December 31, 1998 March 31, 1998 March 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME SUMMARY
REVENUES
Gas distribution $ 1,753,132 $ 856,172 $ 645,659 $ 672,705 $ 684,260
Electric services 861,582 408,305 - - -
Electric distribution - 330,011 2,478,435 2,464,957 2,466,435
Gas exploration and production 150,581 70,812 - - -
Energy related services and other 189,318 63,181 - - -
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,954,613 1,728,481 3,124,094 3,137,662 3,150,695
OPERATING EXPENSES
Purchased gas 744,432 331,690 299,469 308,400 322,641
Fuel and purchased power 17,252 91,762 658,338 646,448 640,610
Operation and maintenance 1,091,166 842,313 511,165 489,868 499,211
Depreciation, depletion and amortization 253,440 294,864 169,770 154,921 171,681
Electric regulatory amortization - (40,005) 13,359 121,694 97,698
General taxes 366,154 257,124 466,326 469,561 472,076
- ------------------------------------------------------------------------------------------------------------
OPERATING INCOME 482,169 (49,267) 1,005,667 946,770 946,778
OTHER INCOME (DEDUCTIONS) 37,496 (38,745) (6,301) 22,191 26,572
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INTEREST
CHARGES AND INCOME TAXES 519,665 (88,012) 999,366 968,961 973,350
Interest charges (124,692) (138,715) (404,473) (435,219) (447,629)
Income taxes (136,362) 59,794 (232,653) (211,333) (209,257)
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 258,611 (166,933) 362,240 322,409 316,464
Preferred stock dividend requirements 34,752 28,604 51,813 52,113 52,216
- ------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FOR COMMON STOCK $ 223,859 $ (195,537$ 310,427$ 270,296$ 264,248
Foreign currency adjustment 8,666 (952) - - -
- ------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 232,525 $ (196,489$ 310,427$ 270,296$ 264,248
============================================================================================================
FINANCIAL SUMMARY
Earnings per share ($) 1.62 (1.34) 2.56 2.24 2.20
Cash dividends declared per share ($) 1.78 1.19 1.78 1.78 1.78
Book value per share, year-end ($) 20.28 20.90 21.88 21.07 20.89
Market value per share, year-end ($) 23.19 31.00 31.50 24.00 22.13
Shareholders 90,500 103,239 78,314 77,691 86,607
Capital expenditures ($) 725,670 676,563 297,230 294,943 291,618
Total assets ($) 6,730,691 6,895,102 11,900,725 11,849,574 12,209,679
Common equity ($) 2,715,025 3,022,908 2,662,447 2,549,049 2,523,369
Redeemable preferred stock ($) 363,000 - 562,600 638,500 638,500
Preferred stock ($) 84,339 447,973 - 63,598 63,664
Long term debt ($) 1,682,702 1,619,067 4,381,949 4,457,047 4,456,772
Total capitalization ($) 4,482,066 5,089,948 7,606,996 7,708,194 7,682,305
===============================================================================================================
UTILITY OPERATING STATISTICS
Gas data (MDTH)
Firm gas and transportation sales 275,771 87,179 58,304 60,276 62,375
Other sales 54,661 38,088 21,025 19,838 16,588
Maximum daily capacity, year end 2,033,000 2,033,000 745,000 772,000 771,995
Total active gas meters 1,628,497 1,610,202 464,563 458,910 457,809
Gas heating customers 677,000 665,000 295,000 289,000 286,000
</TABLE>
1
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
KeySpan Corporation, d/b/a KeySpan Energy (the "Company" or "KeySpan Energy"),
is a holding company operating two utilities that distribute natural gas to
approximately 1.6 million customers in New York City and on Long Island, making
it the fourth largest gas-distribution company in the United States. Other
KeySpan Energy companies market a portfolio of gas-marketing and energy- related
services in the Northeast, own and operate electric-generation plants in New
York City and on Long Island, and provide operating and customer services to
approximately 1.1 million electric customers of the Long Island Power Authority
("LIPA"). The Company's other energy activities include: gas exploration and
production, primarily through The Houston Exploration Company ("THEC"); domestic
pipelines and storage; and international activities, including gas processing in
Canada, and gas pipelines and local distribution in Northern Ireland. (See Note
2 to the Consolidated Financial Statements, "Business Segments" for additional
information on each operating segment.)
The Company was formed on May 28, 1998 as a result of a transaction between Long
Island Lighting Company ("LILCO") and LIPA (the "LIPA Transaction") and
following the acquisition (the "KeySpan Acquisition") of KeySpan Energy
Corporation ("KSE"). (See Note 14 to the Consolidated Financial Statements,
"Sale of LILCO Assets, Acquisition of KeySpan Energy Corporation and Transfer of
Assets and Liabilities to the Company" for additional information.)
On November 4, 1999, the Company entered into a definitive merger agreement to
acquire all of the common stock of Eastern Enterprises ("Eastern"). Eastern is a
holding company that owns and operates, primarily, Boston Gas Company, Colonial
Gas Company, Essex Gas Company and Midland Enterprises, Inc. Eastern has also
entered into an agreement to acquire all of the common stock of EnergyNorth, a
provider of gas distribution services to customers in New Hampshire. The
acquisition of Eastern is conditioned upon, among other things, the approval of
Eastern shareholders, the Securities and Exchange Commission ("SEC") and, with
respect to the EnergyNorth transaction, the New Hampshire Public Utility
Commission. Upon consummation of the Eastern transaction, the Company will
become a registered holding company under the Public Utility Holding Company Act
of 1935, as amended. The Company anticipates that the transaction will be
consummated in the third or fourth quarter of 2000, but is unable to determine
when or if all required approvals will be obtained. (See Note 11 to the
Consolidated Financial Statements, "Acquisition of Eastern Enterprises" for
further details.)
Current period consolidated results of operations are reported for the year
ended December 31, 1999. In 1998 the Company changed its fiscal year end from
March 31 to December 31. Therefore, results of operations for the period ended
December 31, 1998 reflect the nine month transition period April 1, 1998 to
December 31, 1998 (the "Transition Period"). The Transition Period consists of
the following: (i) the period April 1, 1998 through May 28, 1998, which reflects
the results of LILCO only prior to the LIPA Transaction and KeySpan Acquisition;
and (ii) the period May 29, 1998 through December 31, 1998, which represents the
results of the fully consolidated Company, which includes the KSE-acquired
companies, i.e. The Brooklyn Union Gas Company ("Brooklyn Union")
2
<PAGE>
and subsidiaries comprising the Gas Exploration and Production, Energy Related
Services and Energy Related Investment segments. As required under purchase
accounting, the results of operations for all periods prior to May 29, 1998
reflect results of LILCO only, and do not include results of KSE.
Due to the change in the composition of the Company's operations and the change
in the Company's fiscal year, both occurring in 1998, results of operations for
the year ended December 31, 1999, for the Transition Period, and for the fiscal
year ended March 31, 1998 are not truly comparable for the following reasons.
Prior to the LIPA Transaction, LILCO provided fully integrated electric service
to its customers. Included within electric rates charged to customers was a
return on the capital investment in the generation and the transmission and
distribution ("T&D") assets, as well as recovery of the electric business costs
to operate the system. Upon completion of the LIPA Transaction, the nature of
the Company's electric business changed from that of owner of an electric
generation and T&D system, with significant capital investment, to a new role as
owner of the non-nuclear generation facilities and as manager of the T&D system
now owned by LIPA. In its new role, the Company's capital investment is
significantly reduced and accordingly, its revenues under various service
contracts with LIPA reflect that reduction.
Also contributing to the non-comparability between reporting periods, is the
integration of the KSE- acquired companies since May 29,1998. The KSE-acquired
companies, which include the gas distribution operations of Brooklyn Union,
contribute significantly to results of operations. Income available for common
stock for the KSE-acquired companies, for the period January 1, 1998 through May
28, 1998 was $63.4 million and is not reflected in results of operations for the
Transition Period.
The change in the Company's fiscal year also contributed significantly to the
non-comparability between reporting periods. As previously mentioned, results of
operations for the Transition Period reflect results for the period April 1,
1998 through December 31, 1998. As a result, the Transition Period does not
reflect earnings from gas heating-season operations. The Company realizes
approximately 80% of its gas distribution-related earnings, or approximately 50%
of its consolidated earnings, during the months of January through March, due to
the large percentage of gas heating sales to total gas sales.
Since the reporting periods are not truly comparable we have provided, in
addition to the discussion of the results of operations between periods that
follows, a discussion of operating results for each business segment for the
year ended December 31, 1999 compared to the full twelve months ended December
31, 1998. The intent of this additional disclosure is to provide a better
explanation of the variations in operating results between two comparable twelve
month periods for the Company's on- going business activities. (See "Segment
Review of Operations - Combined Company Comparison".)
The commentary that follows should be read in conjunction with the Notes to the
Consolidated Financial Statements.
3
<PAGE>
CONSOLIDATED REVIEW OF HISTORICAL RESULTS
EARNINGS SUMMARY
Consolidated earnings for 1999 were $223.9 million, or $1.62 per share.
Consolidated results for the Transition Period reflected a loss of $195.5
million, or $1.34 per share. During the Transition Period, the Company: (i)
incurred substantial non-recurring charges associated with the LIPA Transaction
of $107.9 million after-tax, or $0.74 per share, principally reflecting taxes
associated with the sale of assets to the Company by LIPA and the write-off of
certain regulatory assets that were no longer recoverable under various LIPA
agreements; (ii) incurred charges amounting to $83.5 million after- tax, or
$0.57 per share, associated with implementing an early retirement program and
charges associated with the write-off of a customer-billing system that was in
development; (iii) made a $20 million donation ($13 million after-tax, or $0.09
per share) to establish the KeySpan Foundation; and (iv) recorded an after-tax
non-cash impairment charge of $54.1 million, or $0.37 per share, representing
the Company's share of the impairment charge recorded by THEC to recognize the
effect of low wellhead prices on its valuation of proved gas reserves. (See Note
15 to the Consolidated Financial Statements, "Costs Related to the LIPA
Transaction and Special Charges" for further details of these charges.)
Excluding these non-recurring and special charges, earnings for the Transition
Period were $63.0 million, or $0.43 per share. Earnings for the twelve months
ended March 31, 1998 were $310.4 million, or $2.56 per share, and as noted
above, reflect results of operations of the former LILCO only.
4
<PAGE>
Consolidated income (loss) available for common stock by reporting segment is
set forth in the following table for the periods indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -----------------------------------------------------------------------------------------------------------
Transition Period
April 1, 1998 through December 31, 1998
---------------------------------------
Fiscal Year
Year Ended Subsequent Ended
December 31, Prior to the to the March 31,
1999 Acquisition Acquisition Total 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (Loss ) Available for
Common Stock:
Gas Distribution $ 151,217 $ (4,659)$ 13,241 $ 8,582 $ 33,815
Electric Services 77,099 45,141 11,978 57,119 276,612
Gas Exploration and Production 15,772 - 2,218 2,218 -
Energy Related Services (1,298) - (3,708) (3,708) -
Energy Related Investments 7,753 - (4,186) (4,186) -
Other (26,684) - 2,959 2,959 -
- -----------------------------------------------------------------------------------------------------------
Consolidated $ 223,859 $ 40,482$ 22,502 $ 62,984 $ 310,427
Special Charges (258,521)
- -----------------------------------------------------------------------------------------------------------
Consolidated including $(195,537)
Special Charges
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The increase in Gas Distribution earnings in 1999 as compared to the Transition
Period and the fiscal year ended March 31, 1998, reflects, primarily, the
addition of Brooklyn Union from the date of the KeySpan Acquisition. Brooklyn
Union's income available for common stock in 1999 was $109.6 million. Further,
earnings for the Transition Period do not include earnings from heating season
operations (months of January through March) when the Company realizes
approximately 80% of its gas related earnings. The decrease in earnings for the
Transition Period as compared to the fiscal year ended March 31, 1998 is also
due to the absence of heating season operations associated with LILCO's gas
distribution operations during the Transition Period.
In 1999, earnings from Electric Services reflect service-fees under various
service contracts with LIPA and earnings from the operations of the Company's
investment in the 2,168 megawatt Ravenswood electric generation facility,
("Ravenswood Facility") located in Queens, New York, purchased in June 1999. In
order to reduce its cash requirements, the Company entered into a lease
agreement with a special purpose, unaffiliated financing entity that acquired a
portion of the Ravenswood Facility and leased it to a subsidiary of the Company
under a ten year lease. Electric Services earnings increased in 1999 as compared
to the Transition Period due, primarily to the acquisition of the Ravenswood
Facility which contributed $47.5 million to Electric Services earnings in 1999.
Further, 1999 results reflect a full twelve month period of earnings from the
service contracts with LIPA. (For additional details on the electric revenues
and the Ravenswood Facility
5
<PAGE>
see "Electric Services- Revenue Mechanisms" and Note 9 to the Consolidated
Financial Statements, "Contractual Obligations, and Contingencies",
respectively.)
As previously mentioned, the Company's operating results under its arrangements
with LIPA are significantly lower than those experienced prior to the LIPA
Transaction, reflecting the change in the nature of the Company's electric
business. As a result, earnings subsequent to the LIPA Transaction reflect these
reduced margins; therefore, earnings for 1999 and the Transition Period are
significantly lower than those experienced for the fiscal year ended March 31,
1998.
Results of operations in 1999 from Gas Exploration and Production, Energy
Related Services, and Energy Related Investments reflect operations for a full
twelve months as compared to seven months for the Transition Period. Earnings
from Gas Exploration and Production operations in 1999 have benefited from the
combined effect of increases in gas production volumes and gas prices. Results
of operations in 1999 from Energy Related Services and Energy Related
Investments reflect the continued development and integration of companies
acquired over the past few years.
Losses from the Other segment reflect preferred stock dividends and general
expenses incurred by the corporate and administrative areas of the Company that
have not been allocated to the various business segments, offset, in part, by
interest income earned on temporary cash investments. Interest income has been
decreasing as the Company continues to use cash to finance acquisitions,
repurchase shares of its common stock, and retire maturing debt.
REVENUES
Consolidated revenues are derived, primarily, from the Company's two core
operating segments - Gas Distribution and Electric Services. In 1999, these two
core segments accounted for approximately 88% of consolidated revenues. The
increase in consolidated revenues of $1.2 billion, or 71%, in 1999, as compared
to the Transition Period, reflects, primarily, revenues from gas heating sales.
For the months of January 1999 through March 1999, gas distribution revenues
were $718.3 million or approximately 41% of total gas distribution revenues for
the entire year. The Transition Period, which reflects the period April 1, 1998
through December 31, 1998, does not include revenues from heating season
operations for the months of January through March. Further, revenues in 1999
reflect a full twelve month period for all segments, whereas the Transition
Period reflects revenues for only seven months from the KSE- acquired companies.
Revenues in 1999 also include $150.8 million of revenues from the Ravenswood
Facility and were further enhanced from the acquisition of companies reflected
in the Energy Related Services segment.
Consolidated revenues for the Transition Period decreased by $1.4 billion, or
45%, as compared to the fiscal year ended March 31, 1998 due to the significant
reduction in electric revenues. Electric revenues for the Transition Period were
derived from service agreements with LIPA for the period May 29, 1998 through
December 31, 1998 and two months of electric services under LILCO. As previously
mentioned, prior to the LIPA Transaction, LILCO provided fully integrated
electric service to its customers. Included within electric rates charged to
customers was a return on the
6
<PAGE>
capital investment in the generation and T&D assets, as well as recovery of the
electric business costs to operate the system. Upon completion of the LIPA
Transaction, the Company's capital investment was significantly reduced and
accordingly, its revenues under the LIPA contracts reflect that reduction. This
change in the nature of the Company's electric operations also contributed to
the comparative decrease in revenues for 1999 as compared to the fiscal year
ended March 31, 1998.
See Segment Review of Operations - Combined Company Comparison for additional
information regarding revenues for each segment.
OPERATING EXPENSES
Operating expenses were $2.5 billion in 1999, and $1.8 billion and $2.1 billion
for the Transition Period and fiscal year ended March 31, 1998, respectively.
The increase in 1999 as compared to the Transition Period of $694.7 million, or
39.1%, is due, in part, to the increased reporting time frame and to an increase
of $248.9 million in operations and maintenance expense reflecting, primarily,
the addition of the KSE-acquired companies. The decrease in operating expenses
for the Transition Period as compared to the fiscal year ended March 31, 1998 of
$340.7 million or 16.0%, is due, primarily to the shorter reporting period and
the discontinuance of fuel and purchased power expense associated with the
electric generating facilities on Long Island, offset, in part, by operations
and maintenance expenses of the KSE-acquired companies.
PURCHASED GAS
Variations in gas costs have little impact on operating results as the current
gas rate structure of each of the Company's two gas distribution utilities
includes a gas adjustment clause pursuant to which variations between actual gas
costs and gas cost recoveries are deferred and subsequently refunded to, or
collected from customers. Comparative variations between the reported periods
are due to the addition of the KSE-acquired companies, changes in gas volumes
and prices, and the differences in the reporting periods presented.
FUEL AND PURCHASED POWER
Electric fuel expense was $17.3 million in 1999, and $91.8 million and $658.3
million for the Transition Period and for the fiscal year ended March 31, 1998,
respectively. In accordance with the Energy Management Agreement ("EMA") between
the Company and LIPA, LIPA is responsible for paying directly the costs of fuel,
as well as purchased power to satisfy the energy needs of LIPA's customers. As a
result, since May 29, 1998, the Company no longer incurs any electric fuel
expense for Long Island generation or purchased power expense. Electric fuel
expense for 1999 reflects fuel purchases to operate the Ravenswood Facility.
7
<PAGE>
OPERATIONS AND MAINTENANCE EXPENSE
Operations and maintenance expense was $1.1 billion in 1999, and $842.3 million
and $511.2 million for the Transition Period and fiscal year ended March 31,
1998, respectively. The increase in all periods was due primarily to the
addition of the KSE-acquired companies. Operations and maintenance expense for
these companies was $483.6 million for 1999 and $284.1 million for the
Transition Period. Further, the increase in comparative operations and
maintenance expense in 1999 was due, in part, to the operations of the
Ravenswood Facility, which added $61.3 million to expense. Operations and
maintenance expense for the Transition Period included $63.8 million of costs
associated with the write-off of a customer billing system that was in
development and a charge of $64.6 million associated with an early retirement
program.
On a comparable twelve month basis however, the Company has realized significant
reductions in operations and maintenance expense derived, in part, from cost
reduction measures and operating efficiencies employed during the past few
years. To gain a better perspective of operations and maintenance expense on a
comparable twelve month basis see Segment Review of Operations - Combined
Company Comparison.
ELECTRIC REGULATORY AMORTIZATIONS
Prior to the LIPA Transaction, the Rate Moderation Component ("RMC"), included
within electric regulatory amortizations, represented the difference between
LILCO's revenue requirements under conventional ratemaking and the revenues
provided by its electric rate structure.
In April 1998, the New York Public Service Commission (NYPSC") authorized a
revision, effective December 1, 1997, to LILCO's method of recording its monthly
RMC amortization. As a result of this change, for the period April 1, 1998
through May 28, 1998, LILCO recorded $51.5 million more of non-cash RMC credits
to income, or $33.5 million after-tax, than it would have under the previous
method. In addition, for the fiscal year ended March 31, 1998, LILCO recorded
approximately $65.1 million more of non-cash RMC credits to income, or $42.5
million after-tax, than it would have under the previous method. In connection
with the LIPA Transaction, which included the sale of all electric related
regulatory assets, the RMC and all other electric regulatory amortizations were
discontinued.
OTHER OPERATING EXPENSES
Depreciation and depletion expense reflects gas utility property and electric
generation property additions for all periods and electric T&D property
additions for the periods prior to the LIPA Transaction. In addition,
depreciation and depletion expense in 1999 and for the Transition Period,
includes depletion expense associated with the gas production activities of
THEC. The decrease in depreciation and depletion expense in 1999 as compared to
the Transition Period is due, primarily, to the fact that THEC recorded an
impairment charge of $130 million in December 1998 to reduce the value of its
proved gas reserves in accordance with the asset ceiling test limitations of the
SEC
8
<PAGE>
applicable to gas exploration and development operations accounted for under the
full cost method. Excluding this impairment charge, depreciation expense
increased in all periods due to property additions and the addition of the
KSE-acquired companies. Offsetting these increases, in part, is the effect on
depreciation expense from the sale of significant property related assets to
LIPA as a result of the LIPA Transaction.
Operating taxes principally include state and local taxes on utility revenues
and property. The applicable property base and tax rates generally have
increased in all periods. The increase in operating taxes in 1999, as compared
to the Transition Period, reflects the addition of the KSE- acquired companies
for a full twelve month period, and operating taxes associated with the
Ravenswood Facility. Operating taxes associated with the KSE-acquired companies
was $140.8 million in 1999 and $69.8 million during the Transition Period. The
Ravenswood Facility had operating taxes of $19.6 million in 1999. Significant
property related assets were sold to LIPA as part of the LIPA Transaction and,
as a result, subsequent to May 28, 1998, property taxes related to such assets
are no longer incurred by the Company. Therefore, operating taxes in 1999 and
for the Transition Period are significantly lower than for the fiscal year ended
March 31, 1998.
OTHER INCOME AND DEDUCTIONS
Other income includes equity earnings from subsidiaries comprising the Energy
Related Investments segment, primarily the Company's 20% interest in the
Iroquois Gas Transmission System LP ("Iroquois") and 50% investment in Gulf
Midstream Services Partnership ("GMS"). In addition, other income also includes
interest income from temporary cash investments. Equity earnings in 1999 reflect
twelve months of results for Iroquois as compared to only seven months of
results for the Transition Period. Further, GMS was acquired in December 1998
and, therefore, there are no equity earnings associated with GMS for the
Transition Period. The Company recognized equity earnings of $7.1 million and
$5.8 million for 1999, from its investment in Iroquois and GMS, respectively.
Interest income has decreased in 1999, as compared to the Transition Period, as
the Company continues to use cash to make acquisitions, repurchase shares of its
common stock, and retire maturing debt. Other income and deductions also
includes the minority interest effect associated with the Company's 64%
ownership interest in THEC. Other income and deductions for the Transition
Period reflects non-recurring charges associated with the LIPA Transaction of
$107.9 million after- tax and a $20 million before-tax charge for the funding of
the KeySpan Foundation. (See Note 15 to the Consolidated Financial Statements,
"Costs Related to the LIPA Transaction and Special Charges".)
Other income and deductions for the fiscal year ended March 31, 1998 primarily
includes a charge of $31 million before-tax with respect to certain benefits
earned by former officers of LILCO offset by carrying charges on certain
electric regulatory assets resulting from electric ratemaking mechanisms that
have been discontinued due to the LIPA Transaction.
9
<PAGE>
INTEREST EXPENSE
The decrease in interest expense in 1999 and for the Transition Period, as
compared to the fiscal year ended March 31, 1998, primarily reflects the
significantly reduced level of outstanding debt resulting from the LIPA
Transaction. Upon consummation of the LIPA Transaction, LIPA assumed
substantially all of the outstanding debt of LILCO. The Company, in return,
issued promissory notes to LIPA for its continuing obligation to pay principal
and interest on certain series of bonds that were assumed by LIPA. Outstanding
debt at December 31, 1999 was $1.7 billion as compared to $4.5 billion (LILCO
only) prior to the LIPA Transaction. In addition, interest expense in 1999 also
reflects the repayment of $397 million of promissory notes due LIPA that matured
in June 1999. The reduction in interest expense in 1999 from the lower levels of
debt outstanding was offset, in part, by the interest expense from the
KSE-acquired companies for the full twelve months.
INCOME TAXES
Income tax expense reflects the level of pre-tax income in all periods and for
1999, an adjustment to deferred tax expense and current tax expense for the
utilization of previously deferred net operating loss ("NOL") carryforwards
recorded in 1998. In the Transition Period, the Company recorded, as a deferred
tax asset, a benefit of $71.1 million for NOL carryforwards. The Company
estimates that $57.4 million of the benefits from the NOL carryforwards from
1998 will be realized in its consolidated 1999 federal and state income tax
returns, and accordingly, applied the NOL benefits in its 1999 federal and state
tax provisions. Pre-tax income and the related deferred income tax expense for
the Transition Period were significantly affected by charges related to the LIPA
Transaction, the write-off of a customer billing system, charges related to the
early retirement program, and the impairment charge associated with the
write-down of proved gas reserves. (See Note 3 to the Consolidated Financial
Statements, "Income Tax".)
10
<PAGE>
SEGMENT REVIEW OF OPERATIONS - COMBINED COMPANY COMPARISON
Due to the change in the structure of the Company's electric business as a
result of the LIPA Transaction and the requirements of purchase accounting
applicable to the KeySpan Acquisition (as discussed previously), results of
operations for 1999 are not truly comparable to the results of operations for
the Transition Period. For comparative purposes, we have combined the results of
operations, excluding non-recurring and special charges, of KSE and LILCO for
the entire twelve month period ended December 31, 1998. This combined
presentation is intended to reflect the results of the Company as if the KeySpan
Acquisition occurred on the first day of the reporting period, January 1, 1998.
This "combined company basis" format will also be used to explain variations in
operating results, for each business segment, between the twelve months ended
December 31, 1999 and 1998.
Consolidated income (loss) available for common stock, on a combined company
basis excluding non- recurring and special charges, by reporting segment is set
forth in the following table for the periods indicated:
(IN THOUSANDS OF DOLLARS)
================================================================================
"Combined Company"
Year Ended Twelve Months Ended
December 31, 1999 December 31, 1998
- ----------------------------- --------------------- ------------------------
Income (Loss ) Available for
Common Stock:
Gas Distribution $ 151,217 $ 133,685
Electric Services 77,099 120,568*
Gas Exploration and Production 15,772 8,995
Energy Related Services (1,298) (8,623)
Energy Related Investments 7,753 (6,098)
Other (26,684) 1,279
- --------------------------------------------------------------------------------
$ 223,859 $ 249,806
================================================================================
* 1998 reflects the LIPA service agreements for the period May
29, 1998 through December 31, 1998 and electric operations of
the former LILCO for the period January 1, 1998 through May
28, 1998.
11
<PAGE>
GAS DISTRIBUTION
With the exception of a small portion of Queens County, the Company's gas
distribution subsidiaries are the only providers of gas distribution services in
the New York City counties of Kings, Richmond and Queens and the Long Island
counties of Nassau and Suffolk. Brooklyn Union provides gas distribution
services to customers in the New York City boroughs of Brooklyn, Queens and
Staten Island, and KeySpan Gas East Corporation d/b/a Brooklyn Union of Long
Island ("Brooklyn Union of Long Island"), provides gas distribution services to
customers in the Long Island counties of Nassau and Suffolk and the Rockaway
Peninsula of Queens County.
The table below highlights certain significant financial data and operating
statistics for the Gas Distribution segment for the periods indicated.
(IN THOUSANDS OF DOLLARS)
================================================================================
"Combined Company"
Year Ended Twelve Months Ended
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Revenues $ 1,753,132 $ 1,766,949
Cost of gas 702,044 702,669
Revenue taxes 108,488 109,194
- --------------------------------------------------------------------------------
Net Revenues 942,600 955,086
- --------------------------------------------------------------------------------
Operations and maintenance 415,888 464,296
Depreciation and amortization 102,997 91,438
Operating taxes 115,305 106,891
- --------------------------------------------------------------------------------
Total Operating Expenses 634,190 662,625
- --------------------------------------------------------------------------------
Operating Income $ 308,410 $ 292,461
================================================================================
Earnings for Common Stock $ 151,217 $ 133,685
================================================================================
Firm gas sales (MDTH) 172,019 165,331
Firm transportation (MDTH) 21,249 13,974
Transportation -
Electric Generation (MDTH) 82,503 40,614
Other sales (MDTH) 54,661 65,482
Degree days 4,296 3,940
Warmer than normal 10.0% 17.5%
================================================================================
12
<PAGE>
NET REVENUES
Net gas revenues decreased in 1999 by $12.5 million, or 1.3%, due primarily, to
rate reductions associated with the KeySpan Acquisition. Brooklyn Union reduced
rates to its core customers by $23.9 million on an annual basis effective May
29, 1998 and Brooklyn Union of Long Island reduced its rates to core customers
by $12.2 million annually effective February 5, 1998 and by an additional $6.3
million annually effective May 29, 1998. For the year ended December 31, 1999,
rate reductions impacted revenues by approximately $19.2 million as compared to
1998.
Firm sales quantities, normalized for weather variations, increased by 2.4%,
contributing approximately $10 million to net revenues. Firm sales additions
were generated primarily on Long Island from the addition of new gas customers
and oil to gas conversions. Weather normalized firm sales on Long Island
increased by 3.7% and by 1.6% in the Company's New York City service area. Long
Island has a very low natural gas saturation rate and significant gas-sales
growth opportunities remain available. The Company estimates that only 28% of
one and two-family homes on Long Island currently use natural gas for space
heating, while 28% of the multi-family market and 69% of the commercial market
use gas for space heating. In this service area, the Company will seek growth
through the expansion of its distribution system as well as through the
conversion of residential homes and the pursuit of opportunities to grow
multi-family, industrial and commercial markets.
In the Company's service area of the New York City boroughs of Brooklyn, Queens
and Staten Island, 79% of one and two- family homes currently use gas for space
heating, while 54% of the multi-family market and 76% of the commercial market
use gas for space heating. In these areas, the Company intends to seek growth
with an aggressive marketing effort designed to encourage conversions of
residential and multi-family homes and businesses from fuel oil to natural gas
heating.
In the large volume heating markets, which include large apartment houses,
government buildings and schools, gas service is provided under rates that are
set to compete with prices of alternative fuel, including No. 2 and No. 6 grade
heating oil. During 1999, gas generally sold at a premium to heating oil.
However, due to the recent increase in the price of heating grade fuel oil, gas
is currently selling at a discount to heating oil. The Company increased sales
in this market in 1999, by approximately $6 million, through aggressive unit
pricing and the addition of new customers.
Contributing to the reduction in comparative net margins in 1999 was a decrease
in certain regulatory incentives earned by the Company, offset, in part, by
revenue benefits associated with colder weather. Further, since April 1998, net
revenues no longer reflect revenues derived from Brooklyn Union's appliance and
repair services since these services have been "spun-off" to another Company
subsidiary and are now reflected in the Energy Related Services segment.
SALES, TRANSPORTATION AND OTHER VOLUMES
Comparative firm gas sales volumes increased by 4.0% in 1999, due to the
increase in normalized firm sales, as discussed above, and the benefits derived
from colder weather in 1999 as compared to 1998.
13
<PAGE>
Firm gas transportation volumes also increased in 1999, as a result of natural
gas deregulation initiatives. At December 31, 1999, approximately 46,000
residential, commercial and industrial customers, with annual requirements of
approximately 22,000 MDTH, or 10% of the Company's annual firm gas system
requirements, purchased their gas supply from sources other than the Company, as
compared to 32,900 customers with annual requirements of approximately 19,500
MDTH in 1998. The Company's net margins are not affected by customers opting to
purchase their gas supply from sources other than the Company, since
distribution rates charged to transportation customers are the same as those
charged to sales customers. (See Item 7A. Quantitative and Qualitative
Disclosures About Market Risk for a discussion of competitive issues facing the
Company.)
Transportation volumes related to electric generation, reflect the
transportation of gas to the Company's electric generating facilities located on
Long Island. The Company began reporting these volumes since the LIPA
Transaction. Net revenues from these volumes are marginal.
Other sales volumes include on-system interruptible volumes, off-system sales
volumes (sales made to customers outside of the Company's service territories)
and related transportation. The decrease in these sales reflects, primarily, the
fact that Brooklyn Union discontinued its off-system sales program beginning
April 1, 1998 and replaced it with a management agreement with Enron Capital and
Trade Resources Corp. and its parent company, Enron Corp. (collectively,
"Enron"), in which Enron pays the Company a fixed fee in exchange for the right
granted Enron to earn revenues based upon its management of Brooklyn Union's gas
supply requirements, storage arrangements, and off- system capacity. This
agreement expires on March 31, 2000. The Company currently is in negotiations
with a large energy corporation to provide energy supply management services to
both Brooklyn Union and Brooklyn Union of Long Island beginning on April 1,
2000.
OPERATING EXPENSES
Comparative operating expenses decreased in 1999 by $28.4 million, or 4.3%.
During the year, the Company realized significant reductions in operations and
maintenance expense reflecting, primarily, the benefits derived from cost
reduction measures and operating efficiencies employed during the past few
years. Such measures included, but were not limited to, the early retirement
program completed in 1998, in which over 600 employees participated. The Company
intends to continue its on-going cost containment initiatives and anticipates
further reductions in operations and maintenance expenses in 2000. In addition,
Brooklyn Union's "spin-off" of non-safety related appliance repair services to
KeySpan Energy Solutions LLC, a Company subsidiary, in April 1998 contributed to
the reduction in operations and maintenance expense for this segment. Brooklyn
Union of Long Island discontinued providing non-safety related appliance repair
services on July 1, 1999, further reducing operating expenses for this segment.
The increase in depreciation and amortization expense reflects continued
property additions and, more significantly, amortization of previously deferred
merger related expenses. As provided for in the Stipulation Agreement, which in
effect approved the KeySpan Acquisition, the Company's gas distribution
subsidiaries deferred certain merger related costs at the time of the merger.
These costs
14
<PAGE>
are being amortized over a ten year period. (See Gas Distribution - Rate Matters
for further details on the Stipulation Agreement.) Further, operating taxes
which include state and local taxes on property have increased as the applicable
property base and tax rates generally have increased.
EARNINGS
Earnings increased in 1999 by $17.5 million, or 13.1% due primarily, to the net
result of the aforementioned items. In addition, earnings were favorably
affected by carrying charges on certain regulatory deferrals previously
mentioned and lower interest expense.
15
<PAGE>
ELECTRIC SERVICES
The Electric Services segment primarily consists of subsidiaries that own and
operate oil and gas fired generating plants in Queens and Long Island, and
through long-term contracts, manage the electric T&D system, the fuel and
electric purchases, and the off-system electric sales for LIPA. Prior to the
LIPA Transaction, LILCO provided fully integrated electric distribution services
to over one million customers on Long Island.
Selected financial data for the Electric Services segment is set forth in the
table below for the periods indicated.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
=====================================================================================================
Electric
Electric Services Electric Services Distribution
----------------- ------------------ ------------
` January 1, 1998 "Combined Company"
Year Ended May 29, 1998 through through Twelve Months Ended
December 31, 1999 December 31, 1998 May 28, 1998 December 31, 1998
- ----------------------------- ----------------- ------------------ -------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Management Services
Agreement ("MSA") $ 398,304 $ 226,374 $ - $ 226,374
Power Supply
Agreement ("PSA") 303,163 178,367 - 178,367
Energy Management
Agreement ("EMA") 6,535 3,564 - 3,564
Ravenswood Facility 150,836 - - -
Electric Distribution - - 885,693 885,693
Other 2,744 - - -
Total Revenues 861,582 408,305 885,693 1,293,998
- ----------------------------- ----------------- ------------------ -------------- -------------------
Operating expenses
Fuel and purchased power 17,252 - 257,786 257,786
Operations and maintenance 527,729 289,943 171,960 461,903
Depreciation 44,334 22,913 56,491 79,404
Regulatory amortizations - - (79,874) (79,874)
Operating taxes 132,327 65,129 153,289 218,418
Total Operating Expenses 721,642 377,985 559,652 937,637
- ----------------------------- ----------------- ------------------ -------------- -------------------
Operating Income $ 139,940 $ 30,320 $ 326,041 $ 356,361
- ----------------------------- ----------------- ------------------ -------------- -------------------
Earnings for Common Stock $ 77,099 $ 11,978 $ 108,590 $ 120,568
- ----------------------------- ----------------- ------------------ -------------- -------------------
</TABLE>
16
<PAGE>
REVENUES
Revenues related to the LIPA service contracts have increased in 1999, as
compared to the Transition Period, due primarily, to the fact that 1999 reflects
a full year of operations under these contracts. In addition in 1999, the
Company earned $15.8 million associated with non-cost performance incentives
provided for under these agreements, as compared to the maximum incentive level
of $16.5 million. (See Electric Services- Revenue Mechanisms- LIPA Agreements
for a further description of these agreements.) Revenues were further enhanced
in 1999 by the operations of the Ravenswood Facility. Total revenues in 1999,
however, decreased by $432.4 million, or 33.4%, as compared to 1998. As
previously indicated, in addition to revenues from the Ravenswood Facility,
electric revenues are also derived from service agreements with LIPA. As a
result of the change in the nature of the Company's electric operations due to
the LIPA Transaction, the Company's electric capital investment has been
significantly reduced and accordingly, its revenues and margins under the LIPA
contracts reflect that reduction.
OPERATING EXPENSES
Operating expenses in 1999 decreased by $216.0 million, or 23.0%, compared to
1998, reflecting primarily, the discontinuance of fuel and purchased power
expense associated with the generating facilities located on Long Island. In
accordance with the EMA, LIPA is responsible for paying directly the costs of
fuel, as well as purchased power to satisfy LIPA's customers. As a result, the
Company since May 29, 1998 no longer incurs any electric fuel expense for Long
Island generation or purchased power expense. Further, depreciation expense and
operating taxes have also decreased in 1999 due to the sale of significant
property related assets to LIPA as a result of the LIPA Transaction. Offsetting
these reductions is the discontinuance of certain electric regulatory
amortizations, as previously discussed, and an increase in operations and
maintenance expense. Since the LIPA Transaction, operations and maintenance
expense includes the costs associated with the management of the T&D assets
acquired by LIPA. All T&D related costs are expensed when incurred and recovered
from LIPA through monthly billings in accordance with the terms of the
Management Services Agreement entered into between the Company and LIPA. Prior
to the LIPA Transaction, all T&D related construction costs were capitalized and
charged to depreciation expense over the estimated useful life of the related
asset.
EARNINGS
In addition to the effect on earnings from the above mentioned items, earnings
in 1999 were favorably affected by a decrease of $135.3 million in interest
expense reflecting the significantly reduced level of outstanding debt resulting
from the LIPA Transaction. Further, prior to the KeySpan Acquisition,
approximately $18.2 million of preferred stock dividends were allocated to
electric operations. Partially offsetting these benefits was the elimination of
carrying charges on certain electric regulatory assets resulting from electric
ratemaking mechanisms that have been discontinued due to the LIPA Transaction.
17
<PAGE>
GAS EXPLORATION AND PRODUCTION
The Gas Exploration and Production segment is engaged in gas and oil exploration
and production, and the development and acquisition of domestic natural gas and
oil properties. This segment consists, primarily, of the Company's 64% equity
interest in THEC. In September 1999, the Company and THEC jointly announced
their intention to begin a process to review strategic alternatives for THEC.
The process included an assessment of the role of THEC within the Company's
strategic plans, including the possible sale of all or a portion of THEC by the
Company. After completing the review, the Company concluded that it would retain
its equity interest in THEC. Further, under a pre-existing credit arrangement,
approximately $80 million in debt owed by THEC to the Company will be converted
into common equity on April 1, 2000. The Company's common equity ownership
interest in THEC will increase to approximately 70% upon such conversion.
Selected financial data and operating statistics for the Gas Exploration and
Production segment are set forth in the following table for the periods
indicated.
(IN THOUSANDS OF DOLLARS)
================================================================================
"Combined Company"
Twelve Months
Year Ended Ended
December 31, 1999 December 31, 1998*
================================================================================
Revenues $ 150,581 $ 127,124
Operating Expenses 102,051 107,089
- --------------------------------------------------------------------------------
Operating Income $ 48,530 $ 20,035
- --------------------------------------------------------------------------------
Earnings for Common Stock $ 15,772 $ 8,995
- --------------------------------------------------------------------------------
Production Data:
Natural gas production (Mmcf) 71,227 62,829
Natural gas (per Mcf) realized $ 2.10 $ 2.02
Proved reserves at year-end (BCFe) 553 480
================================================================================
* Excludes an after-tax charge of $54.1 million representing the
Company's share of an impairment charge to reduce the value of proved
gas reserves.
OPERATING INCOME
Operating income increased by $28.5 million, or 142.2%, in 1999 as compared to
1998, due to higher revenues and, to a lesser extent, a decrease in operating
expenses. Revenues in 1999 reflect the benefits derived from a 13% increase in
production volumes, combined with an 4% increase in average realized gas prices
(average wellhead price received for production including hedging gains and
losses). At December 31, 1999, THEC had 541 BCFe of net proved reserves of
natural gas, of which 75% was classified as proved developed. The comparative
decrease in operating expenses in
18
<PAGE>
1999 was largely due to a lower depletion rate resulting, primarily, from the
ceiling test write down in 1998.
EARNINGS
Operating income above represents 100% of THEC's actual results for 1999 and
1998, excluding the impairment charge. Earnings however, reflect the Company's
64% ownership interest. This principally accounts for the difference between
operating income and earnings. Additionally, THEC incurred $8.7 million more in
interest expense in 1999 due to higher levels of debt outstanding.
19
<PAGE>
ENERGY RELATED SERVICES
The Company's Energy Related Services segment primarily includes KeySpan Energy
Management Inc. ("KEM"), KeySpan Energy Services Inc. ("KES"), KeySpan
Communications Corporation, KeySpan Energy Solutions, LLC ("KESol"), Fritze
KeySpan, LLC ("Fritze"), and Delta KeySpan Inc. ("Delta"). These subsidiaries
own, design and/or operate energy systems for commercial and industrial
customers and provide energy-related appliance services and heating, ventilation
and air conditioning system installation and maintenance services to residential
and commercial clients located primarily within the New York City metropolitan
area and Rhode Island. In addition, subsidiaries in this segment: market gas and
electricity, and arrange transportation and related services, largely to retail
customers, including those served by the Company's two gas distribution
subsidiaries; and own a fiber optic network on Long Island. KESol was
established in April 1998, Fritze was acquired in November 1998 and Delta was
acquired in September 1999.
The table below highlights selected financial information for the Energy Related
Services segment.
(IN THOUSANDS OF DOLLARS)
================================================================================
"Combined Company"
Twelve Months
Year Ended Ended
December 31, 1999 December 31, 1998
================================================================================
Revenues $ 188,630 $ 88,822
Operating Expenses $ 192,077 103,120
- --------------------------------------------------------------------------------
Operating Loss (3,447) $ (14,298)
- -------------------------------------------------------------------------------
Loss for Common Stock $ (1,298) $ (8,623)
================================================================================
The decrease in the loss in 1999 as compared to 1998, is due to an increase in
revenues of 112%, offset, in part, by an increase in operating expenses of 86%.
The increase in comparative revenues was due, in part, to the inclusion of
revenues from Fritze for a full twelve month period. Fritze contributed $39.6
million to the increase in segment revenues in 1999. Delta, the Company's newly
acquired heating, ventilation and air conditioning ("HVAC") contractor,
contributed revenues of $12.3 million in 1999. Further, the combined revenues
from KEM, KES and KESol increased by $43.9 million in 1999, due to the benefits
derived from companies acquired during the past two years and the growth in the
number of customers purchasing energy from KES and services from KESol.
The comparative increase in operating expenses for both periods, was due
primarily, to the acquisition of Fritze and Delta, the integration of operations
of other companies acquired during the past few years, and increased purchased
gas costs of KES necessary to serve a larger customer base. The formation and
commencement of operations of KESol, in April 1998, also contributed to the
comparative increase in operating expenses in 1999.
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The Company has been successful in integrating the operations of its recently
acquired companies into its consolidated operations. Fritze, Delta and other
energy management operations posted profitable results in 1999. KES and KESol
both incurred losses in 1999, as both companies seek to establish significant
market penetration. Gas deregulation of commodity purchases in the Northeast is
still in its infancy and gas sales margins have remained slim, contributing to
the loss incurred by KES. In February 2000, the Company acquired three companies
that provide energy related services in the New York metropolitan area with
combined revenues of approximately $170 million. The newly acquired companies
include, an engineering-consulting firm, a plumbing and mechanical contracting
firm, and a firm specializing in mechanical contracting and HVAC.
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ENERGY RELATED INVESTMENTS
Earnings for this segment are derived, primarily, from the Company's: 20%
interest in the Iroquois Gas Transmission System LP; 50% ownership interest in
Gulf Midstream Services Partnership ("GMS"); and 50% interest in the Premier
Transco Pipeline and a 24.5% interest in Phoenix Natural Gas, both in Northern
Ireland.
Comparative earnings from this segment increased by $13.9 million in 1999,
reflecting, primarily, earnings from the Company's investment in GMS, formed in
December 1998, and more favorable results from investments in Northern Ireland.
In addition, in 1998 results of operations from this segment reflect after-tax
costs of $7.8 million to settle certain contracts associated with the sale, in
1997, of certain cogeneration investments and related fuel management
operations. These subsidiaries are accounted for under the equity method since
the Company's ownership interests are 50% or less. Accordingly, equity income
from these investments is reflected in other income and (deductions) in the
Consolidated Statement of Income.
OTHER
The Other segment incurred a loss of $26.7 million in 1999 compared to income of
$1.3 million in 1998 and, generally, reflects preferred stock dividends and
charges incurred by the corporate and administrative areas of the Company that
have not been allocated to the various business segments, offset, in part, by
interest income earned on temporary cash investments. Interest income has been
decreasing as the Company continues to utilize cash to finance certain
acquisitions, repurchase shares of its common stock, and retire maturing debt.
Also, all preferred stock dividends were allocated to the Other segment in 1999,
whereas, prior to the LIPA Transaction preferred stock dividends were allocated
to gas and electric operations.
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FUTURE OUTLOOK
Results of operations for 1999 reflect strong results from the Company's core
gas-distribution operations. These results reflect gas sales growth, primarily
on Long Island, as the benefits from the Company's gas expansion initiatives
begin to be realized. Gas sales growth on Long Island was approximately 4% in
1999, after normalizing for weather variations. Moreover, ongoing synergy
programs have proven to be successful. In addition, the Company's June 1999
acquisition of the Ravenswood Facility provided the Company with significant
earnings enhancement. Results from operations of the Ravenswood Facility
contributed $0.34 per share to consolidated earnings in 1999. Finally, the
successful integration of companies purchased by the Energy Related Services
segment are expected to form the basis for additional benefits to consolidated
earnings in future years.
For 2000, the Company intends to continue its gas distribution growth activities
throughout its service territory, and especially on Long Island, through the
conversion of residential homes and the pursuit of opportunities to grow
multi-family, industrial and commercial markets. Gas sales growth throughout the
Company's service territory in 2000, is anticipated to grow at approximately the
same rate as 1999. As the Company evolves within the new deregulated gas
environment, gas sales growth will remain a critical core strategy. The Company
sells gas to its firm customers at the Company's cost for such gas. In addition,
rates include a charge to recover the costs of distribution, including a profit
margin for return of and on invested capital. As the Company adds customers to
its gas distribution network, the Company's gross profit margin from
transportation sales should increase incrementally. As a result, customer
additions are and will remain critical to the Company's earnings enhancement in
the future, regardless of whether a customer purchases gas from the Company or a
third party supplier.
Further, the Company intends to grow its Energy Related Services operations in
order to deliver an extensive array of home energy-related services and business
solutions to a broad spectrum of customers. These operations are expected to be
enhanced through the acquisition of companies providing energy-related services.
In line with this strategy, as previously mentioned, the Company acquired three
additional companies, in February 2000 that provide energy-related services.
A key component in the Company's strategy for growth in the Northeast region is
its anticipated acquisition of Eastern. In November 1999, the Company announced
that it has signed a definitive agreement with Eastern under which the Company
will acquire all of the common stock of Eastern. Eastern is the largest natural
gas distribution company in New England with significant upside potential due to
the relatively low penetration of customers using gas for heat in the region.
The Northeast region represents a significant portion of the country's
population and energy consumption. With recent price spikes for fuel oil in the
Northeast, the Company anticipates even stronger demand for natural gas and
related services. Together, KeySpan and Eastern will have approximately 2.4
million customers making the "new" company the largest gas distribution company
in the Northeast. Further, the Company expects pre-tax annual synergy savings to
be approximately $30 million. The transaction, which will be accounted for as a
purchase, is expected to close in the third or fourth quarter of calendar year
2000. Upon consummation of the transaction, the Company will become
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a registered holding company under the Public Utility Holding Company Act of
1935, as amended. The transaction has a total value of approximately $2.5
billion ($1.7 billion in equity and $0.8 billion in assumed debt.) See Note 11
to the Consolidated Financial Statements, "Acquisition of Eastern Enterprises"
for additional information on the transaction.
As mentioned, the Company intends to continue its gas expansion initiatives
throughout its service territory, and especially on Long Island, and will
continue to seek additional synergies in all its operations. In 2000, the
Company anticipates continued earnings growth in core gas-distribution
operations, full annual benefits from the Ravenswood Facility, continued
successful integration of companies providing energy-related services and gas
sales growth from the acquisition of Eastern. To ensure that its assets are
utilized in the most effective manner, the Company will continue to review and
evaluate the strategic nature of all its assets deployed.
LIQUIDITY, CAPITAL EXPENDITURES AND FINANCING, AND DIVIDENDS
LIQUIDITY
The increase in cash flow from operations in 1999 as compared to the Transition
Period, reflects the significant positive cash flows that are realized from
revenues generated during a heating season, continued strong results from core
utility operations, cash generated from the Ravenswood Facility, and the
benefits derived from the integration of KSE-acquired companies for an entire
twelve month period. Approximately 75% of total annual gas revenues are realized
during the heating season (November 1 to April 30) as a result of the large
proportion of heating sales compared to total gas sales. Results from
gas-heating season operations are not reflected in the Transition Period, as
previously explained. Further, cash flow from operations in 1999 reflects the
utilization of a $57.4 million NOL on income tax payments for 1999, as
previously discussed. Moreover, during the Transition Period, $250 million was
funded into Voluntary Employee Beneficiary Trusts to fund certain employee
postretirement welfare benefits and, as a result, cash flow from operations for
the Transition Period was adversely affected. The slight decrease in cash flow
from operations in 1999 as compared to the fiscal year ended March 31, 1998,
reflects, primarily, lower margins realized from electric operations due to the
LIPA Transaction, as previously discussed, offset, in part, by increased cash
flows from KSE-acquired companies and utilization of the NOL.
At December 31, 1999, the Company had cash and temporary cash investments of
$128.6 million compared to $942.8 million at December 31, 1998. During the year,
the Company deployed its cash to, among other things: acquire a portion of the
Ravenswood Facility for a cash requirement of approximately $214 million;
purchase shares of its common stock on the open market for $299 million; and
retire maturing debt of $397 million. In addition, the Company utilized its cash
on-hand and internally generated funds to expand its gas distribution network,
primarily on Long Island and expand its operations through increased investments
in energy-related activities.
In November 1999, the Company negotiated a $700 million revolving credit
agreement, with a one- year term and one-year renewal option, with a commercial
bank. This credit facility is used to
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support the Company's $700 million commercial paper program. At December 31,
1999, the Company had $208.3 million of commercial paper outstanding at an
annualized interest rate of 6.56%. The proceeds received from the issuance of
commercial paper were used to repay outstanding borrowings under the Company's
previous existing line of credit (discussed below) and for general corporate
purposes. During 2000, the Company anticipates issuing commercial paper rather
than borrowing on the revolving credit agreement. (See Note 8 to the
Consolidated Financial Statements, "Notes Payable" for further information on
the credit agreement.)
Prior to the new revolving credit agreement and commercial paper program, the
Company had an available unsecured bank line of credit of $300 million.
Borrowings were made under the facility during the months of September, October
and November 1999 to finance seasonal working capital needs. This line of credit
was terminated upon the execution of the new revolving credit agreement.
In addition, THEC has an unsecured available line of credit with a commercial
bank that provides for a maximum commitment of $250 million, subject to certain
conditions. During 1999, THEC borrowed $48 million under this facility and at
December 31, 1999, $181 million was outstanding. Also, a subsidiary included in
the Energy Related Investment segment has a revolving loan agreement with a
financial institution in Canada. Borrowings under this agreement during 1999
were U.S.$13.5 million, and at December 31, 1999, U.S.$86.4 million was
outstanding. (See Note 7 to the Consolidated Financial Statements, "Long-Term
Debt" for further information on these agreements.)
CAPITAL EXPENDITURES AND FINANCING
Capital Expenditures
Consolidated capital expenditures during 1999 were $725.7 million and are
reflected in the following business segments.
Capital expenditures related to the Gas Distribution segment were $213.8 million
in 1999 and were primarily for the renewal and replacement of mains and services
and for the expansion of the gas distribution system on Long Island.
Electric Services had capital expenditures of $245.2 million during 1999,
reflecting primarily, the Company's June 1999 acquisition of the Ravenswood
Facility. As a means of financing the acquisition, the Company entered into a
lease agreement with a special purpose, unaffiliated financing entity that
acquired a portion of the facility directly from Con Edison and leased it to a
subsidiary of the Company. The acquisition cost of the facility was $597 million
and the lease program was established in order to reduce the Company's cash
requirement by $425 million. The balance of the funds needed to acquire the
facility, including the purchase of inventory and materials, was approximately
$214 million and was provided from cash on hand. (See Note 9 to the Consolidated
Financial Statements, "Contractual Obligations and Contingencies" for more
details on the lease agreement.) Capital expenditures during 1999 also included
costs to maintain the generating facilities located on Long Island.
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Capital expenditures related to Gas Exploration and Production were $183.3
million during 1999. These capital expenditures reflected, in part, costs
related to the development of properties acquired in Southern Louisiana and in
the Gulf of Mexico and costs related to the continued development of other
properties previously acquired. Capital expenditures also included $35.6 million
related to the Company's joint venture with THEC to explore for natural gas and
oil. The Company will commit approximately $25 million to the drilling program
in 2000. The joint venture may be terminated, upon notice, at the option of
either party at the end of a given calendar quarter.
Capital expenditures of $20.6 million during 1999 related to Energy Related
Services, includes the acquisition of HVAC contractors in Rhode Island and New
Jersey that build and install HVAC systems primarily for commercial customers.
Capital expenditures related to the Energy Related Investments segment were
$49.4 million during 1999. In 1999, the Company, through GMS, completed the
acquisition of Richland Petroleum's 37% interest in the Paddle River Gas Plant.
The gas plant, located in Alberta, Canada, is capable of processing up to 82
million cubic feet of gas per day. In addition, in December 1999, the Company
purchased certain oil properties in Alberta, Canada that can produce
approximately 1600 barrels of oil per day. Capital expenditures related to this
segment also include the Company's share of capital expenditures in GMS and
expenditures for the on-going expansion and upgrade of a gas distribution system
in Northern Ireland, in which the Company has a 24.5% ownership interest.
Common plant capital expenditures were $13.4 million during 1999 and reflect
primarily, the purchase of computer equipment and miscellaneous office
equipment.
Consolidated capital expenditures for 2000, exclusive of expenditures necessary
for the Eastern acquisition, are estimated to be at approximately the same level
as 1999. The amount of future capital expenditures is reviewed on an ongoing
basis and can be affected by timing, scope and changes in investment
opportunities.
Financing
In October 1999, the Company's wholly-owned subsidiary, KeySpan Generation, LLC
issued, through the New York State Energy Research and Development Authority,
$41.1 million of Pollution Control Revenue Bonds, 1999 Series A. The proceeds
from this financing were used to extinguish $45.5 million of the Company's
promissory notes due LIPA. The initial interest rate on these tax- exempt bonds
was established at 3.95%, which rate applies through January 13, 2000.
Thereafter, the interest rate will be reset based on an auction procedure. The
Company anticipates that the interest rate on these tax-exempt bonds will be
substantially lower than the interest rate on the two series of bonds it is
replacing, which were 7.50% and 7.80%.
In December 1999, Brooklyn Union of Long Island and the Company jointly filed a
shelf registration statement with the SEC in anticipation of issuing, during
2000, up to $600 million of Medium Term Notes. These notes will be issued by
Brooklyn Union of Long Island and unconditionally guaranteed by the Company. On
February 1, 2000, Brooklyn Union of Long Island issued $400 million 7.875
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% Notes due February 1, 2010, the net proceeds of which were used to replace
$397 million of the Company's promissory notes due LIPA that matured in June
1999. (See Note 7 to the Consolidated Financial Statements, "Long-Term Debt" for
a further discussion of these financings and the associated repayments of a
portion of the promissory notes.)
In addition to the above financing, the Company intends to access the financial
markets in 2000 to replace maturing preferred stock and to finance the purchase
of Eastern. In June 2000, $363 million of preferred stock series 7.95% Series AA
will mature. The Company currently anticipates issuing additional preferred
stock to replace this maturing series. The timing of this issuance will depend
on market conditions during 2000.
As previously mentioned, on November 4, 1999, the Company entered into a
definitive agreement with Eastern, pursuant to which the Company will acquire
all of the outstanding common stock of Eastern. The transaction has a total
value of approximately $2.5 billion ($1.7 billion in equity and $0.8 billion in
assumed debt and preferred stock). The Company expects to raise $1.7 billion of
initial financing to purchase Eastern in short-term markets, a significant
portion of which will be replaced with long-term financing as soon as
practicable thereafter.
In connection with the Company's anticipated purchase of Eastern and the
anticipated issuance of long-term debt securities, the Company entered into
forward interest rate lock agreements in January and February 2000, to hedge a
portion of the risk that the cost of the future issuance of fixed-rate debt may
be adversely affected by changes in interest rates. The agreements have a total
notional principal amount of $400 million. (See Note 10 to the Consolidated
Financial Statements, "Hedging, Derivative Financial Instruments and Fair
Values" for additional details.)
In 1998, the Company's Board of Directors authorized the repurchase of a portion
of the Company's outstanding common stock. The initial authorization permitted
the repurchase of up to 10 percent of the Company's then outstanding stock, or
approximately 15 million common shares. A second authorization permits the
Company to use up to an additional $500 million of cash for the purchase of
common shares. As of December 31, 1999, the Company had repurchased 25 million
of its common shares for $723 million.
During 2000, the Company will continue its on-going evaluation of its capital
structure and its debt and equity levels. Further, the Company intends to
actively manage its balance sheet to maintain investment grade ratings at each
of its rated entities. At December 31, 1999 the Company's ratio of debt to total
capitalization was 35%. The Company estimates that, based on its projected
financings in 2000, its ratio of debt to total capitalization will be
approximately 60% at the end of 2000, assuming a certain level of dividends and
earnings.
DIVIDENDS
The Company is currently paying a dividend at an annual rate of $1.78 per common
share. The Company's dividend policy is reviewed annually by the Board of
Directors. The amount and timing
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of all dividend payments is subject to the discretion of the Board of Directors
and will depend upon business conditions, results of operations, financial
conditions and other factors.
Pursuant to the NYPSC's orders dated February 5, 1998 and April 14, 1998
approving the KeySpan Acquisition, Brooklyn Union's and Brooklyn Union of Long
Island's ability to pay dividends to the parent company is conditioned upon
maintenance of a utility capital structure with debt not exceeding 55% and 58%,
respectively, of total utility capitalization. In addition, the level of
dividends paid by both utilities may not be increased from current levels if a
40 basis point penalty is incurred under the customer service performance
program. At the end of Brooklyn Union's and Brooklyn Union of Long Island's rate
years (September 30, 1999 and November 30, 1999, respectively), the ratio of
debt to total utility capitalization was 44% and 47%, respectively. Moreover,
upon consummation of the acquisition of Eastern, the Company expects to register
as a holding company under the Public Utility Holding Company Act of 1935, as
amended. As a result, the corporate and financial activities of the Company and
each of its subsidiaries (including their ability to pay dividends to the
Company) will also be subject to regulation by the SEC.
GAS DISTRIBUTION - RATE MATTERS
By orders dated February 5, 1998 and April 14, 1998 the NYPSC approved a
Stipulation Agreement ("Stipulation") among Brooklyn Union, LILCO, the Staff of
the Department of Public Service and six other parties that in effect approved
the KeySpan Acquisition and established gas rates for both Brooklyn Union and
Brooklyn Union of Long Island. Under the Stipulation, $1 billion of efficiency
savings, excluding gas costs, attributable to operating synergies that are
expected to be realized over the 10 year period following the combination, were
allocated to ratepayers net of transaction costs.
Under the Stipulation, effective May 29, 1998, Brooklyn Union's base rates to
core customers were reduced by $23.9 million annually. In addition, Brooklyn
Union is now subject to an earnings sharing provision pursuant to which it will
be required to credit core customers with 60% of any utility earnings up to 100
basis points above certain threshold return on equity levels over the term of
the rate plan (other than any earnings associated with discrete incentives) and
50% of any utility earnings in excess of 100 basis points above such threshold
levels. The threshold levels are 13.50% for the rate years ended September 30,
1999 through 2001, and 13.25% for the rate year 2002. Brooklyn Union did not
earn above its threshold return level in its rate year ended September 30, 1999.
The Stipulation also required Brooklyn Union of Long Island to reduce base rates
to its customers by $12.2 million annually effective February 5, 1998 and by an
additional $6.3 million annually effective May 29, 1998. Brooklyn Union of Long
Island is subject to an earnings sharing provision pursuant to which it is
required to credit to firm customers 60% of any utility earnings in any rate
year up to 100 basis points above a return on equity of 11.10% and 50% of any
utility earnings in excess of a return on equity of 12.10%. Brooklyn Union of
Long Island did not earn above its threshold return level in its rate year ended
November 30, 1999. At the conclusion of the Brooklyn Union of Long Island rate
plan on November 30, 2000, Brooklyn Union of Long Island or the NYPSC on its own
motion, may initiate a proceeding to revise the rates and charges of that
company.
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ELECTRIC SERVICES - REVENUE MECHANISMS
LIPA AGREEMENTS
The Company, through certain of its subsidiaries, provides services to LIPA
under the following agreements:
Management Services Agreement ("MSA")
A Company subsidiary manages the day-to-day operations, maintenance and capital
improvements of the T&D system. LIPA will exercise control over the performance
of the T&D system through specific standards for performance and incentives. In
exchange for providing the services, the Company will earn a $10 million annual
management fee and will be operating under an eight-year contract which provides
certain incentives and imposes certain penalties based upon its performance.
Annual service incentives or penalties exist under the MSA if certain targets
are achieved or not achieved. In addition, the Company can earn certain
incentives for cost reductions associated with the day-to-day operations,
maintenance and capital improvements of LIPA's T&D system. These incentives
provide for the Company to (i) retain 100% of cost reductions on the first $5
million in reductions, and (ii) retain 50% of additional cost reductions up to
15% of the total cost budget, thereafter all savings will accrue to LIPA. With
respect to cost overruns, the Company will absorb the first $15 million of
overruns, with a sharing of overruns above $15 million. There are certain
limitations on the amount of cost sharing of overruns. To date, the Company has
performed its obligations under the MSA within the agreed to budget guidelines
and the Company is committed to providing on-going services to LIPA within the
established cost structure. However, no assurances can be given as to future
operating results under this agreement.
Power Supply Agreement ("PSA")
A Company subsidiary sells to LIPA all of the capacity and, to the extent
requested, energy from the Company's existing oil and gas-fired generating
plants. Sales of capacity and energy are made under rates approved by the
Federal Energy Regulatory Commission ("FERC"). The rates may be modified in the
future in accordance with the terms of the PSA for (i) agreed upon labor and
expense indices applied to the base year, (ii) a return of and on net capital
additions required for the generating facilities, and (iii) reasonably incurred
expenses that are outside the control of the Company. Rates charged to LIPA
include a fixed and variable component. The variable component is billed to LIPA
on a monthly basis and is dependent on the amount of megawatt hours dispatched.
LIPA has no obligation to purchase energy from the Company and is able to
purchase energy on a least-cost basis from all available sources consistent with
existing interconnection limitations of the T&D system. The Company must,
therefore, operate its generating facilities in a manner such that the Company
can remain competitive with other producers of energy. To date, the Company has
dispatched to LIPA and LIPA has accepted the level of energy generated at the
agreed to price per megawatt hour. However, no assurances can be given as to the
level and price of energy to be dispatched to LIPA in the future. The PSA
provides incentives and penalties that can total $4 million annually for the
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maintenance of the output capability of the generating facilities. The PSA runs
for a term of fifteen
years.
In addition, beginning on May 28, 2001, LIPA will have the right for a one-year
period to acquire all of the Company's Long Island based generating assets
included in the PSA at the fair market value at the time of the exercise of the
right, which value will be determined by independent appraisers.
Energy Management Agreement ("EMA")
The EMA provides for a Company subsidiary to procure and manage fuel supplies
for LIPA to fuel the generating facilities under contract to it and perform
off-system capacity and energy purchases on a least-cost basis to meet LIPA's
needs. In exchange for these services the Company earns an annual fee of $1.5
million. In addition, the Company will arrange for off-system sales on behalf of
LIPA of excess output from the generating facilities and other power supplies
either owned or under contract to LIPA. LIPA is entitled to two-thirds of the
profit from any off-system energy sales. In addition, the EMA provides
incentives and penalties that can total $7 million annually for performance
related to fuel purchases and off-system power purchases. The EMA covers a
period of fifteen years for the procurement of fuel supplies and eight years for
off-system management services.
RAVENSWOOD FACILITY
At the time of the Company's purchase of the Ravenswood Facility, the Company
and Con Edison entered into energy and capacity contracts. The energy contract
provided Con Edison with 100% of the energy produced by the Ravenswood Facility
and covered a period of time from the date of closing, June 18, 1999, through
November 18, 1999. With the start-up of the New York Independent System Operator
("NYISO") the electricity market in New York City began a transition to a
competitive market for capacity, energy and ancillary services. Starting on
November 18, 1999, the Company began selling the energy produced by the
Ravenswood Facility through daily and/or hourly bidding into the NYISO energy
markets. The Company also has the option to sell all or a portion of the energy
produced by the Ravenswood Facility to Load Serving Entities ("LSE"), i.e.
entities that sell to end-users. At this point in time, the Company has sold
energy exclusively through the NYISO. The capacity contract, which is still in
effect, provides Con Edison with 100% of the available capacity of the
Ravenswood Facility. The Company anticipates that this contract will expire on
April 30, 2000, at which time the available capacity of the Ravenswood Facility
will be bid into on the auction process conducted by the NYISO. The Company also
has the option to sell the capacity through contracts with LSEs. It is
anticipated that in 2000, at least 75% of the net profit margins from the
Ravenswood Facility will be derived from capacity sales through either the
auction process associated with the NYISO or contracts with LSEs.
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ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and regulatory
programs related to the environment. Ongoing environmental compliance
activities, which have not been material, are charged to operation and
maintenance activities. The Company estimates that the remaining cost of its
manufactured gas plant ("MGP") related environmental cleanup activities,
including costs associated with the Ravenswood Facility, will be approximately
$128 million and has recorded a related liability for such amount. Further, as
of December 31, 1999, the Company has expended a total of $15.9 million. (See
Note 9 to the Consolidated Financial Statements, "Contractual Obligations and
Contingencies".)
YEAR 2000 ISSUES
The Company experienced no significant Year 2000 related abnormalities
associated with the roll over to the year 2000. All systems needed to deliver
gas and electric services to customers, as well as those systems needed to
manage daily business functions performed without significant malfunction.
Nevertheless, the Company continues to monitor systems for any unexpected Year
2000 related abnormalities.
The Company has spent a total of approximately $29.6 million to address the Year
2000 issue. While the Year 2000 Project is virtually complete, some minor
expenses will be incurred for the continued review of systems to monitor for
Year 2000 abnormalities. The largest portion of the Year 2000 costs was
attributable to the assessment, modification, and testing of corporate
information technology ("IT") supported computer software and in-house written
applications. The Company's implementation of the Year 2000 Project did not
directly result in delaying any IT projects. The Company's cash flow from
operations and cash on-hand have been sufficient to fund the Year 2000 Project
expenditures.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company and its subsidiaries are subject to various risk exposures and
uncertainties associated with their operations. The most significant contingency
involves the evolution of the gas distribution industry toward a more
competitive and deregulated environment. Most important to the Company, is the
evolution of regulatory policy as it pertains to the Company's fixed charges
associated with its firm gas purchase contracts related to its historical gas
merchant role. In addition, the Company is exposed to commodity price risk,
interest rate risk and, to a much less degree, foreign currency translation
risk. Set forth below is a description of these exposures and an explanation as
to how the Company and its subsidiaries have managed and, to the extent
possible, sought to reduce these risks.
REGULATORY ISSUES AND THE COMPETITIVE ENVIRONMENT
The Gas Industry: The energy industry continues to undergo fundamental changes,
which may have a significant impact on the future financial performance of
utilities, as regulatory authorities, elected officials and customers seek lower
energy prices and broader choices.
Over the past few years, the NYPSC has been formulating a policy framework to
guide the transition of New York State's gas distribution industry in the
deregulated gas industry environment. Since 1996, customers in the small-volume
market have been given the option to purchase their gas supplies from sources
other than the Company's two gas utility subsidiaries. Large-volume customers
had this option for a number of years prior to 1996. In addition to transporting
gas that customers purchase from marketers, the Company's utilities have been
providing billing, meter reading and other services for aggregate rates that
match the distribution charge reflected in otherwise applicable sales rates to
supply these customers.
In November 1998, the NYPSC issued a policy statement setting forth its vision
for furthering competition in the natural gas industry. Under this vision,
regulated natural gas utilities or local distribution companies ("LDCs") would
plan to exit the business of purchasing gas for and selling gas to customers
(the merchant function) over the next three to seven years. LDCs would remain
the operators of the gas system (the distribution function) and the provider of
last resort of natural gas supplies during that period and until alternatives
are developed. The NYPSC's goal is to encourage more competition at the local
level by separating the merchant function from the distribution function.
As required by NYPSC's policy statement, the Company's two gas distribution
subsidiaries filed a joint restructuring proposal with the NYPSC in October
1999. The filing offers a comprehensive restructuring plan designed to (i)
provide a significant impetus toward exiting the gas supply business and (ii)
present the NYPSC with an opportunity to realize its vision of a competitive
unbundled gas supply market for all customers within the transitional time frame
of three to seven years. Under the proposal the Company's gas distribution
subsidiaries would continue to be the provider of last resort during the
transition period. The restructuring plan seeks to "jump start" the migration of
the mass customer market (especially the residential and the small commercial
and industrial markets) from bundled utility sales service to unbundled
transportation service, accelerates the elimination of
32
<PAGE>
regulatory cost burdens from the gas supply market, provides protections for low
income customers, and sets forth a plan to minimize potential strandable costs.
Currently, the Company's gas distribution subsidiaries have contracts for the
purchase of upstream interstate transportation, storage and supply with annual
fixed demand charges of approximately $280 million. These contracts have terms
that range from one to fourteen years and the associated demand charges through
the term of the contracts are approximately $1.6 billion. The Company has
estimated its strandable costs as the costs under these contracts in excess of
market value. The Company has assumed that, if it were necessary to assign the
contracts to third parties, the Company could recover the market value of the
underlying assets. Therefore, the difference between the contract costs and the
market value is the potential "strandable" costs. The Company estimates that, if
the gas distribution subsidiaries continue to recover demand charges for the
next five years, then the estimated potential strandable costs for contracts
that will not expire by 2005 and would not be needed to provide service to firm
transportation customers will be, on a present value basis, approximately $78
million.
In its proposal, the Company has set forth a plan to recover potential
strandable costs during the transition period. The plan includes the creation of
a price differential between gas utility bundled service and unbundled services
available in the marketplace. The increased revenue generated from this price
differential would be retained by the Company's gas distribution subsidiaries
for future application to recover costs associated with the transition to
competition, including strandable costs. In addition, the Company recommends
retention of certain customer refunds that otherwise would have been refunded to
customers during the transition period. The plan also recommends certain
financial incentives and mechanisms to mitigate potential strandable costs. The
Company believes that implementation of this plan, or some variation designed to
achieve the same objectives, will allow both of its gas distribution
subsidiaries to fully recover their strandable costs.
The Company believes that its proposal strikes a balance among competing
stakeholder interests in order to most effectively make available the benefits
of the unbundled gas supply market to all customers. The Company currently is
not able to determine the outcome of this proceeding and what effect, if any, it
may have on its operations.
The Electric Industry: As previously mentioned, the Company's electric
operations on Long Island are generally governed by its service agreements with
LIPA. The agreements have terms of eight to fifteen years and generally provide
for recovery of virtually all costs of production, operation and maintenance.
Also, since Long Island is considered a "load pocket", i.e., there are
insufficient transmission ties to permit a significant amount of energy to be
transported into Long Island, the Company faces minimal competitive pressures
associated with its electric operations on Long Island at this time.
With its investment in the Ravenswood Facility, the Company also has electric
operations in New York City. The Company currently sells the energy produced by
the Ravenswood Facility through daily and/or hourly bidding into the NYISO
energy markets. Further, the Company has a capacity
33
<PAGE>
contract with Con Edison, which provides Con Edison with 100% of the available
capacity of the Ravenswood Facility. The Company anticipates that this contract
will expire on April 30, 2000, at which time the available capacity of the
Ravenswood Facility will be bid into on the auction process conducted by the
NYISO. New York City local reliability rules currently require that 80% of the
electric capacity needs of New York City is to be provided by "in-city"
generators. At this time, there is a current shortage of in-city capacity and
the Company, therefore, anticipates that it can sell the capacity of the
Ravenswood Facility at a level approaching the FERC mandated price cap. The
Company expects that the current local reliability rules will remain in effect
at least through 2000. However, should new, more efficient electric power plants
be built in New York City and/or the requirement that 80% of in-city load be
served by in-city generators be modified, capacity and energy sales volumes
could be adversely affected. The Company can not predict, however, when or if
new power plants will be built or the nature of future New York City
requirements.
DERIVATIVE FINANCIAL INSTRUMENTS
As previously mentioned, and more fully detailed in Note 10 to the Consolidated
Financial Statements, "Hedging, Derivative Financial Instruments and Fair
Values", the Company hedges a portion of its exposure to commodity price risk
and interest rate risk. All of the Company's derivative financial instruments,
except for certain interest rate swaps, are and will continue to be classified
as cash-flow hedges. As a result, implementation of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" when adopted, is not expected to have a material effect
on the Company's net income, but could have a significant effect on
comprehensive income because of fluctuations in the market value of the
derivatives employed for hedging certain risks. Under SFAS No. 133, periodic
changes in market value are recorded as comprehensive income, subject to
effectiveness, and then included in net income to match the underlying
transactions.
Commodity Hedges and Financial Instruments: The Company's gas utility
subsidiaries, marketing, and gas exploration and production subsidiaries employ,
from time to time, derivative financial instruments, such as natural gas and oil
futures, options and swaps, for the purpose of hedging exposure to commodity
price risk.
Whenever hedge positions are in effect, the Company's subsidiaries are exposed
to credit risk in the event of nonperformance by counter parties to derivative
contracts, as well as nonperformance by the counter parties of the transactions
against which they are hedged. The Company believes that the credit risk related
to the futures, options and swap instruments is no greater than that associated
with the primary commodity contracts which they hedge, as the instrument
contracts are with major investment grade financial institutions, and that
reduction of the exposure to price risk lowers the Company's overall business
risk.
Interest Rate Hedges: The Company continually monitors the cost relationship
between fixed and variable rate debt. In line with its objective to minimize
capital costs, the Company periodically enters into hedging transactions through
interest rate swaps that effectively convert the terms of the
34
<PAGE>
underlying debt obligations from fixed to variable and/or variable to fixed. In
addition, the Company also enters into hedges to fix the rate on commitments to
issue debt securities prior to the actual financing. Swap agreements are only
entered into with creditworthy counter parties.
FOREIGN CURRENCY FLUCTUATIONS
The Company follows the principles of SFAS No. 52, "Foreign Currency
Translation" for recording its investments in foreign affiliates. Due to the
Company's purchases of certain Canadian interests and its continued activities
in Northern Ireland, the Company's investment in foreign affiliates has been
growing. At December 31, 1999, the Company's net assets in these affiliates was
approximately $251.0 million and at December 31, 1999, the accumulated foreign
currency translation adjustment was $7.7 million favorable. (See Note 1 to the
Consolidated Financial Statements, "Summary of Significant Accounting
Policies".)
For additional information concerning market risk, see Note 10 to the
Consolidated Financial Statements, "Hedging, Derivative Financial Instruments,
and Fair Values".
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT RESPONSIBILITY
The Consolidated Financial Statements of the Company and its subsidiaries were
prepared by management in conformity with generally accepted accounting
principles.
The Company's system of internal controls is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed in
accordance with management's authorizations and recorded to permit preparation
of financial statements that present fairly the financial position and operating
results of the Company. The Company's internal auditors evaluate and test the
system of internal controls. The Company's Vice President and General Auditor
reports directly to the Audit Committee of the Board of Directors, which is
composed entirely of outside directors. The Audit Committee meets periodically
with management, the Vice President and General Auditor and Arthur Andersen LLP
to review and discuss internal accounting controls, audit results, accounting
principles and practices and financial reporting matters.
36
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1999 December 31, 1998
-------------------- --------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and temporary cash investments $ 128,602 $ 942,776
Customer accounts receivable 419,826 320,836
Other accounts receivable 240,973 230,479
Allowance for uncollectible accounts (20,294) (20,026)
Special deposits 60,863 131,196
Gas in storage, at average cost 144,256 145,277
Materials and supplies, at average cost 84,813 74,193
Other 98,914 72,818
-------------------- --------------------
1,157,953 1,897,549
-------------------- --------------------
EQUITY INVESTMENTS AND OTHER 391,731 303,681
-------------------- --------------------
PROPERTY
Electric 1,346,851 1,109,199
Gas 3,449,384 3,257,726
Other 375,657 345,007
Accumulated depreciation (1,589,287) (1,480,038)
Gas exploration and production, at cost 1,177,916 994,104
Accumulated depletion (520,509) (447,733)
-------------------- --------------------
4,240,012 3,778,265
-------------------- --------------------
DEFERRED CHARGES
Regulatory assets 319,167 279,524
Goodwill, net of amortizations 255,778 254,040
Other 366,050 382,043
-------------------- --------------------
940,995 915,607
-------------------- --------------------
-------------------- --------------------
TOTAL ASSETS $ 6,730,691 $ 6,895,102
==================== ====================
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
37
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1999 December 31, 1998
------------------- --------------------
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ - $ 398,000
Current redemption of preferred stock 363,000 -
Accounts payable and accrued expenses 645,347 519,288
Notes payable 208,300 -
Dividends payable 61,306 66,232
Taxes accrued 50,437 69,742
Customer deposits 31,769 29,774
Interest accrued 28,093 19,965
-------------------- --------------------
1,388,252 1,103,001
------------------- --------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Regulatory liabilities 26,618 27,854
Deferred income tax 186,230 71,549
Postretirement benefits and other reserves 501,603 457,459
Other 66,200 75,740
-------------------- --------------------
780,651 632,602
------------------- --------------------
CAPITALIZATION
Common stock, $.01 par value, authorized
450,000,000 shares; outstanding 133,866,077
and 144,628,654 shares stated at 2,973,388 2,973,388
Retained earnings 456,882 474,188
Accumulated foreign currency adjustment 7,714 (952)
Treasury stock purchased (722,959) (423,716)
------------------- --------------------
Total common shareholders' equity 2,715,025 3,022,908
Preferred stock 84,339 447,973
Long-term debt 1,682,702 1,619,067
-------------------- --------------------
TOTAL CAPITALIZATION 4,482,066 5,089,948
-------------------- --------------------
MINORITY INTEREST IN SUBSIDIARY COMPANIES 79,722 69,551
------------------- --------------------
TOTAL LIABILITIES AND CAPITALIZATION $ 6,730,691 $ 6,895,102
=================== ====================
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
38
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
============================================================================================================
Nine Months Fiscal Year
YEAR ENDED Ended Ended
DECEMBER 31, 1999 December 31, 1998 March 31, 1998
============================================================================================================
<S> <C> <C> <C>
Gas Distribution $ 1,753,132 $ 856,172 $ 645,659
Electric Services 861,582 408,305 -
Electric Distribution - 330,011 2,478,435
Gas Exploration and Production 150,581 70,812 -
Energy Related Services and Other 189,318 63,181 -
-------------- ------------- -----------
Total Revenues 2,954,613 1,728,481 3,124,094
-------------- ------------- -----------
OPERATING EXPENSES
Purchased gas 744,432 331,690 299,469
Fuel and purchased power 17,252 91,762 658,338
Operations and maintenance 1,091,166 842,313 511,165
Depreciation, depletion and amortization 253,440 294,864 169,770
Electric regulatory amortizations - (40,005) 13,359
Operating taxes 366,154 257,124 466,326
-------------- ------------- -----------
Total Operating Expenses 2,472,444 1,777,748 2,118,427
-------------- ------------- -----------
OPERATING INCOME 482,169 (49,267) 1,005,667
-------------- ------------- -----------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 15,347 5,841 -
Interest income 26,993 50,104 7,022
Transaction related expenses (net of $99,701 income tax) - (107,912) -
Minority interest (11,141) 29,141 -
Other 6,297 (15,919) (13,323)
-------------- ------------- -----------
Total Other Income 37,496 (38,745) (6,301)
-------------- ------------- -----------
INCOME (LOSS) BEFORE INTEREST CHARGES AND INCOME TAXES 519,665 (88,012) 999,366
-------------- ------------- -----------
INTEREST CHARGES 124,692 138,715 404,473
-------------- ------------- -----------
INCOME TAXES
Current 26,618 26,142 85,794
Deferred 109,744 (85,936) 146,859
-------------- ------------- -----------
Total Income Taxes 136,362 (59,794) 232,653
-------------- ------------- -----------
NET INCOME (LOSS) 258,611 (166,933) 362,240
Preferred stock dividend requirements 34,752 28,604 51,813
-------------- ------------- -----------
EARNINGS (LOSS) FOR COMMON STOCK $ 223,859 $ (195,537) $ 310,427
Foreign Currency Adjustment 8,666 (952) -
-------------- ------------- -----------
COMPREHENSIVE INCOME (LOSS) $ 232,525 $ (196,489) $ 310,427
============== ============= ===========
AVERAGE COMMON SHARES OUTSTANDING (000) 138,526 145,767 121,415
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 1.62 $ (1.34) $ 2.56
============== ============= ===========
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
39
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS)
==========================================================================================================
Nine Months Fiscal Year
YEAR ENDED Ended Ended
DECEMBER 31, 1999 December 31, 1998 March 31, 1998
==========================================================================================================
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 474,188 $ 956,092 $ 861,751
Net income (loss) for period 258,611 (166,933) 362,240
- ----------------------------------------------------------------------------------------------------------
732,799 789,159 1,223,991
Deductions
Cash dividends declared on common stock 246,251 214,012 216,086
Cash dividends declared on preferred stock 34,752 28,604 51,813
Other, primarily write-off of capital stock expense (5,086) 72,355 -
- ----------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 456,882 $ 474,188 $ 956,092
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CAPITALIZATION
============================================================================================================
SHARES ISSUED (IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31, DECEMBER 31, December 31,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Common stock, $0.01 par value 133,866,077 144,628,654 $ 1,337 $ 1,446
Premium on capital stock 2,972,051 2,971,942
Retained earnings 456,882 474,188
Accumulated foreign currency adjustment 7,714 (952)
Treasury stock purchased 24,971,577 14,209,000 (722,959) (423,716)
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY 2,715,025 3,022,908
- ------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - REDEMPTION REQUIRED
Par value $25 per share
7.95% Series AA 14,520,000 14,520,000 363,000 363,000
- ------------------------------------------------------------------------------------------------------------
Less - Mandatory redemption of preferred stock 363,000 -
- ------------------------------------------------------------------------------------------------------------
Total Preferred Stock - Redemption Required - 363,000
- ------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - NO REDEMPTION REQUIRED
Par value $100 per share
7.07% Series B-private placement 553,000 553,000 55,300 55,300
7.17% Series C-private placement 197,000 197,000 19,700 19,700
6.00% Series A-private placement 93,390 99,727 9,339 9,973
- ------------------------------------------------------------------------------------------------------------
Total Preferred Stock - No Redemption Required 84,339 84,973
- ------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK $ 84,339 $ 447,973
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
40
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CAPITALIZATION
(CONTINUED)
(IN THOUSANDS OF DOLLARS)
=============================================================================================================
DECEMBER 31, December 31,
LONG-TERM DEBT INTEREST RATE SERIES 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUTHORITY FINANCING NOTES
POLLUTION CONTROL REVENUE BONDS
October 1, 2028 variable 1999A $ 41,125 $ -
ELECTRIC FACILITIES REVENUE BONDS
December 1, 2027 variable 1997A 24,880 24,880
- -------------------------------------------------------------------------------------------------------------
TOTAL AUTHORITY FINANCING NOTES 66,005 24,880
- -------------------------------------------------------------------------------------------------------------
PROMISSORY NOTES TO LIPA
DEBENTURES
July 15, 1999 7.30% - 397,000
March 15, 2023 8.20% 270,000 270,000
POLLUTION CONTROL REVENUE BONDS
December 1, 2006 7.50% 1976A - 26,375
December 1, 2009 7.80% 1979B - 19,100
March 1, 2016 5.15% 1985A 58,022 58,022
March 1, 2016 5.15% 1985B 50,000 50,000
ELECTRIC FACILITIES REVENUE BONDS
September 1, 2019 7.15% 1989B 35,030 35,030
June 1, 2020 7.15% 1990A 73,900 73,900
December 1, 2020 7.15% 1991A 26,560 26,560
February 1, 2022 7.15% 1992B 13,455 13,455
August 1, 2022 6.90% 1992D 28,060 28,060
November 1, 2023 5.30% 1993B 29,600 29,600
October 1, 2024 5.30% 1994A 2,600 2,600
August 1, 2025 5.30% 1995A 15,200 15,200
- -------------------------------------------------------------------------------------------------------------
Total Promissory Notes to LIPA 602,427 1,044,902
- -------------------------------------------------------------------------------------------------------------
GAS FACILITIES REVENUE BONDS
April 1, 2020 6.368% 1993A,B 75,000 75,000
December 1, 2020 variable 1997 125,000 125,000
January 1, 2021 5.50% 1996 153,500 153,500
February 1, 2024 6.75% 1989A 45,000 45,000
February 1, 2024 6.75% 1989B 45,000 45,000
June 1, 2025 5.60% 1993C 55,000 55,000
July 1, 2026 6.95% 1991A,B 100,000 100,000
July 1, 2026 5.635% 1993D-1,D-2 50,000 50,000
- -------------------------------------------------------------------------------------------------------------
Total Gas Facilities Revenue Bonds 648,500 648,500
- -------------------------------------------------------------------------------------------------------------
Unamortized Discount on Debt (1,635) (1,750)
- -------------------------------------------------------------------------------------------------------------
Total 1,315,297 1,716,532
Less Current Maturities - 398,000
Other Subsidiary Debt 367,405 300,535
- -------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 1,682,702 1,619,067
- -------------------------------------------------------------------------------------------------------------
Total Capitalization $ 4,482,066 $ 5,089,948
==============================================================================================================
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
41
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
=====================================================================================================
Nine Months Fiscal Year
YEAR ENDED Ended Ended
DECEMBER 31, December 31, March 31,
1999 1998 1998
=====================================================================================================
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $ 258,611 $ (166,933) $ 362,240
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Depreciation, depletion and amortization 253,440 294,864 169,770
Electric regulatory amortizations - (40,005) (10,273)
Deferred income tax 109,744 (85,936) 146,859
Income from equity investments (15,347) (5,841) -
Dividends from equity investments 9,368 4,219 -
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable (132,114) (81,024) 8,334
Materials and supplies, fuel oil and gas in storage (9,789) (63,195) 14,391
Accounts payable and accrued expenses 83,493 132,028 (54,835)
Interest accrued 8,128 (151,268) (2,624)
Special deposits 52,373 (41,040) (58,159)
Pensions and other post retirement benefits (22,000) (283,774) -
Other (6,902) 27,617 98,381
----------- ----------- -----------
Net Cash Provided by (Used in) Operating Activities 589,005 (460,288) 674,084
----------- ----------- -----------
INVESTING ACTIVITIES
Capital expenditures (725,670) (676,563) (297,230)
Net cash from KeySpan Acquisition - 165,168 -
Net proceeds from LIPA Transaction - 2,314,588 -
Other 30,006 13,466 (31,987)
----------- ----------- -----------
Net Cash (Used in) Provided by Investing Activities (695,664) 1,816,659 (329,217)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock - 10,170 43,218
Treasury stock purchased (299,243) (423,716) -
Issuance of preferred stock - 84,973 -
Issuance of notes payable 208,300 - -
Issuance of long-term debt 102,648 112,535 -
Payment of long-term debt (442,475) (103,000) (2,050)
Preferred stock dividends paid (34,760) (28,604) (51,833)
Common stock dividends paid (249,567) (210,177) (215,790)
Other 7,582 (36,695) (2,032)
----------- ----------- -----------
Net Cash (Used in) Financing Activities (707,515) (594,514) (228,487)
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (814,174) 761,857 116,380
=========== =========== ===========
Cash and cash equivalents at beginning of period $ 942,776 $ 180,919 $ 64,539
Net (Decrease) Increase in cash and cash equivalents (814,174) 761,857 116,380
----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 128,602 $ 942,776 $ 180,919
=========== =========== ===========
Interest paid $ 109,614 $ 125,914 $ 364,864
Income tax paid $ 38,700 $ 94,680 $ 108,980
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION OF THE COMPANY
KeySpan Corporation, d/b/a KeySpan Energy (the "Company" or "KeySpan Energy") is
a holding company operating two utilities that distribute natural gas to
approximately 1.6 million customers in New York City and on Long Island, making
it the fourth largest gas-distribution company in the United States. Other
KeySpan Energy companies market a portfolio of gas- marketing and energy-
related services in the Northeast, own and operate electric-generation plants in
New York City and on Long Island, and provide operating and customer services to
approximately 1.1 million electric customers of the Long Island Power Authority
("LIPA"). The Company's other energy activities include: gas exploration and
production, primarily through The Houston Exploration Company ("THEC"); domestic
pipelines and storage; and international activities, including gas processing in
Canada, and gas pipelines and local distribution in Northern Ireland. (See Note
2, "Business Segments" for additional information on each operating segment.)
The Company is the successor to Long Island Lighting Company ("LILCO"), as a
result of a transaction with LIPA (the "LIPA Transaction") and following the
acquisition (the "KeySpan Acquisition") of KeySpan Energy Corporation ("KSE").
On May 28, 1998, the Company completed two business combinations as a result of
which it (i) became the successor operator of the non-nuclear electric
generating facilities, gas distribution operations and common plant formerly
owned by LILCO and entered into long-term service agreements to operate the
electric transmission and distribution ("T&D") system acquired by LIPA; and (ii)
acquired KSE, the parent company of The Brooklyn Union Gas Company ("Brooklyn
Union"). (See Note 14, "Sale of LILCO Assets, Acquisition of KeySpan Energy
Corporation and Transfer of Assets and Liabilities to the Company".)
B. BASIS OF PRESENTATION
The Consolidated Financial Statements presented herein reflect the accounts of
the Company and its subsidiaries. Most of the Company's subsidiaries are fully
consolidated in the financial information presented, except for subsidiary
investments in the Energy Related Investment segment which are accounted for on
the equity method as the Company does not have a controlling voting interest or
otherwise have control over the management of investee companies. All
significant intercompany transactions have been eliminated.
Certain reclassifications were made to conform prior period financial statements
with the current period financial statement presentation.
The financial statements presented herein include the year ended December 31,
1999, the nine
1
<PAGE>
month period April 1, 1998 through December 31, 1998 (the "Transition Period"),
and the fiscal year ended March 31, 1998. For financial reporting purposes,
LILCO is deemed the acquiring company pursuant to a purchase accounting
transaction, in which KSE was acquired. Consequently, financial results of the
Company prior to May 29, 1998 reflect those of LILCO only. Since the acquisition
of KSE was accounted for as a purchase, related accounting adjustments,
including goodwill, have been reflected in the financial statements herein.
Further, in September 1998, the Company changed its fiscal year end to December
31.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
C. ACCOUNTING FOR THE EFFECTS OF RATE REGULATION
The Company's accounting records for its two regulated gas utilities and its
generation subsidiaries are maintained in accordance with the Uniform System of
Accounts prescribed by the Public Service Commission of the State of New York
("NYPSC") and the Federal Energy Regulatory Commission ("FERC"), respectively.
However, the Company's electric generation subsidiaries are not subject to NYPSC
rate regulation, but they are subject to FERC regulation. The Company's
financial statements reflect the ratemaking policies and actions of these
regulators in conformity with generally accepted accounting principles for
rate-regulated enterprises.
The Company's two regulated gas utilities and its electric generation
subsidiaries are subject to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of
Regulation." This statement recognizes the ability of regulators, through the
ratemaking process, to create future economic benefits and obligations affecting
rate-regulated companies. Accordingly, the Company records these future economic
benefits and obligations as regulatory assets and regulatory liabilities,
respectively.
2
<PAGE>
The following table presents the Company's net regulatory assets at December 31,
1999 and December 31, 1998.
(IN THOUSANDS OF DOLLARS)
December 31, 1999 December 31, 1998
- ------------------------------------------ -------------------- ---------------
Regulatory Assets
Regulatory tax asset $ 65,462 $ 68,780
Property taxes 40,434 12,792
Environmental costs 95,627 100,505
Postretirement benefits other than pensions 48,553 51,788
Costs associated with the KeySpan Acquisition 69,091 45,659
Total Regulatory Assets $ 319,167 $ 279,524
Regulatory Liability 26,618 27,854
Total Net Regulatory Assets $ 292,549 $ 251,670
========================================== ==================== ================
The regulatory assets above are not included in the Company's rate base.
However, the Company records carrying charges on the property tax and costs
associated with the KeySpan Acquisition deferrals. The Company also records
carrying charges on its regulatory liability. The remaining regulatory assets
represent, primarily, costs for which expenditures have not yet been made, and
therefore, carrying charges are not recorded. The Company anticipates recovering
these costs in its gas rates concurrently with future cash expenditures. If
recovery is not concurrent with the cash expenditures, the Company will record
the appropriate level of carrying charges.
The Company estimates that full recovery of its regulatory assets will not
exceed 15 years, except for the tax regulatory asset which will be recovered
over the estimated lives of certain utility property.
Rate regulation is undergoing significant change as regulators and customers
seek lower prices for utility service and greater competition among energy
service providers. In the event that regulation significantly changes the
opportunity for the Company to recover its costs in the future, all or a portion
of the Company's regulated operations may no longer meet the criteria for the
application of SFAS No. 71. In that event, a write-down of all or a portion of
the Company's existing regulatory assets and liabilities could result. If the
Company had been unable to continue to apply the provisions of SFAS No. 71 at
December 31, 1999, the Company would have applied the provisions of SFAS No. 101
"Regulated Enterprises - Accounting for the Discontinuation of Application of
FASB Statement No. 71". The Company estimates that the write-off of its net
regulatory asset could result in a charge to net income of $190.2 million or
$1.37 per share after-tax, which would be classified as an extraordinary item.
In management's opinion, the Company's regulated subsidiaries will be subject to
SFAS No. 71 for the foreseeable future.
As part of the LIPA Transaction, the Company has entered into various service
agreements with LIPA that prescribe the conduct of the Company's electric
operations. These agreements allow the
3
<PAGE>
Company to recover its costs incurred to service the agreements and potentially
allow the Company to earn a certain level of profit. The Company's electric
operations, other than the generation function which is FERC regulated, are no
longer subject to rate regulation and, as a result, the Company no longer
applies SFAS No. 71 to certain of its electric operations.
D. REVENUES
Utility gas customers are billed monthly and bi-monthly on a cycle basis.
Revenues include unbilled amounts related to the estimated gas usage that
occurred from the most recent meter reading to the end of each month.
The cost of gas used is recovered when billed to firm customers through the
operation of the gas adjustment clause ("GAC") included in utility tariffs. The
GAC provision requires an annual reconciliation of recoverable gas costs and GAC
revenues. Any difference is deferred pending recovery from or refund to firm
customers during a subsequent twelve-month period. Further, net revenues from
tariff gas balancing services, off-system sales and certain on-system
interruptible sales are refunded to firm customers subject to certain sharing
provisions.
The gas utility tariffs contain weather normalization adjustments that largely
offset shortfalls or excesses of firm net revenues (revenues less gas costs and
revenue taxes) during a heating season due to variations from normal weather.
Electric revenues since the LIPA Transaction are primarily derived from billings
to LIPA for management of LIPA's T&D system, electric generation, and
procurement of fuel. In addition, electric revenues also include revenues from
the Company's investment in the 2,168 megawatt Ravenswood electric generation
facility ("Ravenswood Facility") which the Company acquired in June 1999. (See
Note 9, "Contractual Obligations and Contingencies" for a description of the
Ravenswood transaction.)
The agreements with LIPA include provisions for the Company to earn, in the
aggregate, approximately $11.5 million per year (plus up to an additional $5
million per year if certain cost savings are achieved) in annual management
service fees from LIPA for the management of the LIPA T&D system and the
management of all aspects of fuel and power supply. Costs in excess of budgeted
levels are assumed by the Company up to $15 million, while cost reductions in
excess of $5 million from budgeted levels are shared with LIPA. These agreements
also contain certain non- cost incentive and penalty provisions which could
impact earnings. Billings associated with generation capacity are based on
pre-determined levels of supply to be dispatched to LIPA on a yearly basis.
Rates charged to LIPA include fixed and variable components. The variable
component is billed to LIPA on a monthly basis and is dependent on the amount of
megawatt hours dispatched. In addition, billings related to transmission,
distribution and delivery services are based, in part, on negotiated budgeted
levels.
The Company currently sells the energy produced by the Ravenswood Facility
through daily and/or
4
<PAGE>
hourly bidding into the New York Independent System Operator ("NYISO") energy
markets. Revenues are recorded when the energy is sold to the NYISO. Further,
the Company currently has a capacity contract with Consolidated Edison Company
of New York, Inc. ("Con Edison"), which provides Con Edison with 100% of the
available capacity of the Ravenswood Facility. Capacity charges are billed to
Con Edison on a monthly fixed-fee basis in accordance with the terms of the
capacity contract. The Company anticipates that this contract will expire on
April 30, 2000, at which time the available capacity of the Ravenswood Facility
will be bid into on the auction process conducted by the NYISO.
Prior to the LIPA Transaction, electric revenues were comprised of cycle
billings rendered to residential, commercial and industrial customers and the
accrual of electric revenues for services rendered to customers not billed at
month-end. In addition, LILCO's rate structure provided for a revenue
reconciliation mechanism which eliminated the impact on earnings of electric
sales that were above or below the levels reflected in rates. Moreover, LILCO's
electric tariff included a fuel cost adjustment ("FCA") clause which provided
for the disposition of the difference between actual fuel costs and the fuel
costs allowed in base tariff rates. LILCO deferred these differences to future
periods for recovery from or refund to customers, except for base electric fuel
costs in excess of actual electric fuel costs, which were credited to the Rate
Moderation Component ("RMC") as incurred.
E. UTILITY PROPERTY - DEPRECIATION AND MAINTENANCE
Utility gas property is stated at original cost of construction, which includes
allocations of overheads, including taxes, and an allowance for funds used
during construction. As part of the LIPA Transaction, all T&D assets were sold
to LIPA, and as a result, all costs incurred under the Management Services
Agreement in connection with the Company's provision of services for the T&D
system subsequent to May 28, 1998 are expensed and charged to LIPA. As a result,
electric depreciation now consists of depreciation of the non-nuclear electric
generating facilities formerly owned by LILCO and the Ravenswood Facility.
Depreciation is provided on a straight-line basis in amounts equivalent to
composite rates on average depreciable property. The cost of property retired,
plus the cost of removal less salvage, is charged to accumulated depreciation.
The cost of repair and minor replacement and renewal of property is charged to
maintenance expense. The composite rates on average depreciable property were as
follows:
Period Electric Gas
------- -------- ---
Year Ended December 31, 1999 3.56% 2.85%
Nine Months Ended December 31, 1998 2.54% 2.07%
Fiscal Year Ended March 31, 1998 3.20% 2.06%
5
<PAGE>
F. GAS EXPLORATION AND PRODUCTION PROPERTY - DEPLETION
The full cost method of accounting is used for investments in natural gas and
oil properties. Under this method, all costs of acquisition, exploration and
development of natural gas and oil reserves are capitalized into a "full cost
pool" as incurred, and properties in the pool are depleted and charged to
operations using the unit-of-production method based on the ratio of current
production to total proved natural gas and oil reserves. To the extent that such
capitalized costs (net of accumulated depletion) less deferred taxes exceed the
present value (using a 10% discount rate) of estimated future net cash flows
from proved natural gas and oil reserves and the lower of cost or fair value of
unproved properties, such excess costs are charged to operations. If a
write-down is required, it would result in a charge to earnings but would not
have an impact on cash flows from operating activities. Once incurred, such
impairment of gas properties is not reversible at a later date even if gas
prices increase. In December 1998, THEC, the Company's 64% owned gas and oil
exploration and production subsidiary, recorded a $130 million write-down to its
investment in its proved gas reserves, which is reflected in the accompanying
financial statements
As of December 31, 1999, THEC estimates, using prices in effect as of such date,
that the ceiling limitation imposed under full cost accounting rules exceeded
actual capitalized costs.
Provisions for depreciation of all other non-utility property are computed on a
straight line basis over useful lives of three to ten years.
G. HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Commodity Derivatives: The Company's utility, marketing subsidiaries and THEC
employ, from time to time, derivative financial instruments to hedge exposure in
cash flows due to fluctuations in the price of natural gas. The Company's
hedging strategies meet the criteria for hedge accounting treatment under SFAS
No. 80, "Accounting for Futures Contracts." Accordingly, gains and losses on
these instruments are recognized concurrently with the recognition of the
related physical transactions.
The subsidiaries regularly assess the relationship between natural gas commodity
prices in "cash" and futures markets. The correlation between prices in these
markets has been within a range generally deemed to be acceptable. If the
correlation were not to remain in an acceptable range, the subsidiaries would
account for financial instrument positions as trading activities.
Interest Rate Derivatives: The Company continually assesses the cost
relationship between fixed and variable rate debt. In line with its objective to
minimize capital costs, the Company periodically enters into hedging
transactions that effectively convert the terms of underlying debt obligations
from fixed to variable and/or variable to fixed. Monthly payments made or
received are recognized as an adjustment to interest expense as incurred. In
addition, the Company also enters into hedges to fix the rate on commitments to
issue debt securities prior to the actual financing.
6
<PAGE>
Hedging transactions that effectively convert the terms of underlying debt
obligations from fixed to variable and/or variable to fixed are considered
fair-value hedges. All of the Company's other derivative financial instruments
are, and will continue to be classified as cash-flow hedges. As a result,
implementation of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," when adopted, is not expected to have a material effect on
the Company's net income, but could have a significant effect on comprehensive
income because of fluctuations in the market value of the derivatives employed
for hedging certain risks. Under SFAS No. 133, periodic changes in market value
are recorded as comprehensive income, subject to effectiveness, and then
included in net income to match the underlying transactions.
H. EQUITY INVESTMENTS
Certain subsidiaries own as their principal assets investments, including
goodwill, representing ownership interests of 50% or less in energy-related
businesses that are accounted for under the equity method.
I. INCOME TAX
In accordance with SFAS No. 109, "Accounting for Income Taxes" and NYPSC policy,
certain of the Company's regulated subsidiaries record a regulatory asset for
the net cumulative effect of having to provide deferred income taxes on all
differences between tax and book bases of assets and liabilities at the current
tax rate which have not yet been included in rates to customers. Investment tax
credits, which were available prior to the Tax Reform Act of 1986, were deferred
and are amortized as a reduction of income tax over the estimated lives of the
related property.
J. SUBSIDIARY COMMON STOCK ISSUANCES TO THIRD PARTIES
The Company follows an accounting policy of income statement recognition for
parent company gains or losses from issuances of common stock by subsidiaries.
K. FOREIGN CURRENCY TRANSLATION
The Company follows the principles of SFAS No. 52, "Foreign Currency
Translation," for recording its investments in foreign affiliates. Under this
statement, all elements of financial statements are translated by using a
current exchange rate. Translation adjustments result from changes in exchange
rates from one reporting period to another. At December 31, 1999, the foreign
currency translation adjustment was included in comprehensive income and as a
separate component of shareholders' equity.
L. GOODWILL
At December 31, 1999, the Company has recorded goodwill in the amount of $255.8
million, representing the excess of acquisition cost over the fair value of net
assets acquired. Goodwill is
7
<PAGE>
amortized over 15 to 40 years. The Company's recorded goodwill, net of
accumulated amortizations, consists of approximately $164.1 million relating to
the KeySpan Acquisition and approximately $91.7 million related to the
acquisitions of energy-related services companies and to certain ownership
interests of 50% or less in energy-related investments in Northern Ireland and
Canada which are accounted for under the equity method.
M. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 to fiscal years beginning after July 15, 2000. The Company will
therefore, adopt SFAS No. 133 in the first quarter of fiscal year 2001. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. As previously mentioned, all of the
Company's derivative financial instruments, except for certain interest rate
swaps, are and will continue to be classified as cash-flow hedges. As a result,
implementation of SFAS No. 133 when adopted, is not expected to have a material
effect on the Company's net income, but could have a significant effect on
comprehensive income because of fluctuations in the market value of the
derivatives employed for hedging certain risks. Under SFAS No. 133, periodic
changes in market value are recorded as comprehensive income, subject to
effectiveness, and then included in net income to match the underlying
transactions.
NOTE 2. BUSINESS SEGMENTS
The Company has six reportable segments: Gas Distribution, Electric Services,
Gas Exploration and Production, Energy Related Services, Energy Related
Investments and Other.
The Gas Distribution segment consists of the Company's two gas distribution
subsidiaries. Brooklyn Union provides gas distribution services to customers in
the New York City boroughs of Brooklyn, Queens and Staten Island, and KeySpan
Gas East d/b/a Brooklyn Union of Long Island ("Brooklyn Union of Long Island")
provides gas distribution services to customers in the Long Island counties of
Nassau and Suffolk and the Rockaway Peninsula of Queens County.
The Electric Services segment consists of Company subsidiaries that operate the
electric T&D system owned by LIPA, own and sell capacity and energy to LIPA from
the Company's generating facilities located on Long Island and manage fuel
supplies for LIPA to fuel the Company's Long Island generating facilities
through long-term service contracts that have terms that range from eight to
fifteen years, as well as, Company subsidiaries that own, lease and operate the
2,168 megawatt Ravenswood Facility, located in Long Island City, Queens. (See
Note 9, "Contractual Obligations and Contingencies" for a description of the
Ravenswood transaction.) Currently, the Company's primary electric generation
customers are LIPA and Con Edison.
8
<PAGE>
The Gas Exploration and Production segment is engaged in gas and oil exploration
and production, and the development and acquisition of domestic natural gas and
oil properties. This segment consists of the Company's 64% equity interest in
THEC, an independent natural gas and oil exploration company, as well as KeySpan
Exploration and Production LLC, the Company's wholly owned subsidiary engaged in
a joint venture with THEC. In September 1999, the Company and THEC jointly
announced their intention to begin a process to review strategic alternatives
for THEC. The process included an assessment of the role of THEC within the
Company's strategic plans, including the possible sale of all or a portion of
THEC by the Company. After completing the review, the Company concluded that it
would retain its equity interest in THEC. Further, under a pre-existing credit
arrangement, approximately $80 million in debt owed by THEC to the Company will
be converted into common equity on April 1, 2000. The Company's common equity
ownership interest in THEC will increase to approximately 70% upon such
conversion. The Company will commit approximately $25 million to the drilling
program with THEC in 2000, which may be terminated, upon notice, at the option
of either party.
The Company's Energy Related Services segment primarily includes KeySpan Energy
Management Inc. ("KEM"), KeySpan Energy Services Inc. ("KES"), KeySpan
Communications Corporation, KeySpan Energy Solutions, LLC ("KESol"), Fritze
KeySpan, LLC ("Fritze"), and Delta KeySpan Inc. ("Delta"). KEM owns, designs
and/or operates energy systems for commercial and industrial customers and
provides energy-related services to clients located primarily within the New
York City metropolitan area. KES markets gas and electricity, and arranges
transportation and related services, largely to retail customers, including
those served by the Company's two gas distribution subsidiaries. KeySpan
Communications Corporation owns a fiber optic network on Long Island. KESol,
Fritze and Delta provide various appliance, heating, ventilation and air
conditioning ("HVAC") services to customers within the Company's service
territory, New Jersey and Rhode Island. KESol was established in April 1998,
Fritze was acquired in November 1998 and Delta was acquired in September 1999.
Further, in February 2000, the Company acquired three additional companies. The
newly acquired companies include, an engineering-consulting firm, a plumbing and
mechanical contracting firm, and a firm specializing in mechanical contracting
and HVAC.
Subsidiaries in the Energy Related Investments segment include a 20% equity
interest in the Iroquois Gas Transmission System LP; a 50% interest in the
Premier Transco Pipeline and a 24.5% interest in Phoenix Natural Gas, both in
Northern Ireland; and investments in certain midstream natural gas assets in
Western Canada owned jointly with Gulf Canada Resources Limited, through the
Gulf Midstream Services Partnership ("GMS"). These subsidiaries are accounted
for under the equity method since the Company's ownership interests are 50% or
less. Accordingly, equity income from these investments is reflected in other
income and (deductions) in the Consolidated Income Statement.
The Other segment represents primarily, preferred stock dividends, unallocated
administrative expenses and interest income earned on temporary cash
investments. In 1999, all preferred stock dividends were allocated to the Other
segment whereas, prior to the LIPA Transaction, preferred stock dividends were
allocated to gas and electric operations.
9
<PAGE>
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company's reportable segments
are strategic business units that are managed separately because of their
different operating and regulatory environments. The reportable segment
information is as follows:
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS)
======================================================================================================================
Energy Energy
Gas Electric Gas Exploration Related Related
Distribution Services and Production Services Investments Other Eliminations Consolidated
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,753,132 $ 861,582 $ 150,581 $ 188,630 $ 688 $ - $ - $ 2,954,613
- ----------------------------------------------------------------------------------------------------------------------
Purchased gas 702,044 - - 42,388 - - - 744,432
Fuel and purchased
power - 17,252 - - - - - 17,252
Operations and
maintenance 405,095 479,149 27,662 145,929 7,560 25,771 - 1,091,166
Depreciation, depletion
and amortization 102,997 44,334 74,051 3,757 1,099 27,202 - 253,440
Operating taxes 223,793 132,327 338 3 8 9,685 - 366,154
Intercompany billings 10,793 48,580 - - - (59,373) - -
- -----------------------------------------------------------------------------------------------------------------------
Total expenses $ 1,444,722 $ 721,642 $ 102,051 $ 192,077 $ 8,667 $ 3,285 $ - $ 2,472,444
- -----------------------------------------------------------------------------------------------------------------------
Operating income
(loss) $ 308,410 $ 139,940 $ 48,530 $ (3,447)$ (7,979)$ (3,285)$ - $ 482,169
======================================================================================================================
Earnings (loss) for
common stock $ 151,217 $ 77,099 $ 15,772 $ (1,298)$ 7,753 $ (26,684)$ - $ 223,859
======================================================================================================================
Basic and diluted EPS $ 1.09 $ 0.56 $ 0.11 $ (0.01) $ 0.06 $ (0.19) $ - $ 1.62
======================================================================================================================
Additional Information:
Interest income 3,942 - - - 5,016 19,393 (1,358) 26,993
Interest expense 83,000 22,380 13,307 - 3,726 91,563 (89,284) 124,692
Income from equity
method subsidiaries - - - - 15,347 - - 15,347
Total assets 3,774,563 1,267,931 646,657 202,124 503,549 2,584,674 (2,248,807) 6,730,691
Investment in equity
method subsidiaries - - - 13,393 341,874 4,016 - 359,283
Capital expenditures 213,845 245,177 183,322 20,605 49,427 13,294 - 725,670
======================================================================================================================
</TABLE>
Electric Services revenues from, primarily LIPA and Con Edison, of
$858.8 million for the year ended December 31, 1999, represents
approximately 29% of the Company's consolidated revenues during that
period.
Eliminating items include intercompany interest income and expense and
the elimination of certain intercompany accounts receivable.
11
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1998 (IN THOUSANDS OF DOLLARS)
======================================================================================================================
Energy Energy
Gas Electric Gas Exploration Related Related
Distribution Services and Production Services Investments Other Eliminations Consolidated
======================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 856,172$ 738,316 $ 70,812 $ 63,064$ 117$ $ - -$ 1,728,481
- ----------------------------------------------------------------------------------------------------------------
Purchased gas 318,703 - - 12,987 - - - 331,690
Fuel and purchased
power - 91,762 - - - - - 91,762
Operations and
maintenance 280,442 337,898 15,879 54,152 3,750 21,713 - 713,834*
Depreciation, depletion
and amortization 57,351 5,895 47,114 1,117 256 13,126 - 124,859*
Operating taxes 121,280 126,015 373 722 1 8,733 - 257,124
Intercompany billings 7,221 23,922 - - - (31,143) - -
Total expenses $ 784,997$ 585,492$ 63,366$ 68,978$ 4,007$ 12,429$ -$ 1,519,269
- ----------------------------------------------------------------------------------------------------------------
Operating income
(loss) $ 71,175$ 152,824$ 7,446$ (5,914)$ (3,890)$ (12,429)$ -$ 209,212
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) for
common stock before
special charges $ 8,582 $ 57,119 $ 2,218 $ (3,212)$ (4,186)$ 2,463 -$ 62,984*
- ----------------------------------------------------------------------------------------------------------------
Basic and diluted
EPS $ 0.06$ 0.39 $ 0.02$ (0.03)$ $ 0.02 $ -$ 0.43*
- ----------------------------------------------------------------------------------------------------------------
Additional Information:
Interest income 1,328 - - - - 49,200 (424) 50,104
Interest expense 60,678 69,953 3,870 - - 58,682 54,468) 138,715
Income from equity
method subsidiaries - - - - 5,841 - - 5,841
Total assets 3,452,361 693,162 500,162 116,771 429,157 4,439,307 2,735,818) 6,895,102
Investment in equity
method subsidiaries - - - - 289,193 - - 289,193
Capital expenditures 128,405 54,090 182,729 28,421 231,791 51,127 - 676,563
- ----------------------------------------------------------------------------------------------------------------
*Excludes non-recurring charges associated with the LIPA Transaction and
special charges. Total non-recurring and special charges were $258.5
million after-tax. See Note 15 - Costs Related to the LIPA Transaction
and Special Charges.
Electric Services revenues from LIPA of $408.3 million, represents
approximately 24% of the Company's consolidated revenues for the nine
months ended December 31, 1998.
Eliminating items include intercompany interest income and expense and
the elimination of certain intercompany accounts receivable.
----------------------------------------------------------------------
</TABLE>
12
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1998 (IN THOUSANDS OF DOLLARS)
Electric
Gas Distribution Distribution Consolidated
- -----------------------------------------------------------
Revenues $ 645,659$ 2,478,435$ 3,124,094
- -----------------------------------------------------------
Purchased gas 299,469 - 299,469
Fuel and purchased
power - 658,338 658,338
Operations and
maintenance 107,221 403,944 511,165
Depreciation and
amortization 38,584 144,545 183,129
Operating taxes 77,734 388,592 466,326
Total expenses $ 523,008$ 1,595,419$ 2,118,427
- -----------------------------------------------------------
Operating income $ 122,651$ 883,016$ 1,005,667
- -----------------------------------------------------------
Earnings for common
stock $ 33,815$ 276,612$ 310,427
- -----------------------------------------------------------
Basic and diluted $PS 0.28$ 2.28$ 2.56
- -----------------------------------------------------------
Additional Information:
Interest income 923 6,099 7,022
Interest expense 52,409 352,064 404,473
Total assets 1,444,745 10,455,980 11,900,725
Capital expenditures 78, 897 218,333 297,230
- -----------------------------------------------------------
NOTE 3. INCOME TAX
The Company will file consolidated federal and state income tax returns for
calendar year 1999. A tax sharing agreement between the Company and its
subsidiaries provides for the allocation of a realized tax liability or benefit
based upon separate return contributions of each subsidiary to the consolidated
taxable income or loss in the consolidated income tax returns.
In 1998, the Company incurred tax net operating losses ("NOL") for federal
purposes of $148.9 million and for state purposes of $211.0 million for the
period May 29, 1998 through December 31, 1998, which can be carried forward for
twenty years or until 2017. In accordance with SFAS No. 109 - "Accounting For
Income Taxes," the Company believed that it was more likely than not that the
tax benefits of these losses would be realized. Therefore, in 1998 deferred tax
assets and related tax benefits for the tax effect of the NOL carryforwards were
recorded by the Company ($52.1 million for federal income tax purposes and $19.0
million for state income tax purposes).
The Company estimates that the benefits associated with the NOL carryforwards
from 1998, $57.4 million ($52.1 million for federal income tax purposes and $5.3
million for state income tax purposes), will be realized in its consolidated
1999 federal and state income tax returns.
13
<PAGE>
Accordingly, the NOL benefits have been applied in the 1999 current federal and
state tax provisions.
Income tax expense (benefit) is reflected as follows in the Consolidated
Statement of Income:
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
Nine Months
Year Ended Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
- --------------------------------------------------------------------------------
Current income tax $ 26,618 $ 26,142$ 85,794
Deferred income tax 109,744 (85,936) 146,859
- --------------------------------------------------------------------------------
136,362 (59,794) 232,653
- --------------------------------------------------------------------------------
Current - transaction related (1) - 291,365 -
Deferred - transaction related (2) - (391,066) -
- --------------------------------------------------------------------------------
- (99,701) -
- --------------------------------------------------------------------------------
Total income tax (benefit) $ 136,362 $ (159,495$ 232,653
- ----------------------------- -------------- --------------------------------
(1) Primarily represents income taxes associated with the sale of assets (the
"Transferred Assets") to the Company by LIPA, which taxes were paid by the
Company, partially offset by tax benefits recognized upon funding of
postretirement benefits.
(2) Primarily represents the deferred federal income taxes necessary to account
for the difference between the carryover basis of the assets sold to the
Company for financial reporting purposes and the new increased tax basis.
The components of deferred tax assets and (liabilities) reflected in the
Consolidated Balance Sheet are as follows:
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- -------------------------------------- -------------------- -------------------
Reserves not currently deductible $ 35,569 $ 37,833
Benefits of tax loss carryforwards 13,694 71,096
Property related differences (155,063) (89,934)
Regulatory tax asset (22,912) (24,073)
Property taxes (49,172) (34,541)
Other items - net (8,348) (31,929)
- --------------------------------------------------------------------------------
Net deferred tax liability $ (186,230)$ (71,549)
- --------------------------------------------------------------------------------
14
<PAGE>
The following is a reconciliation between reported income tax and tax computed
at the statutory rate of 35%:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------------------------
Nine Months Fiscal Year
Year Ended Ended Ended
December 31, December 31, March 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed at the statutory rate $ 138,241 $(114,249)$ 208,213
Adjustments related to:
Net benefit from LIPA Transaction (1) - (31,503) -
Tax credits (2,154) (1,809) (2,464)
Excess of book over tax depreciation - 2,859 17,912
Minority interest in THEC 3,105 (10,220) -
Other items - net (2,830) (4,573) 8,992
- -----------------------------------------------------------------------------------------
Total income tax (benefit) $ 136,362 $(159,495)$ 232,653
=========================================================================================
Effective income tax rate 35% N/A 39%
- -----------------------------------------------------------------------------------------
</TABLE>
(1)Includes tax benefits relating to (a) the deferred federal income taxes
necessary to account for the difference between the carryover basis of
the Transferred Assets for financial reporting purposes and the new
increased tax basis and (b) certain credits for financial reporting
purposes, including tax benefits recognized on the funding of
postretirement benefits, partially offset by income taxes associated
with the sale of the Transferred Assets to the Company by LIPA which
taxes were paid by the Company.
In 1990 and 1992, LILCO received an Internal Revenue Service Agents' Report
disallowing certain deductions and credits claimed by LILCO on its federal
income tax returns for the years 1981 through 1989. A settlement resolving all
audit issues was reached between LILCO and the Internal Revenue Service in May
1998. The settlement required the payment of taxes and interest of $9 million
and $35 million, respectively, which the Company made in May 1998. Adequate
reserves to cover such taxes and interest were previously provided.
15
<PAGE>
NOTE 4. POSTRETIREMENT BENEFITS
PENSION PLANS: The following information represents consolidated results for the
Company and its subsidiaries (Brooklyn Union, Brooklyn Union of Long Island and
the former LILCO), whose noncontributory defined benefit pension plans cover
substantially all employees. Benefits are based on years of service and
compensation. Funding for pensions is in accordance with requirements of federal
law and regulations. Prior to the KeySpan Acquisition, pension benefits had been
managed separately by the Company's regulated subsidiaries, which were the only
subsidiaries with defined benefit plans. The Company is currently integrating
its plans and allocations to individual business segments.
The amounts presented are consolidated for periods subsequent to May 28, 1998.
Prior to that date the amounts pertain solely to the plan of LILCO. Brooklyn
Union of Long Island is subject to certain deferral accounting requirements
mandated by the NYPSC for pension costs and other postretirement benefit costs.
The calculation of net periodic pension cost follows:
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
Year Ended Nine Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
- --------------------------------------------------------------------------------
Service cost, benefits earned
during the period $ 38,372 $ 24,608 $ 21,114
Interest cost on projected
benefit obligation 106,888 66,341 56,379
Return on plan assets (457,529) (51,745) (196,300)
Special termination charge (1) - 61,558 -
Net amortization and deferral 310,224 (33,942) 147,713
- --------------------------------------------------------------------------------
Total pension cost $ (2,045) $ 66,820 $ 28,906
================================================================================
(1) Early retirement plan completed in December 1998.
16
<PAGE>
The following table sets forth the pension plans' funded status at December 31,
1999 and December 31, 1998. Plan assets principally are common stock and fixed
income securities.
<TABLE>
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of period $ (1,650,120) $ (825,159)
Benefit obligation of acquisitions (1) (11,700) (674,100)
Service cost (38,372) (24,608)
Interest cost (106,888) (66,341)
Amendments (31,350) -
Actuarial gain (loss) 205,798 (61,929)
Special termination benefits (2) - (61,558)
Benefits paid 102,817 63,575
- --------------------------------------------------------------------------------
Benefit obligation at end of period (1,529,815) (1,650,120)
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of period 1,675,604 919,100
Fair value of KSE plan assets - 754,127
Actual return on plan assets 457,529 51,745
Employer contribution 18,009 13,500
Benefits paid (102,817) (62,868)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of period 2,048,325 1,675,604
- --------------------------------------- ----------------- ------------------
Funded status 518,510 25,484
Unrecognized net (gain) from past experience
different from that assumed and from
changes in assumptions (667,652) (158,103)
Unrecognized prior service cost 80,087 54,234
Unrecognized transition obligation 3,163 4,138
- --------------------------------------------------------------------------------
Net accrued pension cost reflected
on consolidated balance sheet $ (65,892) $ (74,247)
================================================================================
</TABLE>
(1) Reflects the Ravenswood acquisition in 1999 and the KSE-acquisition in 1998.
(2) Early retirement plan completed in December 1998.
- --------------------------------------------------------------------------------
Nine Months Fiscal Year
Year Ended Ended Ended
December 31, 1999 December 31, 1998 March 31, 1998
- --------------------------- ----------------- ----------------- ---------------
Assumptions:
Obligation discount 7.50% 6.50% 7.00%
Asset return 8.50% 8.50% 8.50%
Average annual increase in
compensation 5.00% 5.00% 4.50%
- --------------------------- --------------- ----------------- ---------------
INFORMATION ON THE LILCO SUPPLEMENTAL PLAN
The Supplemental Plan in effect prior to May 28, 1998 provided supplemental
death and retirement benefits for officers and other key executives without
contribution from such employees. The Supplemental Plan was a non-qualified plan
under the Internal Revenue Code of 1986, as amended (the "Code"). For the fiscal
year ended March 31, 1998, a charge of $31 million was recorded relating to
certain benefits earned by former officers of LILCO relating to the termination
of their annuity benefits earned through the supplemental retirement plan and
other executive retirement benefits. This charge, which was borne by LILCO, and
not recovered from ratepayers, resulted from provisions in the employment
contracts of LILCO officers.
OTHER POSTRETIREMENT BENEFITS: RETIREE HEALTH CARE AND LIFE INSURANCE: The
following information represents consolidated results for the Company and its
subsidiaries (Brooklyn Union, Brooklyn Union of Long Island and the former
LILCO) who sponsor noncontributory defined benefit plans covering certain health
care and life insurance benefits for retired employees. The Company has been
funding a portion of future benefits over employees' active service lives
through Voluntary Employee Beneficiary Association ("VEBA") trusts.
Contributions to VEBA trusts are tax deductible, subject to limitations
contained in the Code. Prior to the KeySpan Acquisition other postretirement
benefits had been managed separately by the Company's regulated subsidiaries,
which were the only subsidiaries with defined benefit plans. The Company is
currently integrating its plans and allocations to individual business segments.
The amounts presented herein are consolidated for periods subsequent to May 28,
1998. Prior to that date the amounts pertain solely to the plan of LILCO.
Net periodic other postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------------------------------------
Nine Months
Year Ended Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
- ---------------------------------------- ------------------------ ---------------------- ---------------------
<S> <C> <C> <C>
Service cost, benefits earned
during the period $ 16,747 $ 9,569 $ 12,204
Interest cost on accumulated post-
retirement benefit obligation 42,616 26,414 27,328
Return on plan assets (97,452) (13,857) (6,164)
Special termination charge (1) - 3,073 -
Net amortization and deferral 64,039 (14,665) (10,468)
- -----------------------------------------------------------------------------------------------------------
Other postretirement benefit cost $ 25,950 $ 10,534 $ 22,900
- ---------------------------------------- ------------------ ---------------------- -----------------------
</TABLE>
(1) Early retirement plan completed in December 1998.
17
<PAGE>
The following table sets forth the plan's funded status at December 31, 1999 and
December 31, 1998. Plan assets principally are common stock and fixed income
securities.
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- ------------------------------------------ ------------------- -----------------
Change in benefit obligation:
Benefit obligation at beginning of period $ (728,255) $ (358,941)
Benefit obligation of acquisitions (1) (3,075) (226,645)
Service cost (16,747) (9,569)
Interest cost (42,616) (26,414)
Plan participants' contributions (716) (900)
Amendments 8,631 -
Actuarial gain (loss) 148,126 (121,228)
Special termination benefits (2) - (3,073)
Benefits paid 32,599 18,515
- --------------------------------------------------------------------------------
Benefit obligation at end of period (602,053) (728,255)
- ------------------------------------------ -------------- ------------------
Change in plan assets:
Fair value of plan assets at
beginning of period 478,778 108,165
Fair value of KSE plan assets - 113,917
Actual return on plan assets 97,452 13,857
Employer contribution 4,503 250,000
Plan participants' contribution 716 -
Benefits paid (32,599) (7,161)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of period 548,850 478,778
- ------------------------------------------ ------------------- ----------------
Funded status (53,204) (249,477)
Unrecognized net (gain) loss from past
experience different from that
assumed and from changes in assumptions (66,318) 145,834
Unrecognized prior service cost (8,477) 166
- --------------------------------------------------------------------------------
Accrued benefit cost reflected on
consolidated balance sheet $ (127,999) $ (103,477)
- ------------------------------------------ ------------------- -----------------
(1) Reflects the Ravenswood acquisition in 1999 and the KSE-acquisition in 1998.
(2) Early retirement plan completed in December 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended Nine Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
- --------------------------------------- ---------------------- ------------------------ ----------------------
Assumptions:
<S> <C> <C> <C>
Obligation discount 7.50% 6.50% 7.00%
Asset return 8.50% 8.50% 8.50%
Average annual increase in compensation 5.00% 5.00% 4.50%
- --------------------------------------- ---------------------- ------------------------ ----------------------
</TABLE>
The measurement of plan liabilities also assumes a health care cost trend rate
of 6% annually. A 1%
18
<PAGE>
increase in the health care cost trend rate would have the effect of increasing
the accumulated postretirement benefit obligation as of December 31, 1999 by
$80.9 million and the net periodic health care expense by $8.1 million. A 1%
decrease in the health care cost trend rate would have the effect of decreasing
the accumulated postretirement benefit obligation as of December 31, 1999 by
$66.6 million and the net periodic health care expense by $6.7 million.
In 1993, LILCO adopted the provisions of SFAS No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions," and recorded an accumulated
postretirement benefit obligation and a corresponding regulatory asset of $376
million. LIPA will reimburse the Company for costs related to postretirement
benefits of the electric business unit employees, therefore, the Company has
reclassified the regulatory asset for postretirement benefits associated with
electric business unit employees to a deferred asset.
In 1994, LILCO established VEBA trusts for union and non-union employees for the
funding of costs collected in rates for postretirement benefits. For the fiscal
year ended March 31, 1998, the trusts were funded with a contribution of $21
million. In May 1998, an additional $250 million was funded into the trusts.
NOTE 5. CAPITAL STOCK
COMMON STOCK: Currently the Company has 450,000,000 shares of authorized common
stock. In 1998, the Company initiated a program to repurchase a portion of its
outstanding common stock on the open market. As of December 31, 1999, the
Company had repurchased 25 million common shares for $723.0 million. During
1999, the Company purchased 1.9 million shares for $52.5 million on the open
market for the dividend reinvestment feature of its Investor Program, the
Employee Stock Discount Purchase Plan for Employees, and the Employee Savings
Plan.
PREFERRED STOCK: The Company has the authority to issue 100,000,000 shares of
preferred stock with the following classifications: 16,000,000 shares of
preferred stock, par value $25 per share; 1,000,000 shares of preferred stock,
par value $100 per share; and 83,000,000 shares of preferred stock, par value
$.01 per share.
At December 31, 1999, 14,520,000 redeemable shares of 7.95% Preferred Stock
Series AA par value $25 was outstanding totaling $363 million, which has a
mandatory redemption requirement on June 1, 2000. The Company also has 553,000
shares outstanding of 7.07% Preferred Stock Series B par value $100; 197,000
shares outstanding of 7.17% Preferred Stock Series C par value $100; and 93,390
shares outstanding of 6% Preferred Stock Series A par value $100, in the
aggregate totaling $84.3 million.
19
<PAGE>
NOTE 6. NONQUALIFIED STOCK OPTIONS
At December 31, 1999, the Company had stock-based compensation plans that are
described below. Moreover, under a separate plan, THEC has issued approximately
2.4 million stock options to key THEC employees. The Company and THEC apply APB
Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for their plans. Accordingly, no compensation cost
has been recognized for these fixed stock option plans in the Consolidated
Financial Statements since the exercise prices and market values were equal on
the grant dates. Had compensation cost for these plans been determined based on
the fair value at the grant dates for awards under the plans consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been decreased to the proforma amounts
indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year Ended Nine Months Ended
December 31, 1999 December 31, 1998
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Income (loss) available for
common stock (000): As reported $223,859 ($195,537)
Proforma $215,416 ($198,996)
Earnings per share: As reported $1.62 ($1.34)
Proforma $1.56 ($1.37)
- --------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of grants issued in 1999 was $3.65. All grants
are estimated on the date of the grant using the Black-Scholes option-pricing
model. The following weighted average assumptions were used for grants issued in
1999: dividend yield of 6.58%; expected volatility of 23.43%; risk free interest
rate of 5.72%; and expected lives of 6 years. The weighted average exercise
price is $27.58 for the 1999 grants. There were no grants issued in 1998.
A summary of the status of the Company's fixed stock option plans and changes is
presented below for the periods indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended Nine Months Ended
December 31, 1999 December 31, 1998
- ---------------------------------------------------------------------------------
Weighted Average Weighted Average
Fixed Options Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 921,066 $30.80 992,300 $30.70
Granted during the year 4,149,000 $27.58 -- --
Exercised (2,666) $27.75 (13,631) $28.67
Forfeited (99,002) $27.22 (57,603) $29.45
- --------------------------------------------------------------------------------
Outstanding at end of period 4,968,398 $28.18 921,066 $30.80
- ------------------------------------------------------------------------------------
Exercisable at end of period 3,638,448 $28.53 921,066 $30.80
- ---------------------------- - -------------------------------------------------------
</TABLE>
<PAGE>
Weighted Average
Number Outstanding Remaining Weighted Average Number Exercisable
at December 31, 1999 Contractural Life Exercise Price at December 31, 1999
- --------------------------------------------------------------------------------
168,066 6 years $27.00 168,066
344,000 7 years $30.50 344,000
409,000 8 years $32.63 409,000
2,645,332 9 years $27.88 2,306,312
1,402,000 10 years $27.03 411,070
- --------------------------------------------------------------------------------
4,968,398 3,638,448
- --------------------------------------------------------------------------------
Prior to the KeySpan Acquisition, KSE had reserved for issuance 1,500,000 shares
of nonqualified stock options and had issued 426,000, 363,500 and 202,800
nonqualified stock options in November 1997, 1996 and 1995, respectively. Under
the terms of the Merger Agreement, all options vested upon consummation of the
KeySpan Acquisition.
NOTE 7. LONG-TERM DEBT
GAS FACILITIES REVENUE BONDS: Brooklyn Union can issue tax-exempt bonds through
the New York State Energy Research and Development Authority. Whenever bonds are
issued for new gas facilities projects, proceeds are deposited in trust and
subsequently withdrawn to finance qualified expenditures. There are no sinking
fund requirements on any of the Company's Gas Facilities Revenue Bonds. At
December 31, 1999, Brooklyn Union had $648.5 million of Gas Facilities Revenue
Bonds outstanding. The interest rate on the variable rate series due December 1,
2020 is reset weekly and ranged from 1.97% to 5.35% through December 31, 1999,
at which time the average rate was 5.35%. At January 14, 2000, the interest rate
on the variable rate series due December 1, 2020 was changed to an auction rate
with a standard auction period of seven days.
In November 1999, the Company entered into an interest rate swap agreement in
which $90 million of its Gas Facility Revenue Bonds, 6.75% Series A and B, were
effectively exchanged for floating rate debt. (See Note 10, "Hedging, Derivative
Financial Instruments and Fair Values.")
In December 1998, the Company purchased a portfolio of securities representing
direct purchase obligations of the United States Government. These securities
were placed in trust, irrevocably dedicated to the repayment of certain Gas
Facilities Revenue Bonds, thereby effecting an in- substance defeasance. The
in-substance defeasance, of approximately $8.6 million, represented $4 million
of outstanding bonds of each of the 6.75% Series 1989A due February 1, 2024 and
6.75% Series 1989B due February 1, 2024 including interest. The Company has not
been relieved of its
21
<PAGE>
obligation and remains the primary obligor for this debt. Therefore, the
liability is recognized on the accompanying Consolidated Balance Sheet.
AUTHORITY FINANCING NOTES: The Company's electric generation subsidiary can also
issue tax- exempt bonds through the New York State Energy Research and
Development Authority. At December 31, 1999, $66 million of Authority Financing
Notes were outstanding.
In October 1999, the Company issued $41.1 million of Authority Financing Notes
1999 Series A Pollution Control Revenue Bonds due October 1, 2028. The initial
interest rate on these bonds was established at 3.95% and applied through
January 13, 2000. Thereafter, the interest rate will be reset based on an
auction procedure. The proceeds from this issuance were used to extinguish a
portion of the Company's obligation under a promissory note to LIPA. (See
"Promissory Notes" for additional information.)
The Company also has outstanding $24.9 million variable rate 1997 Series A
Electric Facilities Revenue Bonds due December 1, 2027. The interest rate on
these bonds is reset weekly and ranged from 2.00% to 5.85% through December 31,
1999 at which time the average rate was 5.85%.
PROMISSORY NOTES: In accordance with the LIPA Agreement, LIPA assumed
substantially all of the outstanding long-term debt of LILCO at May 28, 1998
except for the 1997 Series A Electric Facilities Revenue Bonds due December 1,
2027 which were assigned to the Company. In accordance with the LIPA Agreement,
the Company issued promissory notes to LIPA which represented an amount
equivalent to the sum of: (i) the principal amount of 7.30% Series Debentures
due July 15, 1999 and 8.20% Series Debentures due March 15, 2023 outstanding at
May 28, 1998, and (ii) an allocation of certain of the Authority Financing
Notes. The promissory notes contain identical terms as the debt referred to in
items (i) and (ii) above.
In October 1999, the Company extinguished its obligation under a promissory note
to LIPA, as previously indicated, relating to the 7.50% 1976A Series Pollution
Control Revenue Bonds due December 1, 2006 and the 7.80% 1979B Series Pollution
Control Revenue Bonds due December 1, 2009. The Company's obligation for these
bonds of $47.2 million consisted of the principal amount of $45.5 million and
$1.7 million of interest accrued and unpaid. In addition, in June 1999 the
Company extinguished its obligation under a promissory note to LIPA relating to
the 7.30% Debentures due July 15, 1999. The Company's obligation for these
debentures of $411.5 million consisted of the principal amount of $397 million
and $14.5 million of interest accrued and unpaid. The carrying value of the
promissory notes at December 31, 1999 was $602.4 million.
The promissory notes issued to LIPA included an allocation for certain of the
Authority Financing Notes. On March 1, 1999, LIPA converted the weekly variable
interest rate features on the Authority Financing Notes Series 1993B due
November 1, 2023, Series 1994A due October 1, 2024 and Series 1995A due August
1, 2025 to a fixed rate of 5.30%. In addition, on March 1, 1999, LIPA converted
the annual variable interest rate features on the Authority Financing Notes
Series 1985A
22
<PAGE>
due March 1, 2016 and Series 1985B due March 1, 2016 to a fixed rate of 5.15%.
OTHER LONG-TERM DEBT: On February 1, 2000, Brooklyn Union of Long Island issued
$400 million of 7.875 % Medium Term Notes due February 1, 2010. The net proceeds
from the issuance of these notes were used to repay the Company for its costs in
extinguishing certain promissory notes to LIPA, as previously noted. For
additional information on Brooklyn Union of Long Island's issuance see Note 12,
"KeySpan Gas East Corporation Summary Financial Data".
THEC has an unsecured available line of credit with a commercial bank that
provides for a maximum commitment of $250 million subject to certain conditions,
which supports borrowings under a revolving loan agreement. Up to $2 million of
this line is available for the issuance of letters of credit to support
performance guarantees. This credit facility matures on March 1, 2003. THEC
borrowed $48 million under this facility during 1999, and at December 31, 1999,
borrowings of $181 million were outstanding and $0.4 million was committed under
outstanding letter of credit obligations. Borrowings under this facility bear
interest, at THEC's option, at rates indexed at a premium to the Federal Funds
rate or LIBOR rate, or based on the prime rate. The weighted average interest
rate on this debt was 6.59% at December 31, 1999. In addition, at December 31,
1999, THEC had $100 million of 8.625% Senior Subordinated Notes due 2008
outstanding. These notes were issued in a private placement in March 1998 and
are subordinate to borrowings under THEC's line of credit.
A subsidiary of the Energy Related Investment segment has a revolving 12 month
loan agreement with a financial institution in Canada at the Canadian Dollar
Deposit Offered Rate. During 1999, borrowings under this agreement were US$13.5
million. At December 31, 1999 borrowings of US$86.4 million were outstanding at
an interest rate of 5.60%. These borrowings were used to fund capital
expenditures.
DEBT MATURITY SCHEDULE: The Company does not have any long-term debt maturing in
the next five years.
NOTE 8. NOTES PAYABLE
In November 1999, the Company negotiated a $700 million revolving credit
agreement, with a one- year term and one-year renewal option, with a commercial
bank. Pricing under the facility is subject to a ratings-based grid with an
annual fee of .075% per annum on the balance of funds available. Borrowings will
bear interest at LIBOR plus 50 basis points. Borrowings in excess of more than
33% of the total commitment will bear interest at LIBOR plus 62.5 basis points.
This credit facility is used to support the Company's $700 million commercial
paper program. The Company began issuing commercial paper during the fourth
quarter of 1999. The average daily outstanding balance during the quarter was
$199.2 million at a weighted average annualized interest rate of 6.54%. At
December 31, 1999, the Company had $208.3 million of commercial paper
outstanding at an
23
<PAGE>
annualized interest rate of 6.56%. The proceeds received from the issuance of
commercial paper was used to repay outstanding borrowings under the Company's
previous existing line of credit (discussed below) and for general corporate
purposes. During 2000, the Company anticipates issuing commercial paper rather
than borrowing on the revolving credit agreement.
Prior to the new revolving credit agreement and commercial paper program, the
Company had an available unsecured bank line of credit of $300 million.
Borrowings were made under this facility during the months of September, October
and November 1999. The average daily outstanding balance during these months was
$83.7 million at a weighted average annualized interest rate of 5.53%. This line
of credit was terminated upon the execution of the new revolving credit
agreement.
NOTE 9. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
LEASE OBLIGATIONS: Lease costs included in operation expense were $47.1 million
in 1999 reflecting, primarily, the Ravenswood lease of $11.6 million and the
lease of the Company's Brooklyn headquarters of $11.3 million. Lease costs also
include leases for other buildings, office equipment, vehicles and power
operated equipment. Lease costs for the nine months ended December 31, 1998 were
$28.9 million. The future minimum lease payments under various leases, all of
which are operating leases, are $51.8 million per year over the next five years
and $108.2 million, in the aggregate, for all years thereafter.
The Company acquired the 2,168 megawatt Ravenswood Facility located in Long
Island City, Queens, New York, from Con Edison on June 18, 1999 for
approximately $597 million. In order to reduce its cash requirements, the
Company entered into a lease agreement with a special purpose, unaffiliated
financing entity that acquired a portion of the facility directly from Con
Edison and leased it to a subsidiary of the Company under a ten year lease. The
Company has guaranteed all payment and performance obligations of its subsidiary
under the lease. Another subsidiary of the Company provides all operating,
maintenance and construction services for the facility. The lease relates to
approximately $425 million of the acquisition cost of the facility. The lease
qualifies as an operating lease for financial reporting purposes while
preserving the Company's ownership of the facility for federal and state income
tax purposes. The balance of the funds needed to acquire the facility were
provided from cash on hand.
In connection with the financing of the acquisition of the Ravenswood Facility
in June 1999 by a wholly-owned subsidiary of the Company, certain post-closing
conditions including the transfer of certain governmental permits, receipt of a
consent order for the facility and the delivery of evidence that the facility
complies with applicable zoning requirements were to be fulfilled by December
15, 1999. Following notice to affected parties, including the holders of
approximately $412 million of notes issued in connection with the acquisition,
the Company was advised in January 2000 that several such noteholders believed
the steps taken thus far were not sufficient to satisfy fully the post-closing
conditions. Under the relevant financing documents, failure to complete the
required actions on a timely basis constitutes an Event of Default, which in
turn could
24
<PAGE>
give various parties to the Ravenswood financing, including the noteholders, the
right to foreclose on the Ravenswood property and/or terminate the Company's
leasehold interest and rights in the property. To date, no party has sought to
take or indicated that it is contemplating taking any such action. The Company
has timely fulfilled all of its payment obligations and believes that it has
also timely fulfilled all other obligations under the relevant financing
documents.
The Company is currently seeking to resolve remaining issues concerning
compliance with the December 15 post-closing conditions and, in connection
therewith, has obtained extensions of the deadlines for certain of the
conditions.
FIXED CHARGES UNDER FIRM CONTRACTS: The Company's utility subsidiaries have
entered into various contracts for gas delivery, storage and supply services.
The contracts have remaining terms that cover from one to fourteen years.
Certain of these contracts require payment of annual demand charges in the
aggregate amount of approximately $280 million. The Company is liable for these
payments regardless of the level of service it requires from third parties. Such
charges are, currently, recovered from utility customers as gas costs. In
response to a NYPSC policy statement regarding gas industry restructuring, the
Company estimated that, if the gas distribution subsidiaries were to continue to
recover the demand charges for the next five years, then the estimated
strandable costs (contract costs above market value) for contracts that will not
expire by 2005 and would not be needed to provide service to firm transportation
customers will be, on a present value basis, approximately $78 million. For
purposes of this calculation, the Company has assumed that, if it exited the
merchant function and if it were necessary to assign the contracts to third
parties, the Company could recover the market value of the underlying assets.
Therefore, the difference between the contract costs and the market value is the
potential "strandable" costs.
LEGAL MATTERS: From time to time, the Company is subject to various legal
proceedings arising out of the ordinary course of its business. Except as
described below, the Company does not consider any of such proceedings to be
material to its business or likely to result in a material adverse effect on its
results of operations or financial condition.
In October 1998, the County of Suffolk and the Towns of Huntington and Babylon
commenced an action against LIPA, the Company, the NYPSC and others in the
United States District Court for the Eastern District of New York (the
"Huntington Lawsuit"). The Huntington Lawsuit alleges, among other things, that
LILCO ratepayers (i) have a property right to receive or share in the alleged
capital gain that resulted from the transaction with LIPA (which gain is alleged
to be at least $1 billion); and (ii) that LILCO was required to refund to
ratepayers the amount of a Shoreham-related deferred tax reserve (alleged to be
at least $800 million) carried on the books of LILCO at the consummation of the
LIPA Transaction. In December 1998, and again in June 1999, the plaintiffs
amended their complaint. The amended complaint contains allegations relating to
certain payments LILCO had determined were payable in connection with the LIPA
Transaction and KeySpan Acquisition to LILCO's chairman and certain of its
officers and adds the recipients of the payments as defendants. In June 1999,
the Company was served with the second amended complaint. On August 23, 1999,
25
<PAGE>
the Company filed a motion to dismiss the second amended complaint. Pursuant to
an agreement among the parties, the Company's motion to dismiss is being
converted to a summary judgment motion. At this time the Company is unable to
determine the outcome of this ongoing proceeding.
THE CLASS SETTLEMENT: The Class Settlement, which became effective in June 1989
(County of Suffolk, et al., v. Long Island Lighting Company et al.), resolved a
civil lawsuit against LILCO brought under the federal Racketeer Influenced and
Corrupt Organizations Act, alleging that LILCO made inadequate disclosures
before the NYPSC concerning the construction and completion of nuclear
generating facilities. The class settlement provided electric customers with
rate reductions of $390.0 million that were being reflected as adjustments to
their monthly electric bills over a ten-year period which began on June 1, 1990.
The Class Settlement obligation of approximately $20 million at December 31,
1999 reflects the present value of the remaining reductions to be refunded to
customers. As a result of the LIPA Transaction, LIPA will provide the remaining
balance to its electric customers as an adjustment to their monthly electric
bills. The Company will then, in turn, reimburse LIPA on a monthly basis for
such reductions on the customer's monthly bill. The Company remains ultimately
obligated under the Class Settlement. In November 1999, class counsel for the
LILCO ratepayers served a motion, in the United States District Court for the
Eastern District of New York, seeking an order directing the Company to pay $42
million, in addition to the amounts remaining to be paid under the Class
Settlement. Class counsel contends that the required rate reductions should have
been exclusive of gross receipts taxes. The Company filed its opposition in
January 2000 and class counsel filed their reply papers in February 2000. In
their February papers, class counsel revised their demand to seek an order
directing the Company to pay approximately $22 million, plus interest, in
addition to the amounts remaining to be paid under the Class Settlement. The
Company filed its rebuttal papers March 1, 2000 and oral argument was held March
6, 2000. On March 9, 2000, an order was issued by the court granting class
counsel's motion. The Company is in the process of evaluating the order and,
accordingly, is currently unable to determine the ultimate outcome of the
proceeding or what effect, if any, such outcome will have on its financial
condition or results of operations.
ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANT SITES: The Company has identified
twenty-six manufactured gas plant ("MGP") sites which were historically owned or
operated by Brooklyn Union or Brooklyn Union of Long Island (or such companies'
predecessors). Operations at these plants in the late 1800's and early 1900's
may have resulted in the release of hazardous substances. These former sites,
some of which are no longer owned by the Company, have been identified to both
the New York State Department of Environmental Conservation ("DEC") for
inclusion on appropriate waste site inventories and the PSC. The currently-known
conditions of fourteen of these former MGP sites, their period and magnitude of
operation, generally observed cleanup requirements and costs in the industry,
current land use and ownership, and possible reuse have been considered in
establishing contingency reserves that are discussed below.
In 1995, Brooklyn Union executed an Administrative Orders on Consent ("ACO")
with the DEC
26
<PAGE>
which addressed the investigation and remediation of a site in Coney Island,
Brooklyn. In 1998, Brooklyn Union executed an ACO for the investigation and
remediation of the Clifton MGP site in Staten Island. At the initiative of the
DEC, the City of New York and the Company are in negotiations on a cost sharing
arrangement to conduct investigations in 2000 at the Citizen's MGP site in
Brooklyn, which is now primarily owned by the City, but was formerly owned and
operated by a Brooklyn Union predecessor. The DEC notified the Company in 1998
that the Sag Harbor and Rockaway Park MGP sites owned by Brooklyn Union of Long
Island would require remediation under the State's Superfund program.
Accordingly, the Sag Harbor and Rockaway Park sites; as well as the Bay Shore,
Glen Cove, Halesite and Hempstead MGP sites; are the subject of two separate
ACOs, which the Company executed with the DEC in March and September 1999,
respectively. Field investigations and, in some cases, interim remedial
measures, are underway or scheduled to occur at each of these sites under the
supervision of the DEC and the New York State Department of Health.
The Company was also requested by the DEC to perform preliminary site
assessments at the Patchogue, Babylon, Far Rockaway, Garden City and Hempstead
(Clinton St.) MGP sites, each of which were formerly owned by LILCO, under a
separate ACO entered into in September 1999. Initial studies based on existing,
available documentation have been completed for each such site and the DEC has
requested that the Company collect additional samples at each of the subject
properties.
With the exception of the Coney Island site, which will be redeveloped for
commercial or industrial use, the final end uses for the sites identified above
and, therefore, acceptable remediation goals have not yet been determined. The
Company is required to prepare a feasibility study for the remediation of each
such site, based on cleanup levels derived from risk analyses associated with
the proposed or anticipated future use of the properties. The schedule for
completing this phase of the work under the ACOs for the identified sites
discussed above extends through 2001.
Thus, thirteen sites identified above are currently the subject of ACOs with the
DEC and one is subject to the negotiation of such an agreement. The Company's
remaining MGP sites may not become subject to ACOs in the future, and
accordingly no liability has been accrued for these sites. It is possible, based
on future investigation, that the Company may be required to undertake
investigation and potential remediation efforts at these, or other currently
unknown former MGP sites. However, the Company is currently unable to determine
whether or to what extent such additional costs may be incurred.
The Company believes that in the aggregate, the accrued liability for
investigation and remediation of the MGP sites identified above are reasonable
estimates of likely cost within a range of reasonable, foreseeable costs.
Accordingly, the Company presently estimates the cost of its MGP- related
environmental cleanup activities will be $123 million; which amount has been
accrued by the Company as its current best estimate of its aggregate
environmental liability for known sites. As previously indicated, the total
MGP-related costs may be substantially higher, depending upon remediation
experience, selected end use for each site, and actual environmental conditions
encountered.
27
<PAGE>
The NYPSC approved rate plans for Brooklyn Union and Brooklyn Union of Long
Island provide for the recovery of such investigation and remediation costs. The
Brooklyn Union rate plan provides, among other things, that if the total cost of
investigation and remediation varies from that which is specifically estimated
for a site under investigation and/or remediation, then Brooklyn Union will
retain or absorb up to 10% of the variation. The Brooklyn Union of Long Island
rate plan also provides for the recovery of investigation and remediation costs
but with no consideration of the difference between estimated and actual costs.
Under prior rate orders, Brooklyn Union has offset certain moneys due to
ratepayers against its estimated environmental cleanup costs for MGP sites. At
December 31, 1999, the Company has reflected a regulatory asset of $95.6
million. Expenditures incurred to date by the Company with respect to
MGP-related activities total $15.9 million.
Periodic discussions by the Company with insurance carriers and third parties
for reimbursement of some portion of MGP site investigation and remediation
costs continue. In December 1996, LILCO filed a complaint in the United States
District Court for the Southern District of New York against fourteen insurance
companies that issued general comprehensive liability policies to LILCO. In
January 1998, LILCO commenced a similar action against the same, and additional,
insurance companies in New York State Supreme Court, and the federal court
action subsequently was dismissed. The state court action is being conducted by
the Company on behalf of Brooklyn Union of Long Island. The outcome of this
proceeding cannot yet be determined. In addition, Brooklyn Union is in
discussions with insurance carriers regarding the possible resolution of
coverage claims related to its MGP site investigation and remediation activities
without litigation. The Company is not able to predict the outcome of these
discussions.
ENVIRONMENTAL MATTERS - OTHER: The Company will be responsible for environmental
obligations relating to the Ravenswood Facility operations other than
liabilities arising from pre-closing disposal of waste at off-site locations and
any monetary fines arising from Con Edison's pre-closing conduct. Based on
information currently available for environmental contingencies related to the
Ravenswood Facility acquisition, the Company has accrued an additional $5
million as the minimum liability to be incurred.
The Company is awaiting final development of state and federal regulatory
programs with respect to NOx reduction requirements for its existing power
plants. The Company's compliance strategy may be composed of fuel choice
decisions, acquisition of emission credits, and installation of emission control
equipment. The extent of development of new generation in the region will also
impact the Company's compliance strategy. Although the Company is evaluating its
alternatives, final decisions cannot be made until pending regulatory
requirements and new generation decisions are clarified. Expenditures to
implement a final strategy are not expected to begin until 2001.
Additional capital expenditures associated with the renewal of the surface water
discharge permits for the Company's power plants may be required by the DEC.
Until the Company's monitoring obligations are completed and changes to the
Environmental Protection Agency regulations under Section 316 of the Clean Water
Act are promulgated, the need for and the cost of equipment
28
<PAGE>
upgrades cannot be determined.
NOTE 10. HEDGING, DERIVATIVE FINANCIAL INSTRUMENTS, AND FAIR VALUES
NATURAL GAS AND OIL FUTURES, OPTIONS AND SWAPS: The Company's utility, marketing
and gas exploration and production subsidiaries employ derivative financial
instruments, such as natural gas and oil futures, options and swaps, for the
purpose of hedging exposure to commodity price risk.
Utility tariffs applicable to certain large-volume customers permit gas to be
sold at prices established monthly within a specified range expressed as a
percentage of prevailing alternate fuel oil prices. The Company uses gas swap
contracts, with offsetting positions in oil swap contracts of equivalent energy
value, with third parties to fix profit margins on specified portions of the
sales to its large- volume market. The "long" gas position follows, generally
within a range of 80% to 120%, the cost of gas to serve this market while the
offsetting oil swap position correspondingly replicates, within the same range,
the selling price of gas. The Company also uses standard New York Mercantile
Exchange ("NYMEX") gas futures to stabilize gas price volatility for its firm
customers during the winter months as recommended by the NYPSC.
KeySpan Energy Services ("KES"), the Company's gas and electric marketing
subsidiary, sells gas at fixed annual rates and utilizes standard NYMEX futures
contracts and swaps to fix profit margins. In the swap instruments, which are
employed to hedge exposure to basis risk, KES pays the other parties the amount
by which the floating variable price (settlement price) is below the fixed price
and receives the amount by which the settlement price exceeds the fixed price.
THEC utilizes collars to hedge future sales prices on a portion of its natural
gas production to achieve a more predictable cash flow, as well as to reduce its
exposure to adverse price fluctuations of natural gas. For any particular collar
transaction, the counter party is required to make a payment to THEC if the
settlement price for any settlement period is below the floor price for such
transaction, and THEC is required to make payment to the counter party if the
settlement price for any settlement period is above the ceiling price for such
transaction. For any particular floor transaction, the counter party is required
to make a payment to THEC if the settlement price for any settlement period is
below the floor price for such transaction. THEC is not required to make any
payment in connection with a floor transaction.
The following table sets forth selected financial data associated with the
Company's derivative financial instruments that were outstanding at December 31,
1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
GAS: TYPE OF FISCAL YEAR OF FIXED PRICE PER VOLUME FAIR VALUE
CONTRACTS MATURITY MCF (MCF) ($000)
- ------------------ ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Futures 2000 $2.135-$2.584 5,430,000 (488)
Collars 2000
Ceiling $2.697-$3.648 10,950,000 -
Floor $2.200-$2.550 10,950,000 1,292
Swaps 2000/2001 $2.6448 10,767,500 (2,013)
</TABLE>
<TABLE>
<CAPTION>
OIL: TYPE OF FISCAL YEAR OF FIXED PRICE PER VOLUME FAIR VALUE
CONTRACTS MATURITY GALLON (GALLONS) ($000)
- ------------------ ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Swaps 2000/2001 $0.5565 72,744,000 (4,753)
- ------------------ -- ------------- --- ---------------- -- ------------- --- --- --------------
</TABLE>
The fair values shown in the above table represent the amounts the Company would
have received or paid if it had closed those derivative positions on December
31, 1999. If the Company had applied the requirements of SFAS No. 133 to the
above derivative financial instruments at December 31, 1999, comprehensive
income would have reflected a reduction of $6.0 million.
As of December 31, 1999, no futures contract extended beyond November 2000.
Margin deposits with brokers at December 31, 1999 of $4.0 million were recorded
in other in the current assets section of the Consolidated Balance Sheet.
Deferred losses on closed positions were $5.4 million at December 31, 1999. Such
deferrals are generally recorded in net income within one month.
The Company and its subsidiaries are exposed to credit risk in the event of
nonperformance by counterparties to derivative contracts, as well as
nonperformance by the counterparties of the transactions against which they are
hedged. The Company believes that the credit risk related to the futures,
options and swap contracts is no greater than that associated with the primary
contracts which they hedge, as these contracts are with major investment grade
financial institutions, and that elimination of the price risk lowers overall
business risk.
INTEREST RATE SWAPS: In November 1999, the Company entered into an interest rate
swap agreement in which $90 million of its Gas Facilities Revenue Bonds, 6.75%
Series A and B, were effectively exchanged for floating rate debt at The Bond
Market Association Swap Index. The interest rate swap agreement expires in
twenty-five years, but can be terminated earlier based on certain market and
contract conditions. For the term of the agreement, the Company will receive a
fixed interest payment of 5.54%. The variable interest rate is reset on a weekly
basis. For the period November 10, 1999 through December 31, 1999 the weighted
average variable interest rate that the Company was obligated to pay was 3.89%.
The gain on the interest rate swap, which was immaterial, reduced recorded
interest expense. The fair value of the interest rate swap at December 31, 1999
was $4.2 million and represents the estimated amount that the Company would have
to pay if the swap had been settled at the then current market rate.
30
<PAGE>
In connection with the Company's anticipated purchase of Eastern Enterprises
(See Note 11, "Acquisition of Eastern") and the anticipated issuance of
long-term debt securities for the acquisition, the Company entered into forward
interest rate lock agreements in January and February 2000 to hedge a portion of
the risk that the cost of the future issuance of fixed-rate debt may be
adversely affected by changes in interest rates. Under an interest rate lock
agreement, the Company agrees to pay or receive an amount equal to the
difference between the net present value of the cash flows for a notional
principal amount of indebtedness based on the existing yield of a hedging
instrument at the date of the agreement and at the date the agreement is
settled. Gains and losses on interest rate lock agreements will be deferred and
amortized over the life of the underlying debt to be issued. The notional
amounts of the agreements are not exchanged. The Company has entered into
interest rate lock agreements with more than one major financial institution in
order to minimize counterparty credit risk. The details of the four interest
rate lock agreements are set forth in the following table.
- --------------------------------------------------------------------------------
Notional Amount
Trade Date Hedge Instrument ($000) Lock Rate
- -------------------- ------------------ ------------------ ------------------
Swap locks:
January 14, 2000 10 Year Swap 150,000 7.49%
January 25, 2000 10 Year Swap 100,000 7.50%
Treasury locks:
February 7, 2000 30 Year Treasury 100,000 6.43%
February 8, 2000 30 Year Treasury 50,000 6.32%
- -------------------- ------------------ ------------------ ------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of the Company's preferred
stock at December 31, 1999 was $454.6 million and the carrying value was $447.3
million. At December 31, 1999 the Company has classified as a current liability
on the Consolidated Balance Sheet $363 million of preferred stock which has a
mandatory redemption requirement of June 1, 2000.
The Company's long-term debt consists primarily of publicly traded Gas
Facilities Revenue Bonds, Authority Financing Notes and Debentures, the fair
value of which is estimated on quoted market prices for the same or similar
issues. The Authority Financing Notes and Debentures are included in the
promissory notes to LIPA. As previously indicated, there is no maturing
long-term debt within the next five years.
The fair values and carrying amounts of the Company's long-term debt at December
31, 1999 and December 31, 1998 were as follows:
31
<PAGE>
FAIR VALUE (IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------
DECEMBER 31, 1999 December 31, 1998
- -------------------------- ------------------ -- ------------------
Gas facilities revenue bonds$ 632,409 $ 687,863
Authority financing notes 66,005 24,880
Promissory notes 569,233 1,097,226
- --------------------------------------------------------------------
Total $ 1,267,647 $ 1,809,969
========================== ================== == ==================
CARRYING AMOUNT (IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------
DECEMBER 31, 1999 December 31, 1998
- -------------------------- ------------------ -- ------------------
Gas facilities revenue bonds $ 648,500 $ 648,500
Authority financing notes 66,005 24,880
Promissory notes 602,427 1,044,902
- -----------------------------------------------------------------------
Total $ 1,316,932 $ 1,718,282
========================== ================== == ==================
At December 31, 1999, THEC's $100 million 8.625% Senior Subordinated Notes due
2008 had a fair market value of $96 million. All other THEC debt and other
subsidiary debt is carried at an amount approximating fair value because
interest rates are based on current market rates. All other financial
instruments included in the Consolidated Balance Sheet are stated at amounts
that approximate fair values.
NOTE 11. ACQUISITION OF EASTERN ENTERPRISES
On November 4, 1999, the Company and Eastern Enterprises ("Eastern") announced
that the companies have signed a definitive merger agreement under which the
Company will acquire all of the common stock of Eastern for $64.00 per share in
cash. This represents a premium of 24% over the Eastern closing price of $51.56
on November 3, 1999, and a 45% premium over the average of the last 90-day
trading period. The Agreement and Plan of Merger was filed as an exhibit to the
Company's Form 8-K filed on November 5, 1999.
The transaction has a total value of approximately $2.5 billion ($1.7 billion in
equity and $0.8 billion in assumed debt and preferred stock) and will be
accounted for as a purchase. The increased size and scope of the combined
organization should enable the Company to provide enhanced, cost-effective
customer service and to capitalize on the above-average growth opportunities for
natural gas in the Northeast and provide additional resources to the Company's
unregulated businesses. The combined companies will serve 2.4 million customers.
It is anticipated that the combined company will have assets of $8.8 billion,
$4.3 billion in revenues, and EBITDA of approximately $950 million. The Company
expects pre-tax annual cost savings will be approximately $30 million. These
cost savings result primarily from the elimination of duplicate corporate and
administrative programs, greater efficiencies in operations and business
processes, and
32
<PAGE>
increased purchasing efficiencies. The Company expects to achieve reductions due
to the merger through a variety of programs which would include hiring freezes,
attrition and separation programs. All union contracts will be honored. The
Company expects to raise $1.7 billion of initial financing for the transaction
in short-term markets, a significant portion of which the Company anticipates
will be replaced with long-term financing as soon as practicable.
The merger is conditioned, among other things, upon the approval of Eastern
shareholders, the Securities and Exchange Commission and the New Hampshire
Public Utility Commission. The Company anticipates that the transaction will be
consummated in the third or fourth quarter of 2000, but is unable to determine
when or if all required approvals will be obtained.
In connection with the merger, Eastern has amended its merger agreement with
EnergyNorth, Inc. ("EnergyNorth") to provide for an all cash acquisition of
EnergyNorth shares at a price per share of $61.13. The restructured EnergyNorth
merger is expected to close contemporaneously with the KeySpan/Eastern
transaction.
Following the announcement that the Company has entered into an agreement to
purchase Eastern Enterprises, Standard & Poor's Rating Services placed the
Company's and certain of its subsidiaries', as well as Eastern's corporate
credit, senior unsecured debt, and preferred stock on Credit Watch with negative
implications. Similarly, Moody's Investors Service also placed the Company's and
certain of its subsidiaries', as well as Eastern's corporate credit, senior
unsecured debt, commercial paper and preferred stock on review for possible
downgrade.
Eastern owns and operates Boston Gas Company, Colonial Gas Company, Essex Gas
Company, Midland Enterprises Inc. ("Midland"), Transgas Inc. ("Transgas"), and
ServicEdge Partners, Inc. ("ServicEdge"). Upon completion of the pending merger
with EnergyNorth, Inc., Eastern will serve over 800,000 natural gas customers in
Massachusetts and New Hampshire. Midland, headquartered in Cincinnati, Ohio, is
the leading carrier of coal and a major carrier of other dry bulk cargoes on the
nation's inland waterways. Transgas is the nation's largest over-the-road
transporter of liquefied natural gas. ServicEdge is the largest unregulated
provider of residential HVAC equipment installation and service to customers in
Massachusetts.
NOTE 12. KEYSPAN GAS EAST CORPORATION SUMMARY FINANCIAL DATA
KeySpan Gas East Corporation d/b/a Brooklyn Union of Long Island, is a wholly
owned subsidiary of KeySpan Corporation. Brooklyn Union of Long Island was
formed on May 7, 1998 and on May 28, 1998 acquired substantially all of the
assets related to the gas distribution business of LILCO immediately prior to
the LIPA Transaction. Brooklyn Union of Long Island provides gas distribution
services to customers in the Long Island counties of Nassau and Suffolk and the
Rockaway peninsula of Queens county. Brooklyn Union of Long Island established a
program for the issuance, from time to time, of up to $600 million aggregate
principal amount of Medium-Term Notes, which will be fully and unconditionally
guaranteed by the Company. On February 1, 2000,
33
<PAGE>
Brooklyn Union of Long Island issued $400 million of 7.875% Medium Term Notes
due 2010. The following represents summarized balance sheet data for Brooklyn
Union of Long Island.
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- ---------------------------------------------- --------------------------
Current assets $ 358,415 $ 256,186
Noncurrent assets 1,327,692 1,330,661
Current liabilities 548,331 505,784
Noncurrent liabilities
including long-term debt 484,702 467,736
Net assets (1) $ 653,074 $ 613,327
- ------------------------------- -------------- ---- ---------------------
(1)Net Assets reflect total assets less current and noncurrent
liabilities. Intercompany accounts receivable are included in current
assets and long-term intercompany accounts payable are included in
noncurrent liabilities.
Prior to the LIPA Transaction, certain of LILCO's income statement accounts were
recorded in its books and records as directly related to its gas operations.
These items included: revenues, purchased gas costs, certain operations and
maintenance ("O&M") expenses, depreciation of gas utility plant, revenue taxes,
certain other income and deductions, and federal income taxes.
Certain income and expense accounts common to both LILCO's gas and electric
operations prior to the LIPA Transaction have been allocated/determined based on
the following basis, which is consistent with the methodology utilized by the
NYPSC to establish rates.
Common O&M expenses, operating taxes (excluding revenue taxes) and miscellaneous
income and deductions were based upon methodologies employing: number of active
meters; revenues; utility plant; and labor associated with gas operations, as a
percentage of total operations.
Interest income, interest expense and preferred stock dividend requirements were
allocated based upon gas utility plant as a percentage of total utility plant,
(including certain electric related regulatory assets), adjusted for appropriate
deferred federal income taxes.
Depreciation on common plant was based upon an annual study of the utilization
of common facilities by the gas and electric operations of LILCO.
The Company believes that the basis of allocation described above is reasonable.
Reported results of operations and the financial position of LILCO's gas
operations may have been different if such operations were conducted as a
separate subsidiary of LILCO, rather than as part of a combined integrated gas
and electric company.
Certain common assets which were previously part of LILCO's operations prior to
May 28, 1998
34
<PAGE>
have been transferred to other subsidiaries of the Company (e.g. common plant,
inventory, etc.). Income and expenses related to these assets prior to May 28,
1998 have been allocated in the accompanying financial statements. After May 28,
1998, Brooklyn Union of Long Island has been charged by affiliated companies for
the use of these assets, resulting in an operating expense of $10.8 million for
the twelve months ended December 31, 1999 and $7.2 million for the nine months
ended December 31, 1998.
The following represents summarized income statement data for Brooklyn Union of
Long Island.
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
Nine Months
Year Ended Ended Fiscal Year Ended
December 31, December 31, March 31,
1999 1998 (1) 1998
- --------------------- ------------------ ------------------ ------------------
Revenues $ 637,088 $ 356,634 $ 645,659
Operating Income (2) $ 115,075 $ 24,854 $ 122,651
Net Income $ 41,517 $ (11,891)$ 40,558
- --------------------- ------------------ ------------------ ------------------
(1)For the period April 1, 1998 through May 28, 1998 (the period prior to the
LIPA Transaction), certain income and expense items, common to both LILCO's
gas and electric operations, were allocated to its gas and electric
operations consistent with the methodology utilized by the NYPSC to establish
rates.
(2)Operating income is defined as revenues less cost of gas and operating
expenses. Operating expenses include the following expenses: operations and
maintenance, depreciation and amortization and operating taxes. Further, for
the nine months ended December 31, 1998 operating income includes a
before-tax charge of $8.7 million reflecting Brooklyn Union of Long Island's
portion of an early retirement program implemented by the Company.
NOTE 13. SHAREHOLDER RIGHTS PLAN
On March 30, 1999 the Board of Directors of the Company adopted a Shareholder
Rights Plan (the "Plan") designed to protect shareholders in the event of a
proposed takeover of the Company. The Plan creates a mechanism that would dilute
the ownership interest of a potential unauthorized acquirer. The Plan
establishes one preferred stock purchase "right" for each outstanding share of
common stock to shareholders of record on April 14, 1999. Each right, when
exercisable, entitles the holder to purchase 1/100th of a share of Series D
Preferred Stock, at a price of $95.00. The rights generally become exercisable
following the acquisition of more than 20 percent of the Company's common stock
without the consent of the Company's Board of Directors. Prior to becoming
exercisable, the rights are redeemable by the Board of Directors for $0.01 per
right. If not so redeemed, the rights will expire on March 30, 2009.
35
<PAGE>
NOTE 14. SALE OF LILCO ASSETS, ACQUISITION OF KEYSPAN ENERGY CORPORATION AND
TRANSFER OF ASSETS AND LIABILITIES TO THE COMPANY
On May 28, 1998, pursuant to the Agreement and Plan of Merger, dated as of June
26, 1997 as amended, by and among the Company, LILCO, LIPA, and LIPA Acquisition
Corp. (the "Merger Agreement"), LIPA acquired all of the outstanding common
stock of LILCO for $2.4975 billion in cash and thereafter directly or indirectly
assumed certain liabilities including approximately $3.4 billion in debt. In
addition, LIPA reimbursed LILCO $339.1 million related to certain series of
preferred stock which were redeemed by LILCO prior to May 28, 1998. Immediately
prior to such acquisition, all of LILCO's assets employed in the conduct of its
gas distribution business and its non-nuclear electric generation business, and
all common assets used by LILCO in the operation and management of its electric
T&D business and its gas distribution business and/or its non-nuclear electric
generation business (the "Transferred Assets") were sold to the Company and
transferred to wholly-owned subsidiaries of the Company at the Company's
direction.
The consideration for the Transferred Assets consisted of (i) 3,440,625 shares
of the common stock of the Company (ii) 553,000 shares of the Series B preferred
stock of the Company, (iii) 197,000 shares of the Series C preferred stock of
the Company, and (iv) the assumption by the Company of certain liabilities of
LILCO. In connection with the transfer and prior to the effectiveness of the
LIPA Transaction, LILCO sold Series B and C preferred stock for $75 million in a
private placement.
Moreover, all of LILCO's outstanding long-term debt as of May 28, 1998, except
for its 1997 Series A Electric Facilities Revenue Bonds due December 1, 2027
which were assigned to the Company, was assumed by LIPA. In accordance with the
LIPA Transaction, the Company issued promissory notes to LIPA amounting to
$1.048 billion which represented an amount equivalent to the sum of (i) the
principal amount of 7.30% Series Debentures due July 15, 1999 and 8.20% Series
Debentures due March 15, 2023 outstanding as of May 28, 1998, and (ii) an
allocation of certain of the Authority Financing Notes. The promissory notes
contain identical terms to the debt referred to in items (i) and (ii) above.
(See Note 7, "Long-Term Debt" for additional information.)
On May 28, 1998, immediately subsequent to the LIPA Transaction, KSE was merged
with and into a subsidiary of the Company, pursuant to an Agreement and Plan of
Exchange and Merger, dated as of December 29, 1996, between LILCO and Brooklyn
Union. This agreement was amended and/or restated as of February 7, 1997, June
26, 1997, and September 29, 1997, to reflect certain technical changes and the
assignment by Brooklyn Union of all of its rights and obligations under the
agreement to KSE. On September 29, 1997, KSE became the parent company of
Brooklyn Union when Brooklyn Union reorganized into a holding company structure.
As a result of these transactions, holders of KSE common stock received one
share of the
36
<PAGE>
Company's common stock, par value $.01 per share, for each share of KSE they
owned and holders of LILCO common stock received 0.880 of a share of the
Company's common stock for each share of LILCO they owned. Upon the closing of
these transactions, former holders of KSE and LILCO owned 32% and 68%,
respectively, of the Company's common stock.
The purchase price of $1.223 billion for the acquisition of KSE has been
allocated to assets acquired and liabilities assumed based upon their estimated
fair values. The fair value of the utility assets acquired is represented by its
book value which approximates the value recognized by the NYPSC in establishing
rates for regulated utility services. The estimated fair value of KSE's
non-utility assets approximated their carrying values. At May 28, 1998, the
Company recorded goodwill in the amount of $170.9 million, representing
primarily the excess of the acquisition cost over the fair value of the net
assets acquired; the goodwill is being amortized over 40 years.
The following is the comparative unaudited proforma combined condensed financial
information for the nine months ended December 31, 1998 and the twelve months
ended March 31, 1998. The proforma disclosures are intended to reflect the
results of operations as if the KeySpan Acquisition was consummated on the first
day of each of the reporting periods below. The effects of the LIPA Transaction
have been reflected for the period May 29, 1998 through December 31, 1998. These
disclosures may not be indicative of future results.
================================================================================
Proforma Results Nine Months Fiscal Year
(In Thousands of Dollars Except Ended Ended
Per Share Amounts): December 31, 1998 March 31, 1998
- ----------------------------------- ------------------- -----------------
Revenues $ 1,907,129 $ 4,554,093
Operating income $ 4,416 $ 914,272
Net income (loss) $ (212,424) $ 436,794
Earnings (loss) per share $ (1.38) $ 2.78
NOTE 15. COSTS RELATED TO THE LIPA TRANSACTION AND SPECIAL CHARGES
Special charges for the nine months ended December 31, 1998 were $258.5 million
after-tax. These charges reflect, in part, non-recurring charges associated with
the LIPA Transaction of $107.9 million after-tax. Costs relating to the LIPA
Transaction principally reflect taxes associated with the sale of assets (the
"Transferred Assets") to the Company by LIPA; the write- off of certain
regulatory assets that were no longer recoverable under various LIPA agreements;
and other transaction costs incurred to consummate the LIPA Transaction. These
charges were offset, in part, by tax benefits relating to the deferred federal
income taxes necessary to account for the difference between the carryover basis
of the Transferred Assets for financial reporting purposes and the new increased
tax basis of the assets, and tax benefits recognized on the funding of
postretirement benefits for employees of the Company.
37
<PAGE>
Further, the Company incurred charges related to the KeySpan Acquisition of
$83.5 million after-tax. These charges reflect a $42.0 million after-tax charge
for an early retirement program initiated by the Company in December 1998 in
which approximately 600 employees participated, and a $41.5 million after-tax
charge for the write-off of a customer billing system that was in development.
Also, in December 1998, the Company made a $20 million donation ($13 million
after-tax) to establish the KeySpan Foundation, a not-for-profit philanthropic
foundation that will make donations to local charitable community organizations.
Special charges also reflect an after-tax impairment charge of $54.1 million,
which represents the Company's share of the impairment charge, recorded by the
Company's gas and oil exploration and production subsidiary to reduce the value
of its proved gas reserves in accordance with the asset ceiling test limitations
of the Securities and Exchange Commission applicable to gas exploration and
development operations accounted for under the full cost method.
NOTE 16. SUPPLEMENTAL GAS AND OIL DISCLOSURES (UNAUDITED)
This information includes amounts attributable to 100% of THEC and KeySpan
Exploration and Production, LLC at December 31, 1999. Shareholders other than
the Company had a minority interest of 36% in THEC at December 31, 1999 and 1998
and a 34% minority interest in 1997. Gas and oil operations, and reserves, were
predominantly located in the United States in all years.
<TABLE>
<CAPTION>
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
At December 31, 1999 1998
- -------------------------- ------------------------- ----------------- ----------------
(In Thousands of Dollars)
<S> <C> <C>
Unproved properties not being amortized $ 176,876 $ 145,317
Properties being amortized - productive and nonproductive 979,615 828,168
- ---------------------------------------------------- ----------------- ----------------
Total capitalized costs 1,156,491 973,485
Accumulated depletion (512,465) (438,974)
- ---------------------------------------------------------------------------------------
Net capitalized costs $ 644,026 $ 534,511
- -------------------------- ------------------------- ----------------- ----------------
</TABLE>
The following is a break-out of the costs which are excluded from the
amortization calculation as of December 31, 1999, by year of acquisition: 1999 -
$29.9 million, 1998 - $66.1 million, and prior years $68.3 million. The Company
cannot accurately predict when these costs will be included in the amortization
base, but it is expected that these costs will be evaluated within the next five
years.
38
<PAGE>
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
Year Ended December 31, 1999 1998 1997
- --------------------------- ---------------- ---------------- ---------------
(In Thousands of Dollars)
Acquisition of properties-
Unproved properties $ 13,107 $ 33,803 $ 16,613
Proved properties 42,573 162,083 24,007
Exploration 39,649 55,611 44,119
Development 87,965 51,046 59,244
- --------------------------------------------------------------------------------
Total costs incurred $ 183,294 $ 302,543 $ 143,983
- --------------------------- ---------------- ---------------- ---------------
RESULTS OF OPERATIONS FROM GAS AND OIL PRODUCING ACTIVITIES*
================================================================================
Year Ended December 31, 1999 1998 1997
- ------------------------------------ ------------- ------------- -------------
(In Thousands of Dollars)
Revenues $ 150,581 $ 127,124 $ 116,349
- ------------------------------------ ------------- ------------- -------------
Production and lifting costs 23,851 21,166 18,379
Depletion 74,051 209,838 59,081
- --------------------------------------------------------------------------------
Total expenses 97,902 231,004 77,460
- ------------------------------------ ------------- ------------- -------------
Income before taxes 52,679 (103,880) 38,889
Income Taxes 17,477 (37,410) 12,397
- ------------------------------------ ------------- ------------- -------------
Results of operations $ 35,202 $ (66,470)$ 26,492
- ----------------------------- ------------- ------------- -------------
*(excluding corporate overhead and interest costs)
The gas and oil reserves information is based on estimates of proved reserves
attributable to the interest of THEC and KeySpan Exploration and Production, LLC
as of December 31 for each of the years presented. These estimates principally
were prepared by independent petroleum consultants. Proved reserves are
estimated quantities of natural gas and crude oil which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
RESERVE QUANTITY INFORMATION NATURAL GAS (MMCF)
================================================================================
At December 31, 1999 1998 1997
- ------------------------------ ---------- --------------- ---------------
Proved reserves
Beginning of year 470,447 330,601 320,474
Revisions of previous 45,510 (4,656) (18,743)
Extensions and discoveries 70,741 67,272 75,651
Production (69,679) (61,479) (50,310)
Purchases of reserves in place 20,779 139,994 3,778
Sales of reserves in place (3,492) (1,285) (249)
- --------------------------------------------------------------------------------
Proved reserves-
End of year (a) 534,306 470,447 330,601
- ------------------------------------------------ --------------- --------------
Proved developed reserves-
Beginning of year 369,931 256,632 236,544
- --------------------------------------------------------------------------------
End of year (b) 399,482 369,931 256,632
================================================================================
(a) Includes minority interest of 189,427; 169,361; and 112,404 in 1999, 1998
and 1997, respectively.
(b) Includes minority interest of 143,043; 133,175; and 87,255 in 1999, 1998 and
1997, respectively.
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS (MBBLS)
================================================================================
At December 31, 1999 1998 1997
- -------------------------------- ---------------- --------------- ------------
Proved reserves
Beginning of year 1,650 1,077 1,131
Revisions of previous estimates 237 (105) (62)
Extensions and discoveries 1,574 249 184
Production (258) (225) (171)
Purchases of reserves in place 2 665 1
Sales of reserves in place (69) (11) (6)
- --------------------------------------------------------------------------------
Proved reserves-
End of year (a) 3,136 1,650 1,077
- -------------------------------- ------------- --------------- ---------------
Proved developed reserves-
Beginning of year 1,498 914 1,013
- --------------------------------------------------------------------------------
End of year (b) 2,059 1,498 914
- --------------------------------------- --------------- -----------------------
(a) Includes minority interest of 890; 594; and 366 in 1999, 1998 and 1997,
respectively.
(b) Includes minority interest of 647; 539; and 311 in 1999, 1998 and 1997,
respectively.
The standardized measure of discounted future net cash flows was prepared by
applying year-end prices of gas and oil to the proved reserves, except for those
reserves devoted to future production that is hedged. Such reserves are priced
at their respective hedged amounts. The standardized measure does not purport,
nor should it be interpreted, to present the fair value of gas and oil reserves
of THEC or KeySpan Exploration and Production LLC. An estimate of fair value
would also take into account, among other things, the recovery of reserves not
presently classified as proved, anticipated future changes in prices and costs
and a discount factor more representative of the time value of money and the
risks inherent in reserve estimates.
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED GAS
AND OIL RESERVES
- --------------------------------------------------------------------------------
At December 31, 1999 1998
- ------------------------------------------- ----------------- ---------------
(In Thousands of Dollars)
Future cash flows $ 1,146,966 $ 878,448
Future costs -
Production (194,527) (153,567)
Development (128,645) (103,915)
- ------------------------------------------- ----------------- ---------------
Future net inflows before income tax 823,794 620,966
Future income taxes (160,940) (89,032)
- ------------------------------------------- ----------------- ---------------
Future net cash flows 662,854 531,934
10% discount factor (182,222) (135,874)
- --------------------------------------------------------------------------------
Standardized measure of discounted
future net cash flows $ 480,632 $ 396,060
- ------------------------------------------- ----------------- ---------------
(a) Includes minority interest of 168,921 and 142,582 in 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED
RESERVE QUANTITIES
======================================================================================================
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------- -------------- -------------- --------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Standardized measure -
beginning of year $ 396,060 $ 315,380 $ 452,582
Sales and transfers, net of production costs (126,730) (105,958) (97,968)
Net change in sales and transfer prices,
net of production costs 47,330 (104,137) (223,169)
Extensions and discoveries and improved
recovery, net of related costs 106,076 72,333 114,893
Changes in estimated future development costs (25,730) (6,656) (20,499)
Development costs incurred during the period
that reduced future development costs 40,563 15,891 16,154
Revisions of quantity estimates 51,375 (4,982) (23,156)
Accretion of discount 41,293 37,706 57,700
Net change in income taxes (47,097) 44,812 62,733
Net purchases of reserves in place 19,018 155,259 1,855
Changes in production rates (timing) and other (21,526) (23,588) (25,745)
- -------------------------------------------------------------------------------------------------------
Standardized measure -
end of year $ 480,632 $ 396,060 $ 315,380
- ------------------------------------------ -------------- -------------- --------------
</TABLE>
AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT
- --------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- ------------------------------------- -------------- ------------- ------------
Average sales price*
Natural gas ($/MCF) 2.14 1.96 2.45
Oil, condensate and natural gas liquid ($/Bbl) 16.41 12.18 18.33
Production cost per equivalent MCF ($) 0.26 0.26 0.28
- --------------------------------------------------------- ----------------------
*Represents the cash price received which excludes the effect of any hedging
transactions.
ACREAGE
- --------------------------------------------------------------------------------
At December 31, 1999 Gross Net
- ---------------------------------- ------------- ------------
Producing 299,707 196,219
Undeveloped 394,022 322,577
- --------------------------------------------------------------------------------
NUMBER OF PRODUCING WELLS
- --------------------------------------------------------------------------------
At December 31, 1999 Gross Net
- ------------------------------- ------------- ------------
Gas wells 1,247 822.6
Oil wells 4 2.4
- ------------------------------- ------------- ------------
<TABLE>
<CAPTION>
DRILLING ACTIVITY (NET)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- -------------------------- -------------------------- ---------------------------- ----------------------------
Producing Dry Total Producing Dry Total Producing Dry Total
--------- --- ----- --------- --- ----- --------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net developmental wells 29.7 3.1 32.8 19.2 4.6 23.8 29.3 8.5 37.8
Net exploratory wells 2.9 1.0 3.9 1.6 4.2 5.8 3.8 2.9 6.7
- -------------------------------------------------------------------------------------------------------------
</TABLE>
WELLS IN PROCESS
- --------------------------------------------------------------------------------
At December 31, 1999 Gross Net
- ------------------------------- ------------- ------------
Exploratory 2.0 0.8
Developmental 1.0 1.0
- ------------------------------- ------------- ------------
42
<PAGE>
<TABLE>
SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
The following is a table of financial data for each quarter of the Company's
year ended December 31, 1999.
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
3/31/99 6/30/99 9/30/99 12/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues 961,108 543,526 538,469 911,510
Operating income 242,226 61,211 36,783 141,949
Net income 143,221 22,989 9,016 83,385
Earnings for common stock 134,532 14,299 328 74,700
Basic and diluted earnings
per common share (A) 0.94 0.10 0.00 0.56
Dividends declared 0.445 0.445 0.445 0.445
- --------------------------------------------------------------------------------
</TABLE>
(A) QUARTERLY EARNINGS PER SHARE ARE BASED ON THE AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE QUARTER. BECAUSE OF THE CHANGING NUMBER OF COMMON
SHARES OUTSTANDING IN EACH QUARTER, THE SUM OF QUARTERLY EARNINGS PER SHARE
DOES NOT EQUAL EARNINGS PER SHARE FOR THE YEAR.
The following is a table of financial data for each quarter of the Company's
nine month period ended December 31, 1998.
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended
6/30/98 9/30/98 12/31/98
- ----------------------------------------------------------------------------
Operating revenues (a) 570,856 434,581 723,044
Operating income (loss) 124,735 (18,645) (155,357)
Net income (loss) 37,250 (17,656) (186,527)(b)
Earnings (loss) for common stock 26,034 (26,350) (195,221)
Basic and diluted earnings (loss)
per common share (c) 0.19 (0.17) (1.34)
Dividends declared 0.300(d) 0.445 0.445
- ----------------------------------------------------------------------------
(A) INCLUDES REVENUES FROM VARIOUS LIPA SERVICE AGREEMENTS FOR THE PERIOD MAY
29, 1998 THROUGH DECEMBER 31, 1998 AND ELECTRIC DISTRIBUTION REVENUES FOR
THE PERIOD APRIL 1, 1998 THROUGH MAY 28, 1998.
(B) REFLECTS THE FOLLOWING AFTER-TAX CHARGES: LIPA TRANSACTION CHARGES OF $97.6
MILLION; KEYSPAN ACQUISITION CHARGES OF $83.5 MILLION; AN IMPAIRMENT CHARGE
OF $54.1 MILLION TO WRITE-DOWN THE VALUE OF PROVED GAS RESERVES; AND A
CHARGE OF $13.0 MILLION TO ESTABLISH THE KEYSPAN FOUNDATION. (SEE NOTE 15 TO
THE CONSOLIDATED FINANCIAL STATEMENTS,"COSTS RELATED TO THE LIPA TRANSACTION
AND SPECIAL CHARGES.")
(C) QUARTERLY EARNINGS PER SHARE ARE BASED ON THE AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE QUARTER. BECAUSE OF THE CHANGING NUMBER OF COMMON
SHARES OUTSTANDING IN EACH QUARTER, THE SUM OF QUARTERLY EARNINGS PER SHARE
DOES NOT EQUAL EARNINGS PER SHARE FOR THE YEAR.
(D) PRORATED PORTION FOR APPROXIMATELY TWO MONTHS OF A DIVIDEND OF $1.78 PER
SHARE ANNUALLY.
43
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of KeySpan Corporation d/b/a KeySpan
Energy:
We have audited the accompanying Consolidated Balance Sheet and Consolidated
Statement of Capitalization of KeySpan Corporation (a New York corporation) and
subsidiaries as of December 31, 1999 and December 31, 1998 and the related
Consolidated Statements of Income, Retained Earnings and Cash Flows for the year
ended December 31, 1999 and the nine months ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position and capitalization of KeySpan
Corporation and subsidiaries as of December 31, 1999 and December 31, 1998 and
the results of their operations and their cash flows for the year ended December
31, 1999 and the nine months ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14 is the responsibility of the Company's management and is presented for the
purpose of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
January 27, 2000
New York, New York
44
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Long Island Lighting Company:
We have audited the accompanying Statement of Income, Retained Earnings and Cash
Flows of Long Island Lighting Company for the twelve months ended March 31,
1998. Our audit also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, results of operations and cash flows of Long Island
Lighting Company for the twelve months ended March 31, 1998, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
During the twelve months ended March 31, 1998 the Company changed its method of
accounting for revenues provided for under the Rate Moderation Component.
ERNST & YOUNG LLP
May 22, 1998
Melville, New York
45
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED OF VALUATION AND QUALIFYING ACCOUNTS
(In Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------
Additions
- ----------------------------------------------------------------------------------------------------
Adjustment for
the KeySpan
Balance
Balance at Charged to Acquisition at
Beginning Costs and and LIPA Deduction End of
Depreciation of Period Expenses Transaction (1) Period
- ------------------------------------ ----------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Twelve months ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $20,026 $15,793 -- $15,525 $20,294
Nine months ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $23,483 $11,064 $3,777 $18,298 $20,026
Twelve months ended March 31, 1998
Deducted from asset accounts: $23,675 $23,239 -- $23,431 $23,483
Allowance for doubtful accounts
- ------------------------------------ ----------- ----------- -------------- ------------ ----------
</TABLE>
(1) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF, NET OF RECOVERIES.
46
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is expected to be filed with the SEC on or about
March 27, 2000 (the "Proxy Statement"). The information required by this item is
set forth under the caption "Executive Officers of the Company" in Part I hereof
and under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" contained in the Proxy Statement, which
information is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption "Executive
Compensation" in the Proxy Statement, which information is incorporated herein
by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the captions "Security
Ownership of Management" and "Security Ownership of Certain Beneficial Owners"
in the Proxy Statement, which information is incorporated herein by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Transactions with Management and Others" in the Proxy Statement, which
information is incorporated herein by reference thereto.
35
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries and report of independent accountants are filed as part of this
Report:
Report of Independent Public Accountants
Consolidated Statement of Income for the year ended December 31,
1999, the nine months ended December 31, 1998, and the fiscal
year ended March 31, 1998.
Consolidated Statement of Retained Earnings for the year ended
December 31, 1999, the nine months ended December 31, 1998, and
the fiscal year ended March 31, 1998.
Consolidated Balance Sheet at December 31, 1999 and December 31,
1998. Consolidated Statement of Capitalization at December 31, 1998
and December 31,
1998.
Consolidated Statement of Cash Flows for the year ended December 31,
1999, the nine months ended December 31, 1998, and the fiscal
year ended March 31, 1998.
Notes to Consolidated Financial Statements
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries and report of independent accountants are filed as part of this
Report:
Report of Independent Public Accountants
Consolidated Statement of Income for the year ended December 31, 1999,
the nine months ended December 31, 1998, and the fiscal year ended
March 31, 1998.
Consolidated Statement of Retained Earnings for the year ended December
31, 1999, the nine months ended December 31, 1998, and the fiscal
year ended March 31, 1998.
Consolidated Balance Sheet at December 31, 1999 and December 31, 1998.
Consolidated Statement of Capitalization at December 31, 1998 and
December 31,
1998.
Consolidated Statement of Cash Flows for the year ended December 31,
1999, the nine months ended December 31, 1998, and the fiscal year
ended March 31, 1998.
Notes to Consolidated Financial Statements
2. Financial Statements Schedules
Consolidated Schedule of Valuation and Qualifying Accounts for the year ended
December 31, 1999, the nine months ended December 31, 1998, and the fiscal year
ended March 31, 1998.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
Exhibits listed below which have been filed with the SEC pursuant to the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, and which were filed as noted below, are hereby incorporated by
reference and made a part of this report with the same effect as if filed
herewith.
10.21 Agreement and Plan of Merger dated November 4, 1999, between the
Company, Eastern Enterprises and ACJ Acquisition LLC (filed as
Exhibit 2 to the Company's Form 8-K on November 5, 1999)
10.22Amendment No. 1 to Agreement and Plan of Merger, dated January 26,
2000, between the Company, Eastern Enterprises and ACJ Acquisition LLC
<PAGE>
3.1 Certificate of Incorporation of the Company effective April 16,
1998, Amendment to Certificate of Incorporation of the Company
effective May 26,1998, Amendment to Certificate of Incorporation of
the Company effective June 1, 1998, Amendment to the Certificate of
Incorporation of the Company effective April 7, 1999 and Amendment
to the Certificate of Incorporation of the Company effective May 20,
1999 (filed as Exhibit 3.1 to the Company's Form 10-Q for the
quarterly period ended June 30, 1999)
3.2 ByLaws of the Company In Effect on September 10, 1998, as amended
(filed as Exhibit 3.1 to the Company's Form 8-K/A, Amendment No. 2, on
September 29, 1998)
4.1 Participation Agreements dated as of February 1, 1989, between
NYSERDA and The Brooklyn Union Gas Company relating to the
Adjustable Rate Gas Facilities Revenue Bonds ("GFRBs") Series 1989A
and Series 1989B (filed as Exhibit 4 to The Brooklyn Union Gas
Company Form 10-K for the year ended September 30, 1989)
Indenture of Trust, dated February 1, 1989, between NYSERDA and
Manufacturers Hanover Trust Company, as Trustee, relating to the
Adjustable Rate GFRBs Series 1989A and 1989B (filed as Exhibit 4 to
the Brooklyn Union Gas Company Form 10-K for the year ended
September 30, 1989)
4.2 Participation Agreement, dated as of July 1, 1991, between NYSERDA
and The Brooklyn Union Gas Company relating to the GFRBs Series
1991A and 1991B (filed as Exhibit 4 to The Brooklyn Union Gas
Company Form 10-K for the year ended September 30, 1991)
Indenture of Trust, dated as of July 1, 1991, between NYSERDA and
Manufacturers Hanover Trust Company, as Trustee, relating to the
GFRBs Series 1991A and 1991B (filed as Exhibit 4 to The Brooklyn
Union Gas Company Form 10-K for the year ended September 30, 1991)
4.3 First Supplemental Participation Agreement dated as of May 1, 1992
to Participation Agreement dated February 1, 1989 between NYSERDA
and The Brooklyn Union Gas Company relating to Adjustable Rate
GFRBs, Series 1989A & B (filed as Exhibit 4 to The Brooklyn Union
Gas Company Form 10-K for the year ended September 30, 1992)
First Supplemental Trust Indenture dated as of May 1, 1992 to Trust
Indenture dated February 1, 1989 between NYSERDA and Manufacturers
Hanover Trust Company, as Trustee, relating to Adjustable Rate
GFRBs, Series 1989A & B (filed as Exhibit 4 to The Brooklyn Union
Gas Company Form 10-K for the year ended September 30, 1992)
<PAGE>
4.4 Participation Agreement, dated as of July 1, 1992, between NYSERDA
and The Brooklyn Union Gas Company relating to the GFRBs Series
1993A and 1993B (filed as Exhibit 4 to The Brooklyn Union Gas
Company Form 10-K for the year ended September 30, 1992)
Indenture of Trust, dated as of July 1, 1992, between NYSERDA and
Chemical Bank, as Trustee, relating to the GFRBs Series 1993A and
1993B (filed as Exhibit 4 to The Brooklyn Union Gas Company Form
10-K for the year ended September 30, 1992)
4.5 First Supplemental Participation Agreement dated as of July 1, 1993
to Participation Agreement dated as of June 1, 1990, between NYSERDA
and The Brooklyn Union Gas Company relating to GFRBs Series C (filed
as Exhibit 4 to The Brooklyn Union Gas Company Form 10-K for the
year ended September 30, 1993)
First Supplemental Trust Indenture dated as of July 1, 1993 to Trust
Indenture dated as of June 1, 1990 between NYSERDA and Chemical
Bank, as Trustee, relating to GFRBs Series C (filed as Exhibit 4 to
The Brooklyn Union Gas Company Form 10-K for the year ended
September 30, 1993)
4.6 Participation Agreement, dated July 15, 1993, between NYSERDA and
Chemical Bank as Trustee, relating to the GFRBs Series D-1 1993 and
Series D-2 1993 (filed as Exhibit 4 to The Brooklyn Union Gas
Company Form S-8 Registration Statement No. 33-66182)
Indenture of Trust, dated July 15, 1993, between NYSERDA and
Chemical Bank as Trustee, relating to the GFRBs Series D-1 1993 and
D-2 1993 (filed as Exhibit 4 to The Brooklyn Union Gas Company Form
S-8 Registration Statement No. 33- 66182)
4.7 Participation Agreement, dated January 1, 1996, between NYSERDA and
The Brooklyn Union Gas Company relating to GFRBs Series 1996 (filed as
Exhibit 4 to The Brooklyn Union Gas Company Form 10-K for the year
ended September 30, 1996)
Indenture of Trust, dated January 1, 1996, between NYSERDA and
Chemical Bank, as Trustee, relating to GFRBs Series 1996 (filed as
Exhibit 4 to The Brooklyn Union Gas Company Form 10-K for the year
ended September 30, 1996)
4.8 Participation Agreement, dated as of January 1, 1997, between
NYSERDA and The Brooklyn Union Gas Company relating to GFRBs 1997
Series A (filed as Exhibit 4 to KeySpan Energy Corporation Form 10-K
for the year ended September 30, 1997)
<PAGE>
Indenture of Trust, dated January 1, 1997, between NYSERDA and Chase
Manhattan Bank, as Trustee, relating to GFRBs 1997 Series A (filed
as Exhibit 4 to KeySpan Energy Corporation Form 10-K for the year
ended September 30, 1997)
4.9 Indenture of Trust dated as of December 1, 1997 by and between New
York State Energy Research and Development Authority (NYSERDA) and
The Chase Manhattan Bank, as Trustee, relating to the 1997 Electric
Facilities Revenue Bonds (EFRBs), Series A (filed as Exhibit 10(a)
to the Company's Form 10-Q for the quarterly period ended September
30, 1998)
Participation Agreement dated as of December 1, 1997 by and between
NYSERDA and Long Island Lighting Company relating to the 1997 EFRBs,
Series A (filed as Exhibit 10(a) to the Company's Form 10-Q for the
quarterly period ended September 30, 1998)
*4.10 Participation Agreement, dated as of October 1, 1999, by and between
NYSERDA and KeySpan Generation LLC relating to the 1999 Pollution
Control Refunding Revenue Bonds, Series A
Trust Indenture, dated as of October 1, 1999, by and between New
York State Energy Research and Development Authority (NYSERDA) and
The Chase Manhattan Bank, as Trustee, relating to the 1999 Pollution
Control Refunding Revenue Bonds, Series A
*4.11 First Supplemental Trust Indenture, dated as of January 1, 2000, by
and between New York State Energy Research and Development Authority
(NYSERDA) and The Chase Manhattan Bank, as Trustee, relating to the
GFRBs 1997 Series A
*4.12Credit Agreement, dated as of November 8, 1999, among the Company, as
Borrower, the Several Lenders, Citibank, N.A., as Syndication Agent,
European American Bank, as Documentation Agent and The Chase Manhattan
Bank, as administrative Agent, for a $700,000,000 revolving credit
loan
*4.13 Indenture, dated December 1, 1999, between the Company and KeySpan
Gas East Corporation, the Registrants, and the Chase Manhattan Bank,
as Trustee, with the respect to the issuance of Medium-Term Notes,
Series A, (filed as Exhibit 4-a to Amendment No. 1 to Form S-3
Registration Statement No. 333-92003)
4.14 Form of Medium-Term Note issued in connection with the issuance of 7
7/8% notes (filed as Exhibit 4, to the Company's Form 8-K on
February 1, 2000)
10.1 Agreement of Lease between Forest City Jay Street Associates and The
Brooklyn Union Gas Company dated September 15, 1988 (filed as an
exhibit to The
<PAGE>
Brooklyn Union Gas Company Form 10-K for the year ended September 30, 1996)
10.2 Stipulation of Settlement of federal Racketeer Influenced and
Corrupt Organizations Act Class Action and False Claims Action dated
as of February 27, 1989 among the attorneys for Long Island Lighting
Company, the ratepayer class, the United States of America and the
individual defendants named therein (filed as an exhibit to Long
Island Lighting Company's Form 10-K for the year ended December 31,
1988)
10.3 Agreement and Plan of Merger dated as of June 26, 1997 by and among BL
Holding Corp., Long Island Lighting Company, Long Island Power
Authority and LIPA Acquisition Corp. (filed as Annex D to Registration
Statement on Form S-4, No. 333-30353 on June 30, 1997)
10.4 Management Services Agreement between Long Island Power Authority and
Long Island Lighting Company dated as of June 26, 1997 (filed as Annex
D to Registration Statement on Form S-4, No. 333-30353, on June 30,
1997)
10.5 Power Supply Agreement between Long Island Lighting Company and Long
Island Power Authority dated as of June 26, 1997 (filed as Annex D to
Registration Statement on Form S-4, No. 333-30353, on June 30, 1997)
10.6 Energy Management Agreement between Long Island Lighting Company and
Long Island Power Authority dated as of June 26, 1997 (filed as Annex
D to Registration Statement on Form S-4, No. 333-30353, on June 30,
1997)
10.7 Amended and Restated Agreement and Plan of Exchange and Merger dated
June 26, 1997 between The Brooklyn Union Gas Company and Long Island
Lighting Company dated as of June 26, 1997 (filed as Annex A to
Registration Statement on Form S-4, No. 333-30353, on June 30, 1997)
10.8 Amendment, Assignment and Assumption Agreement dated as of September
29, 1997 by and among The Brooklyn Union Gas Company, Long Island
Lighting Company and KeySpan Energy Corporation (filed as Exhibit
2.5 to Schedule 13D by Long Island Lighting Company on October 24,
1997)
*10.9Employment Agreement effective as of September 1, 1999 between the
Company and Craig G. Matthews
*10.10 Employment Agreement effective as of July 29, 1999 between the
Company and Gerald Luterman
10.11 Indenture, dated as of March 2, 1998, between The Houston
Exploration Company and The Bank of New York, as Trustee, with
respect to the 8 5/8%
<PAGE>
Senior Subordinated Notes Due 2008 (including form of 8 5/8% Senior
Subordinated Note Due 2008) (filed as Exhibit 4.1 to The Houston
Exploration Company's Registration Statement on Form S-4 (No. 333-50235))
10.12 Subordinated Loan Agreement dated November 30, 1998 between The
Houston Exploration Company and MarketSpan Corporation d/b/a KeySpan Energy
Corporation (filed as Exhibit 10.30 to The Houston Exploration Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
10.13 Subordination Agreement dated November 25, 1998 entered into and
among MarketSpan Corporation d/b/a KeySpan Energy Corporation, The
Houston Exploration Company and Chase Bank of Texas, National
Association (filed as Exhibit 10.31 to The Houston Exploration
Company's Annual Report on Form 10-K for the year ended December 31,
1998 (File No. 001-11899)).
*10.14 First Amendment to Subordinated Loan Agreement and Promissory Note
between KeySpan Corporation and The Houston Exploration Company
dated effective as of October 27, 1999.
10.15Exploration Agreement between The Houston Exploration Company and
KeySpan Exploration and Production, L.L.C., dated March 15,1999,
(filed as Exhibit 10.1 to The Houston Exploration Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 (File No.
001-11899)).
*10.16 First Amendment to the Exploration Agreement between The Houston
Exploration Company and KeySpan Exploration and Production, L.L.C.
dated November 3, 1999.
10.17 Amended and Restated Credit Agreement among The Houston Exploration
Company and Chase Bank of Texas, National Association, as agent,
dated March 30,1999, (filed as Exhibit 10.2 to The Houston
Exploration Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 (File No. 001-11899)).
10.18 First Amendment and Supplement to Amended and Restated Credit
Agreement dated May 4, 1999 by and among The Houston Exploration
Company and Chase Bank of Texas, National Association, as agent,
(filed as Exhibit 10.1 to The Houston Exploration Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(File No. 001-11899)).
10.19 Second Amendment to Amended and Restated Credit Agreement between
The Houston Exploration Company and Chase Bank of Texas, National
Association, as agent, dated October 6, 1999, (filed as Exhibit
10.32 to The Houston Exploration Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 (File No. 001-11899)).
<PAGE>
*10.20 Third Amendment and Supplement to Amended and Restated Credit
Agreement between The Houston Exploration Company and Chase Bank of
Texas, National Association, as agent, dated December 9, 1999.
10.21 Directors' Deferred Compensation Plan of the Company effective July
1, 1998 (filed as Exhibit 10.16 to the Company's Form 10-K for the
year ended December 31, 1998)
10.22 Corporate Annual Incentive Compensation Plan effective as of
September 10, 1998 (filed as Exhibit 10.18 to the Company's
Form 10-K for the year ended December 31, 1998)
10.23 Senior Executive Change of Control Severance Plan effective as of
October 30, 1998 (filed as Exhibit 10.20 to the Company's Form 10-K
for the year ended December 31, 1998)
10.24 Generating Plant and Gas Turbine Asset Purchase and Sale Agreement
for Ravenswood for Ravenswood Generating Plants and Gas Turbines
dated January 28, 1999, between the Company and Consolidated Edison
Company of New York, Inc. (filed as Exhibit 10(a) to the Company's
Form 10-Q for the quarterly period ended March 31, 1999)
10.25 Rights Agreement dated March 30, 1999, between the Company and the
Rights Agent (filed as Exhibit 4 to the Company's Form 8-K, on March
30, 1999
10.26 Lease Agreement dated June 9, 1999, between KeySpan-Ravenswood, Inc.
and LIC Funding, Limited Partnership (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1999)
10.27 Guaranty dated June 9, 1999, from the Company in favor of LIC
Funding, Limited Partnership (filed as Exhibit 10.1 to the Company's
Form 10-Q for the quarterly period ended June 30, 1999)
* 21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, Independent Auditors
23.2 Consent of Ernst and Young LLP, Independent Auditors
24.1 Powers of Attorney executed by Directors and Officers of the
Company
24.2 Certified copy of Resolution of Board of Directors authorizing
signature pursuant to power of attorney
<PAGE>
27 Financial Data Schedule on Schedule U-T for the fiscal year ended
December 31, 1999
* Filed herewith
4. Reports on Form 8-K
In its Report on Form 8-K dated November 5, 1999, the Company reported that it
has entered into a definitive agreement with Eastern, pursuant to which KeySpan
will acquire all of the outstanding common stock of Eastern.
In its Report on Form 8-K dated September 16, 1999, the Company reported:
(1)that it intends to begin a process to review strategic alternatives for
the Houston Exploration Company, in which the Company has a 64% share
ownership.
(2)that it currently believes that its earnings for the year ending
December 31, 1999, will exceed most securities analysts' estimates.
In its Report on Form 8-K dated December 2, 1999 the Company reported its
consolidated financial statements for each of the nine months ended December 31,
1998, the twelve months ended March 31, 1998, the three months ended March 31,
1997 and the twelve months ended December 31, 1996 with a new note, containing
summarized financial information for KeySpan Gas East Corporation, had been
added.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
KEYSPAN CORPORATION
d/b/a KeySpan Energy
March 9, 2000 By: /s/Gerald Luterman
Gerald Luterman
Senior Vice President and
Chief Financial Officer
March 9, 2000 By: /s/Ronald S. Jendras
--------------------
Ronald S. Jendras
Vice President, Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 9, 2000.
* Chairman of the Board and Chief Executive Officer
________________________ (Principal executive officer)
Robert B. Catell
Senior Vice-President and Chief Financial Officer
(Principal financial officer)
/s/Gerald Luterman
Gerald Luterman
Vice President, Controller and Chief Accounting Officer
/s/Ronald S. Jendras (Principal accounting officer)
----------------------
Ronald S. Jendras
<PAGE>
* Director
------------------------
Lilyan H. Affinito
* Director
------------------------
George Bugliarello
* Director
------------------------
Howard R. Curd
* Director
------------------------
Richard N. Daniel
* Director
------------------------
Donald H. Elliott
<PAGE>
* Director
------------------------
Alan H. Fishman
* Director
------------------------
James R. Jones
* Director
------------------------
Stephen W. McKessy
* Director
------------------------
Edward D. Miller
* Director
------------------------
Basil A. Paterson
* Director
------------------------
James Q. Riordan
* Director
------------------------
Frederic V. Salerno
* Director
------------------------
Vincent Tese
By: /s/Gerald Luterman
ATTORNEY-IN-FACT
* Such signature has been affixed pursuant to a Power of Attorney filed as an
exhibit hereto and incorporated herein by reference thereto.
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This is AMENDMENT NO. 1 dated as of January 26, 2000 (the "Amendment") to
the AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of November 4, 1999
by and among Eastern Enterprises, a Massachusetts voluntary association (the
"Company"), KeySpan Corporation, a New York corporation ("Parent"), and ACJ
Acquisition LLC, a Massachusetts limited liability company which is directly and
indirectly wholly owned by the Parent ("Merger Sub").
1. The parties entered into the Agreement to provide for a business combination
(the "Merger") pursuant to which the Merger Sub would merge with and into the
Company, with the Company as the survivor of the Merger. The purpose of
this Amendment is to set forth certain agreements by and among the Company,
Parent and Merger Sub to amend the Agreement. Accordingly, the Company, Parent
and Merger Sub agree as set forth below in this Agreement. Capitalized terms
used in this Amendment that are not defined herein shall have the respective
meanings ascribed to them in the Agreement. Capitalized terms used in this
Amendment that are not defined in the Agreement shall be deemed included in the
Agreement with the respective meanings ascribed to them in this Amendment.
2. Section 4.13 of the Agreement is hereby amended to read in its entirety as
follows:
Section 4.13 VOTE REQUIRED. The approval of the Merger AND THE
AMENDMENT TO THE COMPANY DECLARATION OF TRUST TO PERMIT A MASSACHUSETTS
LIMITED LIABILITY COMPANY OR ANY OTHER COMPANY TO MERGE INTO OR
CONSOLIDATE WITH THE COMPANY by a majority of the votes entitled to be
cast by all holders of Company Common Stock (the "Company Shareholders'
Approval") are the only votes of the holders of any class or series of the
capital stock of the Company or any of its subsidiaries required to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
<PAGE>
IN WITNESS WHEREOF, Eastern Enterprises, KeySpan Corporation and ACJ
Acquisition LLC have caused this Amendment to be signed as a sealed instrument
by their duly authorized representative officers, all as of the date first
written above.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives
------------------------------
Title: Chief Executive Officer
KEYSPAN CORPORATION
By: /s/ Gerald Luterman
------------------------------
Title: Senior Vice President
ACJ ACQUISITION LLC
By: /s/ Steven Zelkowitz
------------------------------
Title: Manager
Exhibit 4.10
EXECUTION COPY
- ---------------------------------------------------------------------------
- ----------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of October 1, 1999
by and between
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
and
KEYSPAN GENERATION LLC
- relating to -
$41,125,000 Pollution Control Refunding Revenue Bonds
(KeySpan Generation LLC Projects), 1999 Series A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of October 1, 1999, between NEW
YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY, a body corporate and
politic, constituting a public benefit corporation, established and
existing under and by virtue of the laws of the State of New York (the
"Authority") and KEYSPAN GENERATION LLC (formerly known as MarketSpan
Generation LLC), a limited liability company duly organized and existing
under the laws of the State of New York (the "Company"),
WITNESSETH:
WHEREAS, pursuant to special act of the Legislature of the State of
New York (Title 9 of Article 8 of the Public Authorities Law of New York,
as from time to time amended and supplemented, herein called the "Act"),
the Authority has been established, as a body corporate and politic,
constituting a public benefit corporation; and
WHEREAS, pursuant to the Act, the Authority is also empowered to
extend credit and make loans from bond and note proceeds to any person for
the construction, acquisition and installation of, or for the reimbursement
to any person for costs in connection with, any special energy project,
including, but not limited to, any land, works, system, building or other
improvement, and all real and personal properties of any nature or any
interest in any of them which are suitable for or related to the
furnishing, generation or production of energy or the conversion of
oil-burning facilities to alternate fuel; and
WHEREAS, the Authority is also authorized under the Act to borrow
money and issue its negotiable bonds and notes to provide sufficient monies
for achieving its corporate purposes, including for the purpose of
refunding outstanding Authority bonds and notes and the payment of costs
related thereto; and
WHEREAS, the Authority is also authorized under the Act to enter into
any contracts and to execute all instruments necessary or convenient for
the exercise of its corporate powers and the fulfillment of its corporate
purposes; and
WHEREAS, the Authority issued Pollution Control Revenue Bonds (Long
Island Lighting Company Projects), Series A in the principal amount of
$28,375,000 (the "Series A Bonds"), which where used, in part, to finance
certain costs primarily associated with the acquisition, construction, and
installation of various systems to abate, control, and reduce pollution and
to dispose of sewage and solid waste at Northport Power Station, Glenwood
Landing Power Station and at the former Shoreham Nuclear Power Station and
miscellaneous facilities at the former Mitchell Gardens Power Station; and
WHEREAS, there is currently outstanding $26,375,000 aggregate
principal amount of the Series A Bonds; and
-1-
<PAGE>
WHEREAS, the Authority issued Pollution Control Revenue Bonds (Long
Island Lighting Company Projects), Series B in the principal amount of
$19,100,000 (the "Series B Bonds", and collectively with the Series A
Bonds, the "Prior Bonds"), which were used, in part, to finance certain
costs primarily associated with the acquisition, construction, and
installation of various systems to abate, control, and reduce pollution and
to dispose of sewage and solid waste at the Glenwood Landing Power Station,
Far Rockaway Power Station, E.F. Barrett Power Station, Northport Power
Station, and Port Jefferson Power Station; and
WHEREAS, all of the Series B Bonds are currently outstanding; and
WHEREAS, the Company is the current owner of all the assets financed
by the Prior Bonds other than the facilities at former Shoreham Nuclear
Power Station and former Mitchell Gardens Power Station, having acquired on
May 28, 1998, pursuant to the Agreement and Plan of Merger, dated as of
June 26, 1997, by and among MarketSpan Corporation d/b/a KeySpan (formerly
known as BL Holding Corp.) ("KeySpan"), Long Island Lighting Company
("LILCO"), Long Island Power Authority and LIPA Acquisition Corp. (the
"Merger Agreement"), all of the non-nuclear electric generation businesses,
among other assets, of LILCO; and
WHEREAS, pursuant to the Merger Agreement and in connection with the
transferby LILCO of its generating assets to the Company, the Company,
KeySpan and other Transferee Subsidiaries (as defined in the Merger
Agreement) (collectively, the "KeySpan Notes Obligors") have executed and
delivered to LILCO promissory notes relating to the Prior Bonds and
evidencing the joint and several obligation of the KeySpan Notes Obligors
to pay to LILCO amounts which would be sufficient to pay principal of, and
premium, if any, and interest on, the Prior Bonds when due (the "KeySpan
Notes"); and
WHEREAS, the Company has requested that the Authority issue bonds for
the purpose of refunding the Prior Bonds; and
WHEREAS, the Company proposes to achieve the refunding of the Prior
Bonds by applying the proceeds of the Bonds together with other moneys
advanced from its own funds to the prepayment of the KeySpan Notes; and
WHEREAS, LILCO has agreed to direct redemption of the Prior Bonds and
use the proceeds received from the prepayment of the KeySpan Notes to
refund the Prior Bonds; and
WHEREAS, the Authority proposes to issue $41,125,000 aggregate
principal amount of Pollution Control Refunding Revenue Bonds (KeySpan
Generation LLC Projects), 1999 Series A (the "Bonds") for the purpose of
applying the proceeds thereof together with monies advanced by the Company
to the prepayment of the KeySpan Notes and causing LILCO to use the
proceeds received from the prepayment of the KeySpan Notes to pay all or a
portion of the redemption price of the Prior Bonds, all such bonds to be
issued under and secured by a Trust
-2-
<PAGE>
Indenture dated as of October 1, 1999, between the Authority and The Chase
Manhattan Bank, as trustee (the "Indenture"); and
WHEREAS, Ambac Assurance Corporation has agreed to issue a municipal
bond insurance policy in favor of the Trustee to provide for the payment of
such amounts as are specified therein with respect to regularly scheduled
payments of principal of, and interest on, the Bonds when due.
NOW THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, it is hereby agreed
by and between the parties as follows:
-3-
<PAGE>
ARTICLE I
DEFINITIONS; EFFECTIVE DATE AND DURATION
OF PARTICIPATION AGREEMENT
SECTION 1.1. Definitions. The terms used in this Participation
Agreement which are defined in Section 1.01 of the Indenture shall have the
meanings, respectively, herein, which such terms are given in said Section
1.01 of the Indenture.
SECTION 1.2. Effective Date and Duration of Participation Agreement.
This Participation Agreement shall become effective upon its execution and
delivery, and shall continue in full force and effect until the principal
of and premium, if any, and interest on the Note and the Bonds have been
fully paid (or provision for their payment has been made in accordance with
the provisions of the Indenture) and all sums to which the Authority or the
Trustee are entitled hereunder have been fully paid, it being intended that
the Company's obligations under Sections 3.3, 4.2(e), 5.16 and 7.4 hereof
shall survive the termination of this Participation Agreement.
-4-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties by the Authority. The
Authority represents and warrants as follows:
(a) The Authority is a body corporate and
politic, constituting a public benefit corporation,
established and existing under the laws of the State of New
York;
(b) The Authority has full power and authority to execute
and deliver the Bonds, this Participation Agreement, the Indenture,
the Tax Regulatory Agreement, the Bond Purchase Trust Agreement and
the Bond Purchase Agreement and to consummate the transactions
contemplated hereby and thereby and perform its obligations hereunder
and thereunder;
(c) The Authority is not in violation or default under any
of the provisions of the Constitution or the laws of the State of New
York which would affect its existence or its powers referred to in
the preceding paragraph (b);
(d) The Authority has determined that its participation in the
Project, as contemplated by this Participation Agreement, is in
the public interest;
(e) The Authority has duly authorized the execution and
delivery of the Bonds, this Participation Agreement, the Tax
Regulatory Agreement, the Bond Purchase Trust Agreement, the Bond
Purchase Agreement and the Indenture and all necessary authorizations
therefor or in connection with the performance by the Authority of
its obligations hereunder and thereunder have been obtained and are
in full force and effect; and
(f) The execution and delivery of the Bonds, this
Participation Agreement, the Tax Regulatory Agreement, the Bond
Purchase Trust Agreement, the Bond Purchase Agreement and the
Indenture and the consummation of the transactions herein or therein
contemplated will not violate or cause a default under any indenture,
mortgage, loan agreement or other contract or instrument to which the
Authority is a party or by which it is bound, or any judgment,
decree, order, statute, rule or regulation applicable to the
Authority.
SECTION 2.2. Representations and Warranties by the Company. The
Company represents and warrants as follows:
(a) The Company is a limited liability company duly
organized and existing and in good standing under the laws of the
State of New York, has power to enter into, execute
-5-
<PAGE>
and deliver this Participation Agreement, the Tax Regulatory
Agreement and the Company Note by proper limited liability company
action and has duly authorized the execution and delivery by it of
this Participation Agreement, the Tax Regulatory Agreement and the
Company Note;
(b) The execution and delivery by the Company of this
Participation Agreement, the Tax Regulatory Agreement and the Company
Note and the consummation of the transactions herein and therein
contemplated do not conflict with or constitute a breach of or a
default under the Company's Articles of Organization, operating
agreement or any indenture, mortgage, loan agreement or other
contract or instrument to which the Company is a party or by which it
is bound or, to the best of the Company's knowledge, any judgment,
decree, order, statute, rule or regulation applicable to the Company;
(c) This Participation Agreement, the Tax Regulatory
Agreement and the Company Note constitute valid and legally binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or other laws, judicial decisions or principles of
equity relating to or affecting the enforcement of creditors' rights
or contractual obligations generally;
(d) The issuance and delivery by the Company of the Company
Note in the manner and for the purposes herein set forth have been
duly authorized by the Public Service Commission of the State of New
York; and
(e) No additional authorizations for or approvals of the
execution and delivery by the Company of this Participation
Agreement, the Tax Regulatory Agreement and the Company Note need be
obtained by the Company or if any such authorization or approval is
necessary it has been obtained.
-6-
<PAGE>
ARTICLE III
THE PROJECT; ISSUANCE OF BONDS
SECTION 3.1. The Project. Construction of the Project is
complete. The Project is the property of the Company. In order to
effectuate the purposes of this Participation Agreement, the Company,
in its own name, will do or cause to be done all things requisite or
proper for the fulfillment of the obligations of the Company under
this Participation Agreement.
SECTION 3.2. Sale of Bonds and Deposit of Proceeds. In order to
provide funds for the prepayment of a portion of the KeySpan Notes and
the redemption of a part of the Prior Bonds, the Authority, on the
date specified in the Bond Purchase Agreement or as soon thereafter as
practicable, and concurrently with the issuance and delivery to the
Trustee of the Note as provided in Section 4.1 hereof, will issue,
sell and deliver the Bonds, all pursuant to and as provided in the
Bond Purchase Agreement and subject to the conditions set forth in
Section 2.06 of the Indenture, and will deposit the proceeds of such
sale paid by the initial purchasers of the Bonds in the Project Fund.
SECTION 3.3. Disbursements from Project Fund and Rebate Fund. 1.
The Authority has in the Indenture authorized and directed the Trustee
to make payments from the Project Fund in accordance with Section 8.01
of the Indenture, to pay the Prepayment Price and costs related
thereto and the refunding of the Prior Bonds upon receipt from time to
time of requisitions signed by an Authorized Company Representative,
stating with respect to each payment to be made the information
required by Section 8.01 of the Indenture. Amounts on deposit in the
Rebate Fund shall be disbursed in accordance with the terms of the
Indenture and the Tax Regulatory Agreement.
The Company will cause such requisitions to be submitted to the
Trustee as may be necessary to effect payments out of the Project Fund
in accordance with the provisions of the Indenture.
Concurrently with the delivery by the Company of each requisition
to the Trustee, the Company will deliver to the Authority a copy of
such requisition and any attachments thereto. The Authority and the
Trustee may rely as to the completeness and accuracy of all statements
in such requisition and the Company will indemnify and save harmless
the Authority and the Trustee from any liability incurred in
connection with any requisition so delivered and any payments made in
reliance thereon.
2. Except for amounts retained by the Trustee at the written
direction of an Authorized Company Representative for payment of items
not then due and payable or the liability for payment of which is
being contested or disputed by the Company, all monies remaining in
the Project Fund (but not the Rebate Fund) after the redemption of the
Prior Bonds and payment of all costs related thereto shall, at the
written direction of an Authorized Company Representative,
-7-
<PAGE>
be applied in accordance with Section 8.01.6 of the Indenture. Any balance
remaining of such retained amounts to the extent not disbursed in accordance
with subsection 1 above, shall, at the written direction of an Authorized
Company Representative, be similarly applied.
SECTION 3.4. Adequacy of Project Fund. The monies which will be
paid into the Project Fund will not be sufficient to pay the
Prepayment Price and costs related thereto and the refunding of the
Prior Bonds. The Company shall pay that portion of the Prepayment
Price and costs related thereto and the refunding of the Prior Bonds
in excess of the monies available therefor in the Project Fund.
Without limiting the generality of the foregoing, the Company has
agreed and hereby agrees to prepay the $4,557,681.25 principal amount
of the KeySpan Notes, representing a portion of the principal of the
Series A Bonds applied to the payment of costs of facilities located
at the former Shoreham Nuclear Power Station and the former Mitchell
Gardens Power Station. The Company shall not be entitled to any
reimbursement therefor from the Authority, the Trustee or the owners
of any of the Bonds, nor shall it be entitled to any diminution in or
postponement of the payments required to be paid by the Company
pursuant to this Participation Agreement or the Note.
SECTION 3.5. Ownership and Possession of the Project. Issuance of
the Bonds will not vest in the owners thereof, the Trustee, the
Authority or any other person, with ownership, or the right to
possession, of the Project. The Company is entitled to sole and
exclusive ownership and possession of the Project.
SECTION 3.6. Operation, Maintenance and Repair. The Authority and
the Company recognize that the Project constitutes integrated portions
of the electric energy production facilities of the Company and that
it is not feasible to administer the Project separately from such
facilities. The Company shall operate the Project (with such changes,
improvements or additions as the Company may deem desirable) as part
of such facilities for the joint useful life of the Project and such
facilities, shall maintain and repair the Project in conformity with
the Company's normal maintenance and repair programs for such
facilities and shall proceed in good faith to maintain the
availability of the Project for use as an authorized project under the
Act; but the Company shall have no obligation to operate, maintain or
repair any element or item of the Project the operation, maintenance,
or repair of which becomes uneconomic to the Company because of damage
or destruction or obsolescence (including physical, functional and
economic obsolescence), or change in government standards and
regulations, or the termination of the operation of the portion of
such facilities to which the element or item of the Project is an
adjunct.
SECTION 3.7. Investment of Monies in Funds Under the Indenture.
Any monies held as a part of any fund created under the Indenture
shall, at the direction of an Authorized Company Representative, be
invested or reinvested by the Trustee as provided in Article IX of the
Indenture.
-8-
<PAGE>
ARTICLE IV
NOTE AND PAYMENTS
SECTION 4.1. Execution and Delivery of Note to Trustee.
Concurrently with the authentication by the Registrar and Paying Agent
and delivery by the Authority of the Bonds and in order to evidence
the obligation of the Company to the Authority to repay the Bonds, the
Authority hereby directs the Company, and the Company hereby agrees,
to execute and deliver to the Trustee its Note, duly and validly
executed and delivered, relating to the Bonds. The Note shall be in
substantially the form attached hereto as Exhibit C with only such
changes to such form as may be approved by the Authority. Thereafter,
the Company shall be obligated to make the Note Payments, constituting
payments of principal of, and premium, if any, and interest on the
Note, and the Additional Payments required by this Participation
Agreement. Such obligations shall terminate on the date when the Note
has been paid in full. The Note may be prepaid in accordance with
Section 4.4 hereof. Upon payment or provision for payment in full of
all amounts payable or to become payable under the Note, the Trustee
shall cancel the Note and deliver the same to the Company. Provision
for payment in full of all amounts payable or to become payable under
the Note shall be deemed to have occurred upon receipt by the Trustee
of written notice from the Authority acknowledging that the Company
has satisfied its obligations to the Authority under the Note. The
Authority agrees to deliver such written notice to the Trustee
promptly when such provision for payment in full has been made.
SECTION 4.2. Payments Payable; Note Payments; Additional
Payments. (a) The Company covenants and agrees to pay the Payments as
and when the same are due and payable in accordance with the Note and
this Section 4.2. The Company shall provide the Trustee with a written
allocation of amounts paid under this Section 4.2 among the various
purposes set forth in this Section 4.2.
(b) The Note Payments shall be in an aggregate amount sufficient
for, together with other amounts held by the Trustee and available
under the Indenture for application to, the payment in full of the
Bonds consisting of (i) the total interest becoming due and payable on
the Bonds to the date of payment thereof, and (ii) the total principal
amount plus premium, if any, of the Bonds.
The Company covenants that it shall deposit, or cause to be
deposited with the Trustee, sufficient funds to assure that no default
shall occur in the payment of the principal of or premium, if any, or
the interest on the Bonds as and when due, and that no unreasonable
delay shall occur in the payment of the costs and expenses payable
from Additional Payments.
(c) The Company shall make Note Payments by 12:00 noon, New York
City time, one Business Day (two Business Days during any Auction Rate
Period or any Auction Rate- Inverse Rate Period) next preceding each
Interest Payment Date to the Bond Fund for credit by the Trustee to
the Interest Account of the Bond Fund established pursuant to Section
9.01 of the
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Indenture, in the aggregate amount required, together with other funds available
therefor in the Interest Account in the Bond Fund, to pay the interest payable
on each such Outstanding Bond on each such Interest Payment Date.
In addition, the Company shall pay an additional amount to the
Trustee for deposit in the Bond Fund and credit to the Principal
Account, Interest Account, Redemption Account or to the Trustee for
payment to, or directly to, the Registrar and Paying Agent for deposit
in the Bond Purchase Fund and credit to the Company Account therein to
be applied to the payment of the principal of and premium, if any, and
interest payable upon redemption of any Bond pursuant to Article V of
the Indenture or purchase price of any Bond pursuant to the Bond
Purchase Trust Agreement to the extent not provided from the sources
described therein.
(d) The Company agrees that, at all times prior to the Fixed Rate
Conversion Date to the extent a Liquidity Facility is in place and to
the extent necessary to maintain or obtain any short term rating with
respect to the Bonds, monies provided by the Company shall not be
applied to the payment of the purchase price, until any such amounts
have been on deposit in the applicable account for a period of at
least 124 days and the Company shall have delivered a Non- Bankruptcy
Certificate to the Trustee in accordance with the Indenture. If and to
the extent such monies are not available and there is no Liquidity
Facility in place, the Company shall pay or provide for the payment of
principal of, premium, if any, and interest on, and the Purchase Price
of, the Bonds from other sources.
(e) The Company further covenants and agrees to pay, when due and
payable,as Additional Payments, certain additional amounts and costs
and expenses, exclusive of costs and expenses payable from the
proceeds of the Bonds. Each installment of Additional Payments, if
any, shall be equal to the sum of the amounts set forth in clauses (i)
to (iv), inclusive, below, and shall be paid directly to the persons
entitled to such payments. "Additional Payments" is hereby defined to
be the aggregate of the installments of the following:
(i) the reasonable fees and expenses payable to the
Trustee, any Indexing Agent, the Registrar and Paying Agent, any
issuer of a Support Facility, the Market Agent (and in the case of
Auction Rate Bonds during an Auction Rate Period, the Auction Agent
under the Auction Agency Agreement and any Broker-Dealers under the
respective Broker- Dealer Agreements), and of any counsel or agents
of any of the foregoing except any fees or expenses attributable to
negligence, willful misconduct or bad faith;
(ii) all costs incurred in connection with the transfer,
exchange, purchase or redemption of Bonds not otherwise paid by the
holders thereof, including all charges of the Authority, the Market
Agents (and in the case of Auction Rate Bonds during an Auction Rate
Period, the Auction Agent and any Broker-Dealer), the Registrar and
Paying Agent and the Trustee with respect thereto, to the extent
monies are not otherwise available therefor;
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(iii) the reasonable fees and other costs incurred for
services of such attorneys and accountants as are employed to make
examinations, provide services, render opinions and prepare reports
required under this Participation Agreement, the Bond Purchase Trust
Agreement, and the Indenture; and
(iv) an administration fee of the Authority in the amount
of $102,812.50 paid to the Authority on the date of authentication
and delivery of the Bonds and an annual fee equal to $130 per million
dollar principal amount of the Bonds on October 1 of each year
commencing October 1, 2000, based upon the amount of Bonds
Outstanding as of such October 1 and for purposes of the calculation
of such fee, rounding up to the nearest whole million dollars, and
all reasonable expenses, disbursements, advances, taxes, assessments
or impositions, not otherwise paid under this Participation Agreement
or the Indenture, incurred by or imposed upon the Authority in
connection with its administration and enforcement of, and compliance
with, this Participation Agreement, the Auction Agency Agreement, the
Bond Purchase Trust Agreement, the Market Agent Agreement and the
Indenture, which amounts the Company is obligated to pay, including,
but not limited to, reasonable attorneys' fees. In addition, the
Company shall pay to the State of New York with respect to the Bonds
a bond issuance charge in the amount of $143,937.50 on the date of
authentication and delivery of the Bonds.
(f) In the event that the Company shall fail to make any Payment
as required by Sections 4.2(a), (b), (c), (d) and (e) hereof, the
Payment so in default shall continue as an obligation of the Company
until the amount in default shall have been fully paid, and the
Company agrees to pay the same with interest thereon, which interest
shall also constitute an obligation of the Company at the maximum rate
of interest payable on the Bonds pursuant to the Indenture, to the
extent permitted by law, from the date of default until paid;
provided, that the Company agrees in the event the Company shall fail
to make any Payment during an Auction Rate Period or an Auction
Rate-Inverse Rate Period, the Payment so in default shall continue as
an obligation of the Company until the amount in default shall have
been fully paid, and the Company agrees to pay the same with interest
thereon, which interest shall also constitute an obligation of the
Company at, in the case of an Auction Rate Period, the Maximum Auction
Rate, and in the case of an Auction Rate-Inverse Rate Period, the
Overdue Rate, to the extent permitted by law, from the date of default
until paid. Nothing in this Section 4.2 shall require the Company to
pay costs and expenses mentioned in clause (e)(iii) above so long as
the validity or the reasonableness thereof shall be contested in good
faith unless the Trustee shall receive an opinion of independent
counsel that such contest materially jeopardizes the respective
interests of the Authority and the Trustee in this Participation
Agreement, the Auction Agency Agreement, the Bond Purchase Trust
Agreement, the Indenture or the Market Agent Agreement, in which event
the Company shall pay such costs and expenses (without prejudice to
any rights of the Company to recover such costs and expenses if not
valid or reasonable) to the end that the respective interests of the
Authority and the Trustee, in the opinion of independent counsel, are
not materially jeopardized.
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(g) The Company agrees to give notice to the Credit Facility
Issuer not less than two days prior to any regularly scheduled payment
date for principal or interest on the Bonds if the Company does not
intend or will be unable to make the corresponding payment to the
Trustee under the Note.
SECTION 4.3. Notice to Pay; Medium of Payment; Acceleration.
Failure to receive any prior notice of the due date of any Payment
will not relieve the Company of its obligation to pay such Payment
when it is due and payable. The Company covenants and agrees that it
will pay or cause to be paid when due and payable hereunder the
Payments, and every installment thereof, without notice or demand
therefor and without abatement, reduction or set-off of any kind or
nature whatsoever, in lawful money of the United States of America.
If pursuant to the provisions of Section 12.03 of the Indenture,
the obligation of the Authority to pay the Bonds is accelerated or
shall otherwise be declared due and payable immediately, then the
Company shall forthwith pay or cause to be paid to the Trustee an
amount sufficient with all other funds available therefor, to pay the
Bonds in full and, secondly an amount which shall be sufficient, with
all other funds available therefor, to pay all other obligations of
the Authority or the Company incurred or to be incurred under the
Indenture, this Participation Agreement, the Auction Agency Agreement,
the Bond Purchase Trust Agreement or the Market Agent Agreement.
SECTION 4.4. Advance Payments. The Company shall have the option
from time to time in conjunction with the redemption of Bonds pursuant
to Section 5.01 or 5.04 of the Indenture to pay to the Trustee in
advance of the time required by this Participation Agreement and the
Note for deposit in the Bond Fund for credit to the Redemption Account
therein such amounts as the Company may elect in order to effect the
prepayment of the Note in whole or in part. The Company shall give
notice to the Trustee and the Authority of any intention to prepay the
Note in whole or in part and of the principal amount to be prepaid not
more than sixty (60) nor less than thirty-five (35) days prior to the
date on which such Payment is to be made on the Note. Such optional
prepayment may be made not later than one (1) Business Day prior to
the date of prepayment of the Bonds.
SECTION 4.5. Company's Payments as Trust Funds. All Note Payments
and Additional Payments required to be made by the Company under this
Participation Agreement and the Note to the Authority, the Trustee or
the Registrar and Paying Agent which under the Indenture are required
to be applied in payment of or as security for the Bonds, shall be and
constitute and are hereby declared to be trust funds, whether held by
the Authority, the Trustee, the Registrar and Paying Agent, or any
bank or trust company, designated for such purpose and shall continue
to be impressed with a trust until such monies are applied in the
manner provided in the Indenture.
SECTION 4.6. Absolute Obligation to Make Payments. The obligation
of the Company to pay the Note Payments and the Additional Payments,
as required by this Participation
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Agreement and the Note, and to satisfy any other financial liabilities incurred
hereunder and thereunder shall be an absolute, direct, general obligation, and
shall be unconditional and shall not be abated, rebated, set off, reduced,
abrogated, waived, diminished or otherwise modified in any manner or to any
extent whatsoever (other than for prior payment), regardless of any rights of
set-off, recoupment or counterclaim that the Company might otherwise have
against the Authority or the Trustee or any other party or parties and
regardless of any contingency, act of God, event or cause whatsoever and
notwithstanding any circumstance or occurrence that may arise or take place
including, but without limiting the generality of the foregoing, the following:
(a) any damage to or destruction of any part or all of the
Project;
(b) the taking or damaging of any part or all of the
Project by any public authority or agency in the
exercise of the power of eminent domain or otherwise;
(c) any assignment, novation, merger, consolidation, transfer
of assets, subleasing or other similar transaction of or
affecting the Company whether with or without the approval
of the Trustee, except as otherwise expressly provided in
this Participation Agreement;
(d) with respect solely to the obligation of the Company to pay
the Additional Payments, the termination of this Agreement
and payment or provision for payment in full of the amount
due under the Note pursuant to the provisions hereof;
(e) any failure of any party to perform or observe any
agreement or covenant, whether express or implied, or any
duty, liability or obligation arising out of or in
connection with this Participation Agreement, the Note, the
Auction Agency Agreement, any Broker-Dealer Agreement, the
Market Agent Agreement, the Bond Purchase Trust Agreement
or the Indenture;
(f) any change or delay in the time of availability of the
Project or any part thereof for use of the Project or any part
thereof;
(g) any acts or circumstances that may constitute an eviction or
constructive eviction from any part of the Project;
(h) failure of consideration, failure of title to any part of the
Project or commercial frustration; and
(i) any change in the tax or other laws of the United States or
of any state or other governmental authority;
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provided, however, that the foregoing shall not be deemed to be a waiver of any
right of recourse the Company may have against the Authority, the holder of any
Bond or others, including but not limited to, the rights, causes of action or
claims which may arise out of the breach of their respective obligations or the
inaccuracy of their respective warranties, provided, however, that the Company
may pursue any such right, claim or cause of action only by a separate
proceeding or action and not by counterclaim or set-off hereunder and the
bringing of such separate proceeding or action shall not affect the Company's
absolute, irrevocable and unconditional obligation to make payments pursuant to
this Section 4.6.
However, the obligation of the Company to make Note Payments
shall be deemed satisfied when made or to the extent the Trustee makes
the deposits in the Bond Fund for credit to the Principal Account and
Interest Account from the sources described in Sections
9.02(a)(ii)(II) and 9.02(b)(ii)(I) and (III) of the Indenture.
SECTION 4.7. Assignment of Authority's Rights. As security for
the payment of the Bonds, the Authority will assign to the Trustee
certain of the Authority's rights under this Participation Agreement
and the Note, including the right to receive payments hereunder
(except the right to receive payments, if any, under Sections
4.2(e)(ii) and (iv), 5.16 and 7.4 hereof and the right to amend the
Participation Agreement) and hereby directs the Company to make said
payments directly to the Trustee or in the case of the Purchase Price
to the Registrar and Paying Agent. The Company herewith assents to
such assignment and will make payments under this Participation
Agreement and the Note (except payments made pursuant to Sections
4.2(e)(ii) and (iv), 5.16 and 7.4 hereof which shall be made directly
to the Authority) directly to the Trustee (or in the case of the
Purchase Price, to the Registrar and Paying Agent) without defense or
set-off by reason of any dispute between any of the Company, the
Trustee or Registrar and Paying Agent.
SECTION 4.8. Actions with respect to or by or on behalf of the
Authority under the Indenture. The Authority hereby grants the right
to the Company to request the Authority to take certain actions under
the Indenture and/or to perform or undertake certain actions as
specified under the Indenture. The Company agrees to request the
Authority to take action or undertake or perform any action solely in
compliance with or after complying with the requirements and
provisions of the Indenture.
SECTION 4.9. Agreements of Company relating to Support
Facilities. In order to secure the payment of interest on the Bonds,
the Company has obtained a Credit Facility. The Company agrees not to
request that an Adjustable Rate other than an Auction Rate during a
Auction Rate Period or an Auction Rate and an Inverse Rate during an
Auction Rate-Inverse Rate Period become effective unless there shall
be in effect, prior to the applicable Change in the Interest Rate
Mode, a Liquidity Facility which meets the requirements of Article VI
of the Indenture.
The Company further agrees that it will maintain at all times,
except during any Auction Rate Period, an Auction Rate-Inverse Rate
Period or the Fixed Rate Period, a Liquidity
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Facility meeting the requirements of Article VI of the Indenture. Such Liquidity
Facility shall expire no earlier than the earliest of (1) its stated expiration
date, which shall be not less than six months from its effective date and shall
be no earlier than the second Business Day after the next succeeding date when
Bonds are subject to optional or mandatory tender for purchase, (2) when all
available amounts have been drawn and not been timely reimbursed, (3) the second
business day following a Change in the Interest Rate Mode to an Auction Rate
during an Auction Rate Period or an Auction Rate during and Auction Rate-Inverse
Rate Period, (4) the second business day following the Fixed Rate Conversion
Date, (5) on the effective date of any Alternate Liquidity Facility that
replaces the then effective Liquidity Facility, (6) the earliest date on which
no Bonds are outstanding and (7) twelve days after the Trustee receives notice
from the Liquidity Facility Issuer that it is terminating the Liquidity Facility
and directing the Trustee to cause a mandatory tender and purchase of the Bonds.
SECTION 4.10. Project not Security for Bonds. It is expressly
recognized by the parties that the Project will not constitute any
part of the security for the Bonds. The principal security for the
Bonds shall be the Note and the absolute, irrevocable and
unconditional obligation of the Company to make the Note Payments.
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ARTICLE V
SPECIAL COVENANTS AND REPRESENTATIONS
SECTION 5.1. No Warranty as to Suitability of the Project. The
Authority makes no warranty, either express or implied, with respect
to actual or designed capacity of the Project, as to the suitability
of the Project for the purposes specified in this Participation
Agreement, as to the condition of the Project, or that the Project
will be suitable for the Company's purposes or needs.
SECTION 5.2. Authority's Rights to Inspect the Project and Plans
and Specifications. The Authority shall have the right at all
reasonable times to examine and inspect the Project to the extent
practicable and, to the extent reasonably available, the construction
plans and specifications therefor.
SECTION 5.3. Company Consent to Amendment of Indenture. The
Authority shall not enter into any indenture supplemental to or
amendatory of the Indenture which affects the rights or obligations of
the Company without the prior consent of the Company as evidenced by a
certificate in writing signed by an Authorized Company Representative.
SECTION 5.4. Tax Covenant. Notwithstanding any other
provision hereof, the Company covenants and agrees that it will
not take or authorize any action or permit any action within its
reasonable control to be taken, or fail to take any action within
its reasonable control, with respect to the Project, or the
proceeds of the Bonds, including any amounts treated as proceeds
of the Bonds for any purpose of Section 103 of the Code, the
taking of which or any failure to so take will result in the loss
of the exclusion of interest on the Bonds from gross income for
federal income tax purposes under Section 103 of the Code (except
for any Bond during any period while any such Bond is held by a
person referred to as a "substantial user" of the Project or a
"related person" in Section 147(a) of the Code). This provision
shall control in case of conflict or ambiguity with any other
provision of this Participation Agreement. In furtherance of such
covenant and agreement, the Authority and the Company have
entered into the Tax Regulatory Agreement and the Company hereby
covenants and agrees to comply with the provisions thereof.
SECTION 5.5. Maintenance of Office or Agency. The Company
will at all times keep, in Brooklyn, New York, or another
location in the State of New York, an office or agency where
notices and demands to or upon the Company with respect to this
Participation Agreement and the Note may be served, and will,
from time to time, give written notice to the Authority and the
Trustee of the location of such office or agency; and, in case
the Company shall fail to do so, notices may be served and
demands may be made at the Principal Corporate Trust Office of
the Trustee.
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SECTION 5.6. Further Assurances. Upon the request of the
Trustee in writing, the Company will make, execute, acknowledge
and deliver, or cause to be made, executed, acknowledged and
delivered, to the Trustee any and all such further acts, deeds,
conveyances, assignments or assurances as may be reasonably
required for effectuating the intention of this Participation
Agreement and the Note.
SECTION 5.7. Payment of Taxes and Other Charges. The Company
will promptly pay and discharge, or cause to be paid and
discharged, as the same become due and payable, any and all
taxes, rates, levies, assessments, and governmental liens, claims
and other charges at any time lawfully imposed or accruing upon
or against the Company or upon or against its properties or any
part thereof, or upon the income derived therefrom or from the
operations of the Company, provided, that the Company shall not
be required to pay or discharge, or cause to be paid or
discharged, any such tax, rate, levy, assessment, lien, claim or
other charge so long as in good faith and by appropriate legal
proceedings the validity thereof shall be contested.
SECTION 5.8. Maintenance of Properties. The Company will at
all times make or cause to be made such expenditures for repairs,
maintenance and renewals, or otherwise, as shall be necessary to
maintain its properties in good repair, working order and
condition as an operating system or systems to the extent
necessary to meet the Company's obligations under the Public
Service Law of the State of New York and this Participation
Agreement; provided, however, that nothing herein contained shall
be construed to prevent the Company from ceasing to own or
operate any of its plants or any other property, if, in the
judgment of the Company, it is advisable not to own or operate
the same and the ownership or operation thereof shall not be
essential to the maintenance and continued operation of the rest
of the operating system or systems, and the security under the
Indenture afforded by the Company Note will not be substantially
impaired by the termination of such operation.
SECTION 5.9. Insurance. The Company will keep or cause to be
kept such parts of its properties as, in the opinion of an
Authorized Company Representative (as defined in the Indenture
and who shall be a licensed professional engineer), are of an
insurable nature, insured against loss or damage by fire or other
casualties, the risk of which is customarily insured against by
companies similarly situated and operating like properties, to
the extent that property of similar character is customarily
insured against by such companies, either (a) by reputable
insurers or (b) in whole or in part in the form of reserves or of
one or more insurance funds created by the Company, whether alone
or with other corporations, provided that the plan of each such
insurance fund shall have been or shall be approved by the Board
of Directors of the Company.
SECTION 5.10. Proper Books of Record and Account. The
Company will at all times keep or cause to be kept proper books
of record and account, in which full, true and correct entries
will be made of all dealings, business and affairs of the
Company, including proper and complete entries to capital or
property accounts covering property worn out, obsolete, abandoned
or sold, all in accordance with the requirements of any system of
accounting or keeping accounts or the rules, regulations or
orders prescribed by a regulatory commission with jurisdiction
over
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the rates of the Company giving rise to at least a majority
of the Company's gross revenues, or if there are no such
requirements or rules, regulations or orders, then in compliance
with generally accepted accounting principles.
SECTION 5.11. Compliance with Law. The Company agrees to use
its best efforts to comply in all material respects with all
applicable laws, rules and regulations and orders of any
governmental authority, non-compliance with which would have a
material adverse effect on its business, financial condition or
results of operations (to the extent the Company deems it can
reasonably comply while maintaining its public utility
operations) or would materially adversely affect the Company's
ability to perform its obligations under this Participation
Agreement or under the Note, except laws, rules, regulations or
orders being contested in good faith or laws, rules, regulations
or orders which the Company has applied for variances from, or
exceptions to.
SECTION 5.12. Consolidation, Merger or Sale of Assets. The
Company will not consolidate with or permit itself to be merged
into or be acquired or purchased by any other company or
companies, or convey, transfer, lease or otherwise dispose of all
or substantially all of its properties and assets (any such
conveyance, transfer, lease or other disposition is hereafter
called a "Transfer"), except in the manner and upon the terms and
conditions set forth in this Section 5.12.
Nothing contained in this Participation Agreement shall
prevent (and this Participation Agreement shall be construed as
permitting and authorizing, without acceleration of the maturity
of the Note) any lawful consolidation or merger of the Company
with or into, or acquisition or purchase by, any other company or
companies lawfully authorized to acquire and operate the
properties of the Company, or a series of consolidations or
mergers, or successive consolidations or mergers, in which the
Company or its successor or successors shall be a party, or any
Transfer as an entirety to a company lawfully authorized to
acquire and operate the same; provided, that, upon any
consolidation, merger, acquisition or purchase, or Transfer, the
company formed by such consolidation, or into which such merger
may be made if other than the Company, or the company which is
acquiring or purchasing the Company, or which is a transferee,
shall execute and deliver to the Trustee and the Credit Facility
Issuer an instrument, in form satisfactory to the Trustee,
whereby such company shall effectually assume the due and
punctual payment of the principal of and premium, if any, and
interest on the Note according to its tenor and the due and
punctual performance and observance of all covenants and
agreements to be performed by the Company pursuant to this
Participation Agreement on the part of the Company to be
performed and observed and, thereupon, such company shall succeed
to and be substituted for the Company hereunder and under the
Note, with the same effect as if such successor company had been
named herein as obligor.
Each such successor company shall possess, and may exercise,
from time to time, each and every right and power hereunder and
under the Note of the Company, in its name or otherwise; and any
act, proceeding, resolution or certificate by any of the terms
hereof and the
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Note required or provided to be done, taken and performed or made, executed or
verified by any board or officer of the Company shall and may be done, taken and
performed or made, executed and verified with like force and effect by the
corresponding board or officer of any such successor company.
If consolidation, merger or Transfer is made as permitted by
this Section 5.12, the provisions of this Section 5.12 shall
continue in full force and effect and no further consolidation,
merger or Transfer shall be made except in compliance with the
provisions of this Section 5.12.
SECTION 5.13. Financial Statements of Company. The Company
agrees to have an annual audit made by its regular independent
public accountants and to furnish the Trustee, the Authority and
the Bond Insurer with a balance sheet and statements of income,
retained earnings and changes in cash flows showing the financial
condition of the Company and its consolidated subsidiaries, if
any, at the close of each fiscal year, and the results of
operations of the Company and its consolidated subsidiaries, if
any, for each fiscal year, as audited by said accountants, on or
before the last day of the third month following the close of the
fiscal year or as soon thereafter as they are reasonably
available.
SECTION 5.14. Company Agrees to Perform Obligations Imposed
by Indenture. The Company agrees to perform such obligations as
may be required of it by the provisions of the Indenture. The
Authority agrees to exercise its rights under Article XV of the
Indenture upon the request of the Company.
SECTION 5.15. Certificates as to Defaults. The Company shall
file with the Trustee and the Bond Insurer, on or before January
1 of each year, commencing on January 1, 2000, a certificate
signed by an Authorized Company Representative stating that, to
the best of his/her knowledge, information and belief, the
Company has kept, observed, performed and fulfilled each and
every one of its covenants and obligations contained in this
Participation Agreement, the Tax Regulatory Agreement and in the
Note and, to the best of his/her knowledge, information and
belief, there does not exist at the date of such certificate any
Default by the Company under this Participation Agreement or any
Event of Default hereunder or other event which, with notice or
the lapse of time specified in Section 7.1 hereof, or both, would
become an Event of Default or, if any such Default or Event of
Default or other event shall so exist, specifying the same and
the nature and status thereof.
SECTION 5.16. Limited Obligation of Authority;
Indemnification of Authority, Registrar and Paying Agent, Auction
Agent and Trustee. The Bonds shall not be general obligations of
the Authority, and shall not constitute an indebtedness of or a
charge against the general credit of the Authority or give rise
to any pecuniary liability of the Authority. The liability of the
Authority under the Bonds shall be enforceable only to the extent
provided in the Indenture, and the Bonds shall be payable solely
from the Note Payments and any other funds held by the Trustee
under the Indenture and available for such payment. The Bonds
shall not be a debt of the State of New York, and the State of
New York shall not be liable thereon.
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No member, officer, agent or employee of the Authority shall
be personally liable for the payment of the Bonds or any money or
damages hereunder or related hereto. Notwithstanding the fact
that it is the intention of the parties hereto that the Authority
and all officers and employees thereof shall not incur pecuniary
liability by reason of the terms of this Participation Agreement,
or the undertakings required of the Authority hereunder or any
officer or employee thereof, by reason of the issuance of the
Bonds, the execution and delivery of any document, including, but
not limited to, the Indenture, the Tax Regulatory Agreement, this
Participation Agreement, the Note, the Auction Agency Agreement,
the Market Agent Agreement, the Bond Purchase Trust Agreement,
any Broker-Dealer Agreement or any final official statement, or
by reason of the performance or non-performance of any act
required of it by this Participation Agreement or any such other
agreement, or the performance or non-performance of any act
requested of it by the Company, including all claims, liabilities
or losses arising in connection with the violation of any
statutes or regulations pertaining to the foregoing;
nevertheless, if the Authority (including any person at any time
serving as an officer or employee of the Authority) should incur
any such pecuniary liability, then in such event the Company
shall indemnify and hold harmless the Authority (including any
person at any time serving as an officer or employee of the
Authority) against all claims by or on behalf of any person, firm
or corporation or other legal entity, arising out of the same,
and all costs and expenses incurred in connection with any such
claim or in connection with any action or proceeding brought
thereon.
The Company releases the Authority (including any person at
any time serving as an officer or employee of the Authority), the
Registrar and Paying Agent, the Auction Agent and the Trustee
(including any person at any time serving as an officer or
employee of the Trustee, the Registrar and Paying Agent or the
Auction Agent) from, agrees that the Authority (including any
person at any time serving as an officer or employee of the
Authority), the Registrar and Paying Agent, the Auction Agent and
the Trustee (including any person at any time serving as an
officer or employee of the Trustee, the Registrar and Paying
Agent or the Auction Agent) shall not be liable for, and agrees
to indemnify and hold the Authority (including any person at any
time serving as an officer or employee of the Authority) and the
Trustee, the Auction Agent, the Registrar and Paying Agent
(including any person at any time serving as an officer or
employee of the Trustee, Auction Agent or the Registrar and
Paying Agent) harmless, to the fullest extent permitted by law
from any losses, costs, charges, expenses (including reasonable
attorneys' and agents' fees and expenses), by reason of (i) any
liability for any loss or damage to property or any injury to, or
death of, any person that may be occasioned by any cause
whatsoever arising out of the construction or operation of the
Project, or (ii) judgments and liabilities in connection with any
action, suit or proceeding instituted or threatened in connection
with the transactions contemplated by this Participation
Agreement and the Note, provided, however, that the Company shall
not be liable as the result of the negligence of the Authority,
the Trustee, the Registrar and Paying Agent, the Market Agent or
the Auction Agent or bad faith or wilful misconduct of the
Authority, the Trustee, the Registrar and Paying Agent, the
Market Agent or the Auction Agent (including any person at any
time serving as an officer or employee of the Authority or the
Trustee, the Registrar and Paying Agent, the Market Agent or the
Auction Agent). If any such claim is asserted, the Authority, any
individual indemnified herein, the Trustee, the Registrar and
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Paying Agent, the Market Agent or the Auction Agent, as the case may be, shall
give prompt notice to the Company and permit the Company to participate in the
defense thereof at its own expense. The Company will reimburse the indemnified
parties for any legal or other expenses reasonably incurred by the indemnified
parties in investigating or defending against any such claim, provided that the
Company shall not be required to reimburse any of the indemnified parties for
fees and expenses of counsel other than one counsel selected by the Trustee in
its sole discretion for all indemnified parties in which proceedings are brought
or threatened to be brought unless and to the extent there are actual or
potential conflicts of interest between or among indemnified parties or defenses
available to some indemnified parties that are not available to other
indemnified parties in which case, the Company will reimburse the indemnified
parties for any legal or other expenses reasonably incurred by the indemnified
parties in investigating or defending against any such claim by each counsel of
each of the indemnified parties affected. The obligation of the parties hereto
under this Section shall survive the termination of this Participation
Agreement.
SECTION 5.17. Financing Statements. On or before January 1
of the fifth year which follows the delivery of the Bonds and on
or before January 1 of every fifth year thereafter, so long as
any of the Bonds are Outstanding, the Company shall file or cause
to be filed all financing statements, continuation statements and
other instruments or memoranda referred to in Section 10.08 of
the Indenture as is necessary to maintain the assignments, liens,
pledges and charges of the Indenture or furnish an opinion of
counsel (which may be counsel to the Company) stating that in the
opinion of such counsel no action is required to maintain such
assignments, liens, pledges and charges.
SECTION 5.18. Provision of Information. The Company shall
provide the Trustee with the forms of any notices required to be
sent to holders of Bonds in connection with any redemption of
Bonds, a change in the Auction Period, the Interest Period or
change in the Interest Rate Mode pursuant to Articles III, III-A,
IV and V of the Indenture or the establishment of a Fixed Rate on
the Bonds pursuant to Section 4.02 of the Indenture.
SECTION 5.19. Ratings. During any Auction Rate Period or any
Auction Rate Inverse Rate Period, the Company on behalf of the
Authority shall take all reasonable action necessary to enable at
least two nationally recognized, statistical rating organizations
(as that term is used in the rules and regulations of the
Commission under the Exchange Act) to provide ratings for the
Auction Rate Bonds during an Auction Rate Period or Auction
Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate
Period, as the case may be.
SECTION 5.20. Notices. The Company on behalf of the
Authority shall provide the Trustee and the Bond Insurer and, so
long as no Event of Default has occurred and is continuing and
the ownership of any Auction Rate Bonds is maintained in
book-entry form by the Securities Depository, the Auction Agent,
with notice of any change in (a) the Statutory Corporate Tax Rate
under the Indenture, (b) the Applicable Percentage, or (c) the
maximum rate permitted by law on the Bonds. There is currently no
such maximum rate.
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ARTICLE VI
OPTIONAL AND MANDATORY PREPAYMENTS;
REDEMPTION OF BONDS
SECTION 6.1. Redemption of Bonds. If the Company is not in
default in making installment payments under Sections 4.2(a),
(b), (c), (d) and (e) hereof and under the Note, the Authority
and the Trustee, at the request of the Company, at any time the
aggregate monies in the Bond Fund are sufficient to effect a
redemption of Bonds and if the same are then redeemable under the
provisions of the Indenture and the Bonds, shall forthwith take
all steps that may be necessary under the applicable redemption
provisions of Article V of the Indenture to effect redemption of
all or part of the then Outstanding Bonds as may be specified by
the Company on such redemption date.
SECTION 6.2. Prepayment of Note Payments. The Note may be
prepaid, in whole or in part, at the option of the Company in
connection with an optional redemption of the Bonds pursuant to
Article V of the Indenture and shall be prepaid, in whole or in
part, in connection with any mandatory redemption of the Bonds
pursuant to Article V of the Indenture other than a mandatory
redemption pursuant to Section 5.07 of the Indenture. Prepayment
of the Note pursuant to the preceding sentence shall be with or
without premium, as required to provide sufficient funds to
redeem the Bonds being redeemed pursuant to Article V of the
Indenture. The Note also may be prepaid in whole or in part at
any time, without premium, at the option of the Company
subsequent to the redemption of the Bonds with moneys furnished
by the State of New York pursuant to Section 5.07 of the
Indenture.
The Company shall give notice to the Trustee and the
Authority of any intention to prepay the Note in whole or in part
and of the principal amount to be prepaid not more than sixty
(60) nor less than thirty-five (35) days prior to the date on
which such prepayment is to be made on the Note. Such optional
prepayment may be made not later than one (1) Business Day prior
to the date of prepayment of the Bonds.
The Company may also elect to provide for the defeasance of
the Bonds in accordance with Article XV of the Indenture and upon
the defeasance of the Bonds, the Note will be deemed paid, in
whole or in applicable part.
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ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1. Events of Default Defined. The following shall
be an "Event of Default" under this Participation Agreement and
the terms "Event of Default" or "Default" shall mean, whenever
they are used in this Participation Agreement, any one or more of
the following events:
(a) Failure by the Company to pay or cause to be paid, when
due and payable, any installment of Note Payments and, in the case of
failure to pay any installment of interest on the Note, continuance
of such failure for three (3) Business Days.
(b) Failure by the Company to observe and perform any
covenant, condition or agreement in this Participation Agreement or
the Note on its part to be observed or performed, other than as
referred to in subsection (a) of this Section 7.1 (and other than
failure to pay the amounts due under Sections 4.2(e), 4.2(f), 5.16
and 7.4 of this Participation Agreement), for a period of ninety (90)
days after written notice, specifying such failure and requesting
that it be remedied, has been given to the Company unless the Trustee
(with any required consent of Bondholders under the provisions of the
Indenture) shall agree in writing to an extension of such time prior
to its expiration, provided that if any such failure shall be such
that it cannot be cured or corrected within such ninety-day period,
it shall not constitute an Event of Default hereunder if curative or
corrective action is instituted within such period and diligently
pursued until the failure of performance is cured or corrected.
(c) The dissolution or liquidation of the Company or the
filing by the Company of a voluntary petition in bankruptcy, or
failure by the Company promptly to discharge or cause to be
discharged any execution, garnishment or attachment of such
consequence as will impair its ability to carry on its operations
generally or the commission by the Company of any act of bankruptcy,
or adjudication of the Company as a bankrupt, or assignment by the
Company for the benefit of its creditors, or the entry by the Company
into an agreement of compromise with its creditors, or the approval
by a court of competent jurisdiction of a petition applicable to the
Company in any proceeding for its reorganization instituted under the
provisions of the federal bankruptcy laws. The term "dissolution or
liquidation of the Company", as used in this subsection, shall not be
construed to include the cessation of the limited liability company
existence of the Company resulting either from a merger or
consolidation of the Company into or with another company or
corporation or a dissolution or liquidation of the Company following
a transfer of all or substantially all of its assets as an entirety,
under the conditions permitting such action with respect to the
Company contained in Section 5.12 hereof.
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(d) The occurrence of an event of default as defined in
Section 12.01 of the Indenture.
Subsection (b) of this Section 7.1 is subject to the
following limitations: Except for the obligations of the Company
contained in Article IV and Article VI hereof, if by reason of
force majeure the Company is unable in whole or in part to carry
out the agreements on its part herein contained, the Company
shall not be deemed in default during the continuance of such
inability. The term "force majeure" as used herein shall include
the following: acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders of any kind of the
government of the United States or of the State of New York or
any of their departments, agencies, or officials, or any civil or
military authority; insurrections; riots; epidemics; landslides;
lightning; earthquake; fire; typhoons; storms; floods; washouts;
droughts; arrests; civil disturbances; explosions; breakage or
accident to machinery, transmission pipes or canals; partial or
entire failure of utilities; or any other cause or event not
reasonably within the control of the Company. The Company agrees,
however, to remedy with all reasonable dispatch the cause or
causes preventing the Company from carrying out its agreements;
provided, that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion
of the Company, and the Company shall not be required to make
settlement of strikes, lockouts and other industrial disturbances
by acceding to the demands of the opposing party or parties when
such course is in the judgment of the Company unfavorable to the
Company.
SECTION 7.2. Remedies on Default. In the event any of the
Bonds shall at the time be Outstanding and unpaid and provision
for the payment thereof shall not have been made in accordance
with the provisions of the Indenture, whenever any Event of
Default referred to in Section 7.1 hereof shall have happened and
be existing, the Authority or the Trustee, following acceleration
of the Bonds in accordance with provisions of Section 12.03 of
the Indenture where so provided, may take any one or more of the
following remedial steps:
(a) The Authority or the Trustee as provided in the
Indenture may, at its option, with the consent of the Credit Facility
Issuer, or shall, to the extent required by the Indenture, declare
all payments payable under Section 4.2 hereof and the Note for the
remainder of the term of this Participation Agreement to be
immediately due and payable, whereupon the same shall become
immediately due and payable.
(b) The Trustee, with the written consent of the Credit
Facility Issuer, may take whatever action at law or in equity that
may appear necessary or desirable to collect the amounts then due and
thereafter to become due, or to enforce performance and observance of
any obligation, agreement or covenant of the Company under this
Participation Agreement or the Note whether for specific performance
of any covenant or agreement contained herein or therein or in aid of
the execution of any power herein granted.
Any amounts collected pursuant to action taken under this Section
7.2 shall be paid into the Bond Fund and applied in accordance
with the provisions of the Indenture.
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If any such declaration of acceleration of the Bonds
shall have been annulled pursuant to the terms of the
Indenture and if, at any time after such declaration, but
before all the Bonds shall have matured by their terms, all
arrears of interest upon the Note, and interest on overdue
installments of interest (to the extent enforceable under
applicable law) at the rate or rates per annum specified for
the Note and the principal of and premium, if any, on the
Note which shall have become due and payable otherwise than
by acceleration, and all other sums payable hereunder,
except the principal of, and interest on, the Note which
pursuant to such declaration shall have become due and
payable, shall have been paid by or on behalf of the Company
or provision satisfactory to the Trustee shall have been
made for such payment, then such acceleration of the Note
shall ipso facto be deemed to be rescinded and any such
Default and its consequences shall ipso facto be deemed to
be annulled, but no such annulment shall extend to or affect
any subsequent Default or impair or exhaust any right or
remedy consequent thereon.
SECTION 7.3. No Remedy Exclusive. No remedy herein
conferred upon or reserved to the Authority or to the
Trustee is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy
given under this Participation Agreement or now or hereafter
existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon any
Default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and
power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Authority or
the Trustee to exercise any remedy reserved to it in this
Article, it shall not be necessary to give any notice, other
than such notice as may be herein expressly required. Such
rights and remedies as are given the Authority hereunder
shall also extend to the Trustee and the Trustee and the
Holders of the Bonds issued under the Indenture shall be
deemed third party beneficiaries of all covenants and
agreements herein contained.
In case the Trustee (as assignee of the Authority under
the Indenture) or the Authority shall have proceeded to
enforce its rights under this Participation Agreement and
such proceedings shall have been discontinued or abandoned
for any reason or shall have been determined adversely to
the Trustee or the Authority, then and in every such case,
the Company, the Authority and the Trustee shall be restored
respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the
Company, the Authority and the Trustee shall continue as
though no such proceeding had been taken.
The Company covenants that, in case an Event of Default
shall occur with respect to any Note Payments payable under
Sections 4.2(a), (b) and (c) hereof and the Note, then, upon
demand of the Trustee (as assignee of the Authority under
the Indenture), the Company will pay to the Trustee the
whole amount that then shall have become due and payable
under said Sections, with interest (to the extent permitted
by law) on said amount at the rate of interest then borne by
the Bonds pursuant to the Indenture, but not exceeding the
maximum rate permitted by law, until paid, and in addition
thereto, such further amounts as shall be sufficient to
cover the costs and expenses of collection, including
reasonable compensation to the Trustee, its agents,
attorneys,
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and counsel, and any other expenses or liabilities
incurred by the Trustee other than those incurred through
bad faith or negligence.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Authority or the Trustee (as assignee of the
Authority under the Indenture) shall be entitled and empowered to
institute any action or proceeding at law or in equity for the
collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company and
collect, in the manner provided by law out of the property of the
Company, the monies adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company under the Federal
bankruptcy laws or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of
the Company or in the case of any other similar judicial
proceedings relative to the Company or to the creditors or
property of the Company, the Trustee shall be entitled and
empowered, by intervention in such proceedings or otherwise, to
file and provide a claim or claims for the whole amount owing and
unpaid pursuant to this Participation Agreement and, in case of
any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to
have the claims of the Holders and the Trustee allowed in such
judicial proceedings relative to the Company, its creditors, or
its property, and to collect and receive any monies or other
property payable or deliverable on any such claims, and to
distribute the same after the deduction of its charges and
expenses; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized to make such payments to the
Trustee, and to pay to the Trustee any amount due it for
compensation and expenses, including reasonable counsel fees and
expenses incurred by it up to the date of such distribution.
Nothing herein contained shall be construed to prevent the
Authority from enforcing directly any of its rights under
Sections 4.2, 5.16 and 7.4 hereof; provided that, in case the
Company shall have failed to pay amounts required to be paid
under Sections 4.2(e), 4.2(f), 5.16 and 7.4 hereof which event
shall have continued for a period of thirty (30) days after the
date on which written notice of such failure, requiring the
Company to remedy the same, shall have been given to the Company
by the Authority or the Trustee, the Authority or the Trustee may
take whatever action at law or in equity as may appear necessary
or desirable to enforce performance or observance of any
obligations or agreements of the Company under Sections 4.2(e),
4.2(f), 5.16 and 7.4 hereof.
SECTION 7.4. Agreement to Pay Attorneys' Fees and
Expenses. In the event the Company should default under any
of the provisions of this Participation Agreement and the
Authority or the Trustee should employ attorneys or incur
other expenses for the collection of installment payments
payable pursuant to Articles IV, VI or VII hereof and the
Note or the enforcement of performance or observance of any
obligation or agreement on the part of the Company contained
herein or in the Note, the Company agrees that it will on
demand therefor pay
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to the Authority or the Trustee the reasonable fees and expenses of such
attorneys and such other expenses so incurred by the Authority or the Trustee.
SECTION 7.5. No Additional Waiver Implied by One
Waiver. In the event any agreement contained herein or in
the Note should be breached by any party and thereafter
waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to
waive any other breach hereunder.
SECTION 7.6. Consent of Credit Facility Issuer
Required. To the extent the consent, approval or direction
of the Credit Facility Issuer is required by any provision
of this Participation Agreement, the Credit Facility Issuer
shall have the right to give, and the discretion to
withhold, such consent, approval or direction only if (i)
the Credit Facility Issuer is not party to any proceeding
for the rehabilitation, liquidation, conservation or
dissolution of the Credit Facility Issuer pursuant to the
U.S. Bankruptcy Code or similar provision of State law; (ii)
the Credit Facility is in full force and effect; (iii) the
Credit Facility Issuer shall have made and be continuing to
make all payments and meet all of its obligations under the
Credit Facility; and (iv) any Bonds insured by the Credit
Facility Issuer remain outstanding; provided, however, that
Bonds held by or for the account of the Company shall be
deemed outstanding for purposes of this section and provided
further that nothing contained in this Section shall affect
any rights that the Initial Credit Facility Issuer may have
as a bondholder by virtue of its rights of subrogation. So
long as those conditions are met the Credit Facility Issuer
shall also be treated as a third party beneficiary hereunder
and as a party entitled to (i) notify the Trustee of the
occurrence of an Event of Default and (ii) request the
Trustee to intervene in judicial proceedings that affect the
Bonds, the payment of which is guaranteed by the Credit
Facility Issuer, and the security therefor; provided that
the Trustee shall be entitled to indemnity from the Credit
Facility Issuer satisfactory to it; and the Trustee shall
accept notice of an Event of Default from the Credit
Facility Issuer.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices. All notices, certificates or
other communications required or permitted to be given under
this Participation Agreement or the Indenture shall be
sufficiently given and shall be deemed given when delivered
or mailed by first class mail, postage prepaid, addressed as
follows: if to the Authority, at Corporate Plaza West, 286
Washington Avenue Extension, Albany, New York 12203-6399,
Attention: Chair; if to the Company, at One MetroTech
Center, Brooklyn, New York 11201, Attention: Treasurer; if
to the Trustee, at 450 West 33rd Street, 15th Floor, New
York, New York 10001, Attention: Corporate Trust
Administration; if to the Bond Insurer, the Market Agent or
the Registrar and Paying Agent at such address as shall be
designated by it pursuant to the Indenture; and if to any
other Support Facility issuer, at the address stated in the
Support Facility. A duplicate copy of each notice,
certificate, request or other communication given hereunder
to the Authority, the Company, the Trustee, the Market
Agent, the Registrar and the Paying Agent or any Support
Facility Issuer shall also be given to the others. The
Authority, the Company, any Support Facility Issuer and the
Trustee, may, by notice given hereunder, designate any
further or different addresses to which subsequent notices,
certificates or other communications shall be sent.
SECTION 8.2. Binding Effect. This Participation
Agreement shall inure to the benefit of and shall be binding
upon the Authority and the Company and their respective
successors and assigns, except to the extent set forth in
Section 7.3.
SECTION 8.3. Severability. If any clause, provision or
section of this Participation Agreement is held illegal,
invalid or unenforceable by any court or administrative
body, this Participation Agreement shall be construed and
enforced as if such illegal or invalid or unenforceable
clause, provision or section had not been contained in this
Participation Agreement. In case any agreement or obligation
contained in this Participation Agreement is held to be in
violation of law, then such agreement or obligation shall be
deemed to be the agreement or obligation of the Authority or
the Company, as the case may be, to the full extent
permitted by law.
SECTION 8.4. Amounts Remaining in Bond Fund. It is
agreed by the parties hereto that any amounts remaining in
the Bond Fund upon expiration of this Participation
Agreement after payment in full of the Bonds (or provision
for payment thereof having been made in accordance with the
provisions of Section 15.01 of the Indenture) and the fees
and expenses of the Trustee, the Auction Agent, the Market
Agent, the Registrar and Paying Agent and any other paying
agents in accordance with the Indenture, shall belong to and
be paid to the Company by the Trustee as the return of an
overpayment of the amounts payable pursuant to Section 4.2
hereof and the Note.
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SECTION 8.5. Further Assurances and Corrective
Instruments. The Authority and the Company agree that they
will, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as may
reasonably be required for correcting any inadequate or
incorrect description of the Project or for carrying out the
expressed intention of this Participation Agreement in
accordance with the provisions of the Indenture.
SECTION 8.6. Amendments, Changes and Modifications.
Except as otherwise provided in this Participation Agreement
or in the Indenture, subsequent to the issuance of the Bonds
and prior to the payment in full of the Bonds (or provision
for the payment thereof having been made in accordance with
the provisions of the Indenture), this Participation
Agreement and the Note may be amended, changed, modified,
altered or terminated only in accordance with the provisions
of the Indenture.
SECTION 8.7. Execution of Counterparts. This Agreement
may be simultaneously executed in several counterparts, each
of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 8.8. Delegation of Duties by Authority. It is
agreed that under the terms of this Participation Agreement
and also under the terms of the Indenture the Authority has
delegated certain of its duties hereunder to the Company.
The fact of such delegation shall be deemed a sufficient
compliance by the Authority to satisfy the duties so
delegated and the Authority shall not be liable in any way
by reason of acts done or omitted by the Company or any
Authorized Company Representative. The Authority shall have
the right at all times to act in reliance upon the
authorization, representation or certification of an
Authorized Company Representative unless such reliance is in
bad faith.
SECTION 8.9. Applicable Law. THIS PARTICIPATION
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.
SECTION 8.10. Captions. The captions and headings in
this Participation Agreement are for convenience only and in
no way define, limit or describe the scope or intent of any
provisions or sections of this Participation Agreement.
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IN WITNESS WHEREOF, the Authority and the Company have
caused this Participation Agreement to be executed in their
respective names and their respective seals to be hereunto
affixed and attested by their duly authorized officers, all
as of the date first above written.
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
By __________________________________
President
(SEAL)
Attest:
- -------------------------------
Secretary to the Board and
Vice President for
Governmental Relations
KEYSPAN GENERATION LLC
By __________________________________
Title:
Name:
(SEAL)
Attest:
Name:
Title:
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EXHIBIT A
(To Participation Agreement,
dated as of October 1, 1999,
between the Authority and the Company)
DESCRIPTION OF PROJECT
EXEMPT FACILITIES
1. Glenwood (Glenwood Landing)
An industrial wastewater treatment facility consisting primarily of a
batch holding tank, air sparging system, an automatic feed system for pH
neutralization, analyzers, pH controller, pumps, piping, filtration device,
oil/water separator, flow elements, monitoring devices, degritting device,
storage and impoundment facilities, rooms for staff and equipment, and all
facilities functionally related and subordinate thereto.
A sewage disposal facility consisting primarily of piping, pumps,
holding tank and sewage treatment plant to treat sewage effluent prior to
discharge to harbor.
2. Far Rockaway
An industrial wastewater treatment facility which will consist
primarily of a degritting device and storage and impoundment facilities, and all
facilities functionally related and subordinate thereto.
3. E.F. Barrett (Island Park)
An industrial wastewater treatment facility which will consist
primarily of pumps, sumps, piping systems, a surge pond, a holding pond,
oil/water skimmer, agitators, pH neutralization system, monitoring equipment,
granular media filters, chemical analyzer, degritting device, impoundment
facilities, reaction tank, reactor clarifier, sludge dewatering system, and all
facilities functionally related and subordinate thereto.
In addition to the foregoing, miscellaneous facilities will be
installed which will include a building which will house certain pollution
control facilities.
4. Northport
An industrial wastewater treatment facility which will consist
primarily of pumps, sumps, piping systems, a surge pond, a holding pond,
oil/water skimmer, agitators, pH neutralization
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<PAGE>
system, monitoring equipment, granular media filters, chemical analyzer,
degritting device, impoundment facilities, reaction tank, ferrous sulfate feed
system, reactor clarifier, sludge dewatering system, and all facilities
functionally related and subordinate thereto.
An electrostatic precipator and soot reinjection system to prevent
the discharge of soot and particulates to the atmosphere installed at Unit No.
1, Unit No. 2 and Unit No. 3.
In addition to the foregoing, miscellaneous facilities will be
installed which will include a building which will house certain pollution
control facilities.
5. Port Jefferson
An industrial wastewater treatment facility which will consist
primarily of pumps, sumps, piping systems, a surge pond, a holding pond,
oil/water skimmer, agitators, pH neutralization system, monitoring equipment,
granular media filters, chemical analyzer, degritting device, impoundment
facilities, reaction tank, ferrous sulfate feed system, reactor clarifier,
sludge dewatering system, and all facilities functionally related and
subordinate thereto.
In addition to the foregoing, miscellaneous facilities will be
installed which will include a building which will house certain pollution
control facilities.
6. Such additional or substituted facilities for pollution control which because
of changes in technology, cost, plant processes and the like, the Company
determines shall be added to or substituted for the equipment and property
described in paragraphs 1-5 above.
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EXHIBIT B
(To Participation Agreement dated as of October 1, 1999 between
New York State Energy Research and Development Authority and
KeySpan Generation LLC, relating to the Bonds)
KEYSPAN GENERATION LLC
$41,125,000 PROMISSORY NOTE
FOR
POLLUTION CONTROL REFUNDING REVENUE BONDS
(KEYSPAN GENERATION LLC PROJECTS), 1999 Series A
New York, New York
October 27, 1999
FOR VALUE RECEIVED, KeySpan Generation LLC, a limited liability
company duly organized under and validly existing under and by
virtue of the laws of the State of New York (the "Company"),
promises to pay to the order of The Chase Manhattan Bank, as
trustee (the "Trustee") under the hereinafter referred to
Indenture, in lawful money of the United States, the principal
sum of $41,125,000 (the "Loan Amount"), together with: (a)
interest thereon at such rate or rates as in the aggregate will
produce an amount equal to the total of all interest becoming due
and payable on $41,125,000 principal amount of the New York State
Energy Research and Development Authority's Pollution Control
Refunding Revenue Bonds (KeySpan Generation LLC Projects), 1999
Series A, dated as of October 27, 1999 (the "Bonds"), issued
pursuant to a Trust Indenture (the "Indenture") dated as of
October 1, 1999, between the New York State Energy Research and
Development Authority (the "Authority") and the Trustee; and (b)
such redemption premiums and other amounts allocable to the Loan
Amount as are required to be paid by the Company to the Authority
as part of the payments provided in the Participation Agreement
dated as of October 1, 1999, between the Company and the
Authority (the "Participation Agreement"). The terms and
provisions of the Participation Agreement are incorporated herein
by reference and made a part hereof. The foregoing amounts shall
be paid in installments and in the amounts which shall be due and
payable as provided below.
The Company shall make Note Payments by 12:00 noon, New
York City time, one
Business Day (two Business Days during any Auction Rate Period or any Auction
Rate-Inverse Rate Period) next preceding each Interest Payment Date to the Bond
Fund for credit by the Trustee to the Interest Account of the Bond Fund
established pursuant to Section 9.01 of the Indenture,
B-1
<PAGE>
in the aggregate amount required, together with other funds available therefor
in the Interest Account in the Bond Fund, to pay the interest payable on each
such Outstanding Bond on each such Interest Payment Date.
In addition, the Company shall pay an additional amount to the
Trustee for deposit in the Bond Fund and credit to the Principal
Account, Interest Account, Redemption Account or to be applied to
the payment of the principal of and premium, if any, and interest
payable upon redemption of any Bond pursuant to Article V of the
Indenture.
The payment obligations of the Company under this note shall be
deemed to be discharged and this note shall be cancelled in the
event that the Bonds shall have been accelerated under the
Indenture and the Company shall have paid or caused to be paid
all amounts required under the Participation Agreement to be paid
upon the occurrence of such acceleration.
In the event the Company should fail to make any of the payments
required by this note or the Participation Agreement to be made
to the Authority, the item or installment so in default shall
continue as an obligation of the Company until the amount in
default shall have been fully paid, and the Company agrees to pay
the same with interest thereon at the rate of interest borne by
the Bonds, to the extent, but not exceeding the maximum rate,
permitted by law, until paid; provided, however, that if such
failure to pay results in a payment of principal of, or premium,
if any, or interest on the Bonds not being made when due and
payable, the Company shall pay the same with interest thereon,
which interest shall also constitute an obligation of the Company
at the same rate of interest per annum as that payable on the
Bonds; provided, further, if during an Auction Rate Period or
Auction Rate-Inverse Rate Period such failure results in payment
of principal of, or premium, if any, or interest on Auction Bonds
or the Auction Rate- Inverse Rate Bonds, as the case may be, not
being made when due and payable, the Company shall pay the same
with interest thereon, which interest shall also constitute an
obligation of the Company, at the Overdue Rate.
This note shall finally mature on October 1, 2028 unless paid
earlier as permittedby the Participation Agreement and the
Indenture.
This Note is subject to optional and mandatory prepayment and to
acceleration as provided in the Participation Agreement.
If the Company should default in the payment of any installment
of principal of, premium, if any, and interest due under this
note or if any one or more of the events of default specified in
the Participation Agreement should occur, and if any such default
is not remedied as provided in the Participation Agreement, the
Authority or the Trustee then, or at any time thereafter, may
give notice to the Company declaring all unpaid amounts of this
note then outstanding, together with all other unpaid amounts
outstanding under the Participation Agreement, to be immediately
due and payable, and thereupon, without further notice or demand,
all such amounts shall become and be immediately due and payable.
Any failure to exercise this
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<PAGE>
option shall not constitute a waiver of the right to exercise the same at any
time in the event of any continuing or subsequent default. In the event of
default in the payment of this note, the undersigned hereby agrees to pay all
costs incurred in connection with the collection of the amounts then due hereon,
including reasonable attorneys' fees. The payments hereunder shall be payable at
the principal office of the Trustee in New York, New York.
The obligation of the Company to make payments under this note
shall be an absolute, direct, general obligation, and shall be
unconditional and shall not be abated, rebated, set off, reduced,
abrogated, waived, diminished or otherwise modified in any manner
or to any extent whatsoever other than for prior payment.
The Company hereby waives presentment for payment, demand, demand
and protest and notice of protest, demand and dishonor and
nonpayment of this note.
This note and all instruments securing the same are to
be construed according to the law of the State of New York.
KEYSPAN GENERATION LLC
(SEAL) By___________________________________
Name:
Title:
____________________
Name:
Title:
B-3
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; EFFECTIVE DATE AND DURATION
OF PARTICIPATION AGREEMENT
<S> <C>
SECTION 1.1. Definitions......................................................................... 3
SECTION 1.2. Effective Date and Duration of Participation
Agreement......................................................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties by the Authority..................................... 4
SECTION 2.2. Representations and Warranties by the Company....................................... 4
ARTICLE III
THE PROJECT; ISSUANCE OF BONDS
SECTION 3.1. The Project......................................................................... 6
SECTION 3.2. Sale of Bonds and Deposit of Proceeds............................................... 6
SECTION 3.3. Disbursements from Project Fund and Rebate
Fund................................................................................ 6
SECTION 3.4. Adequacy of Project Fund............................................................ 7
SECTION 3.5. Ownership and Possession of the Project............................................. 7
SECTION 3.6. Operation, Maintenance and Repair................................................... 7
SECTION 3.7. Investment of Monies in Funds Under the
Indenture......................................................................... 7
ARTICLE IV
NOTE AND PAYMENTS
SECTION 4.1. Execution and Delivery of Note to Trustee........................................... 8
SECTION 4.2. Payments Payable; Note Payments; Additional
Payments.......................................................................... 8
SECTION 4.3. Notice to Pay; Medium of Payment; Acceleration...................................... 11
(i)
<PAGE>
Page
SECTION 4.4. Advance Payments.................................................................... 11
SECTION 4.5. Company's Payments as Trust Funds................................................... 11
SECTION 4.6. Absolute Obligation to Make Payments................................................ 12
SECTION 4.7. Assignment of Authority's Rights.................................................... 13
SECTION 4.8. Actions with Respect to or by or on behalf of the
Authority under the Indenture..................................................... 13
SECTION 4.9. Agreements of Company relating to Support
Facilities........................................................................ 13
SECTION 4.10. Project not Security for Bonds...................................................... 14
ARTICLE V
SPECIAL COVENANTS AND REPRESENTATIONS
SECTION 5.1. No Warranty as to Suitability of the Project........................................ 15
SECTION 5.2. Authority's Rights to Inspect the Project and Plans
and Specifications................................................................ 15
SECTION 5.3. Company Consent to Amendment of Indenture........................................... 15
SECTION 5.4. Tax Covenant........................................................................ 15
SECTION 5.5. Maintenance of Office or Agency..................................................... 15
SECTION 5.6. Further Assurances.................................................................. 15
SECTION 5.7. Payment of Taxes and Other Charges.................................................. 16
SECTION 5.8. Maintenance of Properties........................................................... 16
SECTION 5.9. Insurance........................................................................... 16
SECTION 5.10. Proper Books of Record and Account.................................................. 16
SECTION 5.11. Compliance with Law................................................................. 17
SECTION 5.12. Consolidation, Merger or Sale of Assets............................................. 17
SECTION 5.13. Financial Statements of Company..................................................... 18
SECTION 5.14. Company Agrees to Perform Obligations Imposed
by Indenture...................................................................... 18
SECTION 5.15. Certificates as to Defaults......................................................... 18
SECTION 5.16. Limited Obligation of Authority; Indemnification of
Authority, Registrar and Paying Agent, Auction Agent and Trustee.................. 18
SECTION 5.17. Financing Statements................................................................ 20
SECTION 5.18. Provision of Information............................................................ 20
SECTION 5.19. Ratings............................................................................. 20
SECTION 5.20. Notices............................................................................. 20
(ii)
<PAGE>
Page
ARTICLE VI
OPTIONAL AND MANDATORY PREPAYMENTS;
REDEMPTION OF BONDS
SECTION 6.1. Redemption of Bonds................................................................. 21
SECTION 6.2. Prepayment of Note Payments......................................................... 21
SECTION 6.3. Option to Prepay Payments for Redemption of
Bonds............................................................................. 21
SECTION 6.4. Mandatory Prepayment of Payments for Redemption
of Bonds.......................................................................... 22
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1. Events of Default Defined........................................................... 23
SECTION 7.2. Remedies on Default................................................................. 24
SECTION 7.3. No Remedy Exclusive................................................................. 25
SECTION 7.4. Agreement to Pay Attorneys' Fees and Expenses....................................... 26
SECTION 7.5. No Additional Waiver Implied by One Waiver.......................................... 27
SECTION 7.6. Consent of Credit Facility Issuer Required.......................................... 27
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices............................................................................. 28
SECTION 8.2. Binding Effect...................................................................... 28
SECTION 8.3. Severability........................................................................ 28
SECTION 8.4. Amounts Remaining in Bond Fund...................................................... 28
SECTION 8.5. Further Assurances and Corrective Instruments....................................... 29
SECTION 8.6. Amendments, Changes and Modifications............................................... 29
SECTION 8.7. Execution of Counterparts........................................................... 29
SECTION 8.8. Delegation of Duties by Authority................................................... 29
SECTION 8.9. Applicable Law...................................................................... 29
SECTION 8.10. Captions............................................................................ 29
(iii)
<PAGE>
Page
EXHIBIT A - Description of Project Exempt Facilities
EXHIBIT B - KeySpan Generation LLC $41,125,000 Promissory Note For Pollution Control
Refunding Revenue Bonds (KeySpan Generation LLC Projects), 1999 Series A
(iv)
</TABLE>
EXECUTION COPY
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TRUST INDENTURE
BETWEEN
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
AND
THE CHASE MANHATTAN BANK,
as Trustee
Dated as of October 1, 1999
-relating to-
$41,125,000 Pollution Control Refunding Revenue Bonds
(KeySpan Generation LLC Projects), 1999 Series A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS TRUST INDENTURE, made and dated as of the first day of
October, 1999, by and between New York State Energy Research and Development
Authority (the "Authority"), a body corporate and politic, constituting a public
benefit corporation, and The Chase Manhattan Bank, as trustee (the "Trustee"), a
corporation organized and existing under and by virtue of the laws of the State
of New York with its principal corporate trust office located in The City of New
York.
W I T N E S S E T H T H A T:
WHEREAS, pursuant to special act of the Legislature of the
State of New York (Title 9 of Article 8 of the Public Authorities Law of the
State of New York, as from time to time amended and supplemented, herein called
the "Act"), the Authority has been established as a body corporate and politic,
constituting a public benefit corporation; and
WHEREAS, pursuant to the Act, the Authority is also empowered
to extend credit and make loans from bond proceeds to any person for the
construction, acquisition, and installation of, or for the reimbursement to any
person for costs in connection with, any special energy project, including, but
not limited to, any land, works, system, building, or other improvement and all
real and personal properties of any nature or any interest in any of them which
are suitable for or related to the furnishing, generation or production of
energy; and
WHEREAS, the Authority is also authorized under the Act to
borrow money and issue its negotiable bonds and notes to provide sufficient
monies for achieving its corporate purposes including the refunding of
outstanding obligations of the Authority; and
WHEREAS, the Authority is also authorized under the Act to
enter into any contracts and to execute all instruments necessary or convenient
for the exercise of its corporate powers and the fulfillment of its corporate
purposes; and
WHEREAS, the Authority issued 7 1/2%Pollution Control Revenue
Bonds (Long Island Lighting Company Projects), Series A in the principal amount
of $28,375,000 (the "Series A Bonds"), which were used, in part, to finance
certain costs primarily associated with the acquisition, construction, and
installation of various systems to abate, control, and reduce pollution and to
dispose of sewage and solid waste at Northport Power Station, Glenwood Landing
Power Station and at the former Shoreham Nuclear Power Station and miscellaneous
facilities at the former Mitchell Gardens Power Station; and
WHEREAS, there is currently outstanding $26,375,000 aggregate principal
amount of the Series A Bonds; and
WHEREAS, the Authority issued Pollution Control Revenue Bonds
(Long Island Lighting Company Projects), Series B in the principal amount of
$19,100,000 (the "Series B Bonds", and collectively with the Series A Bonds, the
"Prior Bonds"), which were used, in part, to finance certain costs primarily
associated with the acquisition, construction, and installation of various
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<PAGE>
systems to abate, control, and reduce pollution and to dispose of sewage
and solid waste at the Glenwood Landing Power Station, Far Rockaway Power
Station, E.F. Barrett Power Station, Northport Power Station, and Port Jefferson
Power Station; and
WHEREAS, all of the Series B Bonds are currently outstanding; and
WHEREAS, KeySpan Generation LLC (formerly known as MarketSpan
Generation LLC) (the "Company") is the current owner of all the assets financed
by the Prior Bonds other than the facilities at the former Shoreham Nuclear
Power Station and the former Mitchell Gardens Power Station, having acquired on
May 28, 1998, pursuant to the Agreement and Plan of Merger, dated as of June 26,
1997, by and among MarketSpan Corporation d/b/a KeySpan (formerly known as BL
Holding Corp.) ("KeySpan"), Long Island Lighting Company ("LILCO"), Long Island
Power Authority and LIPA Acquisition Corp. (the "Merger Agreement"), all of the
non-nuclear electric generation businesses, among other assets, of LILCO; and
WHEREAS, pursuant to the Merger Agreement and in connection
with the transfer by LILCO of its generating assets to the Company, the Company,
KeySpan and other Transferee Subsidiaries (as defined in the Merger Agreement)
(collectively, the "KeySpan Notes Obligors") have executed and delivered to
LILCO promissory notes relating to the Prior Bonds and evidencing the joint and
several obligation of the KeySpan Notes Obligors to pay to LILCO amounts which
would be sufficient to pay principal of, and premium, if any, and interest on,
the Prior Bonds when due (the "KeySpan Notes"); and
WHEREAS, the Company has requested that the Authority issue bonds for the
purpose of refunding the Prior Bonds; and
WHEREAS, contemporaneously with the execution hereof, the
Company and the Authority have entered into a Participation Agreement of even
date herewith (herein referred to as the "Participation Agreement"); and
WHEREAS, the Participation Agreement provides that the
Authority will issue its bonds and make the proceeds of such bonds available to
the Company; and
WHEREAS, the Company proposes to achieve the refunding of the
Prior Bonds by applying the proceeds of the Bonds together with other monies
advanced from its own funds to the prepayment of the KeySpan Notes; and
WHEREAS, LILCO has agreed to direct redemption of the Prior
Bonds and use the proceeds received from the prepayment of the KeySpan Notes to
refund the Prior Bonds; and
WHEREAS, simultaneously with the issuance and delivery of such
bonds, the Company will execute and deliver a promissory note dated the date of
issuance of such bonds (the
-2-
<PAGE>
"Note") as evidence of its obligation to make certain payments required by the
Participation Agreement; and
WHEREAS, pursuant to Resolution No. 952 adopted September 27,
1999, the Authority has determined to issue $41,125,000 aggregate principal
amount of Pollution Control Refunding Revenue Bonds (KeySpan Generation LLC
Projects), 1999 Series A (the "Bonds") for the purpose of applying the proceeds
thereof together with other monies advanced by the Company to the prepayment of
the KeySpan Notes and causing LILCO to use the proceeds received from the
prepayment of the KeySpan Notes to pay all or a portion of the redemption price
of the Prior Bonds; and
WHEREAS, Ambac Assurance Corporation has agreed to issue a
municipal bond insurance policy in favor of the Trustee to provide for the
payment of such amounts as are specified therein with respect to the regularly
scheduled principal of and interest on the Bonds when due; and
WHEREAS, all acts, conditions and things necessary or required
by the Constitution and statutes of the State of New York, or otherwise, to
exist, happen, and be performed as prerequisites to the passage of this
Indenture, do exist, have happened, and have been performed; and
WHEREAS, the Trustee has accepted the trusts created by this
Trust Indenture and in evidence thereof has joined in the execution hereof;
NOW, THEREFORE, THIS TRUST INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Bonds are authenticated, issued and delivered, and in consideration of the
premises and the acceptance by the Trustee of the trusts hereby created and of
the purchase and acceptance of the Bonds by the Holders (as hereinafter defined)
thereof, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, and in order to secure payment of the principal of and
premium, if any, and interest on the Bonds according to their tenor and effect
and the performance and observance by the Authority of all covenants, agreements
and conditions herein and in the Bonds contained, the Authority has
acknowledged, executed, signed and delivered this Indenture and hereby assigns,
confirms, pledges with and sets over and entrusts to the Trustee hereunder, its
successors in trust and assigns, subject to the provisions of this Indenture
(the following being called the "Trust Estate"): (1) the Revenues (as
hereinafter defined); (2) the Participation Agreement and the Note and all
rights, remedies and interest of the Authority under the Participation Agreement
and the Note, and any other agreement relating to the Project (exclusive of the
Additional Payments and the Authority's rights with respect to (a)
administrative compensation, attorneys' fees and indemnification, (b) the
receipt of notices, opinions, reports, copies of instruments and other items of
a similar nature required to be delivered to the Authority under the
Participation Agreement, (c) granting approvals and consents and making
determinations when required under the Participation Agreement, (d) making
requests for information and inspections in accordance with the Participation
Agreement, (e) Article III and Sections 4.2, 5.16 and 7.4 of the Participation
Agreement, and (f) the right to
-3-
<PAGE>
amend the Participation Agreement); (3) the Tax Regulatory Agreement, and all
rights, remedies and interest of the Authority thereunder, subject to the
provisions of the Tax Regulatory Agreement relating to the amendment thereof and
to a reservation by the Authority of the right to enforce the obligations of the
Company thereunder independently of the Trustee; (4) all other monies, rights
and properties held by the Trustee or other depositary under this Indenture and
the securities (and the interest, income and profits therefrom) in which such
monies may from time to time be invested (exclusive of the proceeds of or
amounts under any Credit Facility issued in the form of a municipal bond
insurance policy or any amounts on deposit in the Rebate Fund (as hereinafter
defined) or the Project Fund (as hereinafter defined)); and (5) any and all
other real or personal property of every nature from time to time hereafter by
delivery or by writing of any kind specially mortgaged, pledged, or
hypothecated, as and for additional security hereunder, by the Company in favor
of the Trustee or the Authority which are hereby authorized to receive any and
all such property at any and all times and to hold and apply the same subject to
the terms hereof.
TO HAVE AND TO HOLD, all and singular of said Trust Estate
unto the Trustee, its successors in trust and assigns, forever, in trust,
nevertheless, to inure to the use and benefit of the Holders of all the Bonds
and the Bond Insurer as their respective interests appear , for the securing of
the observance or performance of all the terms, provisions and conditions
therein and herein contained and for the equal and proportionate benefit and
security of all and singular the present and future Holders of the Bonds and the
Bond Insurer, without preference, priority, prejudice or distinction as to lien
or otherwise of any Bond over any other Bond, to the end that each Holder of a
Bond and the Bond Insurer shall have the same rights, privileges and lien under
and by virtue of this Trust Indenture, except as hereinafter otherwise
specifically provided;
AND CONDITIONED THAT, if the Authority shall cause to be paid
fully and promptly and indefeasibly when due all of its indebtedness,
liabilities, obligations and sums at any time secured hereby, including
interest, its Trustee's fees and reasonable expenses (including its reasonable
attorneys' fees and expenses), and shall promptly, faithfully and strictly keep,
perform and observe, or cause to be kept, performed and observed, all of its
covenants, obligations, warranties and agreements contained herein, then and in
such event, this Trust Indenture shall be and become void and of no further
force and effect, otherwise the same shall remain in full force and effect.
THIS TRUST INDENTURE FURTHER WITNESSETH, and it is expressly
declared, that all Bonds issued and secured hereunder are to be issued,
authenticated and delivered and all said income and Revenues hereby pledged are
to be dealt with and disposed of under, upon and subject to the terms,
conditions, stipulations, covenants, agreements, trusts, uses and purposes as
hereinafter expressed, and the Authority has agreed and covenanted, and does
hereby agree and covenant, with the Trustee and with the respective Holders,
from time to time, of the said Bonds, or any part thereof, as follows (provided
that in the performance of the agreements of the Authority herein contained any
obligation it may thereby incur for the payment of money shall never constitute
a general or moral obligation of the State of New York or any political
subdivision thereof within the meaning of any state constitutional provision or
statutory limitation, and shall not be secured directly or indirectly by the
full faith and credit, the general credit or any revenue or taxes of the State
of New York or any
-4-
<PAGE>
political subdivision thereof, but shall be payable solely out of the income and
Revenues derived under the Participation Agreement, the Note and the Credit
Facility, if any, and other monies, rights and properties of the Trust Estate),
that is to say:
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<PAGE>
ARTICLE I
DEFINITIONS; COMPUTATIONS; CERTIFICATES
AND OPINIONS; EVIDENCE OF ACTION BY AUTHORITY
SECTION 1.01. Definitions of Specific Terms. Unless the
context shall clearly indicate some other meaning or may otherwise require, the
terms defined in this Section shall, for all purposes of this Indenture and of
any indenture, resolution or other instrument amendatory hereof or supplemental
hereto and of any certificate, opinion, instrument or document herein or therein
mentioned, have the meanings herein specified, with the following definitions to
be equally applicable to both the singular and plural forms of any terms herein
defined and vice versa.
"'AA' Composite Commercial Paper Rate," on any date of
determination, shall mean with respect to Auction Rate Bonds during an Auction
Rate-Inverse Rate Period (i) the interest equivalent of the 30-day rate on
commercial paper placed on behalf of issuers whose corporate bonds are rated AA
by S&P, or the equivalent of such rating by S&P, as made available on a discount
basis or otherwise by the Federal Reserve Board for the Business Day immediately
preceding such date of determination, or (ii) if the Federal Reserve Board does
not make available any such rate, then the arithmetic average of such rates, as
quoted on a discount basis or otherwise, by the Commercial Paper Dealers, to the
Auction Agent for the close of business on the Business Day immediately
preceding such date of determination.
If any Commercial Paper Dealer does not quote a commercial
paper rate required to determine the "AA" Composite Commercial Paper Rate, the
"AA" Composite Commercial Paper Rate shall be determined on the basis of such
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Authority at the request of
the Company to provide such quotation or quotations not being supplied by any
Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or if
the Authority does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given day's maturity shall be equal to the product of (A)
100 times (B) the quotient (rounded upwards to the next higher one-thousandth
(.001) of 1%) of (x) the discount rate (expressed in decimals) divided by (y)
the difference between (1) 1.00 and (2) a fraction the numerator of which shall
be the product of the discount rate (expressed in decimals) times the number of
days in which such commercial paper matures and the denominator of which shall
be 360.
"Act" shall mean the New York State Energy Research and
Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of
the State of New York, as from time to time amended and supplemented.
I-1
<PAGE>
"Act of Bankruptcy" shall mean the filing of a petition
commencing a case by or against the Company or an Affiliate of the Company or
the Authority under the Bankruptcy Code or the filing of a petition or the
seeking of relief by or against the Company or an Affiliate of the Company or
the Authority under any state bankruptcy or insolvency law.
"Additional Payments" shall mean the Additional Payments as
defined in Section 4.2(e) of the Participation Agreement.
"Adjustable Rate" shall mean any of the following types of
interest rates: a Commercial Paper Rate, an Auction Rate (during an Auction Rate
Period), an Auction Rate and a related Inverse Rate (during an Auction
Rate-Inverse Rate Period), a Daily Rate, a Weekly Rate, a Monthly Rate, a
Semi-annual Rate and a Term Rate.
"Administration Fees" shall mean the amounts payable by the
Company to the Authority pursuant to Section 4.2(e) of the Participation
Agreement to defray a portion of the expenses incurred by the Authority in
conducting and administering its special energy project programs and the amount
payable as state bond issuance charge pursuant to Section 4.2(e) of the
Participation Agreement.
"Affiliate" of any specified person shall mean any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing, provided, that, when used in connection with
Auction Rate Bonds and Auction Rate-Inverse Rate Bonds, "Affiliate" shall mean
any person known to the Auction Agent to be controlled by, in control of or
under common control with the Company; provided that no Broker-Dealer controlled
by, in control of or under common control with the Company shall be an Affiliate
nor shall any corporation or any person controlled by, in control of or in
common control with such corporation be an Affiliate solely because a director
or executive officer of such Broker-Dealer is also a director or manager of the
Company.
"After-Tax Equivalent Rate" on any date of determination shall
mean with respect to Auction Rate Bonds during an Auction Rate-Inverse Rate
Period, the interest rate per annum equal to the product of (x) "AA" Composite
Commercial Paper Rate on such date and (y) (1.00 minus the Statutory Corporate
Tax Rate on such date).
"Agent Member" shall mean a member of, or participant in, the
Securities Depository.
"Alternate Liquidity Facility" shall mean any Liquidity
Facility obtained pursuant to the provisions of Section 6.02 in replacement of
an existing Liquidity Facility, including a letter of credit, committed line of
credit, surety bond or standby bond purchase agreement, or any combination of
the foregoing, and issued by a bank or banks, municipal bond or financial
guarantee
I-2
<PAGE>
insurance company, other financial institution or institutions, or any
combination of the foregoing which provides payment of the purchase price equal
to the principal of and accrued interest on Bonds purchased during the term
thereof upon any mandatory or optional tender for purchase pursuant to Sections
5.02, 5.03 and 5.06.
"Alternate Support Facility" shall mean any Support Facility
obtained pursuant to the provisions of Section 6.02 in replacement of an
existing Support Facility.
"Applicable Percentage" on any date of determination shall
mean the percentage determined as set forth below (as such percentage may be
adjusted (i) for Auction Rate Bonds during an Auction Rate Period pursuant to
Section 3.10 and (ii) for Auction Rate Bonds during an Auction Rate-Inverse Rate
Period pursuant to Section 3A.09) based on the prevailing long-term rating of
the Auction Rate Bonds during an Auction Rate Period or the Auction Rate Bonds
during an Auction Rate-Inverse Rate Period, as the case may be, in effect at the
close of business on the Business Day immediately preceding such date of
determination:
Auction Rate-Inverse
Rate Period Auction Rate Period
Prevailing Rating Applicable Percentage Applicable Percentage
AAA/"Aaa" 175% 65%
AA/"Aa" 175% 70%
A/"A" 175% 85%
Below A/"A" - 100%
BBB/"Baa" 200% -
Below BBB/"Baa" 265% -
For purposes of this definition, the "prevailing rating" of
the Auction Rate Bonds during an Auction Rate Period or the Auction Rate Bonds
during an Auction Rate-Inverse Rate Period, as the case may be, will be (a)
AAA/"Aaa," if the Auction Rate Bonds during an Auction Rate Period or the
Auction Rate Bonds during an Auction Rate-Inverse Rate Period, as the case may
be, have a rating of AAA by S&P and a rating of "Aaa" by Moody's, or the
equivalent of such ratings by a substitute rating agency or agencies selected as
provided below, (b) if not AAA/"Aaa," then AA/"Aa" if the Auction Rate Bonds
during an Auction Rate Period or the Auction Rate Bonds during an Auction
Rate-Inverse Rate Period, as the case may be, have a rating of AA- or better by
S&P and a rating of "Aa3" or better by Moody's, or the equivalent of such
ratings by a substitute rating agency or agencies selected as provided below,
(c) if not AAA/"Aaa" or AA/"Aa," then A/"A" if the Auction Rate Bonds during an
Auction Rate Period or the Auction Rate Bonds during an Auction Rate-Inverse
Rate Period, as the case may be, have a rating of A- or better by S&P and a
rating of "A3" or better by Moody's, or the equivalent of such ratings by a
substitute rating agency or agencies selected as provided below, (d) if not
AAA/"Aaa," AA/"Aa" or A/"A," then (1) Below A/"A", in the case of Auction Rate
Bonds during an Auction Rate Period, whether or not the Auction Rate Bonds are
rated by any securities rating agency or (2) BBB/"Baa," if, in the case of
Auction
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Rate Bonds during an Auction Rate-Inverse Rate Period, the Auction Rate Bonds
during an Auction Rate-Inverse Rate Period have a rating of BBB- or better by
S&P and a rating of "Baa3" or better by Moody's, or the equivalent of such
ratings by a substitute rating agency or agencies selected as provided below,
and (e) if, in the case of Auction Rate Bonds during an Auction Rate-Inverse
Rate Period, not AAA/"Aaa," AA/"Aa", A/"A" or BBB/"Baa," then Below BBB/"Baa,"
whether or not the Auction Rate Bonds during an Auction Rate-Inverse Rate Period
are rated by any securities rating agency.
If (x) the Auction Rate Bonds during an Auction Rate Period or
the Auction Rate Bonds during any Auction Rate-Inverse Rate Period, as the case
may be, are rated by a rating agency or agencies other than Moody's or S&P and
(y) the Company has delivered on behalf of the Authority to the Trustee and the
Auction Agent an instrument designating one or two of such rating agencies to
replace Moody's or S&P, or both, then for purposes of the definition of
"prevailing rating" Moody's or S&P, or both, will be deemed to have been
replaced in accordance with such instrument; provided, however, that such
instrument must be accompanied by the consent of the Market Agent. For purposes
of this definition, S&P's rating categories of AAA, AA-, A- and BBB-, and
Moody's rating categories of "Aaa," "Aa3," "A3" and "Baa3," refer to and include
the respective rating categories correlative thereto in the event that either or
both of such rating agencies have changed or modified their generic rating
categories. If the prevailing ratings for the Bonds are split between the
categories set forth above, the lower rating will determine the prevailing
rating.
"Auction" shall mean each periodic implementation of the
Auction Procedures for Auction Rate Bonds during an Auction Rate Period or the
Auction Rate Bonds during any Auction Rate-Inverse Rate Period.
"Auction Agency Agreement" shall mean the Auction Agency
Agreement (A) dated October 27, 1999, entered into between the Company and The
Chase Manhattan Bank, as Auction Agent, with respect to the Auction Rate Bonds
during the initial Auction Rate Period, or (B) between the Trustee and the
Auction Agent with respect to the Auction Rate-Inverse Rate Bonds during an
Auction Rate-Inverse Rate Period.
"Auction Agent" shall mean any entity appointed as such
pursuant to Section 11.21 and its successors and assigns.
"Auction Date" shall mean:
(A) with respect to each Auction Period for the Auction Rate
Bonds during an Auction Rate Period, (i) if the Auction Rate Bonds are in a
daily Auction Period, each Business Day, and (ii) if the Auction Rate Bonds are
in any other Auction Period, the last Thursday of the immediately preceding
Auction Period (or such other day that the Market Agent shall establish as the
Auction Date therefor pursuant to Section 3.05); provided, that if such day is
not a Business Day, the Auction Date shall be the next succeeding Business Day
other than for:
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(i) each Interest Period commencing after the ownership of the
Auction Rate Bonds is no longer maintained in book-entry form by the
Securities Depository;
(ii) each Interest Period commencing after the occurrence and during the
continuance of a Payment Default; or
(iii) any Interest Period commencing less than two Business
Days after the cure of a Payment Default pursuant to Section 12.01;
provided further that on the Business Day preceding the conversion from a daily
Auction Period to another Auction Period, there will be two Auctions, one for
the last daily Auction Period and one for the first Auction Period following the
conversion.
(B) with respect to the Auction Rate-Inverse Rate Bonds during
an Auction Rate- Inverse Rate Period, the Business Day immediately preceding the
first day of each Interest Period, other than:
(i) an Interest Period which is immediately preceded by a Regular
Record Date at the close of business on which all of the beneficial
ownership of the Auction Rate Bonds was Linked with all of the beneficial
ownership of the Inverse Rate Bonds;
(ii) each Interest Period commencing after the ownership of
the Auction Rate Bonds is no longer maintained in book-entry form by
the Securities Depository;
(iii) each Interest Period commencing after the occurrence and during
the continuance of a Payment Default; or
(iv) any Interest Period commencing less than two Business
Days after the cure of a Payment Default pursuant to Section 12.01.
"Auction Period" shall mean;
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(A) in the event the Bonds are issued initially as Auction
Rate Bonds during an Auction Rate Period, the period from and including the
Closing Date to and including the initial Auction Date; and
(B) thereafter, or after a Change in the Interest Rate Mode to
an Auction Rate, during an Auction Rate Period, until the effective date of a
Change in the Interest Rate Mode or the maturity of the Bonds;
(i) with respect to Auction Rate Bonds in a daily Auction
Period, a period beginning on each Business Day and extending to but
not including the next succeeding Business Day; and
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(ii) with respect to Auction Rate Bonds not in a daily Auction
Period, each period from and including the last Interest Payment Date
for the immediately preceding Auction Period or Calculation Period, as
the case may be, to and including the next succeeding Auction Date or,
in the event of a Change in the Interest Rate Mode, to but excluding
the effective date of such change;
provided, if any day that would be the last day of any such period does not
immediately precede a Business Day, such period shall end on the next day which
immediately precedes a Business Day.
"Auction Procedures" shall mean (i) with respect to the
Auction Rate Bonds during an Auction Rate Period the procedures set forth in
Sections 3.06 through 3.09, and (ii) with respect to the Auction Rate Bonds
during an Auction Rate-Inverse Rate Period the procedures set forth in Section
3A.03.
"Auction Rate" shall mean:
(A) With respect to Auction Rate Bonds and each
Auction Period for such Auction Rate Bonds during an Auction
Rate Period, the rate of interest per annum determined for the
Bonds pursuant to Article III; and
(B) With respect to Auction Rate Bonds and each Interest
Period for such Auction Rate Bonds during an Auction Rate-Inverse Rate
Period (other than the Initial Interest Period after the Closing Date
if the Bonds initially are offered as Auction Rate-Inverse Rate Bonds,
or an Initial Interest Period after a Change in the Interest Rate Mode
to an Auction Rate- Inverse Rate), the rate of interest per annum
determined for the Bonds pursuant to Article IIIA.
"Auction Rate Bonds" shall mean:
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(A) With respect to an Auction Rate Period, any Bonds or subseries of
Bonds which bear the Auction Rate determined pursuant to Article III;
(B) With respect to an Auction Rate-Inverse Rate Period, any
Bonds or subseries of Bonds which bear the Auction Rate determined
pursuant to Article IIIA.
"Auction Rate-Inverse Rate Bonds" shall mean any Bonds which
bear an Auction Rate and a related Inverse Rate during an Auction Rate-Inverse
Rate Period.
"Auction Rate-Inverse Rate Period" shall mean any period
during which the Auction Rate-Inverse Rate Bonds bear interest at an Auction
Rate and a related Inverse Rate determined pursuant to the implementation of
Auction Procedures established under Article IIIA, which period shall commence
on the Closing Date if the Bonds initially are offered as Auction Rate-Inverse
Rate Bonds, or on the effective date of a Change in the Interest Rate Mode to an
Auction Rate and a related Inverse Rate, and shall extend through the day
immediately preceding the earlier of (a) the effective date of a Change in the
Interest Rate Mode or (b) the Fixed Rate Conversion Date.
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"Auction Rate Period" shall mean any period during which the
Auction Rate Bonds bear interest at an Auction Rate determined pursuant to the
implementation of Auction Procedures established under Article III, which period
shall commence on the Closing Date if the Bonds initially are offered as Auction
Rate Bonds, or on the effective date of a Change in the Interest Rate Mode to an
Auction Rate and shall extend through the day immediately preceding the earlier
of (a) the effective date of a Change in the Interest Rate Mode or (b) the Fixed
Rate Conversion Date.
"Auction Rate Period Record Date" shall mean, with respect to
each Interest Payment Date during an Auction Rate Period (other than during a
daily Auction Period), the Business Day next preceding such Interest Payment
Date, and with respect to each Interest Payment Date during a daily Auction
Period, the last Business Day of the month preceding such Interest Payment Date.
"Authority" shall mean New York State Energy Research and
Development Authority, the public benefit corporation created by the Act, and
its successors and assigns.
"Authorized Company Representative" shall mean any officer or
other employee of the Company at the time designated to act on behalf of the
Company by written certificate furnished to the Authority and the Trustee
containing the specimen signature of such person and signed on behalf of the
Company by its Chairman, President or a Vice President and its Secretary or an
Assistant Secretary.
"Authorized Officer" shall mean the Chair, Vice-Chair,
President, Treasurer, Assistant Treasurer or Secretary to the Board and Vice
President for Governmental Relations.
"Available Auction Rate Bonds" shall mean (i) with respect to
the Auction Rate Bonds during an Auction Rate Period, Available Auction Rate
Bonds as defined in Section 3.08, and (ii) with respect to Auction Rate Bonds
during an Auction Rate-Inverse Rate Period, Available Auction Rate Bonds as
defined in Section 3A.03.
"Available Moneys" shall mean (i) moneys which have been paid
to the Trustee by the Company or any Affiliate of the Company and have been
continuously on deposit with the Trustee for at least 123 consecutive days in
any separate and segregated account or accounts or sub-account or sub-accounts
in which no other moneys which were not Available Moneys were at any time held,
during and prior to which period no Act of Bankruptcy shall have occurred
(unless the proceeding arising from such Act of Bankruptcy shall have been
dismissed and such dismissal shall be final and not subject to appeal), and have
not been commingled with any other funds, and the proceeds from the investment
of such moneys once such moneys become Available Moneys, provided that such
investment proceeds shall be considered to be Available Moneys only to the
extent that the Trustee, the Bond Insurer and any Rating Agencies then rating
the Bonds shall have received an opinion of counsel acceptable to any such
Rating Agencies to the effect that application of such investment proceeds does
not result in an avoidable preference with respect to the Company or any
Affiliate of the Company or the Authority pursuant to the provisions of Section
547 of the
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Bankruptcy Code, (ii) moneys drawn under the Credit Facility which were at all
times since their deposit with the Trustee held in a separate and segregated
account or accounts or sub-account or sub-accounts in which no moneys other than
those drawn under the Credit Facility were at any time held, and have not been
commingled with any other funds, (iii) moneys drawn under any Direct-Pay
Facility which were at all times since their deposit with the Trustee held in a
separate and segregated account or accounts or sub-account or sub-accounts in
which no moneys other than those drawn under such Direct-Pay Facility were at
any time held, and have not been commingled with any other funds, or (iv) the
proceeds of any obligations issued by the Authority to refund the Bonds, and the
proceeds of the investment of such moneys, provided that (x) such proceeds of
such obligations shall be deposited by the Trustee directly in a segregated
account maintained by the Trustee over which the Company (or any Affiliates of
the Company) or the Authority shall have no right to withdraw moneys or control
the investment of moneys, (y) such proceeds may not be used to pay the purchase
price of any Bonds tendered or deemed tendered for purchase pursuant to this
Indenture and (z) at or prior to the deposit of such proceeds an opinion of
counsel satisfactory to the Rating Agencies then rating the Bonds shall have
been provided to the Trustee, the Bond Insurer and such Rating Agencies to the
effect that such application of such proceeds will not constitute an avoidable
preference with respect to the Company or any Affiliate of the Company or the
Authority under Section 547 of the Bankruptcy Code.
"Bank Bond" or "Bank Bonds" means any Bond or Bonds purchased
by the Liquidity Facility Issuer pursuant to the initial Liquidity Facility or
any Bond or Bonds purchased pursuant to any Alternate Liquidity Facility.
"Bank Bond Interest Rate" or "Bank Rate", at any date of
determination, has the meaning ascribed thereto in the Liquidity Facility or an
agreement providing for the issuance thereof, provided that the Bank Bond
Interest Rate shall in no event exceed 15% per annum.
"Bid" shall mean (i) with respect to the Auction Rate Bonds
during an Auction Rate Period, Bid as defined in Section 3.06, and (ii) with
respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period, Bid as
defined in Section 3A.03.
"Bidder" shall mean (i) with respect to the Auction Rate Bonds
during an Auction Rate Period, Bidder as defined in Section 3.06, and (ii) with
respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period, Bidder
as defined in Section 3A.03.
"Bond Counsel" shall mean an attorney or firm or firms of
attorneys, satisfactory to the Authority and the Trustee, experienced in matters
relating to tax exemption of interest on bonds issued by states and their
political subdivisions.
"Bond Fund" shall mean the special trust fund of the Authority
designated as "KeySpan Generation LLC Project Bond Fund 1999 Series A" created
and established under, and to be held and administered by the Trustee as
provided in, Section 9.01 and, unless the context shall
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clearly indicate otherwise, shall include the "Interest Account," the "Principal
Account," and the "Redemption Account" created and established therein.
"Bondholder", "Holder of a Bond" or "Holder" shall mean any registered
owner of a Bond.
"Bond Insurer" shall mean Ambac Assurance Corporation, or any
successor thereto.
"Bond Purchase Agreement" shall mean the Bond Purchase
Agreement, dated October 21, 1999, among the Authority, the Company and the
underwriters for the Bonds.
"Bond Purchase Fund" shall mean the Bond Purchase Fund
established pursuant to the Bond Purchase Trust Agreement.
"Bond Purchase Trust Agreement" shall mean the Bond Purchase
Trust Agreement dated as of the Closing Date between the Authority and the
Registrar and Paying Agent, as from time to time amended or supplemented.
"Bonds" shall mean, the "Pollution Control Refunding Revenue
Bonds (KeySpan Generation LLC Projects), 1999 Series A" presently to be issued
as authorized in Section 2.02 at any time Outstanding.
"Bond Year" shall have the meaning set forth in the Tax
Regulatory Agreement.
"Broker-Dealer" shall mean any broker-dealer (as defined in
the Securities Exchange Act), commercial bank or other entity permitted by law
to perform the functions required of a Broker-Dealer set forth in the Auction
Procedures (i) that is an Agent Member (or an affiliate of an Agent Member),
(ii) that has been selected by the Auction Agent and the Company with the
consent of the Authority, (iii) that has entered into a Broker-Dealer Agreement
with the Auction Agent and the Company that remains effective and (iv) after the
occurrence and during the continuance of a Company Downgrade Event that is
reasonably acceptable to the initial Bond Insurer.
"Broker-Dealer Agreement" shall mean each agreement applicable
to the Auction Rate Bonds during an Auction Rate Period or the Auction Rate
Bonds during an Auction Rate- Inverse Rate Period, as the case may be, among a
Broker-Dealer, the Company and the Auction Agent pursuant to which the
Broker-Dealer, among other things, agrees to participate in Auctions as set
forth in the Auction Procedures, as from time to time amended and supplemented.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which the New York Stock Exchange or banks are authorized
or obligated by law or executive order to close in New York, New York, or any
city in which is located the principal corporate trust office of the Trustee or
the office of an issuer of a Liquidity Facility at which demands for a draw on,
or borrowing or payment under, the Liquidity Facility will be made; provided,
however, that with
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respect to Auction Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate
Period or Auction Rate Bonds during an Auction Rate Period, the term "Business
Day" shall further exclude April 14, April 15, December 30 and December 31.
"Calculation Period" shall mean (a) during any Commercial
Paper Rate Period, any period or periods from and including a Business Day to
and including any day not more than 270 days thereafter which is a day
immediately preceding a Business Day established by the Market Agent pursuant to
Section 3.02; (b) during any Daily Rate Period, the period from and including a
Business Day to but not including the next succeeding Business Day; (c) during
any Weekly Rate Period, with respect to the period after the Closing Date, the
period from and including the Closing Date and to and including the following
Tuesday and, thereafter, the period from and including the Wednesday of each
week to and including the following Tuesday and with respect to a Change in the
Interest Rate Mode to a Weekly Rate, the period from and including the effective
date of the Change in the Interest Rate Mode to and including the following
Tuesday, and, thereafter, the period from and including Wednesday of each week
to and including the following Tuesday; provided, however, in each case if such
Wednesday is not a Business Day, such next succeeding Calculation Period shall
begin on the Business Day next succeeding such Wednesday and such Calculation
Period shall end on the day before such next succeeding Calculation Period; (d)
during any Monthly Rate Period, with respect to a Change in the Interest Rate
Mode to a Monthly Rate, the period from and including the effective date of the
Change in the Interest Rate Mode to but excluding the first Business Day of the
following month, and, thereafter each period from and including the first
Business Day of the month to but excluding the first Business Day of the
following month; (e) during any Semi-annual Rate Period, with respect to a
Change in the Interest Rate Mode to a Semi-annual Rate, the period from and
including the effective date of the Change in the Interest Rate Mode to but
excluding the next succeeding Interest Payment Date and, thereafter, each period
from and including the day following the end of the last Calculation Period to
but excluding the next succeeding Interest Payment Date; and (f) during any Term
Rate Period, any period of not less than 365 days from and including a Business
Day to and including any day (established by the Market Agent pursuant to
Section 4.01.1) not later than the day prior to the maturity date of the Bonds.
"Change in the Interest Rate Mode" shall mean any change in
the type of interest rate borne by the Bonds pursuant to Section 4.01.
"Change of Preference Law" shall mean any amendment to the
Code or other statute enacted by the Congress of the United States or any
temporary, proposed or final regulation promulgated by the United States
Treasury, after the date hereof which (a) changes or would change any deduction,
credit or other allowance allowable in computing liability for any federal tax
with respect to, or (b) imposes, or would impose, reduces or would reduce, or
increases or would increase any federal tax (including, but not limited to,
preference or excise taxes) upon, any interest earned by any holder of bonds the
interest on which is excluded from federal gross income under Section 103 of the
Code.
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"Closing Date" shall mean the date on which the Note becomes
legally effective, the same being the date on which the Bonds are paid for by
and delivered to the original purchasers thereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. Each reference to a section of the Code herein shall
be deemed to include the United States Treasury Regulations proposed or in
effect thereunder and applied to the Bonds or the use of proceeds thereof, and
also includes all amendments and successor provisions unless the context clearly
requires otherwise.
"Commercial Paper Dealer" means Goldman, Sachs & Co. or, in lieu
thereof, affiliates or successors, provided that any such entity is a
commercial paper dealer.
"Commercial Paper Index," on any date of determination, shall
mean, with respect to Auction Rate Bonds during an Auction Rate-Inverse Rate
Period, the interest index published by the Market Agent representing the
weighted average of the yield on tax-exempt commercial paper, or tax-exempt
bonds bearing interest at a commercial paper rate or pursuant to a commercial
paper mode, having a range of maturities or mandatory purchase dates between 25
and 36 days traded during the immediately preceding five Business Days.
"Commercial Paper Period Record Date" shall mean, with respect
to each Interest Payment Date during a Commercial Paper Rate Period, the
Business Day next preceding such Interest Payment Date.
"Commercial Paper Rate" shall mean with respect to the first
day of each Calculation Period during a Commercial Paper Rate Period, a rate or
rates of interest equal to the rate or rates of interest per annum established
and certified to the Trustee (with a copy to the Authority, the Registrar and
Paying Agent, the Credit Facility Issuer and the Company) by the Market Agent no
later than 12:00 noon (New York City time) on and as of such day as the minimum
rate or rates of interest per annum which, in the opinion of the Market Agent,
taking into account the Calculation Period or Calculation Periods for the Bonds,
would be necessary on and as of such day to remarket Bonds in a secondary market
transaction at a price equal to the principal amount thereof; provided that such
rate or rates of interest shall not exceed the lesser of 110% of the Commercial
Paper Rate Index on and as of such date and 15% per annum.
"Commercial Paper Rate Index" shall mean with respect to the
first day of each Calculation Period during a Commercial Paper Rate Period, the
average of yield evaluations at par, determined by the Indexing Agent, of
securities (whether or not actually issued) all of which shall have a term as
near as practicable to such Calculation Period or which are subject to optional
or mandatory tender by the owner thereof at the end of a term as near as
practicable to such Calculation Period, the interest on which is not included in
gross income for federal income tax purposes, of no fewer than ten Component
Issuers selected by the Indexing Agent, including issuers of commercial paper,
project notes, bond anticipation notes and tax anticipation notes, computed by
the Indexing
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Agent on and as of such day. If the Bonds are rated by a Rating Agency in its
highest note or commercial paper rating category or one of its two highest
long-term debt rating categories, each Component Issuer must (a) have
outstanding securities rated by a Rating Agency in its highest note or
commercial paper rating category or (b) not have outstanding notes or commercial
paper rated by a Rating Agency but have outstanding securities rated by a Rating
Agency in one of its two highest long-term debt rating categories. If the Bonds
are rated by a Rating Agency in a rating category that is lower than its highest
note or commercial paper rating category or its two highest long-term debt
rating categories (and the Bonds are not rated in one of such categories by the
other Rating Agency), each Component Issuer must (a) have outstanding securities
rated by a Rating Agency in its note or commercial paper rating category which
is the same or correlative, in the Indexing Agent's judgment, to the note or
commercial paper rating category or the long-term debt rating category of the
Bonds or (b) have outstanding securities rated by a Rating Agency in the same
long-term debt rating category as the Bonds are rated by that Rating Agency and
not have any outstanding notes or commercial paper rated by such Rating Agency.
The Indexing Agent may change the Component Issuers from time to time in its
discretion, subject to the foregoing requirements. In addition, at the request
of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel
that such action will not adversely affect the exclusion of interest on the
Bonds from gross income of the owners thereof for federal income tax purposes,
the Authority, with the consent of the Company, may designate a new method of
setting the Commercial Paper Rate Index in the event any of the above-described
methods are determined by the Authority to be unavailable, impracticable or
unrealistic in the market place. Upon the occurrence and during the continuance
of a Company Downgrade Event, the Bond Insurer shall have the right to consent
to any change to the Component Issuers and any change in the method of setting
the Commercial Paper Rate Index, which consent shall not be unreasonably
withheld.
"Commercial Paper Rate Period" shall mean any period during
which the Bonds bear interest at a Commercial Paper Rate or Rates, which period
shall commence on the effective date of a Change in the Interest Rate Mode to a
Commercial Paper Rate or Rates, as the case may be, and extend through the day
immediately preceding the earlier of (a) the effective date of another Change in
the Interest Rate Mode, (b) the Fixed Rate Conversion Date or (c) the maturity
date of the Bonds.
"Commercial Paper/Treasury Rate" on any date of determination
shall mean with respect to Auction Rate Bonds during an Auction Rate Period (i)
in the case of any Auction Period of less than 180 days, the interest equivalent
of the 7-day rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
Moody's or another rating agency, as made available on a discount basis or
otherwise by the Federal Reserve Board for the Business Day immediately
preceding such date of determination, or in the event that the Federal Reserve
Board does not make available any such rate, then the arithmetic average of such
rates, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers, to the Auction Agent for the close of business on the Business Day
immediately preceding such date of determination or (ii) in the case of any
Auction Period of 180 days or more, the Treasury Rate for such Auction Period.
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If any Commercial Paper Dealer does not quote a commercial
paper rate required to determine the Commercial Paper/Treasury Rate, the
Commercial Paper/Treasury Rate shall be determined on the basis of a commercial
paper quotation or quotations furnished by the remaining Commercial Paper Dealer
or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Authority at the request of
the Company (which request shall be accompanied by the consent of the Bond
Insurer after the occurrence and during the continuance of a Company Downgrade
Event; provided that such consent shall not be unreasonably withheld) to provide
such quotation or quotations not being supplied by any Commercial Paper Dealer
or Commercial Paper Dealers, as the case may be, or if the Authority does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis (a "discount rate") for commercial paper of a given
day's maturity shall be equal to the product of (A) 100 times (B) the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%) of (x) the
discount rate (expressed in decimals) divided by (y) the difference between (1)
1.00 and (2) a fraction the numerator of which shall be the product of the
discount rate (expressed in decimals) times the number of days in which such
commercial paper matures and the denominator of which shall be 360.
"Commission" shall mean the Securities and Exchange
Commission.
"Company" shall mean KeySpan Generation LLC, and any
surviving, resulting or transferee company as provided in Section 5.12 of the
Participation Agreement.
"Company Downgrade Event" shall mean the unsecured senior debt
rating of the Company shall be withdrawn or reduced either below "Baa3" (or its
equivalent) by Moody's if the Company is then rated by Moody's, below "BBB-" (or
its equivalent) by S&P if the Company is then rated by S&P or below investment
grade by another rating agency if the Company is then rated by another rating
agency.
"Component Issuers" shall mean issuers of securities, the
interest on which is excluded from gross income for federal income tax purposes,
selected by the Indexing Agent.
"Computation Date" shall mean each date which is one (1)
Business Day prior to any Determination Date.
"Computation Period" shall have the meaning set forth in the
Tax Regulatory Agreement.
"Credit Facility" shall mean initially the municipal bond
insurance policy issued by the Bond Insurer insuring the payment when due of
regularly scheduled principal and interest on the Bonds, as provided therein,
and shall mean any other instrument satisfactory to the Authority entered into
or obtained in connection with the Bonds in order to obtain a rating or ratings
on the Bonds, such as a letter of credit, committed line of credit or insurance
policy, and issued by a bank or banks,
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insurance company or other financial institution or institutions, which
instrument provides for the payment of principal of and interest on all Bonds
coming due and payable during the term thereof.
"Credit Facility Issuer" shall mean an issuer of a Credit
Facility.
"Current Adjustable Rate" shall mean the interest rate borne
by Bonds immediately prior to a Change in the Interest Rate Mode or the
establishment of a Fixed Rate.
"Daily Period Record Date" shall mean, with respect to each
Interest Payment Date during a Daily Rate Period, the Business Day next
preceding such Interest Payment Date.
"Daily Rate" shall mean with respect to the first day of each
Calculation Period during a Daily Rate Period, a rate of interest equal to the
rate of interest per annum established and certified to the Trustee (with a copy
to the Authority, the Registrar and Paying Agent and the Company) by the Market
Agent no later than 12:00 noon (New York City time) on and as of such day as the
minimum rate of interest per annum which, in the opinion of the Market Agent,
would be necessary on and as of such day to remarket Bonds in a secondary market
transaction at a price equal to the principal amount thereof plus accrued
interest thereon; provided that such rate of interest shall not exceed the
lesser of 110% of the Daily Rate Index on and as of such day and 15% per annum.
"Daily Rate Index" shall mean with respect to the first day of
each Calculation Period during a Daily Rate Period, the average of one-day yield
evaluations at par, determined by the Indexing Agent, of securities (whether or
not actually issued), the interest on which is not included in gross income for
federal income tax purposes, of no fewer than ten Component Issuers selected by
the Indexing Agent and which have redemption or tender provisions comparable to
the then applicable provisions of the Bonds, computed by the Indexing Agent on
and as of such day. If the Bonds are rated by a Rating Agency or are subject to
the benefits of a Support Facility and the issuer of such Support Facility has
issued support facilities to support other debt obligations rated by a Rating
Agency, each Component Issuer must have outstanding securities rated by a Rating
Agency in a short-term debt rating category which is the same as the short-term
debt rating category in which the Bonds or other debt obligations supported by
support facilities issued by the issuer of a Support Facility are rated. The
specific issuers included in the Component Issuers may be changed from time to
time by the Indexing Agent in its discretion and shall be issuers whose
securities, in the judgment of the Indexing Agent, have characteristics similar
to the Bonds. In addition, at the request of the Company and upon delivery to
the Trustee and the Bond Insurer of an Opinion of Bond Counsel that such action
will not adversely affect the exclusion of interest on the Bonds from gross
income of the owners thereof for federal income tax purposes, the Authority,
with the consent of the Company, may designate a new method of setting the Daily
Rate Index in the event any of the above-described methods are determined by the
Authority to be unavailable, impracticable or unrealistic in the market place.
Upon the occurrence and during the continuance of a Company Downgrade Event, the
Bond Insurer shall have the right to consent to any change to the Component
Issuers and any change in the method of setting the Daily Rate Index provided
that such consent shall not be unreasonably withheld.
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"Daily Rate Period" shall mean any period during which the
Bonds bear interest at a Daily Rate which period shall commence on the effective
date of the Change in the Interest Rate Mode to a Daily Rate and extend through
the day immediately preceding the earlier of (a) the effective date of another
Change in the Interest Rate Mode or (b) the Fixed Rate Conversion Date.
"description", when used with respect to the Project, means
the description set forth in Exhibit B and Exhibit C to the Participation
Agreement, as such Exhibits may be amended in accordance with the Participation
Agreement.
"Determination Date" shall mean, for any Calculation Period,
the first Business Day occurring during such Calculation Period.
"Determination of Taxability" shall have the meaning set forth
in Section 5.06.1.
"Differential Interest Amount" shall mean any amount of
interest payable by the Company under any agreement with the issuer of a
Liquidity Facility in excess of 15% per annum.
"Direct-Pay Facility" shall mean any instrument satisfactory
to the Authority (in addition to any Credit Facility or Liquidity Facility)
delivered or caused to be delivered to the Trustee by the Authority or the
Company (i) pursuant to which a person, other than the Company or any Affiliate
of the Company (such person, the "Issuer"), is obligated, at the request of the
Trustee, to pay any sum of money to the Trustee for application to the payment
of the principal of (and premium, if any, on), purchase price, of and/or accrued
interest on the Bonds (as may be specified in such instrument) and (ii) in
respect of which the Authority or the Company shall have delivered to the
Trustee, the Bond Insurer and the Rating Agencies then rating the Bonds an
Opinion of Bond Counsel (or an opinion of other counsel satisfactory to the
Trustee and the Rating Agencies then rating the Bonds) satisfactory to the
Rating Agencies then rating the Bonds to the effect that payments thereunder by
the Issuer to the Trustee would not constitute "property of the estate" (within
the meaning of the Bankruptcy Code) of the Company or any Affiliate of the
Company or the Authority and should not constitute a voidable "preference"
(within the meaning of the Bankruptcy Code) with respect to the Company or any
Affiliate of the Company or the Authority.
"Event of Default" shall mean Event of Default as defined in
Section 12.01.
"Existing Holder" shall mean with respect to Auction Rate
Bonds during an Auction Rate Period and Auction Rate Bonds during an Auction
Rate-Inverse Rate Period a person who has signed a Purchaser's Letter and is
listed as the beneficial owner of Auction Rate Bonds (which in the case of
Auction Rate Bonds during an Auction Rate-Inverse Rate Period are not linked
with Inverse Rate Bonds) in the records of the Auction Agent.
"Failure to Deposit" shall mean any failure to make the
deposit required by Section 9.02(a)(i) or 9.02(b)(i) by the time specified
therein.
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"Fiscal Year" shall mean the fiscal year of the Company as
established from time to time by the Company which as of the Closing Date is the
twelve-month period commencing on October 1 of each calendar year and ending on
September 30 of the next calendar year.
"Fixed Rate" shall mean, with respect to the Fixed Rate
Conversion Date, the rate of interest per annum established and certified to the
Trustee (with a copy to the Authority, the Registrar and Paying Agent, the
Credit Facility Issuer and the Company) by the Market Agent no later than 12:00
noon (New York City time) on and as of such date as the minimum rate of interest
per annum which, in the opinion of the Market Agent, would be necessary on and
as of such date to remarket the Bonds in a secondary market transaction at a
price equal to 100% of the Outstanding principal amount thereof; provided that
such rate of interest shall not exceed the lesser of 110% of the Fixed Rate
Index on and as of such date and 18% per annum;
"Fixed Rate Conversion Date" shall have the meaning set forth
in Section 4.02.
"Fixed Rate Index" shall mean with respect to each of (i) the
Fixed Rate Conversion Date, or (ii) a Change in the Interest Rate Mode to an
Auction Rate-Inverse Rate Period, as the case may be, the average of the yield
evaluations (on the basis of full coupon securities trading at par with a term
approximately equal to the Fixed Rate Period, or with respect to any Change in
the Interest Rate Mode to an Auction Rate-Inverse Rate Period, a term
approximately equal to a period commencing on the effective date of such Change
in the Interest Rate Mode and ending on the maturity date of the Bonds) of
securities (whether or not actually issued), the interest on which is not
included in gross income for federal income tax purposes, of no fewer than ten
Component Issuers selected by the Indexing Agent and which have a rating by a
Rating Agency in the same rating category as the Bonds are rated at the time by
such Rating Agency or, if the Bonds are not so rated, shall be debt which, in
the judgment of the Indexing Agent, is of credit quality comparable to that of
the Bonds, computed by the Indexing Agent on and as of the applicable date set
forth in (i) or (ii) above. In the event that the Indexing Agent fails to
compute the Fixed Rate Index and no other qualified municipal securities
evaluation service can be appointed Indexing Agent by the Authority, the Fixed
Rate Index shall be determined by the Market Agent and shall be 90% of the
average yield shown for the most recent calendar month for United States
Treasury notes or bonds having the same number of years to maturity as the
number of 12-month periods (or months if the Fixed Rate Period is less than one
year) in the Fixed Rate Period, as published in the Federal Reserve Bulletin in
the last issue before the applicable date set forth in (i) or (ii) above. If
that issue does not contain such a yield, the Fixed Rate Index will be
determined by linear interpolation between the yields shown in that issue for
United States Treasury notes and bonds having the next shorter and next longer
number of years (or months) to maturity. In addition, at the request of the
Company and upon delivery to the Trustee and the Bond Insurer of an Opinion of
Bond Counsel that such action will not adversely affect the exclusion of
interest on the Bonds from gross income of the owners thereof for federal income
tax purposes, the Authority, with the consent of the Company, may designate a
new method of setting the Fixed Rate Index in the event any of the
above-described methods are determined by the Authority to be unavailable,
impracticable or unrealistic in the market place. After the occurrence and
during the continuance of a Company Downgrade Event, the Bond Insurer shall
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have the right to consent to any change to the Component Issuers and any change
in the method of setting the Fixed Rate Index, which consent shall not be
unreasonably withheld.
"Fixed Rate Period" shall mean the period, if any, during
which the Bonds bear interest at a Fixed Rate which period shall commence on the
Fixed Rate Conversion Date and extend through the maturity date of the Bonds.
"Fixed Rate Record Date" shall mean, with respect to each
Interest Payment Date during the Fixed Rate Period, the fifteenth day of the
month next preceding such Interest Payment Date, or, if such day shall not be a
Business Day, the next preceding Business Day.
"Governmental Obligations" shall mean (a) direct obligations
of, or obligations the payment of the principal of and interest on which is
unconditionally guaranteed by, the United States of America and (b) bonds,
debentures or notes issued by Government National Mortgage Association, Federal
Financing Bank, Federal Farm Credit Bank, Federal Land Bank, Federal Home Loan
Bank, Farmers Home Administration, Federal Home Mortgage Corporation or any
other comparable federal agency hereafter created to the extent that said
obligations are unconditionally guaranteed by the United States of America.
"Hold Order" shall mean (i) with respect to the Auction Rate
Bonds during an Auction Rate Period, Hold Order as defined in Section 3.06, and
(ii) with respect to the Auction Rate Bonds during an Auction Rate-Inverse Rate
Period, Hold Order as defined in Section 3A.03.
"Indenture" shall mean this Trust Indenture dated as of
October 1, 1999 between the Authority and the Trustee, as the same may be
amended or supplemented.
"Indexing Agent" shall mean the Indexing Agent appointed in
accordance with Section 11.24.
"Ineligible Moneys" shall mean any moneys from time to time
deposited with the Trustee by the Company for the specified purpose of becoming
"Available Moneys" for purposes of this Indenture, provided, that upon becoming
"Available Moneys" such moneys shall cease to be considered to be "Ineligible
Moneys".
"Initial Liquidity Facility" shall mean an instrument or
instruments satisfactory to the Authority entered into or obtained in connection
with the Bonds on or prior to a Change in the Interest Rate Mode to an
Adjustable Rate other than an Auction Rate during an Auction Rate Period or an
Auction Rate during an Auction Rate-Inverse Rate Period in order to obtain a
rating or ratings on the Bonds, including a letter of credit, committed line of
credit, surety bond or standby bond purchase agreement, or any combination of
the foregoing, and issued by a bank or banks, municipal bond or financial
guarantee insurance company, other financial institution or institutions, or any
combination of the foregoing which provides payment of the purchase price equal
to the principal of and accrued interest on Bonds purchased during the term
thereof upon any mandatory or optional tender for purchase pursuant to Sections
5.02, 5.03 and 5.06.
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"Insurance Agreement" shall mean the Insurance Agreement,
dated as of October 27, 1999, by and between the Company and the Bond Insurer.
"Interest Payment Date" shall mean:
---------------------
(a) during each Commercial Paper Rate Period, the Business Day
immediately succeeding any Calculation Period;
(b) during an Auction Rate Period (i) for an Auction Period
that is a daily Auction Period, the first Business Day of the month
immediately succeeding such Auction Period, (ii) for an Auction Period
of 91 days or less (other than a daily Auction Period), the Business
Day immediately succeeding such Auction Period and (iii) for an Auction
Period of more than 91 days, each 13th Friday after the first day of
such Auction Period and the Business Day immediately succeeding such
Auction Period;
(c) during any Auction Rate-Inverse Rate Period, the date determined
pursuant to Section 3A.02;
(d) during each Daily Rate Period, the first Business Day of each
month thereof;
(e) during each Weekly Rate Period, the first Wednesday of each month
thereof;
(f) during each Monthly Rate Period, the first Business Day of each
month thereof;
(g) during each Semi-annual Rate Period, (i) the first
Business Day of the sixth calendar month following the month in which
the first day of such Semi-annual Rate Period occurred, (ii) each
anniversary of the date so determined, and (iii) each anniversary of
the first day of the first month of such Semi-annual Rate Period;
(h) during each Term Rate Period, (i) the first Business Day
of the sixth calendar month following the month in which the first day
of such Term Rate Period occurred, (ii) each anniversary of the date so
determined, (iii) each anniversary of the first day of the first month
of such Term Rate Period, and (iv) the Business Day immediately
succeeding such Term Rate Period;
(i) the June 1 or December 1 next succeeding the Fixed Rate
Conversion Date and each June 1 and December 1 thereafter; provided,
however, that if the June 1 or December 1 next succeeding the Fixed
Rate Conversion Date occurs less than twenty-one (21) days after the
Fixed Rate Conversion Date, the first Interest Payment Date shall be
the second such date following the Fixed Rate Conversion Date;
(j) the Fixed Rate Conversion Date;
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(k) any day on which Bonds are subject to mandatory tender for
purchase pursuant to Section 5.03 or 5.08 or redemption in whole
pursuant to Section 5.01, 5.04, 5.05, 5.06 or 5.07;
(l) the final maturity date of the Bonds; and
(m) with respect to Bank Bonds, the dates, if any, set forth in the
Liquidity Facility;
provided, however, that if any such date determined in any of the foregoing
clauses is not a Business Day, the Interest Payment Date shall be the next
succeeding day which is a Business Day.
"Interest Period" shall mean with respect to Auction Rate
Bonds during an Auction Rate Period each period from and including one Interest
Payment Date to but excluding the next succeeding Interest Payment Date.
"Investment Securities" shall mean any of the following which
at the time are legal investments under the laws of the State of New York for
the monies held hereunder:
(a) any obligation issued or guaranteed by, or backed by the full
faith and credit of, the United States of America (including any
certificates or any other evidence of an ownership interest in any such
obligation or in specified portions thereof, which may consist of specified
portions of the principal thereof or the interest thereon);
(b) deposit accounts in, or certificates of deposit issued by,
and bankers acceptance of, any bank, trust company or national banking
association which is a member of the Federal Reserve System (which may
include the Trustee), having capital stock and surplus aggregating not
less than $50,000,000;
(c) deposit accounts in, or certificates of deposit issued by
and bankers acceptances of, any bank or trust company having capital
stock and surplus aggregating not less than $50,000,000 and whose
obligations are rated not lower than "A" or equivalent by Moody's or
S&P;
(d) obligations issued or guaranteed by any person controlled
or supervised by and acting as an instrumentality of the United States
of America pursuant to the authority granted by the Congress of the
United States;
(e) commercial paper rated in the highest investment grade or next
highest investment grade by Moody's or S&P;
(f) obligations rated not lower than "A" or equivalent by
Moody's or S&P issued or guaranteed by any state of the United States
or the District of Columbia, or any political
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subdivision, agency or instrumentality of any such state or District, or issued
by any corporation;
(g) obligations of a public housing authority fully secured by
contracts with the United States;
(h) repurchase agreements with any bank or trust company
organized under the laws of any state of the United States of America
or any national banking association (including the Trustee) or any
government bond dealer reporting to, trading with and recognized as a
primary dealer by, the Federal Reserve Bank of New York with respect to
any of the foregoing obligations or securities. Any repurchase
agreement entered into pursuant to this Indenture shall, by its terms,
permit the Trustee to sell the related obligations or securities if the
other party to such repurchase agreement shall fail to repurchase
promptly such obligation or security on the day required by the
repurchase agreement. All such repurchase agreements shall also provide
for the delivery of the related obligations or securities to the
Trustee or a depositary of the Trustee;
(i) money market or bond mutual funds, which funds have a
composite investment grade rated not lower than "A" or equivalent by
Moody's or S&P; or
(j) investment agreements with any bank or trust company
organized under the laws of any state of the United States of America
or any national banking association (including the Trustee) or any
governmental bond dealer reporting to, trading with and recognized as a
primary dealer by, the Federal Reserve Bank of New York, which has, or
the parent company of which has, long-term debt rated at least "A" or
its equivalent by S&P or Moody's, with respect to any of the
obligations or securities specified in (a), (d), (e), (f) and (g)
above. Any investment agreement entered into pursuant to this Indenture
shall, by its terms provide that (i) the invested funds are available
for withdrawal without penalty or premium, at any time upon not more
than seven days' prior notice (which notice may be amended or withdrawn
at any time prior to the specified withdrawal date), and (ii) the
investment agreement is the unconditional and general obligation of,
and is not subordinated to any other obligation of, the provider
thereof.
Any such Investment Securities may be held by the Trustee in book entry form,
whereby certificated securities are held by an independent custodian and the
Trustee is the beneficial owner of all or a portion of such certificated
securities.
"Linked Rate" shall mean, with respect to Auction Rate-Inverse
Rate Bonds during an Auction Rate-Inverse Rate Period, the rate of interest
determined and certified to the Trustee (with a copy to the Authority, the
Registrar and Paying Agent and the Company) by the Market Agent no later than
12:00 noon on and as of the effective date of such Change in the Interest Rate
Mode as the minimum rate of interest per annum (calculated on a 365-day basis)
which, in the opinion of the Market Agent, would be necessary on and as of such
date to remarket the Auction Rate Bonds and
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the Inverse Rate Bonds as Regular Linked Auction Rate Bonds and Inverse Rate
Bonds at a price equal to 100% of the Outstanding principal amount thereof;
provided that the Linked Rate on the Auction Rate-Inverse Rate Bonds during any
Auction Rate-Inverse Rate Period shall not exceed the lesser of 110% of the
Fixed Rate Index minus .28% per annum on and as of such date and 18% per annum.
"Liquidity Facility" shall mean the Initial Liquidity Facility
and each Alternate Liquidity Facility.
"Liquidity Facility Issuer" shall mean each issuer of a
Liquidity Facility.
"Market Agent" or "Market Agents" shall mean any remarketing
agent or agents or any market agent or market agents appointed pursuant to
Section 11.14, its or their successors or assigns.
"Market Agent Agreement" shall mean (A) the Market Agent
Agreement, dated as of October 27, 1999, by and between the Company and Goldman,
Sachs & Co. relating to Auction Rate Bonds, and any similar agreement with a
successor Market Agent or Market Agents, as from time to time amended and
supplemented, (B) any market agent agreement between the Trustee and the Market
Agent or Market Agents with respect to Auction Rate-Inverse Rate Bonds during an
Auction Rate-Inverse Rate Period or (C) any market agent agreement, remarketing
agreement, or similar agreement between the Company and the Market Agent or
Market Agents with respect to Bonds bearing interest at one or more Adjustable
Rates.
"Maximum Auction Rate" shall mean the maximum rate permitted
by law or if there is no legal limit applicable to the interest rate borne by
the Bonds, then 18%.
"Minimum Auction Rate" shall mean on any date of determination
with respect to Auction Rate Bonds during an Auction Rate Period the rate per
annum equal to 55% (as such percentage may be adjusted pursuant to Section 3.10)
of the Commercial Paper/Treasury Rate on such date, provided, however, that in
no event shall such Minimum Auction Rate exceed the maximum rate, if any,
permitted by applicable law.
"Monthly Period Record Date" shall mean, with respect to each
Interest Payment Date during a Monthly Period, the Business Day next preceding
such Interest Payment Date.
"Monthly Rate" shall mean with respect to the first day of
each Calculation Period during a Monthly Rate Period, a rate of interest equal
to the rate of interest per annum established and certified to the Trustee (with
a copy to the Authority, the Registrar and Paying Agent, and the Company) by the
Market Agent no later than 12:00 noon (New York City time) on and as of such day
as the minimum rate of interest per annum which, in the opinion of the Market
Agent, would be necessary on and as of such day to remarket Bonds in a secondary
market transaction at a price equal
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to the principal amount thereof; provided that such rate of interest shall not
exceed the lesser of 110% of the Monthly Rate Index on and as of such date and
15% per annum.
"Monthly Rate Index" shall mean with respect to the first day
of each Calculation Period during a Monthly Rate Period, the average of 30-day
yield evaluations at par, determined by the Indexing Agent, of securities
(whether or not actually issued), the interest on which is not included in gross
income for federal income tax purposes, of no fewer than ten Component Issuers
selected by the Indexing Agent, including issuers of commercial paper, project
notes, bond anticipation notes and tax anticipation notes, computed by the
Indexing Agent on and as of such day. If the Bonds are rated by a Rating Agency
in its highest note or commercial paper rating category or one of its two
highest long-term debt rating categories, each Component Issuer must (a) have
outstanding securities rated by a Rating Agency in its highest note or
commercial paper rating category or (b) not have outstanding notes or commercial
paper rated by a Rating Agency but have outstanding securities rated by a Rating
Agency in one of its two highest long- term debt rating categories. If the Bonds
are rated by a Rating Agency in a rating category that is lower than its highest
note or commercial paper rating category or its two highest long-term debt
rating categories (and the Bonds are not rated in one of such categories by the
other Rating Agency), each Component Issuer must (a) have outstanding securities
rated by a Rating Agency in its note or commercial paper rating category which
is the same or correlative, in the Indexing Agent's judgment, to the note or
commercial paper rating category or the long-term debt rating category of the
Bonds or (b) have outstanding securities rated by a Rating Agency in the same
long-term debt rating category as the Bonds are rated by that Rating Agency and
not have any outstanding notes or commercial paper rated by such Rating Agency.
The Indexing Agent may change the Component Issuers from time to time in its
discretion, subject to the foregoing requirements. In addition, at the request
of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel
that such action will not adversely affect the exclusion of interest on the
Bonds from gross income of the owners thereof for federal income tax purposes,
the Authority, with the consent of the Company, may designate a new method of
setting the Monthly Rate Index in the event any of the above-described methods
are determined by the Authority to be unavailable, impracticable or unrealistic
in the market place. Upon the occurrence and during the continuance of a Company
Downgrade Event, the Bond Insurer shall have the right to consent to any change
to the Component Issuers and any change in the method of setting the Monthly
Rate Index, which consent shall not be unreasonably withheld.
"Monthly Rate Period" shall mean any period during which the
Bonds bear interest at a Monthly Rate which period shall commence with the
effective date of the Change in the Interest Rate Mode to a Monthly Rate and
shall extend through the day immediately preceding the earlier of (a) the
effective date of another Change in the Interest Rate Mode or (b) the Fixed Rate
Conversion Date.
"Moody's" shall mean Moody's Investors Service, a division of
Dun & Bradstreet Corporation and its successor or successors, and if such
corporation shall for any reason no longer perform the functions of a securities
rating agency or if Moody's shall be replaced, subject to the definition of
"prevailing rating" in the definition of Applicable Percentage, by some other
nationally
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recognized rating agency by the Authority at the request of the Company,
"Moody's" shall be deemed to refer to such other nationally recognized rating
agency designated by the Authority at the request of the Company.
"Municipal Bond Insurance Policy" or "Policy" shall mean the
municipal bond insurance policy issued by the Bond Insurer insuring the payment
when due of regularly scheduled principal and interest on the Bonds, as provided
therein.
"No Auction Rate" shall mean on any date of determination with
respect to Auction Rate Bonds during an Auction Rate Period, the interest rate
per annum equal to the Applicable Percentage of the Commercial Paper/Treasury
Rate determined on such date. In no event shall the No Auction Rate be greater
than the Maximum Auction Rate.
"Non-Bankruptcy Certificate" shall mean a certificate of the
Company to the effect that during the 124-day period then ended the Company has
not filed in any court having jurisdiction a voluntary petition in bankruptcy or
any petition or other pleading seeking a readjustment, liquidation or similar
relief for itself, and the Company has not been served notice of any pleading
being filed against it seeking an adjudication of bankruptcy, reorganization,
composition, readjustment, liquidation or similar relief under any law or
regulation.
"Note" shall mean the promissory note of the Company to be
executed by the Company and assigned by the Authority to the Trustee, to
evidence the obligations of the Company to repay the loan to be made by the
Authority pursuant to the Participation Agreement and to make the Additional
Payments.
"Note Payments" shall mean the portion of the Payments
required to be paid by the Company into the Bond Fund as provided in Section 4.2
of the Participation Agreement and the Note.
"Notice of Election to Tender" shall mean the notice given by
a Holder of Bonds pursuant to Section 5.02.
"Notice of Fee Rate Change" shall mean a notice of a change in
the Auction Agent Fee Rate or the Broker-Dealer Fee Rate.
"Opinion of Bond Counsel" shall mean a written opinion of Bond
Counsel.
"Option to Convert" shall mean the Authority's right and
option to convert the rate of interest payable on the Bonds from an Adjustable
Rate to the Fixed Rate as provided in Section 4.02.
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"Order" shall mean (i) with respect to Auction Rate Bonds
during an Auction Rate Period, Order as defined in Section 3.06, and (ii) with
respect to Auction Rate Bonds during any Auction Rate-Inverse Rate Period, Order
as defined in Section 3A.03.
"Outstanding", whether appearing in upper or lower case, when
used with respect to any Bond shall mean, as of any date, any Bond theretofore
or thereupon being authenticated and delivered pursuant to this Indenture,
except:
(A) a Bond canceled by the Trustee or delivered to the Trustee for
cancellation at or prior to such date;
(B) a Bond in lieu of or in substitution for which another Bond shall
have been
issued under Sections 5.09, 7.03 , 7.04 or 7.05; and
(C) a Bond or portion thereof deemed to have been paid in accordance
with Section 15.01;
provided, however, that with respect to Auction Rate Bonds either during an
Auction Rate Period or an Auction Rate-Inverse Rate Period (i) for the purposes
of the Auction Procedures on any Auction Date, (x) Auction Rate Bonds as to
which the Company or any person known to the Auction Agent to be an Affiliate of
the Company is the Existing Holder thereof and, with respect to Auction Rate
Bonds during an Auction Rate-Inverse Rate Period, Auction Rate Bonds which were
Linked with Inverse Rate Bonds at the close of business on the Regular Record
Date immediately preceding such Auction Date, shall be disregarded and deemed
not to be Outstanding and (y) Auction Rate Bonds which have been defeased
pursuant to Section 15.01 shall be deemed to be Outstanding and (ii) for the
purposes of selecting Auction Rate Bonds and Inverse Rate Bonds to be redeemed
on any Redemption Date, Auction Rate Bonds and Inverse Rate Bonds which have
been defeased pursuant to Section 15.01 shall be deemed to be Outstanding.
"Overdue Rate" shall mean on any date of determination with
respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period, the
interest rate per annum equal to 265% of the Commercial Paper Index on such
date;provided that in no event shall the Overdue Rate (x) as of the first day of
the Interest Period commencing on or immediately prior to the date on which a
Payment Default occurs, exceed the lesser of (i) the excess of (A) the Maximum
Auction Rate-Inverse Rate over (2) the Service Charge Rate as of such date and
(ii) the excess of (A) the maximum rate on such date permitted by New York law,
as the same may be modified by United States law of general application, over
(B) the Service Charge Rate on such date, and (y) on the first day of any other
Interest Period, exceed the lesser of (i) the Maximum Auction Rate-Inverse Rate
and (ii) the maximum rate permitted by New York law, as the same may be modified
by United States law of general application.
"Participation Agreement" shall mean the Participation
Agreement dated as of October 1, 1999, between the Authority and the Company, as
amended and supplemented by Supplemental Participation Agreements from time to
time.
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"Payment Default" shall mean the default in the due and
punctual payment of (a) any installment of interest on the Auction Rate Bonds or
the Inverse Rate Bonds during an Auction Rate- Inverse Rate Period or on the
Auction Rate Bonds during an Auction Rate Period or (b) any principal of,
premium, if any, or interest on, the Auction Rate Bonds or the Inverse Rate
Bonds at their maturity (whether at the Stated Maturity, prior redemption or
otherwise) during an Auction Rate- Inverse Rate Period or any principal of,
premium, if any, or interest on, the Auction Rate Bonds at their maturity
(whether at the Stated Maturity, prior redemption or otherwise) during an
Auction Rate Period, which default shall continue for a period of two Business
Days.
"Payments" shall mean collectively the Note Payments and the
Additional Payments.
"Potential Holder" shall mean with respect to any Auction Rate
Bonds during an Auction Rate Period and Auction Rate Bonds during an Auction
Rate-Inverse Rate Period, any person, including any Existing Holder, (A) who
shall have executed a Purchaser's Letter (or whose Broker-Dealer shall have
executed a Purchaser's Letter), and (B) who may be interested in acquiring the
beneficial ownership of Auction Rate Bonds or, in the case of an Existing Holder
thereof, the beneficial ownership of an additional principal amount of Auction
Rate Bonds.
"Principal Corporate Trust Office" shall mean the office of
the Trustee at which at any particular time its corporate trust business shall
be principally administered, which office at the date hereof for The Chase
Manhattan Bank, as Trustee, is located at 450 W. 33rd Street, 15th Floor, New
York, New York 10001.
"Project" shall mean the facilities so identified and
described in Exhibit A to the Participation Agreement.
"Project Fund" shall mean the special trust fund designated as
"KeySpan Generation LLC 1999 Series A Project Fund" created and established
under, and to be held and administered by the Trustee as provided in, Section
8.01.
"Purchaser's Letter" shall mean with respect to any Auction
Rate Bonds during an Auction Rate Period and any Auction Rate Bonds during an
Auction Rate-Inverse Rate Period a letter (including a Master Purchaser's
Letter), substantially in the form set forth in Exhibit D hereto, addressed to,
among others, the Authority, the Auction Agent and a Broker-Dealer.
"rate index" shall mean the Daily Rate Index, the Fixed Rate
Index, the Commercial Paper Rate Index, the Monthly Rate Index, the Semi-annual
Rate Index, the Term Rate Index or the Weekly Rate Index.
"Rating Agency" shall mean Moody's, if the Bonds are then
rated by Moody's, and S&P, if the Bonds are then rated by S&P.
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"rating category" shall mean one of the generic rating
categories of a Rating Agency, without regard to any refinement or gradation of
such rating category by a numerical modifier, plus or minus sign, or otherwise.
"Rebate Fund" shall mean the fund established pursuant to
Section 9.01(a)(2).
"Record Date", at any time, shall mean each Commercial Paper
Period Record Date during a Commercial Paper Rate Period, each Auction Rate
Period Record Date during an Auction Rate Period, each Auction Rate-Inverse Rate
Period Record Date during an Auction Rate-Inverse Rate Period, each Daily Period
Record Date during a Daily Rate Period, each Weekly Period Record Date during a
Weekly Rate Period, each Monthly Period Record Date during a Monthly Rate
Period, each Semi-annual Period Record Date during a Semi-annual Rate Period,
Term Period Record Date during a Term Rate Period and each Fixed Rate Record
Date during the Fixed Rate Period.
"Registrar and Paying Agent" shall mean The Chase Manhattan
Bank in its separate capacity as Registrar and Paying agent for the Bonds, or
its successors or assigns.
"Revenues" shall mean and include all income, revenues and
monies derived by the Authority under the Participation Agreement and the Note
(except administrative compensation and indemnification payable under the
Participation Agreement), and, without limiting the generality of the foregoing,
shall include (a) earnings on the investment of the proceeds of Bonds and (b) to
the extent provided in this Indenture, earnings on the investment of monies held
under this Indenture and the proceeds of the sale of any such investments. The
term "Revenues" shall not include monies received as proceeds from the sale of
the Bonds or any other bonds, notes or evidences of indebtedness or as grants or
gifts or amounts payable to or on deposit in the Rebate Fund or amounts
representing Additional Payments in each case.
"S&P" shall mean Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc. and its successor or successors, and
if such corporation shall for any reason no longer perform the functions of a
securities rating agency or if S&P shall be replaced, subject to the definition
of "prevailing rating" in the definition of Applicable Percentage, by some other
nationally recognized rating agency by the Authority at the request of the
Company, "S&P" shall be deemed to refer to such other nationally recognized
rating agency designated by the Authority at the request of the Company.
"Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or if (i) the then Securities Depository
resigns from its functions as depository of the Bonds or (ii) the Authority
discontinues use of the then Securities Depository pursuant to Section 2.03, any
other securities depository, which agrees to follow the procedures required to
be followed by a Securities Depository in connection with the Bonds and which is
selected by the Authority, with the consent of the Company, the Trustee, the
Auction Agent and the Market Agent pursuant to Section 2.03.
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"Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
"Sell Order" shall mean (i) with respect to Auction Rate Bonds
during an Auction Rate Period, Sell Order as defined in Section 3.06 and (ii)
with respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period,
Sell Order as defined in Section 3A.03.
"Semi-annual Period Record Date" shall mean, with respect to
each Interest Payment Date during a Semi-annual Rate Period, the fifteenth day
of the calendar month next preceding such Interest Payment Date.
"Semi-annual Rate" shall mean with respect to the first day of
each Calculation Period during a Semi-annual Rate Period, a rate of interest
equal to the rate of interest per annum established and certified to the Trustee
(with a copy to the Authority, the Bond Insurer, the Registrar and Paying Agent
and the Company) by the Market Agent no later than 12:00 noon (New York City
time) on and as of such day as the minimum rate of interest per annum which, in
the opinion of the Market Agent, would be necessary on and as of such day to
remarket Bonds in a secondary market transaction at a price equal to the
principal amount thereof; provided that such rate of interest shall not exceed
the lesser of 110% of the Semi-annual Rate Index on and as of such date and 15%
per annum.
"Semi-annual Rate Index" shall mean with respect to the first
day of each Calculation Period during a Semi-annual Rate Period, the average of
six-month yield evaluations at par, determined by the Indexing Agent, of
securities (whether or not actually issued), the interest on which is not
included in gross income for federal income tax purposes, of no fewer than ten
Component Issuers selected by the Indexing Agent, including issuers of
commercial paper, project notes, bond anticipation notes and tax anticipation
notes, computed by the Indexing Agent on and as of such day. If the Bonds are
rated by a Rating Agency in its highest note or commercial paper rating category
or one of its two highest long-term debt rating categories, each Component
Issuer must (a) have outstanding securities rated by a Rating Agency in its
highest note or commercial paper rating category or (b) not have outstanding
notes or commercial paper rated by a Rating Agency but have outstanding
securities rated by a Rating Agency in one of its two highest long-term debt
rating categories. If the Bonds are rated by a Rating Agency in a rating
category that is lower than its highest note or commercial paper rating category
or its two highest long-term debt rating categories (and the Bonds are not rated
in one of such categories by the other Rating Agency), each Component Issuer
must (a) have outstanding securities rated by a Rating Agency in its note or
commercial paper rating category which is the same or correlative, in the
Indexing Agent's judgment, to the note or commercial paper rating category or
the long-term debt rating category of the Bonds or the other debt obligations
supported by support facilities issued by the issuer of a Support Facility or
(b) have outstanding securities rated by a Rating Agency in the same long-term
debt rating category as the Bonds are rated by that Rating Agency and not have
any outstanding notes or commercial paper rated by such Rating Agency. The
Indexing Agent may change the Component Issuers from time to time in its
discretion, subject to the foregoing requirements. In addition, at the request
of the
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Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such
action will not adversely affect the exclusion of interest on the Bonds from
gross income of the owners thereof for federal income tax purposes, the
Authority, with the consent of the Company, may designate a new method of
setting the Semi-annual Rate Index in the event any of the above- described
methods are determined by the Authority to be unavailable, impracticable or
unrealistic in the market place. Upon the occurrence and during the continuance
of a Company Downgrade Event, the Bond Insurer shall have the right to consent
to any change to the Component Issuers and any change in the method of setting
the Semi-annual Rate Index, which consent shall not be unreasonably withheld.
"Semi-annual Rate Period" shall mean any period during which
the Bonds bear interest at a Semi-annual Rate, which period shall commence on
the effective date of a Change in the Interest Rate Mode to a Semi-annual Rate,
and shall extend through the day immediately preceding the earlier of (a) the
effective date of another Change in the Interest Rate Mode or (b) the Fixed Rate
Conversion Date.
"Standard Auction Period" initially shall mean an Auction
Period of 7 days and after the establishment of a different Standard Auction
Period pursuant to Section 3.04, shall mean such different Standard Auction
Period.
"Stated Maturity," shall mean October 1, 2028; provided, in
any case where the date of maturity of premium of, interest on, or principal of,
the Bonds or the date fixed for redemption of any Bonds shall be on a day other
than a Business Day, then payment of interest, principal and premium, if any,
need not be made on such date but may be made (without additional interest) on
the next succeeding Business Day, with the same force and effect as if made on
the date of maturity or the date fixed for redemption. Notwithstanding anything
in this Indenture to the contrary, in no event shall the final maturity date of
the Bonds extend beyond October 1, 2028, and the length of any Interest Period
or Auction Period, as the case may be, shall be reduced at the discretion of the
Authority to the extent necessary to ensure compliance with the provisions of
this sentence.
"Statutory Corporate Tax Rate" shall mean as of any date of
determination the highest tax rate bracket (expressed in decimals) now or
hereafter applicable in each taxable year on the taxable income of every
corporation as set forth in Section 11 of the Code or any successor section
without regard to any minimum additional tax provision or provisions regarding
changes in rates during a taxable year, which on the date hereof is .35. Any
change in the Statutory Corporate Tax Rate shall be evidenced by a certificate
of the Company.
"Submission Deadline" shall mean 1:00 p.m., New York City
time, on the Business Day preceding any Auction Date or such other time on the
Business Day preceding any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
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"Submitted Bid" shall mean (i) with respect to Auction Rate
Bonds during an Auction Rate Period, Submitted Bid as defined in Section 3.08,
and (ii) with respect to Auction Rate Bonds during an Auction Rate-Inverse Rate
Period, Submitted Bid as defined in Section 3A.03.
"Submitted Hold Order" shall mean (i) with respect to Auction
Rate Bonds during an Auction Rate Period, Submitted Hold Order as defined in
Section 3.08, and (ii) with respect to Auction Rate Bonds during an Auction
Rate-Inverse Rate Period, Submitted Hold Order as defined in Section 3A.03.
"Submitted Order" shall mean (i) with respect to Auction Rate
Bonds during an Auction Rate Period, Submitted Order as defined in Section 3.08,
and (ii) with respect to Auction Rate Bonds during an Auction Rate-Inverse Rate
Period, Submitted Order as defined in Section 3A.03.
"Submitted Sell Order" shall mean (i) with respect to Auction
Rate Bonds during an Auction Rate Period, Submitted Sell Order as defined in
Section 3.08, and (ii) with respect to Auction Rate Bonds during an Auction
Rate-Inverse Rate Period, Submitted Sell Order as defined in Section 3A.03.
"Substitute Commercial Paper Dealers" shall mean J.P. Morgan
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, or their
respective affiliates or successors, if such person is a commercial paper
dealer, provided that neither such person nor any of its affiliates or
successors shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean the
dealer or dealers in U.S. Government securities specified by the Authority at
the request of the Company at the time of the Change in the Interest Rate Mode
to an Auction Rate during an Auction Rate Period or an Auction Rate-Inverse Rate
during an Auction Rate-Inverse Rate Period, or their respective affiliates or
successors, if such person is a dealer in U.S. Government securities, provided
that neither such person nor any of its affiliates or successors is a U.S.
Government Securities Dealer.
"Sufficient Clearing Bids" shall mean (i) with respect to
Auction Rate Bonds during an Auction Rate Period, Sufficient Clearing Bids as
defined in Section 3.08, and (ii) with respect to Auction Rate Bonds during an
Auction Rate-Inverse Rate Period, Sufficient Clearing Bids as defined in Section
3A.03.
"Supplemental Indenture" shall mean any other indenture
between the Trustee and the Authority entered into pursuant to and in compliance
with the provisions of Article XIV hereof amending or supplementing the
provisions of this Indenture as originally executed or as theretofore amended or
supplemented.
"Supplemental Participation Agreement" shall mean an agreement
supplementing or amending the Participation Agreement.
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"Support Facility" shall mean each Credit Facility and each
Liquidity Facility in effect at the time of determination.
"Support Facility Issuer" shall mean any bank or banks,
insurance company, or other financial institution or institutions which is the
issuer of any Support Facility.
"Tax Regulatory Agreement" shall mean the Tax Regulatory
Agreement, dated the Closing Date, between the Authority and the Company, and
any and all modifications, alterations, amendments and supplements thereto.
"Terminating Event" shall mean any event or events under the
terms of a Support Facility or any agreement providing for the issuance of such
Support Facility (provided such Support Facility is not a municipal bond
insurance policy) which would cause the termination or expiration of such
Support Facility but would specifically allow for the mandatory tender of Bonds
pursuant to Section 5.08 with a draw on or borrowing or payment under such
Support Facility prior to such termination or expiration.
"Term Period Record Date" shall mean, with respect to each
Interest Payment Date during a Term Rate Period, the fifteenth day of the month
next preceding such Interest Payment Date.
"Term Rate" shall mean with respect to the first day of each
Calculation Period during a Term Rate Period, a rate of interest equal to the
rate of interest per annum established and certified to the Trustee (with a copy
to the Authority, the Registrar and Paying Agent and the Company) by the Market
Agent no later than 12:00 noon (New York City time) on and as of such day as the
minimum rate of interest per annum which, in the opinion of the Market Agent,
would be necessary on and as of such day to remarket such Bonds in a secondary
market transaction at a price equal to the principal amount thereof; provided
that such rate of interest shall not exceed the lesser of 110% of the Term Rate
Index on and as of such date and 15% per annum.
"Term Rate Index" shall mean with respect to the first day of
each Calculation Period during a Term Rate Period, the average of the yield
evaluations at par, determined by the Indexing Agent, of securities (whether or
not actually issued), having a term approximately equal to the Term Rate Period
or which are subject to optional or mandatory tender by the owner thereof at the
end of a term approximately equal to the Term Rate Period, the interest on which
is not included in gross income for federal income tax purposes, of no fewer
than ten Component Issuers selected by the Indexing Agent, computed by the
Indexing Agent on and as of such day. If the Bonds are rated by a Rating Agency
in one of its two highest long-term debt rating categories, each Component
Issuer must have outstanding securities rated by a Rating Agency in one of its
two highest long- term debt rating categories. If the Bonds are rated by a
Rating Agency in a rating category that is lower than its two highest long-term
debt rating categories (and the Bonds are not rated in one of the two highest
such categories by the other Rating Agency), each Component Issuer must have
outstanding securities rated by a Rating Agency in the same long-term debt
rating category as the Bonds are rated by that Rating Agency. The Indexing Agent
may change the
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Component Issuers from time to time in its discretion, subject to the foregoing
requirements. In addition, at the request of the Company and upon delivery to
the Trustee of an Opinion of Bond Counsel that such action will not adversely
affect the exclusion of interest on the Bonds from gross income of the owners
thereof for federal income tax purposes, the Authority, with the consent of the
Company, may designate a new method of setting the Term Rate Index in the event
any of the above-described methods are determined by the Authority to be
unavailable, impracticable or unrealistic in the market place. Upon the
occurrence and during the continuance of a Company Downgrade Event, the Bond
Insurer shall have the right to consent to any change to the Component Issuers
and any change in the method of setting the Term Rate Index, which consent shall
not be unreasonably withheld.
"Term Rate Period" shall mean any period during which the
Bonds bear interest at a Term Rate which period shall commence with the
effective date of the Change in the Interest Rate Mode to a Term Rate and shall
extend through the day immediately preceding the earlier of (a) the effective
date of another Change in the Interest Rate Mode, (b) the Fixed Rate Conversion
Date or (c) the maturity date of the Bonds.
"Treasury Rate" on any date, shall mean (i) the yield,
calculated in accordance with prevailing industry convention, of the rate on the
most recently auctioned direct obligations of the U.S. Government having a
maturity at the time of issuance of six months, as quoted in The Bond Buyer on
such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published in The Bond Buyer, then the bond equivalent
yield, calculated in accordance with prevailing industry convention, as
calculated by reference to the arithmetic average of the bid price quotations of
the most recently auctioned direct obligation of the U.S. Government having a
maturity at the time of issuance of six months, based on bid price quotations on
such date obtained by the Auction Agent from a U.S. Government Securities
Dealer. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Rate, the Treasury Rate shall be determined on the
basis of the quotation or quotations furnished by the remaining U.S. Government
Securities Dealer or Dealers and any Substitute U.S. Government Securities
Dealer or Dealers selected by the Authority at the request of the Company to
provide such rate or rates not being supplied by any U.S. Government Securities
Dealer or U.S. Government Securities Dealers, as the case may be, or, if the
Authority does not select any such Substitute U.S. Government Securities Dealer
or Substitute U.S. Government Securities Dealers, by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers.
"Trustee" shall mean the corporation having trust powers
appointed by the Authority as Trustee hereunder and serving as such hereunder,
and any surviving, resulting or transferee corporation as provided in Section
11.13. References to principal office of the Trustee shall mean the Principal
Corporate Trust Office of the Trustee.
"Trust Estate" shall mean the meaning assigned to such term in
the first paragraph following the recitals herein.
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"U.S. Government" shall mean the federal government of the United
States of America.
"U.S. Government Securities Dealers" shall mean the
Broker-Dealers for the Auction Rate Bonds, or, in lieu of any thereof, their
respective affiliates or successors, provided that any such entity is a U.S.
Government securities dealer.
"Weekly Period Record Date" shall mean, with respect to each
Interest Payment Date during a Weekly Rate Period, the Business Day next
preceding such Interest Payment Date.
"Weekly Rate" shall mean with respect to the first day of each
Calculation Period during a Weekly Rate Period, a rate of interest equal to the
rate of interest per annum established and certified to the Trustee (with a copy
to the Authority, the Registrar and Paying Agent and the Company) by the Market
Agent no later than 12:00 noon (New York City time) on and as of such day as the
minimum rate of interest per annum which, in the opinion of the Market Agent,
would be necessary on and as of such day to remarket Bonds in a secondary market
transaction at a price equal to the principal amount thereof plus accrued
interest thereon; provided that such rate of interest shall not exceed 110% of
the Weekly Rate Index on and as of such date and 15% per annum.
"Weekly Rate Index" shall mean with respect to the first day
of each Calculation Period during a Weekly Rate Period, the average of 30-day
yield evaluations at par, determined by the Indexing Agent, of securities
(whether or not actually issued), the interest on which is not included in gross
income for federal income tax purposes, of no fewer than ten Component Issuers
selected by the Indexing Agent, including issuers of commercial paper, project
notes, bond anticipation notes and tax anticipation notes, computed by the
Indexing Agent on and as of such day. If the Bonds are rated by a Rating Agency
in its highest note or commercial paper rating category or one of its two
highest long-term debt rating categories, each Component Issuer must (a) have
outstanding securities rated by a Rating Agency in its highest note or
commercial paper rating category or (b) not have outstanding notes or commercial
paper rated by a Rating Agency but have outstanding securities rated by a Rating
Agency in one of its two highest long- term debt rating categories. If the Bonds
are rated by a Rating Agency in a rating category that is lower than its highest
note or commercial paper rating category or its two highest long-term debt
rating categories (and the Bonds are not rated in one of such categories by the
other Rating Agency), each Component Issuer must (a) have outstanding securities
rated by a Rating Agency in its note or commercial paper rating category which
is the same or correlative, in the Indexing Agent's judgment, to the note or
commercial paper rating category or the long-term debt rating category of the
Bonds or (b) have outstanding securities rated by a Rating Agency in the same
long-term debt rating category as the Bonds are rated by that Rating Agency and
not have any outstanding notes or commercial paper rated by such Rating Agency.
The Indexing Agent may change the Component Issuers from time to time in its
discretion, subject to the foregoing requirements. In addition, at the request
of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel
that such action will not adversely affect the exclusion of interest on the
Bonds from gross income of the owners thereof for federal income tax purposes,
the Authority, with the consent of the Company, may designate a new method of
setting the
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Weekly Rate Index in the event any of the above-described methods are determined
by the Authority to be unavailable, impracticable or unrealistic in the market
place. Upon the occurrence and during the continuance of a Company Downgrade
Event, the Bond Insurer shall have the right to consent to any change to the
Component Issuers and any change in the method of setting the Weekly Rate Index,
which consent shall not be unreasonably withheld.
"Weekly Rate Period" shall mean any period during which the
Bonds bear interest at a Weekly Rate which period shall commence on the Closing
Date and shall extend through the day immediately preceding the earlier of (a)
the effective date of a Change in the Interest Rate Mode or (b) the Fixed Rate
Conversion Date.
"Winning Bid Rate" shall mean (i) with respect to Auction Rate
Bonds during an Auction Rate Period, Winning Bid Rate as defined in Section
3.08, and (ii) with respect to Auction Rate Bonds during an Auction Rate-Inverse
Rate Period, Winning Bid Rate as defined in Section 3A.03.
SECTION 1.02. Definitions of General Terms. Whenever in this
Indenture any governmental unit including the Authority or any official,
officer, director or department of a governmental unit, is defined or referred
to, such definition or reference shall be deemed to include the governmental
unit or official, officer, board, agency, commission, body or department
succeeding to or in whom or which is vested, the functions, rights, powers,
duties and obligations of such governmental unit, official, officer, director or
department, as the case may be, encompassed by this Indenture.
Unless the context shall clearly indicate otherwise or may
otherwise require, in this Indenture words importing persons include firms,
partnerships, associations, corporations (public and private), public bodies and
natural persons, and also include executors, administrators, trustees, receivers
or other representatives.
Unless the context shall clearly indicate otherwise or may
otherwise require computation on other than an annual basis, in this Indenture
whenever any interest rate or rate of interest is defined or referred to, such
rate shall be a rate per annum.
Unless the context shall clearly indicate otherwise or may
otherwise require, in this Indenture (not including in such term wherever used
in this paragraph any Supplemental Indenture): (i) references to articles,
sections and other subdivisions, whether by number or letter or otherwise, are
to the respective or corresponding articles, sections and subdivisions of this
Indenture, as such articles, sections or subdivisions may be amended from time
to time; (ii) the terms "herein," "hereunder," "hereby," "hereto," "hereof," and
any similar terms, refer to this Indenture and to this Indenture as a whole and
not to any particular article, section or subdivision hereof; and (iii) the word
"heretofore" means before the time of effectiveness of this Indenture; and the
word "hereafter" means after the time of effectiveness of this Indenture.
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Unless the context shall clearly indicate otherwise or may
otherwise require, all references to time shall be to New York City time.
SECTION 1.03. Computations. Unless the facts shall then be
otherwise, all computations required for the purposes of this Indenture shall be
made on the assumption that the principal of and premium and interest on all
Bonds shall be paid as and when the same become due.
SECTION 1.04. Certificates and Opinions. Each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Indenture shall include: (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
Any certificate required by or on behalf of the Authority or
the Company may be based, insofar as it relates to legal, accounting, or
engineering matters, upon an opinion or representation of counsel, accountants,
auditors or engineers, unless the person signing such certificate knows or has
reason to know that such opinion or representation is erroneous.
Any opinion of counsel required by or for the purposes of this
Indenture may be based, insofar as it relates to factual matters or information
in the possession of the Authority or the Company, upon a certificate or opinion
of, or representation by, the proper officer or officers of the Authority or the
Company unless such counsel knows or has reason to know that such certificate or
opinion or representation is erroneous. Any such certificate or opinion may be,
but need not be, combined in a single instrument with any other certificate or
opinion.
SECTION 1.05. Evidence of Action by Authority. Except as
otherwise specifically provided in this Indenture, any request, direction,
command, order, notice, certificate or other instrument of, by or from the
Authority shall be effective and binding upon it for the purposes of this
Indenture if the same shall be signed by an Authorized Officer or such other
person or persons as may be designated and authorized by an Authorized Officer
to sign for or on behalf of the Authority. Any such instrument and supporting
opinions or representations, if any, may, but need not be combined in a single
instrument with any other instrument, opinion or representation.
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ARTICLE II
AUTHORIZATION OF BONDS
SECTION 2.01. Limitation on Issuance of Bonds. No Bonds may be
issued under the provisions of this Indenture except in accordance with the
provisions of this Article.
SECTION 2.02. Authorization of Bonds. 1. There is hereby
created and established under this Indenture one issue of revenue bonds of the
Authority, which shall be issued and designated as "Pollution Control Refunding
Revenue Bonds (KeySpan Generation LLC Projects), 1999 Series A" in the principal
amount of $41,125,000. In order to distinguish between Bonds which are subject
to different interest rate determination methods and other features and to
distinguish the portion of the Bonds to be remarketed by any particular Market
Agent, the Bonds may be designated and redesignated from time to time by the
Authority in such a way as to identify one or more subseries of the Bonds. Such
subseries may be designated as subseries A-1 or subseries A-2, subseries A-3 or
may be redesignated as subseries A-1-1, A-2-1, A-3-1, as the case may be, and so
forth. Each Bond shall bear upon the face thereof such designation or
redesignation, if any. In the event any series of Bonds is designated or
redesignated from time to time as one or more subseries, all references to a
series of the Bonds in this Indenture shall refer to each such subseries unless
the context otherwise requires.
2. The Bonds shall be secured by the assignments, pledges and
charges made or created herein for the payment and security of the Bonds and by
a lien on the Participation Agreement (exclusive of the rights therein reserved
to the Authority), the proceeds of the Note, the Tax Regulatory Agreement and
the other monies, rights, properties and securities from time to time held
hereunder, subject only to the provisions of this Indenture permitting the
application of the proceeds of the Bonds, the Note and such other monies,
rights, properties and securities for the purposes and on the terms and
conditions hereof, over and ahead of any claims, encumbrances or obligations of
any nature hereafter arising or incurred. The foregoing lien, pledges, charges
and assignments shall be valid and binding from the time of the effectiveness of
this Indenture, as set forth in Section 17.11, and the Note Payments made under
the Note and the Participation Agreement shall be immediately subject thereto
upon receipt by the Trustee.
3. The Bonds are limited obligations of the Authority payable
solely from payments to be made by the Company pursuant to the Note and the
Participation Agreement and the other monies, rights and properties pledged
hereunder including the proceeds of the Support Facility, if any, obtained with
respect thereto and secured by a pledge from the Authority to the Trustee of the
Participation Agreement and the Note. The Bonds shall not be a debt of the State
of New York, and the State of New York shall not be liable thereon.
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4. The covenants and agreements herein set forth to be performed by
the Authority shall be for the benefit, security and protection of any
Holder of the Bonds and the Bond Insurer.
5. Neither the Trustee, the Bond Insurer nor any Holder of the
Bonds shall be required to see that the monies derived from such Bonds are
applied to the purpose or purposes for which such Bonds are issued.
6. The Bonds shall be issued under this Indenture for the
purpose of (i) paying certain expenses incurred in connection with the issuance
of the Bonds and (ii) prepaying the KeySpan Notes.
7. The Bonds bearing a Commercial Paper Rate, a Daily Rate, a
Weekly Rate or a Monthly Rate shall be fully registered Bonds in the
denomination of $100,000 or any integral multiple thereof. The Bonds bearing an
Auction Rate during an Auction Rate Period or an Auction Rate and an Inverse
Rate during an Auction Rate-Inverse Rate Period shall be fully registered Bonds
in the denomination of $25,000 or any integral multiple thereof. The Bonds
bearing a Semi-annual Rate, a Term Rate or a Fixed Rate shall be fully
registered Bonds in the denomination of $5,000 or any integral multiple thereof.
8. The Bonds shall be numbered consecutively from AR-1 upwards
as issued, or as otherwise provided by the Registrar and Paying Agent. If the
Bonds are redesignated to identify one or more subseries, the Bonds shall be
numbered in accordance with their subseries designation, i.e. A-1-R-1, A-2-R-1
or A-3-R-1, as the case may be. The Bonds shall mature on the Stated Maturity.
9. The Bonds shall be initially issued in fully registered
form, without coupons, and initially dated their date of first authentication
and delivery. The Bonds shall initially be issued in the form of one global bond
registered in the name of the Securities Depository or its nominee and ownership
thereof shall be maintained in book entry form by the Securities Depository for
the account of the Agent Members thereof.
10. Upon any Change in the Interest Rate Mode to an Auction
Rate for an Auction Rate Period or an Auction Rate and an Inverse Rate for an
Auction Rate-Inverse Rate Period, there shall be Outstanding an aggregate
principal amount of not less than (i) $20,000,000 for Auction Rate Bonds during
an Auction Rate Period, and (ii) at all times an equal aggregate principal
amount of Auction Rate Bonds and Inverse Rate Bonds and $20,000,000 for Auction
Rate Bonds and Inverse Rate Bonds, respectively, during an Auction Rate-Inverse
Rate Period and in the applicable denominations set forth in Section 2.02.7.
SECTION 2.03. Global Form; Securities Depository. 1. Except as
otherwise provided in this Section 2.03, the Auction Rate Bonds during any
Auction Rate Period and the Auction Rate-Inverse Rate Bonds during any
Auction Rate-Inverse Rate Period in the form of one
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separate global bond for such series or subseries, as the case may be, shall be
registered in the name of the Securities Depository or its nominee and ownership
thereof shall be maintained in book entry form by the Securities Depository for
the account of the Agent Members thereof. The Authority may elect to issue Bonds
bearing a Fixed Rate or an Adjustable Rate other than an Auction Rate (during
any Auction Rate Period) or an Auction Rate and a related Inverse Rate (during
any Auction Rate- Inverse Rate Period), in the form of one global bond of such
series or subseries, as the case may be, registered in the name of the
Securities Depository or its nominee and ownership thereof shall be maintained
in book entry form by the Securities Depository for the account of the Agent
Members thereof.
Except as provided in subsections (3) and (4) of this Section
2.03, the Auction Rate Bonds during any Auction Rate Period and the Auction
Rate-Inverse Rate Bonds during any Auction Rate-Inverse Rate Period may be
transferred, in whole but not in part, only to the Securities Depository or a
nominee of the Securities Depository, or to a successor Securities Depository
selected or approved by the Authority, with the consent of the Company, the
Trustee, the Auction Agent and the Market Agent, or to a nominee of such
successor Securities Depository. Each global certificate for the Auction Rate
Bonds and the Inverse Rate Bonds shall bear a legend substantially to the
following effect: "Except as otherwise provided in Section 2.03 of the
Indenture, this global bond may be transferred, in whole but not in part, only
to the Securities Depository as defined in the Indenture or a nominee of the
Securities Depository or to a successor Securities Depository or to a nominee of
a successor Securities Depository."
2. The Authority, the Company, the Trustee, the Registrar and
Paying Agent, the Auction Agent, any Support Facility Issuer and the Market
Agent shall have no responsibility or obligation with respect to:
(a) the accuracy of the records of the Securities Depository or any
Agent Member with respect to any beneficial ownership interest in the
Bonds;
(b) the delivery to any Agent Member, beneficial owner of the
Bonds or other person, other than the Securities Depository or its
nominee as registered owner, of any notice with respect to the Bonds;
(c) the payment to any Agent Member, beneficial owner of the
Bonds or other person, other than the Securities Depository or its
nominee as registered owner, of any amount with respect to the
principal or premium, if any, or interest on the Bonds;
(d) any consent given by the Securities Depository or other action
taken by the Securities Depository as registered owner; or
(e) the selection by the Securities Depository or any Agent
Members of any beneficial owners to receive payment in the event of a
partial redemption of Auction Rate Bonds during
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an Auction Rate Period or Auction Rate-Inverse Rate Bonds during an
Auction Rate-Inverse Rate Period, except for the Trustee's obligations
under Section 5.10.
So long as the certificates for the Bonds of this series or any subseries issued
under the Indenture are not issued pursuant to subsection (4) of this Section
2.03, the Authority, the Company, the Trustee, the Auction Agent, the Market
Agent, the Bond Insurer and the Registrar and Paying Agent may treat the
Securities Depository as, and deem the Securities Depository to be, the absolute
owner of such series or subseries of Bonds for all purposes whatsoever,
including without limitation:
(a) the payment of principal and premium, if any, and interest on such
series or subseries of the Bonds;
(b) giving notices of redemption and other matters with respect to
such series or subseries of the Bonds;
(c) registering transfers with respect to such series or subseries of
the Bonds; and
(d) obtaining consents under the Indenture.
Payment by the Trustee of principal or redemption price, if
any, of and premium, if any, and interest on such Bonds to or upon the order of
the Securities Depository or its nominee during any period when it is the
registered owner of such Bonds shall be valid and effective to satisfy and
discharge fully the Authority's obligation with respect to the amounts so paid.
3. (a) The Authority may discontinue the use of a Securities
Depository for the Auction Rate Bonds during an Auction Rate Period or
the Auction Rate-Inverse Rate Bonds during any Auction Rate-Inverse
Rate Period at the time of a Change in the Interest Rate Mode or on or
after the Fixed Rate Conversion Date.
(b) Registered ownership of the Bonds may be transferred on
the registration books of the Authority maintained by the Registrar and
Paying Agent and the Bonds may be delivered in physical form to the
following: (i) any successor Securities Depository or its nominee; or
(ii) any person, upon (A) the resignation of the Securities Depository
or (B) the termination by the Authority of the use of the Securities
Depository from its functions as depository as set forth in this
section, or (C) upon any Change in the Interest Rate Mode to any
Adjustable Rate other than an Auction Rate during an Auction Rate
Period or an Auction Rate and an Inverse Rate during an Auction
Rate-Inverse Rate Period or on the Fixed Rate Conversion Date.
(c) Upon any Change in the Interest Rate Mode to an Auction
Rate during an Auction Rate Period or an Auction Rate and an Inverse
Rate during an Auction Rate-Inverse Rate Period, the Registrar and
Paying Agent shall register the Auction Rate Bonds during an Auction
Rate Period or the Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse
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Rate Period, as the case may be, in the name of the Securities
Depository or its nominee and on the effective date of such change
provide the Company with a list of the Existing Holders of the Auction
Rate Bonds during an Auction Rate Period or during an Auction
Rate-Inverse Rate Period, as the case may be.
4. If at any time the Securities Depository notifies the
Authority and the Company that it is unwilling or unable to continue as
Securities Depository with respect to the Bonds or if at any time the Securities
Depository shall no longer be registered or in good standing under the
Securities Exchange Act or other applicable statute or regulation and a
successor Securities Depository is not appointed by the Authority with the
consent of the Company, the Trustee, the Auction Agent and the Market Agent,
within 90 days after the Authority and the Company receive notice or become
aware of such condition, as the case may be, this Section shall no longer be
applicable and the Authority shall execute and the Registrar and Paying Agent
shall authenticate and deliver certificates representing the Bonds of such
series or subseries as provided below. In addition, the Authority may determine
at any time, at the request of the Market Agent, that the Bonds shall no longer
be represented by global bonds and that the provisions of subsections (1) and
(2) above shall no longer apply to such series or subseries of Bonds. In any
such event the Authority shall execute and the Registrar and Paying Agent shall
authenticate and deliver certificates representing the Bonds of such series or
subseries as provided below. Certificates for the Bonds of any series or
subseries issued in exchange for a global bond pursuant to this subsection shall
be registered in such names in authorized denominations as the Securities
Depository, pursuant to instructions from the Agent Members or otherwise, shall
instruct the Authority and the Registrar and Paying Agent. The Registrar and
Paying Agent shall deliver such certificates representing the Bonds of such
series or subseries to the persons in whose names such Bonds are so registered
on the Business Day immediately preceding the first day of an Auction Period
(with respect to Auction Rate Bonds during any Auction Rate Period), Interest
Period (with respect to Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period), the effective date of a Change in the Interest Rate
Mode (with respect to any other Change in the Interest Rate Mode), or on the
Fixed Rate Conversion Date (with respect to a conversion to a Fixed Rate), as
the case may be.
5. The Authority, the Trustee and the Registrar and Paying
Agent are hereby authorized to enter into any arrangements determined necessary
or desirable with any Securities Depository in order to effectuate this Section
and both of them shall act in accordance with this Indenture and any such
agreement. Without limiting the generality of the foregoing, any such
arrangements may alter the manner of effecting delivery of Bonds and the
transfer of funds for the payment of Bonds to the Securities Depository.
SECTION 2.04. Limitations on Transfer. (a) So long as the
ownership of the Auction Rate Bonds during any Auction Rate-Inverse Rate Period
is maintained in book-entry form by the Securities Depository, an Existing
Holder may sell, transfer or otherwise dispose of Auction Rate Bonds during an
Auction Rate-Inverse Rate Period only pursuant to a Bid or Sell Order placed in
an Auction or to or through a Broker-Dealer or to a person that has signed and
delivered a Purchaser's Letter to the Auction Agent, provided that in the case
of all transfers other than pursuant
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to Auctions such Existing Holder, its Broker-Dealer or its Agent Member advises
the Auction Agent of such transfer.
(b) So long as the ownership of the Auction Rate Bonds during
an Auction Rate Period is maintained in book-entry form by the Securities
Depository, an Existing Holder may sell, transfer or otherwise dispose of
Auction Rate Bonds only pursuant to a Bid or Sell Order placed in an Auction or
to a Broker-Dealer, provided, however, that (a) sale, transfer or other
disposition of Auction Rate Bonds from a customer of a Broker-Dealer who is
listed on the records of that Broker- Dealer as the holder of such Auction Rate
Bonds to that Broker-Dealer or another customer of that Broker-Dealer shall not
be deemed to be a sale, transfer or other disposition for purposes of this
Section 2.04 if such Broker-Dealer remains the Existing Holder of the Auction
Rate Bonds so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions such Broker-Dealer to whom such transfer is made shall advise the
Auction Agent of such transfer.
SECTION 2.05. Application of Bond Proceeds. The proceeds of
sale of the Bonds shall be deposited with the Trustee for deposit in the Project
Fund to be paid out in accordance with Section 8.01.
SECTION 2.06. Delivery of the Bonds. The Bonds shall be
executed by the Authority substantially in the form prescribed by Section 16.01
and in the manner herein set forth and shall be deposited with the Registrar and
Paying Agent for authentication, but before the Bonds shall initially be
delivered by the Trustee, there shall be filed with the Trustee the following:
(a) an order executed by an Authorized Officer directing the
authentication and delivery of the Bonds to or upon the order of the
Securities Depository or its nominee, upon payment to the Trustee of the
purchase price therein set forth;
(b) two fully executed counterparts of this Indenture;
(c) two fully executed counterparts of the Participation Agreement;
(d) two fully executed counterparts of the Market Agent Agreement;
(e) the fully executed initial Credit Facility;
(f) two fully executed counterparts of the Bond Purchase Trust
Agreement;
(g) the fully executed Note;
(h) two fully executed counterparts of the Tax Regulatory Agreement;
(i) two fully executed counterparts of the Auction Agency Agreement;
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(j) opinion of Counsel to the Company, addressed to the Authority, the
Bond Insurer and the Trustee, substantially to the effect, and dated as,
required by Section 8(d)(7)(iii) of the Bond Purchase Agreement;
(k) opinion of counsel to the Bond Insurer, substantially to the
effect, addressed to, and dated as required by Section 8(d)(7)(vi) of
the Bond Purchase Agreement;
(l) opinion of Bond Counsel (i) as to the validity of the
Bonds, (ii) as to the exclusion of interest on the Bonds for federal
and New York State income tax purposes and (iii) that all conditions
precedent to the issuance of the Bonds have been met.
When the documents mentioned in clauses (a) to (l), inclusive,
of this Section shall have been filed with the Trustee, and when the Bonds shall
have been executed and authenticated as required by this Indenture, the Trustee
shall deliver the Bonds to the Securities Depository, but only upon payment to
the Trustee of the purchase price of the Bonds specified in said order.
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ARTICLE III
INTEREST ON BONDS
SECTION 3.01. Interest on Bonds-General. 1. While the Bonds
bear interest at a Commercial Paper Rate, a Daily Rate, a Weekly Rate, a Monthly
Rate or a Semi-annual Rate, interest accrued on such Bonds shall be computed on
the basis of a 365 or 366-day year, as applicable, for the number of days
actually elapsed. While the Bonds bear interest at a Term Rate or a Fixed Rate,
interest accrued on such Bonds shall be computed on the basis of a 360-day year,
consisting of twelve (12) thirty (30) day months. While the Bonds bear interest
at an Auction Rate during an Auction Rate Period, interest accrued on such Bonds
shall be computed on the basis of a 360-day year for the number of days actually
elapsed. Interest on the Auction Rate-Inverse Rate Bonds during any Auction
Rate-Inverse Rate Period shall be computed in accordance with Section 3A.07. The
Bonds as initially issued shall bear interest from the date of issuance thereof
payable on each Interest Payment Date. The Bonds issued upon transfers or
exchanges of Bonds shall bear interest from the Interest Payment Date next
preceding their date of authentication, unless the date of authentication is an
Interest Payment Date in which case such Bonds shall bear interest from such
date, or unless the date of authentication is after the Record Date next
preceding the next succeeding Interest Payment Date, in which case such Bonds
shall bear interest from such next succeeding Interest Payment Date.
2. The Bonds shall initially bear interest at an Auction Rate
during an Auction Rate Period. From and after any Change in the Interest Rate
Mode pursuant to Section 4.01, the Bonds of any series or subseries shall bear
interest determined in accordance with the provisions of this Indenture
pertaining to the new Adjustable Rate. The Bonds shall bear interest for each
Calculation Period, Auction Period or Interest Period, as the case may be, at
the rate of interest per annum for such Calculation Period, Auction Period or
Interest Period established in accordance with this Indenture. From and after a
Fixed Rate Conversion Date, the affected Bonds shall bear interest at the Fixed
Rate until maturity. Interest shall be payable on each Interest Payment Date by
check mailed to the registered owner at his or her address as it appears on the
registration books kept by the Registrar and Paying Agent pursuant to the
Indenture at the close of business on the applicable Record Date; provided, that
(i) while the Securities Depository is the registered owner of any Bonds, all
payments of principal of, premium, if any, and interest on such Bonds shall be
paid to the Securities Depository or its nominee by wire transfer, (ii) prior to
and including the Fixed Rate Conversion Date, interest on the Bonds shall be
payable to any registered owner of at least one million dollars ($1,000,000) in
aggregate principal amount of Bonds by wire transfer, upon written notice
received by the Registrar and Paying Agent at least five days prior to the
applicable Record Date, from such registered owner containing the wire transfer
address (which shall be in the continental United States) to which such
registered owner wishes to have such wire directed and (iii) during a Commercial
Paper Rate Period, interest shall be payable on the Bonds only upon presentation
and surrender thereof to the Registrar and Paying Agent upon purchase thereof
pursuant to Section 5.02 and if such presentation and surrender is made by 2:00
p.m. (New York City time)
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such payment shall be by wire transfer. If and to the extent that there shall be
a default in the payment of the interest due on any Interest Payment Date, such
interest shall cease to be payable to the person in whose name each Bond of such
series was registered on such applicable Record Date and shall be payable, when
and if paid to the person in whose name each Bond is registered at the close of
business on the record date fixed therefor by the Trustee, which shall be the
fifth Business Day next preceding the date of the proposed payment. Except as
provided above, payment of the principal of and premium, if any, on all Bonds
shall be made upon the presentation and surrender of such Bonds at the principal
office of the Registrar and Paying Agent as the same shall become due and
payable. The principal of and premium, if any, and interest on the Bonds shall
be payable in lawful money of the United States of America. Each holder of
Auction Rate Bonds during an Auction Rate-Inverse Rate Period, by such holder's
purchase of Auction Rate Bonds during an Auction Rate-Inverse Rate Period
appoints the Registrar and Paying Agent as its agent in connection with the
payment by such holder of its share, if any, of the amounts payable to the
Auction Agent and the Broker-Dealers pursuant to subsections (c) and (d) of
Section 3A.05.
3. Not less than one Business Day prior to each Computation
Date and two Business Days prior to the Fixed Rate Conversion Date, the Indexing
Agent shall establish and provide to the applicable Market Agent the related
rate index as set forth in the definition of such rate index in Section 1.01;
provided that, for each Calculation Period during a Daily Rate Period, the
Indexing Agent shall establish and provide the related rate index to the
applicable Market Agent on each Determination Date; and provided further that,
for each Calculation Period during a Monthly Rate Period, the Indexing Agent
shall establish and provide the related rate index to the applicable Market
Agent not less than two Business Days prior to each Computation Date.
Notwithstanding the foregoing, in the event that the Market Agent, in its sole
judgment, shall determine on a Determination Date that any Weekly Rate or any
Commercial Paper Rate Index so established is sufficiently non-representative of
current market conditions that the Bonds may not be remarketed at par if such
rate is set at a rate not greater than 110% of the applicable rate index, the
Market Agent may establish a new rate index on a Determination Date in
accordance with the procedures and standards set forth in this paragraph and for
purposes of such rate index so established, all references to Indexing Agent in
this Indenture shall be deemed to refer to the Market Agent. On any date when
any Weekly Rate or any Commercial Paper Rate Index is established by the Market
Agent pursuant to this paragraph, such rate index shall have the respective
meaning set forth in Section 1.01 (except as otherwise provided in the preceding
sentence); provided that for any Commercial Paper Rate Index, the Market Agent
shall select securities (whether or not actually issued) having a term
approximately equal to the applicable Commercial Paper Rate Period or which are
subject to optional or mandatory tender by the owner thereof at the end of a
term approximately equal to (or as close thereto as is practicably available)
the applicable Commercial Paper Rate Period. Upon the occurrence and during the
continuance of a Company Downgrade Event, the Bond Insurer shall have the right
to consent to any new rate index proposed by the Market Agent pursuant to this
paragraph, which consent shall not be unreasonably withheld.
4. By 12:00 noon (New York City time) on each Determination Date
or by 3:00 p.m. (New York City time) on each Auction Date, as the case
may be, the applicable Market Agent
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or the Auction Agent, as the case may be, shall determine in accordance with the
terms hereof and make available to the Authority, the Trustee, the Registrar and
Paying Agent, any Support Facility Issuer, the Company, any Broker-Dealer or any
registered owner of a Bond the interest rate or rates determined on such
Determination Date or Auction Date.
5. If for any reason on any Determination Date (A) any rate of
interest or a Calculation Period and related Commercial Paper Rate is not
determined by the applicable Market Agent, (B) no Market Agent is serving as
such hereunder or (C) the rate so determined is held to be invalid or
unenforceable by a final judgment of a court of competent jurisdiction, (i)
during any Daily Rate Period, the interest rate for the next succeeding
Calculation Period shall be the last interest rate in effect, or, if a Daily
Rate is not determined by the Market Agent hereunder for five or more
consecutive Business Days on the next and each succeeding Determination Date,
the Daily Rate shall be a rate per annum equal to 80% of the latest 30-day
dealer taxable commercial paper rate published by the Federal Reserve Bank of
New York on or immediately before such Determination Date, (ii) during any
Weekly Rate Period, the interest rate for the next succeeding Calculation Period
shall be the last interest rate in effect, or, if a Weekly Rate is not
determined by the Market Agent for two or more consecutive Calculation Periods,
the Weekly Rate shall be equal to 85% of the latest 30-day dealer taxable
commercial paper rate published by the Federal Reserve Bank of New York on or
before the day next preceding such Determination Date, (iii) during any Monthly
Rate, Semi-annual Rate or Term Rate Period, the interest rate per annum for the
next succeeding Calculation Period shall be equal to 85% of the rate listed in
the table most recently circulated by the United States Treasury Department
known as "Table [applicable dates shown on the most recent Table], Maximum
Interest Rate Payable on United States Treasury Certificates of Indebtedness,
Notes and Bonds-State and Local Government Series Subscribed for During Period
[applicable dates shown on the most recent Table]" or any substantially
equivalent table circulated by the United States Treasury Department for the
maturity most closely approximating the Calculation Period, and (iv) during any
Commercial Paper Rate Period, the next succeeding Calculation Period shall be a
Calculation Period which shall consist of the period from and including the
prior Interest Payment Date to but excluding the first Business Day of the
following calendar month and the Commercial Paper Rate shall be equal to 85% of
the interest rate applicable to 90-day United States Treasury Bills determined
on the basis of the average per annum discount rate at which such 90-day
Treasury Bills shall have been sold at the most recent Treasury auction within
the 30 days next preceding such Calculation Period, or if there shall have been
no such auction within the 30 days next preceding such Calculation Period, the
Commercial Paper Rate shall be equal to the rate of interest borne by such Bond
during the next preceding Calculation Period for such Bond. The rate of interest
or Calculation Period and related Commercial Paper Rate shall be established
pursuant to this subsection 5 until the Market Agent again determines the rates
of interest or Calculation Periods and related Commercial Paper Rates in
accordance with this Indenture. The Trustee shall, upon the direction of the
Company, select any person otherwise meeting the qualifications of Section 11.14
to obtain, calculate and prepare any of the information required by this
subsection 5.
6. The determination of any rate of interest by the Market Agent
in accordance with this Indenture or by the Auction Agent in
accordance with the Auction Procedures applicable
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to Auction Rate Bonds during an Auction Rate Period and Auction Rate-Inverse
Rate Bonds during an Auction Rate-Inverse Rate Period, as the case may be, or
the establishment of Calculation Periods, Auction Periods or Interest Periods by
the Market Agent as provided in this Indenture shall be conclusive and binding
upon the Authority, the Company, the Trustee, the Registrar and Paying Agent,
the Market Agent, the Auction Agent, any issuer of a Support Facility, all
Broker-Dealers and the registered or beneficial owners of the Bonds. Failure of
the Market Agent, the Trustee, the Registrar and Paying Agent, the Auction Agent
or the Securities Depository or any Securities Depository participant to give
any of the notices described in this Indenture, or any defect therein, shall not
affect the interest rate to be borne by any of the Bonds nor the applicable
Calculation Period, Auction Period or Interest Period nor in any way change the
rights of the registered owners of the Bonds to tender their Bonds for purchase
or to have them redeemed in accordance with this Indenture.
7. No transfer or exchange of Bonds shall be required to be
made by the Registrar and Paying Agent after a Record Date until the next
succeeding Interest Payment Date.
8. Except as otherwise provided in this subsection 8, the
Trustee shall calculate and notify the Registrar and Paying Agent of the amount
of interest due and payable on each Interest Payment Date or date on which a
Bond is subject to purchase by 10:00 a.m. on the Business Day next preceding
such Interest Payment Date or date set for purchase, as the case may be. In
preparing such calculation the Trustee may rely on calculations or other
services provided by the Auction Agent, the Market Agent, the Company or any
person or persons selected by the Trustee in its discretion. During a Commercial
Paper Rate Period, the Market Agent shall notify the Trustee, the Registrar and
Paying Agent and the Company of the amount of interest due and payable on each
Interest Payment Date by 10:00 a.m. on the Business Day next preceding such
Interest Payment Date. During an Auction Rate Period, the Auction Agent shall
notify the Trustee at least seven days prior to each Interest Payment Date of
the Auction Rate and the aggregate amount of interest payable on such Interest
Payment Date.
9. Anything herein to the contrary notwithstanding, in no
event shall the interest rate borne by any Bond exceed the lesser of (i) the
maximum rate allowable by applicable law or (ii) the maximum rate of interest
provided for by any Liquidity Facility in effect at any time.
SECTION 3.02. Commercial Paper Rate. 1. During any Commercial
Paper Rate Period, at or prior to 12:00 noon (New York City time) on each
Determination Date, the Market Agent shall establish Calculation Periods and
related Commercial Paper Rates. In determining Calculation Periods, the Market
Agent shall take the following factors into account: (i) existing short-term
taxable and tax-exempt market rates and indices of such short-term rates, (ii)
the existing market supply and demand for short-term tax-exempt securities,
(iii) existing yield curves for short- term and long-term tax-exempt securities
or obligations having a credit rating that is comparable to the Bonds, (iv)
general economic conditions, (v) economic and financial factors present in the
securities industry that may affect or that may be relevant to the Bonds and
(vi) any information available to the Market Agent pertaining to the Company
regarding any events or anticipated events
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which could have a direct impact on the marketability of or interest rates on
the Bonds. The Market Agent shall select the Calculation Periods and the
applicable Commercial Paper Rates that, together with all other Calculation
Periods and related Commercial Paper Rates, in the sole judgment of the Market
Agent, will result in the lowest overall borrowing cost on the Bonds or are
otherwise in the best financial interests of the Company, as determined in
consultation with the Company. Any Calculation Period established hereunder may
not extend beyond the Fixed Rate Conversion Date, the expiration date of the
Support Facility, if any, or the day prior to the maturity date of the Bonds. To
the extent a Liquidity Facility provides for the payment of accrued interest on
the Bonds for a term less than the established Calculation Period, such
Calculation Period will not extend beyond the coverage provided by the Liquidity
Facility.
2. The Authority, at the request of the Company, may place
such limitations upon the establishment of Calculation Periods pursuant to
subsection 1 hereof as may be set forth in a written direction from the
Authority, which direction must be received by the Trustee and the Market Agent
prior to 10:00 a.m. (New York City time) on the day prior to any Determination
Date to be effective on such date, but only if the Trustee receives an Opinion
of Bond Counsel to the effect that such action is authorized by this Indenture,
is permitted under the Act and will not have an adverse effect on the exclusion
of interest on the Bonds from gross income for federal income tax purposes.
SECTION 3.03. Auction Rate Period - Auction Rate: Auction
Period - General.1. The Bonds shall be issued initially as Auction Rate Bonds
during an Auction Rate Period. During any Auction Rate Period, the Bonds shall
bear interest at the Auction Rate determined as set forth in this Section 3.03
and through implementation of the Auction Procedures. The Auction Rate for the
initial Auction Period shall be 3.95% per annum. The initial Auction Period
shall commence from and include the date of original issuance of the Bonds and
shall expire on and include January 13, 2000. The initial Auction Date will be
on January 13, 2000. After the initial Auction Period, each Auction Period shall
be a Standard Auction Period. The Auction Rate for any initial Auction Period
immediately after any Change in the Interest Rate Mode to an Auction Rate for an
Auction Rate Period, shall be the rate of interest per annum determined and
certified to the Trustee (with a copy to the Authority, the Registrar and Paying
Agent, the Bond Insurer and the Company) by the Market Agent on a date not later
than the effective date of such Change in the Interest Rate Mode as the minimum
rate of interest which, in the opinion of the Market Agent, would be necessary
as of such date to market Auction Rate Bonds in a secondary market transaction
at a price equal to the principal amount thereof; provided that such interest
rate shall not exceed the lesser of 110% of the sum of the Commercial Paper
Index and .50% per annum. For any other Auction Period, the Auction Rate shall
be the rate of interest per annum that results from implementation of the
Auction Procedures. If on any Auction Date the Auction Agent shall fail to take
any action necessary to determine, or take any action which effectively prevents
the determination of, a rate of interest pursuant to the Auction Procedures, the
Auction Rate for the next succeeding Auction Period shall equal the No Auction
Rate on and as of such Auction Date. If a Payment Default shall have occurred,
the rate of interest for (1) the Auction Period commencing on or immediately
prior to the date on which such Payment Default occurs shall equal the Maximum
Auction Rate, and (2) for each
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<PAGE>
Auction Period commencing thereafter to and including the Auction Period, if
any, during which, or commencing less than two Business Days after, all Payment
Defaults are cured, shall equal the Maximum Auction Rate.
2. Auction Periods may be established pursuant to Section 3.04
at any time unless a Payment Default has occurred and has not been cured. Each
Auction Period shall be a Standard Auction Period unless a different Auction
Period is established pursuant to Section 3.04 and each Auction Period which
immediately succeeds a non-Standard Auction Period shall be a Standard Auction
Period unless a different Auction Period is established pursuant to Section
3.04.
SECTION 3.04. Auction Rate Period - Auction Rate Bonds: Change
of Auction Period by Authority. 1. During an Auction Rate Period the Authority,
at the request of the Company, may change the length of a single Auction Period
or the Standard Auction Period by means of a written notice delivered at least
10 days prior to the Auction Date for such Auction Period to the Trustee, the
Market Agent, the Auction Agent, the Company and the Securities Depository in
substantially the form attached hereto as, or containing substantially the
information contained in, Exhibit E. If such notice specifies a change in the
length of the Standard Auction Period, such notice shall be effective only if it
is accompanied by the written consent of the Market Agent to such change. The
length of an Auction Period or the Standard Auction Period may not be changed
pursuant to this Section 3.04 unless Sufficient Clearing Bids existed at both
the Auction immediately preceding the date the notice of such change was given
and the Auction immediately preceding such changed Auction Period.
2. The change in length of an Auction Period or the Standard
Auction Period shall take effect only if (A) the Trustee, the Bond Insurer and
the Auction Agent receive, by 11:00 a.m. (New York City time) on the Business
Day immediately preceding the Auction Date for such Auction Period, a
certificate from the Company, on behalf of the Authority, by telecopy or similar
means in substantially the form attached hereto as, or containing substantially
the information contained in, Exhibit G authorizing the change in the Auction
Period or the Standard Auction Period, which shall be specified in such
certificate, and confirming that Bond Counsel expects to be able to give the
Opinion of Bond Counsel on the first day of such Auction Period referred to in
(D) below, (B) the Trustee shall not have delivered to the Auction Agent by
12:00 noon (New York City time) on the Auction Date for such Auction Period
notice that a Failure to Deposit has occurred, (C) Sufficient Clearing Bids
exist at the Auction on the Auction Date for such Auction Period, and (D) the
Trustee, the Bond Insurer and the Auction Agent receive by 9:30 a.m. (New York
City time) on the first day of such Auction Period, an opinion of Bond Counsel
to the effect that the change in the Auction Period or the Standard Auction
Period is authorized by this Indenture, is permitted under the Act and will not
have an adverse effect on the exclusion of interest on such Bonds from gross
income for federal income tax purposes. If the condition referred to in (A)
above is not met, the Auction Rate for the next succeeding Auction Period shall
be determined pursuant to the Auction Procedures and the next succeeding Auction
Period shall be a Standard Auction Period. If any of the conditions referred to
in (B), (C) or (D) above is not met, the Auction Rate for the next succeeding
Auction Period shall equal the Maximum Auction Rate.
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SECTION 3.05. Auction Rate Period - Auction Rate Bonds: Change
of Auction Date by Market Agent. During an Auction Rate Period the Market Agent,
with the written consent of the Company, may change, in order to conform with
then-current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant to the
day of the week constituting an Auction Date, the Auction Date for all future
Auction Periods to a different day, so long as the first such Auction Date will
be a Business Day in the calendar week in which the next succeeding Auction Date
is then scheduled to occur. If a change in an Auction Date is undertaken in
conjunction with a change in an Auction Period and the conditions for the
establishment of such change in Auction Period are not met, the Auction Date may
be, and the next succeeding Auction Period may be adjusted to end on, a Business
Day in the calendar week in which such Auction Date was scheduled to occur and
such Auction Period was scheduled to end to accommodate the change in the
Auction Date. The Market Agent shall deliver a written notice of its
determination to change an Auction Date at least 10 days prior to the Auction
Date immediately preceding such Auction Date to the Authority, the Trustee, the
Auction Agent, the Company, the Bond Insurer and the Securities Depository which
shall state (i) the determination of the Market Agent to change the Auction
Date, (ii) the new Auction Date and (iii) the date on which such Auction Date
shall be changed. If as a result of any proposed change in the Auction Date any
Auction Period would be less than 28 days in duration, such notice shall be
effective only if it is accompanied by a written statement of the Auction Agent,
the Registrar and Paying Agent, the Trustee, the Market Agent and the Securities
Depository to the effect that they are capable of performing their duties
hereunder and under the Market Agent Agreement and Auction Agency Agreement with
respect to any such Auction Period. Notice of a change in the Auction Date may
be in substantially the form attached hereto as, or containing substantially the
information contained in, Exhibit S.
SECTION 3.06. Auction Rate Period - Auction Rate Bonds: Orders by
Existing Holders and Potential Holders. (a) Prior to the Submission
Deadline on each Auction Date during the Auction Rate Period, the
following orders may be submitted:
(i) each Existing Holder may submit to the Broker-Dealer by
telephone or otherwise information as to:
(A) the principal amount of Outstanding Auction Rate
Bonds, if any, held by such Existing Holder which such
Existing Holder desires to continue to hold without regard to
the Auction Rate for the next succeeding Auction Period;
(B) the principal amount of Outstanding Auction Rate
Bonds, if any, held by such Existing Holder which such
Existing Holder offers to sell if the Auction Rate for the
next succeeding Auction Period shall be less than the rate per
annum specified by such Existing Holder and/or
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(C) the principal amount of Outstanding Auction Rate
Bonds, if any, held by such Existing Holder which such
Existing Holder offers to sell without regard to the Auction
Rate for the next succeeding Auction Period;
(ii) for the purpose of implementing the
Auctions, the Broker-Dealers may contact Potential
Holders by telephone or otherwise to determine the
principal amount of Auction Rate Bonds which each
such Potential Holder irrevocably offers to purchase
if the Auction Rate for the next succeeding Auction
Period shall not be less than the interest rate per
annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B) or (i)(C) or clause (ii) above is
hereinafter referred to as an "Order" and collectively as "Orders" and each
Existing Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) above is hereinafter referred to as a
"Hold Order" and collectively as "Hold Orders"; an Order containing the
information referred to in clause (i)(B) or clause (ii) above is hereinafter
referred to as a "Bid" and collectively as "Bids"; and an Order containing the
information referred to in clause (i)(C) above is hereinafter referred to as a
"Sell Order" and collectively as "Sell Orders". The submission by a
Broker-Dealer of an Order to the Auction Agent shall likewise be referred to
herein as an "Order" and collectively as "Orders" and an Existing Holder or
Potential Holder who places an Order with the Auction Agent or on whose behalf
an Order is placed with the Auction Agent shall likewise be referred to herein
as a "Bidder" and collectively as "Bidders."
(b)(i) Subject to the provisions of Section 3.07, a Bid by an
Existing Holder shall constitute an irrevocable offer to sell:
(A) the principal amount of
Outstanding Auction Rate Bonds specified in
such Bid if the Auction Rate determined on
such Auction Date shall be less than the
interest rate per annum specified therein;
or
(B) such principal amount or a lesser principal
amount of Outstanding Auction Rate Bonds to be determined as
set forth in subsection (a)(iv) of Section 3.09 if the Auction
Rate determined on such Auction Date shall be equal to the
interest rate per annum specified therein; or
(C) such principal amount of Outstanding Auction Rate
Bonds if the interest rate per annum specified therein shall
be higher than the Maximum Auction Rate, or such principal
amount or a lesser principal amount of Outstanding Auction
Rate Bonds to be determined as set forth in subsection
(b)(iii) of Section 3.09 if such specified rate shall be
higher than the Maximum Auction Rate and Sufficient Clearing
Bids do not exist.
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(ii) Subject to the provisions of Section
3.07, a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the principal amount of Outstanding Auction Rate Bonds
specified in such Sell Order; or
(B) such principal amount or a lesser principal
amount of Outstanding Auction Rate Bonds as set forth in
subsection (b)(iii) of Section 3.09 if Sufficient Clearing
Bids do not exist.
(iii) Subject to the provisions of Section 3.07, a Bid by a
Potential Holder shall constitute an irrevocable offer to purchase:
(A) the principal amount of Outstanding Auction Rate
Bonds specified in such Bid if the Auction Rate determined on
such Auction Date shall be higher than the rate specified
therein; or
(B) such principal amount or a lesser principal
amount of Outstanding Auction Rate Bonds as set forth in
subsection (a)(v) of Section 3.09 if the Auction Rate
determined on such Auction Date shall be equal to such
specified rate.
SECTION 3.07. Auction Rate Period - Auction Rate Bonds:
Submission of Orders by Broker-Dealers to Auction Agent. (a) During an Auction
Rate Period each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date during the Auction Rate
Period, all Orders obtained by such Broker-Dealer and shall specify with respect
to each such Order:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer (unless otherwise permitted in writing by the Company));
(ii) the aggregate principal amount of Auction Rate Bonds that
are subject to such Order;
(iii) to the extent that such Bidder is an Existing Holder:
(A) the principal amount of Auction Rate Bonds, if any, subject
to any Hold Order placed by such Existing Holder;
(B) the principal amount of Auction Rate Bonds, if
any, subject to any Bid placed by such Existing Holder and the
rate specified in such Bid; and
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<PAGE>
(C) the principal amount of Auction Rate Bonds, if any, subject
to any Sell Order placed by such Existing Holder; and
(iv) to the extent such Bidder is a
Potential Holder, the principal amount of Auction
Rate Bonds subject to any Bid by such Potential
Holder and the rate specified in such Bid.
(b) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all or a portion of
Outstanding Auction Rate Bonds held by an Existing Holder is not submitted to
the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem
a Hold Order to have been submitted on behalf of such Existing Holder covering
the principal amount of Outstanding Auction Rate Bonds held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) Neither the Authority, the Company, the Trustee nor the
Auction Agent shall be responsible for any failure of a Broker-Dealer to submit
an Order to the Auction Agent on behalf of any Existing Holder or Potential
Holder.
(e) If any Existing Holder submits through a Broker-Dealer to
the Auction Agent one or more Orders covering in the aggregate more than the
principal amount of Auction Rate Bonds held by such Existing Holder, such Orders
shall be considered valid as follows and in the following order of priority:
(i) all Hold Orders shall be considered valid, but
only up to and including the principal amount of Auction Rate Bonds
held by such Existing Holder, and, if the aggregate principal amount of
Auction Rate Bonds subject to such Hold Orders exceeds the aggregate
principal amount of Outstanding Auction Rate Bonds held by such
Existing Holder, the aggregate principal amount of Auction Rate Bonds
subject to each such Hold Order shall be reduced pro rata to cover the
aggregate principal amount of Outstanding Auction Rate Bonds held by
such Existing Holder;
(ii) (A) any Bid shall be considered valid up to and
including the excess of the principal amount of Outstanding
Auction Rate Bonds held by such Existing Holder over the
aggregate principal amount of Auction Rate Bonds subject to
any Hold Orders referred to in paragraph (i) above;
(B) subject to clause (A) above, if more
than one Bid with the same rate is submitted on
behalf of such Existing Holder and the aggregate
principal amount of Outstanding Auction Rate Bonds
subject to such Bids is greater than such excess,
such Bids shall be considered valid up to and
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<PAGE>
including the amount of such excess, and, the
principal amount of Auction Rate Bonds subject to
each Bid with the same rate shall be reduced pro rata
to cover the principal amount of Auction Rate Bonds
equal to such excess;
(C) subject to clauses (A) and (B) above, if
more than one Bid with different rates is submitted
on behalf of such Existing Holder, such Bids shall be
considered valid in the ascending order of their
respective rates until the highest rate is reached at
which such excess exists and then at such rate up to
and including the amount of such excess; and
(D) in any such event, the aggregate
principal amount of Outstanding Auction Rate Bonds,
if any, subject to any portion of Bids not valid
under this paragraph (ii) shall be treated as the
subject of a Bid by a Potential Holder at the rate
therein specified; and
(iii) all Sell Orders shall
be considered valid up to and
including the excess of the
principal amount of Outstanding
Auction Rate Bonds held by such
Existing Holder over the aggregate
principal amount of Auction Rate
Bonds subject to valid Hold Orders
referred to in paragraph (i) of this
subsection (e) and valid Bids
referred to in paragraph (ii) of
this subsection (e).
(f) If more than one Bid for Auction Rate Bonds is submitted
on behalf of any Potential Holder, each Bid submitted shall be a separate Bid
for Auction Rate Bonds with the rate and principal amount therein specified.
(g) Any Bid or Sell Order submitted by an Existing Holder
covering an aggregate principal amount of Auction Rate Bonds not equal to
$25,000 or an integral multiple thereof shall be rejected and shall be deemed a
Hold Order. Any Bid submitted by a Potential Holder covering an aggregate
principal amount of Auction Rate Bonds not equal to $25,000 or an integral
multiple thereof shall be rejected.
(h) Any Bid submitted by an Existing Holder or a Potential
Holder specifying a rate lower than the Minimum Auction Rate, if any, shall be
treated as a Bid specifying the Minimum Auction Rate.
SECTION 3.08. Auction Rate Period - Auction Rate Bonds:
Determination of Sufficient Clearing Bids, Winning Bid Rate and Auction Rate.
(a) During an Auction Rate Period not earlier than the Submission Deadline on
each Auction Date during the Auction Rate Period, the Auction Agent shall
assemble all valid Orders submitted or deemed submitted to it by the Broker-
Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer
being hereinafter
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<PAGE>
referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total principal amount of
Outstanding Auction Rate Bonds over the aggregate principal
amount of Outstanding Auction Rate Bonds subject to Submitted
Hold Orders (such excess being hereinafter referred to as the
"Available Auction Rate Bonds"); and
(ii) from the Submitted Orders whether the aggregate
principal amount of Outstanding Auction Rate Bonds subject to
Submitted Bids by Potential Holders specifying one or more
rates equal to or lower than the Maximum Auction Rate exceeds
or is equal to the sum of:
(A) the aggregate principal amount of
Outstanding Auction Rate Bonds subject to Submitted
Bids by Existing Holders specifying one or more rates
higher than the Maximum Auction Rate; and
(B) the aggregate principal amount of Outstanding Auction Rate
Bonds subject to Submitted Sell Orders
(in the event of such excess or such equality (other than
because the sum of the principal amounts of Auction Rate Bonds
in clauses (A) and (B) above is zero because all of the
Outstanding Auction Rate Bonds are subject to Submitted Hold
Orders), such Submitted Bids by Potential Holders are
hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(iii) if Sufficient
Clearing Bids exist, the lowest rate
specified in the Submitted Bids (the
"Winning Bid Rate") which if:
(A)(I) each Submitted Bid from Existing
Holders specifying such lowest rate and (II) all
other Submitted Bids from Existing Holders specifying
lower rates were rejected, thus entitling such
Existing Holders to continue to hold the principal
amount of Auction Rate Bonds that are the subject of
such Submitted Bids; and
(B)(I) each Submitted Bid from Potential
Holders specifying such lowest rate and (II) all
other Submitted Bids from Potential Holders
specifying lower rates were accepted,
would result in such Existing Holders described in clause (A)
above continuing to hold an aggregate principal amount of
Outstanding Auction Rate Bonds which, when added to the
aggregate principal amount of Outstanding Auction Rate Bonds
to be
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<PAGE>
purchased by such Potential Holders described in clause (B)
above, would equal not less than the Available Auction Rate
Bonds.
(b) Promptly after the Auction Agent has made the
determinations pursuant to subsection (a) of this Section 3.08, the Auction
Agent, by telecopy confirmed in writing, shall advise the Company, the Trustee
and the Broker-Dealers of the Auction Rate for the next succeeding Auction
Period as follows:
(i) if Sufficient Clearing Bids exist, the Auction
Rate for the next succeeding Auction Period therefor shall be
equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist (other
than because all of the Outstanding Auction Rate Bonds are the
subject of Submitted Hold Orders), the Auction Rate for the
next succeeding Auction Period therefor shall be equal to the
Maximum Auction Rate; and
(iii) if all of the Auction Rate Bonds are subject to
Submitted Hold Orders, the Auction Rate for the next
succeeding Auction Period therefor shall be equal to the
Minimum Auction Rate.
SECTION 3.09. Auction Rate Period - Auction Rate Bonds:
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Auction Rate Bonds. During an Auction Rate Period Existing Holders
shall continue to hold the principal amounts of Auction Rate Bonds that are
subject to Submitted Hold Orders, and, based on the determinations made pursuant
to subsection (a) of this Section 3.09, the Submitted Bids and Submitted Sell
Orders shall be accepted or rejected and the Auction Agent shall take such other
actions as are set forth below:
(a) If Sufficient Clearing Bids exist, all Submitted Sell
Orders shall be accepted and, subject to the provisions of paragraphs
(e) and (f) of this Section 3.09, Submitted Bids shall be accepted or
rejected as follows in the following order of priority:
(i) Existing Holders' Submitted Bids specifying any
rate that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the
aggregate principal amount of Auction Rate Bonds subject to
such Submitted Bids;
(ii) Existing Holders' Submitted Bids specifying any
rate that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue
to hold the aggregate principal amount of Auction Rate Bonds
subject to such Submitted Bids;
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<PAGE>
(iii) Potential Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall be
accepted, thus requiring each such Potential Holder to
purchase the aggregate principal amount of Auction Rate Bonds
subject to such Submitted Bids;
(iv) each Existing Holder's Submitted Bid specifying
a rate that is equal to the Winning Bid Rate shall be
rejected, thus entitling such Existing Holder to continue to
hold the aggregate principal amount of Auction Rate Bonds
subject to such Submitted Bid, unless the aggregate principal
amount of Outstanding Auction Rate Bonds subject to all such
Submitted Bids shall be greater than the principal amount of
Auction Rate Bonds (the "remaining principal amount") equal to
the excess of Available Auction Rate Bonds over the aggregate
principal amount of the Auction Rate Bonds subject to
Submitted Bids described in paragraphs (ii) and (iii) of this
subsection (a), in which event such Submitted Bid of such
Existing Holder shall be rejected in part, and such Existing
Holder shall be entitled to continue to hold the principal
amount of Auction Rate Bonds subject to such Submitted Bid,
but only in an amount equal to the principal amount of Auction
Rate Bonds obtained by multiplying the remaining principal
amount by a fraction, the numerator of which shall be the
principal amount of Outstanding Auction Rate Bonds held by
such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the principal amounts
of Auction Rate Bonds subject to such Submitted Bids made by
all such Existing Holders that specified a rate equal to the
Winning Bid Rate;
(v) each Potential Holder's Submitted Bid specifying
a rate that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the principal amount of Auction
Rate Bonds obtained by multiplying the excess of the Available
Auction Rate Bonds over the aggregate principal amount of
Auction Rate Bonds subject to Submitted Bids described in
paragraphs (ii), (iii) and (iv) of this subsection (a) by a
fraction the numerator of which shall be the aggregate
principal amount of Auction Rate Bonds subject to such
Submitted Bid of such Potential Holder and the denominator of
which shall be the sum of the principal amount of Outstanding
Auction Rate Bonds subject to Submitted Bids made by all such
Potential Holders that specified a rate equal to the Winning
Bid Rate, and the remainder of such Submitted Bids shall be
rejected; and
(vi) each Potential Holder's Submitted Bid specifying
a rate that is higher than the Winning Bid Rate shall be
rejected.
(b) If Sufficient Clearing Bids do not exist (other than
because all of the Outstanding Auction Rate Bonds are subject to
Submitted Hold Orders), subject to the provisions of subsection (e) of
this Section 3.09, Submitted Orders shall be accepted or rejected as
follows in the following order of priority:
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<PAGE>
(i) Existing Holders' Submitted Bids
specifying any rate that is equal to or lower than
the Maximum Auction Rate shall be rejected, thus
entitling each such Existing Holder to continue to
hold the aggregate principal amount of Auction Rate
Bonds subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Auction Rate
shall be accepted, thus requiring each such Potential Holder
to purchase the aggregate principal amount of Auction Rate
Bonds subject to such Submitted Bids;
(iii) each Existing Holder's Submitted Bid specifying
any rate that is higher than the Maximum Auction Rate and the
Submitted Sell Order of each Existing Holder shall be
accepted, thus entitling each Existing Holder that submitted
any such Submitted Bid or Submitted Sell Order to sell the
Auction Rate Bonds subject to such Submitted Bid or Submitted
Sell Order, but in both cases only in an amount equal to the
aggregate principal amount of Auction Rate Bonds obtained by
multiplying the aggregate principal amount of Auction Rate
Bonds subject to Submitted Bids described in paragraph (ii) of
this subsection (b) by a fraction, the numerator of which
shall be the aggregate principal amount of Outstanding Auction
Rate Bonds held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate principal amount of Outstanding
Auction Rate Bonds subject to all such Submitted Bids and
Submitted Sell Orders; and
(iv) each Potential Holder's Submitted Bid specifying
a rate that is higher than the Maximum Auction Rate shall be
rejected.
(c) If all Outstanding Auction Rate Bonds are subject to
Submitted Hold Orders, all Submitted Bids shall be rejected.
(d) If (i) the Auction Agent shall fail to take any action
necessary to determine, or take any action which effectively prevents
the determination of, an interest rate pursuant to the Auction
Procedures or (ii) the conditions set forth in subsection 2 of Section
3.04 to effect a change in the Auction Period are not met, all
Submitted Bids and Submitted Sell Orders shall be rejected and the
existence of Sufficient Clearing Bids shall be of no effect.
(e) If, as a result of the procedures described in subsection
(a) or (b) of this Section 3.09, any Existing Holder would be entitled
or required to sell, or any Potential Holder would be required to
purchase, a principal amount of Auction Rate Bonds that is not equal to
$25,000 or an integral multiple thereof, the Auction Agent shall, in
such manner as, in its sole discretion, it shall determine, round up or
down the principal amount of such Auction Rate Bonds to be purchased or
sold by any Existing Holder or Potential Holder so
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<PAGE>
that the principal amount purchased or sold by each Existing Holder or
Potential Holder shall be equal to $25,000 or an integral multiple
thereof.
(f) If, as a result of the procedures described in subsection
(a) of this Section 3.09, any Potential Holder would be entitled or
required to purchase less than $25,000 in aggregate principal amount of
Auction Rate Bonds, the Auction Agent shall, in such manner as, in its
sole discretion, it shall determine, allocate Auction Rate Bonds for
purchase among Potential Holders so that only Auction Rate Bonds in
principal amounts of $25,000 or an integral multiple thereof are
purchased by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any Auction Rate
Bonds.
(g) Based on the results of each Auction, the Auction Agent
shall determine the aggregate principal amounts of Auction Rate Bonds
to be purchased and the aggregate principal amounts of Auction Rate
Bonds to be sold by Potential Holders and Existing Holders and, with
respect to each Potential Holder and Existing Holder, to the extent
that such aggregate principal amount of Auction Rate Bonds to be sold
differs from such aggregate principal amount of Auction Rate Bonds to
be purchased, determine to which other Potential Holder(s) or Existing
Holder(s) they shall deliver, or from which other Potential Holder(s)
or Existing Holder(s) they shall receive, as the case may be, Auction
Rate Bonds.
(h) The purchase price of each Auction Rate Bond sold in any
Auction shall be equal to $25,000, except that if the then ending
Auction Period is a daily Auction Period, the purchase price of each
Auction Rate Bond shall be $25,000, plus accrued and unpaid interest
thereon, unless the purchase date is also an Interest Payment Date, in
which case the purchase price of such Auction Rate Bond shall be
$25,000.
(i) None of the Authority, the Company or any Affiliate
thereof may submit an Order in any Auction except as set forth in the
next sentence. Any Broker-Dealer that is an Affiliate of the Company
may not submit Bids to purchase Auction Rate Bonds in an Auction for
its own account, provided that affiliated Broker-Dealers may submit
Hold Orders and Sell Orders in Auctions with respect to Auction Rate
Bonds otherwise acquired for its own account.
SECTION 3.10. Auction Rate Period - Auction Rate Bonds:
Adjustment in Percentage. 1. During an Auction Rate Period the Market Agent may
adjust the percentage used in determining the Minimum Auction Rate and the
Applicable Percentages used in determining the No Auction Rate if any such
adjustment is necessary, in the judgment of the Market Agent, to reflect any
Change of Preference Law or to conform to market practice such that the Minimum
Auction Rate and No Auction Rate shall have substantially equal market values
before and after such Change of Preference Law or change in market practice. In
making any such adjustment as a result of a Change of Preference Law, the Market
Agent shall take the following factors, as in existence both before and after
such Change of Preference Law, into account: (i) short-term taxable and
tax-exempt market
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rates and indices of such short-term rates, (ii) the market supply and demand
for short-term tax- exempt securities, (iii) yield curves for short-term and
long-term tax-exempt securities or obligations having a credit rating that is
comparable to the Bonds, (iv) general economic conditions and (v) economic and
financial factors present in the securities industry that may affect or that may
be relevant to the Bonds. In making any such adjustment to conform to market
practice, the Market Agent shall take into account such factors as the Market
Agent deems relevant, including the terms of auction rate bonds of other
issuers. Upon the occurrence and continuance of a Company Downgrade Event, the
Bond Insurer shall have the right to consent to any change to the percentage
used in determining the Minimum Auction Rate and the Applicable Percentages
using in determining the No Auction Rate, which consent shall not be
unreasonably withheld.
2. The Market Agent shall communicate its determination to
adjust the percentage used in determining the Minimum Auction Rate and the
Applicable Percentages used in determining the No Auction Rate pursuant to
subsection 1 hereof by means of a written notice delivered at least 5 days prior
to the Auction Date on which the Market Agent desires to effect the change to
the Authority, the Trustee, the Auction Agent and the Company in substantially
the form attached hereto as, or containing substantially the information
contained in, Exhibit F. Such notice shall be effective only if it is
accompanied by the form of opinion that Bond Counsel has advised the Market
Agent that it expects to be able to give on such Auction Date to the effect that
such adjustment is authorized by this Indenture, is permitted under the Act and
will not have an adverse effect on the exclusion of interest on the Auction Rate
Bonds from gross income for federal income tax purposes. The Auction Agent is
required to mail notice thereof to the Existing Holders within two Business Days
of receipt thereof.
3. An adjustment in the percentage used in determining the
Minimum Auction Rate and the Applicable Percentages used in determining the No
Auction Rate shall take effect on an Auction Date only if (A) the Trustee, the
Bond Insurer and the Auction Agent receive, by 11:00 a.m. (New York City time)
on the Business Day immediately preceding such Auction Date, a certificate from
the Market Agent by telecopy or similar means, in substantially the form
attached hereto as, or containing substantially the information contained in,
Exhibit H, (i) authorizing the adjustment of the percentage used in determining
the Minimum Auction Rate and the Applicable Percentages used in determining the
No Auction Rate which shall be specified in such authorization, and (ii)
confirming that Bond Counsel expects to be able to give an opinion on such
Auction Date to the effect that the adjustment in the percentage used in
determining the Minimum Auction Rate and the Applicable Percentages used in
determining the No Auction Rate is authorized by this Indenture, is permitted
under the Act and will not have an adverse effect on the exclusion of interest
on the Auction Rate Bonds from gross income for federal income tax purposes, and
(B) the Trustee, the Bond Insurer and the Auction Agent receive by 9:30 a.m.
(New York City time) on such Auction Date, an opinion of Bond Counsel to the
effect that the adjustment in the percentage used in determining the Minimum
Auction Rate and the Applicable Percentages used in determining the No Auction
Rate is authorized by this Indenture, is permitted under the Act and will not
have an adverse effect on the exclusion of interest on the Auction Rate Bonds
from gross income for federal income tax purposes. If the condition referred to
in (A) above is not met, the existing percentage used in
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determining the Minimum Auction Rate and the Applicable Percentages used in
determining the No Auction Rate shall remain in effect and the Auction Rate for
the next succeeding Auction Period shall be determined pursuant to the Auction
Procedures. If the condition referred to in (B) above is not met, the existing
percentage used in determining the Minimum Auction Rate and the Applicable
Percentages used in determining the No Auction Rate shall remain in effect and
the Auction Rate for the next succeeding Auction Period shall equal the Maximum
Auction Rate.
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ARTICLE IIIA
AUCTION RATE-INVERSE RATE BONDS
SECTION 3A.01. Auction Rate-Inverse Rate Bonds: Definitions of
Specific Terms. Unless the context shall clearly indicate some other meaning or
may otherwise require, the terms defined in this Section shall, for all purposes
of (i) this Article III-A, and (ii) this Indenture as such terms apply to
Auction Rate-Inverse Rate Bonds, have the meanings herein specified. Unless
otherwise defined herein, words are used as defined in Section 1.01; provided
however, with respect to a conflict between Section 1.01 and Section 3A.01 with
respect to meanings pertaining to Auction Rate-Inverse Rate Bonds, Section 3A.01
shall prevail.
"Applicable Auction Rate" shall have the meaning set forth in
Section 3A.02.
"Applicable Factor" shall mean:
(i) with respect to Regular Auction Rate Bonds and each
Interest Period commencing on the effective date of any Change in the
Interest Rate Mode to an Auction Rate-Inverse Rate Period, or
immediately preceded by an Auction Date, the excess of (A) the
Applicable Auction Rate for such Interest Period over (B) the Service
Charge Rate on such date;
(ii) with respect to Regular Auction Rate Bonds and each
Interest Period not commencing on the effective date of any Change in
the Interest Rate Mode to an Auction Rate-Inverse Rate Period, or
immediately preceded by an Auction Date, the Applicable Auction Rate
for such Interest Period;
(iii) with respect to Special Auction Rate Bonds and each
Interest Period, the Applicable Auction Rate for such Interest Period;
(iv) with respect to Regular Inverse Rate Bonds and each Interest
Period, the Applicable Inverse Rate for such Interest Period;
(v) with respect to Special Linked Auction Rate Bonds and
Inverse Rate Bonds and each Interest Period commencing on the effective
date of any Change in the Interest Rate Mode to an Auction Rate-Inverse
Rate Period, or an Auction Date, the excess of (A) the Linked Rate over
(B) the product of (x) the Service Charge Rate on such date times (y)
1/2 times (z) 365/360, rounding the resultant rate up to the next
highest one-thousandth (.001) of 1%;
(vi) with respect to Special Linked Auction Rate Bonds and
Inverse Rate Bonds and each Interest Period not immediately preceded by
the effective date of any Change in the
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Interest Rate Mode to an Auction Rate-Inverse Rate Period, or an
Auction Date, the Linked
Rate; and
(vii) with respect to Regular Linked Auction Rate Bonds and
Inverse Rate Bonds,
the Linked Rate.
"Applicable Inverse Rate" shall have the meaning set forth in
Section 3A.02.
"Auction Agent Fee Rate", on any Auction Date, shall mean the
rate per annum at which the fee to be paid to the Auction Agent for the services
rendered by it under the Auction Agency Agreement and the Broker-Dealer
Agreements with respect to such Auction Date accrues, which shall equal .03 of
1% per annum until changed by the Auction Agent and the Trustee (or, if the
Trustee is also serving as Auction Agent, the Market Agent) pursuant to the
Auction Agency Agreement (or, if the Trustee is also serving as Auction Agent,
the Market Agent Agreement) and, thereafter, shall equal the rate per annum most
recently agreed to by the Auction Agent and the Trustee (or the Market Agent, as
the case may be) pursuant to the Auction Agency Agreement (or the Market Agent
Agreement, as the case may be). Upon the occurrence and during the continuance
of a Company Downgrade Event, the Bond Insurer shall have the right to consent
to any increase of the Auction Agent Fee Rate, which consent shall not be
unreasonably withheld.
"Auction Rate" shall have the meaning set forth in Section
3A.02.
"Auction Rate-Inverse Rate Period Record Date" shall mean any
Regular Record Date or Redemption Record Date for the Auction Rate-Inverse Rate
Bonds during an Auction Rate- Inverse Rate Period as determined pursuant to
Article IIIA.
"Broker-Dealer Fee Rate," on any Auction Date with respect to
Auction Rate-Inverse Rate Bonds, shall mean the rate per annum at which the
service charge to be paid to the Broker- Dealers for the services rendered by
them with respect to such Auction Date accrues, which shall equal .25 of 1% per
annum until changed by the Trustee pursuant to the Auction Agency Agreement and,
thereafter, shall equal the rate per annum most recently determined by the
Trustee pursuant to the Auction Agency Agreement. Upon the occurrence and during
the continuance of a Company Downgrade Event, the Bond Insurer shall have the
right to consent to any increase of the Broker-Dealer Fee Rate, which consent
shall not be unreasonably withheld.
"Initial Interest Payment Date" shall mean the date certified
on the effective date of a Change in the Interest Rate Mode to an Auction
Rate-Inverse Rate Period as the first Interest Payment Date for the Auction Rate
Bonds to the Trustee (with a copy to the Authority, the Registrar and Paying
Agent, the Company and the Auction Agent) by the Market Agent.
"Initial Interest Period" shall mean the period commencing on
and including the date of any Change in the Interest Rate Mode to an Auction
Rate-Inverse Rate Period and ending on but excluding the Initial Interest
Payment Date therefor.
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"Interest Amount" means, with respect to each Interest Period,
the amount of interest distributable in respect of each $1,000 in principal
amount (taken, without rounding, to six figures to the right of the decimal
point) of Regular Auction Rate Bonds, Special Auction Rate Bonds, Regular
Inverse Rate Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and
Special Linked Auction Rate Bonds and Inverse Rate Bonds for such Interest
Period.
"Interest Period" shall have the meaning set forth in Section
3A.02.
"Inverse Rate" with respect to Inverse Rate Bonds and each
Interest Period for such Inverse Rate Bonds during any Auction Rate-Inverse Rate
Period, the rate of interest per annum determined for the Inverse Rate Bonds
pursuant to Section 3A.02(c).
"Inverse Rate Bonds" shall mean during an Auction Rate-Inverse
Rate Period, any Bonds or subseries of Bonds which bear an Inverse Rate
determined pursuant to Article IIIA.
"Linked," as applied to Auction Rate-Inverse Rate Bonds, when
used with respect to:
(i) Auction Rate Bonds, shall mean (A) Regular Auction Rate
Bonds the beneficial ownership of which has been linked with the
beneficial ownership of an equal aggregate principal amount of Inverse
Rate Bonds and recorded as such under a unique CUSIP number at the
Securities Depository, or (B) Special Auction Rate Bonds the beneficial
ownership of which has been linked with the beneficial ownership of an
equal aggregate principal amount of Inverse Rate Bonds and recorded as
such under a unique CUSIP number at the Securities Depository; and
(ii) Inverse Rate Bonds, shall mean Inverse Rate Bonds the
beneficial ownership of which has been linked with the beneficial
ownership of an equal aggregate principal amount of (A) Regular Auction
Rate Bonds and recorded as such under a unique CUSIP number, or (B)
Special Auction Rate Bonds and recorded as such under a unique CUSIP
number at the Securities Depository.
"Linked Percentage," as of any Redemption Record Date with
respect to Auction Rate-Inverse Rate Bonds, shall mean the percentage obtained
by dividing the aggregate principal amount of Outstanding Bonds of each series
which are Linked on such Redemption Record Date by the aggregate principal
amount of Outstanding Bonds of each series on such Redemption Record Date.
"Maximum Auction Rate-Inverse Rate" shall mean during an
Auction Rate-Inverse Rate Period, the interest rate per annum equal to the
Linked Rate times two times 360/365, rounded to the nearest one thousandth
(.001) of 1%.
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"Maximum Rate" shall mean on any date of determination with
respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period, the
interest rate per annum equal to the lowest of:
(i) the Applicable Percentage of the higher of (A) the
After-Tax Equivalent Rate on such date, and (B) the Commercial Paper
Index on such date;
(ii) the excess of (A) the Maximum Auction Rate-Inverse Rate
over (B) the Service Charge Rate on such date; and
(iii) the excess of (A) the maximum rate on such date
permitted by New York law, as the same may be modified by United States
law of general application, over (B) the Service Charge Rate on such
date.
provided, that if the ownership of the Auction Rate Bonds is no longer
maintained in book-entry form by the Securities Depository, the Maximum Rate, on
any date of determination, shall equal the lowest of (x) the Applicable
Percentage multiplied by the higher of (1) the After-Tax Equivalent Rate on such
date and (2) the Commercial Paper Index on such date, (y) the Maximum Auction
Rate- Inverse Rate and (z) the maximum rate on such date permitted by New York
law, as the same may be modified by United States law of general application.
"Minimum Rate" shall mean on any date of determination with
respect to Auction Rate Bonds during an Auction Rate-Inverse Rate Period the
rate per annum equal to the lower of 70% (as such percentage may be adjusted
pursuant to Section 3A.09) of:
(i) the Commercial Paper Index on such date; and
(ii) the After-Tax Equivalent Rate on such date;
provided, however, that (x) if the Minimum Rate is applicable to Auction Rate
Bonds during an Auction Rate-Inverse Rate Period as determined pursuant to the
Auction Procedures, in no event shall such Minimum Rate exceed the excess of (A)
the lesser of (1) the Maximum Auction Rate- Inverse Rate and (2) the maximum
rate on such date permitted by New York law, as the same may be modified by
United States law of general application, over (B) the Service Charge Rate on
such date, or (y) if the Minimum Rate is applicable to Auction Rate Bonds during
an Auction Rate-Inverse Rate Period due to the linkage of all of the beneficial
ownership of Auction Rate Bonds during an Auction Rate-Inverse Rate Period with
all of the beneficial ownership of the Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period, in no event shall such Minimum Rate exceed the lesser
of (A) the Maximum Auction Rate-Inverse Rate and (B) such maximum rate, as so
modified.
"Redemption Date," when used during an Auction Rate-Inverse
Rate Period with respect to any Auction Rate-Inverse Rate Bond to be redeemed,
shall mean the date fixed for such redemption as to which notice has been given
to the Trustee as contemplated by Article V.
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"Redemption Record Date" during an Auction Rate-Inverse Rate
Period shall have the meaning set forth in Section 5.10.2.
"Regular Auction Rate Bonds," on any Record Date, shall mean
Auction Rate Bonds the beneficial ownership of which is not Linked with Inverse
Rate Bonds and which are not Special Auction Rate Bonds and the beneficial
ownership of which is recorded under a unique CUSIP number at the Securities
Depository.
"Regular Interest Payment Date" shall have the meaning set
forth in Section 3A.02.
"Regular Inverse Rate Bonds," on any Record Date during an
Auction Rate-Inverse Rate Period, shall mean Inverse Rate Bonds the beneficial
ownership of which is not Linked with Auction Rate Bonds and the beneficial
ownership of which is recorded under a unique CUSIP number at the Securities
Depository.
"Regular Linked Auction Rate Bonds and Inverse Rate Bonds," on
any Record Date during an Auction Rate-Inverse Rate Period shall mean Auction
Rate Bonds and Inverse Rate Bonds the beneficial ownership of which is Linked
and which was Linked at the close of business on the immediately preceding
Regular Record Date and the beneficial ownership of which is recorded under a
unique CUSIP number at the Securities Depository.
"Regular Record Date," with respect to each Regular Interest
Payment Date or the Stated Maturity during an Auction Rate-Inverse Rate Period,
shall mean the second Business Day next preceding such Regular Interest Payment
Date or the Stated Maturity, as the case may be.
"Service Charge Rate" shall mean on any Auction Date or on any
effective date of a Change in the Interest Rate Mode to an Auction Rate-Inverse
Rate Period with respect to Auction Rate-Inverse Rate Bonds, the sum of:
(a) the Broker-Dealer Fee Rate on such date; and
(b) the Auction Agent Fee Rate on such date.
"Special Auction Rate Bonds," on any Record Date during an
Auction Rate-Inverse Rate Period, shall mean Auction Rate Bonds the beneficial
ownership of which is not Linked, but which was Linked, with Inverse Rate Bonds
at the close of business on the immediately preceding Regular Record Date and
the beneficial ownership of which is recorded under a unique CUSIP number at the
Securities Depository.
"Special Linked Auction Rate Bonds and Inverse Rate Bonds," on
any Record Date during an Auction Rate-Inverse Rate Period, shall mean Auction
Rate Bonds and Inverse Rate Bonds the beneficial ownership of which is Linked,
but which was not Linked at the close of business on
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the immediately preceding Regular Record Date, and the beneficial ownership of
which is recorded under a unique CUSIP number at the Securities Depository.
"Subsequent Interest Period" during an Auction Rate-Inverse
Rate Period, shall have the meaning set forth in Section 3A.02.
"Tender Date" shall have the meaning set forth in Section
3A.10.
"Tender Demand" shall have the meaning set forth in Section
3A.10.
"Tender Price" shall have the meaning set forth in Section
3A.10.
SECTION 3A.02. Auction Rate-Inverse Rate: Interest on Bonds.
(a) During any Auction Rate-Inverse Rate Period interest on the Bonds shall
accrue for each Interest Period and shall be payable in arrears, on the Initial
Interest Payment Date and on each succeeding fifth Wednesday after the Initial
Interest Payment Date (each a "Regular Interest Payment Date"), provided that
if:
(i) (A) the Securities Depository shall make available to its
participants and members, in next-day funds in New York City on
Interest Payment Dates, the amount then due as interest or shall make
available to its participants and members, in funds immediately
available in New York City, on Interest Payment Dates, such amount but
shall not have so advised the Auction Agent and the Trustee of such
availability and (B) (1) such Wednesday is not a Business Day or (2)
the Thursday following such Wednesday is not a Business Day, then the
Regular Interest Payment Date shall be the first Business Day that is
immediately preceded by a Business Day that falls after such Wednesday
and is immediately followed by a Business Day; or
(ii) (A) the Securities Depository shall make available to its
participants and members, in funds immediately available in New York
City on Interest Payment Dates, the amount then due as interest and
shall have so advised the Auction Agent and the Trustee of such
availability and (B) such Wednesday is not a Business Day, then the
Regular Interest Payment Date shall be the first Business Day that is
immediately preceded by a Business Day that falls after such Wednesday;
and
at maturity, whether on the Stated Maturity Date, upon prior redemption or
otherwise and whether or not a Regular Interest Payment Date (each Regular
Interest Payment Date and other date of payment of interest being herein
referred to as an "Interest Payment Date").
(b) During any Auction Rate-Inverse Rate Period, the Bonds
shall bear interest at an Auction Rate and a related Inverse Rate determined as
set forth in this Article IIIA. The Auction Rate on the Auction Rate-Inverse
Rate Bonds during the Initial Interest Period shall be equal to the rate per
annum determined pursuant to a certificate of the Market Agent delivered to the
Trustee
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(with a copy to the Authority, the Registrar and Paying Agent and the Company)
on a date not later than the effective date of the Change in the Interest Rate
Mode as the minimum rate of interest which, in the opinion of the Market Agent,
would be necessary as of such date to market the Auction Rate Bonds during such
Initial Interest Period in a secondary market transaction at a price equal to
the principal amount thereof; provided, however that the Auction Rate shall not
exceed the excess of the Maximum Auction Rate-Inverse Rate over the Service
Charge Rate. Commencing on and including each Initial Interest Payment Date the
rate of interest on the Auction Rate Bonds during any Auction Rate-Inverse Rate
Period for each subsequent interest period therefor (hereinafter referred to as
a "Subsequent Interest Period"; and the Initial Interest Period or any
Subsequent Interest Period being hereinafter referred to as an "Interest
Period"), which Subsequent Interest Period shall commence on the Regular
Interest Payment Date for the preceding Interest Period and shall end on but
exclude the next succeeding Interest Payment Date, shall be equal to the sum of
the rate of interest per annum that results from implementation of the Auction
Procedures (the "Auction Rate") and the Service Charge Rate; provided that
(i)(A) if a notice of an adjustment in the percentage used to
determine the Minimum Rate and the Applicable Percentage used in
determining the Maximum Rate shall have been given by the Market Agent
in accordance with Section 3A.09.3 and, because of a failure to satisfy
the condition set forth in clause (B) of Section 3A.09.3 such
adjustment shall not have taken effect, an Auction shall not be held on
the Auction Date immediately preceding the next succeeding Subsequent
Interest Period and the rate of interest for such Subsequent Interest
Period shall equal the sum of the Maximum Rate on such Auction Date and
the Service Charge Rate on such Auction Date;
(ii) [reserved];
(iii) if at the close of business on the Regular Record Date
immediately preceding any Subsequent Interest Period all Auction Rate
Bonds are Linked with Inverse Rate Bonds, an Auction shall not be held
with respect to such Subsequent Interest Period and the rate of
interest for such Subsequent Interest Period shall equal the Minimum
Rate on the Business Day immediately preceding the first day of such
Subsequent Interest Period;
(iv)(A) if any of the conditions set forth in Section
4.01.3(A)(i) or (ii) with respect to any Change in the Interest Rate
Mode from an Auction Rate-Inverse Rate Period, or if any of the
conditions set forth in Section 4.02.3(A) with respect to a conversion
to a Fixed Rate is not met, the Auction Rate for the Subsequent
Interest Period shall be determined pursuant to Auction Procedures
applicable to the Auction Rate-Inverse Rate Bonds, and (B) if any of
the conditions set forth in Section 4.01.3(A)(iii), (C) or (D) with
respect to any Change in the Interest Rate Mode from an Auction
Rate-Inverse Rate Period, or if any of the conditions set forth in
Section 4.02.3(B) with respect to a conversion to a Fixed Rate from an
Auction Rate- Inverse Rate Period is not met, an Auction shall not be
held with respect to the Subsequent Interest Period and the Auction
Rate for such Subsequent Interest Period shall equal the sum of the
Maximum Rate and the Service Charge Rate on such Auction Date; and
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(v) if on any Auction Date, an Auction is not held for any
other reason, the rate of interest for the next succeeding Subsequent
Interest Period shall equal the sum of the Maximum Rate on such Auction
Date and the Service Charge Rate on such Auction Date.
Notwithstanding the foregoing, if:
(A) the ownership of the Auction Rate Bonds is no longer
maintained in book-entry form by the Securities Depository, the rate of
interest for any Subsequent Interest Period commencing after the
delivery of certificates representing Auction Rate Bonds pursuant to
Section 2.03 hereof shall equal the Maximum Rate on the Business Day
immediately preceding the first day of such Subsequent Interest Period;
or
(B) a Payment Default shall have occurred, the rate of
interest for (1) the Subsequent Interest Period commencing on or
immediately prior to the date on which such Payment Default occurs
shall equal the sum of the Overdue Rate as of the first day of such
Subsequent Interest Period and the Service Charge Rate on the
immediately preceding Auction Date, and (2) for each Subsequent
Interest Period commencing thereafter to and including the Subsequent
Interest Period, if any, during which, or commencing less than two
Business Days after, such Payment Default is cured shall equal the
Overdue Rate on the first day of each such Subsequent Interest Period
(the rate per annum at which interest is payable on the Auction Rate Bonds for
any Interest Period being hereinafter referred to as the "Applicable Auction
Rate").
The rate of interest on the Inverse Rate Bonds during the Initial Interest
Period and for each Subsequent Interest Period, shall be equal to the excess, if
any, taken (without rounding) to one thousandth (.001) of 1%, of:
(i) two times the Linked Rate over
(ii) the product of the Applicable Auction Rate for such Interest
Period and 365/360,
provided that in no event shall such rate exceed the maximum rate on the date of
determination permitted by New York law, as the same may be modified by United
States law of general application (the rate per annum at which interest is
payable on the Inverse Rate Bonds for any Interest Period being hereinafter
referred to as the "Applicable Inverse Rate").
SECTION 3A.03. Auction Rate-Inverse Rate Bonds: Auction
Procedures. Subject to the provisions of subsection (b) of Section
3A.02, Auctions shall be conducted on each Auction Date in the
following manner:
(a)(i) Prior to the Submission Deadline on each Auction Date:
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(A) each Existing Holder of
Auction Rate Bonds may submit to a
Broker-Dealer information as to:
(I) the principal amount of Outstanding
Auction Rate Bonds, if any, held by such Existing
Holder which such Existing Holder desires to continue
to hold without regard to the Auction Rate for the
next succeeding Interest Period;
(II) the principal amount of Outstanding
Auction Rate Bonds, if any, which such Existing
Holder offers to sell if the Auction Rate for the
next succeeding Interest Period shall be less than
the rate per annum specified by such Existing Holder;
and/or
(III) the principal amount of Outstanding
Auction Rate Bonds, if any, held by such Existing
Holder which such Existing Holder offers to sell
without regard to the Auction Rate for the next
succeeding Interest Period; and
(B) for the purposes of implementing the Auctions,
the Broker-Dealers may contact Potential Holders to determine
the principal amount of Auction Rate Bonds which each such
Potential Holder offers to purchase if the Auction Rate for
the next succeeding Interest Period shall not be less than the
rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer
of information referred to in clause (A)(I), (A)(II), (A)(III) or (B)
of this paragraph (i) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Existing Holder and each Potential
Holder placing an Order is hereinafter referred to as a "Bidder" and
collectively as "Bidders'; an Order containing the information referred
to in (x) clause (A)(I) of this paragraph (i) is hereinafter referred
to as a "Hold Order" and collectively as "Hold Orders," (y) clause
(A)(II) or (B) of this paragraph (i) is hereinafter referred to as a
"Bid" and collectively as "Bids" and (z) clause (A)(III) of this
paragraph (i) is hereinafter referred to as a "Sell Order" and
collectively as "Sell Orders."
(ii) (A) Subject to the provisions of subsection (b) of this
Section 3A.03, a Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(I) the principal amount of Outstanding
Auction Rate Bonds specified in such Bid if the
Auction Rate determined as provided in this Section
3A.03 shall be less than the rate specified therein;
or
(II) such principal amount or a lesser
principal amount of Outstanding Auction Rate Bonds to
be determined as set forth in clause (D) of paragraph
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(i) of subsection (d) of this Section 3A.03 if the
Auction Rate determined as provided in this Section
3A.03 shall be equal to the rate specified therein;
or
(III) such principal amount or a lesser
principal amount of Outstanding Auction Rate Bonds to
be determined as set forth in clause (C) of paragraph
(ii) of subsection (d) of this Section 3A.03 if the
rate specified therein shall be higher than the
Maximum Rate and Sufficient Clearing Bids do not
exist.
(B) Subject to the provisions of subsection (b) of
this Section 3A.03, a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(I) the principal amount of Outstanding Auction Rate Bonds
specified in such Sell Order; or
(II) such principal amount or a lesser
principal amount of Outstanding Auction Rate Bonds as
set forth in clause (C) of paragraph (ii) of
subsection (d) of this Section 3A.03 if Sufficient
Clearing Bids do not exist.
(C) Subject to the provisions of subsection (b) of
this Section 3A.03, a Bid by a Potential Holder shall
constitute an irrevocable offer to purchase:
(I) the principal amount of Outstanding
Auction Rate Bonds specified in such Bid if the
Auction Rate determined as provided in this Section
3A.03 shall be higher than the rate specified
therein; or
(II) such principal amount or a lesser
principal amount of Outstanding Auction Rate Bonds as
set forth in clause (E) of paragraph (i) of
subsection (d) of this Section 3A.03 if the Auction
Rate determined as provided in this Section 3A.03
shall be equal to the rate specified therein.
(b)(i) Each Broker-Dealer shall submit in writing to the Auction
Agent prior to the Submission Deadline on each Auction Date all Orders
obtained by such Broker-Dealer and shall specify with respect to each
such Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate principal amount of Auction Rate Bonds that are
the subject
of such Order;
(C) to the extent that such Bidder is an Existing
Holder:
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(I) the principal amount of Auction Rate
Bonds, if any, subject to any Hold Order placed by
such Existing Holder;
(II) the principal amount of Auction Rate
Bonds, if any, subject to any Bid placed by such
Existing Holder and the rate specified in such Bid;
and
(III) the principal amount of Auction Rate
Bonds, if any, subject to any Sell Order placed by
such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder,
the rate specified in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one thousandth (.001) of 1%.
(iii) If an Order or Orders covering all Outstanding Auction
Rate Bonds held by any Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted on behalf of such Existing Holder
covering the principal amount of Outstanding Auction Rate Bonds held by
such Existing Holder and not subject to an Order submitted to the
Auction Agent.
(iv) None of the Authority, the Company, the Trustee or the
Auction Agent shall be responsible for any failure of a Broker-Dealer
to submit an Order to the Auction Agent on behalf of any Existing
Holder or Potential Holder.
(v) If any Existing Holder submits through a Broker-Dealer to
the Auction Agent one or more Orders covering in the aggregate more
than the principal amount of Outstanding Auction Rate Bonds held by
such Existing Holder, such Orders shall be considered valid as follows
and in the following order of priority:
(A) all Hold Orders shall
be considered valid, but only up to
and including in the aggregate the
principal amount of Auction Rate
Bonds held by such Existing Holder,
and if the aggregate principal
amount of Auction Rate Bonds subject
to such Hold Orders exceeds the
aggregate principal amount of
Outstanding Auction Rate Bonds held
by such Existing Holder, the
aggregate principal amount of
Auction Rate Bonds subject to each
such Hold Order shall be reduced pro
rata to cover the aggregate
principal amount of Outstanding
Auction Rate Bonds held by such
Existing Holder;
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(B)(I) any Bid shall be considered valid up to and
including the excess of the principal amount of Outstanding
Auction Rate Bonds held by such Existing Holder over the
aggregate principal amount of Auction Rate Bonds subject to
any Hold Orders referred to in clause (A) of this paragraph
(v);
(II) subject to subclause (I) of this clause
(B), if more than one Bid with the same rate is
submitted on behalf of such Existing Holder and the
aggregate principal amount of Outstanding Auction
Rate Bonds subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and
including the amount of such excess, and the
principal amount of Auction Rate Bonds subject to
each Bid with the same rate shall be reduced pro rata
to cover the principal amount of Auction Rate Bonds
equal to such excess;
(III) subject to subclauses (I) and (II) of
this clause (B), if more than one Bid with different
rates is submitted on behalf of such Existing Holder,
such Bids shall be considered valid first in the
ascending order of their respective rates until the
highest rate is reached at which such excess exists
and then at such rate up to and including the amount
of such excess; and
(IV) in any such event, the aggregate
principal amount of Outstanding Auction Rate Bonds,
if any, subject to Bids not valid under this clause
(B) shall be treated as the subject of a Bid by a
Potential Holder at the rate therein specified; and
(C) all Sell Orders shall be considered valid up to
and including the excess of the principal amount of
Outstanding Auction Rate Bonds held by such Existing Holder
over the aggregate principal amount of Auction Rate Bonds
subject to Hold Orders referred to in clause (A) of this
paragraph (v) and valid Bids referred to in clause (B) of this
paragraph (v).
(vi) If more than one Bid for Auction Rate Bonds is submitted
on behalf of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate and principal amount therein specified.
(vii) Any Bid or Sell Order submitted by an Existing Holder
covering an aggregate principal amount of Auction Rate Bonds not equal
to $25,000 or an integral multiple thereof shall be rejected and shall
be deemed a Hold Order. Any Bid submitted by a Potential Holder
covering an aggregate principal amount of Auction Rate Bonds not equal
to $25,000 or an integral multiple thereof shall be rejected.
(viii) Any Bid submitted by an Existing Holder or a Potential
Holder specifying a rate lower than the Minimum Rate shall be treated
as a Bid specifying the Minimum Rate.
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(c)(i) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all valid Orders submitted or
deemed submitted to it by the Broker-Dealers (each such Order as submitted or
deemed submitted by a Broker-Dealer being hereinafter referred to individually
as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as
the case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine:
(A) the excess of the total principal amount of
Outstanding Auction Rate Bonds over the sum of the aggregate
principal amount of Outstanding Auction Rate Bonds subject to
Submitted Hold Orders (such excess being hereinafter referred
to as the "Available Auction Rate Bonds"); and
(B) from the Submitted Orders whether:
(I) the aggregate principal amount of
Outstanding Auction Rate Bonds subject to Submitted
Bids by Potential Holders specifying one or more
rates equal to or lower than the Maximum Rate;
exceeds or is equal to the sum of:
(II) the aggregate principal amount of
Outstanding Auction Rate Bonds subject to Submitted
Bids by Existing Holders specifying one or more rates
higher than the Maximum Rate; and
(III) the aggregate principal amount of
Outstanding Auction Rate Bonds subject to Submitted
Sell Orders
(in the event such excess or such equality exists (other than
because the sum of the principal amounts of Auction Rate Bonds
in subclauses (II) and (III) above is zero because all of the
Outstanding Auction Rate Bonds are subject to Submitted Hold
Orders), such Submitted Bids in subclause (I) above being
hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest
rate specified in such Submitted Bids (the "Winning Bid Rate")
which if:
(I) (aa) each such Submitted Bid from
Existing Holders specifying such lowest rate and (bb)
all other Submitted Bids from Existing Holders
specifying lower rates were rejected, thus entitling
such Existing Holders to continue to hold the
principal amount of Auction Rate Bonds subject to
such Submitted Bids; and
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(II) (aa) each such Submitted Bid from
Potential Holders specifying such lowest rate and
(bb) all other Submitted Bids from Potential Holders
specifying lower rates were accepted,
would result in such Existing Holders described in subclause
(I) above continuing to hold an aggregate principal amount of
Outstanding Auction Rate Bonds which, when added to the
aggregate principal amount of Outstanding Auction Rate Bonds
to be purchased by such Potential Holders described in
subclause (II) above, would equal not less than the Available
Auction Rate Bonds.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (i) of this subsection (c), the
Auction Agent, by telecopy confirmed in writing, shall advise the
Authority, the Company and the Trustee of the Maximum Rate and the
Minimum Rate and the components thereof on the Auction Date and, based
on such determinations, the Auction Rate for the next succeeding
Interest Period as follows:
(A) if Sufficient Clearing
Bids exist, that the Auction Rate
for the next succeeding Interest
Period shall be equal to the Winning
Bid Rate so determined;
(B) if Sufficient Clearing Bids do not exist (other
than because all of the Outstanding Auction Rate Bonds are
subject to Submitted Hold Orders), that the Auction Rate for
the next succeeding Interest Period shall be equal to the
Maximum Rate; or
(C) if all Outstanding Auction Rate Bonds are subject
to Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period shall be equal to the Minimum Rate.
(d) Existing Holders shall continue to hold the principal
amount of Auction Rate Bonds that are subject to Submitted Hold
Orders, and, based on the determinations made pursuant to
paragraph (i) of subsection (c) of this Section 3A.03, Submitted
Bids and Submitted Sell Orders shall be accepted or rejected and
the Auction Agent shall take such other action as set forth
below:
(i) If Sufficient Clearing Bids have been made, all Submitted
Sell Orders shall be accepted and, subject to the provisions of
paragraphs (iv) and (v) of this subsection (d), Submitted Bids shall be
accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) Existing Holders' Submitted Bids specifying any
rate that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the
aggregate principal amount of Auction Rate Bonds subject to
such Submitted Bids;
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(B) Existing Holders' Submitted Bids specifying any
rate that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue
to hold the aggregate principal amount of Auction Rate Bonds
subject to such Submitted Bids;
(C) Potential Holders' Submitted Bids specifying any
rate that is lower than the Winning Bid Rate shall be
accepted, thus requiring each such Potential Holder to
purchase the aggregate principal amount of Auction Rate Bonds
subject to such Submitted Bids;
(D) each Existing Holder's Submitted Bid specifying a
rate that is equal to the Winning Bid Rate shall be rejected,
thus entitling such Existing Holder to continue to hold the
aggregate principal amount of Auction Rate Bonds subject to
such Submitted Bid, unless the aggregate principal amount of
Outstanding Auction Rate Bonds subject to all such Submitted
Bids shall be greater than the principal amount of Auction
Rate Bonds (the "remaining principal amount") equal to the
excess of the Available Auction Rate Bonds over the aggregate
principal amount of Auction Rate Bonds subject to Submitted
Bids described in clauses (B) and (C) of this paragraph (i),
in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be
entitled to continue to hold the principal amount of Auction
Rate Bonds subject to such Submitted Bid, but only in an
amount equal to the aggregate principal amount of Auction Rate
Bonds obtained by multiplying the remaining principal amount
by a fraction the numerator of which shall be the principal
amount of Outstanding Auction Rate Bonds held by such Existing
Holder subject to such Submitted Bid and the denominator of
which shall be the sum of the principal amount of Outstanding
Auction Rate Bonds subject to such Submitted Bids made by all
such Existing Holders that specified a rate equal to the
Winning Bid Rate; and
(E) each Potential Holder's Submitted Bid specifying
a rate that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the principal amount of Auction
Rate Bonds obtained by multiplying the excess of the aggregate
principal amount of Available Auction Rate Bonds over the
aggregate principal amount of Auction Rate Bonds subject to
Submitted Bids described in clauses (B), (C) and (D) of this
paragraph (i) by a fraction the numerator of which shall be
the aggregate principal amount of Outstanding Auction Rate
Bonds subject to such Submitted Bid and the denominator of
which shall be the sum of the principal amounts of Outstanding
Auction Rate Bonds subject to Submitted Bids made by all such
Potential Holders that specified a rate equal to the Winning
Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding Auction Rate Bonds are subject to
Submitted Hold Orders), subject to the provisions of paragraph (iv) of
this subsection (d), Submitted Orders shall be accepted or
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<PAGE>
rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) Existing Holders'
Submitted Bids specifying any rate
that is equal to or lower than the
Maximum Rate shall be rejected, thus
entitling such Existing Holders to
continue to hold the aggregate
principal amount of Auction Rate
Bonds subject to such Submitted
Bids;
(B) Potential Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Rate shall be
accepted, thus requiring such Potential Holders to purchase
the aggregate principal amount of Auction Rate Bonds subject
to such Submitted Bids; and
(C) each Existing Holder's Submitted Bid specifying
any rate that is higher than the Maximum Rate and the
Submitted Sell Order of each Existing Holder shall be
accepted, thus entitling each Existing Holder that submitted
any such Submitted Bid or Submitted Sell Order to sell the
Auction Rate Bonds subject to such Submitted Bid or Submitted
Sell Order, but in both cases only in an amount equal to the
aggregate principal amount of Auction Rate Bonds obtained by
multiplying the aggregate principal amount of Auction Rate
Bonds subject to Submitted Bids described in clause (B) of
this paragraph (ii) by a fraction the numerator of which shall
be the aggregate principal amount of Outstanding Auction Rate
Bonds held by such Existing Holder subject to such Submitted
Bid or Submitted Sell Order and the denominator of which shall
be the aggregate principal amount of Outstanding Auction Rate
Bonds subject to all such Submitted Bids and Submitted Sell
Orders.
(iii) If all Outstanding Auction Rate Bonds are subject to
Submitted Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraph
(i) or (ii) of this subsection (d), any Existing Holder would be
entitled or required to sell, or any Potential Holder would be entitled
or required to purchase, a principal amount of Auction Rate Bonds that
is not equal to $25,000 or an integral multiple thereof the Auction
Agent shall, in such manner as, in its sole discretion, it shall
determine, round up or down the principal amount of Auction Rate Bonds
to be purchased or sold by any Existing Holder or Potential Holder so
that the principal amount of Auction Rate Bonds purchased or sold by
each Existing Holder or Potential Holder shall be equal to $25,000 or
an integral multiple thereof.
(v) If, as a result of the procedures described in paragraph
(i) of this subsection (d), any Potential Holder would be entitled or
required to purchase less than $25,000 principal amount of Auction Rate
Bonds, the Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, allocate Auction Rate Bonds for
purchase among Potential Holders so that only Auction Rate Bonds in
principal amounts of $25,000 or an integral
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<PAGE>
multiple thereof are purchased by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not
purchasing any Auction Rate Bonds.
(e) Based on the results of each Auction, the Auction Agent
shall determine the aggregate principal amount of Auction Rate Bonds to be
purchased and the aggregate principal amount of Auction Rate Bonds to be sold by
Potential Holders and Existing Holders on whose behalf each Broker-Dealer
submitted Bids or Sell Orders and, with respect to each Broker-Dealer, to the
extent that such aggregate principal amount of Auction Rate Bonds to be sold
differs from such aggregate principal amount of Auction Rate Bonds to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such Broker-
Dealer shall receive, as the case may be, Auction Rate Bonds.
SECTION 3A.04. Auction Rate-Inverse Rate Bonds: Certain Orders
Not Permitted; Purchases and Cancellations. (a) None of the Authority nor the
Company nor any Affiliate thereof may submit an Order in any Auction except as
set forth in the next sentence. Any Broker-Dealer that is an Affiliate of the
Company may not submit Bids to purchase Auction Rate Bonds in an Auction for its
own account, provided that affiliated Broker-Dealers may submit Hold Orders and
Sell Orders in Auctions with respect to Auction Rate Bonds otherwise acquired
during any Auction Rate-Inverse Rate Period for its own account.
(b) While the Bonds bear interest at an Auction Rate and a
related Inverse Rate during an Auction Rate-Inverse Rate Period, neither the
Authority nor the Company, nor the Trustee on behalf of the Authority or the
Company, shall purchase or otherwise acquire Auction Rate Bonds unless, on the
date of any such purchase or acquisition, the Authority, the Company or the
Trustee, as the case may be, purchases or acquires Regular Linked Auction Rate
Bonds and Inverse Rate Bonds or Special Linked Auction Rate Bonds and Inverse
Rate Bonds or an equal aggregate principal amount of Auction Rate Bonds and
Inverse Rate Bonds.
(c) Neither the Authority nor the Company shall deliver to the
Trustee for cancellation, and the Trustee, at the request of either the
Authority or the Company, shall not cancel, Auction Rate Bonds or Inverse Rate
Bonds unless (i) the Authority or the Company delivers to the Trustee for
cancellation or the Trustee cancels, as the case may be, (A) Regular Linked
Auction Rate Bonds and Inverse Rate Bonds or Special Linked Auction Rate Bonds
and Inverse Rate Bonds or (B) an equal aggregate principal amount of Auction
Rate Bonds and Inverse Rate Bonds or (ii) the Authority or the Company delivers
to the Trustee for cancellation on a Redemption Date or the Trustee, at the
request of the Authority or the Company, cancels on a Redemption Date, an
aggregate principal amount of Inverse Rate Bonds equal to the aggregate
principal amount of Auction Rate Bonds being redeemed pursuant to subsection (c)
of Section 5.01(c)(ii) on such Redemption Date.
SECTION 3A.05. Auction Rate-Inverse Rate Bonds: Deposit and
Application of Interest Payments. (a) Pursuant to Section
9.02(a)(i), the Company shall pay to the Registrar and
----------------- Paying Agent not later than 12:00 Noon, New
York City time, on the second Business Day next
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preceding each Regular Interest Payment Date an aggregate amount of funds
available on the next Business Day in The City of New York equal to the
aggregate amount of interest payable on the Bonds of each series on such Regular
Interest Payment Date. The aggregate amount of interest payable on the Bonds of
each series on each Interest Payment Date therefor shall be calculated by
applying the Linked Rate to the aggregate principal amount of the Outstanding
Bonds of each series for which interest is to be paid and multiplying such sum
by the actual number of days in the Interest Period concerned divided by 365 and
rounding the resultant figure to the nearest cent (half a cent being rounded
upwards).
(b) So long as no Payment Default has previously occurred and
is continuing and the ownership of the Auction Rate Bonds and Inverse Rate Bonds
is maintained in book-entry form by the Securities Depository, the Trustee shall
send by 12:15 P.M., New York City time, on the Business Day next preceding each
Regular Interest Payment Date a notice in substantially the form of Exhibit J
hereto to the Auction Agent and to the registered owners of the Bonds by
telecopy or similar means if the aggregate amount of funds available as provided
in subsection (a) of this Section 3A.05 is insufficient to pay the aggregate
amount of interest payable on the Bonds of each series on such Regular Interest
Payment Date pursuant to subsection (a) of this Section 3A.05. If such
insufficiency is cured within three Business Days after such Regular Interest
Payment Date, the Trustee shall immediately send a notice thereof in
substantially the form of Exhibit K hereto to the Auction Agent and to the
registered owners of the Bonds by telecopy or similar means.
(c) On any Initial Interest Payment Date after the effective
date of a Change in the Interest Rate Mode to an Auction Rate-Inverse Rate
Period, the Registrar and Paying Agent shall pay to the Auction Agent, on behalf
of the holders of Auction Rate Bonds, out of amounts made available to it
pursuant to subsection (a) of Section 3A.05 on the immediately preceding
Business Day on account of interest on the Auction Rate Bonds, an amount equal
to the product of (i) a fraction, the numerator of which is the number of days
in the Initial Interest Period and the denominator of which is 360, times (ii)
the Service Charge Rate on the effective date of a Change in the Interest Rate
Mode to an Auction Rate-Inverse Rate Period times (iii) the aggregate principal
amount of the Outstanding Auction Rate Bonds on the effective date of a Change
in the Interest Rate Mode to an Auction Rate-Inverse Rate Period.
(d) On the Interest Payment Date for each Subsequent Interest
Period immediately following an Auction Date, the Registrar and Paying Agent
shall pay to the Auction Agent, on behalf of the holders of Auction Rate Bonds
in respect of which interest is to be paid on such Interest Payment Date, out of
amounts made available to it pursuant to subsection (a) of Section 3A.05 on the
immediately preceding Business Day on account of interest on such Auction Rate
Bonds, an amount equal to the product of (i) a fraction, the numerator of which
is the number of days in such Interest Period and the denominator of which is
360, times (ii) the amount of the Service Charge Rate times (iii) the aggregate
principal amount of such Auction Rate Bonds which were not Linked with Inverse
Rate Bonds at the close of business on the Regular Record Date immediately
preceding such Auction Date.
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SECTION 3A.06. Auction Rate-Inverse Rate Bonds: Calculation of
Maximum Rate, Minimum Rate and Overdue Rate. The Auction Agent shall calculate
the Maximum Rate and the Minimum Rate on each Auction Date. If all Auction Rate
Bonds are Linked with Inverse Rate Bonds at the close of business on any Regular
Record Date, the Auction Agent shall calculate the Minimum Rate on the Business
Day immediately preceding the first day of the next succeeding Subsequent
Interest Period. If the ownership of the Auction Rate Bonds is no longer
maintained in book-entry form by the Securities Depository, the Trustee shall
calculate the Maximum Rate on the Business Day immediately preceding the first
day of each Subsequent Interest Period commencing after the delivery of
certificates representing the Auction Rate Bonds pursuant to Section 2.03. If a
Payment Default shall have occurred, the Trustee shall calculate the Overdue
Rate (i) as of the first day of the Subsequent Interest Period commencing on or
immediately prior to the date on which such Payment Default shall have occurred
and (ii) on the first day of any Subsequent Interest Period commencing after the
occurrence of such Payment Default to and including the Subsequent Interest
Period, if any, commencing less than two Business Days after the cure of such
Payment Default. The Trustee shall calculate the Applicable Factors for each
Subsequent Interest Period. The determination of the Applicable Factors shall in
the absence of manifest error be final and binding upon all parties.
SECTION 3A.07. Auction Rate-Inverse Rate Bonds: Computation of
Interest. (a) From and after the time that ownership of the Auction Rate Bonds
and Inverse Rate Bonds is no longer maintained in book-entry form by the
Securities Depository, the Trustee shall calculate the amount of interest
distributable to (i) holders of Regular Auction Rate Bonds for any Interest
Period by applying the Applicable Factor for Regular Auction Rate Bonds for such
Interest Period to the aggregate principal amount of Regular Auction Rate Bonds
multiplying such sum by the actual number of days in the Interest Period
concerned divided by 360 and rounding the resultant figure to the nearest cent
(half a cent being rounded upwards) and (ii) holders of Regular Inverse Rate
Bonds for any Interest Period by applying the Applicable Factor for Regular
Inverse Rate Bonds for such Interest Period to the aggregate principal amount of
Regular Inverse Rate Bonds multiplying such sum by the actual number of days in
the Interest Period concerned divided by 365 and rounding the resultant figure
to the nearest cent (half a cent being rounded upwards).
(b) So long as the ownership of the Auction Rate Bonds and
Inverse Rate Bonds is maintained in book-entry form by the Securities
Depository, the Trustee shall calculate the Interest Amount with respect to (i)
Regular Auction Rate Bonds and Special Auction Rate Bonds for each Interest
Period by applying the Applicable Factor for Regular Auction Rate Bonds and
Special Auction Rate Bonds, respectively, for such Interest Period to the
principal amount of $1,000, multiplying such sum by the actual number of days in
the Interest Period concerned divided by 360 and truncating the resultant figure
to six figures to the right of the decimal point and (ii) Regular Inverse Rate
Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special
Linked Auction Rate Bonds and Inverse Rate Bonds, respectively, for each
Interest Period by applying the Applicable Factor for Regular Inverse Rate
Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special
Linked Auction Rate Bonds and Inverse Rate Bonds, respectively, for such
Interest Period to the principal amount of $1,000, multiplying such sum by the
actual number of days
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in the Interest Period concerned divided by 365 and truncating the resultant
figure to six figures to the right of the decimal point.
SECTION 3A.08. Auction Rate-Inverse Rate Bonds: Notification
of Rates, Amounts and Payment Dates. (a) So long as the ownership of the Auction
Rate Bonds and the Inverse Rate Bonds is maintained in book-entry form by the
Securities Depository, the Trustee shall advise the Securities Depository of
each Regular Record Date at least two Business Days prior thereto and the
Registrar and Paying Agent shall request the Securities Depository to provide it
with a position listing showing at the close of business on each such Regular
Record Date the aggregate principal amounts of: Regular Auction Rate Bonds,
Special Auction Rate Bonds, Regular Inverse Rate Bonds, Regular Linked Auction
Rate Bonds and Inverse Rate Bonds and Special Linked Auction Rate Bonds and
Inverse Rate Bonds, respectively, and, in the case of the Stated Maturity, of
the aggregate principal amounts payable on the Stated Maturity to the holders of
Regular Auction Rate Bonds, Special Auction Rate Bonds, Regular Inverse Rate
Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special
Linked Auction Rate Bonds and Inverse Rate Bonds, respectively. On the basis of
such position listing, the Registrar and Paying Agent shall determine the
aggregate amounts of interest distributable on the next succeeding Interest
Payment Date to the holders of Regular Auction Rate Bonds, Special Auction Rate
Bonds, Regular Inverse Rate Bonds, Regular Linked Auction Rate Bonds and Inverse
Rate Bonds and Special Linked Auction Rate Bonds and Inverse Rate Bonds,
respectively. In the event the Credit Facility Issuer is obligated to make
payments pursuant to the Credit Facility with respect to any Interest Period,
the Trustee shall make available to the Credit Facility Issuer any information
obtained or determined by it pursuant to this subsection (a) in order to
facilitate the payment of any amounts due under this Indenture in accordance
with the terms of the Credit Facility.
(b) Promptly after a Change in the Interest Rate Mode to an
Auction Rate-Inverse Rate Period and each Regular Interest Payment Date during
an Auction Rate-Inverse Rate Period, and in any event at least 10 days prior to
the next Interest Payment Date following a Change in the Interest Rate Mode to
an Auction Rate-Inverse Rate Period or each Regular Interest Payment Date during
an Auction Rate-Inverse Rate Period, as the case may be, the Trustee shall
advise:
(i) the Auction Agent, so long as no Payment Default
has occurred and is continuing and the ownership of the
Auction Rate Bonds is maintained in book-entry form by the
Securities Depository, and any Registrar and Paying Agent of
such next succeeding Interest Payment Date and, if such next
succeeding Interest Payment Date is not also a Regular
Interest Payment Date, of the next succeeding Regular Interest
Payment Date;
(ii) any Registrar and Paying Agent and the
Securities Depository, so long as the ownership of the Auction
Rate Bonds or the Inverse Rate Bonds is maintained in
book-entry form by the Securities Depository, of the
Applicable Factors and the Interest Amounts with respect to
each Interest Period commencing on such Change
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in the Interest Rate Mode or such Regular Interest Payment
Date, as the case may be; and
(iii) the Auction Agent, so long as no Payment
Default has occurred and is continuing and the ownership of
the Auction Rate Bonds is maintained in book-entry form by the
Securities Depository, and any Registrar and Paying Agent of
the amount payable to the Auction Agent pursuant to subsection
(c) or (d) of Section 3A.05 on such next succeeding Interest
Payment Date and, if such next succeeding Interest Payment
Date is not also a Regular Interest Payment Date, of the
amount so payable on the next succeeding Regular Interest
Payment Date.
In the event that any day that is scheduled to be an Interest Payment Date shall
be changed after the Trustee shall have given the notice referred to in clause
(i) of the preceding sentence, not later than 9:15 A.M., New York City time, on
the Business Day next preceding the earlier of the new Interest Payment Date or
the old Interest Payment Date, the Trustee will, by such means as the Trustee
deems practicable, give notice of such change to the Auction Agent, so long as
no Payment Default has occurred and is continuing and the ownership of the
Auction Rate Bonds is maintained in book-entry form by the Securities
Depository, and to any Registrar and Paying Agent.
(c) By 10:00 A.M., New York City time, on each Regular
Interest Payment Date, the Trustee shall advise the Auction Agent of the
Applicable Factor with respect to Regular Auction Rate Bonds and the Applicable
Inverse Rate for the Interest Period commencing on such Regular Interest Payment
Date.
SECTION 3A.09. Auction Rate-Inverse Rate Bonds: Adjustment in
Percentage. 1. The Market Agent may adjust the percentage used in determining
the Minimum Rate and the Applicable Percentage used in determining the Maximum
Rate if any such adjustment is necessary, in the judgment of the Market Agent to
reflect any Change of Preference Law or to conform to market practice such that
the Maximum Rate and Minimum Rate shall have substantially equal market values
before and after such Change of Preference Law or change in market practice. In
making any such adjustment as a result of a Change of Preference Law, the Market
Agent shall take the following factors, as in existence both before and after
such Change of Preference Law, into account: (i) short-term taxable and
tax-exempt market rates and indices of such short-term rates; (ii) the market
supply and demand for short-term tax-exempt securities; (iii) yield curves for
short- term and long-term tax-exempt securities or obligations having a credit
rating that is comparable to the Bonds; (iv) general economic conditions; and
(v) economic and financial factors present in the securities industry that may
affect or that may be relevant to the Bonds. In making any such adjustment to
conform to market practice, the Market Agent shall take into account such
factors as the Market Agent deems relevant, including the terms of auction rate
bonds of other issuers. Upon the occurrence and during the continuance of a
Company Downgrade Event, the Bond Insurer shall have the right to consent to any
adjustment to the percentage used to determine the Minimum Rate and the
Applicable Percentages used to determine the Maximum Rate, which consent shall
not be unreasonably withheld.
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2. The Market Agent shall communicate its determination to
adjust the percentage used in determining the Minimum Rate and the Applicable
Percentage used in determining the Maximum Rate pursuant to subsection 1 hereof
by means of a written notice delivered at least 10 days prior to the Auction
Date on which the Market Agent desires to effect the change to the Authority,
the Trustee, the Auction Agent, the Bond Insurer and the Company in
substantially the form attached hereto as, or containing substantially the
information contained in, Exhibit F. Such notice shall be effective only if it
is accompanied by the form of opinion that Bond Counsel has advised the Market
Agent that it expects to be able to give on such Auction Date to the effect that
such adjustment is authorized by this Indenture, is permitted under the Act and
will not have an adverse effect on the exclusion of interest on the Bonds of
each series from gross income for federal income tax purposes. The Auction Agent
is required to mail notice thereof to the Existing Holders within two Business
Days of receipt thereof.
3. An adjustment in the percentage used in determining the
Minimum Rate and the Applicable Percentage used in determining the Maximum Rate
shall take effect on an Auction Date only if (A) the Trustee, the Bond Insurer
and the Auction Agent receive, by 11:00 A.M. (New York City time) on the
Business Day immediately preceding such Auction Date, a certificate from the
Market Agent by telecopy or similar means, in substantially the form attached
hereto as, or containing substantially the information contained in, Exhibit H,
(i) authorizing the adjustment of the percentage used in determining the Minimum
Rate and the Applicable Percentage used in determining the Maximum Rate which
shall be specified in such authorization, and (ii) confirming that Bond Counsel
expects to be able to give an opinion on such Auction Date to the effect that
the adjustment in the percentage used in determining the Minimum Rate and the
Applicable Percentage used in determining the Maximum Rate is authorized by this
Section 3A.09, is permitted under the Act and will not have an adverse effect on
the exclusion of interest on the Bonds of each series from gross income for
federal income tax purposes and (B) the Trustee, the Bond Insurer and the
Auction Agent receive by 9:30 A.M. (New York City time) on such Auction Date, an
opinion of Bond Counsel to the effect that the adjustment in the percentage used
in determining the Minimum Rate and the Applicable Percentage used in
determining the Maximum Rate is authorized by this Indenture, is permitted under
the Act and will not have an adverse effect on the exclusion of interest on the
Bonds of each series from gross income for federal income tax purposes.
SECTION 3A.10. Mandatory Auction Rate Bonds Tender for
Purchase. So long as the ownership of the Auction Rate Bonds is maintained in
book-entry form by the Securities Depository, at any time prior to the
Submission Deadline on any Auction Date, any holder of Inverse Rate Bonds (other
than the Authority, the Company or any Affiliate thereof) (i) may notify a
Broker- Dealer that such holder intends to submit a Bid at the Minimum Rate for
a specified principal amount of Auction Rate Bonds in the Auction on such
Auction Date in order to link the same with all or a portion of its Inverse Rate
Bonds and (ii) if such Bid is unsuccessful, in whole or in part, may elect no
later than the second Business Day succeeding such Auction Date to require that
Regular Auction Rate Bonds in an aggregate principal amount equal to the
unsuccessful portion of such Bid be tendered to such holder for purchase (a
"Tender Demand") on the seventh Business Day preceding the next succeeding
Auction Date (a "Tender Date"). The purchase price shall equal the principal
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amount of Regular Auction Rate Bonds being purchased plus accrued and unpaid
interest thereon to the Tender Date at the Applicable Auction Rate less the
Service Charge Rate (the "Tender Price"). A holder of Regular Auction Rate Bonds
who receives notice that all or any portion of its Regular Auction Rate Bonds
has been selected for purchase by a holder of Inverse Rate Bonds who has made a
Tender Demand, shall tender such Auction Rate Bonds for purchase by such holder
of Inverse Rate Bonds at the Tender Price on the Tender Date therefor. A holder
of Inverse Rate Bonds who has made a Tender Demand shall purchase the Regular
Auction Rate Bonds tendered to it on the Tender Date for the Tender Price
therefor. Notice of a Tender Demand shall be given, and the Regular Auction Rate
Bonds to be so purchased shall be selected, by the Auction Agent in accordance
with the Auction Agency Agreement.
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ARTICLE IV
CHANGES IN THE ADJUSTABLE RATE
SECTION 4.01. Optional Conversion by Authority. 1. Prior to
the Fixed Rate Conversion Date, at the times specified below, the Bonds, in
whole or in part, shall cease to bear interest at the Adjustable Rate then borne
by the Bonds and shall bear interest at such different Adjustable Rate as shall
be specified by the Authority, at the request of the Company, in a written
notice delivered at least 15 days prior to the proposed effective date of the
Change in the Interest Rate Mode to the Trustee, the Market Agent, the Registrar
and Paying Agent, any Support Facility Issuer and any Rating Agency then rating
the Bonds (and to the Auction Agent and the Securities Depository if such Change
in the Interest Rate Mode is to or from an Auction Rate during an Auction Rate
Period or an Auction Rate and related Inverse Rate during an Auction
Rate-Inverse Rate Period) in substantially the form attached hereto as, or
containing substantially the information contained in, Exhibit A; provided that
during any Auction Rate-Inverse Rate Period the rate of interest on the Auction
Rate-Inverse Rate Bonds subject to such proposed Change in the Interest Rate
Mode shall not be adjusted to a different Adjustable Rate until after the
expiration of a ten (10) year no-call period which period shall commence on the
effective date of a Change in the Interest Rate Mode to such Auction
Rate-Inverse Rate Period; provided, further, that any Change in the Interest
Rate Mode from an Auction Rate-Inverse Rate Period may be effected only upon
purchase of Auction Rate Bonds and Inverse Rate Bonds subject to such proposed
Change in the Interest Rate Mode at a price equal to the principal amount
thereof plus the premium on the Inverse Rate Bonds referred to in Section
5.01(d), if any. A Change in the Interest Rate Mode may only be effected on the
last Interest Payment Date for a Calculation Period, Auction Period or Interest
Period, as the case may be; provided that a Change in the Interest Rate Mode
during a Commercial Paper Rate Period may only be effected on any Business Day
upon purchase of the Bonds pursuant to subsection 1 of Section 5.02 at a price
equal to the principal amount thereof. A notice of Change in the Interest Rate
Mode shall be effective only if it is accompanied by the form of opinion that
Bond Counsel expects to be able to give on the proposed effective date of such
Change in the Interest Rate Mode to the effect that such Change in the Interest
Rate Mode is authorized by this Indenture, is permitted under the Act and will
not have an adverse effect on the exclusion of interest on such Bonds from gross
income for federal income tax purposes. Upon the occurrence and during the
continuance of a Company Downgrade Event, the Bond Insurer shall have the right
to consent to any conversion of the Bonds to the Commercial Paper Rate or any
interest rate mode with an interest period longer than 30 days, which consent
shall not be unreasonably withheld. It also shall be a condition to any change
in the Interest Rate of Mode from any Term Rate at a time when the purchase
price payable includes an amount representing premium that (i) the Liquidity
Facility then in effect shall permit amounts to be drawn thereunder to pay such
premium or (ii) Available Moneys have been provided to the Registrar and Paying
Agent in an amount sufficient to pay such purchase price in full, including such
premium.
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In the case of any Change in the Interest Rate Mode to a Term
Rate, the notice required by this section shall specify the length of the
Calculation Period and, unless otherwise specified, such Calculation Period
shall thereafter apply to the Bonds until the earliest to occur of (i) the Fixed
Rate Conversion Date pursuant to Section 4.02, or (ii) a Change in the Interest
Rate Mode effected pursuant to this Section 4.01. Any change in the Calculation
Period during a Term Rate Period shall be deemed an optional conversion pursuant
to this Section 4.01 and may not be made unless all the requirements of a
conversion pursuant to this Section 4.01 are met.
2. The Trustee shall mail, or cause the Registrar and Paying
Agent to mail, the notice received pursuant to subsection 1 of this Section 4.01
on or before the third Business Day after receipt thereof to the Bondholders.
3. A Change in the Interest Rate Mode to an Adjustable Rate
shall be effective
pursuant to Subsection 1 of this Section 4.01 only if
(A) with respect to any Change in the Interest Rate Mode from
an Auction Rate during an Auction Rate Period or an Auction Rate and a related
Inverse Rate during an Auction Rate- Inverse Rate Period, the Trustee, any
Credit Facility Issuer (if any) and the Auction Agent shall receive:
(i) a certificate of an Authorized Company
Representative by no later than the tenth day prior to the effective
date of such Change in the Interest Rate Mode stating (x) that a
written agreement between the Company and a firm or firms of investment
bankers to remarket the Auction Rate Bonds during an Auction Rate
Period or the Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period on such effective date at a price of 100% of
the principal amount thereof has been entered into, which agreement (A)
may be subject to such reasonable terms and conditions which in the
judgment of the Company reflect the current market standards regarding
investment banking risk and (B) must include a provision requiring
payment of the purchase price in same-day funds for any Auction Rate
Bond during an Auction Rate Period or Auction Rate-Inverse Rate Bonds
during an Auction Rate-Inverse Rate Period, as the case may be,
tendered or deemed tendered (a "Remarketing Commitment"); (y) that a
Liquidity Facility is in effect or has been obtained by the Company
with respect to the Bonds and shall be in effect prior to such Change
in the Interest Rate Mode and thereafter for a period of at least 364
days; and (z) a remarketing agreement is or will be in effect on or
prior to such Change in the Interest Rate Mode; and
(ii) by 11:00 a.m. (New York City time) on the second
Business Day prior to the effective date of such Change in the Interest
Rate Mode by telecopy or other similar means, a certificate in
substantially the form attached hereto as, or containing substantially
the information contained in, Exhibit L, from the Company on behalf of
the Authority (x) authorizing the establishment of the new Adjustable
Rate and (y) confirming that Bond Counsel has advised the Authority
that it expects to be able to give an opinion on the effective date of
such Change in the Interest Rate Mode to the effect that such Change in
the
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Interest Rate Mode is authorized by this Indenture, is permitted under
the Act and will not have an adverse effect on the exclusion of
interest on the Auction Rate Bonds during an Auction Rate Period or the
Auction Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate
Period from gross income for federal income tax purposes and (z)
confirming that any necessary amendment to the Bond Purchase Trust
Agreement necessary to provide for the application of moneys available
under the Liquidity Facility have been agreed to by the parties hereto
and will be in effect prior to the Change in the Interest Rate Mode;
(B) with respect to any Change in the Interest Rate Mode, the
Trustee, the Bond Insurer (and the Auction Agent and the Market Agent in the
case of any Change in the Interest Rate Mode to an Auction Rate during an
Auction Rate Period, or an Auction Rate and a related Inverse Rate during an
Auction Rate-Inverse Rate Period), shall receive by 4:00 p.m., New York City
time, on the effective date of such Change in the Interest Rate Mode, a
certificate in substantially the form attached hereto as, or containing
substantially the information contained in, Exhibit O, from an Authorized
Company Representative that all of the Bonds tendered or deemed tendered have
been purchased at a price equal to the principal amount thereof plus accrued and
unpaid interest, if any, with funds provided from the remarketing of such Bonds,
from the proceeds of a Liquidity Facility, or from funds deposited with the
Trustee, and any premium, if any, has been paid from monies deposited with the
Trustee;
(C) with respect to any Change in the Interest Rate Mode, the
Trustee, any Credit Facility Issuer (and the Auction Agent and the Market Agent
in the case of any Change in the Interest Rate Mode to or from an Auction Rate
during an Auction Rate Period, or an Auction Rate and a related Inverse Rate
during an Auction Rate-Inverse Rate Period) shall receive, by 9:30 a.m. (New
York City time) on the effective date of such Change in the Interest Rate Mode,
an Opinion of Bond Counsel to the effect that such Change in the Interest Rate
Mode is authorized by this Indenture, is permitted under the Act and will not
have an adverse effect on the exclusion of interest on such Bonds from gross
income for federal income tax purposes; and
(D) with respect to any Change in the Interest Rate Mode to an
Adjustable Rate (other than to an Auction Rate during an Auction Rate Period, or
an Auction Rate and a related Inverse Rate during an Auction Rate-Inverse Rate
Period), a Liquidity Facility and a Market Agent Agreement meeting the
requirements of this Indenture and the Participation Agreement have been
delivered to the Trustee not less than one Business Day prior to the effective
date of such Change in the Interest Rate Mode and are, by their respective
terms, in effect prior to such effective date.
If any of the conditions referred to in (A)(i) or (ii) above
is not met with respect to any Change in the Interest Rate Mode from an Auction
Rate during an Auction Rate Period, or an Auction Rate and a related Inverse
Rate during an Auction Rate-Inverse Rate Period, the Auction Rate during an
Auction Rate Period, or the Auction Rate and the related Inverse Rate during an
Auction Rate-Inverse Rate Period for the next succeeding Auction Period or
Interest Period shall be determined pursuant to the Auction Procedures
applicable to the Auction Rate Bonds during an Auction Rate Period, or the
Auction Procedures applicable to the Auction Rate Bonds and related
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Inverse Rate Bonds during an Auction Rate-Inverse Rate Period, as the case may
be. If the condition referred to in (B) above is not met with respect to any
Change in the Interest Rate Mode from an Auction Rate during the Auction Rate
Period, the Auction Rate for the next succeeding Auction Period shall be equal
to the Maximum Auction Rate, and if the condition referred to in (B) above is
not met with respect to any Change in the Interest Rate Mode from an Auction
Rate and a related Inverse Rate during an Auction Rate-Inverse Rate Period, the
Auction Rate for the next succeeding Interest Period shall be equal to the sum
of the Maximum Rate and the Service Charge Rate as determined on the applicable
Auction Date. If any of the conditions referred to in (C) or (D) above is not
met with respect to any Change in the Interest Rate Mode from an Auction Rate
during an Auction Rate Period, the Auction Rate for the next succeeding Auction
Period shall equal the Maximum Auction Rate, and if any of the conditions
referred to in (C) or (D) above is not met with respect to a Change in the
Interest Rate Mode from an Auction Rate and a related Inverse Rate during an
Auction Rate-Inverse Rate Period, the Auction Rate for the next succeeding
Interest Period shall be equal to the sum of the Maximum Rate and the Service
Charge Rate as determined on the applicable Auction Date. If any of the
conditions referred to in (B), (C) or (D) above is not met with respect to any
other Change in the Interest Rate Mode, the Bonds shall continue to bear
interest at the Current Adjustable Rate and be subject to the provisions of this
Indenture applicable thereto while the Bonds bear interest at such Current
Adjustable Rate. If any of the foregoing conditions for a Change in the Interest
Rate Mode other than with respect to a Change in the Interest Rate Mode from an
Auction Rate during an Auction Rate Period or an Auction Rate and a related
Inverse Rate during an Auction Rate-Inverse Rate Period is not met, the Trustee
shall mail, or cause the Registrar and Paying Agent to mail to the Authority,
the Company and the Holders notice thereof in substantially the form attached
hereto as, or containing substantially the information contained in, Exhibit Q
within 3 Business Days after the failure to meet any of such conditions.
SECTION 4.02. Optional Conversion to Fixed Rate. 1. The
Authority reserves the right, at the request of the Company, to fix the rate of
interest per annum which the Bonds will bear, in whole or in part, for the
balance of the term thereof; provided however, that if the Bonds subject to such
proposed conversion to a Fixed Rate bear interest at an Auction Rate and a
related Inverse Rate during an Auction Rate-Inverse Rate Period, the Authority
shall not exercise such right and the Company shall not request the Authority to
exercise such right prior to the expiration of a ten (10) year no-call period
which period shall commence on the effective date of a Change in the Interest
Rate Mode to such Auction Rate-Inverse Rate Period; provided, further, that any
conversion to a Fixed Rate, in whole or in part, from an Auction Rate-Inverse
Rate Period may only be effective upon purchase of the Auction Rate Bonds and
the Inverse Rate Bonds at a price equal to the principal amount thereof plus the
premium on the Inverse Rate Bonds referred to in Section 5.01(d), if any. In the
event the Authority, at the request of the Company, as herein provided,
exercises its Option to Convert, the Bonds shall cease to bear interest at the
Adjustable Rate then borne by the Bonds and shall bear interest at the Fixed
Rate until maturity, subject to the terms and conditions hereof (the date on
which the Fixed Rate shall take effect being herein called the "Fixed Rate
Conversion Date"). The Option to Convert may be exercised at any time through a
written notice given by the Authority, at the direction of the Company, not less
than 15 nor more than 45 days prior to the proposed Fixed Rate Conversion Date
to the Trustee, the Registrar and Paying Agent, any Support Facility Issuer,
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the Market Agent and any Rating Agency then rating the Bonds at the request of
the Company (and the Auction Agent, and the Securities Depository in the case of
any change to a Fixed Rate from an Auction Rate during an Auction Rate Period or
an Auction Rate and a related Inverse Rate during an Auction Rate-Inverse Rate
Period), in substantially the form attached hereto as, or containing
substantially the information contained in, Exhibit A. The Fixed Rate Conversion
Date may only be the last Interest Payment Date for a Calculation Period,
Auction Period or Interest Period, as the case may be; provided that a Fixed
Rate Conversion Date that immediately follows a Commercial Paper Rate Period may
be on any Business Day upon purchase of the Bonds pursuant to subsection 3 of
Section 5.03 at a price equal to the principal amount thereof. A notice of
conversion to a Fixed Rate shall be effective only if it is accompanied by the
form of opinion that Bond Counsel expects to give on the Fixed Rate Conversion
Date to the effect that the establishment of the Fixed Rate is authorized by
this Indenture, is permitted under the Act and will not have an adverse effect
on the exclusion of interest on such Bonds from gross income for federal income
tax purposes. Upon the occurrence and the continuance of a Company Downgrade
Event, the Bond Insurer shall have the right to consent to any conversion of the
Bonds to the Fixed Rate, which consent shall not be unreasonably withheld.
2. The Trustee shall mail, or cause the Registrar and Paying
Agent to mail, the notice received pursuant to subsection 1 of this Section 4.02
on or before the third Business Day after receipt thereof to the Holders.
3. The Fixed Rate shall take effect only if
(A) with respect to a change to the Fixed Rate from an Auction
Rate during an Auction Rate Period or an Auction Rate and a related Inverse Rate
during an Auction Rate-Inverse Rate Period, the Trustee, the Bond Insurer and
the Auction Agent shall receive:
(i) a certificate of an Authorized Company Representative by
no later than the tenth day prior to the Fixed Rate Conversion Date
stating that a written agreement has been entered into by the Company
and a firm or firms of investment bankers to remarket the Bonds on the
Fixed Rate Conversion Date at a price of not less than 100% of the
principal amount thereof, which written agreement (i) may be subject to
reasonable terms and conditions which in the judgment of the Company
reflect current market standards regarding investment banking risk and
(ii) must include a provision requiring payment of the purchase price
in same-day funds for any Auction Rate Bond during an Auction Rate
Period or Auction Rate Bond and related Inverse Rate Bonds Bond during
any Auction Rate-Inverse Rate Period tendered or deemed tendered and a
determination of the Fixed Rate no later than 11:00 A.M. on the second
Business Day prior to the Fixed Rate Conversion Date (the "Fixed Rate
Commitment); and
(ii) by 11:00 a.m. (New York City time) on the second Business
Day prior to the Fixed Rate Conversion Date, by telecopy or other
similar means, a certificate in substantially the form attached hereto
as, or containing substantially the information contained in,
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Exhibit N, from the Authority (x) authorizing the establishment of the
Fixed Rate, (y) setting forth the Fixed Rate and (z) confirming that
Bond Counsel expects to be able to give an opinion on the Fixed Rate
Conversion Date to the effect that the change to the Fixed Rate is
authorized by this Indenture, is permitted under the Act and will not
have an adverse effect on the exclusion of interest on the Bonds from
gross income for federal income tax purposes; and
(B) with respect to any change to a Fixed Rate the Trustee,
the Bond Insurer (and the Auction Agent and the Market Agent in the case of any
change to the Fixed Rate from an Auction Rate during an Auction Rate Period or
an Auction Rate and related Inverse Rate during any Auction Rate-Inverse Rate
Period) receives on the Fixed Rate Conversion Date:
(i) by 9:30 a.m. (New York City time) an Opinion of Bond
Counsel to the effect that the conversion to the Fixed Rate is
authorized by this Indenture, is permitted under the Act and will not
have an adverse effect on the exclusion of interest on such Bonds from
gross income for federal income tax purposes; and
(ii) by 4:00 p.m. (New York City time) a certificate in
substantially the form attached hereto as, or containing substantially
the information contained in, Exhibit P, from an Authorized Company
Representative that all of the Bonds tendered or deemed tendered have
been purchased at a price equal to the principal amount thereof with
funds provided from the remarketing of such Bonds in accordance with
the Fixed Rate Commitment, and that accrued and unpaid interest, if
any, has been or shall be paid in accordance with the Indenture from
funds deposited with the Trustee, and that the premium, if any, has
been paid from monies deposited with the Trustee.
If any of the conditions referred to in (A) above is not met
with respect to any change to the Fixed Rate from an Auction Rate during an
Auction Rate Period or an Auction Rate and related Inverse Rate during any
Auction Rate-Inverse Rate Period, the Auction Rate during an Auction Rate Period
or the Auction Rate and related Inverse Rate during any Auction Rate-Inverse
Rate Period, as the case may be, for the next succeeding Auction Period shall be
determined pursuant to the Auction Procedures applicable to the Auction Rate
Bonds during an Auction Rate Period or the Auction Procedures applicable to the
Auction Rate-Inverse Rate Bonds during an Auction Rate- Inverse Rate Period, as
the case may be. If any of the conditions referred to in (B) above are not met
with respect to any change to the Fixed Rate from an Auction Rate during an
Auction Rate Period, the Auction Rate during an Auction Rate Period for the next
succeeding Auction Period shall be equal to the Maximum Auction Rate, and if any
of the condition referred to in (B) above are not met with respect to any change
to the Fixed Rate from an Auction Rate and related Inverse Rate during any
Auction Rate-Inverse Rate Period, the Auction Rate for the next succeeding
Interest Period shall be equal to the sum of the Maximum Rate and the Service
Charge Rate as determined on the applicable Auction Date. If any of the
conditions referred to in (B) above are not met with respect to any change from
any other Adjustable Rate to a Fixed Rate, the Bonds shall continue to bear
interest at the Adjustable Rate then borne by the Bonds and be subject to the
provisions of this
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Indenture applicable thereto while the Bonds bear interest at such Adjustable
Rate. If any of the foregoing conditions to the establishment of the Fixed Rate
(other than with respect to any attempted change from an Auction Rate during an
Auction Rate Period or an Auction Rate and related Inverse Rate during any
Auction Rate-Inverse Rate Period to a Fixed Rate) are not met, the Trustee shall
mail, or cause the Registrar and Paying Agent to mail to the Authority, the
Holders and the Company, notice thereof in substantially the form attached
hereto as, or containing substantially the information contained in, Exhibit R
within 3 Business Days after the failure to meet any of said conditions.
4. If the Bonds commence to bear interest at the Fixed Rate as
provided in this Section 4.02, the interest rate on such Bonds may not
thereafter be changed to an Adjustable Rate.
SECTION 4.03. Conversion Generally. 1. (A) In the event of a
Change in the Interest Rate Mode on less than all the Bonds of a series or
subseries to or from an Auction Rate and an Inverse Rate during an Auction
Rate-Inverse Rate Period or to or from an Auction Rate during an Auction Rate
Period, or (B) in the event of a conversion of the interest rate on less than
all the Bonds of a series or subseries to a Fixed Rate from an Auction Rate and
an Inverse Rate during an Auction Rate-Inverse Rate Period or from an Auction
Rate during an Auction Rate Period, the minimum aggregate principal amount of
Bonds that continue to bear, or are adjusted to bear interest at an Auction Rate
and an Inverse Rate for an Auction Rate-Inverse Rate Period, shall not be less
than $20,000,000 for such Auction Rate Bonds and such Inverse Rate Bonds,
respectively, and the minimum aggregate principal amount of Bonds that continue
to bear, or are adjusted to bear interest at an Auction Rate for an Auction Rate
Period, shall not be less than $20,000,000 for such Auction Rate Bonds.
2. Upon any Change in the Interest Rate Mode to an Auction
Rate and an Inverse Rate during an Auction Rate-Inverse Rate Period or to an
Auction Rate during an Auction Rate Period, the Authority and the Trustee shall
take all steps necessary to comply with any agreement entered into with a
Securities Depository or its nominee pursuant to Section 2.03(5) with respect to
such Change in the Interest Rate Mode, including, without limitation, the
purchase and designation of sufficient CUSIP numbers to comply with the
requirements of such Securities Depository following any such Change in the
Interest Rate Mode.
3. Except as otherwise provided in Section 4.03(4) below with
respect to Auction Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate
Period, if the interest rate on less than all Bonds is to be converted to a new
Adjustable Rate pursuant to Section 4.01 or to a Fixed Rate pursuant to Section
4.02, the particular Bonds to be converted shall be chosen by the Trustee, or
the Trustee shall direct the Registrar and Paying Agent to so choose, in such
manner as the Trustee or Registrar and Paying Agent in its discretion may deem
proper; provided, however, that the portion of any Bond to be converted shall be
in the principal amount of $100,000 or some integral multiple of $5,000 in
excess of such amount during a Commercial Paper Rate Period, a Daily Rate
Period, a Weekly Rate Period or a Monthly Rate Period, $25,000 or some integral
multiple thereof during an Auction Rate Period, or $5,000 or some integral
multiple thereof at any other time and that, in
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selecting Bonds for conversion, the Trustee or Registrar and Paying Agent shall
treat each Bond as representing that number of Bonds which is obtained by
dividing the principal amount of such registered Bond in excess of $100,000 by
$5,000 during a Commercial Paper Rate Period, a Daily Rate Period, a Weekly Rate
Period or a Monthly Rate Period, $25,000 during an Auction Rate Period, and
$5,000 at any other time (such amounts being hereinafter referred to as the
"applicable units of principal amount"). If it is determined that one or more,
but not all of the $100,000, $25,000 or $5,000 units of principal amount
represented by any such Bond is to be converted, then upon notice of intention
to convert such $100,000, $25,000 or $5,000 unit or units pursuant to Sections
4.01 or 4.02, as the case may be, the Holders of such Bonds shall forthwith
surrender such Bonds to the Registrar and Paying Agent for (1) payment of the
purchase price (including the premium, if any, and accrued and unpaid interest
to the date fixed for conversion) of the $100,000, $25,000 or $5,000 unit or
units of principal amount called for conversion and (2) exchange for a new Bond
or Bonds in the aggregate principal amount of the balance of the principal of
such Bonds not subject to conversion. If the Holders of any such Bond of a
denomination greater than $100,000, $25,000 or $5,000 shall fail to present such
Bond to the Registrar and Paying Agent, for payment and exchange as aforesaid,
such Bond shall, nevertheless, become due and payable on the date fixed for
conversion to the extent of the $100,000, $25,000 or $5,000 unit or units of
principal amount subject to such conversion (and to that extent only).
4. The interest rate on Auction Rate Bonds and Inverse Rate
Bonds during any Auction Rate-Inverse Rate Period shall be converted in minimum
denominations of $25,000 or integral multiples thereof. So long as the ownership
of the Auction Rate Bonds and the Inverse Rate Bonds during any Auction
Rate-Inverse Rate Period is maintained in book-entry form by the Securities
Depository, the Auction Rate Bonds and Inverse Rate Bonds, the interest rate on
which is subject to conversion in part, shall be selected by lot from the
Outstanding Bonds of each series as described in the following sentence. An
amount equal to the percentage obtained by dividing the aggregate principal
amount of Outstanding Bonds of each series which are Linked on the record date
selected for the purposes of such conversion, by the aggregate principal amount
of Outstanding Bonds of each series on such record date, shall be selected from
Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special Linked
Auction Rate Bonds and Inverse Rate Bonds (on a pro rata basis in accordance
with the relative principal amounts thereof), the remaining amount of Inverse
Rate Bonds to be converted shall be selected from Regular Inverse Rate Bonds and
the remaining amount of Auction Rate Bonds to be converted shall be selected
from Regular Auction Rate Bonds and Special Auction Rate Bonds (on a pro rata
basis in accordance with the relative principal amounts thereof); provided, that
if any principal amount of the Auction Rate Bonds and of the Inverse Rate Bonds
selected as provided above from Regular Linked Auction Rate Bonds and Inverse
Rate Bonds, Special Linked Auction Rate Bonds and Inverse Rate Bonds, Regular
Inverse Rate Bonds, Regular Auction Rate Bonds and Special Auction Rate Bonds is
not equal to $25,000 or an integral multiple thereof, the Trustee shall, in such
manner as, in its sole discretion, it shall determine, round up or down the
principal amounts so determined. The Trustee shall give the Securities
Depository at least two Business Days notice of the record date selected by it
for the purpose of a conversion and obtain from the Securities Depository a
position listing showing at the close of business as of such record date the
aggregate principal amounts of: Regular Auction Rate
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Bonds, Special Auction Rate Bonds, Regular Inverse Rate Bonds, Regular Linked
Auction Rate Bonds and Inverse Rate Bonds and Special Linked Auction Rate Bonds
and Inverse Rate Bonds, respectively. On the basis of such position listing, the
Trustee shall calculate the percentage obtained by dividing the aggregate
principal amount of Outstanding Bonds of each series which are Linked on such
record date by the aggregate principal amount of Outstanding Bonds of each
series on such record date, and determine therefrom the aggregate principal
amounts to be converted and purchase prices per $1,000 (plus accrued and unpaid
interest thereon to the date fixed for conversion) of Regular Auction Rate
Bonds, Special Auction Rate Bonds, Regular Inverse Rate Bonds, Regular Linked
Auction Rate Bonds and Inverse Rate Bonds and Special Linked Auction Rate Bonds
and Inverse Rate Bonds, respectively.
5. Notwithstanding anything in this Article IV to the
contrary, during a Term Rate Period, the Authority may not effect a Change in
the Interest Rate Mode pursuant to Section 4.01 and the Authority may not
exercise its option to convert to a Fixed Rate pursuant to Section 4.02 if such
action would require the payment of a premium upon purchase of Bonds pursuant to
Section 5.02 unless there shall have been deposited the full amount of such
premium in trust with the Trustee prior to any notification of a change pursuant
to Section 4.01 or 4.02. Payments from such trust fund for the payment of
premium may be made only upon receipt by the Trustee of a Non-Bankruptcy
Certificate from the Company.
6. It shall be a condition to any Change in the Interest Rate
Mode on any Bonds of from one mode to another mode that the Trustee shall have
received written confirmation from each Rating Agency then rating the Bonds that
the ratings then assigned by such Rating Agency to the Bonds will not be reduced
or withdrawn by reason of such change in the Interest Rate Mode; provided that a
withdrawal of a short-term rating from any Bonds being converted to a Fixed Rate
shall not be considered to be a withdrawal of a rating for such purpose if no
other ratings applicable to any or all of the Bonds will be reduced or
withdrawn.
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ARTICLE V
REDEMPTION AND PURCHASE OF BONDS
SECTION 5.01. Optional Redemption. The Adjustable Rate Bonds
shall be subject to redemption, in whole or in part, at the option of the
Authority upon the request of the Company, from payments made by the Company
pursuant to Section 6.2 of the Participation Agreement and any other monies held
by the Trustee and available to be applied to the redemption of Bonds as
provided in this Section 5.01:
(a) During any Commercial Paper Rate Period, such Bonds
shall be subject to redemption (i) on each Interest Payment Date,
as a whole or in part, at the principal amount thereof, or (ii)
on any Business Day, as a whole or in part, at the principal
amount thereof plus accrued interest to the date fixed for
redemption.
(b) During any Auction Rate Period, Auction Rate Bonds shall
be subject to redemption on each Interest Payment Date, as a whole or in part,
at the principal amount thereof plus accrued interest to the date fixed for
redemption.
(c) (i) During any Auction Rate-Inverse Rate Period on or
after the expiration of a ten (10) year no-call period which period shall
commence on the effective date of a Change in the Interest Rate Mode to an
Auction Rate-Inverse Rate Period, the Authority may, at its option upon the
request of the Company, at any time prior to the Stated Maturity of the Auction
Rate Bonds, redeem the Auction Rate Bonds, as a whole or from time to time in
part, on the second Business Day preceding any Regular Interest Payment Date at
100% of the principal amount thereof, together with interest accrued and unpaid
thereon to the Redemption Date; provided that at the time of such redemption,
the Authority shall simultaneously redeem an equal aggregate principal amount of
Inverse Rate Bonds.
(ii) During any Auction Rate-Inverse Rate Period, the
Authority may, at its option upon the request of the Company, at any time prior
to the Stated Maturity of the Auction Rate Bonds, redeem the Auction Rate Bonds,
as a whole or from time to time in part, without redeeming any of the Inverse
Rate Bonds, on the second Business Day preceding any Regular Interest Payment
Date at 100% of the principal amount thereof, together with interest accrued and
unpaid thereon to the Redemption Date; provided that prior to requesting the
Trustee to give notice of any such redemption, the Authority or the Company
shall have delivered to the Trustee for cancellation on the Redemption Date
pursuant to Section 3A.04 an equal aggregate principal amount of Inverse Rate
Bonds.
(d) During any Auction Rate-Inverse Rate Period on or after
the expiration of a no-call period which shall commence on the expiration of a
ten (10) year no-call period which period shall commence on the effective date
of a Change in the Interest Rate Mode to an Auction Rate- Inverse Rate Period,
the Authority may, at its option upon the request of the Company, at any time
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prior to the Stated Maturity of the Inverse Rate Bonds, redeem the Inverse Rate
Bonds, as a whole or from time to time in part, on the second Business Day
preceding any Regular Interest Payment Date at a redemption price of:
(i) 104% of the principal amount thereof if redeemed
during the twelve month period ending one year after the expiration of
the no-call period;
(ii) 102% of the principal amount thereof if redeemed
during the twelve month period ending two years after the expiration of
the no-call period; and
(iii) 100% of the principal amount thereof if redeemed
thereafter,
together with, in each case, interest accrued and unpaid thereon to the
Redemption Date; provided that at the time of such redemption, the Authority
shall simultaneously redeem an equal aggregate principal amount of Auction Rate
Bonds.
(e) During any Daily Rate Period, such Bonds shall be subject
to redemption on any Business Day, as a whole or in part, at the principal
amount thereof, plus accrued interest to the date fixed for redemption, if any.
(f) During any Weekly Rate Period, such Bonds shall be subject
to redemption on any Business Day, as a whole or in part, at the principal
amount thereof, plus accrued interest to the date fixed for redemption, if any.
(g) During any Monthly Rate Period, such Bonds shall be
subject to redemption on each Interest Payment Date, as a whole or in part, at
the principal amount thereof.
(h) During any Semi-annual Rate Period, such Bonds shall be
subject to redemption on each Interest Payment Date, as a whole or in part, at
the principal amount thereof.
(i) During any Term Rate Period and after the Fixed Rate
Conversion Date, such Bonds shall be subject to redemption in whole at any time
on any Business Day or in part on any Interest Payment Date as follows: after
the No-Call Period shown below, which shall begin on the first day of the
Calculation Period applicable to such Bonds or on the Fixed Rate Conversion
Date, as the case may be, at a redemption price equal, initially, to the
principal amount thereof, plus a premium equal to the percentage of the
principal amount to be redeemed shown in the Initial Premium column. The premium
percentage shall decline by the percentage shown in the Reduction in Premium
column on each anniversary of the date on which such Bonds are first redeemable,
if the Calculation Period or period remaining to maturity after the Fixed Rate
Conversion Date is equal to or greater than five years, and on each Interest
Payment Date if the Calculation Period or period remaining to maturity after the
Fixed Rate Conversion Date is less than five years, until the Bonds shall be
redeemable without premium.
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Calculation Period or Period to Maturity
Equal to or But Less No-Call Initial Reduction
Greater Than Than Period Premium in Premium
- ------------ -------- -------- ------- ----------
18 years N/A 10 Years 1 % 1/2%
12 years 18 Years 8 Years 1 1/2
7 Years 12 Years 6 Years 1 1/2
5 Years 7 Years 4 Years 1/2 1/2
4 Years 5 Years 3 Years 1/2 1/2
3 Years 4 Years 2 Years 1/2 1/8
0 Years 3 Years Not callable
If upon establishment of a Term Rate Period, or on the Fixed Rate Conversion
Date, as the case may be, the Market Agent or, in the case of the Fixed Rate
Conversion Date, the other investment bank or investment banks (selected by the
Company and approved by the Authority) party to the Fixed Rate Commitment
certifies to the Trustee, Bond Counsel and the Authority in writing that the
foregoing schedule is not consistent with then-prevailing market conditions, the
Authority at the request of the Company may revise the foregoing Initial
Premium, Reductions in Premium and No- Call Periods without the approval of the
Holders to reflect then-prevailing market conditions, upon receipt of an opinion
of Bond Counsel to the effect that any revisions pursuant to this paragraph,
either by itself or in conjunction with the establishment of a Calculation
Period or the Fixed Rate, as the case may be, are made in accordance with this
Indenture, is permitted under the Act and will not adversely affect the
exclusion of interest on the Bonds from gross income for federal income tax
purposes.
Any optional redemption shall be conditioned upon the
Trustee's receipt of funds (or, in the case of any optional redemption occurring
while the Bonds bear interest at a Daily Rate, Weekly Rate, Monthly Rate,
Semi-Annual Rate or Commercial Paper Rate, Available Moneys) sufficient to pay
the redemption price of the Bonds to be redeemed on or prior to the redemption
date.
SECTION 5.02. Tender for and Purchase upon Election of Holder.
1. During any Daily Rate Period or Weekly Rate Period, any Bond or portion
thereof in a principal amount equal to an authorized denomination (so long as
the principal amount not purchased is an authorized denomination) shall be
purchased on the demand of the Holder thereof on any Business Day at a price
equal to the principal amount thereof plus accrued interest, if any, to the date
of purchase, upon delivery to the Registrar and Paying Agent and the Market
Agent at their respective principal offices, by the close of business on any
Business Day of a Notice of Election to Tender in substantially the form
attached hereto as, or containing substantially the information contained in,
Exhibit B; provided, however, that the substance of such Notice of Election to
Tender must also be given telephonically to the Market Agent prior to or
simultaneously with delivery of such written Notice of Election to Tender to the
Market Agent. The date on which such Bond shall be purchased shall,
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at the request of the Holder thereof (i) if the Bond then bears interest at a
Daily Rate, be the date of delivery of such Notice of Election to Tender if such
Notice of Election to Tender is delivered to the Registrar and Paying Agent and
the Market Agent by 10:00 a.m.(New York City time) on such date or may be any
Business Day thereafter, or (ii) if the Bond then bears interest at a Weekly
Rate, a Business Day at least seven days after the date of the delivery of such
Notice of Election to Tender to the Registrar and Paying Agent and the Market
Agent.
2. During any Monthly Rate Period or Semi-annual Rate Period
on or prior to the Fixed Rate Conversion Date, any Bond or portion thereof in a
principal amount equal to an authorized denomination (so long as the principal
amount not purchased is an authorized denomination) shall be purchased on the
demand of the Holder thereof on the first Business Day following each
Calculation Period at a price equal to the principal amount thereof, upon
delivery to the Registrar and Paying Agent and the Market Agent, at their
respective principal offices of a Notice of Election to Tender in substantially
the form attached hereto as or containing substantially the information
contained in Exhibit B on or prior to a Business Day which is not less than 10
days, in the case of Bonds bearing interest at a Semi-annual Rate, or seven
days, in the case of Bonds bearing interest at a Monthly Rate, prior to the
proposed date of purchase; provided, however, that the substance of such Notice
of Election to Tender must also be given telephonically to the Market Agent
prior to or simultaneously with delivery of such written Notice of Election to
Tender to the Market Agent.
3. Immediately upon receipt of a Notice of Election to Tender
delivered in accordance with the provisions of this Section 5.02, the Registrar
and Paying Agent shall notify, or cause to be notified, the Trustee, the
Company, the Market Agent, the Liquidity Facility Issuer and, upon request, the
Authority by telephone, promptly confirmed in writing, of such receipt,
specifying the contents thereof.
4. Any Notice of Election to Tender shall be irrevocable. If a
Holder fails to deliver the Bonds referred to in such notice to the Registrar
and Paying Agent, such Bonds shall nevertheless be deemed to have been purchased
on the date established for the purchase thereof, and, to the extent that there
shall be on deposit in the Bond Purchase Fund on such date an amount sufficient
to pay the principal amount thereof, plus accrued interest, if any, no interest
shall accrue on such Bonds from and after the date of purchase and such Holder
shall have no rights hereunder thereafter as the owner of such Bonds except the
right to receive the purchase price of such Bonds.
5. The right of a Holder to tender a Bond to the Registrar
and Paying Agent shall terminate after the Fixed Rate Conversion
Date.
SECTION 5.03. Mandatory Tender for Purchase upon Change in the
Interest Rate Mode on Business Day Following Certain Calculation Periods or
Occurrence of Fixed Rate Conversion Date. 1. Upon a Change in the Interest Rate
Mode, the Bonds bearing a Daily Rate, Weekly Rate, Monthly Rate, Semi-annual
Rate, Term Rate, Commercial Paper Rate, Auction Rate during an Auction Rate
Period, or Auction Rate and related Inverse Rate during an Auction Rate- Inverse
Rate Period shall be subject to mandatory tender for purchase in accordance with
the terms hereof, on the effective date of such Change in the Interest Rate Mode
at a price equal to the principal amount thereof plus accrued interest and
premium, if any, in accordance with Section 4.01.
2. During any Term Rate Period or Commercial Paper Rate
Period, the Bonds shall be subject to mandatory tender for purchase in
accordance with the terms hereof on the Business Day immediately following each
Calculation Period, each at a price equal to the principal amount thereof plus
accrued interest and premium, if any.
3. The Bonds shall also be subject to mandatory tender for
purchase in accordance with the terms hereof on the Fixed Rate Conversion Date
at a price equal to the principal amount thereof plus accrued interest and
premium, if any.
4. Notice of mandatory tender for purchase upon a Change in
the Interest Rate Mode or upon a conversion to a Fixed Rate shall be in
substantially the form attached hereto as, or contain substantially the
information contained in, Exhibit A.
5. Any such notice of mandatory tender for purchase required
by this Section 5.03 shall be given by the Trustee, in the name of the
Authority, or the Trustee shall cause the Registrar and Paying Agent to give
such notice (with copies thereof to be given to the Market Agent, the Registrar
and Paying Agent, the Bond Insurer, the Company, the Liquidity Facility Issuer
and any Rating Agency then rating the Bonds and in the case of Auction Rate
Bonds during an Auction Rate Period, or Auction Rate-Inverse Rate Bonds during
an Auction Rate-Inverse Rate Period, the Auction Agent, and, upon request, the
Authority) by first-class mail to the Holders of the Bonds subject to purchase
at their addresses shown on the books of registry.
6. Bank Bonds are not subject to mandatory tender for
purchase pursuant to this
Section 5.03.
7. Purchase price of tendered Bonds shall include premium
solely to the extent that (i) such Bonds bear interest at a Term Rate or Inverse
Rate and (ii) the applicable redemption price therefor would include the premium
specified in Section 5.01 if such Bonds were to be optionally redeemed on the
date such Bonds are to be purchased.
SECTION 5.04. Extraordinary Optional Redemption. During any
Term Rate Period, Fixed Rate Period or Auction Rate-Inverse Rate Period, the
Bonds are also subject to redemption prior to maturity in whole at any time at
the option of the Authority, exercised at the direction of the Company, upon
notice given as provided in the Indenture, except in the case of a redemption
pursuant to clause (iii) below, at a redemption price equal to the principal
amount thereof, together with unpaid interest accrued thereon to the date fixed
for redemption, in any of the following events:
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(i) All or substantially all of the Project shall
have been damaged or destroyed or title to, or the temporary
use of, all or a substantial portion of the Project shall have
been taken under the exercise of the power of eminent domain
by any governmental authority, or person, firm or corporation
acting under governmental authority, as in each case renders
the Project unsatisfactory to the Company for its intended
use;
(ii) Unreasonable burdens or excessive liabilities
shall have been imposed upon the Authority or the Company with
respect to all or substantially all of the Project, including
without limitation the imposition of federal, state or other
ad valorem property, income or other taxes other than ad
valorem taxes in effect on the date of original issuance of
the Bonds levied upon privately owned property used for the
same general purpose as the Project, as well as any statute or
regulation enacted or promulgated after the Closing Date that
prevents the Company from deducting interest on the Company
Note for federal income tax purposes;
(iii) All or substantially all of the Project shall
be transferred or sold to any entity other than an affiliate
of the Company; in the case of redemption under this clause
(iii) of Section 5.04, the redemption price shall be equal to
101% of the principal amount of the Bonds, together with
unpaid interest accrued thereon to the date fixed for
redemption, unless a smaller or no premium would be due upon
optional redemption of the Bonds pursuant to another section
of the Indenture; or
(iv) Any court or regulatory or administrative body
shall enter or adopt, or fail to enter or adopt, a judgment,
order, approval, decree, rule or regulation, as a result of
which the Company elects to cease operation of all or
substantially all of the Project.
SECTION 5.05. Redemption if Participation Agreement or Note
Void, Unenforceable or Impossible to Perform. The Bonds shall be subject to
redemption prior to their Stated Maturity at any time on a Business Day, in
whole but not in part, upon the receipt by the Trustee of a written certificate
from the Company given in accordance with Section 6.3 of the Participation
Agreement stating that the Company intends to prepay the amounts payable under
the Participation Agreement and the Note and certifying that, within the
preceding 120 days, a change in the Constitution of the State of New York or the
Constitution of the United States of America or legislative or administrative
action (whether state or federal) or final decree, judgment or order of any
court or administrative body (whether state or federal) has occurred which
results in the Participation Agreement or the Note or both of them becoming void
or unenforceable or impossible to perform in accordance with the intent and
purpose of the parties as expressed in the Participation Agreement and the Note,
at a redemption price equal to the principal amount thereof plus accrued and
unpaid interest to the date fixed for redemption.
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Any redemption under this Section 5.05 shall be conditioned
upon the Trustee's receipt of funds (or, in the case of any such redemption
occurring while the Bonds bear interest at a Daily Rate, Weekly Rate, Monthly
Rate, Semi-Annual Rate or Commercial Paper Rate, Available Moneys) sufficient to
pay the redemption price of the Bonds to be redeemed on or prior to the
redemption date.
SECTION 5.06. Special Tax Redemption Provisions. 1. The Bonds
shall be subject to mandatory redemption prior to their stated maturity (i) in
part, at a redemption price equal to the principal amount of the Bonds to be
redeemed, plus accrued interest, if any, to the date fixed for redemption, if
such partial redemption will preserve the exclusion from gross income for
federal income tax purposes of interest on the remaining Bonds outstanding
(provided, however, in the case of Auction Rate-Inverse Rate Bonds during an
Auction Rate-Inverse Rate Period, the Authority shall redeem an equal aggregate
principal amount of Auction Rate Bonds and Inverse Rate Bonds), or (ii) in
whole, at a redemption price equal to the principal amount thereof, plus accrued
interest, if any, to the date fixed for redemption, if, in a published or
private ruling of the Internal Revenue Service or in a final, nonappealable
judicial decision by a court of competent jurisdiction (provided that the
Company has been afforded the opportunity to participate at its own expense in
the proceeding resulting in such ruling or in the litigation resulting in such
decision, as the case may be), it is determined that, as a result of a failure
by the Company to observe any covenant, agreement or representation in the Tax
Regulatory Agreement, interest on any Bond is includable for federal income tax
purposes in the gross income of the Holders thereof (other than a "substantial
user" of the Project or a "related person" as provided in Section 147(a) of the
Code) (any such event constituting a "Determination of Taxability") and, in such
event, the Bonds shall be subject to such mandatory redemption on a Business Day
not more than 180 days after the giving of notice by the Trustee or a Bondholder
to the Authority and the Company of such published or private ruling or judicial
decision and demanding redemption of the Bonds. Either the Authority or the
Company shall immediately notify the Trustee upon learning of any such
Determination of Taxability. The Trustee shall not be deemed to have knowledge
of such an event unless it has actual knowledge thereof.
2. During any Semi-annual Rate Period, Term Rate Period or
Fixed Rate Period, the Bonds will also be subject to mandatory redemption at a
redemption price equal to the principal amount thereof plus unpaid interest
accrued thereon to the redemption date if the Company reasonably concludes and
certifies to the Trustee that the business, properties, condition (financial or
otherwise), operations or business prospects of the Company will be materially
and adversely affected unless the Company takes or omits to take a specified
action and that the Company has been advised in writing by Bond Counsel that the
specified action or omission would cause the use of the Project to be such that,
pursuant to Section 150 of the Code, the Company would not be entitled to deduct
the interest on the Company Note for purposes of determining the Company's
Federal taxable income, for a period of not less than sixty (60) consecutive or
nonconsecutive days during a twenty-four month period. Such conclusion and
certification shall be evidenced by delivery to the Trustee of a written
certificate of an Authorized Company Representative to the effect that the
Company has reached such conclusion, together with a certified copy of a
resolution of the Board of Directors of the Company authorizing such certificate
and a copy of such advice of Bond Counsel. In the event
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that the Bonds become subject to redemption as provided in this paragraph, the
Bonds will be redeemed in whole unless redemption of a portion of the Bonds
outstanding would, in the opinion of Bond Counsel, have the result that interest
payable on the Company Note for the Bonds remaining outstanding after such
redemption would be deductible for purposes of determining the Federal taxable
income of the Company, and, in such event, the Bonds to be redeemed shall be
selected (in the principal amount of $5,000 or any integral multiple thereof)
from time to time at random in such manner as the Trustee shall determine in
accordance with the Indenture, in such amount as is necessary to accomplish that
result. The occurrence of an event requiring the redemption of the Bonds under
this paragraph does not constitute an event of default under any Note or under
the Indenture and the sole obligation in such event shall be for the Company to
prepay the Note in an amount sufficient to redeem the Bonds to the extent
required by this paragraph.
SECTION 5.06-A. Redemption of Bank Bonds. Any Bank Bonds held
by the Liquidity Facility Issuer shall be redeemed at the times and in the
principal amounts specified in the Liquidity Facility. Any redemption pursuant
to this Section 5.06-A shall be at a price equal to one hundred percent (100%)
of the principal amount of the Bonds so redeemed, plus accrued interest at the
Bank Bond Interest Rate to the redemption date.
SECTION 5.07. Redemption at Demand of the State. In accordance
with the provisions of Section 1864 of the Act, the State of New York may, upon
furnishing sufficient funds therefor, require the Authority to redeem prior to
maturity, as a whole, the Bonds on any Interest Payment Date not less than
twenty years after the Closing Date. The Authority shall deposit any such funds
received by it with the Trustee. The Trustee shall deposit any such funds in the
Bond Fund and, upon notice published in the manner provided in Section 1864 of
the Act, shall apply such funds to the redemption of the Bonds, at a redemption
price equal to lesser of (i) the optional redemption price, if any, applicable
on such date set forth in Section 5.01 and (ii) 105% of the principal amount
thereof, together, in either case, with accrued and unpaid interest, if any, to
the date fixed for redemption, all in the manner provided in this Article V.
Upon such redemption and notwithstanding anything to the contrary in Article XV,
the Trustee shall assign the Note relating to the Bonds to or as directed by the
Authority.
SECTION 5.08. Mandatory Tender for Purchase Upon Expiration or
Termination of any Liquidity Facility. 1. Except as otherwise set forth in the
last sentence of this subsection 1, on the date of expiration or termination
(including a date of termination evidenced by receipt by the Trustee and the
Registrar and Paying Agent of a written notice from the Liquidity Facility
Issuer or any other person authorized to deliver a notice in accordance with the
Liquidity Facility of an event which permits or mandates the termination of the
Liquidity Facility under the terms thereof and any termination arising in
connection with the delivery of an Alternate Liquidity Facility which results in
the withdrawal or reduction of any rating applicable to the Bonds) of any
Liquidity Facility (or on the next preceding Business Day, if such date of
expiration or termination is not a Business Day), the Bonds shall be subject to
mandatory purchase at a price equal to the principal amount thereof unless on or
prior to the 35th day prior to such date of expiration or termination the
Company on behalf of the Authority has furnished to the Trustee (a) an extension
of such Liquidity Facility, or
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(b) an Alternate Liquidity Facility with another bank or financial institution
providing an Alternate Liquidity Facility in replacement of the expiring
Liquidity Facility together with the confirmation of ratings referred to in
Section 6.02(1). No tender for purchase of any Bonds shall be required pursuant
to this Section 5.08 during an Auction Rate Period, or an Auction Rate-Inverse
Rate Period or if the Fixed Rate Conversion Date shall have occurred on a date
prior to such date of expiration.
2. Notice of the mandatory tender for purchase pursuant to
this Section 5.08 shall be given on or prior to the 30th day before the
expiration or termination date (including a date of termination evidenced by
receipt by the Trustee and the Registrar and Paying Agent of a written notice of
an event of default under a Liquidity Facility) of a Liquidity Facility by the
Trustee in the name of the Authority (with copies thereof given to the
Authority, the Market Agent, the issuer of the expiring Liquidity Facility, the
Company, the Bond Insurer, any Rating Agency then rating the Bonds and the
Registrar and Paying Agent) by first-class mail to the Holders of the Bonds
subject to mandatory tender for purchase at their addresses shown on the books
of registry. Such notice shall be in substantially the form attached hereto as,
or contain substantially the information contained in, Exhibit C.
3. Bank Bonds or Bonds held by or for the account of the
Company are not subject to mandatory tender for purchase pursuant
to this Section 5.08.
SECTION 5.09. General Provisions Applicable to Mandatory and
Optional Tenders for Purchase of Bonds. 1. If interest has been paid on the
Bonds, or an amount sufficient to pay interest thereon has been deposited in the
Bond Fund, or an amount sufficient to pay accrued interest thereon, if any, has
been set aside in the Bond Purchase Fund held under the Bond Purchase Trust
Agreement, and the purchase price equal to the principal of, and premium, if
any, on the Bonds shall be available in the Bond Purchase Fund for purchase of
Bonds subject to tender for purchase pursuant to Section 5.02, 5.03 or 5.08, and
if any Holder fails to deliver or does not properly deliver the Bonds to the
Registrar and Paying Agent for which a Notice of Election to Tender has been
properly filed or which are subject to mandatory tender for purchase on the
purchase date therefor, such Bonds shall nevertheless be deemed tendered and
purchased on the date established for the purchase thereof, no interest shall
accrue on such Bonds from and after the date of purchase and such former Holders
shall have no rights hereunder as the registered owners of such Bonds, except
the right to receive the purchase price of and interest to the purchase date, if
any, on such Bonds upon delivery thereof to the Registrar and Paying Agent in
accordance with the provisions hereof. The purchaser of any such Bonds
remarketed by the Market Agent, or any Support Facility Issuer, to the extent
Bonds are purchased with the proceeds of a draw on, or borrowing or payment
under, the Support Facility, shall be treated as the registered owner thereof
for all purposes of the Indenture. If the ownership of the Bonds is no longer
maintained in book-entry form by the Securities Depository the payment of Bonds
pursuant to Section 5.02 shall be subject to delivery of such Bonds duly
endorsed in blank for transfer or accompanied by an instrument of transfer
thereof in form satisfactory to the Registrar and Paying Agent executed in blank
for transfer at the principal office of the Registrar and Paying Agent at or
prior to 10:00 a.m. (11:30 a.m. for Bonds bearing interest at the Weekly Rate
and 12:00 noon, for Bonds bearing interest at the Daily Rate) (New York City
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time), on a specified purchase date. The Registrar and Paying Agent may refuse
to make payment with respect to any Bonds tendered for purchase pursuant to
Sections 5.02, 5.03 or 5.08 not endorsed in blank or for which an instrument of
transfer satisfactory to the Registrar and Paying Agent has not been provided.
2. The purchase price of Bonds subject to tender for purchase
pursuant to Section 5.02, 5.03 or 5.08 in an aggregate principal amount of at
least one million dollars ($1,000,000) shall be payable in immediately available
funds or by wire transfer upon written notice from the Holder thereof containing
the wire transfer address (which shall be in the continental United States) to
which such Holder wishes to have such wire directed, if such written notice is
received by the Registrar and Paying Agent not less than five days prior to the
related purchase date.
3. To the extent that a Liquidity Facility is required to be
in effect, Bonds tendered for purchase may not be purchased by the Authority,
the Company or any Affiliate from the Market Agent upon a remarketing of Bonds
pursuant to the Market Agent Agreement.
SECTION 5.10. Selection of Bonds to be Redeemed. 1. Except as
provided otherwise in subsections 2, 3, 4 and 5 below with respect to Auction
Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate Period, a redemption
of Bonds shall be a redemption of the whole or of any part of the Bonds from any
funds available for that purpose in a principal amount equal to an authorized
denomination (so long as the principal amount not redeemed is an authorized
denomination). If less than all Bonds shall be redeemed, the particular Bonds to
be redeemed shall be chosen by the Trustee, or the Trustee shall direct the
Registrar and Paying Agent to so choose, as hereinafter provided. If less than
all the Bonds shall be called for redemption under any provision of this
Indenture permitting such partial redemption, the particular Bonds or portions
of Bonds to be redeemed shall be selected (a) first, from Bonds held or owned by
or for any Support Facility Issuer pursuant to any Support Facility, (b) second,
from Bonds for which the Registrar and Paying Agent has received, prior to such
selection, a Notice of Election to Tender requiring the Registrar and Paying
Agent to purchase such Bonds on the date on which the Bonds being selected are
to be redeemed and (c) third, from all other Bonds then Outstanding, by lot or
on a pro rata basis by the Trustee or, upon direction of the Trustee, the
Registrar and Paying Agent, in such manner as the Trustee or Registrar and
Paying Agent in its discretion may deem proper; provided, however, that the
portion of any Bond to be redeemed shall be in the principal amount of $100,000
or some integral multiple thereof during a Commercial Paper Rate Period, a Daily
Rate Period, a Weekly Rate Period or a Monthly Rate Period, $25,000 or some
integral multiple thereof during an Auction Rate Period, or $5,000 or some
integral multiple thereof at any other time and that, in selecting Bonds for
redemption, the Trustee or Registrar and Paying Agent shall treat each Bond as
representing that number of Bonds which is obtained by dividing the principal
amount of such registered Bond in excess of $100,000 by $100,000 during a
Commercial Paper Rate Period, a Daily Rate Period, a Weekly Rate Period or a
Monthly Rate Period, $25,000 during an Auction Rate Period, and $5,000 at any
other time (such amounts being hereinafter referred to as the "applicable units
of principal amount"). If it is determined that one or more, but not all of the
$100,000, $25,000 or $5,000 units of principal amount represented by any such
Bond is to be called for redemption,
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then upon notice of intention to redeem such $100,000, $25,000 or $5,000 unit or
units, the Holders of such Bonds shall forthwith surrender such Bonds to the
Registrar and Paying Agent for (1) payment of the redemption price (including
the redemption premium, if any, and accrued and unpaid interest to the date
fixed for redemption) of the $100,000, $25,000 or $5,000 unit or units of
principal amount called for redemption and (2) exchange for a new Bond or Bonds
of the aggregate principal amount of the unredeemed balance of the principal of
such Bonds. If the Holders of any such Bond of a denomination greater than
$100,000, $25,000 or $5,000 shall fail to present such Bond to the Registrar and
Paying Agent, for payment and exchange as aforesaid, such Bond shall,
nevertheless, become due and payable on the date fixed for redemption to the
extent of the $100,000, $25,000 or $5,000 unit or units of principal amount
called for redemption (and to that extent only).
2. Auction Rate Bonds and Inverse Rate Bonds during any
Auction Rate-Inverse Rate Period shall be redeemed in minimum denominations of
$25,000 or integral multiples thereof. So long as the ownership of the Auction
Rate Bonds and Inverse Rate Bonds is maintained in book- entry form by the
Securities Depository, the Trustee shall give the Securities Depository at least
two Business Days notice of the record date selected by it for the purpose of a
redemption (each a "Redemption Record Date") and request the Securities
Depository to provide it with a position listing showing at the close of
business as of such Redemption Record Date the aggregate principal amounts of:
Regular Auction Rate Bonds, Special Auction Rate Bonds, Regular Inverse Rate
Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special
Linked Auction Rate Bonds and Inverse Rate Bonds, respectively.
3. So long as the ownership of the Auction Rate Bonds and the
Inverse Rate Bonds during any Auction Rate-Inverse Rate Period is maintained in
book-entry form by the Securities Depository, the Auction Rate Bonds and Inverse
Rate Bonds to be redeemed in part on any Redemption Date shall be selected by
lot from the Outstanding Bonds of each series as described in the following
sentence. An amount equal to the Linked Percentage of the aggregate principal
amount of the Auction Rate Bonds and Inverse Rate Bonds to be redeemed on such
Redemption Date shall be selected from Regular Linked Auction Rate Bonds and
Inverse Rate Bonds and Special Linked Auction Rate Bonds and Inverse Rate Bonds
(on a pro rata basis in accordance with the relative principal amounts thereof),
the remaining amount of Inverse Rate Bonds to be redeemed shall be selected from
Regular Inverse Rate Bonds and the remaining amount of Auction Rate Bonds to be
redeemed shall be selected from Regular Auction Rate Bonds and Special Auction
Rate Bonds (on a pro rata basis in accordance with the relative principal
amounts thereof); provided, that if any principal amount of the Auction Rate
Bonds and of the Inverse Rate Bonds selected as provided above from Regular
Linked Auction Rate Bonds and Inverse Rate Bonds, Special Linked Auction Rate
Bonds and Inverse Rate Bonds, Regular Inverse Rate Bonds, Regular Auction Rate
Bonds and Special Auction Rate Bonds is not equal to $25,000 or an integral
multiple thereof, the Trustee shall, in such manner as, in its sole discretion,
it shall determine, round up or down the principal amounts so determined. On the
basis of the position listing obtained by the Trustee pursuant to subsection 2
above, the Trustee shall calculate the Linked Percentage as of the Redemption
Record Date and determine therefrom the aggregate principal amounts to be
redeemed and redemption prices per $1,000 (plus accrued and unpaid interest
thereon to the Redemption Date) of Regular Auction Rate
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Bonds, Special Auction Rate Bonds, Regular Inverse Rate Bonds, Regular Linked
Auction Rate Bonds and Inverse Rate Bonds and Special Linked Auction Rate Bonds
and Inverse Rate Bonds, respectively.
4. So long as the ownership of the Auction Rate Bonds and the
Inverse Rate Bonds is maintained in book-entry form by the Securities
Depository, Auction Rate Bonds to be redeemed in part on any Redemption Date
pursuant to subsection (c)(ii) of Section 5.01 shall be selected by lot from
Special Auction Rate Bonds and Regular Auction Rate Bonds on a pro rata basis in
accordance with the relative principal amounts thereof as of the Redemption
Record Date; provided, that if any principal amount of the Auction Rate Bonds
selected as provided above from Regular Auction Rate Bonds and Special Auction
Rate Bonds is not equal to $25,000 or an integral multiple thereof, the Trustee
shall, in such manner as, in its sole discretion, it shall determine, round up
or down the principal amounts so determined. On the basis of the position
listing obtained by the Trustee pursuant to subsection 2 above, the Trustee
shall determine therefrom the aggregate principal amounts to be redeemed and
aggregate redemption prices (plus accrued and unpaid interest thereon to the
Redemption Date) of Regular Auction Rate Bonds and Special Auction Rate Bonds,
respectively.
5. Except as otherwise provided by subsections 3 and 4 above,
redemption of Auction Rate Bonds and Inverse Rate Bonds during any Auction
Rate-Inverse Rate Period shall be in the manner specified in 1 above; provided,
however, that the portion of any Auction Rate Bonds or Inverse Rate Bonds to be
redeemed shall be in the principal amount of $25,000 or some integral multiple
of $25,000.
SECTION 5.11. Notice of Redemption. 1. Notice of redemption
shall be given by the Trustee or the Registrar and Paying Agent by mailing a
copy of the redemption notice by first- class mail at least 30 days prior to the
date fixed for redemption to the Bond Insurer and the Holders of the Bonds to be
redeemed at the addresses shown on the registration books maintained by the
Registrar and Paying Agent; provided, however, with respect to Auction
Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate Period such notice
shall be given after the Regular Interest Payment Date next preceding the
Redemption Date but not less than thirty (30) days prior to the Redemption Date.
2. The Registrar and Paying Agent shall not be required to
transfer or exchange Bonds during any period beginning at the opening of
business fifteen (15) days before the day of mailing of a notice of redemption
and ending at the close of business on the day fixed for redemption; provided,
however, that the foregoing shall not apply during a Daily Rate Period, a Weekly
Rate Period, a Commercial Paper Rate Period, an Auction Rate Period or an
Auction Rate- Inverse Rate Period.
3. Except as otherwise provided with respect to Auction
Rate-Inverse Rate Bonds in subsection 4 below, each notice of
redemption shall state: (i) the full title of the Bonds, the
redemption date, the place of redemption and the redemption price
payable upon such redemption;
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(ii) that the interest on the Bonds, or on the principal amount thereof to be
redeemed, shall cease to accrue from and after such redemption date; and (iii)
that on said date there will become due and payable on the Bonds the principal
amount thereof to be redeemed and the interest accrued on such principal amount
to the redemption date, if any, and the premium, if any, thereon. Each notice of
redemption mailed to the Holder of the Bonds shall, if less than the entire
principal sum thereof is to be redeemed, also state the principal amount thereof
and the distinctive numbers of the Bonds to be redeemed and that such Bonds must
be surrendered to the Registrar and Paying Agent in exchange for the payment of
the principal amount thereof to be redeemed and the issuance of a new Bond
equalling in principal amount that portion of the principal sum not to be
redeemed of the Bonds to be surrendered. The failure to give notice to any
Holder of a Bond or any defects in such notice shall not affect the proceedings
for the redemption of the Bonds for which notice has been given.
4. With respect to Auction Rate-Inverse Rate Bonds, each
notice of redemption shall (i) specify (A) in the case of a partial redemption
of Inverse Rate Bonds and Auction Rate Bonds, the aggregate principal amounts of
Regular Auction Rate Bonds, Special Auction Rate Bonds, Regular Inverse Rate
Bonds, Regular Linked Auction Rate Bonds and Inverse Rate Bonds and Special
Linked Auction Rate Bonds and Inverse Rate Bonds to be redeemed, (B) in the case
of a partial redemption of Auction Rate Bonds, the aggregate principal amounts
of Regular Auction Rate Bonds and Special Auction Rate Bonds to be redeemed, (C)
the Redemption Date, (D) the redemption price per $1,000 principal amount (plus
accrued and unpaid interest thereon to the Redemption Date) of Regular Auction
Rate Bonds, Special Auction Rate Bonds, Regular Inverse Rate Bonds, Regular
Linked Auction Rate Bonds and Inverse Rate Bonds and Special Linked Auction Rate
Bonds and Inverse Rate Bonds, respectively, and (E) the place or places where
amounts due upon such redemption will be payable and (ii) state that on the
Redemption Date, if sufficient moneys are available for such redemption, the
Bonds or the portions thereof which are to be redeemed shall cease to bear
interest.
5. In the case of any optional redemption or any redemption
pursuant to Section 5.05, such notice shall also state that such redemption
shall be conditioned upon the Trustee's receipt of funds (or, in the case of any
optional redemption occurring while the Bonds bear interest at a Daily Rate,
Weekly Rate, Monthly Rate, Semi-annual Rate or Commercial Paper Rate, Available
Moneys) sufficient to pay the redemption price of the Bonds to be redeemed on or
prior to the redemption date.
6. Failure to give any required notice of redemption as to any
particular Bonds will not affect the validity of the call for redemption of any
Bonds in respect to which no such failure occurs. Notice of redemption shall
also be mailed by first-class mail to the Credit Facility Issuer and to each
Rating Agency then rating the Bonds, which notice shall include the principal
amounts, maturities and CUSIP numbers of Bonds to be redeemed. Any notice mailed
as provided in this Section shall be conclusively presumed to have been duly
given, whether or not the Registered Owner, the Credit Facility Issuer or a
Rating Agency actually receives the notice.
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SECTION 5.12. Bonds Purchased by Liquidity Facility Issuer.
Bonds subject to purchase pursuant to Sections 5.02, 5.03 and 5.08 shall be
deemed purchased by the Liquidity Facility Issuer in a principal amount equal to
the amount of a draw on, or borrowing or payment under, the Liquidity Facility
for the payment of Bonds subject to purchase, upon the deposit with the Trustee
of the proceeds of such draw on, or borrowing or payment under, the Liquidity
Facility in an amount equal to the principal of such Bonds plus accrued and
unpaid interest thereon to the redemption date, and such Bonds shall not be
deemed paid and shall remain outstanding hereunder until the Liquidity Facility
Issuer has been reimbursed for such draws on, or borrowings or payments under,
the Liquidity Facility to pay such principal and interest. Any Bonds purchased
by the Liquidity Facility Issuer shall become Bank Bonds, shall bear interest at
the Bank Bond Interest Rate and shall be subject to the terms and provisions of,
and have all rights with respect to Bank Bonds under, the applicable Liquidity
Facility. In the event that the Liquidity Facility is in a form other than a
standby bond purchase agreement, unless the Liquidity Facility Issuer shall
otherwise direct, any Bonds purchased by the Liquidity Facility Issuer shall be
immediately registered in the name of the Liquidity Facility Issuer as a Holder
and the Liquidity Facility Issuer shall have all rights of a Holder of Bonds
except that such Bonds will bear interest at the Bank Rate under this Indenture.
SECTION 5.13. Effect of Redemption. If the Bonds have been
duly called for redemption and notice of the redemption thereof has been duly
given or provided for as hereinbefore provided and if monies for the payment of
the Bonds (or of the principal amount thereof to be redeemed) and the interest
to accrue to the redemption date on the Bonds (or of the principal amount
thereof to be redeemed), if any, and the premium, if any, thereon are held for
the purpose of such payment by the Trustee, then the Bonds (or the principal
amount thereof to be redeemed) shall on the redemption date designated in such
notice, become due and payable and interest on the Bonds (or the principal
amount thereof to be redeemed) so called for redemption shall cease to accrue
from such date and the Holder thereof shall thereafter have no rights hereunder
as the Holder of such Bonds (or the principal amount thereof to be redeemed)
except to receive the principal amount thereof and premium (if any) thereon and
interest to the redemption date.
SECTION 5.14. Cancellation of Redeemed Bonds. Any Bonds
surrendered or redeemed pursuant to the provisions of this
Article shall be cancelled by the Registrar and Paying Agent.
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ARTICLE VI
SUPPORT FACILITY PROVISIONS
SECTION 6.01. Support Facility - General. Pursuant to the
Participation Agreement, the Company has obtained a Credit Facility and agrees
to maintain a Liquidity Facility meeting the requirements of the Participation
Agreement with respect to the Bonds at all times except during any Auction Rate
Period, an Auction Rate-Inverse Rate Period or the Fixed Rate Period. A
Liquidity Facility relating to the affected Bonds must be in effect prior to any
Change in the Interest Rate Mode from an Auction Rate and a related Inverse Rate
during an Auction Rate-Inverse Rate Period, or from an Auction Rate during an
Auction Rate Period to another Adjustable Rate (other than a Change in the
Interest Rate Mode to an Auction Rate Period or an Auction Rate-Inverse Rate
Period or a conversion to a Fixed Rate). If at any time the Company obtains a
Liquidity Facility with respect to the Bonds which were previously not entitled
to the benefit thereof, the Company shall submit such Liquidity Facility to
Moody's, S&P or such other Rating Agency as the Company may select for the
purposes of obtaining a rating on such Bonds. Upon obtaining a rating or ratings
on the basis of such Liquidity Facility the provisions of Sections 5.08 and 6.02
shall become applicable to such Bonds. The Trustee shall be furnished with a
certified copy of any Liquidity Facility obtained pursuant to this Section 6.01
together with evidence of any rating or ratings obtained on the Bonds in
connection therewith.
Any Support Facility Issuer not located in New York State
shall provide the Trustee with a list of holidays on which it is closed through
the next succeeding January 1 at the beginning of the term of such Support
Facility and by January 1 of each year thereafter.
SECTION 6.02. Liquidity Facility. 1. At any time following the
Closing Date, the Company with the consent of the Bond Insurer, may provide for
the delivery to the Trustee of a Liquidity Facility that is issued by a
financial institution with a long term debt rating of at least A from S&P and A2
from Moody's and that supports ratings at least the equivalent of A-1 from S&P
and P-1 from Moody's. The expiration date of such Liquidity Facility shall be a
date not earlier than 364 days from its date of issuance, subject to earlier
termination upon the occurrence of (a) a Terminating Event or another event of
default under the related reimbursement agreement or other corresponding
agreement pursuant to which such Liquidity Facility is issued, (b) the issuance
of an Alternate Liquidity Facility, (c) payment in full of the Outstanding Bonds
or (d) a Change in the Interest Rate Mode to an Auction Rate during an Auction
Rate Period, an Auction Rate and a related Inverse Rate during an Auction
Rate-Inverse Rate Period, or a Fixed Rate. If, between the effective date of a
Liquidity Facility and the effective date of an Alternate Liquidity Facility,
there occurs a Change in the Interest Rate Mode, such Alternate Liquidity
Facility shall comply with the requirements applicable to a Liquidity Facility
in effect with respect to the new Interest Rate Mode. On or prior to the date of
the delivery of a Liquidity Facility or an amendment to a Liquidity Facility
(other than an amendment which only extends the expiration date of an existing
Liquidity Facility) (a "Liquidity Facility Amendment") to the Trustee, the
Company shall furnish to the Trustee and the
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Bond Insurer on behalf of the Authority (a) an opinion of Bond Counsel stating
that the delivery of such Liquidity Facility or Liquidity Facility Amendment to
the Trustee is authorized under this Indenture and complies with the terms
hereof, (b) written confirmation from S&P, if the Bonds are then rated by S&P,
and from Moody's, if the Bonds are then rated by Moody's, and from another
rating agency, if the Bonds are then rated by such rating agency, to the effect
that such rating agency has reviewed the proposed Alternate Liquidity Facility
or Liquidity Facility Amendment and that the substitution of the proposed
Alternate Liquidity Facility for the existing Liquidity Facility or the delivery
of the Liquidity Facility Amendment will not, by itself, result in a reduction
or withdrawal of its long- or short-term rating of the Bonds below the rating of
S&P or Moody's or such other rating agency, as the case may be, then in effect
with respect to the Bonds, and (c) written consent of the Bond Insurer to such
Liquidity Facility or Liquidity Facility Amendment.
2. In the event that the Company, delivers an Alternate
Liquidity Facility in substitution for a Liquidity Facility or a Liquidity
Facility Amendment which will result in a reduction in or withdrawal of the
short-term or long-term rating or both assigned to such Bonds by Moody's or S&P
or such other rating agency as a result of the Alternate Liquidity Facility or
Liquidity Facility Amendment, all Outstanding Bonds (unless the Bonds bear an
Auction Rate during an Auction Rate Period, Auction Rate during an Auction
Rate-Inverse Rate Period or Fixed Rate) shall be subject to mandatory tender for
purchase pursuant to Section 5.08. It shall be a condition to the delivery of
such an Alternate Liquidity Facility or Liquidity Facility Amendment that (i)
the Opinion of Bond Counsel referred to in the preceding paragraph be obtained
and (ii) the prior written consent of the Bond Insurer be obtained. The
Authority, or the Company on behalf of the Authority, shall deliver notice to
the Trustee of the substitution of an Alternate Liquidity Facility or the
delivery of a Liquidity Facility Amendment which will result in a reduction or
withdrawal in the short-term or long-term ratings assigned to the Bonds pursuant
to this Section 6.02 at least 45 days before the date of substitution or
amendment.
3. In the event that any Liquidity Facility Issuer (other than
a municipal bond or financial guarantee insurance company) should fail to
maintain short-term ratings equivalent to A-1 from S&P and P-1 from Moody's, and
such Liquidity Facility Issuer is not replaced within 4 months, all Bonds shall
be subject to mandatory tender for purchase pursuant to Section 5.08. No Bond so
tendered shall be remarketed unless and until an Alternate Liquidity Facility is
delivered to the Trustee and a prior written consent of the Bond Insurer is
obtained.
SECTION 6.03. Trustee not Responsible for Enforcement of
Support Facility. Except as may otherwise be expressly agreed by the Trustee,
the Trustee shall have no responsibility with respect to the enforcement of any
Support Facility obtained hereunder.
SECTION 6.04. Payments Pursuant to the Municipal Bond
Insurance Policy. 1. As long as a Policy shall be in effect, the
Trustee shall, at least one day prior to each Interest Payment
Date, determine whether there will be sufficient funds in the
Bond Fund to pay the principal of or interest on the Bonds on
such Interest Payment Date or on the date on which the Bonds are
subject to redemption pursuant to Section 5.06.1. If the Trustee
determines that there will be insufficient
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funds in the Bond Fund, the Trustee shall so notify the Bond Insurer. Such
notice shall specify the amount of the anticipated deficiency, the Bonds to
which such deficiency is applicable and whether such Bonds will be deficient as
to principal or interest, or both. If the Trustee has not so notified the Bond
Insurer at least one day prior to an Interest Payment Date, the Bond Insurer
will make payments of principal or interest due on the Bonds on or before the
first Business Day next following the date on which the Bond Insurer shall have
received notice of nonpayment from the Trustee.
2. The Trustee shall after giving notice to the Bond Insurer
as provided in paragraph 1 of this Section 6.04, make available to the Bond
Insurer and, at the Bond Insurers direction, to the United States Trust Company
of New York, as insurance trustee for the Bond Insurer or any successor
insurance trustee (the "Insurance Trustee"), the registration books of the
Authority maintained by the Trustee and all records relating to the Bond Fund.
3. The Trustee shall provide to the Bond Insurer and the
Insurance Trustee a list of registered owners of the Bonds entitled to receive
principal or interest payments from the Bond Insurer under the terms of the
Policy, and shall make arrangements with the Insurance Trustee (i) to mail
checks or drafts to the registered owners of the Bonds entitled to receive full
or partial interest payments from the Bond Insurer and (ii) to pay principal
upon Bonds surrendered to the Insurance Trustee by the registered owners of
Bonds entitled to receive full or partial principal payments from the Bond
Insurer.
4. The Trustee shall, at the time it provides notice to the
Bond Insurer pursuant to paragraph 1 of this Section 6.04, notify registered
owners of Bonds entitled to receive the payment of principal or interest thereon
from the Bond Insurer (i) as to the fact of such entitlement, (ii) that the Bond
Insurer will remit to them all or a part of the interest payments next coming
due upon proof of the Bondholders entitlement to interest payments and delivery
to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an
appropriate assignment of the registered owner's right to payment, (iii) that
should they be entitled to receive full payment of principal from the Bond
Insurer, they must surrender their Bonds (along with appropriate instrument of
assignment in form satisfactory to the Insurance Trustee to permit ownership of
such Bonds to be registered in the name of the Bond Insurer) for payment to the
Insurance Trustee, and not the Trustee, and (iv) that should they be entitled to
receive partial payment of principal from the Bond Insurer, they must surrender
their Bonds for payment thereon first to the Trustee, who shall note on such
Bonds the portion of the principal paid by the Trustee and then, along with an
appropriate instrument of assignment in form satisfactory to the insurance
trustee, to the Insurance Trustee, which will then pay the unpaid portion of
principal.
5. In the event that the Trustee has notice that any payment
of principal of or interest on a Bond which has become Due for Payment (as
defined in the Policy) and which is made to a Holder of a Bond by or on behalf
of the Authority has been deemed a preferential transfer and theretofore
recovered from its registered owner pursuant to the United States Bankruptcy
Code by a trustee in bankruptcy in accordance with the final, nonappealable
order of a court having competent jurisdiction, the Trustee shall, at the time
the Bond insurer is notified pursuant to paragraph 1 of this
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Section 6.04, notify all registered owners of the Bonds that in the event that
any registered owner's payment is so recovered, such registered owner will be
entitled to payment from the Bond Insurer to the extent of such recovery if
sufficient funds are not otherwise available, and the Trustee shall furnish to
the Bond Insurer its records evidencing the payments of principal of and
interest on the Bonds which have been made by the Trustee and subsequently
recovered from registered owners of the Bonds and the dates on which such
payments were made.
6. In addition to those rights granted to the Bond Insurer
under this Indenture, the Bond Insurer shall, to the extent it makes payment of
principal of or interest on Bonds, become subrogated to the rights of the
recipients of such payments in accordance with the terms of the Policy, and to
evidence such subrogation (i) in the case of subrogation as to claims for past
due interest, the Trustee shall note the Bond Insurer's rights as subrogee on
the registration books upon receipt from the Bond Insurer of proof of the
payment of interest thereon to the registered owners of the Bonds, and (ii) in
the case of subrogation as to claims for past due principal, the Trustee shall
note the Bond Insurer's rights as subrogee on the registration books upon
surrender of the Bonds by the registered owners thereof together with proof of
the payment of principal thereof.
SECTION 6.05 Provisions with Respect to the Bond Insurer. With
respect to any Bonds, the payment of which is insured by the Bond Insurer in
accordance with the terms of the Policy, notwithstanding anything else to the
contrary herein, the following additional provisions shall apply:
(a) A copy of any notice given by the Authority or the Company
under this Indenture to the Holders of the Bonds shall also be given to the Bond
Insurer.
(b) The Trustee shall notify the Bond Insurer of any failure
of the Authority or the Company to provide a notice to the Bond Insurer pursuant
to any provision of this Indenture.
(c) Notwithstanding any other provision of this Indenture, the
Trustee shall immediately notify the Bond Insurer upon the occurrence of an
Event of Default.
(d) Any action under this Indenture that is subject to the
prior consent of the Holders of the Bonds shall also be subject to the prior
written consent of the Bond Insurer.
(e) Notwithstanding any other provision of this Indenture, in
determining whether the rights of the Holders of the Bonds will be adversely
affected by any action taken pursuant to the terms and provisions of this
Indenture, the Trustee shall consider the effect on the Holders of the Bonds as
if there were no Municipal Bond Insurance Policy.
(f) To the extent this Indenture confers upon or gives or
grants to the Bond Insurer any right, remedy or claim under or by reason of this
Indenture, the Bond Insurer is hereby explicitly recognized as being a
third-party beneficiary hereunder, and notwithstanding anything to the contrary
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contained in this Indenture may enforce any such right remedy or claim
conferred, given or granted hereunder.
(g) Notwithstanding any other provision in this Indenture,
upon the occurrence and continuance of an Event of Default, the Bond Insurer
shall be entitled to control and direct the enforcement of all rights and
remedies granted to the Holders of the Bonds or the Trustee for the benefit of
the Holders of the Bonds under this Indenture, including without the limitation:
(i) the right to control and direct the declaration of the principal of and
accrued interest on all the Bonds then Outstanding to be due and payable
immediately pursuant to Section 12.03, and (ii) the right to rescind and annul
any such declaration in clause (i) of this paragraph and its consequences
pursuant to Section 12.03; provided, however, that the Bond Insurer shall not be
entitled to control and direct the enforcement of any such rights and remedies
if the Bond Insurer is in default under the Policy or if the Bond Insurer is a
party to any proceeding for the rehabilitation, liquidation, conservation or
dissolution of the Bond Insurer pursuant to the U.S. Bankruptcy Code or similar
provision of law.
(h) The Trustee shall permit the Bond Insurer to have access
to and to make copies of all books and records relating to the Bonds at any
reasonable time.
(i) Any reorganization or liquidation plan with respect to the
Company must be acceptable to the Bond Insurer. In the event of any
reorganization or liquidation, the Bond Insurer shall have the right to vote on
behalf of all Holders of the Bonds absent a default by the Bond Insurer under
the Policy.
SECTION 6.06. Payments Pursuant to any Direct Pay Facility;
Condition to Delivery of Direct Pay Facility. The Trustee shall draw upon any
Direct-Pay Facility, from time to time, to the extent that it may do so under
the terms of such Direct-Pay Facility. The Trustee shall apply moneys
constituting Available Moneys pursuant to clause (i), (iii) or (iv) of the
definition thereof as and to the extent necessary to pay the principal of (or
premium, if any), and accrued interest on, the Bonds, as the same shall become
due and payable either at maturity, upon redemption, by declaration or otherwise
(provided that moneys paid to the Trustee under any Direct-Pay Facility shall,
to the extent so specified in such Direct-Pay Facility, be applied only to the
payment of particular payments of principal of (or premium, if any on), or
accrued interest on, the Bonds). The Trustee shall apply moneys constituting
Available Moneys pursuant to clause (i) or (to the extent permitted by the terms
of any Direct-Pay Facility then in effect) or clause (iii) of the definition
thereof as and to the extent necessary to pay the purchase price of Bonds
tendered or deemed tendered to the Registrar and Paying Agent pursuant to the
Bond Purchase Trust Agreement (but only after application of proceeds of
remarketing as provided in Section 2.03 thereof) as the same shall become due
and payable in accordance with this Indenture. Notwithstanding anything in this
Indenture to the contrary, it shall be a condition to the delivery of any Direct
Pay Facility to the Trustee that (i) the Trustee and the Bond Insurer shall have
received from each Rating Agency then rating the Bonds written confirmation to
the effect that such Rating Agency has reviewed such Direct Pay Facility and
that delivery of such Direct Pay Facility will not result in a reduction or
withdrawal
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of any rating then assigned to the Bonds and (ii) the Bond Insurer shall have
consented to the delivery of such Direct Pay Facility.
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ARTICLE VII
GENERAL TERMS AND PROVISIONS OF BONDS
SECTION 7.01. Execution and Authentication of Bonds. The Bonds
shall be executed on behalf of the Authority by the manual or facsimile
signature of its Chair, Vice-Chair, President or Treasurer and shall be sealed
with the seal of the Authority, or in lieu thereof shall bear a lithographed,
engraved or otherwise reproduced facsimile of such seal attested by the manual
or facsimile signature of its Secretary or an Assistant Secretary.
Bonds bearing the manual signature of the officer of the
Authority authorized to execute such Bonds in office on the date of such manual
signing thereof and Bonds bearing the facsimile signature of the officer of the
Authority authorized to execute such Bonds in office on the date of the
reproducing of such facsimile signature on such Bonds, shall be valid and
binding obligations in accordance with their terms, notwithstanding that before
the delivery thereof and payment therefor the person whose signature appears
thereon shall have ceased to be such officer.
Only Bonds having endorsed thereon a certificate of
authentication substantially in the form set forth in Article XVI, duly executed
by the Registrar and Paying Agent, shall be entitled to any right or benefit
under this Indenture. No Bonds shall be valid or obligatory for any purpose
unless and until such certificate of authentication shall have been duly
executed by the Registrar and Paying Agent, and such certificate of the
Registrar and Paying Agent upon a Bond shall be conclusive evidence that such
Bond has been duly authenticated and delivered under this Indenture and that the
Holder thereof is entitled to the benefits of this Indenture. The Registrar and
Paying Agent's certificate of authentication on any Bond shall be deemed to have
been duly executed if signed by an authorized officer of the Registrar and
Paying Agent.
SECTION 7.02. Books of Registry. The Registrar and Paying
Agent shall keep or cause to be kept at its principal office books (herein
referred to as the "books of registry" or "registration books") for the
registration and transfer of the Bonds. Upon presentation at its principal
office for such purpose the Registrar and Paying Agent, under such reasonable
regulations as it may prescribe, shall register or transfer, or cause to be
registered or transferred, on said books of registry, the Bonds as hereinafter
set forth. The books of registry shall at all times during business hours be
open for inspection by the Authority, the Company, the Bond Insurer and the
Trustee or their duly authorized agents or representatives.
SECTION 7.03. Transfer, Registration and Exchange of Bonds.
The transfer of the Bonds may be registered only upon the books of registry
required to be kept pursuant to Section 7.02 upon surrender thereof to the
Registrar and Paying Agent, together with an assignment duly executed by the
Holder thereof or his or her duly authorized agent and accompanied by a
guarantee of signature, each in such form as shall be satisfactory to the
Registrar and Paying Agent. Upon any such registration of transfer the Authority
shall execute and the Registrar and Paying Agent shall
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authenticate and deliver in exchange for such Bonds a new Bond or Bonds of the
same subseries, if any, registered in the name of the transferee or transferees
for a like aggregate principal amount, of any denomination or denominations
authorized by this Indenture. No transfer of any Bond shall be effective until
entered on the books of registry.
Any Bond surrendered in any such registration of transfer
shall forthwith be cancelled by the Registrar and Paying Agent. Any Bonds
registered and transferred to a new Holder pursuant to this Section shall be
delivered to the Holder at the principal office of the Registrar and Paying
Agent or sent by first-class mail to the Holder at his or her request, risk and
expense.
Bonds, upon surrender thereof at the principal corporate trust
office of the Registrar and Paying Agent, together with an assignment duly
executed by the Holder or his or her authorized agent and accompanied by a
guarantee of signature, each in such form as shall be satisfactory to the
Registrar and Paying Agent, may, at the option of the Holder thereof, be
exchanged for an equal aggregate principal amount of Bonds of the same
subseries, if any, of any denomination or denominations authorized by this
Indenture and in the same form as the Bonds surrendered for exchange. All Bonds
so surrendered pursuant to this Section shall be cancelled by the Registrar and
Paying Agent.
Any Bonds to be delivered to the Holder upon any such exchange
shall be delivered to the Holder at the principal office of the Registrar and
Paying Agent or sent by first-class mail to the Holder thereof at his or her
request, risk and expense.
Any taxes or other governmental charges required to be paid
with respect to the registration of transfer or exchange of the Bonds shall be
paid by the Holder requesting registration of such transfer or exchange, as a
condition precedent to the exercise of such privilege. The Authority or the
Registrar and Paying Agent, or both, may charge the Company for every
registration of transfer or exchange sufficient to reimburse it for any and all
costs required to be paid in respect thereof.
SECTION 7.04. Mutilated, Lost, Stolen, or Destroyed Bonds. In
the event any Bond shall be lost, stolen, destroyed, wholly or in part, or so
defaced as to impair its value to the Holder, the Registrar and Paying Agent
shall, upon compliance with the terms provided by law, authenticate and deliver
a new Bond of like series or subseries, if any, date and tenor in exchange or
replacement therefor against delivery for cancellation of such mutilated Bond,
or in lieu of and in replacement of a destroyed, stolen or lost Bond, and upon
payment by the Holder of the reasonable expenses of the Registrar and Paying
Agent and the Authority and the reasonable charges of the Registrar and Paying
Agent in connection therewith and, in the event that the Bond is destroyed,
stolen or lost, the Holder's filing with the Registrar and Paying Agent of
evidence satisfactory to it that the Bond was destroyed, stolen or lost, of the
Holder's ownership thereof, and furnishing the Registrar and Paying Agent, the
Bond Insurer and the Authority such security and indemnity as is satisfactory to
them which shall name the Authority as an additional secured and indemnified
party. Any replacement Bond issued under the provisions of this Section in
exchange or substitution for the defaced,
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mutilated or partly destroyed Bond or in substitution, for the allegedly lost,
stolen or wholly destroyed Bond shall be entitled to the identical benefits
under this Indenture as was the original Bond in lieu of which such replacement
Bond is issued. Each such replacement Bond shall be prepared in substantially
the same manner as the original.
Notwithstanding the foregoing provisions of this Section, if
the lost, stolen, destroyed, defaced or mutilated Bond has matured or been
called for redemption and the date fixed for redemption thereof has arrived, at
the option of the Registrar and Paying Agent, payment of the amount due thereon
may be made without the issuance of any replacement Bond upon receipt of like
evidence, indemnity, security and payment of expenses and the surrender for
cancellation of the defaced or mutilated or partly destroyed Bond and upon such
other conditions as the Registrar and Paying Agent may prescribe.
Except as provided in this sentence and as permitted in the
following paragraph, any replacement Bond shall be in the form of the Bond being
replaced, and be dated the date of its authentication and bear such number as
shall be assigned thereto by the Registrar and Paying Agent, which number shall
have the letters "AR" prefixed thereto together with such other subseries
designation, if any, as may be deemed appropriate by the Registrar and Paying
Agent. The Registrar and Paying Agent shall make an appropriate notation in the
books of registry that a replacement Bond has been issued in exchange or
substitution for the defaced, mutilated, lost, stolen, or wholly or partly
destroyed Bond.
There may be imprinted or affixed on the face and the panel
portion of any duplicate Bond a mark to identify such Bond as a replacement
Bond.
Prior to arranging for the preparation or printing of a
replacement Bond, the Registrar and Paying Agent may require a deposit by the
Holder to secure the Registrar and Paying Agent and the Authority for costs and
expenses incurred by them in the preparation, printing, execution and issuance
of such replacement Bond. Any amount of such deposit received by the Registrar
and Paying Agent in excess of the amount required to reimburse the Registrar and
Paying Agent or the Authority for costs and expenses shall be returned to the
party which made the deposit.
Any defaced, mutilated or partly destroyed Bond surrendered to
the Registrar and Paying Agent in substitution for a new Bond pursuant to this
Section shall be cancelled by the Registrar and Paying Agent.
SECTION 7.05. Temporary Bonds. Pending the preparation of
definitive Bonds, interim receipts or certificates (herein referred to as
"temporary Bonds") may initially be issued, exchangeable for definitive Bonds
when the latter are ready for delivery. Such temporary Bonds may be printed,
lithographed or typewritten, shall be of such denomination or denominations as
may be determined by the Authority and may contain such references to any of the
provisions of this Indenture as may be appropriate. If temporary Bonds are
issued, the Authority will cause to be furnished duly executed definitive Bonds
without delay, and thereupon the temporary Bonds may
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be surrendered for cancellation at the principal office of the Registrar and
Paying Agent in exchange for definitive Bonds and without charge for such
exchange, and the Registrar and Paying Agent shall deliver in exchange for such
temporary Bonds so surrendered an equal aggregate principal amount of definitive
duly executed Bonds, of authorized denominations. Until so exchanged, the
temporary Bonds shall be entitled to the same benefits under this Indenture as
definitive Bonds.
Nothing in this Indenture shall prevent the Authority from
delivering, and the Authority is hereby expressly permitted to deliver, Auction
Rate Bonds during an Auction Rate Period or Auction Rate-Inverse Rate Bonds
during an Auction Rate-Inverse Rate Period in typewritten form to the Securities
Depository as registered owner thereof.
SECTION 7.06. Disposition of Bonds. Any Bond surrendered to
the Registrar and Paying Agent for payment shall be cancelled upon such payment
by the Registrar and Paying Agent. The Registrar and Paying Agent shall destroy
any cancelled Bond which has been paid and which bears any date two (2) years
prior to the date of destruction. The Bonds shall be destroyed by burning,
machine shredding, chemical disintegration or such other method as is approved
by the Authority. The Authority may require that such destruction be done in the
presence of its appointee. When the Registrar and Paying Agent shall destroy any
Bond, it shall deliver a certificate of such destruction to the Authority, the
Bond Insurer and the Company.
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ARTICLE VIII
ESTABLISHMENT OF THE PROJECT FUND
SECTION 8.01. Project Fund. 1. There is hereby created and
established a special trust fund to be designated "KeySpan Generation LLC 1999
Series A Project Fund" (hereinafter referred to as the "Project Fund") to be
held by the Trustee. All income or gain on monies deposited in the Project Fund
shall be retained therein.
2. There shall be deposited into the Project Fund the proceeds
of the Bonds issued hereunder, net of underwriter's discount and accrued
interest, if any, which, pursuant to Section 2.02.6 of this Indenture, is to be
used and applied together with other moneys advanced by the Company to the
prepayment of the KeySpan Notes, the proceeds of which prepayment are to be used
to pay the redemption price of the Prior Bonds. The accrued interest, if any, on
the Bonds shall be deposited in the Interest Account of the Bond Fund.
3. The monies on deposit from time to time in the Project Fund
shall be held under this Indenture, but shall not be subject to the liens,
pledges, charges, assignments and trusts created hereby for the security and
benefit of the Holders of the Bonds and shall not be available for the payment
of Bonds within the meaning of the Indenture, and shall be used and applied
solely for the purpose of financing the prepayment of the KeySpan Notes and in
accordance with the remaining provisions of this Section and any excess shall be
used for the cost of issuance of the Bonds.
4. The Trustee is authorized and directed to make payments
from the Project Fund which together with moneys advanced by the Company will be
sufficient to pay the principal amount and interest payment due under the
KeySpan Notes (the "Prepayment Price") or costs incurred in connection therewith
and the refunding of the Prior Bonds, upon the order of the Company, but only
upon receipt from time to time of requisitions signed by an Authorized Company
Representative, stating with respect to each payment to be made from the Project
Fund:
(a) the requisition number;
(b) the nature of the disbursement;
(c) the payee, with address, which may be the Company in the
case of reimbursements for advances and payments made by the
Company;
(d) the amount of such payment;
(e) that the disbursement will be used to pay, or
reimburse the Company for, part of the Prepayment Price or
costs incurred in connection with the prepayment of the
KeySpan Notes and the redemption of the Prior Bonds; and
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(f) that the disbursement will not be used in a
manner that would result in a violation of any representation
or any covenant contained in Section 5.4 of the Participation
Agreement or be contrary to any material representation or
warranty contained in the Tax Regulatory Agreement.
5. For seven years from the dates thereof, the Trustee shall
retain in its possession all requisitions received by it as herein required,
subject to the inspection of the Authority, its agents and representatives, the
Company, the Bond Insurer and the Holders and their representatives at all
reasonable times at the Principal Corporate Trust Office.
6. All monies remaining in the Project Fund after the payment
or provision for payment of the Prepayment Price and all other costs to be paid
from such Project Fund shall, at the written direction of the Company, be
deposited in the Bond Fund for credit to the Redemption Account to be applied
solely in accordance with and subject to the restrictions contained in Article V
and Article IX hereof to the payment of principal of and premium, if any, and
interest on the Bonds; except for amounts retained in the Project Fund by the
Trustee with the approval of the appropriate Authorized Company Representative
for payment of items permitted to be financed from such Fund but not then due
and payable, any balance remaining of such retained funds in the Project Fund
after full payment or provision of payment of part of the Prepayment Price shall
be paid to the Trustee for deposit in the Bond Fund for credit to the Redemption
Account and applied by the Trustee as described above. At such time as all
monies have been paid from the Project Fund, the Trustee shall close the Project
Fund and thereupon all of its right, title and interest hereunder shall cease,
determine and become void and the Trustee shall execute such documents to
evidence such release as may reasonably be required.
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ARTICLE IX
CREATION OF SPECIAL FUNDS AND ACCOUNTS;
APPLICATION AND INVESTMENT OF REVENUES
SECTION 9.01. Creation of Funds and Accounts. (a) The
following funds and accounts, which shall be special funds or accounts to be
held by the Trustee, are hereby created and designated as set forth below:
(1) Bond Fund
(a) Interest Account
(b) Principal Account
(c) Redemption Account
(2) Rebate Fund
The designation of each fund set forth above shall include the
term "KeySpan Generation LLC 1999 Series A," which term shall precede the
designation as set forth above. Each such fund and account is, however,
sometimes referred to as set forth above.
(b) The funds and accounts shall be held in the custody of the
Trustee. All monies required to be deposited with or paid to the Trustee under
any provision of this Indenture shall be held by the Trustee in trust and
applied only in accordance with the provisions of this Indenture and shall be
trust funds for the purposes of this Indenture.
SECTION 9.02. Deposit of Note Payments. The Trustee shall
deposit the Note Payments or other money set forth below in the Bond Fund and
credit the Accounts set forth below in the order set forth below:
The Company shall deposit, or cause to be deposited, the
following in immediately available funds with the Trustee as the Note Payments
become due under the Participation Agreement and the Note unless sufficient
amounts are then available in such Accounts to make the required payments
therefrom:
(a) (i) During an Auction Rate Period or Auction Rate-Inverse
Rate Period, no later than 12:00 noon (New York City time) on the second
Business Day next preceding each Interest Payment Date, into the Bond Fund for
credit to the Interest Account an aggregate amount of funds available on the
next Business Day in The City of New York equal to the aggregate amount required
for the payment of the interest payable on the Outstanding Auction Rate Bonds
during an Auction Rate Period, or the Outstanding Auction Rate-Inverse Rate
Bonds during an Auction Rate-Inverse Rate Period, as the case may be, on such
Interest Payment Date. In the event such deposit is not
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made in accordance with this paragraph (i), the Trustee shall immediately send a
notice of such event to the Auction Agent and to the registered owners of the
Bonds by telex, telecopy or similar means. If such deposit is made by the
Company within 3 Business Days of the Business Day immediately preceding the
Interest Payment Date, the Trustee shall immediately send a notice of such
deposit to the Auction Agent and to the registered owners of the Bonds by telex,
telecopy or similar means.
(ii) By 12:00 noon, on the Business Day next preceding each
Interest Payment Date other than during an Auction Rate Period or an Auction
Rate-Inverse Rate Period, into the Bond Fund for credit to the Interest Account
the amount required for the payment of the interest payable on the Outstanding
Bonds on such Interest Payment Date.
At such time as the Company elects to obtain, and there is in
effect, a Credit Facility in the form of a letter of credit, and to the extent
necessary to obtain or maintain the rating or ratings on the Bonds resulting
from such Credit Facility, amounts required to be deposited in the Bond Fund for
credit to the Interest Account shall be derived solely from the following
sources of funds in the priority indicated and shall be so deposited and
credited to the Interest Account on the date indicated:
(I) On the date such monies are received, amounts, if
any, paid by the Company pursuant to Section 4.3 of the Participation
Agreement or otherwise paid to the Trustee for such purpose; provided,
that prior to withdrawal for the payment of interest, such money must
be on deposit under the Indenture for at least 124 days and that on the
date such money is to be applied to such payment, the Company must
deliver a Non-Bankruptcy Certificate to the Trustee;
(II) On each Interest Payment Date, the proceeds of a
draw, borrowing or payment under the Credit Facility; and
(III) On each Interest Payment Date, any other monies
provided by the Company for such purpose.
Such amounts shall otherwise be provided solely from the sources of funds
referred to in (III) above.
(iii) After the Fixed Rate Conversion Date, by 12:00 noon (New
York City time) on the Business Day next preceding each Interest Payment Date to
the Bond Fund for credit to the Interest Account the amount required, together
with other funds available therefor in the Interest Account, to pay the interest
payable on the Outstanding Bonds on such Interest Payment Date.
(b)(i) During an Auction Rate Period or an Auction
Rate-Inverse Rate Period, no later than 12:00 noon (New York City time) on the
second Business Day next preceding each Auction Date, into the Bond Fund for
credit to the Redemption Account an aggregate amount of funds available on the
next Business Day in The City of New York equal to the aggregate amount required
to pay the principal of and premium, if any, and accrued interest on any Auction
Rate Bonds during an Auction Rate Period, or any Auction Rate-Inverse Rate Bonds
during an Auction Rate- Inverse Rate Period, as the case may be, called for
redemption; provided, however if the scheduled date of such deposit to the
Redemption Account by the Company is not a Business Day then the date for such
deposit to the Redemption Account by the Company shall be the first Business Day
immediately preceding the scheduled date of such deposit to the Redemption
Account by the Company. In the event such deposit is not made in accordance with
this paragraph (i), the Trustee shall immediately send a notice of such event to
the Auction Agent by telex, telecopy or similar means. If such deposit is made
by the Company within 3 Business Days of the second Business Day immediately
preceding the Auction Date the Trustee shall immediately send a notice of such
deposit to the Auction Agent by telex, telecopy or similar means.
(ii) Prior to the Fixed Rate Conversion Date other than during
an Auction Rate Period or an Auction Rate-Inverse Rate Period, into the Bond
Fund for credit to the Redemption Account the amount required to pay principal
of and premium, if any, and accrued and unpaid interest on any Bonds called for
redemption.
At such time as the Company elects to obtain, and there is in
effect, a Credit Facility in the form of a letter of credit and to the extent
necessary to obtain or maintain the rating or ratings on the Bonds resulting
from such Credit Facility, amounts required to be deposited in the Bond Fund for
credit to the Redemption Account shall be derived solely from the following
sources of funds in the priority indicated and shall be so deposited and
credited in the Redemption Account on the date indicated:
(I) On the date any redemption is scheduled to occur,
Available Moneys, if any, on deposit in the Bond Fund;
(II) On the date any redemption is scheduled to
occur, the proceeds of a draw, borrowing or payment under the Credit
Facility; and
(III) On the date any redemption is scheduled to
occur, any other monies provided by the Company for such purpose.
Such amounts shall otherwise be provided solely from the sources of funds
referred to in (III) above.
(iii) After the Fixed Rate Conversion Date, on the last
Business Day prior to the day on which any redemption is to occur, into the Bond
Fund for credit to the Redemption Account the amount required, with other funds
available therefor in said Redemption Account, to pay the redemption price of
the Bonds then being redeemed.
(c) On the date such funds are received, into the Rebate
Fund, the amounts, if any, paid by the Company pursuant to
Section 7.3(H) of the Tax Regulatory Agreement in order to ensure
compliance with Section 7.4 thereof.
Each installment of Note Payments shall be increased as may be
necessary to make up any previous deficiency in any of the required payments.
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If other monies are received by the Trustee as advance
payments of Note Payments to be applied to the redemption of all or a portion of
the Bonds, such monies shall be deposited in the Bond Fund for credit to the
Redemption Account therein.
SECTION 9.03. Application of Monies in the Bond Fund. The Bond
Fund shall be used for the purpose of making scheduled payments of principal of
and premium, if any, and interest on the Bonds and of making payments of the
redemption price of Bonds then subject to redemption in the manner herein
provided. The monies in the Bond Fund shall be applied as follows:
(a) Interest Account. On or prior to the Fixed Rate
Conversion Date, on each Interest Payment Date, the Trustee shall
apply the amount of monies then credited to the Interest Account
equal to the interest then payable on the Bonds to the payment of
such interest on such Interest Payment Date from funds described
under Section 9.02(a)(ii), or, in the case of Auction Rate Bonds
during an Auction Rate Period or Auction Rate-Inverse Rate Bonds
during an Auction Rate- Inverse Rate Period, as the case may be,
from funds described under Section 9.02(a)(i). In the event a
Credit Facility in the form of a letter of credit is in place and
payments are required to be made in the order specified in
Section 9.02 (a)(ii)(I), (II) and (III) and if sufficient funds
are not available under Section 9.02(a)(ii)(I) to pay such
interest, the Trustee shall request a draw, borrowing or payment
under such Credit Facility in accordance with the terms thereof
in an amount equal to the amount required, together with the
amounts, if any, available under Section 9.02(a)(ii)(I), to pay
the interest payable on the Outstanding Bonds on such Interest
Payment Date and shall notify the Company of the amount and date
of such request. If sufficient funds are not available under
Section 9.02(a)(ii)(I) and (II) to pay such interest, the Trustee
shall apply funds, if any, available pursuant to Section
9.02(a)(ii)(III), to the extent necessary, to such payment of
interest.
(b) Principal Account. If the Fixed Rate has not been
established prior to such date, on the Stated Maturity, the Trustee shall apply
the amount of monies then credited to the Principal Account equal to the
principal amount of Bonds then payable to the payment of such principal on such
date. In the event a Credit Facility in the form of a letter of credit is in
place and payments are required to be made in the order specified in Section
9.02(b) (ii) (I), (II) and (III) and if sufficient funds are not available under
Section 9.02(b)(ii)(I) to pay such principal, the Trustee shall request a draw,
borrowing or payment under such Credit Facility in accordance with the terms
thereof in the amount required, together with the amounts, if any, available
under Section 9.02(b)(ii)(I) to pay such principal amount and shall notify the
Company of the amount and date of such request. If sufficient funds are not
available under Section 9.02(b)(ii)(I) or (II) to pay such principal, the
Trustee shall apply funds, if any, available pursuant to Section
9.02(b)(ii)(III), to the extent necessary, to such payment.
(c) Redemption Account. The Trustee shall redeem on the date
set for the redemption thereof, as provided in Article V of this Indenture, a
principal amount of Bonds then subject to redemption. The Trustee shall apply an
amount credited to the Redemption Account equal to the principal amount and
premium, if any, of Bonds then subject to redemption, together with accrued
interest thereon to the redemption date, to the payment of such Bonds on the
redemption date from funds described in Section 9.02(b).
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All monies in the Redemption Account on the last Business Day
prior to the Stated Maturity shall be transferred to the Principal Account.
On or prior to the Fixed Rate Conversion Date, in the event a
Credit Facility in the form of a letter of credit is in place and payments are
required to be made in the order specified in Section 9.02(b)(ii) (I),(II) or
(III), if sufficient amounts to make such payment are not available under
Sections 9.02(b)(ii)(I), the Trustee shall request a draw under such Credit
Facility in accordance with the terms thereof, in an amount equal to the amount
required, together with amounts, if any, available under Sections
9.02(b)(ii)(I), to pay the principal amount of Bonds then to be redeemed,
together with accrued interest thereon to the date set for redemption and shall
notify the Company of the date and amount of such request. If sufficient amounts
to make such payment are not available under Section 9.02(b)(ii)(I) or (II), the
Trustee shall apply amounts, if any, available pursuant to Section 9.02
(b)(ii)(III), to the extent necessary, to such payment. Such redemption shall be
made pursuant to the provisions of Article V.
After the Fixed Rate Conversion Date, the Trustee shall make
all such redemption payments to the Holders in accordance with the terms of this
Indenture from funds described in Section 9.02(b)(iii).
Upon the retirement of any portion of the Bonds by redemption
pursuant to the provisions of this Section 9.03, the Trustee shall file with the
Authority, the Bond Insurer and the Company a statement stating the amounts of
the Bonds so redeemed and setting forth the date of their redemption and the
amount paid as principal, premium and interest thereon. The expenses in
connection with the redemption of the Bonds shall be paid by the Company as
Additional Payments.
SECTION 9.04. Application of Monies in the Rebate Fund. 1. The
Rebate Fund and the amounts deposited therein shall not be subject to a claim
and charge in favor of the Trustee or any Bondholders and shall be applied
solely in accordance with the provisions of the Tax Regulatory Agreement and
shall not be available for the payment of Bonds within the meaning of this
Indenture. Amounts deposited in the Rebate Fund shall be applied solely to pay
amounts payable to the United States pursuant to Section 7.4 of the Tax
Regulatory Agreement in accordance with subsection (2) of this Section 9.04
except to the extent otherwise permitted by this Section 9.04.
2. In the event that on the first day of any Bond Year the
amount on deposit in the Rebate Fund exceeds the Rebate Amount (as defined in
the Tax Regulatory Agreement), the Trustee, upon the receipt of written
instructions from an Authorized Company Representative specifying the amount of
such excess, shall withdraw such excess amount and deposit it in the Bond Fund.
Pending such application, such monies may be invested at the
direction of an Authorized Company Representative in accordance with the
provisions of Section 9.05; provided that such investment will not be in
violation of the covenants made to the Authority by the Company in the Tax
Regulatory Agreement.
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SECTION 9.05. Investment of Funds. Monies in the Bond Fund and
the accounts in such Bond Fund and in the Rebate Fund shall be invested and
reinvested by the Trustee, at the direction of the Company, promptly confirmed
in writing, so long as the Company is not in default hereunder or under the
Participation Agreement, to the extent reasonable and practicable in Investment
Securities selected by the Company and maturing in the amounts and at the times
as determined by the Company so that the payments required to be made from such
funds and accounts may be made when due and subsequent to the occurrence of an
Event of Default hereunder or under the Participation Agreement, the Trustee
shall invest and reinvest monies in the Bond Fund and the Rebate Fund in
Investment Securities maturing in such amounts and at such times as the Trustee
determines so that payment required to be made from such funds may be made when
due. Investment earnings shall be considered on deposit in any Fund or Account
as of the date they are actually received by the Trustee.
Notwithstanding the foregoing, Available Moneys or moneys
provided by the State of New York in accordance with Section 5.07 hereof held by
the Trustee or the Registrar and Paying Agent, to the extent permitted to be
invested, shall be invested solely in direct obligations issued by the United
States of America maturing in such amounts and at such times as the Trustee
determines so that payments required to be made from such Available Moneys or
such moneys provided by the State of New York may be made when due.
Monies on deposit in the Project Fund and the accounts in such
Fund shall be invested and reinvested by the Trustee at the express direction of
the Company, promptly confirmed in writing, so long as the Company is not in
default under the Participation Agreement, to the extent reasonable and
practicable, in Investment Securities maturing in such amounts and at such times
as it is anticipated by the Company that such monies together with monies
advanced by the Company will be required to pay the redemption price of the
Prior Bonds.
The Company may at any time and from time to time deposit
Ineligible Moneys with the Trustee. Ineligible Moneys shall at all times be held
by the Trustee in the manner contemplated by clause (i) of the definition of the
term "Available Moneys" and Available Moneys shall at all times prior to the
application thereof in accordance with the terms hereof be held by the Trustee
in the manner contemplated by clause (i), (ii), (iii) or (iv) (as appropriate to
the source of such Available Moneys) of the definition of the term "Available
Moneys".
The Trustee, with the consent of the Company, shall be
authorized to sell any investment when necessary to make the payments to be made
from the funds and accounts therein. All earnings on and income from monies in
said funds and accounts (other than the Project Fund and the Rebate Fund)
created hereby shall be considered to be Revenues and shall be held in the
respective account in the Bond Fund for use and application as are all other
monies deposited in such accounts. The Trustee shall, in the statement required
by Section 11.07, set forth the Investment Securities held separately in, and
the earnings realized on investment for, each fund and account hereunder. The
Trustee shall not be liable for any depreciation in the value of the Investment
Securities acquired hereunder or any loss suffered in connection with any
investment of funds made
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by it in accordance herewith, including, without limitation, any loss suffered
in connection with the sale of any investment pursuant hereto.
The Trustee may make any such investments through its own
investment department upon direction of the Company.
All Investment Securities shall constitute a part of the
respective fund and accounts therein from which the investment in Investment
Securities was made.
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ARTICLE X
PARTICULAR COVENANTS OF THE AUTHORITY
SECTION 10.01. Payment of Principal of and Interest and
Redemption Premium on Bonds. The Authority will promptly pay solely from the
Note Payments and other monies held by the Trustee and available therefor, the
principal of, and the interest on, every Bond issued under and secured by the
Indenture and any premium required to be paid for the retirement of said Bonds
by redemption, at the places, on the dates and in the manner specified in this
Indenture and in said Bonds according to the true intent and meaning thereof,
subject, however, to the provisions of Section 2.02.3.
SECTION 10.02. Performance of Covenants. The Authority will
faithfully perform at all times all covenants, undertakings, stipulations and
provisions contained in this Indenture, in any and every Bond and in all
proceedings of the Authority pertaining thereto.
SECTION 10.03. Further Instruments. The Authority will from
time to time execute and deliver such further instruments and take such further
action as may be reasonable and as may be required to carry out the purpose of
this Indenture; provided, however, that no such instruments or actions shall
pledge the credit of the Authority or the State of New York or the taxing power
of the State of New York or otherwise be inconsistent with the provisions of
Section 2.02.3.
SECTION 10.04. Inspection of Project Books. All books and
documents in the possession of the Authority relating to the Bonds, this
Indenture or the Participation Agreement shall at all times be open to
inspection by the Bond Insurer and the Trustee and such accountants or other
agents as the Trustee may from time to time designate.
SECTION 10.05. No Extension of Time of Payment of Interest. In
order to prevent any accumulation of claims for interest after maturity, the
Authority will not directly or indirectly extend or assent to the extension of
the time of payment of any claims for interest on, any of the Bonds and will not
directly or indirectly be a party to or approve any such arrangement by
purchasing such claims for interest or in any other manner. In case any such
claim for interest shall be extended in violation hereof, such claim for
interest shall not be entitled, in case of any default hereunder, to the benefit
or security of this Indenture except subject to the prior payment in full of the
principal of, and premium, if any, on, all Bonds issued and outstanding
hereunder, and of all claims for interest which shall not have been so extended
or funded.
SECTION 10.06. Trustee's, Auction Agent's, Market Agent's,
Broker-Dealers', Registrar and Paying Agent's and Indexing Agent's Fees, Charges
and Expenses. Pursuant to the provisions of Section 4.2 of the Participation
Agreement, the Company has agreed to pay the fees and the expenses (including,
in the case of the Trustee, the Registrar and Paying Agent and the Market Agent,
the reasonable fees and expenses of counsel and accountants) of the Trustee, the
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Registrar and Paying Agent, Indexing Agent, and in the case of Auction Rate
Bonds during an Auction Rate Period, the Auction Agent, Market Agent, and
Broker-Dealers, in the amounts set forth more fully therein, and the Authority
shall have no liability for the payment of any fees or expenses of the Trustee,
the Registrar and Paying Agent, Indexing Agent and in the case of Auction Rate
Bonds during an Auction Rate Period, the Auction Agent, Market Agent, and
Broker-Dealers. In the case of Auction Rate Bonds and Inverse Rate Bonds during
an Auction Rate-Inverse Rate Period, the Authority shall have no liability for
the payment of fees and expenses of the Auction Agent and the Broker-Dealers
except as, and from the sources, provided in Section 3A.05 of the Indenture and
any applicable sections of the Auction Agency Agreement.
SECTION 10.07. Agreement of the State of New York. In
accordance with the provisions of subdivision 11 of Section 1860 of the Act, the
Authority, on behalf of the State of New York, does hereby pledge to and agree
with the Bondholders that the State of New York will not limit or alter the
rights and powers vested by the Act in the Authority to fulfill the terms of any
contract made with Bondholders, or in any way impair the rights and remedies of
such Bondholders, until the Bonds, together with the premium, if any, and
interest thereon, with (to the extent permitted by law) interest on any unpaid
installments of interest, and all costs and expenses in connection with any
action or proceeding by or on behalf of such Bondholders, are fully met and
discharged.
SECTION 10.08. Recording and Filing. Pursuant to the
Participation Agreement, the Company covenants that it will cause all financing
statements related to this Indenture and all supplements thereto and the
Participation Agreement and all supplements thereto, as well as such other
security agreements, financing statements and all supplements thereto and other
instruments as may be required from time to time to be kept, to be recorded and
filed in such manner and in such places as may from time to time be required by
law in order to preserve and protect fully the security of Holders and the
rights of the Trustee hereunder, and to take or cause to be taken any and all
other action necessary to perfect the security interest created by this
Indenture. The Company is obligated under Section 5.17 of the Participation
Agreement to file all such financing statements and other security agreements.
SECTION 10.09. Rights Under the Participation Agreement and
the Note. The Participation Agreement, a duly executed counterpart of which has
been filed with the Trustee, sets forth the covenants and obligations of the
Authority and the Company and reference is hereby made to the same for a
detailed statement of said covenants and obligations of the Company thereunder.
Subsequent to the issuance of Bonds and prior to their payment in full or
provision for payment thereof in accordance with the provisions hereof, neither
the Participation Agreement nor the Note may be effectively amended, changed,
modified, altered or terminated except in accordance with the provisions of
Article XIV hereof. The Authority agrees that the Trustee, in its name or in the
name of the Authority, may enforce all rights of the Authority and all
obligations of the Company under and pursuant to the Participation Agreement
(exclusive of the rights therein reserved to the Authority) and the Note for and
on behalf of the Holders and the Bond Insurer as their respective rights appear,
whether or not the Authority is in default hereunder. The Note heretofore
delivered to the Trustee evidences the obligations of the Company to make
certain specified payments under
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the Participation Agreement. Nothing herein contained shall be construed to
prevent the Authority from enforcing directly any or all of its rights to
notices, administrative compensation or indemnification under the Participation
Agreement.
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ARTICLE XI
CONCERNING THE TRUSTEE; APPOINTMENT OF
REGISTRAR AND PAYING AGENT, MARKET AGENT,
AUCTION AGENT AND INDEXING AGENT
SECTION 11.01. Appointment of Trustee. The Chase Manhattan
Bank is hereby appointed the Trustee, hereunder and by the execution of this
Indenture accepts such appointment and without further act, deed or conveyance,
shall be fully vested with all the estate, properties, rights, powers, trusts,
duties and obligations of the Trustee hereunder.
The Trustee shall set up suitable accounts for the deposit of
the Note Payments and for the payment of the Bonds and the interest thereon and
for all other payments provided or required by this Indenture, including,
without limiting the generality of any of the foregoing, setting up of the Funds
created by Articles VIII and IX.
SECTION 11.02. Indemnification of Trustee as Condition for
Remedial Action. The Trustee shall be under no obligation to institute any suit,
or to take any remedial proceeding under this Indenture, or to enter any
appearance or in any way defend in any suit in which it may be made defendant,
or to take any steps in the execution of the trusts hereby created or in the
enforcement of any rights and powers hereunder, until it shall be indemnified to
its satisfaction against any and all costs and expenses, outlays and counsel
fees and other reasonable disbursements, and against all liability; the Trustee
may, nevertheless, begin suit, or appear in and defend suit, or do anything else
in its judgment proper to be done by it as such Trustee, without indemnity, and
in such case the Trustee shall be reimbursed from the Additional Payments
required to be made pursuant to the Participation Agreement for all costs and
expenses, outlays and counsel fees and other reasonable disbursements incurred
in connection therewith. If the Company shall fail to make such reimbursement,
the Trustee may reimburse itself from any monies in its possession under the
provisions of this Indenture and shall be entitled to a preference over the
Bonds; provided, however, that the proceeds of a Support Facility shall be
applied solely as set forth elsewhere herein and in such Support Facility and
shall not be applied to the reimbursement set forth in this Section 11.02.
Notwithstanding any other provision of this Indenture or the
Bond Purchase Trust Agreement, no right of the Trustee or the Registrar and
Paying Agent to indemnification shall relieve the Trustee or the Registrar and
Paying Agent from responsibility for (a) making payments on the Bonds when due
from moneys available to it, (b) accelerating the Bonds as required pursuant to
Article XII, (c) drawing on the Liquidity Facility in accordance with the Bond
Purchase Trust Agreement, (d) making any claim under the Credit Facility or (e)
sending notices of mandatory tenders of Bonds in accordance with this Indenture.
SECTION 11.03. Trustee Not Liable for Failure of the
Authority or Company to Act. The Trustee shall not be liable or
responsible because of the failure of the Authority or the
Company
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or any of their employees or agents to make any collections or deposits or to
perform any act herein required of the Authority or the Company. The Trustee
shall not be responsible for the application of any of the proceeds of the Bonds
or any other monies deposited with it and paid out, withdrawn or transferred
hereunder if such application, payment, withdrawal or transfer shall be made in
accordance with the provisions of this Indenture. The immunities and exemptions
from liability of the Trustee hereunder shall extend to its directors, officers,
employees and agents.
SECTION 11.04. Certain Duties and Responsibilities of the
Trustee. (a) Except during the continuance of an Event of Default
specified in Section 12.01 of which the Trustee has been notified
or is deemed to have notice as provided in Section 11.08,
(1) the Trustee shall undertake to perform such duties and
only such duties as are specifically set forth in this Indenture, and
no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default specified in Section 12.01 has
occurred and is continuing of which the Trustee has been notified or is deemed
to have notice as provided in Section 11.08, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in such exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(c) None of the provisions of this Indenture shall be
construed to relieve the Trustee from liability for negligent action, negligent
failure to act, or willful misconduct, except that
(1) this subsection (c) shall not be construed to limit the
effect of subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by any one of its officers, unless it
shall be proved that the Trustee was negligent;
(3) in the absence of bad faith on its part, the Trustee shall
be protected and shall incur no liability in acting or proceeding or in
not acting or not proceeding upon any resolution, order, notice,
telegram, request, consent, waiver, certificate, statement, affidavit,
voucher requisition, bond or other paper or document which the Trustee
shall believe to be genuine and to have been adopted or signed by the
proper board or person or to have been
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prepared and furnished pursuant to any of the provisions of this
Indenture, or upon the written opinion of any attorney, engineer,
accountant or other expert believed by the Trustee to be qualified in
relation to the subject matter, and the Trustee shall be under no duty
to make any investigation or inquiry as to any statements contained or
matters referred to in any such instrument but may accept and rely upon
the same as conclusive evidence of the truth and accuracy of such
statements;
(4) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Bonds relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under the provisions of this Indenture; and
(5) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Notwithstanding anything contained elsewhere in this
Indenture, the Trustee shall have the right to reasonably require, in respect of
the payment or withdrawal of any monies or the taking of any action whatsoever
within the purview of this Indenture, any showings, certificates, opinions,
appraisals or other information, or corporate action or evidence thereof, in
addition to that required by the terms hereof as a condition of such action by
the Trustee.
(e) The Trustee may execute any of the trusts or powers hereof
and perform any of its duties by or through attorneys, agents or receivers, and
the Trustee shall not be responsible for any negligence or misconduct on the
part of any such attorney, agent or receiver appointed by it if the Trustee
shall have exercised due care and diligence in appointing or selecting such
person, and the Trustee shall be entitled to advice of counsel concerning all
matters of the trusts hereof and the duties hereunder, and may in all cases pay
such reasonable compensation to all such attorneys, agents and receivers as may
reasonably be employed in connection with the trusts hereof. The Trustee may act
upon the opinion or advice of any attorney or attorneys (who may be the attorney
or attorneys for the Authority or the Company), approved by the Trustee in the
exercise of reasonable care, and the Trustee shall not be responsible for any
loss or damage resulting from any action or nonaction in good faith in reliance
upon such opinion or advice.
(f) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon a certificate of an Authorized Company Representative or an
Authorized Officer.
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(g) The Trustee shall not be accountable for the use by the
Company of any proceeds of the Bonds authenticated or delivered
hereunder.
(h) The Trustee shall not be required to give any bonds or
surety in respect of the execution of its trusts and powers
hereunder.
SECTION 11.05. Limitations on Obligations and Responsibilities
of Trustee. The Trustee shall be under no obligation to effect or maintain
insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Company, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or which may occur, or to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made. The
Trustee, except as to the acceptance of the trusts by its execution of this
Indenture and the performance of its responsibilities hereunder, shall have no
responsibility in respect of the validity, sufficiency, due execution or
acknowledgment of this Indenture, or in respect of the validity of the Bonds or
the due execution or issuance thereof. The Trustee shall be under no obligation
to see that any duties herein or in the Participation Agreement, the Market
Agent Agreement, the Auction Agency Agreement, the Broker-Dealer Agreement or
any Support Facility imposed upon the Authority, the Company, any Support
Facility Issuer, or any party other than itself in its capacity as Trustee, or
any covenants herein contained on the part of any party other than itself in its
capacity as Trustee to be performed, shall be done or performed, and the Trustee
shall be under no obligation for failure to see that any such duties or
covenants are so done or performed.
SECTION 11.06. Compensation and Indemnification of Trustee.
The Company has agreed in the Participation Agreement (1) to pay to the Trustee
from time to time reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust); (2) except as
otherwise expressly provided herein, to reimburse the Trustee upon its request
for all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and (3) to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee acknowledges that it has no claim for compensation, reimbursement or
indemnity from the proceeds of remarketing of Bonds or from moneys drawn under
any Support Facility.
SECTION 11.07. Statements from Trustee. It shall be the duty
of the Trustee, on or about the fifteenth (15th) day of each month, and at such
other reasonable time or times as may be determined by the Authority or the
Company, to file with the Authority, upon the written request
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thereof, the Bond Insurer and the Company a statement setting forth in respect
of the preceding calendar month:
(a) the amount withdrawn or transferred by it and the amount
received by it and held on account of each Fund under the
provisions of this Indenture;
(b) the amount on deposit with it at the end of such
calendar month to the credit
of each such Fund or Account;
(c) a monthly account of reconciliation and income which includes
a brief description of all obligations held by it as an investment of
monies in each such Fund or Account;
(d) the amount applied to the redemption of the Bonds under the
provisions of Article V and Section 9.03 and the amount of the Bonds
remaining Outstanding; and
(e) any other information which the Authority, the Bond Insurer
or the Company
may reasonably request.
All records and files pertaining to the Bonds and the Company
in the custody of the Trustee shall be open at all reasonable times to the
inspection of the Authority, the Company, the Bond Insurer and their agents and
representatives.
SECTION 11.08. Notice of Default. Except upon the happening of
any Event of Default specified in clauses (a) through (d) of Section 12.01, the
Trustee shall not be obliged to take notice or be deemed to have notice of any
Event of Default hereunder, unless specifically notified in writing of such
Event of Default by any Support Facility Issuer, the Market Agent, the Auction
Agent or the Holders of not less than twenty-five percent (25%) in aggregate
principal amount of the Bonds Outstanding and such written notice shall state
that it is a "notice of default."
SECTION 11.09. Trustee May Deal in Bonds. The bank or trust
company acting as Trustee under this Indenture, and its directors, officers,
employees or agents, may in good faith buy, sell, own, hold and deal in the
Bonds issued under and secured by this Indenture, and may join in the capacity
of a Holder of a Bond in any action which any Holder of a Bond may be entitled
to take with like effect as if such bank or trust company were not the Trustee
under this Indenture.
SECTION 11.10. Trustee Not Responsible For Recitals. The
recitals, statements and representations contained herein and in the Bonds shall
be taken and construed as made by and on the part of the Authority, and not by
the Trustee, and the Trustee assumes, and shall be under, no responsibility for
the correctness of the same or for the recording or re-recording or filing or
refiling of the Indenture or any supplements thereto or any instruments of
further assurance (including financing statements) except as otherwise provided
herein. The Trustee makes no representations as to the value of any property
pledged hereunder to the payment of Bonds or as to the title of the
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Authority or the Company thereto or as to the validity, sufficiency or adequacy
of the security afforded thereby or hereby or as to the validity of this
Indenture, the Note, the Participation Agreement, any Support Facility or of the
Bonds.
SECTION 11.11. Qualification of the Trustee. There shall at
all times be a Trustee hereunder which shall be a bank and/or trust company,
having combined capital and unimpaired surplus of at least $75,000,000, duly
authorized to exercise corporate trust powers and subject to examination by
federal or state authority. The Trustee hereunder shall not be required to
maintain, and any successor Trustee shall not be required to have, an office in
the city in which the principal office of the initial Trustee hereunder is
located.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 11.11, it shall resign
immediately in the manner and with the effect specified in Section 11.12.
SECTION 11.12. Resignation and Removal of Trustee. (a) No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 11.13.
(b) The Trustee may resign at any time by giving written
notice thereof to the Authority, the Bond Insurer and the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within thirty (30) days after the giving of such notice of
resignation, the retiring Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by demand of the
Bond Insurer or the Holders of a majority in aggregate principal amount of the
Bonds then Outstanding, signed in person by such Holders or by their attorneys,
legal representatives or agents and delivered to such Trustee, the Authority,
the Bond Insurer and the Company (such demand to be effective only when received
by the Trustee, the Authority, the Bond Insurer and the Company).
(d) If at any time:
(1) the Trustee shall cease to be eligible under
Section 11.11 and shall fail to resign after written request by the
Authority, the Bond Insurer or by a Holder who shall have been a bona
fide Holder for at least six months, or
(2) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
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then, in either such case, (i) the Authority may remove, and the Company or the
Bond Insurer may request the Authority to remove, the Trustee, or (ii) any
Holder who has been a bona fide Holder for at least six months may, on behalf of
herself and all other similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Trustee
for any cause, the Authority shall promptly appoint a successor; the Company or
the issuer of any Support Facility or both of them, having the right to request
the appointment of a particular qualified institution as such successor. Within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee may be appointed by an instrument or
concurrent instruments in writing executed by the Holders of a majority in
principal amount of the Bonds then Outstanding delivered to the Authority and
the retiring Trustee, and, upon such delivery, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the
Authority.
(f) The Authority shall give notice to the Company, the Market
Agent, the Registrar and Paying Agent, the Auction Agent, any Rating Agency then
rating the Bonds, the Bondholders and the issuer of any Support Facilities of
each resignation and each removal of a Trustee and each appointment of a
successor Trustee in the manner set forth in Section 17.03 with respect to
Bondholders and Section 17.09 with respect to the Company, the Auction Agent,
the Market Agent and any Rating Agency then rating the Bonds. Each notice shall
include the name and address of the Principal Corporate Trust Office of the
successor Trustee.
(g) The Trustee at any time other than during the continuance
of an Event of Default and for any reason may be removed by an instrument in
writing, executed by an Authorized Officer of the Authority, appointing a
successor, filed with the Trustee so removed.
SECTION 11.13. Successor Trustee. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to its predecessor,
and also to the Authority and the Company, an instrument in writing accepting
such appointment hereunder, and thereupon such successor Trustee, without any
further act, shall become fully vested with all the rights, immunities, powers
and trusts and subject to all the duties and obligations, of its predecessor;
but such predecessor shall, nevertheless, on written request of its successor or
of the Authority and upon payment of expenses, charges and other disbursements
of such predecessor which are payable pursuant to the provisions of Sections
11.02 and 11.06, execute and deliver an instrument transferring to such
successor Trustee all the rights, immunities, powers and trusts of such
predecessor hereunder; and every predecessor Trustee shall deliver all property
and monies held by it hereunder to its successor, subject, nevertheless, to its
first lien and preference provided for in Sections 11.02 and 11.06. Should any
instrument in writing from the Authority be required by any successor Trustee
for more fully vesting in such Trustee the rights, immunities, powers and trusts
hereby vested or intended to be vested in the predecessor Trustee, any such
instrument in writing shall and will, on request, be executed, acknowledged and
delivered by the Authority.
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Upon the occurrence and during the continuance of a Company
Downgrade Event, the consent of the initial Bond Insurer shall be required with
respect to the appointment of a successor Trustee, which consent shall not be
unreasonably withheld.
Notwithstanding any of the foregoing provisions of this
Article, any bank or trust company having power to perform the duties and
execute the trusts of this Indenture and otherwise qualified to act as Trustee
hereunder with or into which the bank or trust company acting as Trustee may be
converted, merged or consolidated, or to which the corporate trust business
assets as a whole or substantially as a whole of such bank or trust company may
be sold, shall be deemed the successor of the Trustee.
SECTION 11.14. Appointment of Market Agent. Goldman, Sachs &
Co. is hereby appointed as the Market Agent for the Bonds to serve as such under
the terms and provisions hereof and of the Market Agent Agreement. The Market
Agent, including any successor or successors appointed pursuant hereto, shall be
a member of the National Association of Securities Dealers, Inc. having
capitalization of at least $25,000,000, and be authorized by law to perform all
the duties imposed upon it by this Indenture and the related Market Agent
Agreement. During the Auction Rate-Inverse Rate Period, any one of the Market
Agents may be removed at any time by the Trustee, acting at the direction of the
beneficial owners of at least 66-2/3% of the aggregate principal amount of the
Bonds, provided that such removal shall not take effect until the appointment of
a successor Market Agent or Agents. Any one of the Market Agents may resign upon
30 days', written notice delivered to the Company, the Authority, the Trustee
and the Registrar and Paying Agent or such lesser period of notice as may be
provided in the respective Market Agent Agreement. During the Auction
Rate-Inverse Rate Period, the Trustee shall use its best efforts to appoint a
successor Market Agent effective as of the effectiveness of any such resignation
or removal. Other than during the Auction Rate-Inverse Rate Period, any one of
the Market Agents may be removed at any time upon 30 days' written notice by the
Authority acting at the request of the Company by an instrument signed by the
Authority and filed with the Trustee, the Registrar and Paying Agent, the Market
Agent and the Company, provided, that, during an Auction Rate Period, such
removal shall not take effect until the appointment of a successor Market Agent
or Agents. Other than during the Auction Rate-Inverse Rate Period, the Authority
shall use its best efforts to appoint a successor Market Agent or Agents that is
a qualified institution, effective as of the effectiveness of any such
resignation or removal. Each successor Market Agent or Agents shall be a
qualified institution selected and appointed by the Trustee or the Company, as
the case may be, subject to approval by the Authority. The Company shall give
notice to Moody's (if the Bonds are then rated by Moody's) as provided in
Section 17.09, of the appointment of any successor Market Agent.
SECTION 11.15. Appointment of Registrar and Paying Agent. The
Chase Manhattan Bank in New York, New York is hereby appointed to serve as the
Registrar and Paying Agent hereunder. The Company shall have the right to
request the appointment of a particular qualified institution to serve as
successor thereto in the event of the removal or resignation of such Registrar
and Paying Agent.
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The Trustee hereby appoints any Registrar and Paying Agent
appointed hereunder as authenticating agent.
Upon the occurrence and continuance of a Company Downgrade
Event, the consent of the initial Bond Insurer shall be required with respect to
the appointment of a successor Registrar and Paying Agent, which consent shall
not be unreasonably withheld.
SECTION 11.16. General Provisions Regarding Registrar and Paying Agent.
(a) The Registrar and Paying Agent shall:
(i) hold all Bonds delivered to it for purchase hereunder in
trust for the benefit of the respective Bondholders which shall have so
delivered such Bonds until monies representing the purchase price of
such Bonds shall have been delivered to or for the account of or to the
order of such Holders and deliver said Bonds in accordance with the
provisions of this Indenture;
(ii) hold all monies delivered to it for the purchase of
Bonds, in trust for the benefit of the person or entity who has
delivered such monies until the Bonds purchased with such monies have
been delivered to or for the account of such person or entity as
provided in this Indenture;
(iii) maintain the books of registry and keep such books and
records as shall be consistent with prudent industry practice to among
other things, enable the Registrar and Paying Agent to ascertain the
source and date of deposit of moneys deposited in the Bond Purchase
Fund and make such books and records available for inspection by the
Trustee, the Market Agent, the Authority, the Bond Insurer and the
Company at all reasonable times; and
(iv) perform the duties and undertake the obligations provided in Sections
7.02 through 7.06;
(b) The Registrar and Paying Agent may deem and treat the Holder of any
Bonds as set forth in the books of registry hereunder as the absolute owner
thereof;
(c) The Registrar and Paying Agent may in good faith hold any
other form of indebtedness issued by the Authority or any security issued by the
Company, or any affiliate of the Company; own, accept or negotiate any drafts,
bills of exchange, acceptances or obligations thereof; and make disbursements
therefor and enter into any commercial or business arrangement therewith; all
without any liability on the part of such Registrar and Paying Agent for any
real or apparent conflict of interest by reason of any such actions; and
(d) The Registrar and Paying Agent agrees to cooperate with the Trustee and
the Company in preparing and conveying information necessary in order to allow
the Registrar and
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Paying Agent to draw under any Support Facility. To the extent that any other
certificate to be submitted by the Trustee to a Support Facility Issuer in
connection with a drawing under the Support Facility requires the Trustee to
state that the Registrar and Paying Agent has certified certain information to
the Trustee, the Registrar and Paying Agent agrees to provide such certification
to the Trustee to the extent such information is known to it.
SECTION 11.17. Payment of Registrar and Paying Agent;
Indemnification. The Authority will cause the Company to agree in the
Participation Agreement to pay all reasonable fees, charges and expenses of the
Registrar and Paying Agent for acting under and pursuant to this Indenture. In
addition, the Authority will cause the Company to agree in the Participation
Agreement to indemnify the Registrar and Paying Agent and its directors,
officers and employees against and save them harmless from any and all losses,
costs, charges, expenses, judgments and liabilities incurred while carrying out
the transactions contemplated by this Indenture, except that said indemnity does
not apply to the extent that they are caused by the negligent action, negligent
failure to act or willful misconduct of the Registrar and Paying Agent or its
directors, officers, employees or agents.
SECTION 11.18. Registrar and Paying Agent's Performance; Duty
of Care. The duties and obligations of the Registrar and Paying Agent shall be
determined solely by the provisions of this Indenture and the Bond Purchase
Trust Agreement. None of the provisions of this Indenture or the Bond Purchase
Trust Agreement shall be construed to relieve the Registrar and Paying Agent
from liability for negligent action, negligent failure to act or willful
misconduct, except that (a) the Registrar and Paying Agent shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Indenture, and, in the absence of bad faith on the part of the
Registrar and Paying Agent, the Registrar and Paying Agent may conclusively
rely, as to the truth of the statements expressed therein, upon any document
furnished to the Registrar and Paying Agent and conforming to the requirements
of this Indenture and the Registrar and Paying Agent may rely and shall be
protected in acting upon any document believed by it to be genuine and to have
been signed or presented by the proper party or parties, provided that, in the
case of any such document which by any provision of this Indenture is
specifically required to be furnished to the Registrar and Paying Agent, the
Registrar and Paying Agent shall be under a duty to examine the same to
determine whether or not it conforms to the requirements of this Indenture, and
(b) no provisions of this Indenture shall require the Registrar and Paying Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder. The Registrar and Paying Agent
may act upon the opinion or advice of any attorney or attorneys (who may be the
attorney or attorneys for the Authority or the Company), approved by the Trustee
in the exercise of reasonable care, and the Trustee shall not be responsible for
any loss or damage resulting from any action or nonaction in good faith in
reliance upon such opinion or advice.
Notwithstanding any other provision of this Indenture or the
Bond Purchase Trust Agreement, no right of the Trustee or the Registrar and
Paying Agent to indemnification shall relieve the Trustee or the Registrar and
Paying Agent from responsibility for (a) making payments on the Bonds when due
from moneys available to it, (b) accelerating the Bonds as required pursuant to
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Article XII, (c) drawing on the Liquidity Facility in accordance with the Bond
Purchase Trust Agreement, (d) making any claim under the Credit Facility or (e)
sending notices of mandatory tenders of Bonds in accordance with this Indenture.
SECTION 11.19. Qualifications of Registrar and Paying Agent.
The Registrar and Paying Agent, including any successor appointed pursuant to
this Indenture, shall be a corporation constituting a bank with trust powers or
a trust company duly organized under the laws of the United States of America or
any state or territory thereof, having a combined capital and unimpaired surplus
of at least $50,000,000 and authorized by law to perform all the duties imposed
upon it by this Indenture. Unless the Bonds bear an Auction Rate during an
Auction Rate Period, an Auction Rate or a related Inverse Rate during an Auction
Rate-Inverse Rate Period or a Fixed Rate, the Registrar and Paying Agent shall
have an office or agency in New York, New York capable of performing its
obligations hereunder.
SECTION 11.20. Resignation or Removal of Registrar and Paying
Agent and Successor to Registrar and Paying Agent; Termination of Registrar and
Paying Agent's Obligations. The Registrar and Paying Agent may at any time
resign and be discharged of the duties and obligations created hereunder and
under the Bond Purchase Trust Agreement by giving at least sixty days' notice to
the Authority, the Company, the Trustee, issuers of any Support Facilities and
the Market Agent. The Registrar and Paying Agent may be removed at any time upon
and pursuant to the request of the Company by an instrument, signed by the
Authority and filed with the Trustee and the Company, provided that such removal
shall not take effect until the appointment of a successor Registrar and Paying
Agent. The Authority at the request of the Company shall appoint a successor
Registrar and Paying Agent effective as of the effectiveness of any such
resignation or removal. Each successor Registrar and Paying Agent shall be a
qualified institution selected by the Company with, so long as any Support
Facilities are in effect, the consent of the issuer of the Support Facilities
which consent shall not be unreasonably withheld, and approved and appointed by
the Authority. Such successor Registrar and Paying Agent, once approved and
appointed by the Authority, shall assume the responsibilities and duties
relating to the Liquidity Facility as set forth in the Bond Purchase Trust
Agreement and the Indenture. The Company shall give notice to any Rating Agency,
if the Bonds are then rated by any Rating Agency then rating the Bonds, as
provided in Section 17.09, of the appointment of any successor Registrar and
Paying Agent.
In the event of the resignation or removal of the Registrar
and Paying Agent, the Registrar and Paying Agent shall pay over and deliver any
monies and Bonds held by it in such capacity to its successor or, if there is no
successor, to the Trustee. In the event that there is no successor to the
Registrar and Paying Agent on the effective date of its resignation, the entity
acting as Trustee shall perform the functions of the Registrar and Paying Agent;
provided that monies held by the Trustee pursuant to this paragraph shall not be
deemed to be held by the Trustee in its capacity as Trustee.
SECTION 11.21. Appointment of Auction Agent; Qualifications of Auction
Agent, Resignation; Removal. (1) The Chase Manhattan Bank is hereby appointed as
the Auction Agent
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for the initial Auction Rate Period. Prior to any Change in the Interest Rate
Mode to an Auction Rate Period or to an Auction Rate-Inverse Rate Period, the
Company, with the approval of the Authority, shall appoint the Auction Agent for
the Bonds. The Auction Agent shall be (a) a bank or trust company duly organized
under the laws of the United States of America or any state or territory thereof
having its principal place of business in the Borough of Manhattan, in The City
of New York and having a combined capital stock, surplus and undivided profits
of at least $15,000,000 or (b) a member of the National Association of
Securities Dealers, Inc., having a capitalization of at least $15,000,000 and,
in either case, authorized by law to perform all the duties imposed upon it
under the Auction Agency Agreement. The Auction Agent may at any time resign and
be discharged of the duties and obligations created by this Indenture by giving
at least 90 days' notice to the Trustee, the Company, the Authority, and in the
case the Auction Agent is also serving as Trustee, to the Market Agent. During
an Auction Rate-Inverse Rate Period, the Auction Agent may be removed at any
time by an instrument signed by the Trustee acting at the direction of the
holders of at least 66-2/3% of the aggregate principal amount of the Bonds then
Outstanding and filed with the Auction Agent, the Market Agent, the Company, the
Authority and the Registrar and Paying Agent upon at least 90 days' notice;
provided that, the Trustee shall have entered into an agreement in substantially
the form of the Auction Agency Agreement with a successor Auction Agent. During
the Auction Rate Period, the Auction Agent may be removed at any time by the
Authority acting at the request of the Company by an instrument signed by the
Authority and filed with the Company, the Auction Agent, the Market Agent and
the Registrar and Paying Agent upon at least 90 days' notice; provided that if
required by the Market Agent, an agreement in substantially the form of the
Auction Agency Agreement shall be entered into with a successor Auction Agent.
Upon the occurrence and during the continuance of a Company Downgrade Event, the
Bond Insurer shall have the right to consent to the appointment of any successor
Auction Agent, which consent shall not be unreasonably withheld.
(2) With respect to Auction Rate Bonds and Inverse Rate Bonds
during an Auction Rate-Inverse Rate Period in the event that the Auction Agent
and the Trustee (or, if the Trustee is also serving as Auction Agent, the Market
Agent) agree to a change in the Auction Agent Fee Rate pursuant to the Auction
Agency Agreement (or Section 4 of the Market Agent Agreement, as the case may
be), the Auction Agent shall give a Notice of Fee Rate Change to the Existing
Holders in accordance with the Auction Agency Agreement and the Trustee shall
mail a Notice of Fee Rate Change to all Bondholders within two Business Days of
such change.
SECTION 11.22. Appointment of Broker-Dealers. (1) Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are hereby
appointed as the initial Broker- Dealers. The Company may select, with the
approval of the initial lead Broker-Dealer or any successor, from time to time
one or more additional persons to serve as Broker-Dealers under the
Broker-Dealer Agreements. Upon the occurrence and during the continuance of a
Company Downgrade Event, the Bond Insurer shall have the right to consent to the
appointment of any Broker-Dealer, which consent shall not be unreasonably
withheld.
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(2) Prior to any Change in the Rate Period to an Auction Rate
Period or to an Auction Rate-Inverse Rate Period, the Company with the approval
of the Authority shall appoint an initial Broker-Dealer and any additional
initial Broker-Dealers. Thereafter, the Company may select, with the approval of
the initial lead Broker-Dealer or any successor, from time to time one or more
additional persons to serve as Broker-Dealers under Broker-Dealer Agreements.
Upon the occurrence and during the continuance of a Company Downgrade Event, the
Bond Insurer shall have the right to consent to the appointment of any
Broker-Dealer, which consent shall not be unreasonably withheld.
(3) In the event that the Trustee determines to change the
Broker-Dealer Fee Rate established pursuant to the Auction Agency Agreement, the
Auction Agent shall give a Notice of Fee Rate Change to the Existing Holders in
accordance with the Auction Agency Agreement and the Trustee shall mail a Notice
of Fee Rate Change to the registered owners of Auction Rate Bonds and Inverse
Rate Bonds during an Auction Rate-Inverse Rate Period within two Business Days
of such change. Upon the occurrence and during the continuance of a Company
Downgrade Event, the Bond Insurer shall have the right to consent to any
increase of the Broker-Dealer Fee Rate, which consent shall not be unreasonably
withheld.
SECTION 11.23. Appointment of Additional Paying Agents; Each
Paying Agent to Hold Money in Trust. The Authority may, at the request of the
Company appoint an additional Paying Agent or Paying Agents for the Bonds. Each
such Paying Agent shall hold in trust subject to the provisions of the Indenture
for the benefit of the Holders all sums held by such Paying Agent for the
payment of the principal of and interest on the Bonds. Any such Paying Agent may
be any person or corporation authorized to perform such functions, including to
the extent permitted by law, the Company.
SECTION 11.24. Appointment and Duties of Indexing Agents. The
Authority shall, with the approval of the Company, appoint an Indexing Agent,
subject to the conditions set forth in this Section. There may be separate
Indexing Agents for the purpose of calculating each of the interest indices set
forth in Section 1.01. The Indexing Agent shall designate to the Trustee its
principal office and signify its acceptance of the duties and obligations
imposed upon it hereunder by a written instrument of acceptance delivered to the
Authority, the Trustee, the Company, the Bond Insurer and the Market Agent under
which the Indexing Agent will agree, particularly:
(a) to compute the Daily Rate Index, the Commercial Paper Rate
Index, the Weekly Rate Index, the Monthly Rate Index, the Semi-Annual
Rate Index, the Term Rate Index or the Fixed Rate Index, as the case
may be, pursuant to and in accordance with Section 3.01, and to give
notice to the Trustee, the Market Agent and the Company of such Index
on the date of the computation thereof in accordance with Section 3.01;
and
(b) to keep such books and records as shall be consistent with
prudent industry practice and to make such books and records available
for inspection by the Authority, the Trustee, the Market Agent, the
Bond Insurer and the Company at all reasonable times.
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<PAGE>
The Indexing Agent will perform the duties provided for in
Section 3.01. Whenever the Indexing Agent makes a computation under that
Section, it will promptly notify the Trustee, the Authority, the Market Agent
(and during any Auction Rate Period or Auction Rate-Inverse Rate Period, the
Auction Agent), and the Company of the results and date of computation. The
Indexing Agent will keep adequate records pertaining to the performance of its
duties and allow the Trustee, the Authority, the Market Agent, the Bond Insurer
and the Company (and, if appropriate, the Auction Agent) to inspect the records
at reasonable times.
SECTION 11.25. Qualifications of Indexing Agents. Each
Indexing Agent shall be a commercial bank, a member of the National Association
of Securities Dealers, Inc. or a nationally recognized municipal securities
evaluation service authorized by law to perform all the duties imposed upon it
by the Indenture. Any Indexing Agent may at any time resign and be discharged of
the duties and obligations created by the Indenture by giving at least sixty
(60) days' notice to the Authority, the Company, the Market Agent, the Bond
Insurer and the Trustee. The Indexing Agent may be removed at any time, at the
written direction of the Company, by an instrument, signed by the Authority,
filed with the Company, the Indexing Agent, the Market Agent, the Trustee and
the issuer of a Support Facility, if any. Upon the occurrence and during the
continuance of a Company Downgrade Event, the Bond Insurer shall have the right
to direct the Company to direct the Authority to remove the Indexing Agent as
provided in this paragraph by delivery of an instrument in writing to the
Company.
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ARTICLE XII
EVENTS OF DEFAULT; REMEDIES UPON
OCCURRENCE THEREOF
SECTION 12.01. Events of Default. Each of the following is hereby defined
as and declared to be and shall constitute an "Event of Default":
(a) Payment of the principal of and premium, if any, on any
Bond (whether by maturity, proceedings for redemption, purchase in accordance
with Article V hereof or the Market Agent Agreement, or otherwise) shall not be
made when the same shall become due and payable and with respect to any payment
of principal of, premium or accrued interest payable on Bonds called for
redemption, such non-payment shall continue for three (3) Business Days;
provided that in the case of any payment of principal or accrued interest
payable on Bonds called for redemption upon Determination of Taxability pursuant
to Section 5.06.1 an Event of Default shall occur if such nonpayment shall
continue for one (1) Business Day; or
(b) Payment of any installment of interest on any Bond shall
not be made when the same shall become due and payable and such nonpayment shall
continue for three (3) Business Days; or
(c) The Trustee shall receive written notice from the Bond
Insurer of the occurrence of an event of default under the Insurance Agreement
directing that the Trustee declare an Event of Default; or
(d) Receipt by the Trustee of written notice from the
financial institution providing any Credit Facility (other than a municipal bond
insurance policy) following a draw on or borrowing or payment under such Credit
Facility for the payment of interest on the Bonds that the amount so drawn has
not been reimbursed to the financial institution providing such Credit Facility
within the period specified in the agreement providing for the issuance of the
Credit Facility, together with interest thereon, if any, owing pursuant to the
agreement providing for the issuance of such Credit Facility; or
(e) The Authority shall fail in the due and punctual
performance of any of the covenants, conditions, agreements, provisions or
obligations, other than as set forth in (a) and (b) above, contained in the
Bonds or in this Indenture or in any Supplemental Indenture on the part of the
Authority to be performed, and such failure shall continue for ninety (90) days
after written notice specifying such failure and requiring the same to be
remedied shall have been given to the Authority, the Company, the Bond Insurer,
the Governor, the Comptroller and the Attorney General of the State of New York,
by the Trustee or to the Trustee, the Authority, the Bond Insurer, and the
Company by the Holders of not less than twenty-five percent (25%) in aggregate
principal amount of the Bonds then Outstanding as provided for in Section 13.03;
provided that if any such failure
XII-1
<PAGE>
shall be such that it cannot be cured or corrected within such ninety (90) day
period, it shall not constitute an Event of Default hereunder if curative or
corrective action is instituted within such period and diligently pursued until
the failure of performance is cured or corrected; or
(f) The occurrence of an event of default as defined in Section 7.1 of the
Participation Agreement.
SECTION 12.02. Notice to Holders and Others Upon Occurrence of
an Event of Default or a Failure to Deposit. 1. The Trustee shall give notice to
the Bondholders of all Events of Default within sixty (60) days after the
Trustee has been notified thereof or is deemed to have notice thereof as
provided in Section 11.08, unless the Event of Default shall have been cured
before the giving of such notice or unless the Trustee shall deem it in the best
interest of the Holders to defer or withhold notice under this Section;
provided, however, that if a notice of an Event of Default is given to any
Bondholder, the Trustee shall concurrently therewith cause a copy to be provided
to all Bondholders. The Trustee shall immediately give notice to the Bond
Insurer of the occurrence of any Event of Default of which it has notice.
2. So long as ownership of the Auction Rate Bonds during an
Auction Rate Period or the Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period is maintained in book-entry form by the Securities
Depository, upon the occurrence of a Payment Default, the Trustee shall
immediately send a notice thereof in substantially the form of Exhibit I to the
Auction Agent and to the registered holders of the Bonds by telecopy or similar
means.
3. So long as the ownership of the Auction Rate Bonds during
an Auction Rate Period or the Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period is maintained in book-entry form by the Securities
Depository, the Trustee shall immediately send a notice in substantially the
form of Exhibit M to the Auction Agent and to the registered holders of the
Bonds by telecopy or similar means if a Payment Default has been cured.
4. Upon the occurrence of a Failure to Deposit, or in the
event such failure to deposit is cured, the Trustee shall give the Auction Agent
the notices referred to in Section 9.02(a)(i) or (b)(i), as the case may be.
SECTION 12.03. Declaration of Principal and Interest As Due.
Upon the occurrence and continuation of any Event of Default of which the
Trustee has been notified or is deemed to have notice as provided in Section
11.08, then and in every case the Trustee by a notice in writing to the
Authority, the Company and (to addresses then specified by the Authority) the
Governor, the Comptroller and the Attorney General of the State of New York may,
with the written consent of the Bond Insurer, and upon the written request or
direction of the Bond Insurer or upon the written request or direction of the
Holders of not less then twenty-five percent (25%) in principal amount of the
Bonds then Outstanding (determined in accordance with the provisions of Section
13.03) and the written consent of the Bond Insurer shall, declare the principal
of and accrued interest on all the Bonds then Outstanding (if not then due and
payable) to be due and payable immediately, and upon
XII-2
<PAGE>
such declaration the same shall become due and be immediately due and payable,
anything contained in the Bonds or in this Indenture to the contrary
notwithstanding. If, however, at any time after the principal of the Bonds shall
have been so declared to be due and payable, and before the entry of final
judgment or decree in any suit, action or proceeding instituted on account of
such Event of Default, or before the completion of the enforcement of any other
remedy under this Indenture, monies shall have accumulated in the Bond Fund
sufficient to pay the principal of and any premium (or redemption price) on all
Bonds (or portions of the principal amount thereof) then or theretofore required
to be redeemed pursuant to any provisions of this Indenture (excluding principal
not then due except by reason of the aforesaid declaration) and all arrears of
interest and interest then due, if any, upon Bonds then Outstanding and if the
fees, compensation, expenses, disbursements, advances and liabilities of the
Trustee and all other amounts then payable by the Company under the
Participation Agreement, the Note and the Insurance Agreement shall have been
paid or a sum sufficient to pay the same shall have been deposited with the
Trustee, and every other Event of Default known to the Trustee in the observance
or performance of any covenant, condition or agreement contained in the Bonds or
in this Indenture (other than default in the payment of the principal of such
Bonds then due only because of a declaration under this Section) shall have been
remedied to the satisfaction of the Trustee and the Bond Insurer or, the Company
shall be taking, or shall be causing to be taken, appropriate action in good
faith to effect its cure, then and in every such case the Trustee may, with the
written consent of the Bond Insurer and upon the written request or direction of
the Bond Insurer or upon the written request or direction of the Holders of not
less than a majority in aggregate principal amount of the Bonds then Outstanding
(determined in accordance with the provisions of Section 13.03) and the written
consent of the Bond Insurer shall, by written notice to the Authority, rescind
and annul such declaration and its consequences; provided, however, that
notwithstanding any such rescission and annulment during an Auction Rate Period
the Bonds shall continue to bear interest at the Maximum Auction Rate and during
an Auction Rate-Inverse Rate Period, the Bonds shall continue to bear interest
at the Overdue Rate for the applicable period of time determined pursuant to
Article IIIA. No such rescission or annulment pursuant to the next preceding
sentence shall extend to or affect any subsequent default or impair any right
consequent thereto.
SECTION 12.04. Action by Trustee Upon Occurrence of Event of
Default. Upon the occurrence and continuation of an Event of Default the Trustee
(i) for and on behalf of the Holders of the Bonds and the Bond Insurer, shall
have the same rights hereunder which are possessed by any Holders of the Bonds;
(ii) shall be authorized to proceed, in its own name and as trustee of an
express trust; (iii) may pursue any available remedy by action at law or suit in
equity to enforce the payment of the principal of and interest and premium, if
any, on the Bonds; (iv) may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of such
Trustee and of the Bondholders and of the Bond Insurer allowed in any judicial
proceedings relative to the Company, its creditors, its property or the Bonds;
and (v) may with the written consent of the Bond Insurer, and upon the written
request or direction of the Holders of not less than twenty-five percent (25%)
in principal amount of the Bonds then Outstanding (determined in accordance with
the provisions of Section 13.03) and with the written consent of the Bond
Insurer, shall proceed to protect and enforce all rights of the Holders, the
Bond Insurer and the Trustee under
XII-3
<PAGE>
and as permitted by this Indenture and the laws of the State of New York, by
such means or appropriate judicial proceedings as shall be suitable or deemed by
it most effective in the premises, including the appointment of temporary
trustees and any actions, suits or special proceedings at law or in equity or in
bankruptcy or by proceedings in the office of any board or officer having
jurisdiction, or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture, or in aid of execution of any power
granted in this Indenture or to enforce any other legal or equitable right or
remedy vested in the Holders of the Bonds and the Bond Insurer or the Trustee by
this Indenture or by such laws, or for the appointment of a receiver. All rights
of action (including the right to file proofs of claim) under this Indenture or
under any of the Bonds may be enforced by the Trustee without the possession of
any of the Bonds or the of the Bond Insurer production thereof in any trial or
other proceedings relating thereto. Any such suit or proceeding instituted by
the Trustee shall be brought in its name and as trustee of an express trust
without the necessity of joining as plaintiffs or defendants any Holders of the
Bonds or the Bond Insurer, and any recovery or judgment shall be for the equal
benefit of the Holders of the Outstanding Bonds and the Bond Insurer as their
respective interests appear.
In the enforcement of any remedy under this Indenture the
Trustee shall be entitled to sue for, enforce payment of and receive any and all
amounts, then or during any Event of Default becoming, and at any time
remaining, due from the Company and unpaid under the Participation Agreement and
the Note for principal, premium, interest or otherwise under any of the
provisions of this Indenture or of the Bonds, with interest on overdue payments
if such interest then is permitted by the laws of the State of New York,
together with any and all costs and expenses of collection and of all
proceedings hereunder and under such Bonds, without prejudice to any other right
or remedy of the Trustee, of the Bond Insurer or of the Holders, and to recover
and enforce judgment or decree against the Company which is in default of its
respective obligations under the Participation Agreement and the Note, but
solely as provided herein and in such Bonds, for any portion of such amounts
remaining unpaid, with interest, costs and expenses, and to collect in any
manner provided by law, the monies adjudged or decreed to be payable. Any such
judgment shall be recovered by the Trustee, in its own name and as trustee of an
express trust.
SECTION 12.05. Powers of Trustee With Respect to Participation
Agreement and Other Agreements. If the payments required to be paid to the
Trustee under the Participation Agreement and the Note or other agreement
pledged and assigned hereunder, as the case may be, are not paid when due or
upon the happening and continuance of an Event of Default set forth in clause
(a) or (b) of Section 12.01, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of all payments due and
unpaid under the Participation Agreement and the Note or other agreement, as the
case may be, and required to be paid to the Trustee and may prosecute any such
action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Company or the obligor under any other
agreement, as the case may be, and collect in the manner provided by law out of
the property of the Company or such obligor wherever situated, the monies
adjudged or decreed to be payable.
XII-4
<PAGE>
In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company under the Participation Agreement or an
obligor under any other agreement pledged and assigned hereunder, as the case
may be, under the Federal Bankruptcy Act or any other applicable law, or in case
a receiver or trustee shall have been appointed for the property of the Company
under the Participation Agreement and the Note or an obligor under any other
agreement pledged and assigned hereunder, as the case may be, the Trustee,
regardless of whether the principal of the Bonds shall then be due and payable
as therein expressed or by declaration or otherwise and regardless of whether
the Trustee shall have made any demand pursuant to the power vested in it by
this Indenture, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid under the Participation Agreement and the Note by the
Company or under such other agreement by such obligor, as the case may be, and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for reasonable
compensation to the Trustee, its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Trustee except as a result of its negligence, wilful misconduct or bad
faith) and of the Holders allowed in any such judicial proceedings relative to
the Company or other obligor, as the case may be, or to the creditors or
property of the Company or other obligor, as the case may be, and to collect and
receive any monies or other property payable or deliverable on such claims, and
to distribute in accordance with the provisions hereof all amounts received with
respect to the claims of the Holders and of the Trustee on their behalf, and any
receiver, assignee or trustee in bankruptcy or reorganization is hereby
authorized to make such payments to the Trustee.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of the Bond
Insurer or any Holders any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds or the rights of the Bond Insurer or any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of the Bond
Insurer or any Holders in any such proceeding.
The provisions of this Section shall not be construed as in
any way limiting the powers of the Trustee, with respect to defaults by the
Authority or by the Company under the Participation Agreement and the Note, or
an obligor under any other agreement pledged and assigned hereunder, as the case
may be, whether such powers be expressly or implicitly granted to the Trustee
elsewhere in this Indenture or in the Participation Agreement or the Note or
other agreement, as the case may be, or as a denial that the Trustee has any
such other powers, but the powers granted to the Trustee by this Section shall
be supplemental, additional and cumulative to all other powers possessed by the
Trustee with respect to defaults under this Indenture or under the Participation
Agreement, the Note or other agreement pledged and assigned hereunder, as the
case may be.
SECTION 12.06. Disposition of Monies in Event of
Insufficiencies in Funds and Accounts. All monies (other than proceeds of any
Credit Facility and amounts held in or payable to the Rebate Fund) received by
the Trustee pursuant to any right given or action taken under the provisions of
this Article, after payment of the costs and expenses of the proceedings
resulting in the collection of such monies and of the expenses, fees and
advances incurred or made by the Trustee
XII-5
<PAGE>
hereunder, shall be deposited in the Bond Fund. If at any time the monies in the
Bond Fund shall not be sufficient to pay the interest or principal or premium,
if any (or the redemption price), of the Bonds as the same become due and
payable (whether at maturity or upon proceedings for the redemption thereof or
by acceleration or otherwise), the monies in such fund, together with any other
monies then available or thereafter becoming available for such purpose, whether
through the exercise of the remedies provided for in this Article XII or
otherwise, shall be applied as follows:
(a) Unless the principal of all the Bonds shall have become
due and payable or shall have been declared due and payable pursuant to the
provisions of Section 12.03, all such monies shall be applied:
First: to the payment to the persons entitled thereto of all
installments of interest then due, in the order of the maturity of the
installments of such interest, and if the amount available shall not be
sufficient to pay in full any particular installment, then to the
payment ratably, according to the amounts due on such installment, to
the persons entitled thereto, without any discrimination or preference;
and
Second: to the payment of the interest and premium, if any, on and the
principal of the Bonds, to the purchase and retirement of Bonds and to the
redemption of Bonds, all in accordance with the provisions of this Indenture.
(b) If the principal of all the Bonds shall have become due
and payable or shall have been declared due and payable pursuant to the
provisions of Section 12.03, all such monies shall be applied ratably to the
payment of the principal and interest then due and unpaid, with interest on such
principal as aforesaid, without preference or priority of principal over
interest or of interest over principal, or of any installment of interest over
any other installment of interest, or of any Bond over any other Bond, according
to the amounts due respectively for principal and interest, to the persons
entitled thereto without any discrimination or preference except as to any
difference in the respective rates of interest specified in the Bonds.
(c) If the principal of all the Bonds shall have been declared
due and payable pursuant to the provisions of Section 12.03, and if such
declaration shall thereafter have been rescinded and annulled pursuant to the
provisions of such Section 12.03, then, subject to the provisions of
subparagraph (b) above of this paragraph in the event that the principal of all
the Bonds shall later become due and payable or be declared due and payable
pursuant to the provisions of Section 12.03, the monies then held in the Bond
Fund shall be applied to the payment of the principal of and premium (or
redemption price) on all matured Bonds and all Bonds (or portions of the
principal amount thereof) then or theretofore required to be redeemed pursuant
to any provisions of this Indenture (excluding principal not then due except by
reason of such declaration) and all arrears of interest and interest then due,
if any, upon all Bonds then Outstanding, and any monies thereafter deposited in
the Bond Fund shall be applied in accordance with the provisions of Article IX.
XII-6
<PAGE>
Whenever monies are to be applied by the Trustee pursuant to
the provisions of subparagraphs (a) and (b) of this Section, (i) such monies
shall be applied by the Trustee at such times, and from time to time, as the
Trustee in its sole discretion shall determine, having due regard to the amount
of such monies available for application and the likelihood of additional monies
becoming available for such application in the future; (ii) the deposit of such
monies, in trust for the proper purpose, shall constitute proper application by
the Trustee; and (iii) the Trustee shall incur no liability whatsoever to the
Authority, to any Holder or to any other person for any delay in applying any
such monies, so long as the Trustee acts with reasonable diligence, having due
regard to the circumstances, and ultimately applies the same in accordance with
such provisions of this Indenture as may be applicable at the time of
application by the Trustee. Whenever the Trustee shall exercise such discretion
in applying such monies, it shall fix the date (which shall be an Interest
Payment Date unless the Trustee shall deem another date more suitable) upon
which such application is to be made and upon such date interest on the amounts
of principal to be paid on such date shall cease to accrue. The Trustee shall
give such notice as it may deem appropriate of the fixing of any such date, and
shall not be required to make payment to the Holder of any unpaid Bond until
such Bond shall be surrendered to the Trustee for appropriate endorsement, or
for cancellation if fully paid.
SECTION 12.07. Effect of Delay or Omission; Waiver of Default;
Direction of Remedial Proceedings by the Holders. No delay or omission of the
Trustee, the Bond Insurer or of any Holder of the Bonds to exercise any right or
power accruing upon any default or Event of Default shall impair any such right
or power or shall be construed to be a waiver of any such default or
acquiescence therein.
Anything in this Indenture to the contrary notwithstanding,
the Bond Insurer or the Holders of not less than a majority in principal amount
of the Bonds at the time Outstanding (determined in accordance with the
provisions of Section 13.03), with the prior consent of the Bond Insurer shall
be authorized and empowered and have the right, by an instrument or concurrent
instruments in writing delivered to the Trustee on behalf of the Bond Insurer or
the Holders of the Bonds then Outstanding and the Bond Insurer to consent to the
waiver of any Event of Default or its consequences, and the Trustee shall waive
any Event of Default and its consequences upon the written request of the Bond
Insurer or the Holders of such majority with the prior consent of the Bond
Insurer; provided, however, that there shall not be waived (i) any default in
payment of principal or premium when due or (ii) any default in payment when due
of interest unless, in either case, prior to such waiver all arrears in
principal, premium, if any, and interest, with additional interest, to the
extent permitted by law, at the rate then borne by the Bonds (which, in the case
of Auction Rate Bonds during an Auction Rate Period shall be the Maximum Auction
Rate and in the case of Auction Rate-Inverse Rate Bonds during an Auction
Rate-Inverse Rate Period shall be the Overdue Rate), and all fees and expenses
of the Trustee shall have been paid or provided for; provided, however, that
notwithstanding any such waiver, any Auction Rate Bonds during an Auction Rate
Period shall continue to bear interest at the Maximum Auction Rate and any
Auction Rate-Inverse Rate Bonds during an Auction Rate-Inverse Rate Period shall
continue to bear interest at the Overdue Rate until cured or waived. No such
waiver shall extend to or affect any other
XII-7
<PAGE>
existing or subsequent default or Event of Default or impair any rights or
remedies consequent thereon.
Anything in this Indenture to the contrary notwithstanding,
the Bond Insurer or the Holders of not less than twenty-five percent (25%) in
aggregate principal amount of the Bonds at the time Outstanding (determined in
accordance with the provisions of Section 13.03) with the prior consent of the
Bond Insurer, shall be authorized and empowered and have the right, by an
instrument or concurrent instruments in writing delivered to the Trustee to
direct the time and method of conducting any proceeding for any remedy to be
taken by the Trustee or available to the Trustee or available to the Bond
Insurer or the Holders of the Bonds, or exercising any trust or power conferred
upon the Trustee hereunder provided: (1) such direction shall not be in conflict
with any rule of law or with this Indenture or expose the Trustee to personal
liability, or be unduly prejudicial to Holders not joining therein, and (2) the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 12.08. Suits or Actions by Holders; Any Holder May
Enforce Overdue Payment of His Bond or Interest Thereon. Neither the Bond
Insurer nor the Holder of any of the Bonds shall have any right to institute any
suit, action or proceeding in equity or at law for the execution of any trust
hereunder or for any other remedy hereunder unless there shall have occurred an
Event of Default of which the Trustee has been notified or is deemed to have
notice as provided in Section 11.08, and the Bond Insurer or such Holder
previously shall have given to the Trustee written notice of the Event of
Default on account of which such suit, action or proceeding is to be instituted,
and unless also the Holders of not less than twenty-five percent (25%) in
principal amount of the Bonds then Outstanding shall have made written request
of the Trustee after the right to exercise such powers or right of action, as
the case may be, shall have accrued, shall have obtained the prior written
consent of the Bond Insurer to the institution of any such suit, action or
proceeding in equity or at law, and shall have afforded the Trustee a period of
60 days either to proceed to exercise the powers hereinabove granted or to
institute such action, suit or proceeding in its or their name, the Trustee
shall have been indemnified by Holders against the costs, expenses and
liabilities to be incurred in compliance with such request, and shall not have
received an inconsistent direction from the Holders of not less than twenty-five
percent (25%) in principal amount of the Bonds and the Trustee shall have
refused or neglected to comply with such request within a reasonable time. It is
understood and intended that no one or more Holders of the Bonds hereby secured
shall have any right in any manner whatever by the action of such Holder or
Holders to affect, disturb or prejudice the security of this Indenture, or to
enforce any right hereunder except in the manner herein provided; that all
proceedings at law or in equity shall be instituted, had and maintained in the
manner herein provided and for the benefit of all Holders of such Outstanding
Bonds; and that any individual rights of action or other right given to one or
more of such Holders by law are restricted by this Indenture to the rights and
remedies herein provided. Notwithstanding the foregoing, the Trustee shall be
under no obligation to exercise any of the rights or powers vested in it by this
Indenture at the request or direction of the Bond Insurer or any of the Holders,
unless the Bond Insurer or such Holders shall have offered to the Trustee
reasonable security or indemnity against
XII-8
<PAGE>
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Bond to receive payment of the principal of, premium,
if any, and interest on such Bond, on or after the respective due dates
expressed in such Bond, or to institute suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder, except that no Holder of any such Bond shall
have the right to institute any such suit, if and to the extent that the
institution or prosecution thereof or the entry of judgment therein would, under
applicable law, result in the surrender, impairment, waiver, or loss of the lien
of this Indenture.
SECTION 12.09. Remedies Not Exclusive. No remedy by the terms
of this Indenture conferred upon or reserved to the Trustee, the Bond Insurer or
the Holders of the Bonds is intended to be exclusive of any other remedy so
conferred or reserved or to be exclusive of other remedies now or hereafter
existing at law or in equity or by statute, and each and every such remedy shall
be cumulative and shall be in addition to any other remedy given hereunder to
the Trustee or to the Holders of the Bonds or now or hereafter existing at law
or in equity or by statute. Every such right, power and remedy given hereunder
or by law or in equity or by statute may be exercised from time to time and as
often as may be deemed expedient.
SECTION 12.10. Effect of Abandonment of Proceedings on
Default. In case any proceeding taken by the Trustee, the Bond Insurer or the
Holders of the Bonds on account of any Event of Default shall have been
discontinued or abandoned for any reason, then and in every such case the
Authority, the Trustee, the Bond Insurer and the Holders shall be restored to
their former positions and rights hereunder, respectively, and all rights,
remedies, powers and duties of the Trustee shall continue as though no such
proceeding had been taken.
SECTION 12.11. Interest on Overdue Amounts. To the extent
permitted by law all amounts which are due and payable but which have not been
so paid under this Indenture shall bear interest at the then current rate of
interest on the Bonds until paid; provided, however, that during any Auction
Rate Period all amounts which are due and owing but unpaid hereunder shall bear
interest at the Maximum Auction Rate and during any Auction Rate-Inverse Rate
Period all amounts which are due and owing but unpaid hereunder shall bear
interest at the Overdue Rate until paid.
XII-9
<PAGE>
ARTICLE XIII
EXECUTION OF INSTRUMENTS BY BONDHOLDERS AND
OWNERSHIP OF BONDS; EXCLUSION OF BONDS
OWNED BY THE AUTHORITY OR THE COMPANY
SECTION 13.01. Execution of Requests, Directions and Consents
and Other Instruments and Proof of Same; Ownership of Bonds and Proof of Same.
Any request, direction, consent or other instrument required by this Indenture
to be signed or executed by Holders of Bonds may be signed or executed by such
Holders in person or by agent or agents duly appointed in writing, and may be in
any number of concurrent writings of substantially similar tenor. Proof of the
execution of any such request, direction, consent or other instrument or of a
writing appointing any such agent, and of the holding or ownership of Bonds,
shall be sufficient for any purpose of this Indenture and shall be conclusive in
favor of the Trustee hereunder with regard to any action taken by it under such
request, direction, consent or other instrument or of writing appointing any
such agent, if made in the following manner:
(a) the fact and date of the execution by any person of any
such request, direction, consent or other instrument in writing may be
proved in any reasonable manner which the Trustee deems sufficient;
(b) the ownership of Bonds shall be proved by the books of registry kept
under the provisions of this Indenture.
Any request, direction, consent or vote of the Holder of any
Bond shall bind and be conclusive upon the Holder of such Bond giving such
request, direction or consent or casting such vote and upon every future Holder
of the same Bond in respect of anything done or suffered to be done by the
Trustee or otherwise, or by the Holders of other Bonds, in pursuance of such
request, direction, consent or vote, and whether or not such future Holder has
knowledge of or information as to such request, direction, consent or vote;
provided that any request, direction, consent or vote of the Holder of a Bond
required by any of the provisions hereof may be revoked by the Holder giving
such request, direction, consent or vote or by a subsequent Holder if such
revocation in writing is filed with the Trustee, prior to the time when the
request, direction, consent or vote of the percentage of the Holders of the
Bonds required by such provision shall have been given and action taken by the
Trustee or otherwise, or by the Holders of other Bonds, under authority of such
request, direction, consent or vote.
The payment of or on account of principal to or upon the order
of the person in whose name the Bonds shall at the time be registered on said
books of registry and the payment of interest to or upon the order of any person
in whose name the Bonds shall at the time be registered on said books of
registry, shall be valid and effectual fully to satisfy and discharge all
liability hereunder or upon the Bonds to the extent of the sum or sums so paid.
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<PAGE>
The Authority at the request of the Company may establish a
record date for the taking of any action by the Holders.
SECTION 13.02. Meetings of Holders. The Trustee or the Holders
of not less than twenty percent (20%) in aggregate principal amount of the Bonds
then Outstanding may at any time call a meeting of the Holders of the Bonds for
the purpose of the consenting to, the approving, the requesting, or the
directing by the Holders of the Bonds of any action required to be consented to
or approved by them hereunder or which they may request or direct hereunder to
be taken, or for the making by the Holders of any appointments they may make
hereunder, or for the purpose of taking any other action which the Holders may
take hereunder, or for any other purpose concerning the payment and security of
the Bonds hereunder. Every such meeting shall be held at such place in The City
of New York, State of New York, as may be specified in the notice calling such
meeting. Written notice of such meeting, stating the place and time of the
meeting and in general terms the business to be submitted, shall be mailed to
the Holders whose names and addresses then appear upon the books of registry by
the Registrar and Paying Agent or the Holders calling such meeting, not less
than 20 days nor more than 60 days before such meeting. Any meeting of Holders
shall, however, be valid without notice if the Holders of all Bonds then
Outstanding are present in person or by proxy or if notice is waived before or
within 30 days after the meeting by those not so present.
Attendance and voting by Holders at meetings thereof may be in
person or by proxy. Holders of Bonds may, by an instrument in writing under
their hands, appoint any person or persons, with full power of substitution, as
their proxy to attend and vote at any meeting for them.
Persons named by the Trustee, or elected by the Holders of a
majority in principal amount of the Bonds represented at the meeting in person
or by proxy in the event the Trustee is not represented at such meeting, shall
act as temporary Chairman and temporary Secretary of any meeting of Holders. A
permanent Chairman and a permanent Secretary of such meeting shall be elected by
the Holders of a majority in aggregate principal amount of the Bonds represented
at such meeting in person or by proxy. The permanent Chairman of the meeting
shall appoint two (2) Inspectors of Votes who shall count all votes cast at such
meeting, except votes on the election of Chairman and Secretary as aforesaid,
and who shall make and file with the Secretary of the meeting and the Trustee
their verified report of all such votes cast at the meeting.
The Holders of not less than the aggregate principal amount of
the Bonds required by the provisions hereof to consent to, approve, request or
direct any action to be taken at a meeting of Holders, or required by the
provisions hereof to make any appointments to be made at such meeting, or
required by the provisions hereof to take any other action to be taken at such
meeting, must be present at such meeting in person or by proxy in order to
constitute a quorum for the transaction of such business. Less than a quorum,
however, shall have power to adjourn the meeting from time to time without
notice of such adjournment other than the announcement thereof at the meeting;
provided, however, that if such meeting is adjourned by less than a quorum for
more than ten (10) days, notice of such adjournment shall be given by the
Trustee at least five (5) days prior to the adjourned date of the meeting.
XIII-2
<PAGE>
Any Holder of a Bond shall be entitled in person or by proxy
to attend and vote at such meeting as Holder of the Bond or Bonds registered in
his or her name without producing such Bond or Bonds. Such persons and their
proxies shall, if required, produce such proof of personal identity as shall be
satisfactory to the Secretary of the meeting.
All proxies presented at such meeting shall be delivered to
the Inspector of Votes and filed with the Secretary of the meeting. The right of
a proxy for a Holder to attend the meeting and act and vote thereat may be
proved (subject to the Trustee's right to require additional proof) by a written
proxy executed by such Holder as aforesaid.
The officers or nominees of the Trustee may be present or
represented at such meeting and take part therein, but shall not be entitled to
vote thereat, except for such officers or nominees who are Holders or proxies
for Holders (including the Trustee).
The vote at any such meeting of the Holder of any Bond, or his
or her proxy, entitled to vote thereat shall be binding upon such Holder and
upon every subsequent Holder of such Bond (whether or not such subsequent Holder
has notice thereof).
SECTION 13.03. Exclusion of Bonds Held by or for the
Authority, the Company and of Bonds No Longer Deemed Outstanding Hereunder. In
determining whether the Holders of the requisite aggregate principal amount of
Bonds have concurred in any demand, request, direction, consent, vote or waiver
under this Indenture, any Bonds which are owned by or on behalf of or for the
account of the Authority, the Company and, except for the purposes of Section
15.01, any Bonds which are deemed no longer Outstanding hereunder shall be
disregarded and not included for the purpose of any such determination, and such
Bonds shall not be entitled to vote upon, consent to or concur in any action
provided in this Indenture, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such demand, request,
direction, consent, vote or waiver only Bonds which the Trustee knows are owned
as aforesaid shall be disregarded. The Trustee may require each Holder of a Bond
or Bonds, before such Holder's demand, request, direction, consent, vote or
waiver shall be deemed effective, to reveal if the Bonds as to which such
demand, request, direction, consent, vote or waiver is made, granted, cast or
given are disqualified as provided in this Section.
XIII-3
<PAGE>
ARTICLE XIV
AMENDING AND SUPPLEMENTING THE INDENTURE,
THE PARTICIPATION AGREEMENT, THE MARKET AGENT AGREEMENT,
AUCTION AGENCY AGREEMENT, BROKER-DEALER AGREEMENTS,
BOND PURCHASE TRUST AGREEMENT
SECTION 14.01. Amending and Supplementing Indenture Without
Consent of Holders. The Authority and the Trustee, from time to time and at any
time and without the consent or concurrence of any Holder but with the written
consent (which consent shall not be unreasonably withheld) of the Bond Insurer,
may enter into a Supplemental Indenture, (i) to make any changes, modifications,
amendments or deletions to this Indenture that may be required to permit the
Indenture to be qualified under the Trust Indenture Act of 1939 of the United
States of America or (ii) for any one or more of the following purposes:
(a) (x) to make any changes or corrections
in this Indenture or any Supplemental Indenture as to
which the Authority shall have been advised by Bond
Counsel that the same are required for the purpose of
curing or correcting any ambiguity or defective or
inconsistent provision or omission or mistake or
manifest error contained in this Indenture or
Supplemental Indenture, or (y) to insert in this
Indenture such provisions clarifying matters or
questions arising under this Indenture as are
necessary or desirable if such provisions shall not
materially and adversely affect the rights of the
Holders;
(b) to add additional covenants and agreements of the Authority for the
purpose of further securing the payment of the Bonds;
(c) to surrender any right, power or privilege reserved to or conferred
upon the Authority by the terms of this Indenture;
(d) to confirm as further assurance any lien, pledge or
charge, or the subjection to any lien, pledge or charge, created or to
be created by the provisions of this Indenture or any Supplemental
Indenture;
(e) to grant to or confer upon the Holders any additional
rights, remedies, powers, authority or security that lawfully may be
granted to or conferred upon them, or to grant to or to confer upon the
Trustee for the benefit of the Holders any additional rights, duties,
remedies, power or authority;
(f) to provide for the issuance of Bonds in book entry or coupon form, if
at the time permitted by applicable law;
XIV-1
<PAGE>
(g) to provide for the substitution of rating agencies;
(h) to provide for any new administrative or procedural
provisions made necessary or desirable by the issuance of a Support
Facility or an Alternate Support Facility, other credit, liquidity or
support facility, including, but not limited to, any amendment
necessary to obtain a rating on the Bonds based upon such facility;
(i) to make any changes in this Indenture to any provisions
relating to any Adjustable Rate so long as no Bonds are then
outstanding bearing such Adjustable Rate; and
(j) to modify, amend or supplement the Indenture in such
manner as to permit the qualification of the Bonds for deposit with a
Securities Depository, and, in connection therewith, if they so
determine, to add to the Indenture, such other terms, conditions and
provisions as may be required to permit such qualification.
No Supplemental Indenture shall be entered into unless in the
opinion of Bond Counsel which shall be delivered to the Trustee and the Bond
Insurer (which opinion may be combined with the opinion required by Section
14.04) the execution of such Supplemental Indenture is permitted by the
foregoing provisions of this Section and the provisions of such Supplemental
Indenture do not materially and adversely affect the rights of the Holders of
the Bonds and the Trustee may rely on any such opinion.
SECTION 14.02. Amending and Supplementing Indenture with
Consent of Holders. With the consent of the Holders of not less than fifty-one
percent (51%) in aggregate principal amount of the Bonds then Outstanding, the
Authority and the Trustee, with the prior written consent of the Bond Insurer
and prior written notice to each Rating Agency then rating the Bonds at the
request of the Company, from time to time and at any time may enter into a
Supplemental Indenture for the purpose of adding any provisions, to, or changing
in any manner or eliminating any of the provisions, of, this Indenture, or
modifying or amending the rights and obligations of the Authority hereunder, or
modifying or amending in any manner the rights of the Holders; provided that,
without the specific consent of the Bond Insurer and the Holders of all Bonds
Outstanding which would be affected thereby no Supplemental Indenture amending
or supplementing the provisions hereof shall: (a) change the fixed maturity date
for the payment of the principal of any Bond, or the dates for the payment of
interest thereon or the terms of the purchase or redemption thereof, or reduce
the principal amount of any Bond or the rate of interest thereon or the method
of calculating the same except as otherwise provided in this Indenture; or (b)
reduce the aforesaid percentage of Bonds, the Holders of which are required to
consent to any Supplemental Indenture amending or supplementing the provisions
of this Indenture; or (c) give to any Bond any preference over any other Bond
secured hereby; or (d) authorize the creation of any pledge of Note Payments
prior or superior to the pledge of a lien and charge thereon assigned herein for
the payment of the Bonds; or (e) effect any change in the purchase or redemption
provisions relating to the Bonds; or (f) deprive any Holders in any material
respect of the security afforded by this Indenture. A modification or amendment
of the provisions of Article IX hereof with respect to the Bond Fund or
XIV-2
<PAGE>
any other Funds or Accounts established thereby shall not be deemed a change in
the terms of payment; provided that no such modification or amendment shall,
except upon the consent of the Bond Insurer and the Holders of all Bonds
Outstanding affected thereby, reduce the amount or amounts required to be
deposited in the Bond Fund. Nothing in this paragraph contained, however, shall
be construed as making necessary the approval of the Holders of the execution of
any Supplemental Indenture authorized by the provisions of Section 14.01.
The proof of the giving of any consent by any Holder required
by this Section and of the holding of the Bonds for the purpose of giving
consents shall be made in accordance with the provisions of Article XIII. It
shall not be necessary that the consent of the Holders approve the particular
form of wording of the proposed Supplemental Indenture effecting such amendment
or supplement, but it shall be sufficient if such consent approves the substance
of the proposed amendment or supplement. After the Holders of the required
percentage of Bonds shall have filed their consents to the amending or
supplementing hereof pursuant to this Section, the Authority shall mail a copy
of notice of such consent, postage prepaid, to each Holder at his or her address
as it appears upon the books of registry and to the Trustee. Nothing in this
paragraph contained, however, shall be construed as requiring the giving of
notice of any amending or supplementing of this Indenture authorized by this
Section. A record of the consents shall be filed with the Trustee, and shall be
proof of the matters therein stated until the contrary is proved. No action or
proceeding to set aside or invalidate such Supplemental Indenture or any of the
proceedings for its adoption shall be instituted or maintained unless such
action or proceeding is commenced within sixty (60) days after the mailing of
the notice required by this paragraph.
Copies of any Supplemental Indenture authorized by the
provisions of Section 14.02 shall be given to the Rating Agency or Agencies then
rating the Bonds.
SECTION 14.03. Notation upon Bonds; New Bonds Issued upon
Amendments. The Bonds delivered after the effective date of any action taken as
provided in this Article, if any, may and shall if required by the Trustee bear
a notation as to such action, by endorsement or otherwise and in form approved
by the Authority. In that case, upon demand of any Holder at such effective date
and upon presentation of Bonds at the principal office of the Trustee or other
transfer agent or registrar hereunder for such Bonds, and at such additional
offices, if any, as the Authority may select and designate for that purpose, a
suitable notation shall be made on the Bonds.
SECTION 14.04. Effectiveness of Supplemental Indentures. Upon
the execution pursuant to this Article by the Authority and the Trustee of any
Supplemental Indenture amending or supplementing the provisions of this
Indenture and the delivery to the Trustee and the Bond Insurer of an opinion of
Bond Counsel that such Supplemental Indenture is in due form, has been duly
executed in accordance with the provisions hereof and applicable law and that
the provisions thereof are valid (upon which opinion the Trustee, subject to the
provisions of Section 11.04, shall be fully protected in relying), or upon such
later date as may be specified in such Supplemental Indenture, (i) this
Indenture and the Bonds shall be modified and amended in accordance with such
Supplemental Indenture; (ii) the respective rights, limitations of rights,
obligations, duties and
XIV-3
<PAGE>
immunities under this Indenture of the Authority, the Trustee, and the Holders
shall thereafter be determined, exercised and enforced under this Indenture
subject in all respects to such modifications and amendments; and (iii) all of
the terms and conditions of any such Supplemental Indenture shall be a part of
the terms and conditions of the Bonds and of this Indenture for any and all
purposes.
SECTION 14.05. Supplemental Indenture Affecting Support
Facility Provider. No Supplemental Indenture in any way materially and adversely
affecting any Support Facility Issuer (so long as such Support Facility is in
effect) may be entered into by the Authority and the Trustee or be consented to
by the Holders without written consent of such Support Facility Issuer.
SECTION 14.06. Supplemental Participation Agreements Not
Requiring the Consent of the Holders. The Authority and the Company may, with
the written consent of the Trustee but without notice to or consent of any
Holder, from time to time and at any time, agree to such supplemental agreements
supplementing the Participation Agreement or amendments to the Participation
Agreement as shall not be inconsistent with the terms and provisions of the
Participation Agreement or this Indenture and, in the opinion of the Authority,
shall not be detrimental to the interests of the Holders (which Supplemental
Participation Agreements shall thereafter form a part of the Participation
Agreement):
(a) to cure any ambiguity or formal defect or omission in the Participation
Agreement or in any supplemental agreement;
(b) to grant to or confer upon the Trustee for the benefit of
the Holders any additional rights, remedies, powers, authority or
security that may lawfully be granted to or conferred upon the Holders
or the Trustee;
(c) to provide for any new administrative, security or procedural
provisions necessitated by the issuance of an Alternate Support Facility; or
(d) to provide for or add any further changes or corrections that are
necessary or desirable to comply with any Supplemental Indenture entered
into pursuant to Section 14.01;
provided that no such Supplemental Participation Agreement or the amendment to
the Note which materially and adversely affects any Support Facility Issuer (so
long as such Support Facility is in effect) shall be effective prior to the
receipt by such parties of the written consent of the issuer of such Support
Facility.
SECTION 14.07. Notice and Consent for Supplemental
Participation Agreements Requiring the Consent of the Holders. Except for
Supplemental Participation Agreements or amendments provided for in Section
14.06, neither the Authority nor the Trustee shall agree or consent, as the case
may be, to any Supplemental Participation Agreement or amendment to the
Participation Agreement unless notice of the proposed execution of such
Supplemental Participation Agreement or amendment shall have been given and the
Bond Insurer and the Holders shall have
XIV-4
<PAGE>
consented to and approved the execution thereof in the same manner and form as
provided for in Section 14.02 in the case of Supplemental Indentures; provided
that no such Supplemental Participation Agreement which materially and adversely
affects any Support Facility Issuer (so long as the issuer of such Support
Facility is in effect) shall be effective prior to the receipt by such parties
of the written consent of such Support Facility Issuer.
SECTION 14.08. Effectiveness of Supplemental Participation
Agreement. Upon the execution pursuant to this Article and of applicable law by
the Authority and the Company of any Supplemental Participation Agreement
amending or supplementing the provisions of the Participation Agreement and the
delivery to the Trustee and the Bond Insurer of an Opinion of Bond Counsel that
such Supplemental Participation Agreement is in due form, has been duly executed
in accordance with the provisions hereof and applicable law and that the
provisions thereof are valid (upon which opinion the Trustee, subject to the
provisions of Section 11.04, shall be fully protected in relying), or upon such
later date as may be specified in such Supplemental Participation Agreement, (i)
the Participation Agreement shall be modified and amended in accordance with
such Supplemental Participation Agreement; (ii) the respective rights,
limitations of rights, obligations, duties and immunities thereunder of the
Authority and the Company shall thereafter be determined, exercised and enforced
thereunder subject in all respects to such modifications and amendments; and
(iii) all of the terms and conditions of any such Supplemental Participation
Agreement shall be a part of the terms and conditions thereof for any and all
purposes.
SECTION 14.09. Amending and Supplementing the Market Agent
Agreement, Auction Agency Agreement, Broker-Dealer Agreements or Bond Purchase
Trust Agreement. Amendments of or supplements to the Market Agent Agreement, the
Auction Agency Agreement, any Broker-Dealer Agreement or the Bond Purchase Trust
Agreement shall be made only in accordance with the terms thereof.
SECTION 14.10. Notice of Certain Amendments to Rating
Agencies. No amendment to the Indenture, the Participation Agreement, the Credit
Facility or a Liquidity Facility (including any related Confirming Agreement)
shall take effect unless prior written notice shall have been given to each
Rating Agency then rating the Bonds.
XIV-5
<PAGE>
ARTICLE XV
DEFEASANCE; MONEYS HELD FOR PAYMENT OF
DEFEASED BONDS
SECTION 15.01. Discharge of Liens and Pledges; Bonds No Longer
Deemed to be Outstanding Hereunder. Bonds purchased on or before the Fixed Rate
Conversion Date pursuant to Section 5.02, 5.03 or 5.08 shall continue to be
Outstanding hereunder until such Bonds shall be cancelled in accordance with
Section 5.14 or paid at maturity or redeemed pursuant to Article V or otherwise
defeased. The obligations of the Authority under this Indenture and the liens,
pledges, charges, trusts, covenants and agreements of the Authority, herein made
or provided for, shall be, subject to the terms of Section 15.02, fully
discharged and satisfied as to the Bonds or portion thereof and the Bonds shall
no longer be deemed to be Outstanding hereunder:
(a) when the Bonds shall have been cancelled, or shall have
been surrendered for cancellation and are subject to cancellation, or shall have
been redeemed by the Trustee from monies held by it under this Indenture; or
(b) if the Bonds have not been cancelled or so surrendered for
cancellation or subject to cancellation, or so redeemed, when payment of the
principal of and premium, if any, on the Bonds, plus interest on such principal
to the due date thereof (whether such due date be by reason of maturity or upon
redemption or prepayment, or otherwise) either (i) shall have been made or
caused to be made in accordance with the terms thereof, or (ii) shall have been
provided for by irrevocably depositing with the Trustee in trust, and
irrevocably appropriating and setting aside exclusively for such payments (1)
monies sufficient to make such payment without investment or reinvestment, or
(2) Governmental Obligations maturing as to principal and interest in such
amounts and at such times as will insure the availability of sufficient and
timely monies to make such payments when due, or (3) a combination of both such
monies and Governmental Obligations, whichever the Authority deems to be in its
best interest, and all necessary and proper fees, compensation and expenses of
the Trustee pertaining to the Bonds or portion thereof with respect to which
such deposit is made, shall have been paid or the payment thereof provided to
the satisfaction of the Trustee. Notwithstanding the foregoing, Bonds shall not
be deemed defeased hereunder unless the Trustee and the Bond Insurer shall have
received a verification report of an independent certified public accountant
relating to the sufficiency of the escrowed funds to be used for defeasance in
form and substance reasonably satisfactory to them, written evidence from each
Rating Agency then rating the Bonds that the current rating on the Bonds will
not be lowered or withdrawn, and an opinion of Bond Counsel, which may rely on
such verification report substantially to the effect that the Bonds are no
longer outstanding under the Indenture. Any escrow agreement entered into under
this Section 15.01 shall not permit the use of any forward supply contract
providing for the delivery and purchase of Government Obligations in an escrow
fund without the approval of the Authority and the Bond Insurer.
XV-1
<PAGE>
At such time as the Bonds shall be deemed to be no longer
Outstanding hereunder, as aforesaid, such Bonds shall cease to accrue interest
from the due date thereof (whether such due date occurs by reason of maturity,
or upon redemption or prepayment or otherwise) and, except for the purposes of
any such payment from such monies or Governmental Obligations and except, in the
case of Auction Rate Bonds and Inverse Rate Bonds, to the extent provided in the
definition of Outstanding in Article I shall no longer be secured by or entitled
to the benefits of this Indenture.
Any such monies so deposited with the Trustee as provided in
this Section may at the direction of the Company also be invested in
Governmental Obligations, maturing in the amounts and times as hereinbefore set
forth, and all income from all Governmental Obligations in the hands of the
Trustee pursuant to this Section which is not required for the payment of the
Bonds and interest thereon with respect to which such monies shall have been so
deposited shall be paid to the Company or if any Bonds are then Outstanding, be
deposited in the Bond Fund and credited to the Principal Account as and when
realized and collected, for use and application as are other monies credited to
such Account.
Anything in Article XIV to the contrary not-withstanding, if
monies or Governmental Obligations have been deposited or set aside with the
Trustee pursuant to this Section for the payment of the Bonds, the Bonds shall
be deemed to have been paid in full. No amendment to the provisions of this
Article shall be made without the consent of the Holders of the Bonds affected
thereby.
Notwithstanding anything in this Indenture to the contrary,
unless payment of such Bonds (or provision for such payment) shall have been
made with Available Moneys, no Bonds bearing interest at a Daily Rate, a Weekly
Rate, a Monthly Rate, a Semi-annual Rate or a Commercial Paper Rate shall be
deemed to be paid within the meaning of this Section unless and until at least
123 days shall have elapsed subsequent to payment or provision for payment of
such Bonds shall have been made in accordance with this Section 15.01 during
which no Act of Bankruptcy shall have occurred or be continuing. The occurrence
or continuance of an Act of Bankruptcy shall be evidenced by delivery of a
certificate of the Company.
Notwithstanding anything to the contrary, in the event that
the principal and/or interest due on the Bonds shall be paid by the Bond Insurer
pursuant to the Municipal Bond Insurance Policy, the Bonds shall remain
Outstanding for all purposes, not be defeased or otherwise satisfied and not be
considered paid by the Company, and obligations of the Authority under this
Indenture and the liens, pledges, charges, trusts, covenants and agreements of
the Authority, herein made or provided for shall continue to exist and shall run
to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to
the rights of the Holders of the Bonds.
The Trustee shall promptly surrender any Support Facility (if
appropriate for the type of instrument or instruments then serving as Support
Facility) to the issuer of such Support Facility for cancellation or shall
otherwise take appropriate action to terminate the Support Facility following
any such defeasance.
XV-2
<PAGE>
SECTION 15.02. Release of Indenture, Termination of Right,
Title and Interest of Trustee. When all Bonds shall be deemed to be paid in
accordance with the provisions of Section 15.01, then and in the case all right,
title and interest of the Trustee under this Indenture shall thereupon cease,
terminate and become void, and the Trustee in such case shall release this
Indenture, shall execute such documents to evidence such release as may be
reasonably required by the Authority and furnish the Authority with the same,
and shall turn over to the Company any surplus monies and balances remaining in
any of the Funds and Accounts created in or held under this Indenture, other
than monies and Governmental Obligations held by it pursuant to Section 15.01 or
the provisions of Section 15.03 for the redemption, payment or prepayment of the
Bonds and, except to the extent provided in the Tax Regulatory Agreement, monies
held in the Investment Proceeds Account and in the Rebate Fund; otherwise, this
Indenture shall be, continue and remain in full force and effect.
Notwithstanding the satisfaction and discharge of this
Indenture, the rights of the Trustee and the Registrar and Paying Agent under
Sections 11.02, 11.06 and 11.17 shall survive defeasance of the Bonds hereunder.
SECTION 15.03. Bonds Not Presented for Payment When Due;
Monies Held for the Bonds after Due Date of Bonds. Subject to the provisions of
the next sentence of this paragraph, if the Bonds shall not be presented for
payment when the principal thereof shall become due, whether at maturity or at
the date fixed for the redemption thereof, or otherwise, and if monies or
Governmental Obligations shall at such due date be held by the Trustee in trust
for that purpose sufficient and available to pay the principal of and premium,
if any, on the Bonds, together with all interest due on such principal to the
due date thereof or to the date fixed for redemption thereof, all liability of
the Authority and the Company for such payment shall forthwith cease, determine
and be completely discharged, and thereupon it shall be the duty of the Trustee
to hold said monies or Governmental Obligations without liability to the Holders
for interest thereon, in trust for the benefit of the Holders, which thereafter
shall be restricted exclusively to said monies or Governmental Obligations for
any claim of whatever nature on its part on or with respect to the Bonds,
including for any claim for the payment thereof. Any such monies or Governmental
Obligations held by the Trustee for the Holders after the principal of the Bonds
or any portion thereof with respect to which such monies or Governmental
Obligations have been so set aside has become due and payable (whether at
maturity or upon redemption or prepayment or otherwise) shall be deemed
abandoned property when such monies or Governmental Obligations shall have
remained unpaid or undelivered to the Holder or Holders entitled thereto for
three years from the date the principal of the Bonds or any portion thereof has
become due and payable and shall be subject to the laws of the State of New York
relating to disposition of unclaimed property.
SECTION 15.04. Special Defeasance Provisions. The following
provisions shall be applicable to the extent that a Support Facility is in
effect with respect to the Bonds and compliance with the following provisions
are necessary to maintain the rating assigned to the Bonds as a result of
obtaining such Support Facility.
XV-3
<PAGE>
In the event (a) any Bonds are defeased pursuant to Section
15.01 other than during an Auction Rate Period or an Auction Rate-Inverse Rate
Period or (b) the purchase price of Bonds tendered for purchase pursuant to
Section 5.02 or 5.03 is paid with money supplied by the Company, the Company on
behalf of the Authority shall provide (i) an opinion of counsel experienced in
bankruptcy matters acceptable to the Trustee that such deposit will not result
in avoidable preferential payments to Bondholders under the Bankruptcy Code as
then in existence or (ii) a Non- Bankruptcy Certificate with respect to amounts
to be applied to the payment of the Bonds.
XV-4
<PAGE>
ARTICLE XVI
FORM OF BONDS
AND ENDORSEMENT AND ASSIGNMENT PROVISIONS
SECTION 16.01. Form of Bonds and Endorsement and Assignment
Provisions. The form of Bond, the form of the certificate of authentication
thereof, the form of endorsement to appear thereon and the form of assignment
thereof shall be substantially as set forth in Appendix A hereto.
XVI-1
<PAGE>
ARTICLE XVII
MISCELLANEOUS
SECTION 17.01. Benefits of Indenture Limited to Authority,
Company, Trustee, Registrar, Paying Agent, Auction Agent, any Support Facility
Issuer and Holders of the Bonds. With the exception of rights or benefits herein
expressly conferred, nothing expressed or mentioned in or to be implied from
this Indenture or the Bonds is intended or should be construed to confer upon or
give to any person other than the Authority, the Company, the Trustee, the
Registrar and Paying Agent, the Market Agent, the Auction Agent, any Support
Facility Issuer and the Holders of the Bonds any legal or equitable right,
remedy or claim under or by reason of or in respect to this Indenture or any
covenant, condition, stipulation, promise, agreement or provision herein
contained. Unless otherwise expressly set forth herein, this Indenture and all
of the covenants, conditions, stipulations, promises, agreements and provisions
hereof are intended to be and shall be for and inure to the sole and exclusive
benefit of the Authority, the Company, the Trustee, the Registrar and Paying
Agent, the Market Agent, the Auction Agent, any Support Facility Issuer and the
Holders of the Bonds as herein and therein provided.
SECTION 17.02. Indenture a Contract; Indenture Binding Upon
Successors or Assigns of the Authority. In consideration of the acceptance of
the Bonds by any person who shall hold the same from time to time, each of the
obligations, duties, limitations and restraints imposed by this Indenture upon
the Authority or any employee thereof shall be deemed to be a covenant between
the Authority and every Holder and this Indenture and every provision and
covenant hereof shall be a contract by the Authority with the Holders of the
Bonds issued hereunder to secure the full and final payment of the principal of,
premium, if any, of and the interest on the Bonds executed and delivered
hereunder. The provisions of the Act shall be a contract by the Authority with
the Holders and the duties of the Authority and any employee thereof under the
Act shall be enforceable by the Holders. This Indenture shall be enforceable by
the Holders, by mandamus or other appropriate suit, action or proceeding in any
court of competent jurisdiction. The covenants and agreements herein set forth
to be performed by the Authority and any employee thereof, shall be for the
benefit, security and protection of the Holders. All the terms, provisions,
conditions, covenants, warranties and agreements contained in this Indenture
shall be binding upon the assigns of the Authority, and shall inure to the
benefit of the Trustee, its successors or substitutes in trust and assigns, and
the Holders.
SECTION 17.03. Notice to Holders of Bonds. Except as is
otherwise provided in this Indenture, any provision for the mailing of a notice
or other paper to the Holders shall be fully complied with if it is mailed
postage prepaid, to the Holder of the Bonds at such Holder's address appearing
upon the books of registry kept pursuant to Article VII.
SECTION 17.04. Waiver of Notice. Whenever in this Indenture the
giving of notice by mail, publication, or otherwise is required, the
giving of such notice may be waived by the
XVII-1
<PAGE>
person entitled to receive such notice, and in any case the giving or receipt of
such notice shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 17.05. Effect of Saturdays, Sundays and Non-Business
Days. Except as otherwise specifically provided herein, whenever this Indenture
requires any action to be taken on a Saturday, Sunday or other day which is not
a Business Day, such action shall be taken on the first Business Day occurring
thereafter. Except as otherwise specifically provided herein, whenever in this
Indenture the time within which any action is required to be taken or within
which any right will lapse or expire shall terminate on a Saturday, Sunday or
other day which is not a Business Day, such time shall continue to run until
midnight on the next succeeding Business Day.
SECTION 17.06. Partial Invalidity. If any one or more of the
covenants or agreements or portions thereof provided in this Indenture on the
part of the Authority or the Trustee to be performed should be determined by a
court of competent jurisdiction to be contrary to law, then such covenant or
covenants, or such agreement or agreements, or such portions thereof, shall be
deemed severable from the remaining covenants and agreements or portions thereof
provided in this Indenture and the invalidity thereof shall in no way affect the
validity of the other provisions of this Indenture or of the Bonds, but the
Holders shall retain all the rights and benefits accorded to them hereunder and
under any applicable provisions of law.
If any provisions of this Indenture shall be held or deemed to
be or shall, in fact, be inoperative or unenforceable or invalid in any
particular case in any jurisdiction or jurisdictions or in all jurisdictions, or
in all cases because it conflicts with any constitution or statute or rule of
public policy, or for any other reason, such circumstances shall not have the
effect of rendering the provision in question inoperative or unenforceable or
invalid in any other case or circumstance, or of rendering any other provision
or provisions herein contained inoperative or unenforceable or invalid to any
extent whatsoever.
SECTION 17.07. Law and Place of Enforcement of Indenture. This
Indenture shall be construed and interpreted in accordance with the laws of the
State of New York and all suits and actions arising out of this Indenture shall
be instituted in a court of competent jurisdiction in the State of New York.
SECTION 17.08. Requests, Approvals and Directions of
Authority. Whenever in this Indenture a request, approval, direction or other
action is required of the Authority, such request, approval, direction or other
action shall be in the form of and evidenced by a certificate of an Authorized
Officer of the Authority unless otherwise provided herein.
SECTION 17.09. Notices, Demands; Requests. Except as otherwise
set forth herein, all notices, demands, directions and requests to be given to
or made hereunder by the Company, the Authority, the Trustee, the Market Agent,
the Auction Agent, any Support Facility Issuer, the Registrar and Paying Agent
shall be given or made in writing and shall be deemed to be
XVII-2
<PAGE>
properly given or made if sent by first class United States mail, postage
prepaid, addressed as follows:
(a) As to the Company One MetroTech Center
Brooklyn, New York 11201-3851
Attention: Treasurer
(b) As to the Authority 286 Washington Avenue Extension
Albany, New York 12203
Attention: President
(c) As to the Trustee 450 W. 33rd Street
15th Floor
New York, New York 10001
(d) As to the Auction Agent As shall be specified in the
Auction Agent Agreement
(e) As to the Market Agent(s) As shall be specified in the Market Agent
Agreement.
(f) As to the Registrar 450 W. 33rd Street
and Paying Agent 15th Floor
New York, New York 10001
(g) As to the Credit Facility As shall be specified in the
Insurance Agreement
(h) As to Moody's Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: Structured Finance
(i) As to S&P Standard & Poor's Ratings Service
25 Broadway, 13th Floor
New York, New York 10004
Attention: Letter of Credit Surveillance Group
Any such notice, demand, direction or request may also be
transmitted to the appropriate above-mentioned party by telegram, telecopy,
telex or similar means and shall be deemed
XVII-3
<PAGE>
to be properly given or made at the time of such transmission if, and only if,
such transmission of notice shall be in writing and sent as specified above and
in the case of a Non-Bankruptcy Certificate by telex, telecopy or other form of
electronic transmission for receipt by the Trustee by 11:00 a.m. (New York City
time) on the date specified for receipt of such Non-Bankruptcy Certificate.
Any notice, demand, direction or request given or transmitted
to the Trustee or the Authority shall be effective only upon receipt.
Any of such addresses may be changed at any time upon written
notice of such change sent by first-class United States mail, postage prepaid,
to the other parties by the party affecting the change.
Failure of the Credit Facility Issuer to receive any notice or
give any consent contemplated by this Indenture shall not affect the validity of
any notice given or action taken in accordance with this Indenture.
SECTION 17.10. Effect of Article and Section Headings and
Table of Contents. The heading or titles of the several Articles and Sections
hereof, and any table of contents appended hereto or to copies hereof, shall be
solely for convenience of reference and shall not affect the meaning,
construction, interpretation or effect of this Indenture.
SECTION 17.11. Indenture May be Executed in Counterparts;
Effectiveness of Indenture. This Indenture may be simultaneously executed in
counterparts. Each such counterpart so executed shall be deemed to be an
original, and all together shall constitute but one and the same instrument.
This Indenture shall take effect immediately upon the execution and delivery
hereof. Notwithstanding the actual effective date hereof, for convenience and
purposes of reference this Indenture shall be dated as of October 1, 1999 and
may be cited and referred to as the "Indenture dated as of October 1, 1999".
SECTION 17.12. Liability of Authority Limited to Revenues.
Notwithstanding anything in this Indenture or in the Bonds contained, the
Authority shall not be required to advance any monies derived from any source
other than the Revenues and other assets pledged under this Indenture for any of
the purposes in this Indenture mentioned, whether for the payment of the
principal or redemption price of or interest on the Bonds or for any other
purpose of this Indenture. Pursuant to Section 5.16 of the Participation
Agreement, the Company has agreed to indemnify and hold harmless the Authority
and the Trustee from all liability arising hereunder.
SECTION 17.13 Waiver of Personal Liability. No member,
officer, agent or employee of the Authority shall be individually or personally
liable for the payment of the principal of or premium, if any, or interest on
the Bonds or be subject to any personal liability or accountability by reason of
the issuance thereof; but nothing herein contained shall relieve any such
XVII-4
<PAGE>
member, officer, agent or employee from the performance of any official duty
provided by law or by this Indenture.
XVII-5
<PAGE>
IN WITNESS WHEREOF, the Authority has caused this Indenture to
be executed by its Chair, Vice-Chair, President or Treasurer and its corporate
seal to be hereunto affixed and attested by its duly authorized officer, and the
Trustee has caused this Indenture to be executed by its authorized officer and
its corporate seal to be hereunto affixed and attested by one of its Assistant
Secretaries, all as of the date first above written.
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
By___________________________________
President
(SEAL)
Attest:
- -------------------------------
Secretary to the Board
and Vice President for
Governmental Relations
(SEAL)
THE CHASE MANHATTAN BANK
as Trustee,
Attest:
_______________________________ By_____________________________
Name: Name:
Title: Title:
XVII-6
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; COMPUTATIONS; CERTIFICATES
AND OPINIONS; EVIDENCE OF ACTION BY AUTHORITY
<S> <C> <C>
SECTION 1.01. Definitions of Specific Terms.........I-1
SECTION 1.02. Definitions of General Terms.........I-34
SECTION 1.03. Computations.........................I-34
SECTION 1.04. Certificates and Opinions............I-35
SECTION 1.05. Evidence of Action by Authority......I-35
ARTICLE II
AUTHORIZATION OF BONDS
SECTION 2.01. Limitation on Issuance of Bonds................II-1
SECTION 2.02. Authorization of Bonds.........................II-1
SECTION 2.03. Global Form; Securities Depository..............II-2
SECTION 2.04. Limitations on Transfer........................II-5
SECTION 2.05. Application of Bond Proceeds...................II-6
SECTION 2.06. Delivery of the Bonds..........................II-6
ARTICLE III
INTEREST ON BONDS
SECTION 3.01. Interest on Bonds-General......................................................................III-1
SECTION 3.02. Commercial Paper Rate..........................................................................III-4
SECTION 3.03. Auction Rate Period - Auction Rate: Auction Period - General...................................III-5
SECTION 3.04. Auction Rate Period - Auction Rate Bonds: Change of Auction
Period by Authority................................................................III-6
SECTION 3.05. Auction Rate Period - Auction Rate Bonds: Change of
Auction Date by Market Agent.......................................................III-7
SECTION 3.06. Auction Rate Period - Auction Rate Bonds: Orders by Existing
Holders and Potential Holders......................................................III-7
SECTION 3.07. Auction Rate Period - Auction Rate Bonds: Submission of
Orders by Broker-Dealers to Auction Agent..........................................III-9
SECTION 3.08. Auction Rate Period - Auction Rate Bonds: Determination of
Sufficient Clearing Bids, Winning Bid Rate and Auction Rate.......................III-11
(i)
<PAGE>
Page
SECTION 3.09. Auction Rate Period - Auction Rate Bonds: Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Auction Rate Bonds..................................................III-13
SECTION 3.10. Auction Rate Period - Auction Rate Bonds: Adjustment in
Percentage........................................................................III-16
ARTICLE IIIA
AUCTION RATE-INVERSE RATE BONDS
SECTION 3A.01. Auction Rate-Inverse Rate Bonds: Definitions of Specific Terms...............................IIIA-1
SECTION 3A.02. Auction Rate-Inverse Rate: Interest on Bonds.................................................IIIA-6
SECTION 3A.03. Auction Rate-Inverse Rate Bonds: Auction Procedures..........................................IIIA-9
SECTION 3A.04. Auction Rate-Inverse Rate Bonds: Certain Orders
Not Permitted; Purchases and Cancellations.......................................IIIA-17
SECTION 3A.05. Auction Rate-Inverse Rate Bonds: Deposit and Application
of Interest Payments.............................................................IIIA-18
SECTION 3A.06. Auction Rate-Inverse Rate Bonds: Calculation of Maximum
Rate, Minimum Rate and Overdue Rate..............................................IIIA-19
SECTION 3A.07. Auction Rate-Inverse Rate Bonds: Computation of Interest....................................IIIA-19
SECTION 3A.08. Auction Rate-Inverse Rate Bonds: Notification of Rates,
Amounts and Payment Dates........................................................IIIA-20
SECTION 3A.09. Auction Rate-Inverse Rate Bonds: Adjustment in Percentage...................................IIIA-22
SECTION 3A.10. Mandatory Auction Rate Bonds Tender for Purchase............................................IIIA-23
ARTICLE IV
CHANGES IN THE ADJUSTABLE RATE
SECTION 4.01. Optional Conversion by Authority................................................................IV-1
SECTION 4.02. Optional Conversion to Fixed Rate...............................................................IV-4
SECTION 4.03. Conversion Generally............................................................................IV-7
ARTICLE V
REDEMPTION AND PURCHASE OF BONDS
SECTION 5.01. Optional Redemption..............................................................................V-1
SECTION 5.02. Tender for and Purchase upon Election of Holder..................................................V-3
SECTION 5.03. Mandatory Tender for Purchase upon Change in the Interest
Rate Mode on Business Day Following Certain Calculation
Periods or Occurrence of Fixed Rate Conversion Date..................................V-4
SECTION 5.04. Extraordinary Optional Redemption.............................................................V-5
<PAGE>
Page
SECTION 5.05. Redemption if Participation Agreement or Note Void,
Unenforceable or Impossible to Perform...............................................V-6
SECTION 5.06. Special Tax Redemption Provisions................................................................V-7
SECTION 5.06-A. Redemption of Bank Bonds.......................................................................V-8
SECTION 5.07. Redemption at Demand of the State................................................................V-8
SECTION 5.08. Mandatory Tender for Purchase Upon Expiration or
Termination of any Liquidity Facility................................................V-8
SECTION 5.09. General Provisions Applicable to Mandatory and Optional
Tenders for Purchase of Bonds........................................................V-9
SECTION 5.10. Selection of Bonds to be Redeemed...............................................................V-10
SECTION 5.11. Notice of Redemption............................................................................V-12
SECTION 5.12. Bonds Purchased by Liquidity Facility Issuer....................................................V-14
SECTION 5.13. Effect of Redemption............................................................................V-14
SECTION 5.14. Cancellation of Redeemed Bonds..................................................................V-14
ARTICLE VI
SUPPORT FACILITY PROVISIONS
SECTION 6.01. Support Facility - General......................................................................VI-1
SECTION 6.02. Liquidity Facility..............................................................................VI-1
SECTION 6.03. Trustee not Responsible for Enforcement of Support Facility.....................................VI-2
SECTION 6.04. [Reserved]......................................................................................VI-2
SECTION 6.05. Payments Pursuant to any Direct Pay Facility; Condition
to Delivery of Direct Pay Facility..................................................VI-3
ARTICLE VII
GENERAL TERMS AND PROVISIONS OF BONDS
SECTION 7.01. Execution and Authentication of Bonds..................................................VII-1
SECTION 7.02. Books of Registry...............................................................................VII-1
SECTION 7.03. Transfer, Registration and Exchange of Bonds....................................................VII-1
SECTION 7.04. Mutilated, Lost, Stolen, or Destroyed Bonds.....................................................VII-2
SECTION 7.05. Temporary Bonds.................................................................................VII-3
SECTION 7.06. Disposition of Bonds............................................................................VII-4
ARTICLE VIII
ESTABLISHMENT OF THE PROJECT FUND
SECTION 8.01. Project Fund..........................................................................VIII-1
<PAGE>
Page
ARTICLE IX
CREATION OF SPECIAL FUNDS AND ACCOUNTS;
APPLICATION AND INVESTMENT OF REVENUES
SECTION 9.01. Creation of Funds and Accounts...................................................................IX-1
SECTION 9.02. Deposit of Note Payments.........................................................................IX-1
SECTION 9.03. Application of Monies in the Bond Fund...........................................................IX-4
SECTION 9.04. Application of Monies in the Rebate Fund.........................................................IX-5
SECTION 9.05. Investment of Funds..............................................................................IX-6
ARTICLE X
PARTICULAR COVENANTS OF THE AUTHORITY
SECTION 10.01. Payment of Principal of and Interest and Redemption Premium
on Bonds.............................................................................X-1
SECTION 10.02. Performance of Covenants.........................................................................X-1
SECTION 10.03. Further Instruments..............................................................................X-1
SECTION 10.04. Inspection of Project Books......................................................................X-1
SECTION 10.05. No Extension of Time of Payment of Interest......................................................X-1
SECTION 10.06. Trustee's, Auction Agent's, Market Agent's, Broker-Dealers',
Registrar and Paying Agent's and Indexing Agent's Fees,
Charges and Expenses.................................................................X-1
SECTION 10.07. Agreement of the State of New York...............................................................X-2
SECTION 10.08. Recording and Filing.............................................................................X-2
SECTION 10.09. Rights Under the Participation Agreement and the Note............................................X-2
ARTICLE XI
CONCERNING THE TRUSTEE; APPOINTMENT OF
REGISTRAR AND PAYING AGENT, MARKET AGENT,
AUCTION AGENT AND INDEXING AGENT
SECTION 11.01. Appointment of Trustee..........................................................................XI-1
SECTION 11.02. Indemnification of Trustee as Condition for Remedial Action.....................................XI-1
SECTION 11.03. Trustee Not Liable for Failure of the Authority or Company to Act...............................XI-2
SECTION 11.04. Certain Duties and Responsibilities of the Trustee..............................................XI-2
SECTION 11.05. Limitations on Obligations and Responsibilities of Trustee......................................XI-4
SECTION 11.06. Compensation and Indemnification of Trustee.....................................................XI-4
SECTION 11.07. Statements from Trustee.........................................................................XI-5
SECTION 11.08. Notice of Default...............................................................................XI-5
SECTION 11.09. Trustee May Deal in Bonds.......................................................................XI-5
SECTION 11.10. Trustee Not Responsible For Recitals............................................................XI-6
<PAGE>
Page
SECTION 11.11. Qualification of the Trustee....................................................................XI-6
SECTION 11.12. Resignation and Removal of Trustee..............................................................XI-6
SECTION 11.13. Successor Trustee...............................................................................XI-7
SECTION 11.14. Appointment of Market Agent.....................................................................XI-8
SECTION 11.15. Appointment of Registrar and Paying Agent.......................................................XI-9
SECTION 11.16. General Provisions Regarding Registrar and Paying Agent.........................................XI-9
SECTION 11.17. Payment of Registrar and Paying Agent; Indemnification.........................................XI-10
SECTION 11.18. Registrar and Paying Agent's Performance; Duty of Care.........................................XI-10
SECTION 11.19. Qualifications of Registrar and Paying Agent...................................................XI-11
SECTION 11.20. Resignation or Removal of Registrar and Paying Agent and
Successor to Registrar and Paying Agent; Termination of
Registrar and Paying Agent's Obligations...........................................XI-11
SECTION 11.21. Appointment of Auction Agent; Qualifications of Auction Agent,
Resignation; Removal..............................................................XI-12
SECTION 11.22. Appointment of Broker-Dealers..................................................................XI-13
SECTION 11.23. Appointment of Additional Paying Agents; Each Paying Agent
to Hold Money in Trust.............................................................XI-13
SECTION 11.24. Appointment and Duties of Indexing Agents.....................................................XI-13
SECTION 11.25. Qualifications of Indexing Agents.............................................................XI-14
ARTICLE XII
EVENTS OF DEFAULT; REMEDIES UPON
OCCURRENCE THEREOF
SECTION 12.01. Events of Default.............................................................................XII-1
SECTION 12.02. Notice to Holders and Others Upon Occurrence of an
Event of Default or a Failure to Deposit...........................................XII-2
SECTION 12.03. Declaration of Principal and Interest As Due..................................................XII-2
SECTION 12.04. Action by Trustee Upon Occurrence of Event of Default.........................................XII-3
SECTION 12.05. Powers of Trustee With Respect to Participation Agreement
and Other Agreements...............................................................XII-4
SECTION 12.06. Disposition of Monies in Event of Insufficiencies in Funds
and Accounts.......................................................................XII-5
SECTION 12.07. Effect of Delay or Omission; Waiver of Default; Direction
of Remedial Proceedings by the Holders.............................................XII-7
SECTION 12.08. Suits or Actions by Holders; Any Holder May Enforce
Overdue Payment of His Bond or Interest Thereon....................................XII-8
SECTION 12.09. Remedies Not Exclusive........................................................................XII-9
SECTION 12.10. Effect of Abandonment of Proceedings on Default...............................................XII-9
SECTION 12.11. Interest on Overdue Amounts...................................................................XII-9
<PAGE>
Page
ARTICLE XIII
EXECUTION OF INSTRUMENTS BY BONDHOLDERS AND
OWNERSHIP OF BONDS; EXCLUSION OF BONDS
OWNED BY THE AUTHORITY OR THE COMPANY
SECTION 13.01. Execution of Requests, Directions and Consents and
Other Instruments and Proof of Same; Ownership of Bonds
and Proof of Same.................................................................XIII-1
SECTION 13.02. Meetings of Holders..........................................................................XIII-2
SECTION 13.03. Exclusion of Bonds Held by or for the Authority, the Company
and of Bonds No Longer Deemed Outstanding Hereunder...............................XIII-3
ARTICLE XIV
AMENDING AND SUPPLEMENTING THE INDENTURE,
THE PARTICIPATION AGREEMENT, THE MARKET AGENT AGREEMENT,
AUCTION AGENCY AGREEMENT, BROKER-DEALER AGREEMENTS,
BOND PURCHASE TRUST AGREEMENT
SECTION 14.01. Amending and Supplementing Indenture Without Consent
of Holders.........................................................................XIV-1
SECTION 14.02. Amending and Supplementing Indenture with Consent
of Holders.........................................................................XIV-2
SECTION 14.03. Notation upon Bonds; New Bonds Issued upon Amendments.........................................XIV-3
SECTION 14.04. Effectiveness of Supplemental Indentures......................................................XIV-3
SECTION 14.05. Supplemental Indenture Affecting Support Facility Provider....................................XIV-4
SECTION 14.06. Supplemental Participation Agreements Not Requiring the
Consent of the Holders............................................................XIV-4
SECTION 14.07. Notice and Consent for Supplemental Participation Agreements
Requiring the Consent of the Holders...............................................XIV-4
SECTION 14.08. Effectiveness of Supplemental Participation Agreement.........................................XIV-5
SECTION 14.09. Amending and Supplementing the Market Agent Agreement,
Auction Agency Agreement, Broker-Dealer Agreements
or Bond Purchase Trust Agreement...................................................XIV-5
SECTION 14.10. Notice of Certain Amendments to Rating Agencies...............................................XIV-5
ARTICLE XV
DEFEASANCE; MONEYS HELD FOR PAYMENT OF
DEFEASED BONDS
SECTION 15.01. Discharge of Liens and Pledges; Bonds No Longer Deemed to be
Outstanding Hereunder...............................................................XV-1
<PAGE>
Page
SECTION 15.02. Release of Indenture, Termination of Right, Title and Interest
of Trustee..........................................................................XV-2
SECTION 15.03. Bonds Not Presented for Payment When Due; Monies Held for the
Bonds after Due Date of Bonds.......................................................XV-3
SECTION 15.04. Special Defeasance Provisions..................................................................XV-3
ARTICLE XVI
FORM OF BONDS
AND ENDORSEMENT AND ASSIGNMENT PROVISIONS
SECTION 16.01. Form of Bonds and Endorsement and Assignment Provisions.......................................XVI-1
ARTICLE XVII
MISCELLANEOUS
SECTION 17.01. Benefits of Indenture Limited to Authority, Company, Trustee,
Registrar, Paying Agent, Auction Agent, any Support Facility
Issuer and Holders of the Bonds...................................................XVII-1
SECTION 17.02. Indenture a Contract; Indenture Binding Upon Successors or
Assigns of the Authority..........................................................XVII-1
SECTION 17.03. Notice to Holders of Bonds...................................................................XVII-1
SECTION 17.04. Waiver of Notice.............................................................................XVII-1
SECTION 17.05. Effect of Saturdays, Sundays and Non-Business Days...........................................XVII-2
SECTION 17.06. Partial Invalidity...........................................................................XVII-2
SECTION 17.07. Law and Place of Enforcement of Indenture....................................................XVII-2
SECTION 17.08. Requests, Approvals and Directions of Authority..............................................XVII-2
SECTION 17.09. Notices, Demands; Requests...................................................................XVII-2
SECTION 17.10. Effect of Article and Section Headings and Table of Contents.................................XVII-4
SECTION 17.11. Indenture May be Executed in Counterparts; Effectiveness
of Indenture......................................................................XVII-4
SECTION 17.12. Liability of Authority Limited to Revenues...................................................XVII-4
SECTION 17.13. Waiver of Personal Liability.................................................................XVII-4
</TABLE>
Exhibit 4.11
EXECUTION COPY
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
AND
THE CHASE MANHATTAN BANK,
as Trustee
--------------------------------------
FIRST SUPPLEMENTAL TRUST INDENTURE
Dated as of January 1, 2000
to
TRUST INDENTURE
Dated as of January 1, 1997
---------------------------------------
relating to
$125,000,000 Gas Facilities Revenue Bonds, 1997 Series A
(The Brooklyn Union Gas Company Project)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Parties1
Recitals1
ARTICLE I
AUTHORIZATION; DEFINITIONS
SECTION 1.01. Supplemental Indenture........................2
SECTION 1.02. Definitions...................................2
ARTICLE II
AMENDMENTS TO THE INDENTURE
SECTION 2.01. Amendment to Section 1.01 of the Indenture......................2
SECTION 2.02. Amendment to Section 1.01 of the Indenture......................3
SECTION 2.03. Amendment to the definition of "Auction Period" in
Section 1.01 of the Indenture...................................3
SECTION 2.04. Amendment to the definition of "Broker-Dealer" in
Section 1.01 of the Indenture...................................3
SECTION 2.05. Amendment to the definition of "Broker-Dealer Agreement"
in Section 1.01 of the Indenture................................3
SECTION 2.06. Amendment to the definition of "Commercial
Paper/Treasury Rate" in Section 1.01 of the Indenture..... 4
SECTION 2.07. Amendment to the definition of "Interest Payment Date" in
Section 1.01 of the Indenture...................................4
SECTION 2.08. Replacement of the definition of "Lehman Brothers Money
Market Municipal Index" with the definition of "Short Term
Tax-Exempt Rate Index" in Section 1.01 of the Indenture.........4
SECTION 2.09. Replacement of the term "Lehman Brothers Money Market
Municipal Index" with the term "Short-Term Tax-Exempt
Rate Index" throughout the Indenture............................5
SECTION 2.10. Amendment to the definition of "Potential Holder" in
Section 1.01 of the Indenture...................................5
SECTION 2.11. Amendment to the definition of "SAVRS Rate Period" in
Section 1.01 of the Indenture...................................6
(i)
<PAGE>
SECTION 2.12. Amendment to the definition of "Support Facility" in
Section 1.01 of the Indenture...................................6
SECTION 2.13. Amendment to Section 3.04 of the Indenture......................6
SECTION 2.14. Amendment to Section 3.05 of the Indenture......................7
SECTION 2.15. Amendment to Section 3.06 of the Indenture......................8
SECTION 2.15. Amendment to paragraph (a) of Section 3.07
of the Indenture................................................9
SECTION 2.16. Amendment to paragraph (a) of Section 3.08
of the Indenture...............................................10
SECTION 2.17. Amendment to paragraph (b) of Section 3.08
of the Indenture...............................................11
SECTION 2.18. Amendment to Section 3.09 of the Indenture.................... 11
SECTION 2.19. Amendment to Section 4.01 of the Indenture.....................12
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Effective Date; counterparts...................................12
SECTION 3.02. Acceptance.....................................................12
(ii)
<PAGE>
THIS FIRST SUPPLEMENTAL TRUST INDENTURE, made and dated as of January 1,
2000 (the "First Supplemental Indenture") to the TRUST INDENTURE made and dated
as of January 1, 1997 (the "Indenture") by and between NEW YORK STATE ENERGY
RESEARCH AND DEVELOPMENT AUTHORITY (the "Authority"), a body corporate and
politic, constituting a public benefit corporation, and THE CHASE MANHATTAN BANK
(together with any successor trustee appointed in accordance with the terms of
such Indenture of Trust, hereinafter referred to as the "Trustee"), a
corporation organized and existing under and by virtue of the laws of the State
of New York, with its corporate trust office located in New York, New York, as
trustee,
W I T N E S S E T H T H AT:
WHEREAS, pursuant to special act of the Legislature of the State of New
York (Title 9 of Article 8 of the Public Authorities Law of New York, as from
time to time amended and supplemented, herein called the "Act"), the Authority
has been established as a body corporate and politic, constituting a public
benefit corporation; and
WHEREAS, pursuant to the Act, the Authority is empowered to contract with
any gas company to participate in the construction of facilities to be used for
the furnishing of gas to the extent required by the public interest in
development, health, recreation, safety, conservation of natural resources and
aesthetics; and
WHEREAS, the Authority and The Brooklyn Union Gas Company (the "Company")
have entered into a Participation Agreement, dated as of January 1, 1997 (herein
raftered to as the "Participation Agreement"), providing for the refunding of
Gas Facilities Revenue Bonds (The Brooklyn Union Gas Company Project) Series
1985 I in the principal amount of $62,500,000 and Series 1985 II in the
principal amount of $62,500,000 (the "Prior Bonds") of the Authority which were
issued to finance the acquisition, construction and installation of certain
facilities for the furnishing of gas within the Company's service area and as
part of such participation, that the Authority issue bonds pursuant to the Act
to provide funds to refund the Prior Bonds; and
WHEREAS, the Authority issued its Gas Facilities Revenue Bonds, 1997 Series
A (The Brooklyn Union Gas Company Project) (the "Bonds"), in an aggregate
principal amount of $125,000,000 (the "Bonds") under and pursuant to Resolution
No. 886 of the Authority, adopted December 2, 1996 (the "Resolution"), for the
purpose of paying all or portion of the redemption price of the Prior Bonds; and
WHEREAS, Section 14.02 of the Indenture provides that the Authority and the
Trustee may, in accordance with the terms thereof, modify, amend or supplement
the Indenture; and
WHEREAS, the Company has requested that the Indenture be amended to clarify
certain terms of the Indenture and conform certain terms of the Indenture
relating to SAVRS
1
<PAGE>
Bonds during a SAVRS Rate Period with the current market standards for such
SAVRS Bonds; and
WHEREAS, all acts, conditions and things necessary or required by the
Constitution and statutes of the State of New York or otherwise, to exist,
happen, and be performed as prerequisites to the execution of this First
Supplemental Indenture, do exist, have happened, and have been performed; and
WHEREAS, all consents and notices required to be obtained and given as
conditions to the passage of this First Supplemental Indenture pursuant to the
Indenture and all other documents relating to the Bonds have been obtained and
given;
NOW, THEREFORE, for and in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Authority agrees with the
Trustee and with the respective owners, from time to time, of the Bonds or any
part thereof as follows:
ARTICLE I
AUTHORIZATION; DEFINITIONS
SECTION 1.01.Supplemental Indenture. This First Supplemental Indenture
----------------------------
is supplemental to, and is entered into in accordance
with Article XIV of the Indenture; and except as modified, amended and
supplemented by this First Supplemental Indenture, the provisions of the
Indenture are in all respects ratified and confirmed and shall remain in full
force and effect.
SECTION 1.02. Definitions. Unless the context shall otherwise require, all
terms which are defined in Section 1.01 of the Indenture shall have
the same meanings, respectively, in this First Supplemental Indenture as such
terms are given in said Section 1.01 of the Indenture.
ARTICLE II
AMENDMENTS TO THE INDENTURE (1)
SECTION 2.01. Amendment to Section 1.01 of the Indenture. Section 1.01
is hereby amended to add the
following definition:
(1)Striked-out language reflects language deleted by this First
Supplemental Indenture from the Indenture and underscored language reflects
language added by this First Supplemental Indenture to the Indenture.
2
<PAGE>
""Beneficial Owner" shall mean with respect to the SAVRS Bonds during a SAVRS
------------------
Rate Period, a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of the SAVRS
Bonds."
SECTION 2.02. Amendment to Section 1.01 of the Indenture. Section 1.01is hereby
amended to add the following definition:
""BMA Index" shall mean The Bond Market Association Municipal Swap
Index released by Municipal Market Data to its subscribers."
SECTION 2.03. Amendment to the definition of "Auction Period" in Section 1.01 of
the Indenture. The definition of "Auction Period" in Section 1.01 of the
Indenture is hereby amended to read as follows:
""Auction Period" shall mean (i) in the event the Bonds are issued initially as
SAVRS Bonds during a SAVRS Rate Period, the period from and including the
Closing Date to and including the initial Auction Date and (ii) thereafter, or
after a Change in the Interest Rate Mode to a SAVRS Rate, during a SAVRS Rate
Period, until the effective date of a Change in the Interest Rate Mode, the
effective date of a conversion to the Fixed Rate or the maturity of the Bonds,
each period from and including the last Interest Payment Date for the
immediately preceding Auction Period or Calculation Period, as the case may be,
to and including the next succeeding Auction Date or, in the event of a Change
in the Interest Rate Mode or a conversion to a Fixed Rate, to but excluding the
effective date of such change or conversion, provided, if any day that would be
the last day of any such period does not immediately precede a Business Day,
such period shall end on the next day which immediately precedes a Business
Day."
SECTION 2.04. Amendment to the definition of "Broker-Dealer" in Section
1.01 of the Indenture. The definition of "Broker-Dealer" in Section 1.01 of
the Indenture is hereby amended to read as follows:
""Broker-Dealer" shall mean any broker-dealer (as defined in the Securities
Exchange Act), commercial bank or other entity permitted by law to perform
the functions required of a Broker-Dealer set forth in the Auction
Procedures (i) that is an Agent Member (or an affiliate of an Agent
Member), (ii) that has been selected by the Auction Agent and the Company
with the consent of the Authority, (iii) that has entered into a Broker-
Dealer Agreement with the Auction Agent and the Company that remains
effective and (iv) after the occurrence and during the continuance of a
Company Downgrade Event that is reasonably acceptable to the Bond Insurer."
SECTION 2.05. Amendment to the definition of "Broker-Dealer Agreement" in
Section 1.01 of the Indenture. The definition of "Broker-Dealer Agreement"
in Section 1.01 of the Indenture is hereby amended to read as follows:
3
<PAGE>
""Broker-Dealer Agreement" shall mean each agreement applicable to the
SAVRS Bonds during a SAVRS Rate Period or the SAVRS
Bonds during a SAVRS-RIBS Rates Period, as the case may be, among a
Broker-Dealer, the Company and the Auction Agent pursuant to which the
Broker-Dealer, among other things, agrees to participate in Auctions as set
forth in the Auction Procedures, as from time to time amended and
supplemented."
SECTION 2.06. Amendment to the definition of "Commercial Paper/Treasury
Rate" in Section 1.01 of the Indenture. The second sentence in the first
paragraph of the definition of "Commercial Paper/Treasury Rate" in Section
1.01 of the Indenture is hereby amended to read as follows:
" The foregoing rates shall in all cases, except with respect to the
Treasury Rate, be rates on commercial paper placed on behalf of issuers
whose corporate bonds are rated "AA" by S&P, or the equivalent of such
rating by Moody's, as made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately
preceding such date of determination, or in the event that the Federal
Reserve Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers, to the Auction Agent for the
close of business on the Business Day immediately preceding such date of
determination."
SECTION 2.07. Amendment to the definition of "Interest Payment Date" in
Section 1.01 of the Indenture. Paragraph (b) of the definition of "Interest
Payment Date" in Section 1.01 of the Indenture is hereby amended to read as
follows:
"(b) during a SAVRS Rate Period (i) for an Auction Period of 91 days or
less, the Business Day immediately succeeding such Auction Period and (ii)
for an Auction Period of more than 91 days, each 91st day after the first
day of such Auction Period and the Business Day immediately succeeding such
Auction Period"
SECTION 2.08. Replacement of the definition of "Lehman Brothers Money
Market Municipal Index" with the definition of "Short Term Tax-Exempt Rate
Index" in Section 1.01 of the Indenture. Section 1.01 of the Indenture is
hereby amended to replace the definition of "Lehman Brothers Money Market
Municipal Index" with the following definition:
"Short Term Tax-Exempt Rate Index" shall mean:
---------------------------------------------
(i) with respect to a SAVRS Rate during a SAVRS Rate Period and a 7-day
Auction Period, on the date of the calculation of the Maximum Auction Rate,
the Minimum Auction Rate or the Overdue Rate, the most recent BMA Index;
and
(ii) with respect to a SAVRS Rate during a SAVRS Rate Period and an Auction
Period that exceeds 7 days, and with respect to a SAVRS Rate during a SAVRS
Rate-RIBS Rate Period, the average of yield evaluations at par, determined
by the Indexing Agent on the date of
4
<PAGE>
the calculation of the Maximum Rate, the Minimum Rate, the Maximum SAVRS Rate,
the Minimum SAVRS Rate or Overdue Rate, of securities (whether or not actually
issued) all of which shall have a term as near as practicable to then effective
Auction Period or Interest Period or which are subject to optional or mandatory
tender by the owner thereof at the end of a term as near as practicable to such
Auction Period or Interest Period, the interest on which is not included in
gross income for federal income tax purposes, of no fewer than twenty Component
Issuers selected by the Indexing Agent, including issuers of commercial paper,
project notes, bond anticipation notes and tax anticipation notes, computed by
the Indexing Agent on and as of such day. If the Bonds are rated by a Rating
Agency in its highest note or commercial paper rating category or one of its two
highest long-term debt rating categories, each Component Issuer must (a) have
outstanding securities rated by a Rating Agency in its highest note or
commercial paper rating category or (b) not have outstanding notes or commercial
paper rated by a Rating Agency but have outstanding securities rated by a Rating
Agency in one of its two highest long-term debt rating categories. If the Bonds
are rated by a Rating Agency in a rating category that is lower than its highest
note or commercial paper rating category or its two highest long-term debt
rating categories (and the Bonds are not rated in one of such categories by the
other Rating Agency), each Component Issuer must (a) have outstanding securities
rated by a Rating Agency in its note or commercial paper rating category which
is the same or correlative, in the Indexing Agent's judgment, to the note or
commercial paper rating category or the long-term debt rating category of the
Bonds or (b) have outstanding securities rated by a Rating Agency in the same
long-term debt rating category as the Bonds are rated by that Rating Agency and
not have any outstanding notes or commercial paper rated by such Rating Agency.
The Indexing Agent may change the Component Issuers from time to time in its
discretion, subject to the foregoing requirements. In addition, at the request
of the Company and upon delivery to the Trustee and the Bond Insurer of an
Opinion of Bond Counsel that such action will not adversely affect the exclusion
of interest on the Bonds from gross income of the owners thereof for federal
income tax purposes, the Authority, with the consent of the Company, may
designate a new method of setting the Short Term Tax-Exempt Rate Index in the
event any of the above-described methods are determined by the Authority to be
unavailable, impracticable or unrealistic in the market place. Upon the
occurrence and during the continuance of a Company Downgrade Event, the Bond
Insurer shall have the right to consent to any change to the Component Issuers
and any change in the method of setting the Short Term Tax-Exempt Rate Index,
which consent shall not be unreasonably withheld."
SECTION 2.09. Replacement of the term "Lehman Brothers Money Market
Municipal Index" with the term "Short-Term Tax-Exempt Rate Index"
throughout the Indenture. The Indenture is hereby amended to replace the
term "Lehman Brothers Money Market Municipal Index" with the term "Short
Term Tax-Exempt Rate Index" throughout the Indenture.
SECTION 2.10. Amendment to the definition of "Potential Holder" in Section
1.01 of the Indenture. The definition of "Potential Holder" in Section 1.01
of the Indenture is hereby amended to read as
follows:
5
<PAGE>
""Potential Holder" shall mean (i) with respect to any SAVRS Bonds during a
SAVRS and related RIBS Rate Period, any person, including
any Existing Holder, (A) who shall have executed a Purchaser's Letter (or
whose Broker-Dealer shall have executed a Purchaser's Letter), and (B) who
may be interested in acquiring the beneficial ownership of SAVRS Bonds or,
in the case of an Existing Holder thereof, the beneficial ownership of an
additional principal amount of SAVRS Bonds and (ii) with respect to any
SAVRS Bonds during a SAVRS Rate Period, a Broker-Dealer that is not an
Existing Holder or that is an Existing Holder that wishes to become an
Existing Holder of an additional principal amount of SAVRS Bonds."
SECTION 2.11. Amendment to the definition of "SAVRS Rate Period" in Section
1.01 of the Indenture. The definition of "SAVRS Rate Period" in Section
1.01 of the Indenture is hereby amended to read as follows:
""SAVRS Rate Period" shall mean any period during which the SAVRS Bonds
-----------------
bear interest at a SAVRS Rate determined pursuant to the implementation of
Auction Procedures established under Article III, which period shall commence on
the Closing Date if the Bonds initially are offered as SAVRS Bonds, or on the
effective date of a Change in the Interest Rate Mode to a SAVRS Rate, as the
case may be, and shall extend through the day immediately preceding the earlier
of (a) the effective date of a Change in the Interest Rate Mode, (b) the Fixed
Rate Conversion Date, or (c) the Stated Maturity."
SECTION 2.12. Amendment to the definition of "Support Facility" in Section
1.01 of the Indenture. The definition of "Support Facility" in Section 1.01
of the Indenture is hereby amended to read as
follows:
""Support Facility" shall mean any instrument satisfactory to the Authority
entered into or obtained in connection with the Bonds in order to obtain a
rating or ratings on the Bonds, such as a letter of credit, committed line
of credit, insurance policy, surety bond or standby bond purchase
agreement, or any combination of the foregoing, and issued by a bank or
banks, insurance company, other financial institution or institutions, or
any combination of the foregoing which Support Facility provides for the
payment of (i) the purchase price equal to the principal of and accrued
interest on Bonds delivered to the Registrar and Paying Agent and/or (ii)
principal of and interest on all Bonds coming due and payable during the
term thereof."
SECTION 2.13. Amendment to Section 3.04 of the Indenture. Clause (A) in
Paragraph 2 of Section 3.04 of the Indenture is hereby amended to read as
follows:
"(A) the Trustee, the Bond Insurer and the Auction Agent
receive, by 11:00 a.m.
(New York City time) on the Business Day immediately preceding the Auction Date
for such Auction Period, a certificate from the Authority, on behalf of the
Company, by telecopy or similar means in substantially the form attached hereto
as, or containing
6
<PAGE>
substantially the information contained in, Exhibit J authorizing the change in
the Auction Period or the Standard Auction Period, which shall be specified in
such certificate, and confirming that Bond Counsel expects to be able to give an
Opinion of Bond Counsel on the first day of such Auction Period,"; and
Section 3.04 of the Indenture is hereby amended to add a new paragraph 3 to
read as follows:
"3. In the event of a Change in the Interest Rate Mode to a SAVRS Rate
during a SAVRS Rate Period, the Authority, at the request of the Company,
shall determine the length of the initial Auction Period and may change the
length of a single Auction Period or the Standard Auction Period by means
of a written notice delivered on or prior to the effective date of such
Change in the Interest Rate Mode to a SAVRS Rate during a SAVRS Rate Period
to the Trustee, the Market Agent, the Auction Agent, the Bond Insurer and
the Securities Depository. Notwithstanding anything to the contrary in
paragraphs 1 and 2 of this Section 3.04, the determination of the initial
Auction Period shall take effect on the effective date of such Change in
the Interest Rate Mode to a SAVRS Rate during a SAVRS Rate Period.
Notwithstanding anything to the contrary in paragraphs 1 and 2 of this
Section 3.04, the change in the length of a single Auction Period or the
Standard Auction Period shall take effect only if the Trustee, the Bond
Insurer and the Auction Agent receive on the effective date of such Change
in the Interest Rate Mode to a SAVRS Rate during a SAVRS Rate Period, an
opinion of Bond Counsel to the effect that the change in the Auction Period
or the Standard Auction Period is authorized by this Indenture, is
permitted under the Act and will not have an adverse effect on the
exclusion of interest on such Bonds from gross income for federal income
tax purposes."
SECTION 2.14. Amendment to Section 3.05 of the Indenture. The third and
fourth sentence in Section 3.05 of the Indenture are hereby amended to read
as follows:
"The Market Agent shall communicate its determination to change an
Auction Date by means of a written notice delivered at least 10 days
prior to the Auction Date immediately preceding such Auction Date, or
with respect to a Change in the Interest Rate Mode to a SAVRS Rate
during a SAVRS Rate Period on or prior to the effective date of such
Change in the Interest Rate Mode, to the Authority, the Trustee, the
Auction Agent, the Company, the Bond Insurer and the Securities
Depository which shall state (i) the determination of the Market Agent
to change the Auction Date, (ii) the new Auction Date and (iii) the
date on which such Auction Date shall be changed. If after any
proposed change in the Auction Date any Auction Period would be less
than 28 days in duration, such notice shall be effective only if it is
accompanied by a written statement of the Auction Agent, the Registrar
and Paying Agent and the Trustee to the effect that they are capable
of performing their duties hereunder and under the Auction Agency
Agreement with respect to any such Auction Period."
<PAGE>
SECTION 2.15. Amendment to Section 3.06 of the Indenture. Section 3.06
of the Indenture is hereby amended to read as follows:
"(a) Prior to the Submission Deadline on each Auction Date during the
SAVRS Rate Period, the following orders may be submitted:
(i) each Beneficial Owner may submit to the Broker-Dealer information
as to:
(A) the principal amount of SAVRS Bonds, if any,
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the SAVRS
Rate for the next succeeding Auction Period;
(B) the principal amount of SAVRS Bonds, if any,
held by such Beneficial Owner which such Beneficial Owner
offers to sell if the SAVRS Rate for the next succeeding
Auction Period shall be less than the rate per annum
specified by such Beneficial Owner and/or
(C) the principal amount of SAVRS Bonds, if any,
held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the SAVRS Rate for the
next succeeding Auction Period;
(ii) one or more Broker-Dealers may contact Potential
Beneficial Owners by telephone or otherwise to determine the
principal amount of SAVRS Bonds which each such Potential Beneficial
Owner offers to purchase if the SAVRS Rate for the next succeeding
Auction Period shall not be less than the interest rate per annum
specified by such Potential Beneficial Owner.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B) or (i)(C) or clause (ii) above is
hereinafter referred to as an "Order" and each Beneficial Owner and Potential
Beneficial Owner placing an Order is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (i)(A) above is
hereinafter referred to as a "Hold Order"; an Order containing the information
referred to in clause (i)(B) or clause (ii) above is hereinafter referred to as
a "Bid"; and an Order containing the information referred to in clause (i)(C)
above is hereinafter referred to as a "Sell Order". The submission by a
Broker-Dealer of an Order to the Auction Agent shall likewise be referred to
herein as an "Order" and an Existing Holder or Potential Holder who places an
Order with the Auction Agent shall likewise be referred to herein as a "Bidder."
Orders may be submitted in principal amounts of $50,000 or any
integral multiple thereof.
<PAGE>
(b) (i) Subject to the provisions of Section 3.07, a Bid by
a Beneficial Owner or an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the principal amount of Outstanding SAVRS
Bonds specified in such Bid if the SAVRS Rate determined on
such Auction Date shall be less than the interest rate per
annum specified therein; or
(B) such principal amount or a lesser principal
amount of Outstanding SAVRS Bonds to be determined as set
forth in subsection (a)(iv) of Section 3.09 if the SAVRS
Rate determined on such Auction Date shall be equal to the
interest rate per annum specified therein; or
(C) such principal amount or a lesser principal
amount of Outstanding SAVRS Bonds to be determined as set
forth in subsection (b)(iii) of Section 3.09 if such
specified rate shall be higher than the Maximum SAVRS Rate
and Sufficient Clearing Bids do not exist.
(ii) Subject to the provisions of Section 3.07, a Sell
Order by a Beneficial Owner or an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the principal amount of SAVRS Bonds specified in such Sell
Order; or
(B) such principal amount or a lesser principal
amount of SAVRS Bonds as set forth in subsection (b)(iii)
of Section 3.09 if Sufficient Clearing Bids do not exist.
(iii) Subject to the provisions of Section 3.07,
a Bid by a Potential Beneficial Owner or a Potential Holder
shall constitute an irrevocable offer to purchase:
(A) the principal amount of SAVRS Bonds specified
in such Bid if the SAVRS Rate determined on such Auction
Date shall be higher than the rate specified therein; or
(B) such principal amount or a lesser principal
amount of SAVRS Bonds as set forth in subsection (a)(v) of
Section 3.09 if the SAVRS Rate determined on such Auction
Date shall be equal to such specified rate."
SECTION 2.15. Amendment to paragraph (a) of Section 3.07 of
the Indenture. Paragraph (a) of Section 3.08 of the
Indenture is hereby amended to read as follows:
9
<PAGE>
"(a) During a SAVRS Rate Period each Broker-Dealer shall
submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date during the SAVRS
Rate Period, all Orders obtained by such Broker-Dealer,
designating itself as (a) an Existing Holder in respect of
the principal amount of SAVRS Bonds subject to Orders
submitted or deemed submitted to it by Beneficial Owners or
(b) a Potential Holder in respect of the principal amount of
the SAVRS Bonds subject to Orders submitted or deemed
submitted to it by Potential Beneficial Owners, and shall
specify with respect to each such Order:
(i) the name of the Bidder placing such Order;
(ii) the aggregate principal amount of SAVRS Bonds that are
subject to such Order;
(iii) to the extent that such Bidder is a Beneficial Owner:
(A) the principal amount of SAVRS Bonds, if any, subject to
any Hold Order placed by such Existing Holder;
(B) the principal amount of SAVRS Bonds, if any, subject to
any Bid placed by such Existing Holder and the rate
specified in such Bid; and
(C) the principal amount of SAVRS Bonds, if any, subject to
any Sell Order placed by such Existing Holder; and
(iv) to the extent such Bidder is a Potential
Beneficial Owner, the rate specified in such Potential
Holder's Bid."
SECTION 2.16. Amendment to paragraph (a) of Section 3.08 of the Indenture.
Clauses (i) and (ii) of paragraph (a) of Section 3.08 of the Indenture are
hereby amended to read as follows:
"(v) the excess of the total principal amount of
Outstanding SAVRS Bonds over the aggregate principal amount of
Outstanding SAVRS Bonds subject to Submitted Hold Orders (such excess
being hereinafter referred to as the "Available SAVRS Bonds"); and
(ii) from the Submitted Orders whether the aggregate
principal amount of SAVRS Bonds subject to Submitted Bids by
Potential Holders specifying one or more rates equal to or lower than
the Maximum SAVRS Rate exceeds or is equal to the sum of:
(D) the aggregate principal amount of SAVRS Bonds subject
to Submitted Bids by Existing Holders specifying one or
more rates higher than the Maximum SAVRS Rate; and
10
<PAGE>
(E) the aggregate principal amount of SAVRS Bonds subject to
Submitted Sell Orders
(in the event of such excess or such equality (other than because the
sum of the principal amounts of SAVRS Bonds in clauses (A) and (B)
above is zero because all of the Outstanding SAVRS Bonds are subject
to Submitted Hold Orders), such Submitted Bids by Potential Holders
are hereinafter referred to collectively as "Sufficient Clearing
Bids");"
SECTION 2.17 Amendment to paragraph (b) of Section 3.08 of the Indenture.
Clauses (ii)and (iii) of paragraph (b) of Section 3.08 of the Indenture are
hereby amended to read as follows:
"(ii) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding SAVRS Bonds are the subject of
Submitted Hold Orders), the SAVRS Rate for the next succeeding
Auction Period therefor shall be equal to the Maximum SAVRS Rate; and
(iii) if all of the Outstanding SAVRS Bonds are subject to
Submitted Hold Orders, the SAVRS Rate for the next succeeding Auction
Period therefor shall be equal to the Minimum SAVRS Rate."
SECTION 2.18. Amendment to Section 3.09 of the Indenture. Paragraphs
(b) and (c) of Section 3.09 of the Indenture are hereby amended to read as
follows:
"(b) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding SAVRS Bonds are subject to Submitted Hold
Orders), subject to the provisions of subsection (e) of this Section 3.09,
Submitted Orders shall be accepted or rejected as follows in the following
order of priority and all other Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum SAVRS
Rate shall be rejected, thus entitling each such Existing
Holder to continue to hold the aggregate principal amount
of SAVRS Bonds subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids specifying
any rate that is equal to or lower than the Maximum SAVRS
Rate shall be accepted, thus requiring each such Potential
Holder to purchase the aggregate principal amount of SAVRS
Bonds subject to such Submitted Bids; and
(iii) each Existing Holder's Submitted Bid
specifying any rate that is higher than the Maximum SAVRS
Rate and the Submitted Sell Order of each Existing Holder
shall be accepted, thus entitling each Existing Holder that
submitted any such Submitted Bid or Submitted Sell Order to
sell the SAVRS Bonds subject to
11
<PAGE>
such Submitted Bid or Submitted Sell Order, but in both
cases only in an amount equal to the aggregate principal
amount of SAVRS Bonds obtained by multiplying the aggregate
principal amount of SAVRS Bonds subject to Submitted Bids
described in paragraph (ii) of this subsection (b) by a
fraction, the numerator of which shall be the aggregate
principal amount of SAVRS Bonds held by such Existing
Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the aggregate
principal amount of Outstanding SAVRS Bonds subject to all
such Submitted Bids and Submitted Sell Orders.
(c) If all Outstanding SAVRS Bonds are subject to Submitted Hold
Orders, all Submitted Bids shall be rejected."
SECTION 2.19. Amendment to Section 4.01 of the Indenture. Subparagraph
(ii) of Section 4.01.3(A) of the Indenture are hereby amended to read
as follows:
"(ii) by 11:00 a.m. (New York City time) on the second Business Day
prior to the effective date of such Change in the Interest Rate Mode by
telecopy or other similar means, a certificate in substantially the form
attached hereto as, or containing substantially the information contained
in, Exhibit Q, from the Authority on behalf of the Company (y) authorizing
the establishment of the new Adjustable Rate and (z) confirming that Bond
Counsel has advised the Authority that it expects to be able to give an
opinion on the effective date of such Change in the Interest Rate Mode to
the effect that such Change in the Interest Rate Mode is authorized by this
Indenture, is permitted under the Act and will not have an adverse effect
on the exclusion of interest on the SAVRS Bonds during a SAVRS Rate Period
or the SAVRS-RIBS Bonds during a SAVRS-RIBS Rates Period from gross income
for federal income tax purposes;"
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Effective Date; counterparts. This First Supplemental
Indenture shall become effective upon execution and delivery and may be
executed in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument.
SECTION 3.02. Acceptance. The Trustee accepts the trusts created by
the Indenture, as supplemented by this First Supplemental Indenture, and
agrees to perform the same upon the terms and conditions in the Indenture,
as so supplemented. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this First
Supplemental Indenture or the due execution hereof by the Authority or for
or in respect of the recitals contained herein, all of which are made by
the Authority solely.
12
<PAGE>
IN WITNESS WHEREOF, the Authority has caused this First Supplemental
Indenture to be executed by its President and its corporate seal to be
hereunto affixed and attested by its Secretary, and the Trustee has caused
this First Supplemental Indenture to be executed and attested by its duly
Authorized officers, all as of the date first above written.
NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
By
President
(SEAL)
Attest:
Secretary to the Board and
Vice President for
Governmental Relations
THE CHASE MANHATTAN BANK,
as Trustee
By
Name:
Title:
Attest:
Name:
Title:
A-1
Exhibit 4.12
EXECUTION COPY
$700,000,000
CREDIT AGREEMENT
among
KEYSPAN CORPORATION,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
CITIBANK, N.A.,
as Syndication Agent,
EUROPEAN AMERICAN BANK,
as Documentation Agent,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of November 8, 1999
CHASE SECURITIES INC., Lead Arranger and Book Manager
509253-0191-02261-99A5F10H-CRA
<PAGE>
i
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1. DEFINITIONS......................................................................1
1.1 Defined Terms...................................................................1
1.2 Other Definitional Provisions..................................................13
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.................................................14
2.1 Commitments....................................................................14
2.2 Competitive Bid Procedure......................................................14
2.3 Procedure for Loan Borrowing...................................................16
2.4 Facility Fees, etc. ...........................................................16
2.5 Termination or Reduction of Commitments........................................17
2.6 Optional Prepayments...........................................................17
2.7 Conversion and Continuation Options............................................17
2.8 Limitations on Eurodollar Tranches.............................................18
2.9 Interest Rates and Payment Dates...............................................18
2.10 Computation of Interest and Fees..............................................18
2.11 Inability to Determine Interest Rate..........................................19
2.12 Pro Rata Treatment and Payments...............................................19
2.13 Requirements of Law...........................................................20
2.14 Taxes.........................................................................21
2.15 Indemnity.....................................................................23
2.16 Change of Lending Office......................................................23
2.17 Replacement of Lenders........................................................24
SECTION 3. REPRESENTATIONS AND WARRANTIES..................................................24
3.1 Financial Condition............................................................24
3.2 No Change......................................................................25
3.3 Corporate Existence; Compliance with Law.......................................25
3.4 Corporate Power; Authorization; Enforceable Obligations........................25
3.5 No Legal Bar...................................................................25
3.6 Litigation.....................................................................25
3.7 No Default.....................................................................26
3.8 Ownership of Property; Liens...................................................26
3.9 Intellectual Property..........................................................26
3.10 Taxes.........................................................................26
3.11 Federal Regulations...........................................................26
3.12 Labor Matters.................................................................26
3.13 ERISA.........................................................................26
3.14 Investment Company Act; Other Regulations.....................................27
3.15 Subsidiaries..................................................................27
3.16 Use of Proceeds...............................................................27
3.17 Environmental Matters.........................................................27
3.18 Accuracy of Information, etc..................................................28
3.19 Year 2000 Matters.............................................................28
SECTION 4. CONDITIONS PRECEDENT............................................................29
- i -
509253-0191-02261-99A5F10H-CRA
<PAGE>
ii
Page
4.1 Conditions to Initial Extension of Credit......................................29
4.2 Conditions to
Each Extension of Credit....................................................................30
SECTION 5. AFFIRMATIVE COVENANTS...........................................................30
5.1 Financial Statements...........................................................30
5.2 Certificates; Other Information................................................31
5.3 Payment of Obligations.........................................................31
5.5 Maintenance of Property; Insurance.............................................32
5.6 Inspection of Property; Books and Records; Discussions.........................32
5.7 Notices........................................................................32
5.8 Environmental Laws.............................................................33
5.9 Transaction with Affiliates. .................................................33
SECTION 6. NEGATIVE COVENANTS..............................................................33
6.1 Financial Condition Covenant...................................................33
6.2 Liens..........................................................................33
6.3 Fundamental Changes............................................................34
6.4 Disposition of Property........................................................34
6.5 Negative Pledge Clauses........................................................35
6.6 Limitation on Restrictions on Distributions from Subsidiaries. ................35
SECTION 7. EVENTS OF DEFAULT...............................................................35
SECTION 8. THE ADMINISTRATIVE AGENT........................................................37
8.1 Appointment....................................................................37
8.2 Delegation of Duties...........................................................38
8.3 Exculpatory Provisions.........................................................38
8.4 Reliance by Administrative Agent...............................................38
8.5 Notice of Default..............................................................38
8.6 Non-Reliance on Administrative Agent and Other Lenders.........................39
8.7 Indemnification................................................................39
8.8 Administrative Agent in Its Individual Capacity................................40
8.9 Successor Administrative Agent.................................................40
SECTION 9. MISCELLANEOUS...................................................................40
9.1 Amendments and Waivers.........................................................40
9.2 Notices........................................................................41
9.3 No Waiver; Cumulative Remedies.................................................41
9.4 Survival of Representations and Warranties.....................................42
9.5 Payment of Expenses and Taxes..................................................42
9.6 Successors and Assigns; Participations and Assignments.........................43
9.7 Adjustments; Set-off...........................................................45
9.8 Counterparts...................................................................45
9.9 Severability...................................................................45
9.10 Integration...................................................................45
9.11 GOVERNING LAW.................................................................45
9.12 Submission To Jurisdiction; Waivers...........................................46
- ii -
509253-0191-02261-99A5F10H-CRA
<PAGE>
iii
Page
9.13 Acknowledgements..............................................................46
9.14 Confidentiality...............................................................46
9.15 WAIVERS OF JURY TRIAL.........................................................47
SCHEDULES:
1.1A Commitments
3.4 Consents, Authorizations, Filings and Notices
3.15 Subsidiaries
6.2(f) Existing Liens
6.5 Existing Negative Pledge Clauses
6.6 Existing Limitations on Restrictions on Distributions from Subsidiaries
EXHIBITS:
A Form of Closing Certificate
B Form of Assignment and Acceptance
C Form of Legal Opinion of Steven L. Zelkowitz
D Form of Exemption Certificate
</TABLE>
- iii -
509253-0191-02261-99A5F10H-CRA
<PAGE>
1
CREDIT AGREEMENT, dated as of November 8, 1999, among KEYSPAN
CORPORATION, a New York corporation (the "Borrower"), the several banks and
other financial institutions or entities from time to time parties to this
Agreement (the "Lenders"), CITIBANK, N.A., as syndication agent, EUROPEAN
AMERICAN BANK, as Documentation Agent, and THE CHASE MANHATTAN BANK, as
administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms
listed in this Section 1.1 shall have the respective
meanings set forth in this Section 1.1.
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Reference Lender as its prime rate in effect
at its principal office in New York City (the Prime Rate not being intended to
be the lowest rate of interest charged by the Reference Lender in connection
with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a)
the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
CD Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Reference Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is
based upon the ABR.
"Administrative Agent": The Chase Manhattan Bank, together with
its affiliates, as the administrative agent for the Lenders under this Agreement
and the other Loan Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person that, 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 (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
509253-0191-02261-99A5F10H-CRA
<PAGE>
2
"Aggregate Exposure": with respect to any Lender at any time, an
amount equal to the amount of such Lender's Commitment then in effect or, if the
Commitments have been terminated, the amount of such Lender's Loans then
outstanding.
"Aggregate Exposure Percentage": with respect to any
Lender at any time, the ratio (expressed as a percentage) of
such Lender's Aggregate Exposure at such time to the
Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum
set forth under the relevant column heading below which corresponds with the
most current rating of the Borrower's senior unsecured long-term debt issued by
S&P and Moody's respectively; provided that for each day the aggregate principal
amount of Loans outstanding is greater than the amount equal to 33% of the Total
Commitments, the Applicable Margin then in effect will be increased by 0.125%
per annum.
Applicable Margin Applicable Margin
Ratings For Eurodollar Loans for ABR Loans
================== ======================= ========================
A/A2 0.305% 0.000%
A-/A3 0.425% 0.000%
BBB+/Baa1 0.525% 0.000%
BBB/Baa2 0.625% 0.000%
<BBB-/Baa3 0.975% 0.000%
- -
================== ======================= ========================
Changes in the Applicable Margin shall become effective on the
date on which S&P and/or Moody's changes the rating it has issued for the
Borrower's senior unsecured long-term debt. In the event of split ratings, the
lower of such ratings shall apply; if only one S&P and Moody's issues a rating
of the Borrower's senior unsecured long-term debt, such rating shall apply.
"Approved Fund": with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Assignee": as defined in Section 9.6(c).
--------
509253-0191-02261-99A5F10H-CRA
<PAGE>
3
"Assignment and Acceptance": an Assignment and
Acceptance, substantially in the form of Exhibit B.
"Assignor": as defined in Section 9.6(c).
--------
"Available Commitment": as to any Lender at any time,
an amount equal to the excess, if any, of (a) such Lender's
Commitment then in effect over (b) such Lender's Loans then
outstanding.
"Benefitted Lender": as defined in Section 9.7(a).
-----------------
"Board": the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified by the
Borrower as a date on which the Borrower requests the
relevant Lenders to make Loans hereunder.
"Business": as defined in Section 3.17(b).
--------
"Business Day": a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
close, provided, that with respect to notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, such day is
also a day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"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, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date
509253-0191-02261-99A5F10H-CRA
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4
of acquisition; (d) repurchase obligations of any Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a term
of not more than 30 days, with respect to securities issued or fully guaranteed
or insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A2 by Moody's; (f) securities with
maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any Lender or any commercial bank satisfying the
requirements of clause (b) of this definition; or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any ABR Loan,
the annual assessment rate in effect on such day that 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 Reserve Percentage": for any day as applied to any ABR Loan,
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"Closing Date": the date on which the conditions
precedent set forth in Section 4.1 shall have been
satisfied, which date is November 18, 1999.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment": as to any Lender, the obligation of such Lender, if
any, to make Loans in an aggregate principal amount not to exceed the amount set
forth under the heading "Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Acceptance pursuant to which such Lender became a
party hereto, as the same may be changed from time to time pursuant to the terms
hereof.
"Commitment Period": the period from and including the
Closing Date to the Revolving Termination Date.
"Commonly Controlled Entity": an entity, whether or not
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"Competitive Loans": a loan made pursuant to Section 2.2.
-----------------
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5
"Competitive Bid": means an offer by a Lender to make a
Competitive Loan in accordance with Section 2.2.
"Competitive Bid Rate": means, with respect to any Competitive Bid, the
Margin or Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request": means a request by the Borrower for Competitive
Bids in accordance with Section 2.2.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated October 1999 and furnished to the Lenders.
"Consolidated Capitalization": at any date, the sum of Consolidated Net
Worth and Consolidated Total Debt.
"Consolidated Net Worth": at any date, all amounts that would, in
conformity with GAAP, be included on a consolidated balance sheet of the
Borrower and its Subsidiaries under stockholders' equity at such date.
"Consolidated Total Debt": at any date, the aggregate principal amount of
all liabilities of the Borrower and its Subsidiaries at such date, determined on
a consolidated basis in accordance with GAAP, as reflected on the balance sheet.
"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.
"Core Gas Distribution Business": the distribution and sale at
retail to customers of natural gas in the New York City boroughs of Brooklyn,
Queens and Staten Island and the Long Island counties of Nassau and Suffolk, as
such business is conducted by Brooklyn Union Gas and Brooklyn Union East on the
date hereof.
"Default": any of the events specified in Section 7, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any property, any sale, lease, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof. The
terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United
States.
"Environmental Laws": any and all foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
509253-0191-02261-99A5F10H-CRA
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6
"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 maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board 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 the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two
Business Days prior to the beginning of such Interest Period. In the event that
such rate does not appear on Page 3750 of the Dow Jones Markets screen (or
otherwise on such screen), the "Eurodollar Base Rate" shall be determined by
reference to such other comparable publicly available service for displaying
eurodollar rates as may be selected by the Administrative Agent or, in the
absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.
"Eurodollar Competitive Loan": a Competitive Loan which bears interest
based upon the Eurodollar Rate.
"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
"Eurodollar Tranche": the collective reference to Eurodollar
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).
"Event of Default": any of the events specified in Section 7, provided that
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Facility": the Commitments and the Loans made thereunder.
509253-0191-02261-99A5F10H-CRA
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7
"Facility Fee Rate": the rate per annum set forth below which corresponds
with the most current rating of the Borrower's senior unsecured long-term debt
issued by S&P and Moody's respectively.
Ratings Facility Fee
================== ========================
A/A2 0.070%
A-/A3 0.075%
BBB+/Baa1 0.100%
BBB/Baa2 0.125%
<BBB-/Baa3 0.150%
- -
================== ========================
Changes in the Facility Fee shall become effective on the date on
which S&P and/or Moody's changes the rating it has issued for the Borrower's
senior unsecured long-term debt. In the event of split ratings, the lower of
such ratings shall apply; if only one S&P and Moody's issues a rating of the
Borrower's senior unsecured long-term debt, such rating shall apply.
"Federal Funds Effective Rate": for any day, the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Final Maturity Date": the date that is the one year anniversary of the
Revolving Termination Date.
"Fixed Rate" means, with respect to a Competitive Loan, the fixed
rate of interest per annum specified by the Lender making such Competitive Loan
in its related Competitive Bid.
"Funding Office": the office of the Administrative Agent specified in
Section 9.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time, except that for purposes of Section 6.1,
GAAP shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered pursuant to Section 5.1(a). In the event
that any "Accounting
509253-0191-02261-99A5F10H-CRA
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8
Change" (as defined below) shall occur and such change results in a change in
the method of calculation of financial covenants, standards or terms in this
Agreement, then the Borrower and the Administrative Agent agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including 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 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.
"Hedge Agreements": all interest rate swaps, caps or collar
agreements or similar arrangements dealing with interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of
509253-0191-02261-99A5F10H-CRA
<PAGE>
9
property or services (other than current trade payables incurred in the ordinary
course of such Person's business), (c) all obligations of such Person evidenced
by notes, bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all Capital Lease
Obligations of such Person, (f) all obligations of such Person, contingent or
otherwise, as an account party under acceptances, letters of credit, surety
bonds or similar arrangements, (g) the liquidation value of all preferred
Capital Stock of such Person that is redeemable at the option of the holder
thereof or that has any mandatory dividend, redemption or other required payment
that could be required thereunder prior to the date that is one year after the
Final Maturity Date, (h) all Guarantee Obligations of such Person in respect of
obligations of the kind referred to in clauses (a) through (g) above, (i) all
obligations of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including accounts and
contract rights) owned by such Person, whether or not such Person has assumed or
become liable for the payment of such obligation, and (j) for the purposes of
Sections 7(e) only, all obligations of such Person in respect of Hedge
Agreements. The Indebtedness of any Person shall include the Indebtedness of any
other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness expressly provide that such Person is
not liable therefor.
"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.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
each March, June, September and December to occur while such Loan is outstanding
and the final maturity date of such Loan, (b) as to any Eurodollar Loan having
an Interest Period of three months or less, the last day of such Interest
Period, (c) as to any Eurodollar Loan having an Interest Period longer than
three months, each day that is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest Period
and (d) as to any Eurodollar Loan, the date of any repayment or prepayment made
in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) 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 (b) 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
509253-0191-02261-99A5F10H-CRA
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10
Administrative Agent not less than three 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:
(i) if any Interest Period 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;
(ii) the Borrower may not select an Interest Period that would extend
beyond the Revolving Termination Date;
(iii) any Interest Period 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
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Lender Percentage": as to any Lender at any time, the percentage
which such Lender's Commitments then constitutes of the Total Commitments (or,
at any time after the Commitments have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans then outstanding
constitutes of the aggregate principal amount of the Loans then outstanding).
"Lenders": as defined in the preamble hereto.
-------
"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 any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loans": as defined in Section 2.1(a).
-----
"Loan Documents": this Agreement and the Notes.
--------------
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the Eurodollar Rate, the marginal rate of interest,
if any, to be added to or subtracted from the Eurodollar Rate to determine the
rate of interest applicable to such Loan, as specified by the Lender making such
Loan in its related Competitive Bid.
"Material Adverse Effect": a material adverse effect on the
business, property, operations, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole or the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
509253-0191-02261-99A5F10H-CRA
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"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Moody's": Moody's Investors Service, Inc. and any successor thereto.
"Non-Excluded Taxes": as defined in Section 2.14(a).
"Non-U.S. Lender": as defined in Section 2.14(d).
"Notes": the collective reference to any promissory note evidencing Loans.
"Obligations": the unpaid principal of and interest on (including
interest accruing after the maturity of the Loans and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Loans and all other obligations and liabilities of the Borrower to the
Administrative Agent or to any Lender, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, any other Loan
Document or any other document made, delivered or given in connection herewith
or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Administrative Agent or to any Lender that are
required to be paid by the Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 9.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (or any successor).
"Person": an individual, partnership, corporation, limited liability
company, 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 that 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.
509253-0191-02261-99A5F10H-CRA
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12
"Properties": as defined in Section 3.17(a).
----------
"Reference Lender": The Chase Manhattan Bank.
----------------
"Register": as defined in Section 9.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time
to time.
"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.
"Required Lenders": at any time, the holders of more than 50% of
the Commitments then in effect; provided that (i) for purposes of declaring the
Loans to be due and payable, and/or the Commitments to be terminated pursuant to
Section 7, and (ii) for all purposes after the Commitments have been terminated,
such term shall mean the holders of more than 50% of the Loans outstanding.
"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": the chief executive officer, president, treasurer,
secretary or chief financial officer of the Borrower, but in any event, with
respect to financial matters, the treasurer or chief financial officer of the
Borrower.
"Revolving Termination Date": November 6, 2000.
--------------------------
"S&P": Standard & Poor's Rating Services, a division of McGraw-Hill, Inc.
"SEC": the Securities and Exchange Commission, any successor thereto and
any analogous Governmental Authority.
"Significant Subsidiary": at any particular time, each of Brooklyn Union
Gas and Brooklyn Union East, and any other Affiliate of the Borrower which is
engaged in the Core Gas Distribution Business.
"Single Employer Plan": any Plan that is covered by Title IV of ERISA, but
that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as
of any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the amount of
all "liabilities of such Person, contingent or otherwise", as of such date, as
such quoted terms are determined in accordance with applicable federal and state
laws governing
509253-0191-02261-99A5F10H-CRA
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13
determinations of the insolvency of debtors, (b) the present fair saleable value
of the assets of such Person will, as of such date, be greater than the amount
that will be required to pay the liability of such Person on its debts as such
debts become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"Subsidiary": as to any Person, a corporation, partnership,
limited liability company 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.
"Total Commitments": at any time, the aggregate amount of the Commitments
then in effect.
"Transferee": any Assignee or Participant.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
"United States": the United States of America.
-------------
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP, (ii)
the words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation", (iii) the word "incur" shall be construed to
mean incur, create, issue, assume, become liable in respect of or suffer to
exist (and the words "incurred" and "incurrence" shall have correlative
meanings), and (iv) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, Capital Stock, securities, revenues,
accounts, leasehold interests and contract rights.
(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
509253-0191-02261-99A5F10H-CRA
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14
Agreement, and Section, 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 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 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. The Loans
may from time to time be Eurodollar Loans, ABR Loans or Competitive Loans, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.3 and 2.7.
(b) Any Loans outstanding on the Revolving Termination Date will
mature and be payable on the Final Maturity Date.
2.2 Competitive Bid Procedure. (a) Subject to the terms and
conditions set forth herein, from time to time the Borrower may request
Competitive Bids and may (but shall not have any obligation to) accept
Competitive Bids and borrow Competitive Loans; provided that while Competitive
Loans are outstanding, the Available Commitments shall be reduced by the
aggregate amount of such Competitive Loans. To request Competitive Bids, the
Borrower shall notify the Administrative Agent of such request by telephone, in
the case of a Eurodollar Loan, not later than 11:00 a.m., New York City time,
four Business Days before the date of the proposed Borrowing and, in the case of
an ABR Loan, not later than 10:00 a.m., New York City time, one Business Day
before the date of the proposed Borrowing; provided that the Borrower may submit
up to (but not more than) three Competitive Bid Requests on the same day, but a
Competitive Bid Request shall not be made within five Business Days after the
date of any previous Competitive Bid Request, unless any and all such previous
Competitive Bid Requests shall have been withdrawn or all Competitive Bids
received in response thereto rejected. Each such telephonic Competitive Bid
Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Competitive Bid Request in a form approved by
the Administrative Agent and signed by the Borrower. Each such telephonic and
written Competitive Bid Request shall specify the following information:
(i) the aggregate amount of the requested Loan;
(ii) the date of such Loan, which shall be a Business Day;
iii) whether such Loan is to be a Eurodollar Loan or a Fixed Rate Loan;
iv) the maturity for such Loan, which shall range from 7 to 360
days (but not to extend past the Revolving Termination Date; and
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(v) the Interest Period, if applicable, for such Loan, which
shall be a period contemplated by the definition of the term "Interest
Period".
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make
one or more Competitive Bids to the Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurodollar Loan, not later than 9:30 a.m., New York
City time, three Business Days before the proposed date of such Competitive
Loan, and in the case of an ABR Loan, not later than 9:30 a.m., New York City
time, on the proposed date of such Competitive Loan. Competitive Bids that do
not conform substantially to the form approved by the Administrative Agent may
be rejected by the Administrative Agent, and the Administrative Agent shall
notify the applicable Lender as promptly as practicable. Each Competitive Bid
shall specify (i) the principal amount (which shall be a minimum of $5,000,000
and an integral multiple of $1,000,000 and which may equal the entire principal
amount of the Competitive Loan requested by the Borrower) of the Competitive
Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate
or Rates at which the Lender is prepared to make such Loan or Loans (expressed
as a percentage rate per annum in the form of a decimal to no more than four
decimal places) and (iii) the Interest Period applicable to each such Loan and
the last day thereof.
(c) The Administrative Agent shall promptly notify the Borrower
by telecopy of the Competitive Bid Rate and the principal amount specified in
each Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the
Borrower may accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Loan, not later than
10:30 a.m., New York City time, three Business Days before the date of the
proposed Competitive Borrowing, and in the case of an ABR Loan, not later than
10:30 a.m., New York City time, on the proposed date of the Competitive Loan;
provided that (i) the failure of the Borrower to give such notice shall be
deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not
accept a Competitive Bid made at a particular Competitive Bid Rate if the
Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii)
the aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the aggregate amount of the requested Competitive Loan specified in the
related Competitive Bid Request, (iv) to the extent necessary to comply with
clause (iii) above, the Borrower may accept Competitive Bids at the same
Competitive Bid Rate in part, which acceptance, in the case of multiple
Competitive Bids at such Competitive Bid Rate, shall be made pro rata in
accordance with the amount of each such Competitive Bid, and (v) except pursuant
to clause (iv) above, no Competitive Bid shall be accepted for a Competitive
Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000
and an integral multiple of $1,000,000; provided further that if a Competitive
Loan must be in an amount less than $5,000,000 because of the provisions of
clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or
any integral multiple thereof, and in calculating the pro rata allocation of
acceptances of portions of multiple Competitive Bids at a
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16
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
Borrower. A notice given by the Borrower pursuant to this paragraph shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such Competitive
Bid directly to the Borrower at least one quarter of an hour earlier than the
time by which the other Lenders are required to submit their Competitive Bids to
the Administrative Agent pursuant to paragraph (b) of this Section.
2.3 Procedure for Loan 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 12:00 Noon, New
York City time, (a) three Business Days prior to the requested Borrowing Date,
in the case of Eurodollar Loans, or (b) one Business Day prior to the requested
Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of
Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Any Loans made on
the Closing Date shall initially be ABR Loans. Each borrowing under the
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$1,000,000 or a whole multiple thereof (or, if the then aggregate Available
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $10,000,000 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 Funding Office prior to 12:00 Noon,
New York City 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.
2.4 Facility Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee for the
period from and including the Closing Date until all of the Obligations have
been repaid and the Commitments have been terminated, computed at the Facility
Fee Rate on the Lender Percentage of such Lender of the total amount of the
Facility (drawn or undrawn), payable quarterly in arrears on the last day of
each March, June, September and December and on the Final Maturity Date,
commencing on the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the
fees in the amounts and on the dates previously agreed to in writing by the
Borrower and the Administrative Agent.
2.5 Termination or Reduction of Commitments. The Borrower shall have the
right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the
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17
Commitments or, from time to time, to reduce the amount of the Commitments;
provided that no such termination or reduction of Commitments shall be permitted
if, after giving effect thereto and to any prepayments of the Loans made on the
effective date thereof, the aggregate principal amount of (i) the Loans
outstanding and (ii) any Competitive Loans outstanding, would exceed the Total
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Commitments then in
effect.
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 irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.15. 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 (except in the case of
Loans that are ABR Loans) accrued interest to such date on the amount prepaid.
Partial prepayments of Loans shall be in an aggregate principal amount of
$1,000,000 or a whole multiple thereof. Competitive Loans may not be prepaid
without the consent of the Relevant Lender.
2.7 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR 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 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 to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Required Lenders have determined in its or their
sole discretion not to permit such conversions. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Section 1.1, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan may be continued as such when any Event
of Default has occurred and is continuing and the Administrative Agent has or
the Required Lenders have determined in its or their sole discretion not to
permit such continuations, and provided, further, that if the Borrower shall
fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Loans shall
be automatically converted to ABR Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
2.8 Limitations on Eurodollar Tranches. Notwithstanding anything to the
contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections
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18
so that, (a) after giving effect thereto, the aggregate principal amount of the
Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000
or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten
Eurodollar Tranches shall be outstanding at any one 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 Competitive Loan shall bear interest in accordance with
the applicable Competitive Bid Rate.
(d) (i) If all or a portion of the principal amount of any Loan
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum equal to
the rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this Section plus 2%, and (ii) if all or a portion of any interest
payable on any Loan or any facility fee or other amount payable hereunder shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum equal to
the rate then applicable to ABR Loans plus 2%, in each case, with respect to
clauses (i) and (ii) above, from the date of such non-payment until such amount
is paid in full.
(e) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest and fees
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to ABR Loans the rate of
interest on which is calculated on the basis of the Prime Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements 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 relevant 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 statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).
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
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19
relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, or that such
Eurodollar rate is not available; or
(b) the Administrative Agent shall have received notice from the
Required Lenders (or, in the case of a Eurodollar Competitive Loan, the
Lender that is required to make such Loan) that the Eurodollar Rate
determined or to be determined for such Interest Period will not
adequately and fairly reflect the cost to such Lenders or Lender, as the
case may be (as conclusively certified by such Lenders, or Lender as the
case may be) 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 relevant Lenders as soon as practicable thereafter. If such
notice is given (w) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as ABR Loans, (x) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as ABR Loans, (y) any outstanding Eurodollar Loans shall be
converted, on the last day of the then-current Interest Period, to ABR Loans and
(z) any request by the Borrower for a Eurodollar Competitive Loan shall be
ineffective. Until such notice has been withdrawn by the Administrative Agent,
no further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Loans to Eurodollar Loans.
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 facility fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Lender Percentage of the Lenders.
(b) 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.
(c) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Funding Office, 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 (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(d) 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 share 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
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20
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 paragraph shall be conclusive in the absence of
manifest error. If such Lender's share 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, on
demand, from the Borrower.
(e) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.13 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 or any Eurodollar 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 Section 2.14
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 that is not otherwise
included in the determination of the Eurodollar 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 that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable. If
any Lender becomes entitled to claim
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21
any additional amounts pursuant to this paragraph, 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.
(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 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, after submission by such Lender to the
Borrower (with a copy to the Administrative Agent) of a written request
therefor, the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction; provided that the
Borrower shall not be required to compensate a Lender pursuant to this paragraph
for any amounts incurred more than six months prior to the date that such Lender
notifies the Borrower of such Lender's intention to claim compensation therefor;
and provided further that, if the circumstances giving rise to such claim have a
retroactive effect, then such six-month period shall be extended to include the
period of such retroactive effect.
(c) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in respect
of any Competitive Loan if the Requirement of Law that would otherwise entitle
it to such compensation shall have been publicly announced prior to submission
of the Competitive Bid pursuant to which such Loan was made.
(d) A certificate as to any additional amounts payable pursuant
to this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.14 Taxes. (a) All payments made by the Borrower under this
Agreement 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 other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
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 and Other 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 with respect to any
Non-Excluded Taxes (i) that are
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22
attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to such Lender at the time the Lender becomes a
party to this Agreement, except to the extent that such Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other 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 the relevant
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 or Other 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.
(d) Each Lender (or Transferee) that is not a citizen or resident
of the United States of America, a corporation, partnership or other entity
created or organized in or under the laws of the United States of America (or
any jurisdiction thereof), or any estate or trust that is subject to federal
income taxation regardless of the source of its income (a "Non-U.S. Lender")
shall deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit D and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction
of non-U.S. withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate, provided that such Lender
is legally entitled to complete, execute and deliver such documentation and in
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23
such Lender's judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
(f) The agreements in this Section shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Indemnity. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense that 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 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 of or conversion from Eurodollar Loans after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement, (c) the
making of a prepayment of Eurodollar Loans on a day that is not the last day of
an Interest Period with respect thereto or (d) the making of a prepayment of a
Competitive Loan. Such indemnification may include an amount equal to the
excess, if any, of (i) the amount of interest that 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) that 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. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.16 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).
2.17 Replacement of Lenders. The Borrower shall be permitted to
replace any Lender that (a) requests reimbursement for amounts owing pursuant to
Section 2.13 or 2.14(a) or (b) defaults in its obligation to make Loans
hereunder, with a replacement financial institution; provided that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.16 so as to eliminate the continued need for payment of amounts
owing pursuant to Section 2.13 or 2.14(a), (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) the Borrower shall
be liable to such replaced Lender under Section 2.15 if any Eurodollar Loan or
Eurodollar Competitive Loan owing to such replaced Lender shall be purchased
other than on the last day of the Interest Period relating thereto, (vi) the
replacement financial institution, if not already a Lender, shall be
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24
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 9.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.13 or 2.14(a), as the case may
be, and (ix) any such replacement shall not be deemed to be a waiver of any
rights that the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into
this Agreement and to make the Loans, the Borrower hereby represents and
warrants to the Administrative Agent and each Lender that:
3.1 Financial Condition. The audited consolidated and
unconsolidated balance sheets of the Borrower as at March 31, 1998 and December
31, 1998, and the related consolidated and unconsolidated statements of income
and of cash flows for the fiscal years ended on such dates, reported on by and
accompanied by an unqualified report from Ernst & Young and Arthur Andersen,
respectively, present fairly the consolidated and unconsolidated financial
condition of the Borrower as at such date, and the consolidated and
unconsolidated results of its operations and its consolidated and unconsolidated
cash flows for the respective fiscal years then ended. The unaudited
consolidated and unconsolidated balance sheet of the Borrower as at June 30,
1999, and the related unaudited consolidated and unconsolidated statements of
income and cash flows for the six-month period ended on such date, present
fairly the consolidated and unconsolidated financial condition of the Borrower
as at such date, and the consolidated and unconsolidated results of its
operations and its consolidated cash flows for the six- 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 the aforementioned firm of accountants and disclosed
therein). The Borrower and its Subsidiaries do not have any material Guarantee
Obligations, contingent liabilities and liabilities for taxes, or any long-term
leases or unusual forward or long-term commitments, including any interest rate
or foreign currency swap or exchange transaction or other obligation in respect
of derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph, except Guarantee Obligations of Indebtedness of
the Borrower and/or any of its Subsidiaries so long as the Indebtedness in
respect of which such Guarantee Obligations arise is reflected in such financial
statements. During the period from June 30, 1999 to and including the date
hereof there has been no Disposition by the Borrower of any material part of its
business or property.
3.2 No Change. Since December 31, 1998 there has been no development or
event that has had or could reasonably be expected to have a Material Adverse
Effect.
3.3 Corporate Existence; Compliance with Law. Each of the
Borrower and its Significant 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
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25
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents and to borrow hereunder. The Borrower has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Loan Documents and to authorize the borrowings on the terms
and conditions of this Agreement. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority 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 of the Loan Documents, except consents, authorizations, filings and
notices described in Schedule 3.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect. Each Loan
Document has been duly executed and delivered on behalf of the Borrower. This
Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the borrowings hereunder and the use of
the proceeds thereof will not violate any Requirement of Law or any Contractual
Obligation of the Borrower or any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation. No Requirement of Law or Contractual Obligation
applicable to the Borrower or any of its Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
3.6 Litigation. 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 their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) that could reasonably be expected to have a Material
Adverse Effect.
3.7 No Default. Neither the Borrower nor any of its Subsidiaries
is in default under or with respect to any of its Contractual Obligations in any
respect that could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has 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 failure to have such title could not
reasonably be expected to have a Material Adverse Effect, and none of such
property is subject to any Lien except as permitted by Section 6.2.
3.9 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted, except to the extent
failure to have such ownership or license could not reasonably be expected to
have a Material
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26
Adverse Effect. No material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, except to the extent any such
claim could not reasonably be expected to have a Material Adverse Effect, nor
does the Borrower know of any valid basis for any such claim. The use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person in any material respect, except to the extent any such
infringement could not reasonably be expected to have a Material Adverse Effect.
3.10 Taxes. Each of the Borrower and each of its Subsidiaries has
filed or caused to be filed all Federal, state and other material tax returns
that 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 that 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); no material tax
Lien has been filed, and, to the knowledge of the Borrower, no material claim is
being asserted, with respect to any such tax, fee or other charge.
3.11 Federal Regulations. No part of the proceeds of any Loans
will be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board.
3.12 Labor Matters. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect: (a) there are no
strikes or other labor disputes against the Borrower or any of its Subsidiaries
pending or, to the knowledge of the Borrower, threatened; (b) hours worked by
and payment made to employees of the Borrower and its Subsidiaries have not been
in violation of the Fair Labor Standards Act or any other applicable Requirement
of Law dealing with such matters; and (c) all payments due from the Borrower or
any of its Subsidiaries on account of employee health and welfare insurance have
been paid or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
3.13 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 by a material amount. Neither the Borrower nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan that has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any material 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
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27
which this representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent.
3.14 Investment Company Act; Other Regulations. Neither the
Borrower nor any of its Subsidiaries is (i) an "investment company", or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940. The Borrower and each of its Subsidiaries are
exempt from registration as a "holding company" under the Public Utility Holding
Company Act of 1935, as amended. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
3.15 Subsidiaries. Except as disclosed to the Administrative
Agent by the Borrower in writing from time to time after the Closing Date, (a)
Schedule 3.15 sets forth the name and jurisdiction of incorporation of each
Significant Subsidiary and, as to each such Subsidiary, the percentage of each
class of Capital Stock owned by the Borrower and (b) there are no outstanding
subscriptions, options, warrants, calls, rights or other agreements or
commitments (other than stock options granted to employees or directors and
directors' qualifying shares) of any nature relating to any Capital Stock of the
Borrower or any Significant Subsidiary, except as created by the Loan Documents.
3.16 Use of Proceeds. The proceeds of the Loans shall be used for
general corporate purposes (including commercial paper back-up liquidity) of the
Borrower and its Subsidiaries in the ordinary course of business.
3.17 Environmental Matters. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations or under
circumstances that constitute or constituted a violation of, or could
give rise to liability under, any Environmental Law;
(b) neither the Borrower nor any of its Subsidiaries has received
or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business"), nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is being
threatened;
(c) Materials of Environmental Concern have not been transported
or disposed of from the Properties in violation of, or in a manner or to
a location that could give rise to liability under, any Environmental
Law, nor have any Materials of Environmental Concern been generated,
treated, stored or disposed of at, on or under any of the Properties in
violation of, or in a manner that could give rise to liability under,
any applicable Environmental Law;
(d) no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary is
or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other
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28
orders, or other administrative or judicial requirements outstanding under
any Environmental Law with respect to the Properties or the Business;
(e) there has been no release or threat of release of Materials
of Environmental Concern at or from the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in
connection with the Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give
rise to liability under Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under
or about the Properties or violation of any Environmental Law with
respect to the Properties or the Business; and
(g) neither the Borrower nor any of its Subsidiaries has assumed
any liability of any other Person under Environmental Laws.
3.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, the Notes, the Confidential Information Memorandum
or any other document, certificate or statement furnished by or on behalf of the
Borrower to the Administrative Agent or the Lenders, or any of them, for use in
connection with the transactions contemplated by this Agreement, contained as of
the date such statement, information, document or certificate was so furnished
(or, in the case of the Confidential Information Memorandum, as of the date of
this Agreement), any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower that could reasonably be
expected to have a Material Adverse Effect that has not been expressly disclosed
herein, in the Confidential Information Memorandum or in any other documents,
certificates and statements furnished to the Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby.
3.19 Year 2000 Matters. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others or with which the
computer systems of the Borrower or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed, has been
completed. The costs to the Borrower and its Subsidiaries that have not been
incurred as of the date hereof for reasonably foreseeable consequences to them
of any improper functioning of other computer systems and equipment containing
embedded microchips due to the occurrence of the year 2000 could not reasonably
be expected to result in a Default or Event of Default or to have a Material
Adverse Effect. Except for any reprogramming referred to above, the computer
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient for the conduct of their business as currently conducted.
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SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Extension of Credit. The agreement of
each Lender to make the initial extension of credit requested to be made by it
is subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date (but in any event no later than November
19, 1999), of the following conditions precedent:
(a) Credit Agreement. The Administrative Agent shall have received this
Agreement, executed and delivered by the Administrative Agent, the Borrower and
each Person listed on Schedule 1.1A.
(b) Existing Credit Facilities. The Administrative Agent shall
have received satisfactory evidence that the Borrower's existing
bilateral credit facilities shall have been terminated and that all
amounts thereunder shall have been paid in full.
(c) Financial Statements. The Lenders shall have received (i)
audited consolidated and unconsolidated financial statements of the
Borrower for the 1997 and 1998 fiscal years and (ii) unaudited interim
consolidated and unconsolidated financial statements of the Borrower for
each quarterly period ended subsequent to the date of the latest
applicable financial statements delivered pursuant to clause (i) of this
paragraph as to which such financial statements are available, and such
financial statements shall not, in the reasonable judgment of the
Lenders, reflect any material adverse change in the consolidated
financial condition of the Borrower, as reflected in the financial
statements or projections contained in the Confidential Information
Memorandum.
(d) Approvals. All governmental and third party approvals
necessary in connection with the continuing operations of the Borrower
and its Subsidiaries and the transactions contemplated hereby shall have
been obtained and be in full force and effect.
(e) Fees. The Lenders and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which
invoices have been presented (including the reasonable fees and expenses
of legal counsel), on or before the Closing Date.
(f) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, substantially in the form of Exhibit
A, with appropriate insertions and attachments.
(g) Legal Opinions. The Administrative Agent shall have received
the executed legal opinion of Steven L. Zelkowitz, deputy general
counsel of the Borrower and its Subsidiaries, 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.
(h) The Borrower shall have received a rating of its commercial
paper of at least A2 from S&P and P2 from Moody's.
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4.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including 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 this Agreement
shall be true and correct on and as of such date as if made on and as of
such 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.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such extension of credit that the
conditions contained in this Section 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, the Borrower shall and shall cause each of its
Subsidiaries to:
5.1 Financial Statements. Furnish to the Administrative Agent and each
Lender:
(a) as soon as available, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such fiscal year and the related audited
consolidated statements of income and of cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the
previous fiscal year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Arthur Andersen or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and
of cash flows 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 officer, as the case may be,
and disclosed therein).
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31
5.2 Certificates; Other Information. Furnish to the Administrative Agent
and each Lender (or, in the case of clause (c), to the relevant Lender):
(a) concurrently with the delivery of any financial statements
pursuant to Section 5.1, (i) a certificate of a Responsible Officer
stating that, to the best of each such Responsible Officer's knowledge,
the Borrower during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained
in this Agreement to be observed, performed or satisfied by it, and that
such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) in the
case of quarterly or annual financial statements, a compliance
certificate containing all information and calculations necessary for
determining compliance with the provisions of Section 6.1 of this
Agreement referred to therein as of the last day of the fiscal quarter
or fiscal year of the Borrower, as the case may be;
(b) within five days after the same are sent, copies of all
financial statements and reports that the Borrower sends to the holders
of any class of its debt securities or public equity securities and,
within five days after the same are filed, copies of all financial
statements and reports that the Borrower may make to, or file with, the
SEC; and
(c) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except where (i) 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
(ii) the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
5.4 Maintenance of Existence; Compliance. (a) In the case of the
Borrower and each of its Significant Subsidiaries, (i) preserve, renew and keep
in full force and effect its corporate existence and (ii) take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business, except, in each case, as otherwise
permitted by Section 6.3 and except, in the case of clause (ii) above, to the
extent that failure to do so could not reasonably be expected to have a Material
Adverse Effect; and (b) comply with all Contractual Obligations and Requirements
of Law except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. (a) Keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including, in any event, public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
5.6 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
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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 and as often as may reasonably
be desired and 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.
5.7 Notices. Promptly give notice to the Administrative Agent and each
Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding that may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, that, in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of
its Subsidiaries in which the amount involved is $25,000,000 or more and
not covered by insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence of any Reportable Event with respect to any Plan, a
failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the
termination, Reorganization or Insolvency of, any Plan; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 5.7 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 or the relevant Subsidiary proposes
to take with respect thereto.
5.8 Environmental Laws. (a) Comply in all material respects with,
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
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5.9 Transaction with Affiliates. Enter into any transaction,
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliates (other than the Borrower) upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person that is not an
Affiliate.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, the Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenant. Permit the ratio of Consolidated Total
Debt to Consolidated Capitalization as at the last day of any fiscal quarter to
exceed 0.65:1.0.
6.2 Liens. Create, incur, assume or suffer to exist any Lien upon
any of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that 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;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) 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;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that 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 any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule
6.2(f), securing Indebtedness outstanding on the date hereof, 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;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred to finance the acquisition of fixed or capital
assets (including, without limitation, Capital Lease Obligations),
provided that (i) such Liens shall be created substantially
simultaneously with the
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acquisition of such fixed or capital assets and (ii) such Liens do not
at any time encumber any property other than the property financed by
such Indebtedness;
(h) any interest or title of a lessor under any lease entered
into by the Borrower or any other Subsidiary in the ordinary course of
its business and covering only the assets so leased; and
(i) Liens not otherwise permitted by this Section so long as
neither (i) the aggregate outstanding principal amount of the
obligations secured thereby nor (ii) the aggregate fair market value
(determined as of the date such Lien is incurred) of the assets subject
thereto exceeds (as to the Borrower and all Subsidiaries) $25,000,000 at
any one time.
6.3 Fundamental Changes. In the case of the Borrower and any
Significant Subsidiary, enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or Dispose of, all or substantially all of its property or
business, except that:
(a) 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);
(b) any Subsidiary of the Borrower may Dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Borrower; and
(c) any Disposition permitted under Section 6.4.
6.4 Disposition of Property. Dispose of any of the Borrower's or
any Significant Subsidiaries' property, whether now owned or hereafter acquired,
or, in the case of any Significant Subsidiary, issue or sell any shares of such
Significant Subsidiary's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary course
of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 6.3(b); and
(d) the sale or issuance of any Significant Subsidiary's Capital
Stock to the Borrower or any other Significant Subsidiary.
6.5 Negative Pledge Clauses. Enter into or suffer to exist or
become effective any agreement that prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist
any Lien upon any of its property or revenues, whether now owned or hereafter
acquired, other than (a) this Agreement, (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby) and (c) any agreements listed on Schedule 6.5 and any
extensions, renewals or replacements thereof having substantially similar
provisions with respect thereto.
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6.6 Limitation on Restrictions on Distributions from
Subsidiaries. Create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Subsidiary to pay dividends or make any other distribution on its Capital Stock,
other than any encumbrance or restriction pursuant to an agreement in effect on
the Closing Date as set forth on Schedule 6.6.
SECTION 7. 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 when
due in accordance with the terms hereof; or the Borrower shall fail to
pay any interest on any Loan, or any other amount payable hereunder or
under any other Loan Document, within five days after any such interest
or other amount becomes due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by the
Borrower herein or that is contained in any certificate, document or
financial or other statement furnished by it at any time under or in
connection with this Agreement shall prove to have been inaccurate 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 clause (i) or (ii) of Section 5.4(a),
Section 5.7(a) or Section 6 of this Agreement; 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 of 30
days after notice to the Borrower from the Administrative Agent or any
Lender; or
(e) the Borrower or any of its Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including any
Guarantee Obligation, but excluding the Loans) on the scheduled or
original due date with respect thereto; or (ii) default in making any
payment of any interest on any such Indebtedness beyond the period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness was created; or (iii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or
condition exist, the effect of such default or other event or condition
is to cause, or to permit the holder or beneficiary of such Indebtedness
(or a trustee or agent on behalf of such holder or beneficiary) to
cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or (in the case of any such
Indebtedness constituting a Guarantee Obligation) to become payable;
provided, that a default, event or condition described in clause (i),
(ii) or (iii) of this paragraph (e) shall not at any time constitute an
Event of Default unless, at such time, one or more defaults, events or
conditions of the type described in clauses (i), (ii) and (iii) of this
paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $25,000,000; or
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36
(f) (i) the Borrower or any of its 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
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 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 Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above that (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 days;
or (iii) there shall be commenced against the Borrower or any of its
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 that results in the entry of
an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) the Borrower or any of its 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
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 Required
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 Required
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, in the sole judgment of the Required Lenders,
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 Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance as to which the
relevant insurance company has acknowledged coverage) of $25,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; or
(i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall become, or obtain rights (whether by means or
warrants, options or otherwise) to become, the "beneficial owner"
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37
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
directly or indirectly, of more than 20% of the outstanding common stock
of the Borrower;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above 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 and the other Loan Documents 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 Required Lenders,
the Administrative Agent may, or upon the request of the Required 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 Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or
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any other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.4 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders (or, if so
specified by this Agreement, all Lenders), and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.
8.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or the Borrower referring to 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 notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower or any affiliate of the Borrower, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and its
affiliates and made its own decision to make its Loans hereunder and enter into
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this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and its affiliates. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower or any affiliate of the Borrower that may come
into the possession of the Administrative Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
8.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against the Administrative Agent
in any way relating to or arising out of, the Commitments, this Agreement, any
of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements that are found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from the Administrative Agent's gross negligence or willful misconduct.
The agreements in this Section shall survive the payment of the Loans and all
other amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent was not the Administrative Agent. With respect to its Loans
made or renewed by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
8.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this Agreement, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, which successor agent shall (unless an Event of
Default under Section 7(a) or Section 7(f) with respect to the Borrower shall
have occurred and be continuing) be subject to approval by the Borrower (which
approval shall not be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective
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upon such appointment and approval, and the former Administrative Agent's
rights, powers and duties as Administrative Agent shall be terminated, without
any other or further act or deed on the part of such former Administrative Agent
or any of the parties to this Agreement or any holders of the Loans. If no
successor agent has accepted appointment as Administrative Agent by the date
that is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall assume and perform all of the
duties of the Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above. After any
retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 9.1. The
Required Lenders and the Borrower may, or, with the written consent of the
Required Lenders, the Administrative Agent and the Borrower may, from time to
time, (a) enter into written amendments, supplements or modifications hereto for
the purpose of adding any provisions to this Agreement or changing in any manner
the rights of the Lenders or of the Borrower hereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement 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) eliminate or reduce any voting rights under this Section 9.1, forgive
the principal amount or extend the final scheduled date of maturity of any Loan,
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 directly affected thereby; (ii) reduce any percentage specified in
the definition of Required Lenders, 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 consent of all Lenders; (iii) amend,
modify or waive any provision of Section 8 without the consent of the
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 position 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; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
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The Borrower: KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
Attention: Norma Rodriguez
Telecopy: (718) 858-7105
The Administrative Agent: The Chase Manhattan Bank
Brooklyn Middle Market Bank Group
Four MetroTech Center
Brooklyn, New York 11245
Attention: Peter D'Agostino
Telecopy: (718) 242-3837
with a copy to: The Chase Manhattan Bank
Agency Bank Services
One Chase Manhattan Plaza
New York, New York
Telecopy: (212) 552-7400
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
9.3 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.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder 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 and
other extensions of credit hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, 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 the reasonable fees and disbursements
of counsel to the Administrative Agent and filing and recording fees and
expenses, with statements with respect to the foregoing to be submitted to the
Borrower prior to the Closing Date (in the case of amounts to be paid on the
Closing Date) and from time to time thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate, (b) to
pay or reimburse each Lender 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 the fees and
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disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay,
indemnify, and hold each Lender 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,
that 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 Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "Indemnitee") 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 and
any such other documents, including any of the foregoing relating to the use of
proceeds of the Loans or 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 and the reasonable fees and expenses
of legal counsel in connection with claims, actions or proceedings by any
Indemnitee against the Borrower under any Loan Document (all the foregoing in
this clause (d), collectively, the "Indemnified Liabilities"), provided, that
the Borrower shall have no obligation hereunder to any Indemnitee with respect
to Indemnified Liabilities to the extent such Indemnified Liabilities are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
Indemnitee. Without limiting the foregoing, and to the extent permitted by
applicable law, the Borrower agrees not to assert and to cause its Subsidiaries
not to assert, and hereby waives and agrees to cause its Subsidiaries to so
waive, all rights for contribution or any other rights of recovery with respect
to all claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature, under or related to Environmental
Laws, that any of them might have by statute or otherwise against any
Indemnitee. All amounts due under this Section 9.5 shall be payable promptly
after written demand therefor. The agreements in this Section 9.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
9.6 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, all future holders of the Loans 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, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") 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. 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. In no event shall any Participant
under any such participation have any right to approve any amendment or waiver
of any
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provision of any Loan Document, or any consent to any departure by the Borrower
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans 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 Section 9.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.13, 2.14 and 2.15 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 Section 2.14, such Participant
shall have complied with the requirements of said Section and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section 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 (an "Assignor") may, in accordance with applicable
law, at any time and from time to time assign to any Lender, any affiliate of
any Lender or any Approved Fund or, with the consent of the Borrower and the
Administrative Agent (which, in each case, shall not be unreasonably withheld or
delayed), to an additional bank, financial institution or other entity (an
"Assignee") all or, except in the case of an outstanding Competitive Loan, any
part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, executed by such Assignee, such Assignor and any
other Person whose consent is required pursuant to this paragraph, and delivered
to the Administrative Agent for its acceptance and recording in the Register;
provided that no such assignment to an Assignee (other than any Lender, any
affiliate of any Lender or any Approved Fund) shall be in an aggregate principal
amount of less than $5,000,000 (other than in the case of an assignment of all
of a Lender's interests under this Agreement), unless otherwise agreed by the
Borrower and the Administrative Agent. For purposes of the proviso contained in
the preceding sentence, the amount described therein shall be aggregated in
respect of each Lender and its related Approved Funds, if any. 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 and/or Loans as set forth therein, and (y) the Assignor
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 of an Assignor's rights and obligations
under this Agreement, such Assignor shall cease to be a party hereto).
Notwithstanding any provision of this Section 9.6, the consent of the Borrower
shall not be required for any assignment that occurs when an Event of Default
pursuant to Section 7(f) shall have occurred and be continuing with respect to
the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 9.2 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 the
principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register
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44
shall be conclusive, in the absence of manifest error, and the Borrower, each
other Loan Party, the Administrative Agent and the Lenders shall treat each
Person whose name is recorded in the Register as the owner of the Loans and any
Notes evidencing the Loans recorded therein for all purposes of this Agreement.
Any assignment of any Loan, whether or not evidenced by a Note, shall be
effective only upon appropriate entries with respect thereto being made in the
Register (and each Note shall expressly so provide). Any assignment or transfer
of all or part of a Loan evidenced by a Note shall be registered on the Register
only upon surrender for registration of assignment or transfer of the Note
evidencing such Loan, accompanied by a duly executed Assignment and Acceptance,
and thereupon one or more new Notes shall be issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by
an Assignor, an Assignee and any other Person whose consent is required by
Section 9.6(c), together with payment to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) record the information
contained therein in the Register on the effective date determined pursuant
thereto.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 9.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the
relevant Lender, agrees to issue Notes to any Lender requiring Notes to
facilitate transactions of the type described in paragraph (f) above.
9.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement expressly provides for payments to be allocated to a particular
Lender, if any Lender (a "Benefitted Lender") shall, at any time after the Loans
and other amounts payable hereunder shall immediately become due and payable
pursuant to Section 7, receive any payment of all or part of the Obligations
owing to it (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 7(f), or otherwise),
in a greater proportion than any such payment to any other Lender, if any, in
respect of the Obligations owing to such other Lender, such Benefitted Lender
shall purchase for cash from the other Lenders a participating interest in such
portion of the Obligations owing to each such other Lender, as shall be
necessary to cause such Benefitted Lender to share the excess payment ratably
with each of the Lenders; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price returned, to the extent of
such recovery, but without interest.
(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
thereof to or for the credit or the account of the Borrower,
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45
as the case may be. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
9.8 Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
9.9 Severability. Any provision of this Agreement that 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.
9.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect 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.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 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, or
for recognition and enforcement of any judgment in respect thereof, to
the non-exclusive general jurisdiction of the courts of the State of New
York, the courts of the United States 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, as the case may be at its address set forth in
Section 9.2 or at such other address of which the Administrative Agent
shall have been notified pursuant thereto;
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46
(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 Section any special, exemplary, punitive or
consequential damages.
9.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between the Administrative Agent and the Lenders, on
one hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
9.14 Confidentiality. Each of the Administrative Agent and each
Lender agrees to keep confidential all non-public information provided to it by
the Borrower pursuant to this Agreement that is designated by the Borrower as
confidential; provided that nothing herein shall prevent the Administrative
Agent or any Lender from disclosing any such information (a) to the
Administrative Agent, any other Lender, any affiliate of any Lender or any
Approved Fund, (b) to any Transferee or prospective Transferee that agrees to
comply with the provisions of this Section, (c) to its employees, directors,
agents, attorneys, accountants and other professional advisors or those of any
of its affiliates, (d) upon the request or demand of any Governmental Authority,
(e) in response to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law, (f) if requested
or required to do so in connection with any litigation or similar proceeding,
(g) that has been publicly disclosed, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender, or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
9.15 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.
(End of Page)
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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.
KEYSPAN CORPORATION
By:
Name:
itle:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By:
Name:
Title:
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48
CITIBANK, NA
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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49
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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50
ABN AMRO BANK, N.V.
By:
Name:
Title:
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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51
THE BANK OF NEW YORK
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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52
THE BANK OF NOVA SCOTIA
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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53
BANK ONE, NA (MAIN OFFICE-CHICAGO)
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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54
BARCLAYS BANK PLC
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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55
CARIPLO - CASSA DI RISPARMIO DELLE
PROVINCIE LOMBARDE S.p.A.
By:
Name:
Title:
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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56
THE DAI ICHI KANGYO BANK, LTD.
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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57
EAB
By:
Name: FREDRIC J. HUGUE
Title: GROUP VICE PRESIDENT
509253-0191-02261-99A5F10H-CRA
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58
FLEET NATIONAL BANK
By:
Name: ROBERT D. LANIGAN
Title: SENIOR VICE PRESIDENT
509253-0191-02261-99A5F10H-CRA
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THE INDUSTRIAL BANK OF JAPAN, LTD.
By:
Name:
Title:
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MELLON BANK, N.A.
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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61
THE ROYAL BANK OF SCOTLAND PLC
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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ROYAL BANK OF CANADA
By:
Name: LINDA M. STEPHENS
Title: MANAGING DIRECTOR
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63
BANK HAPOALIM B.M.
By:
Name:
Title:
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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64
CREDIT LYONNAIS NEW YORK BRANCH
By:
Name:
Title:
509253-0191-02261-99A5F10H-CRA
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PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
EX-10
Exhibit 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("AGREEMENT") is entered into as of September 1, 1999
(EFFECTIVE DATE") by and between KeySpan Energy and its successors, with its
principal office at One MetroTech Center, Brooklyn, New York 11201 ("COMPANY"),
and Craig G. Matthews, 17 Wynwood Road, Chatham, NJ 07928 ("EMPLOYEE").
ARTICLE I
WHEREAS, the Company wishes to provide for the employment by the Company of the
Executive, and the Executive wishes to serve the Company, in the capacities and
on the term and conditions set for in this Agreement;
NOW, THEREFORE, it is hereby agreed as follows:
EMPLOYMENT PERIOD; POSITIONS AND DUTIES; ETC.
--------------------------------------------
1.1 EMPLOYMENT PERIOD
The Company shall employ the Executive, and the Executive shall
serve the Company, on the terms and conditions set forth in this Agreement, for
the period (the "Employment Period") beginning on September 1, 1999 and ending
on August 31, 2003.
1.2 POSITIONS AND DUTIES
(A) While employed hereunder, CRAIG G. MATTHEWS shall serve as President & Chief
Operating Officer, or any other such title that is equivalent or higher in
responsibility and status, reporting directly to R.B. Catell, Chairman and CEO,
KeySpan Energy, having such duties and responsibilities commensurate with the
position of President & Chief Operating Officer. The Executive will also serve
as a member of the Brooklyn Union Board of Directors.
(B) While employed herunder, CRAIG G. MATTHEWS shall serve on key senior
strategy committees, such as the Strategic Directions Committee (Holding
Company, as member & Utility, as Chairman), the Executive Committee of the SDC,
the Investment Review Committee, etc.
(C) While employed hereunder, Employee shall (i) devote all of his business
time, attention, skill and efforts to the faithful and efficient performance of
his duties hereunder; Employee may engage in the following activities so long as
they do not interfere in any material respect with the performance of Employee's
duties and responsibilities hereunder: (i) serve on corporate, civic, religious,
educational and/or charitable boards or committees and (ii)
1
<PAGE>
manage his personal investments.
1.3 PLACE OF EMPLOYMENT
Employee's place of employment hereunder shall be at the Company's principal
executive offices (or other offices as appropriate) in the greater New York
Metropolitan area.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 BASE SALARY
For services rendered by Employee under this Agreement, the Company shall pay to
Employee an annual base salary ("BASE SALARY") no less than $450,000, payable
monthly.
2.2 INCENTIVE COMPENSATION & RESTRICTED STOCK
A. During the Employment Period, the Executive shall participate in
short-term incentive compensation plans ("Annual Incentive Compensation &
Gainsharing Plan") and/or long-term incentive compensation plans ("Long-Term
Performance Incentive Compensation Plan") providing him with the opportunity to
earn, on a year-by-year basis, short-term and long-term incentive compensation
at least equal to the amounts that he had the opportunity to earn under the
comparable plans of KeySpan Energy as in effect as of August 31, 1999.
Upon execution of this Agreement CRAIG G. MATTHEWS shall be granted 10,000
shares of restricted stock with a restriction period that expires August 31,
2003.
2.3 PERQUISTES
During the Employment Period, the Executive shall be entitled to receive
perquisites as provided for under the KeySpan Energy Perquisites Program.
2.4 OTHER BENEFITS
During the Employment Period, the Executive shall be entitled to participate in
all applicable benefit plans, saving and retirement plans, practices, policies
and programs of the Company to the same extent as other senior executives.
2.5 DEATH OR DISABILITY
The Company shall be entitled to terminate the Executive's employment because of
the
<PAGE>
Executive's Disability during the Employment Period. "Disability" means that (i)
the Executive has been unable, for a period of one hundred eighty (180)
consecutive business days, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, and acceptable to the
Executive or the Executive's legal representative, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
returns to full-time performance of the Executive's duties before the Disability
Effective Date.
2.5 CHANGE OF CONTROL
IN THE EVENT THAT EXECUTIVE'S EMPLOYMENT IS TERMINATED WITHIN THE TIME PERIOD
AND UNDER CONDITIONS GIVING RISE TO THE PAYMENT OF SEVERANCE BENEFITS UNDER THE
KEYSPAN ENERGY SENIOR EXECUTIVE CHANGE OF CONTROL SEVERANCE PLAN ("SEVERANCE
PLAN"), AS WELL AS THE PAYMENT OF SEVERANCE BENEFITS UNDER SECTIONS 3.3 AND 4.4
OF THIS AGREEMENT, THE EXECUTIVE SHALL BE ENTITLED TO SEVERANCE BENEFITS UNDER
THE SEVERANCE PLAN OR UNDER SEVERANCE BENEFITS IN THIS AGREEMENT, WHICHEVER
BENEFITS ARE GREATER.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 TERMINATION BY EMPLOYEE
Employee may, at any time prior to the end of the Employment Period, terminate
employment hereunder for any reason by delivering a Notice of Termination to the
KeySpan Energy Board of Directors ("Board"). The Employee is required to give 30
calendar days notice.
3.2 TERMINATION BY THE COMPANY
This agreement shall terminate and the Employees employment shall cease upon any
of the following: (a) mutual agreement of the Employee and the Company; (b)
death or disability (at the expiration of the 180 day period as defined under
"Disability") of the Employee; or (c) in the discretion of the Board, Good Cause
for termination.
Good Cause for termination ("Good Cause") shall mean Employee's: (i) breach of
the terms in paragraphs 1.2, or Article IV of this agreement, (ii) conduct that
constitutes dishonesty or knowing and willful breach of fiduciary duty; (iii)
insubordination or refusal to perform assigned duties or comply with directions
of the Board; (iv) conviction by a court of competent jurisdiction or entry of a
plea of no contest for a crime involving any act of moral turpitude or unlawful,
dishonest, or unethical conduct that a reasonable person would consider damaging
to the reputation of the Company or improper and unacceptable conduct by an
Employee thereof; or. (v) continued material failure or inability to achieve
required performance results or perform in a competent manner following written
notice and *PAGE REVISED 11/8/99 FOR CLARIFICATION OF PROVISION 2.5. (SEE
REVISION IN ITLALICS)
INITIALS: C.G.M. _____ R.B.C. ______
opportunity to improve performance.
If the Executive's employment is terminated by the Company for Good Cause during
the Employment Period, the Company shall pay the Executive the Annual Base
Salary through the Date of Termination and the amount of any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon), in each case to the extent not yet paid, and the Company
shall have no further obligations under this Agreement, except as specified in
Section 3.3 below. If the Executive voluntarily terminates employment during the
Employment Period, other than for Good Reason, the Company shall pay the Accrued
Obligations, as defined below, to the Executive in a lump sum in cash within
(30) days of the Date of Termination, and the Company shall have no further
obligations under this Agreement, except as specified in Section 2.4 and Section
4.3 below.
3.3 SEVERANCE BENEFITS
The following provisions shall apply if the Employee terminates employment for
Good Reason or if the Company terminates Employee's employment for any reason
other than the parties mutual agreement, Good Cause, death or disability of the
Employee.
"Good Reason" shall mean any of the following:
without Employee's express written consent, any action, or failure to take
action, by the Company, the Board or the shareholders of the Company by the
Company that results in a diminution in the Executive's position, authority,
titles, duties or responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied by the Company
promptly after receipt of notice thereof from the Executive; a material breach
by the Company of any material provision of this Agreement which, if capable of
being remedied, remains unremedied for more than 15 days after written notice
thereof is given by Employee to the company; without Employee's written consent,
the relocation of the principal executive offices of the Company to a location
outside the greater New York area; any purported termination by the Company of
Employee's employment not in accordance with the provisions of this agreement;
For purposes of this agreement, any good faith determination of "Good Reason"
made by the Employee shall be conclusive.
1. If, during the Employment Period, the Company terminates the Executive's
employment, other than for Good Cause, Death or Disability, or the Executive
terminates employment for Good Reason, the Company (A) shall pay the Executive,
in a single lump sum, the Accrued Obligations (as defined in Section 3.3 (2)
below), except that the following provisions will be substituted for subsection
A & B thereof; and the aggregate amount of the salary and Annual Incentive
Compensation that he would have received if he had remained employed for the
Severance Period (assuming that the Annual Incentive Compensation for such
period would have equaled the target amounts of such Incentive Compensation as
in effect immediately before the Date of Termination); (B) shall cause the
Executive to continue to accrue benefits under Senior Executive Retirement Plan
(SERP) during the Severance Period; and (C) shall continue to provide the
Executive with the Life Insurance Coverage and benefits as if he had remained
employed by the Company pursuant to this Agreement during the Severance Period
and then retired (at which time he will be treated as eligible for all retiree
welfare benefits and other benefits, provided to retired senior executives, to
the extent such benefits can be provided pursuant to the plan or program
maintained by the Company for its executives. In addition to the foregoing, any
restricted stock outstanding on the Date of Termination shall be fully vested as
of the Date of Termination and all options outstanding on the Date of
Termination shall be fully vested and exercisable and shall remain in effect and
exercisable through the end of their respective terms, without regard to the
termination of the Executive's Employment (but in the case of options that were
not vested immediately before the Date of Termination, not longer than three
years). Severance Period used here shall mean the period from the Date of
Termination through the end of the Employment Period.
(2) If the Executive's employment is terminated by reason of the Executive's
death or Disability during the Employment Period, the Company shall pay to the
Executive or, in the case of the Executive's death, to the Executive's
designated beneficiaries(or if there is not such beneficiary, to the Executive's
estate or legal representative), in a lump sum in cash within thirty (30) days
after the Date of Termination, the sum of the following amounts (the "Accrued
Obligations"): (a) any portion or the Executive's Annual Base Salary through the
Date of Termination that has not yet been paid; (b) an amount representing the
Annual Incentive Compensation and cash Long-Term Incentive Compensation for the
period that includes the Date of Termination, computed by assuming that the
amount of all such Incentive Compensation would be equal to the target amount of
such Incentive Compensation as in effect immediately before the Date of
Termination, and multiplying that amount by a fraction, the numerator of which
is the number of days in such period through the Date of Termination, and the
denominator of which is the total number of days in the relevant performance
period; (c) any compensation previously deferred by the Executive that has not
been paid ; and (d) any accrued but unpaid vacation pay, and the Company shall
have no further obligations under this agreement except as specified in Section
2.4.
3.4 NOTICE OF TERMINATION.
If such termination is by Employee for Good Reason or by the Company for
Disability or Good Cause, such notice shall set forth in reasonable detail the
reason for such termination and the facts and circumstances claimed to provide a
basis therefor. Any notice purporting to terminate Employee's employment which
is not in compliance with the requirements of this definition shall be
ineffective. The Date of Termination shall mean ("Date of Termination") the
termination date specified in a Notice of Termination delivered in accordance
with this Agreement.
ARTICLE IV
4.1 CONFIDENTIAL INFORMATION.
------------------------
The Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies and their respective business that
the Executive obtains during the Executive's employment by the Company or any of
its affiliated companies and that is not public knowledge. The Executive shall
not communicate, divulge or disseminate Confidential Information at any time
during or after the Executive's employment with the Company, except in the
course of performing his duties hereunder or with the prior written consent of
the Company or as otherwise required by law or legal process. In no event shall
any asserted violation of the provisions of this Section 4.1 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this agreement.
4.2 SUCCESSORS.
This Agreement is personal to the Executive and, without the prior written
consent of the Company, shall not be assignable by the Executive otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal representatives.
This Agreement shall inure to the benefit of and be binding upon the Company and
its successors and assigns, provided that the Company may not assign this
Agreement except in connection with the assignment or disposition of all or
substantially all of the assets or stock of the Company, or by law as a result
of a merger or consolidation. In the event of such assignment, a failure by the
successor to specifically assume in writing, delivered to the Executive, the
obligations and liabilities of the Company hereunder shall be deemed a material
breach of this Agreement.
4.3 NON EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies for which the Executive may qualify.
Vested benefits and other amounts that the Executive is otherwise entitled to
receive under the Incentive Compensation, the SERP, the Life Insurance Coverage,
or any other plan, policy, practice or program of, or any contract or agreement
with, the Company or any of its affiliated companies on or after the Date of
Termination shall be payable in accordance with the terms of each such plan,
policy, practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
4.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
- ---- ------------------------------------------
(a) Any thing in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company to, or for
the benefit of, the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4.4) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986 (the "Code"), as amended or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive and additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of paragraph (c) of this Section 4.4, all
determinations required to be made under this Section 4.4, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by a certified public accounting firm designated by the Executive (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive with 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the change
of control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 4.4, shall be paid by the Company to the
Executive within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to paragraph (c) of this Section 4.4 and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notices the Executive in writing prior to the
expiration of such period that is desires to contest such claim, the Executive
shall:
(I) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and,
(iv) permit the Company to participate in any proceedings relating to such
claim; PROVIDED, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
inters and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph (c) of Section 4.4, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, however, that if the
Company directs the Executive harmless, on an after-tax basis, from any Excise
Tax or income tax) including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and PROVIDED, further, that any extension of the stature of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph (c) of this Section 4.4, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of paragraph (c) of this Section
4.4, promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
paragraph (c) of this Section 4.4, a determination is made that the Executive
shall not be entitled to any refund with respect such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
4.5 ATTORNEYS' FEES.
The Company agrees to pay, as incurred, to the fullest extent permitted by law,
all legal fees and expenses that the Executive may reasonably incur as a result
of any contest (regardless of the outcome) by the Company, the Executive or
others of the validity or enforceability of or liability under, or otherwise
involving, any provision of the Agreement, together with interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code.
4.6. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions here of and shall
have no force or effect. This Agreement may not be amended or modified except by
a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications under this Agreement shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Craig G. Matthews
17 Wynwood Road
Chatham, NJ 07928
If to the Company: KeySpan Energy
One MetroTech Center
Brooklyn, NY 11201
Attention: Deputy General Counsel
or such other address as either party furnishes to the other in
writing in accordance with this paragraph (b) of Section 4.6. Notice and
communications shall be effective when actually received by the addressee.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, the Company
has caused this Agreement to be executed in its name and on its behalf, all as
of the day and year first above written
__________________
Craig G. Matthews
Keyspan Energy
___________________
Name:
Title:
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement ("AGREEMENT") is entered into as of July 29, 1999
(EFFECTIVE DATE") by and between KeySpan Energy) with its principal office at
One MetroTech Center, Brooklyn, New York 11201 ("COMPANY"), and Gerald Luterman,
65 Old Hill Road, Westport, Connecticut 06880 ("EMPLOYEE").
ARTICLE I
Whereas, the Company desires to employ employee as an officer of the Company
with the title of Senior Vice President, and Chief Financial Officer, and
Whereas, the Employee desires to accept such employment, on the terms and
conditions
herein set forth
Now, therefore for good and valid consideration, and intending to be legally
bound, the Employee and the Company agree as follows:
DEFINITIONS AND INTERPRETATIONS
1.1 DEFINITIONS
For purposes of this Agreement, except as otherwise expressly provided or unless
the context otherwise requires, the following terms shall have the following
respective meanings:
"BASE SALARY" shall have the meaning specified in Section 3.1
-----------
"BOARD" shall mean the Board of Directors of KeySpan Energy
-----
"CONFIDENTIAL INFORMATIOn" shall have the meaning specified in Section
5.1(A).
"COMPANY" shall mean KeySpan Energy and their successor(s).
"DISABILITY"shall mean a mental or physical incapacity, which prevents the
Employee from satisfactorily performing the duties of his position for a
period of 90 days.
"EXPIRATION DATE" shall have the meaning specified in Section 2.2.
"GOOD CAUSE" shall have the meaning specified in Section 4.2.
<PAGE>
"GOOD REASON" shall mean any of the following:
(1) without Employee's express written consent, a material adverse
alteration in the nature or status of Employee's position,
functions, duties or responsibilities with the Company;
(2) a material breach by the Company of any material provision of this
Agreement which, if capable of being remedied, remains unremedied
for more than 15 days after written notice thereof is given by
Employee to the Company;
(3) without Employee's express written consent, the relocation of the
Employees executive office outside his place of employment set forth
in section 2.4;
(4) any purported termination by the Company of Employee's employment
not in accordance with the provisions of this Agreement;
"NOTICE OF TERMINATION" shall mean a notice purporting to terminate
Employee's employment in accordance with Section 4.1 or 4.2. If such
termination is by Employee for Good Reason or by the Company for
Disability or Good Cause, such notice shall set forth in reasonable detail
the reason for such termination and the facts and circumstances claimed to
provide a basis therefor. Any notice purporting to terminate Employee's
employment which is not in compliance with the requirements of this
definition shall be ineffective.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust and an unincorporated organization.
"TERM" shall have the meaning specified in Section 2.2.
"TERMINATION DATE" shall mean the termination date specified in a Notice
of Termination delivered in accordance with this Agreement.
1.2 INTERPRETATIONS
(A) In this Agreement, unless a clear contrary intention appears, (i) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision, (ii) reference to any Article or Section, means such Article or
Section hereof, (iii) the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term, and (iv) where any provision of this Agreement refers to
action to be taken by either party, or which such party is prohibited from
taking,
<PAGE>
such provision shall be applicable whether such action is taken directly or
indirectly by such party.
(B) The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
ARTICLE II
EMPLOYMENT; TERM; POSITIONS AND DUTIES; ETC.
-------------------------------------------
2.1 EMPLOYMENT
The Company agrees to employ Gerald Luterman who agrees to accept employment and
remain in such employment, on a full-time basis with the Company, in each case
on the terms and conditions set forth in this Agreement.
2.2 TERM OF EMPLOYMENT
Unless sooner terminated pursuant to Article IV, the term of Employee's
employment under this Agreement (the "TERM") shall commence on the Effective
Date and shall continue until July 31, 2002, (the "EXPIRATION DATE"); PROVIDED,
HOWEVER, that no later than (6) six months prior to the Expiration Date the
Employee shall be notified in writing of the Company's intent to continue his
employment after the initial three-year term. If the Employee does not receive
such notice, his employment shall terminate on the Expiration Date. If he does
receive such notice and elects to continue in the Company's employ, his
employment shall continue after the Expiration Date subject to termination by
the Employee upon thirty (30) days notice to the Company at any time after the
Expiration Date and subject to termination by the Company upon 180 days notice
to the Employee at any time after the Expiration Date.
2.3 POSITIONS AND DUTIES
(A) While employed hereunder, GERALD LUTERMAN shall serve as Senior Vice
President and Chief Financial Officer, reporting directly to R.B. Catell,
Chairman and CEO, KeySpan Energy, having such duties and responsibilities
commensurate with the position of Senior Vice President and Chief Financial
Officer as the Chairman and/or Board or Directors shall from time to time
specify.
(B) While employed hereunder, Employee shall (i) devote all of his business
time, attention, skill and efforts to the faithful and efficient performance of
his duties hereunder and (ii) not accept employment with any Person other than
with the Company unless explicitly approved
<PAGE>
in writing by the Board prior to the engagement or outside activity.
Notwithstanding the foregoing, Employee may engage in the following activities
so long as they do not interfere in any material respect with the performance of
Employee's duties and responsibilities hereunder: (i) serve on corporate, civic,
religious, educational and/or charitable boards or committees and (ii) manage
his personal investments.
(C) While employed hereunder, Employee shall conduct himself in such a manner as
not to prejudice, in any material respect, the reputation of the Company in the
fields of business, in which it is engaged or with the investment community or
the public at large.
2.4 PLACE OF EMPLOYMENT
The Employee's primary place of employment hereunder shall be at, or within the
immediate vicinity of, the Company's MetroTech headquarters in Brooklyn, N.Y.
Employee understands that he may need to establish a secondary office at
another Company facility on Long Island.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 BASE SALARY
For services rendered by Employee under this Agreement, the Company shall pay to
Employee an annual base salary ("BASE SALARY") no less than $300,000, payable
monthly.
3.2 ANNUAL INCENTIVE COMPENSATION & GAINSHARING PLAN
The Company shall maintain an annual incentive bonus plan, which will provide
for an annual bonus as determined by the Board of Directors after review of
performance, progress, and the profits of the Company with respect to goals and
expectations established by the Board from time to time and the contribution and
performance of the Employee. Such bonus shall be payable in accordance with the
plan provisions included in the annual incentive plan. Employee shall be
eligible to participate in the annual incentive plan, as may be amended from
time to time by the Board, at all times during the Term.
All terms set forth in Exhibit A hereto are incorporated by reference and
are an integral part of this Employment Agreement
3.3 LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
The Company shall maintain a long-term incentive compensation plan which
provides an
<PAGE>
incentive compensation opportunity based upon the long term performance results
of the Company. The Employee shall be eligible to participate in the long-term
compensation incentive plan in accordance with its terms as may be amended from
time to time by the Board.
3.4 VACATION
The Employee shall be entitled to 5 weeks vacation/year, effective January 1,
2000. During 1999, 2 weeks will be granted. Vacation not used in one calendar
year, shall not carry over to the next year. No payments shall be due for unused
vacation at the end of a calendar year.
3.5 BUSINESS EXPENSES
The Company shall, in accordance with the rules and policies that it may
establish from time to time, promptly reimburse Employee for business expenses
reasonably incurred in the performance of Employee's duties. Requests for
reimbursement for such expenses must be accompanied by appropriate documentation
and be approved according to corporate procedure.
3.6 COMPENSATION, BENEFITS AND PERKS
The Employee shall be eligible to participate in any and all compensation and
benefit plans (including but not limited to the medical, dental and life
insurance) provided to comparably situated officers and Employees of the
Company, subject to the rules and requirements of such plans as they may be
amended from time to time. In addition, Employee shall be eligible for a Company
paid annual physical exam, health club membership, financial planning, personal
computer loaned for home use and a Company leased automobile pursuant to the
Compensation and Capital Accumulation Program provided to you attached as
Exhibit A.
3.7 DISABILITY BENEFITS
If Employee becomes disabled, as determined by a physician selected by the
Employee and approved by the Company, Employee shall continue to be paid his
base salary for 90 days of sick pay and accrue any annual incentive compensation
for the first 90 days of such disability.
The Company shall make available an optional Long Term Disability Plan which
Employee shall be eligible to participate subject to the terms and condition of
such plan as may be amended from time to time. Eligibility for coverage shall
commence on the first day of employment.
<PAGE>
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 TERMINATION BY EMPLOYEE
Employee may, at any time prior to the Expiration Date, terminate employment
hereunder for any reason by delivering a Notice of Termination to the Board. The
Employee is required to give 30 calendar days notice.
4.2 TERMINATION BY THE COMPANY
This agreement shall terminate and the Employee's employment shall cease upon
any of the following: (a) mutual agreement of the Employee and the Company; (b)
death or disability (at the expiration of the 90 day period as defined under
"Disability") of the Employee; or (c) upon the occurrence of Good Cause for
termination.
Good Cause for termination means Employee's: (i) breach of the terms in
paragraphs 2.3, or Article V of this agreement and continuation of the breach
for more than fifteen days after written notice by the Company to the Employee
specifying in reasonable detail the nature of the alleged breach; (ii) conduct
that constitutes knowing and willful breach of fiduciary duty as addressed in
the KeySpan Corporate Policy Statement: Ethical Business Conduct attached as
Exhibit B hereto; (iii) refusal to perform assigned duties or comply with
directions of the Board of Directors relating to his position and functions as
Chief Financial Officer and a Company Officer; or (iv) conviction by a court of
competent jurisdiction or entry of a plea of no contest for a crime involving
any act of moral turpitude or unlawful, dishonest, or unethical conduct that a
reasonable person would consider damaging to the reputation of the Company or
improper and unacceptable conduct by an Employee thereof.
4.3 PAYMENT OF ACCRUED BASE SALARY, VACATION PAY, ETC.
Upon the termination of Employee's employment for any reason (including death or
disability), the Company shall pay to Employee (or estate) a lump sum for (i)
any unpaid Base Salary earned hereunder prior to the Termination Date, (ii) all
unused vacation time accrued by Employee as of the Termination Date in
accordance with Section 3.4, and (iii) any amounts in respect of which Employee
has requested, and is entitled to, reimbursement in accordance with Section 3.5,
and (iv) any other amounts payable in accordance with the provisions of the
applicable compensation or benefits plans for KeySpan Energy Employees.
4.4 SEVERANCE BENEFITS
(1) The following provisions shall apply if the Employee terminates employment
for Good Reason or if the Company terminates Employee's employment for any
reason other than the parties mutual agreement, Good Cause, death or disability
of the Employee.
<PAGE>
(A) Lump Sum Payment. The Company shall pay to Employee within thirty business
days after the Termination Date, without offset of any kind except as described
below, (i) a lump sum payment equal to the aggregate amount of the Employees's
Base Salary for the remainder of the Term and (ii) a lump sum representing the
aggregate of the annual incentive amount for each year (measured at the target
level) for the remainder of the Term. Employee will also vest in one hundred
percent of the stock options set forth in Exhibit A. Additionally, for purposes
of pension benefit accruals, Employee shall vest in service for the remainder of
the Term, so that Employee shall receive a single life annuity pension benefit
of $16,053.74 per year, payable monthly. If Employee desires to select a joint
and surviving spousal annuity, this amount will be reduced based on actuarial
factors set forth in the Company's plan.
The salary and incentive amounts payable to Employee under this paragraph
(A) is to be offset from, and not in addition to, any severance payment due or
to become due to Employee under any separate agreement or contract between
Employee and the Company or pursuant to any severance payment plan, program or
policy of the Company.
(B) Insurance Benefits, etc. The Company will continue to provide medical and
dental coverage in which the Employee was enrolled in at the Termination Date
under same Terms with same Employee contributions for the remainder of the term
of the contract however, in the event the Employee becomes covered during the
period in which the Company is providing benefits by another employer's group
plan which provides comparable coverage to the Employee and his dependents,
provided the plan does not contain any exclusion or limitation regarding
pre-existing conditions, then the Company's similar plans and programs shall no
longer be liable for any benefits under this paragraph. COBRA coverage shall
begin at the end of the Employee's coverage under the Company's group health
plan as provided in this paragraph. Employee is obligated to notify company
immediately if he receives comparable coverage.
Employee will be eligible to participate in the Company's life insurance
plan and long term disability plan for the remaining term of this Agreement if
permitted by the company providing such insurance. Employee acknowledges that
under the terms of the current plans, he will not be able to participate if his
employment should cease.
C ) The Employee shall participate in the KeySpan Energy Senior Executive Change
of Control Severance Plan as adopted by the Board of Directors on October 30,
1998. In the event of termination upon Change of Control, Employee shall be
considered to be vested in his actual service accrued to date of termination,
plus three years of credited service as provided in the Plan.
D) In the event of any termination by the Company of the Employee's employment
under this Agreement, other than for Good Cause, the Employee shall not have any
obligation to seek other employment or to otherwise mitigate his damages and the
amount payable
<PAGE>
to him and the other benefits to be provided to him under this Agreement shall
not be reduced by the amount of any other compensation that he may earn
following termination of employment.
(2) Release. Notwithstanding anything in this Section 4.4 to the contrary, as a
condition to the receipt of any severance payment or benefit under this Section
4.4, Employee must first execute and deliver to the Company a release and
agreement in a form acceptable to the Company, releasing the Company, affiliated
and subsidiary companies, their officers, managers, Employees and agents from
any and all claims and from any and all causes of action of any kind or
character that Employee may have arising out of Employee's employment with the
Company or the termination of such employment or anything else. The Company
acknowledges that such release will be conditioned upon the Company's
fulfillment of its obligations under this Agreement.
It being understood that the Employee will not agree to release any
indemnification to which he is entitled as an Officer and Employee of the
Company.
(3) Notwithstanding anything in this Section 4.4 to the contrary, the Employee
shall not be eligible for any severance payment or benefits hereunder, if
Employee is offered a comparable position with the Company, subsidiary or
affiliated companies and the Employee accepts such offer.
ARTICLE V
CONFIDENTIAL INFORMATION AND NON-COMPETITION
5.1CONFIDENTIAL INFORMATION
(A) Employee recognizes that the services to be performed hereunder are special,
unique, and extraordinary and that, by reason of employment with the Company,
Employee may acquire Confidential Information concerning the operation of the
Company, the use or disclosure of which would cause the Company substantial loss
and damages which could not be readily calculated and for which no remedy at law
would be adequate. Accordingly, Employee agrees that he will not (directly or
indirectly) at any time, whether during or after employment hereunder, (i)
knowingly use for an improper personal benefit any Confidential Information that
may be learned or has learned by reason of employment with the Company or (ii)
disclose any such Confidential Information to any Person except (a) in the
performance of the obligations to the Company hereunder, (b) as required by
applicable law, (c) in connection with the enforcement of rights under this
Agreement, (d) in connection with any disagreement, dispute or litigation
(pending or threatened) between Employee and the Company or (e) with the prior
written consent of the Board. As used herein "CONFIDENTIAL INFORMATION" includes
information that the Company treats as confidential, with respect to the
Company's products, facilities and methods, research and development, trade
secrets and
<PAGE>
other intellectual property, systems, patents and patent applications,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information, business plans, prospects or opportunities; PROVIDED,
HOWEVER, that such term shall not include any information that (x) is or becomes
generally known or available other than as a result of a disclosure by Employee
or (y) is or becomes known or available to Employee on a nonconfidential basis
from a source (other than the Company) which, to Employee's knowledge, is not
prohibited from disclosing such information to Employee by a legal, contractual,
fiduciary or other obligation to the Company.
(B) Employee confirms that all Confidential Information is the exclusive
property of the Company. All business records, papers and documents kept or made
by Employee while employed by the Company relating to the business of the
Company shall be and remain the property of the Company at all times. Upon the
request of the Company at any time, Employee shall promptly deliver to the
Company and shall retain no copies of any written materials, records and
documents made by Employee or coming into his possession while employed by the
Company concerning the business or affairs of the Company other than personal
materials, records and documents (including notes and correspondence) of
Employee not containing proprietary information relating to such business or
affairs.
5.2 NON-COMPETITION
(A) While employed hereunder and for a period of six months from the Expiration
Date (the "RESTRICTED PERIOD"), neither Employee nor any corporation,
partnership or other entity controlled by Employee will (a) in the Northeast
United States, travel, canvas or advertise for, or otherwise assist, render
services to, become employed by, be a consultant to, or invest in any business
entity or with any individual engaged in, or engaged directly in, any business
which is a direct competitor of the Company, (b) solicit business in direct
competition with the Company from any customers or persons who were Employees of
customers of the Company at any time, (c) directly divert or attempt to divert
from the Company, any business in which it has been engaged during the term of
Employee's employment with the Company, or in which it might reasonably be
expected to become engaged, (d) directly interfere or attempt to interfere with
the relationships between the Company, its customers, Employees of customers or
vendors, (e) directly interfere or attempt to interfere with the relationship of
employer-Employee or principal and agent of any person bearing such relationship
to the Company, nor directly divert or attempt to divert any such person from
employment or representation of the Company; provided, however, that Employee
shall not be prohibited by the terms of Section 5.2 from investing in and owning
not more than one percent (1%) of the outstanding share of common stock of any
corporation, the shares of which are publicly traded pursuant to the Securities
Exchange Act of 1934, and/or passively invest as a limited partner in any
non-publicly traded security For purposes of this provision, the "direct
competitors" of the Company are those individuals, Persons or entities that
engage in any business enterprises involving telecommunication and/or energy
including, but not limited to those related to gas and electric utilities.
<PAGE>
(B) Employee has carefully read and considered the provisions of this Section
5.2 and, having done so, agrees that the restrictions set forth in this Section
5.2 are fair and reasonable and are reasonably required for the protection of
the interests of the Company, its officers, directors, Employees, creditors and
shareholders. Employee understands that the restrictions contained in this
Section 5.2 may limit their ability to engage in a business in direct
competition with the Company's business, but acknowledges that he will receive
sufficiently high remuneration and other benefits from the Company hereunder to
justify such restrictions.
(C) In the event that any provision of this Section 5.2 relating to the
Restricted Period and/or the areas of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or areas such court
deems reasonable and enforceable, the Restricted Period and/or areas of
restriction deemed reasonable and enforceable by the court shall become and
thereafter be the maximum time period and/or areas.
5.3 INJUNCTIVE RELIEF
Employee acknowledges that a breach of any of the covenants contained in this
Article V may result in material irreparable injury to the Company for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such breach, the
Company shall be entitled to obtain a temporary restraining order and/or a
preliminary or permanent injunction restraining Employee from engaging in
activities prohibited by this Article V or such other relief as may required to
specifically enforce any of the covenants contained in this Article V. Employee
agrees to and hereby does submit to IN PERSONAM jurisdiction before each and
every New York State and Federal courts in New York for that purpose. Employee
agrees that the rights of the Company to obtain an injunction granted by this
paragraph of the Agreement shall not be considered a waiver of its rights to
assert any other remedies it may have at law or in equity.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES
All notices and all other communications provided for in the Agreement shall be
in writing and addressed (i) to the Company, at its principal office address or
such other address as it may have designated by written notice to Employee for
purposes hereof, directed to the attention of the Board with a copy to the
Secretary of the Company and (ii) if to Employee, in person or at the residence
address on the records of the Company or to such other address as she may have
designated to the Company in writing for purposes hereof. Each such notice or
other communication shall be deemed to have been duly given when delivered
personally or mailed by United States registered mail, return receipt
<PAGE>
requested, postage prepaid, except that any notice of change of address shall be
effective only upon receipt.
6.2 SEVERABILITY
The invalidity or non enforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
6.3 TAX WITHHOLDINGS
The Company shall withhold from all payments hereunder all applicable taxes
(federal, state or other) which it is required to withhold therefrom unless
Employee has otherwise paid (or made other arrangements satisfactory to the
Company) the amount of such taxes.
6.4 AMENDMENTS AND WAIVERS
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by Employee
and such member of the Board or other individuals as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
6.5 ENTIRE AGREEMENT; TERMINATION OF OTHER AGREEMENTS
This Agreement and the attached Exhibit A and Exhibit B, constitute the entire
agreement of the parties and no previous agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
6.6 GOVERNING LAW
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York without regard to its
conflict of laws provision.
6.7 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original, but all of which together will constitute one and
the same instrument.
<PAGE>
6.8 SUCCESSORS: BINDING AGREEMENT
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all the business
and/or assets of the Company, by agreement in form and substance reasonably
acceptable to Employee, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
Company shall include any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section 6.8 or
which otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
WITNESS: KeySpan Corporation:
______________________ By: _______________________________
Title: _______________________________
WITNESS EMPLOYEE:
- --------------------- ------------------------------------
Exhibit 10.14
FIRST AMENDMENT TO
SUBORDINATED LOAN AGREEMENT
AND PROMISSORY NOTE
THIS FIRST AMENDMENT TO SUBORDINATED LOAN AGREEMENT AND
PROMISSORY NOTE (this "First Amendment") dated effective as of October 27, 1999
is entered into by and between HOUSTON EXPLORATION COMPANY, a Delaware
corporation (the "Company"), and KEYSPAN CORPORATION d/b/a KeySpan Energy (as
successor to MarketSpan Corporation d/b/a KeySpan Energy) (the "Lender").
PRELIMINARY STATEMENT
The Lender and the Company are parties to that certain
Subordinated Loan Agreement dated as of November 30, 1998 (as same may be
further amended, restated and extended herein, the "Credit Agreement") under and
subject to the terms of which the Lender has committed to make Advances through
January 1, 2000, not to exceed $150,000,000.00 in aggregate amount outstanding,
and that certain Promissory Note dated November 30, 1998 executed by the Company
to the order of Lender (the "Note").
The Company and the Lender desire to amend the Credit
Agreement for the sole purpose of extending the maturity date.
NOW THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth and for other good
and valuable consideration, the Company and the Lender hereby agree as follows:
SECTION 1. Definitions. Unless otherwise defined in this First
Amendment, each capitalized term used in this First Amendment has the meaning
assigned to such term in the Credit Agreement.
SECTION 2. Amendments to the Credit Agreement. (a) The Credit
Agreement and the Note are hereby amended such that all references to "Maturity
Date" or "Termination Date," and all references to "January 1, 2000" within the
definitions of Maturity Date and Termination Date, whether in the Credit
Agreement, the schedules thereto or in the Note, shall mean and be a reference
to the date of March 31, 2000.
(b) Specifically, the section of the Credit Agreement on page
one thereof entitled "Maturity Date" and the identical provision under the same
title on page one of Schedule I to the Credit agreement are hereby amended by
deleting same in their entirety and replacing same with the following:
Maturity Date: All outstanding principal, unpaid accrued interest and fees will
be repaid at Maturity, March 31, 2000. Any principal amount that remains
outstanding subsequent to the Maturity Date will be converted into equity (the
number of shares to be issued to the Lender will be determined based upon the
average of the closing prices of Houston Exploration's common stock, rounded to
three decimal places, as reported under "NYSE Composite Transaction Reports" in
the Wall Street Journal during the 20 consecutive trading days ending three
trading days prior to March 31, 2000. Because the market value represents an
average of the Company's common stock over twenty consecutive trading days
ending three trading days prior to Maturity, the market price may be higher or
lower than the price of the common stock on the conversion date. The total
amount converted to equity shall not exceed the Total Commitment Amount. Any
unpaid accrued interest or fees that remain outstanding subsequent to the
Maturity Date will be paid in cash. Notwithstanding the foregoing, upon any
sale, transfer or other disposition of the stock or substantially all of the
assets of the Company prior to March 31, 2000, all outstanding principal and
unpaid accrued interest and fees will be paid in cash on the consummation of
such sale, transfer or other disposition.
(c) The Credit Agreement is hereby amended to reflect the fact
that, as consideration for the extension of the Maturity Date as evidenced by,
and as a condition to the effectiveness of, this First Amendment, the Company
shall pay to the Lender an up-front fee of Twelve Thousand and No/100 Dollars
($12,000.00).
SECTION 3. Ratification. The agreements and obligations of the
Company under the Credit Agreement, the Note and any and all other Loan
Documents, are hereby brought forward, renewed and extended until the
indebtedness evidenced by the Credit Agreement and the Note shall have been
fully paid and discharged. The Credit Agreement and the Note, and all terms
thereof shall remain in full force and effect. The Lender hereby preserves all
of its rights against the Company, and the Company hereby agrees that all such
rights are ratified and brought forward for the benefit of the Lender.
SECTION 4. Representations True; No Default. The Company and
the Lender represent and warrant that this First Amendment has been duly
authorized, executed and delivered on behalf of the Company and the Lender,
respectively, and the Credit Agreement, as amended hereby, constitutes the valid
and legally binding agreement of the Company and the Lender, enforceable in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or moratorium or other similar law
relating to creditors' rights and by general equitable principles which may
limit the right to obtain equitable remedies (regardless of whether such
enforceability is considered in a proceeding, in equity or at law);
SECTION 5. No Obligation. This First Amendment shall not
create a course of dealing among or between the parties hereto, and no further
obligation of any kind in excess of those expressly set forth herein shall be
inferred from this First Amendment.
SECTION 6. Conditions of Effectiveness. This First Amendment
shall become effective on the date upon which this First Amendment shall have
been duly executed and delivered by the Company and the Lender, together with a
certificate of the Company certifying as to (i) the incumbency of the officer
executing this First Amendment, (ii) the truth of the representations and
warranties in the Credit Agreement, and (iii) the absence of any defaults under
the Credit Agreement.
SECTION 7. Reference to the Agreement. (a) Upon the
effectiveness of this First Amendment, each reference in the Credit Agreement to
"hereunder," "herein," "hereof" or words of like import shall mean and be a
reference to the Agreement, as affected and amended hereby.
(b) Upon effectiveness of this First Amendment, each reference
in the Credit Agreement shall mean and be a reference to the Credit Agreement,
as affected and amended hereby.
SECTION 8. Miscellaneous Provisions. (a) This First Amendment
may be signed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(b) The headings herein shall be accorded no significance in interpreting
this First Amendment.
SECTION 9. Governing Law. This First Amendment shall be
governed by and construed in accordance with the laws of the State of New York
and applicable federal law.
SECTION 10. FINAL AGREEMENT OF THE PARTIES. THIS FIRST
AMENDMENT, THE CREDIT AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS
CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS
BUSINESS AND COMMERCE CODE AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First
Amendment to be executed by their respective duly authorized officers to be
effective as of the date first written above.
KEYSPAN CORPORATION,
d/b/a KeySpan Energy
By: /s/ Robert R. Wieczorek
Name: Robert R. Wieczorek
Title: VP, Secretary and Treasurer
Address: One MetroTech Center
Brooklyn, NY 11201
THE HOUSTON EXPLORATION COMPANY
By: /s/ Thomas W. Powers
Thomas W. Powers
Senior Vice President
1100 Louisiana, Suite 2000
Houston, Texas 77002
Exhibit 10.16>
FIRST AMENDMENT TO EXPLORATION AGREEMENT
This First Amendment to Exploration Agreement ("Amendment") is made and
entered into this the third day of November 1999, between THE HOUSTON
EXPLORATION COMPANY, a Delaware corporation, of 1100 Louisiana Street, Suite
2000, Houston, Texas 77002 ("THEC") and KEYSPAN EXPLORATION AND PRODUCTION,
L.L.C., a Delaware limited liability company, of One Metro Tech Centre, 18th
Floor, Brooklyn, New York 11201 ("KE&P").
W I T N E S S E T H:
A. THEC and KE&P have entered into that certain Exploration Agreement dated
the 15th day of March 1999 between The Houston Exploration Company and KeySpan
Exploration and Production, L.L.C. ("Exploration Agreement"); and
B. THEC and KE&P desire to amend the Exploration Agreement as set forth in
this Amendment. NOW, THEREFORE, for valuable consideration, THEC and KE&P agree
as follows: I. Section 1.15 of the Exploration Agreement is amended so that the
existing language becomes Section 1.15(a) and the following is inserted as
Section 1.15(b): 1.15(b) KE&P's Quarterly Commitment. The sum of (a) 25 million
dollars per calendar quarter during the Primary Term plus (b) that portion of
prior quarters' Quarterly Commitments that have not been expended or committed
for expenditure
<PAGE>
under this Agreement which sum shall be used to pay all costs attributable to
KE&P under this Agreement, including G and A Costs, during the relevant quarter.
II.
Section 1.28 of the Agreement is deleted and the following new Section
1.28 is substituted therefor:
1.28 Program Year. Each calendar year (or portion of a calendar year if
the Primary Term ends at the end of any calendar quarter during such year other
than December 31 of such year) during the Primary Term of this Agreement. A cost
under this Agreement for purposes of Payout shall be attributable to the Program
Year in which the first Exploratory Well is spudded on the Lease to which such
cost relates. If an Exploratory Well is not spudded on a Lease during the
Primary Term of this Agreement, the costs relating to such Lease shall be used
in the calculation of Payout for the Program Year in which they were incurred.
Net Proceeds shall be attributable to the Program Year in which the first
Exploratory Well is spudded on the Lease to which such proceeds relate.
III.
Section 2.1 of the Agreement is deleted and the following new Section
2.1 is substituted therefor:
2.1 Primary Term. This Agreement shall be for a primary term (the "Primary
Term") commencing on January 1, 1999 ("Commencement Date") and ending on the
earliest to occur of the following:
(a) December 31, 2001;
2
<PAGE>
(b) the end of any calendar quarter if either party notifies
the other party in writing on or before thirty (30) days before the end of such
quarter of its election to terminate the Primary Term at the end of such
quarter; or
(c) the mutual agreement of the parties.
IV.
Section 5.1 of the Agreement is deleted and the following new Section
5.1 is substituted therefor:
5.1 Allocation of IDCs. Subject to Section 5.4, during each year of the
Primary Term, KE&P shall pay one hundred percent (100%) of all Intangible Costs
attributable to THEC's Original Working Interests in the Leases until KE&P has
paid Intangible Costs for such year totaling 20.725 million dollars and,
thereafter during such year KE&P shall pay fifty one and seventy five one
hundredths percent (51.75%) of all Intangible Costs attributable to THEC's
Original Working Interests in the Leases and THEC shall pay forty eight and
twenty five one hundredths percent (48.25%) of all Intangible Costs attributable
to THEC's Original Working Interest in the Leases. If during any of such years,
one hundred percent (100%) of the Intangible Costs attributable to THEC's
Original Working Interests in the Leases are less than 20.725 million dollars,
the shortage shall be added to the following year and KE&P shall pay during such
following year one hundred percent (100%) of all Intangible Costs attributable
to THEC's Original Working Interests in the Leases until KE&P has paid
Intangible Costs for such year totaling 20.725 million dollars plus the shortage
from the preceding year(s); provided that, during the first calendar quarter of
the 2000
3
<PAGE>
Program Year, KE&P's obligation to pay one hundred percent (100%) of such
Intangible Costs shall be limited to 5.18 million dollars and, further provided,
if the Primary Term ends on March 31, 2000 KE&P's obligation to pay one hundred
percent (100%) of Intangible Costs shall terminate. Subject to the preceding
sentence, during the Secondary Term, KE&P shall pay all Intangible Costs
attributable to THEC's Original Working Interest in the Leases until such
shortage from the Primary Term, if any, is expended and thereafter shall pay
fifty one and seventy five one hundredths percent (51.75%) of all Intangible
Costs attributable to THEC's Original Working Interest in the Leases and THEC
shall pay forty eight and twenty five one hundredths percent (48.25%) of all
Intangible Costs attributable to THEC's Original Working Interest in the Leases;
provided that, KE&P shall have no obligation to pay Intangible Costs to the
extent such costs relate to a Lease reassigned to THEC under Section 6.5 and
such costs accrue after such reassignment.
V.
Section 5.3 of the Agreement is deleted and the following new Section
5.3 is substituted therefor:
5.3 Allocation of Remaining Costs. Subject to Section 5.4 and 5.8,
during the Primary Term and the Secondary Term, KE&P shall pay forty five
percent (45%) of all Drilling Costs, Development Costs, Seismic Costs, Leasehold
Costs, Abandonment Costs and Operating Costs attributable to THEC's Original
Working Interest in the Leases and THEC shall pay fifty five percent (55%) of
all Drilling Costs,
4
<PAGE>
Development Costs, Seismic Costs, Leasehold Costs, Abandonment Costs and
Operating Costs attributable to THEC's Original Working Interest in the Leases;
provided that, KE&P shall have no obligation to pay any of such costs to the
extent such costs relate to a Lease reassigned to THEC under Section 6.5 and
such costs accrue after such reassignment.
VI.
Section 5.4 of the Agreement is amended so that the existing language
becomes Section 5.4A and the following is inserted as 5.4B:
5.4B Primary Term Commitment. Notwithstanding the foregoing Section
5.4A, for the period commencing January 1, 2000, this Section 5.4B shall apply
prospectively in lieu of Section 5.4A. KE&P's obligation to pay the costs
specified in Sections 5.1 to 5.3 incurred during any quarter of the Primary Term
is limited to KE&P's Quarterly Commitment subject to the following:
(a) If THEC determines that the allocation to KE&P of its share of the
Drilling Costs and Intangible Costs of the first Exploratory Well on a Lease
will result in KE&P's Quarterly Commitment being exceeded, THEC shall notify
KE&P in writing of such fact prior to commencing such Well. Within fifteen (15)
days (or such lesser period specified in the notice if the proposed spud date of
such Well is less than thirty (30) days from the date of such notice) after
receiving such notice, KE&P shall notify THEC in writing whether or not it
approves such Well. If KE&P approves such Well, KE&P's share of the Drilling
Costs and Intangible Costs of such Well shall be deemed "Excess
5
<PAGE>
Costs" and, to the extent the Excess Costs result in KE&P's Quarterly Commitment
being exceeded, such commitment shall be increased accordingly for such quarter.
If KE&P does not approve such Well or fails to notify THEC of its decision, KE&P
shall forfeit its interests in such Well and the Lease on which it is located.
(b) Except as provided in Section 5.4(a), if KE&P is not obligated to
pay a portion of its share of the costs specified in Sections 5.1 to 5.3 during
any quarter of the Primary Term, because its share exceeds in whole or in part
KE&P's Quarterly Commitment, and THEC pays such costs, KE&P shall reimburse THEC
for such costs out of KE&P's Quarterly Commitment for the following quarter on
or before thirty days after the end of the quarter in which THEC paid such costs
or, if the Primary Term has ended, THEC shall receive KE&P's share of Net
Proceeds from all Wells drilled under this Agreement until such time as THEC has
received a sum of money (exclusive of all Burdens, Marketing Costs and Taxes)
out of such share equal to KE&P's share of costs which were paid by THEC,
provided, however, that the amount to be paid by KE&P as contemplated above
shall not exceed twenty percent (20%) of KE&P's Quarterly Commitment without its
written consent.
(c) KE&P's Quarterly Commitment shall first be applied to G and A
Costs, Seismic Costs, Leasehold Costs and Operating Costs and the remainder to
the Intangible Costs, Drilling Costs, Development Costs and Abandonment Costs.
(d) All Drilling Costs, Intangible Costs and Development Costs for purposes
of applying the limitations of KE&P's Quarterly Commitment shall, at the
election of
6
<PAGE>
THEC, be deemed to have been incurred entirely on the date THEC submits to KE&P
the information set forth in Section 7.3 relating to the applicable operation or
the date of the AFE relating to the expenditure of such costs, rather than on
the dates such costs are actually incurred.
(e) Such portion of KE&P's Yearly Commitment for the year 1999 not
expended or committed for expenditure by December 31, 1999 shall be available
for use during the Primary Term only for Development Costs and Intangible Costs
related to Development Operations on Leases on which the first Exploratory Well
was spudded during the 1999 Program Year.
(f) Such portion of KE&P's Quarterly Commitment, for any calendar
quarter, not expended or committed for expenditure by the last day of such
quarter shall be available for use in subsequent quarters during the Primary
Term only for Development Costs and Intangible Costs related to Development
Operations on Leases on which the first Exploratory Well was spudded during the
quarter to which the unused portion of the quarterly Commitment relates, or any
previous quarter, including the 1999 Program Year.
VII.
Section 10.4 of the Exploration Agreement is amended so that the
existing language becomes Section 10.4(a) and the following is inserted as
Section 10.4(b):
10.4(b) Budgets. Notwithstanding the foregoing Section 10.4(a), for the
period commencing January 1, 2000, this Section 10.4(b) shall apply
prospectively in lieu of Section 10.4(a). THEC shall submit quarterly to the
Management Committee THEC's Program Budget and a quarterly budget setting forth
the anticipated financial
7
<PAGE>
requirements of KE&P under this Agreement. Such budgets for the first quarter of
the year 2000 shall be submitted on or before January 1, 2000 and the budgets
for the following quarters during the terms on or before the first day of such
quarters.
Except as herein amended, the parties do hereby ratify and confirm the
Exploration Agreement.
Executed on the day set forth above, but to be effective as of January
1, 2000.
THE HOUSTON EXPLORATION COMPANY
By:/s/ James Westmoreland
James Westmoreland, Vice President
KEYSPAN EXPLORATION AND
PRODUCTION, L.L.C.
By:/s/ Zain Mirza
Zain Mirza, Vice President
8
Exhibit 10.20
[
THIRD AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT AND SUPPLEMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Third Amendment") executed effective as of December 31, 1999
(the "Effective Date"), is by and among THE HOUSTON EXPLORATION COMPANY, a
Delaware corporation ("Company"); CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (in
its individual capacity, "Chase"), as agent (in such capacity, "Agent") for each
of the lenders that is a signatory hereto or which becomes a signatory hereto
and to the hereinafter described Credit Agreement as provided in Section 12.06
of the Credit Agreement (individually, together with its successors and assigns,
"Lender" and collectively, "Lenders").
R E C I T A L S
A. The Company, the Agent and the Lenders (other than the hereinafter
defined "Additional Lenders") are parties to that certain Amended and Restated
Credit Agreement dated as of March 30, 1999 (said Amended and Restated Credit
Agreement, as amended and supplemented by First Amendment to Amended and
Restated Credit Agreement dated as of May 4, 1999, and as further amended by
Second Amendment to Amended and Restated Credit Agreement dated as of October 6,
1999, "Credit Agreement"), pursuant to which the Lenders agreed to make loans
and issue Letters of Credit to and for the account of the Company.
B. The Company, the Lenders and the Agent mutually desire to amend certain
aspects of the Credit Agreement relating to,
among other things, the Borrowing Base and Threshold Amount.
C. In view of the foregoing, the Company, the Agent and the Lenders hereby
agree to amend the Credit Agreement in the particulars hereinafter provided.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. Section Certain Terms. All capitalized terms used in this Third
Amendment and not otherwise defined herein shall have the meanings ascribed to
such terms in the Credit Agreement.
2. Section Amendments and Supplements to Credit Agreement. The Credit
Agreement is hereby amended and supplemented
as follows:
2.1 Definitions.
-----------
(a) The following terms defined in Section 1.02 of the Credit
Agreement are hereby amended as follows:
(i) The term "Agreement" is hereby amended in its entirety to
read as follows:
"Agreement" shall mean this Credit Agreement, as
amended by the First Amendment, as further amended by the
Second Amendment, as further amended by the Third Amendment,
and as the same may be further amended or supplemented from
time to time.
(ii) The term "Applicable Margin" is hereby amended
in its entirety to read as follows:
"Applicable Margin" shall mean at the time of calculation, with respect
to any Loan, calculated as a function of the type of such Loan, the following
rate per annum as applicable:
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
Threshold Amount Fixed Rate Loan Applicable Base Rate Loan Applicable
Utilization Margin Percentage Margin Percentage
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Less than 33% 0.875% 0%
- ---------------------------------------- ------------------------------------- -------------------------------------
Greater than or equal to 33% but less
than 66% 1.125% 0%
- ---------------------------------------- ------------------------------------- -------------------------------------
Greater than or equal to 66% but less
than 100% 1.375% 0%
- ---------------------------------------- ------------------------------------- -------------------------------------
Greater than or equal to 100% 1.625% 0%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
(iii) The Term "Threshold Amount" is hereby amended
in its entirety to read as follows:
"Threshold Amount" shall mean (i) during the
period from and including the Effective Date of the
Third Amendment to and including the date of the
redetermination by the Agent and the Lenders of the
Threshold Amount scheduled to occur March 1, 2000, an
amount equal to $175,000,000, (ii) during the period
from and including March 2, 2000 to and including
September 1, 2000, an amount equal to the amount of
the March 1, 2000 redetermined Threshold Amount, and
(iii) thereafter, the amount equal to the Borrowing
Base in effect from time to time. The redetermination
of the Threshold Amount on March 1, 2000, shall be
made using the same criteria used by the Agent and
the Lenders prior to the Closing Date to determine
the Threshold Amount.
(b) Section 1.02 of the Credit Agreement is hereby
supplemented, where alphabetically appropriate, with the addition of
the following definition:
"Third Amendment" shall mean that certain Third
Amendment to Amended and Restated Credit Agreement dated
effective as of December 31, 1999, between the Company, the
Agent and the Lenders.
2.2 Fees. Section 2.04 of the Credit Agreement is hereby amended as
follows:
(a) The table found in Section 2.04(a)(i) is hereby amended in its entirety to
read as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------- -------------------------------------------
Threshold Amount
Utilization Commitment Fee
-------------------------------------------------------------- -------------------------------------------
<S> <C>
Less than 33% 0.25%
-------------------------------------------------------------- -------------------------------------------
Greater than or equal to 33% but less than 66% 0.30%
-------------------------------------------------------------- -------------------------------------------
Greater than or equal to 66% but less than 100% 0.30%
-------------------------------------------------------------- -------------------------------------------
Greater than or equal to 100% 0.375%
-------------------------------------------------------------- -------------------------------------------
</TABLE>
(b) The table found in Section 2.04(b) is hereby amended in its entirety to read
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------- -----------------------------------------------------
Threshold Amount
Utilization Issuance Fee
---------------------------------------------------- -----------------------------------------------------
<S> <C>
Less than 33% 0.875%
---------------------------------------------------- -----------------------------------------------------
Greater than or equal to 33% but less than 66% 1.125%
---------------------------------------------------- -----------------------------------------------------
Greater than or equal to 66% but less than 100% 1.375%
---------------------------------------------------- -----------------------------------------------------
Greater than or equal to 100% 1.625%
---------------------------------------------------- -----------------------------------------------------
</TABLE>
2.3 Prepayments. Section 2.08(b) of the Credit Agreement is
hereby amended and modified to provide that, if on March 29, 2000, the
sum of the outstanding aggregate principal amount of the Loans and the
LC Exposure exceeds the lesser of the then effective Borrowing Base or
the aggregate amount of the Commitments, then the Company shall
immediately pay or prepay the amount of such excess amount for
application first, towards the reduction of all amounts previously
drawn under Letters of Credit, but not yet funded as a Revolving Credit
Loan pursuant to Section 4.07(b) or reimbursed, second, if necessary,
towards reduction of the outstanding principal balance of the Notes by
prepaying Base Rate Loans, if any, then outstanding, and third, if
necessary, at the election of the Company, either toward a reduction of
the outstanding principal balance of the Notes by prepaying Fixed Rate
Loans, if any, then outstanding or by paying such amount to the Agent
as cash collateral for outstanding Letters of Credit, which amount
shall be held by the Agent as cash collateral to secure the Company's
obligation to reimburse the Agent and the Lenders for drawing under the
Letters of Credit.
2.4 MarketSpan Credit Facility. Section 8.07 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"Section 8.07 MarketSpan Credit Facility. The Company
shall maintain an unused and available commitment under the
MarketSpan Credit Facility equal to or greater than the amount
by which the Borrowing Base exceeds the Threshold Amount until
(i) such time as the Borrowing Base is equal to the Threshold
Amount, (ii) such time as any and all prepayments required
under Section 2.08(b) have been made in full, and (iii) such
time as no Default exists hereunder."
Section 3. Borrowing Base; Threshold Amount. Notwithstanding anything to
the contrary contained in the Credit Agreement including, without limitation,
the provisions of Section 2.09:
(a) The amount of the Borrowing Base shall be (i) $240,000,000
for the period from and including the Effective Date of this Third
Amendment to but not including March 29, 2000, and (ii) an amount equal
to the Threshold Amount in effect on March 29, 2000, for the period
from and including March 29, 2000 to and including September 1, 2000,
at which time and from time to time thereafter the Borrowing Base shall
be redetermined in accordance with Section 2.09 of the Credit
Agreement.
(b) Any unscheduled redetermination of the Borrowing Base or the
Threshold Amount which occurs on or before March 29, 2000, must be approved
by all of the Lenders. Section 4. Conditions. In addition to any and all
other applicable conditions precedent contained in Article VI of the
Credit Agreement, this Third Amendment shall become binding upon receipt by the
Agent of the following documents, each of which shall be satisfactory to the
Agent in form and substance:
(a) Counterparts of this Third Amendment duly executed by the
Company.
(b) Photocopies of all duly completed and executed
documentation evidencing the extension of the final maturity of the
MarketSpan Credit Facility from January 1, 2000 to March 31, 2000.
(c) Such other documents as the Agent or its counsel may
reasonably request.
Section 5. Extent of Amendments. The parties hereto hereby acknowledge
and agree that, except as specifically supplemented and amended, changed or
modified hereby, the Credit Agreement shall remain in full force and effect in
accordance with its terms.
Section 6. Reaffirmation. The Company hereby reaffirms that as of the
date of this Third Amendment, the representations and warranties made by the
Company in Article VII of the Credit Agreement are true and correct on the date
hereof as though made on and as of the date of this Third Amendment.
Section 7. Governing Law. This Third Amendment shall be governed by, and
construed in accordance with, the laws of the State of Texas.
Section 8. Counterparts. This Third Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Section 9. Final Agreement. THE CREDIT AGREEMENT, AS AMENDED HEREBY,
THIS THIRD AMENDMENT, THE NOTES AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES.
[SIGNATURE PAGES BEGIN ON NEXT PAGE]
<PAGE>
[Third Amendment to Amended and
Restated Credit Agreement
Signature Page 1]
Houston:52429.2
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed effective as of the date first above written.
COMPANY:
-------
THE HOUSTON
EXPLORATION
COMPANY
By:/s/ Thomas W. Powers
Name: Thomas W. Powers
Title: Senior Vice President
Business Development
Finance and Treasurer
Address: 1100 Louisiana
Suite 2000
Houston, Texas 77002
Telecopier No.: 713/830-6885
Telephone No.: 713/830-6853
<PAGE>
LENDERS AND AGENTS:
------------------
CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, individually as a Lender and as
Administrative Agent
By: /s/ Russell Johnson
Name: Russell Johnson
Title: Vice President
Applicable Lending
Office for Base Rate Loans:
Address: 712 Main Street
Houston, Texas 77002
Applicable Lending Office for Fixed Rate Loans:
Address: 712 Main Street
Houston, Texas 77002
Telecopier: 713/216-8870
Telephone: 713/216-5617
Address for Notices:
Loan and Agency Services
The Chase Manhattan Bank
1 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Telecopier No.: 212/552-7490
Telephone No.: 212/552-7943
Attention: Muniram Appanna
THE BANK OF NOVA SCOTIA,
individually as a Lender and as Syndication Agent
By: /s/F.C.H. Ashby
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
Applicable Lending
Office for Base Rate Loans:
Address: 600 Peachtree Street N.E.
Suite 2700
Atlanta GA 30308
Applicable Lending Office for Fixed Rate Loans:
Address: 600 Peachtree Street N.E.
Suite 2700
Atlanta GA 30308
Address for Notices:
1100 Louisiana, Suite 3000
Houston, Texas 77002
Telecopier No.: 713/752-2425
Telephone No.: 713/759-3441
Attention: Mark Ammerman
with a copy to:
Address: 600 Peachtree Street N.E.
Suite 2700
Atlanta GA 30308
Telecopier: 404/888-8998
Telephone: 404/877-1552
Attention: Phyllis Walker
FIRST UNION NATIONAL BANK,
Individually as a Lender and as Documentation Agent
By: /s/ Robert R. Wetteroff
Name: Robert R. Wetteroff
Title: Senior Vice President
Applicable Lending Office for Base Rate Loans:
Address: 301 South College Street
Charlotte, North Carolina 28288
Applicable Lending Office for Fixed Rate Loans:
Address: 301 South College Street
Charlotte, North Carolina 28288
Address for Notices:
1001 Fannin Street
Houston, Texas 77002
Telecopier: 713/650-6354
Telephone No. 713/346-2727
Attention: Jay Chernosky
with a copy to:
1001 Fannin Street
Houston, Texas 77002
Telecopier: 713/650-6354
Telephone No. 713/346-2727
Attention: Debbie Blank
PNC BANK NATIONAL ASSOCIATION,
Individually as a Lender and as Managing Agent
By: /s/ Thomas A. Maleski
Name: Thomas a. Maleski
Title: Vice President
Applicable Lending Office for Base Rate Loans:
Address: 249 Fifth Avenue, 3rd Floor
Mail Stop P1-POPP-03-1
Pittsburgh, Pennsylvania 15222
Applicable Lending Office for Fixed Rate Loans:
Address: 249 Fifth Avenue, 3rd Floor
Mail Stop P1-POPP-03-1
Pittsburgh, Pennsylvania 15222
Address for Notices:
249 Fifth Avenue, 3rd Floor
Mail Stop P1-POPP-03-1
Pittsburgh, Pennsylvania 15222
Telecopier: 412/762-2571
Telephone No. 412/762-3025
Attention: Thomas A. Majeski
with a copy to:
620 Liberty Avenue
Mail Stop P2-PTPP-03-1
Pittsburgh, Pennsylvania 15222
Telecopier: 412/762-5271
Telephone No. 412/762-3025
Attention: Stephanie Angelini
COMERICA BANK - TEXAS
By: /s/ Martin W. Wilson
Name: Martin W. Wilson
Title: Vice President
Applicable Lending Office for Base Rate Loans:
Address: 1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Applicable Lending Office for Fixed Rate Loans:
Address: 1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Address for Notices:
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Telecopier: 214/969-6561
Telephone No. 214/969-6563
Attention: Martin W. Wilson
with a copy to:
Livonia Operations Center
39200 Six Mile Road, 4th Floor
Livonia, Michigan 48152
Telecopier: 734/632-7050
Telephone No. 734/632-3063
Attention: Nancy Lee
THE BANK OF NEW YORK
By: /s/ Peter Keller
Name: Peter Keller
Title: Vice President
Applicable Lending
Office for Base Rate Loans:
Address: One Wall Street
Energy Division, 19th Floor
New York, New York 10286
Telecopier No.:212/635-7924
Telephone No.:212/635-7550
Attention: Kathy D'Elena
Applicable Lending Office for Fixed Rate Loans:
Address: One Wall Street
Energy Division, 19th Floor
New York, New York 10286
Telecopier No.:212/635-7924
Telephone No.:212/635-7550
Attention: Kathy D'Elena
Address for Notices:
The Bank of New York
One Wall Street
Energy Division, 19th Floor
New York, NY 10286
Telecopier No.: 212/635-7924
Telephone No.: 212/635-7550
Attention: Kathy D'Elena
with a copy to:
Address:
The Bank of New York
One Wall Street
Energy Division, 19th Floor
New York, NY 10286
Telecopier No.: 212/635-7924
Telephone No.: 212/635-7861
Attention: Peter Keller
NATEXIS BANQUE
By: /s/ N. Eric Ditges
Name: N. Eric Ditges
Title: Vice President
By: /s/ Louis P. Laville, III
--------------------------
Name: Louis P. Laville, III
----------------------
Title: Vice President and Group Manager
---------------------------------
Applicable Lending
Office for Base Rate Loans:
Address: 645 5th Avenue, 20th Floor
New York, New York
Telecopier No.:212/872-5045
Applicable Lending Office for Fixed Rate Loans:
Address: 645 5th Avenue, 20th Floor
New York, New York
Telecopier No.:212/872-5045
Address for Notices:
Natexis Banque, Southwest
Representative Office
333 Clay Street, Suite 4340
Houston, Texas 77002
Telecopier No.: 713/759-9908
Telephone No.: 713/759-9401
Attention: Tanya McAllister
with a copy to:
Address:
Natexis Banque, New York Branch
645 5th Avenue, 20th Floor
New York, New York
Telecopier No.: 212/872-5045
Attention: Joan Rankine
and
Natexis Banque, Southwest
Representative Office
333 Clay Street, Suite 4340
Houston, Texas 77002
Telecopier No.: 713/759-9908
Telephone No.: 713/759-9401
Attention: Eric Ditges
<P
BANK ONE, TEXAS, N.A.
By: /s/ Christine M. Macan
Name: Christine M. Macan
Title: Vice President
Applicable Lending
Office for Base Rate Loans:
Address: 910 Travis, TX2_4330
Houston, Texas 77002
Applicable Lending Office for Fixed Rate Loans:
Address: 910 Travis, TX2_4330
Houston, Texas 77002
Address for Notices:
Bank One Center
910 Travis, TX2_4330
Houston, Texas 77002
Telecopier No.: 713/751-3544
Telephone No.: 713/751-3484
Attention: Christine Macan
with a copy to:
Address: Bank One Center
910 Travis, TX2_4375
Houston, Texas 77002
Telecopier No.: 713/751-3982
Telephone No.: 713/751-6174
Attention: Jeanie Harman
and
Address: 500 Throckmorton
West Complex PG6
Fort Worth, Texas 76102
Telecopier No.: 817/884-4651
Telephone No.: 817/884-4399
Attention: Carol Peacock
<P
HIBERNIA NATIONAL BANK
By: /s/ David R. Reid
Name: David R. Reid
Title: Senior Vice President
Applicable Lending
Office for Base Rate Loans:
Address: 313 Carondelet Street
New Orleans, Louisiana 70130
Applicable Lending Office for Fixed Rate Loans:
Address: 313 Carondelet Street
New Orleans, Louisiana 70130
Address for Notices:
213 W. Vermilion
Lafayette, Louisiana 70501
Telecopier No.: 318/268-4566
Telephone No.: 318/268-4582
Attention: David Reid
with a copy to:
Address: 313 Carondelet Street
New Orleans, Louisiana 70130
Telecopier No.: 504/533-5434
Telephone No.: 504/533-5717
Attention: Spencer Gagnet
and
Address: 313 Carondelet Street
New Orleans, Louisiana 70130
Telecopier No.: 504/533-5434
Telephone No.: 504/533-5352
Attention: Virginia Bell Cowart
EXHIBIT 21
SUBSIDIARIES
NAME PLACE OF INCORPORATION
ACJ Acquisition LLC Massachusetts
Active Conditioning Corp. New Jersey
d/b/a KeySpan Services
Cross Bay Pipeline Company, LLC Delaware
Delta KeySpan, Inc. Delaware
d/b/a KeySpan Services
FINSA Energeticos, S. de R.L. de C.V. Mexico
Fourth Avenue Enterprise Piping Corp. New York
d/b/a KeySpan Services
Fritze KeySpan, LLC Delaware
d/b/a KeySpan Services
GEI Timna, Inc. Delaware
GEI Development Corp. Delaware
GMS Facilities Limited Alberta, Canada
GTM Energy LLC Delaware
Gulf Midstream Services Limited Alberta, Canada
Gulf Midstream Services Partnership Alberta, Canada
Grupo KeySpan S. de R.L. de C. V. Mexico
Honeoye Storage Corporation New York
Iroquois Gas Transmission System, L.P. Delaware
Island Energy Services Company, Inc. New York
1
<PAGE>
KeySpan C.I., Ltd. Cayman Islands
KeySpan C.I. II, Ltd. Cayman Islands
KeySpan Communications Corp. New York
KeySpan Corporate Services LLC New York
KeySpan Cross Bay, LLC Delaware
KeySpan Electric Services LLC New York
KeySpan Energy Canada, Ltd. Alberta, Canada
KeySpan Energy Construction, LLC New York
KeySpan Energy Corporation New York
KeySpan Energy Development Co. Nova Scotia, Canada
KeySpan Energy Development Corporation Delaware
KeySpan Energy Services, Inc. Delaware
d/b/a KeySpan Services
KeySpan Energy Solutions, LLC Delaware
d/b/a KeySpan Services
KeySpan Energy Supply, LLC Delaware
d/b/a KeySpan Services
KeySpan Energy Trading Services LLC New York
d/b/a KeySpan Services
KeySpan Engineering Associates, Inc. New York
d/b/a KeySpan Services
KeySpan Exploration and Production, LLC Delaware
KeySpan Gas East Corporation New York
d/b/a Brooklyn Union of Long Island
KeySpan Generation LLC New York
KeySpan International Corporation Delaware
2
<PAGE>
KeySpan Luxembourg S.A.R.L. Luxembourg
KeySpan Midstream, LLC Delaware
KeySpan Natural Fuels, LLC Delaware
KeySpan North East Ventures, Inc. Delaware
KeySpan Operating Services, LLC Delaware
KeySpan Plumbing Solutions, Inc. New York
d/b/a KeySpan Services
KeySpan-Ravenswood, Inc. New York
KeySpan-Ravenswood Services Corp. New York
KeySpan Services, Inc. Delaware
d/b/a KeySpan Services
KeySpan Technologies, Inc. New York
KeySpan Utility Services LLC New York
KeySpan UK Limited United Kingdom
KS CI Midstream Limited Cayman Islands
KS Midstream Finance Co. Nova Scotia, Canada
LILCO Energy Systems, Inc. New York
Marquez Development Corp. New York
Nicodama Beheer V.B.V. Netherlands
North East Transmission Co., Inc. Delaware
Northeast Gas Markets, LLC Delaware
Paulus Sokolowski and Sartor, Inc. New Jersey
d/b/a KeySpan Services
Phoenix Natural Gas Limited United Kingdom
Premier Transco Limited United Kingdom
3
<PAGE>
R.D. Mortman, LLC New York
d/b/a KeySpan Services
Roy Kay Inc. New Jersey
d/b/a KeySpan Services
Roy Kay Electrical New Jersey
d/b/a KeySpan Services
Roy Kay Mechanical Inc. New Jersey
d/b/a KeySpan Services
Solex Production Limited Alberta, Canada
The Houston Exploration Company Delaware
The Brooklyn Union Gas Company New York
THEC Holdings Corp. Delaware
WDF, Inc. New York
d/b/a KeySpan Services
4
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements File Nos. 333-30353, 333-04863, 333-53657,
333-53765, 333-92003, and 333-79151.
ARTHUR ANDERSEN LLP
March 9, 2000
New York, New York
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 333-92003), as amended, relating to KeySpan Corporation's
registration of $600,000,000 of debt securities, the Registration Statement on
Form S-8 (No. 333-79151), as amended, relating to KeySpan Corporation's
Long-Term Performance Incentive Compensation Plan, the Registration Statement on
Form S-8 (No 333-53765), relating to KeySpan Corporation's Employee Discount
Stock Purchase Plan and in the related Prospectus, and the Registration
Statement on Form S-3 (No. 333-53657), relating to the issuance of Common Stock
under KeySpan Corporation's Investor Program and in the related Prospectus, of
our report dated May 22, 1998, with respect to the financial statements and
schedule of Long Island Lighting Company included in the Annual Report (Form
10-K), of KeySpan Corporation (formerly known as MarketSpan Corporation) for the
year ended December 31, 1999, filed with the Securities and Exchange Commission.
/S/ERNST & YOUNG LLP
March 9, 2000
Melville, New York
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Robert B. Catell
Robert B. Catell
Chief Executive Officer and
Chairman of the
Board of Directors
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Lilyan H. Affinito
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ George Bugliarello
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Howard R. Curd
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Richard N. Daniel
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Donald H. Elliott
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Alan H. Fishman
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ James R. Jones
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Stephen W. McKessy
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Edward D. Miller
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Basil A. Paterson
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ James Q. Riordan
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Frederic V. Salerno
Director
<PAGE>
KEYSPAN CORPORATION
POWER OF ATTORNEY
WHEREAS, KeySpan Corporation, a New York corporation (the
"Company"), intends to file with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
as prescribed by said Commission pursuant to said Act and the rules and
regulations promulgated thereunder.
NOW, THEREFORE, in my capacity either as a director or
officer, or both as the case may be, of the Company, I do hereby appoint GERALD
LUTERMAN and ROBERT R. WIECZOREK, and each of them severally, as my
attorneys-in-fact with power to execute in my name and place, and in my capacity
as a director, officer, or both, as the case may be, of KeySpan Corporation,
said Report, any amendment to said Report and any other documents required in
connection therewith, and to file the same with the Securities and Exchange
Commission.
IN WITNESS WHEREOF, I have executed this power of attorney
this 9th day of March, 2000.
/s/ Vincent Tese
Director
Exhibit 24.2
The Chairman reported that the Corporation intends to file its Report
on Form 10-K for the fiscal year ended December 31, 1999 and mail proxy
materials to shareholders relative to its Annual Meeting of Shareholders on May
11, 2000. After discussion, upon motion duly seconded, it was
RESOLVED, That the proper officers of the Corporation be, and
hereby are, and each of them with the full authority without the others
hereby is, authorized, empowered and directed, in the name and on
behalf of the Corporation, to execute the Corporation's Form 10-K for
the year ended December 31, 1999, in a form substantially similar to
the form to be provided to the Directors of the Corporation for their
review, with such changes as such proper officers, with the advice of
counsel deemed necessary or desirable, the execution by such proper
officers to be conclusive evidence that they or he/she deemed such
changes to be necessary or desirable, and to execute any amendment to
such Form 10-K, to procure all necessary signatures thereon, and to
file such Form 10-K and any amendment when so executed (together with
appropriate exhibits thereto) with the Securities Exchange Commission;
RESOLVED, That the proper officers of the Corporation be, and
hereby are, and each of them with the full authority without the others
hereby is, authorized, empowered and directed, in the name and on
behalf of the Corporation, to cause copies of the Corporation's notice
of annual meeting of shareholders, proxy statement, proxy and annual
report, in a form substantially similar to the form to be provided to
the Directors of the Corporation for their review, with such changes as
such proper officers, with the advice of counsel deemed necessary or
desirable, the execution by such proper officers to be conclusive
evidence that they or he/she deemed such changes to be necessary or
desirable, to be mailed to each shareholder of the Corporation and to
each shareholder who becomes a shareholder of record prior to the close
of business on March 13, 2000;
RESOLVED, That the proper officers of the Corporation are,
authorized, empowered and directed in the name and on behalf of the
Corporation to execute and deliver any and all such documents,
certificates, instruments, agreements, or regulatory filing, including
any amendments, modifications, or supplements thereto, and to take all
such further action
<PAGE>
as any such officer or other such authorized person deems necessary,
proper, convenient, or desirable in order to carry out the foregoing
resolutions and to effectuate the purposes and intents thereof, the
taking of any such action to be conclusive evidence of the approval
thereof by the directors of the Corporation; and
FURTHER RESOLVED, That all actions previously taken and all
documents, instruments, certificates and the like previously executed
by directors or officers of the Corporation or other authorized persons
in connection with the matters referred to in the foregoing resolutions
be hereby approved, ratified and confirmed in all respects.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Income, Balance Sheet and Statement of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,240,012
<OTHER-PROPERTY-AND-INVEST> 391,731
<TOTAL-CURRENT-ASSETS> 1,157,953
<TOTAL-DEFERRED-CHARGES> 940,995
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,730,691
<COMMON> 1,338
<CAPITAL-SURPLUS-PAID-IN> 2,249,091
<RETAINED-EARNINGS> 464,596
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,715,025
363,000
84,339
<LONG-TERM-DEBT-NET> 1,682,702
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 208,300
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,677,325
<TOT-CAPITALIZATION-AND-LIAB> 6,730,691
<GROSS-OPERATING-REVENUE> 2,954,613
<INCOME-TAX-EXPENSE> 136,362
<OTHER-OPERATING-EXPENSES> 2,472,444
<TOTAL-OPERATING-EXPENSES> 2,608,806
<OPERATING-INCOME-LOSS> 345,807
<OTHER-INCOME-NET> 37,496
<INCOME-BEFORE-INTEREST-EXPEN> 383,303
<TOTAL-INTEREST-EXPENSE> 124,692
<NET-INCOME> 258,611
34,752
<EARNINGS-AVAILABLE-FOR-COMM> 223,859
<COMMON-STOCK-DIVIDENDS> 246,251
<TOTAL-INTEREST-ON-BONDS> 109,053
<CASH-FLOW-OPERATIONS> 589,005
<EPS-BASIC> 1.62
<EPS-DILUTED> 1.62
</TABLE>
